updated 2/8/2004 6:40:18 PM ET 2004-02-08T23:40:18

The United States and Australia reached a free-trade agreement Sunday that officials say will eliminate duties from more than 99 percent of American manufacturing exports to Australia.

The deal, which requires congressional approval, also will boost most agricultural trade between the two countries on products ranging from beef to fruit to macadamia nuts.

One notable exception is sugar, where current rules will remain unchanged. American sugar producers had lobbied hard against opening U.S. markets to more Australian sugar, and U.S. officials were unwilling to risk an election-year backlash despite pressure from Australia.

The agreement also calls for lengthy phase-in periods to increase Australian beef and dairy exports, responding to pressure from U.S. dairy farmers and cattle ranchers who had complained that a flood of cheaper Australian products could have cost thousands of jobs.

Removes tariffs on U.S.-bound exports
On the Australian side, the deal removes tariffs on more than 97 percent of exports to the United States, including a 25 percent tariff on light commercial vehicles that had severely limited Australian imports to the United States.

The agreement also does little to open Australian markets to U.S. pharmaceuticals, a key Australian concern.

Officials from both countries played down any glitches, instead highlighting the agreement as a landmark achievement that should bring already-close allies even closer.

The deal is the first U.S. free-trade agreement with a developed country since one with Canada in 1988, five years before the 1993 North American Free Trade Agreement that linked the United States, Canada and Mexico.

U.S. hails move
At a joint news conference Sunday, U.S. Trade Representative Robert Zoellick and Australian Trade Minister Mark Vaile said the agreement could boost manufacturing in both countries by billions of dollars.

Zoellick called the deal “the most significant immediate cut in industrial tariffs ever achieved in a U.S. free-trade agreement.”

Australia, the United States’ 13th largest export market, buys more goods from the United States than from any other country. The U.S. economy has a $9 billion surplus in two-way trade that totaled about $28 billion in 2002.

After almost a year’s negotiation, the deal was struck Saturday after a telephone call between President Bush and Australia’s prime minister, John Howard.

“The president talked to the prime minister about how he thought it was good deal for both countries,” White House spokeswoman Claire Buchan said.

Quid pro quo on Iraq?
The two men also talked about other issues, including the war on terrorism, Buchan said. The trade deal, long sought by Australian farmers eager to tap into the lucrative U.S. market, is seen in part as a way for the Bush administration to reward Australia for its support of the Iraq war.

Besides congressional approval, the deal is subject to a vote by the Australian cabinet.

If approved, American consumers are expected to benefit through lower food prices, while Hollywood could gain a greater share of the Australian entertainment market.

Negotiations were difficult, Zoellick said, but the final agreement reflects the special relationship the United States has with Australia.

“We consider Australia an extremely strong ally. Clearly there’s a security basis” to that, Zoellick said. “But we also want to strengthen the economic relationship. That’s what this free-trade agreement is about.”

'Real and tangible ... results'
U.S. officials estimate the agreement could increase American manufacturing exports to Australia by $2 billion a year. Among those benefiting would be aircraft, autos and auto parts, machinery, computers, chemicals and wood and paper products.

Australian exports to the United States also will grow, largely in light commercial vehicles, auto parts and agriculture.

Vaile, the Australian trade minister, defended the exclusion of sugar from the agreement, saying the overall deal would still benefit Australia. He and other negotiators pushed as hard as they could, Vaile said, but ultimately the U.S. would not budge.

“You have to look at the overall balance,” he said. “The agreement delivers real and tangible and bankable results for both countries.”

The deal should lead to small increase in exports of beef by both countries, officials said. Quotas will remain in place, but tariffs on exports above the quota limits will be phased out over 18 years. Initial increases of Australian beef exports should be limited to about 0.17 percent of U.S. beef production, and 1.6 percent of all U.S. beef imports, officials said.

Initial increases in dairy imports from Australia will amount to about 0.17 percent of annual U.S. dairy production, and 2 percent of all U.S. dairy imports.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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