Australia’s politicians have rallied to assure Australians that the Australia-US Free Trade Agreement (AUSFTA) is safe despite the election of Donald Trump to President of the United States. From The Australian:
Malcolm Turnbull says no changes will be made to Australia’s free-trade agreement with the US under the presidency of Donald Trump, arguing that the deal has worked to the benefit of both nations over more than a decade.
The assurance was provided as former Australian ambassador to Washington Kim Beazley… warned against the prospect of a US retreat to isolationism, Mr Beazley sounded the alarm on any similar movement gathering pace within Australia.
“If we disconnect from globalism in Australia, we’re dead,” Mr Beazley told ABC radio yesterday.
“We’re 24 million people of a different ethnicity in the main from the three billion people in the region around us. Our prosperity is dependent on that region”…
The government used question time yesterday to spruik the benefits of the free-trade deal with the US, which entered into force on January 1, 2005. Trade Minister Steven Ciobo said the agreement would see 98.4 per cent of US tariff lines completely duty free for Australia by 2023.
He said two-way trade between Australia and the US had increased from $41 billion in 2004 to more than $70bn last year…
Pressed in parliament by Labor deputy leader Tanya Plibersek about whether the US free-trade deal negotiated by the Howard government was in danger, the Prime Minister said: “I do not anticipate any changes to the Australia-US Free-Trade Agreement, which is now some considerable 10 years old.”
Seriously, who cares if the AUSFTA is junked because it is a dud agreement?
The Crawford School of Public Policy at the ANU conducted a study of the Australia-US FTA, and found that a decade after signing, the agreement has diverted more trade than it has created:
Enough time has now passed and there is enough data to update the Productivity Commission’s model to estimate the effect of AUSFTA on trade. What this shows is that the agreement was responsible for reducing — or diverting — $53.1 billion of trade with the rest of the world by 2012. Imports to Australia and the United States from the rest of the world fell by $37.5 billion and exports to the rest of the world from the two countries fell by $15.6 billion over eight years to 2012.
Beyond that, there is no evidence that the agreement has been associated with an increase in trade between the two countries, or with the creation of efficient low-cost trade. In fact, the trade diversion from other partners suggests that Australia–US trade would have fallen even further without AUSFTA…
…the data shows that … Australia and the United States … are worse off than they would have been without the agreement…
Deals that are struck in haste for primarily political reasons carry risk of substantial economic damage.
The ANU’s Peter Drysdale has also estimated that “Australia alone has suffered trade losses [from AUSFTA] the annual equivalent of the current price of around 18 Japanese, German, Swedish or French submarines through this deal”.
There also seems to be a growing acceptance that the FTAs negotiated by successive Coalition governments have been over-hyped but under-delivered.
In addition to the concerns above regarding the Australia-US FTA (ASUFTA), Peter Martin noted in July that a study commissioned by the Government “on the new Japan, Korea and China agreements found that taken together they will boost our exports 0.5 to 1.5 per cent, while boosting our imports 2.5 per cent, which means they will send our trade balance backwards”.
The key problems with Australia’s FTAs are multi-faceted.
First, FTAs generally result in “trade diversion” – effectively a situation whereby the importing country shifts its buying from a more efficient, lower cost country whose goods are subject to a tariff towards the less efficient and higher cost FTA partner whose goods are not subject to a tariff – a situation that can be welfare destroying. They also contain complex rules of origin (ROO), which can raise administrative costs for businesses (including complying with paperwork requirements) and custom services in administering and auditing the ROO, thereby undermining the benefits from the FTA. Both these pitfalls are explained in more detail here.
Second, research by HSBC and the Australian Chamber of Commerce and Industry found that Australia’s FTAs have been drafted poorly and are so complex that they are next to useless in a commercial sense. As such, there has been a poor take-up rate by Australian businesses exporting to partner countries.
Third, AUSFTA and the Trans-Pacific Partnership highlight another other potential hazard creeping into modern FTAs: the inclusion of non-trade provisions, such the extension of patent and copyright terms, which will increase costs for Australian consumers over the longer-term, as well as relaxing foreign ownership restrictions.
Finally, there is currently no rigorous process in place to ensure that Australia’s maximises the benefits from FTAs and minimises their costs. At a minimum, the Productivity Commission should be engaged to analyse trade deals for their equity and efficiency impacts both before and after negotiations are completed.
Unfortunately, there is no acknowledgment by the Turnbull Government of these issues, and certainly no indication that it will implement better processes towards negotiations. Instead, it has signalled that the Government will continue its ad hoc, evidence free, approach and attempt to conclude more agreements this electoral term, presumably for political rather than economic reasons, and without due regard for longer-term consequences.
Such is the sorry state of policy making in this country.
