In the wake of the Trans-Pacific Partnership (TPP) debacle, Foreign Minister Julie Bishop has once again moved to reassure us that the Australia-US Free Trade Agreement (AUSFTA) is safe despite reports that the Trump Administration wants to junk the deal. From The SMH:
Foreign Minister Julie Bishop has told China that she doesn’t take seriously the Trump administration’s threat to tear up its trade agreement with Australia…
“I can’t believe it”, she replied, according to one official present, and “I don’t take it credibly”, according to another.
It made no sense because the trade balance favoured the US, the Australian minister said. And, since the Australia-US free trade agreement took effect in 2005, the balance had moved increasingly in America’s favour…
An Australian trade expert, Professor Tim Harcourt of NSW University, said he supported Ms Bishop’s disbelief of the US threat to renegotiate the US-Australia free trade agreement:
“Why would you, honestly?” he said. The US trade surplus with Australia under the so-called AUSFTA had grown from $14 billion a year to almost $25 billion in the decade since it took effect.
Ms Bishop is certainly correct about one thing: AUSFTA is a dud trade deal that massively favours the US and disadvantages Australia.
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”.
The AUSFTA also included extensions to both patent and copyright terms, which has raised the cost of pharmaceuticals and copyrighted materials.
Indeed, the Australian National University’s Thomas Faunce found that AUSFTA has contributed to the blowout in the cost of the Pharmaceutical Benefits System, thereby putting enormous strain on the federal budget. Peter Martin has raised similar concerns.
Access to US agricultural markets has also been heavily restricted under AUSFTA, with large chunks of agriculture carved-out, draconian price-based safeguards protecting US horticulture (see Annex 3A), as well as complicated product ‘rules of origin’ numbering hundreds of pages.
The end result of AUSFTA is anything but ‘free trade’, with the costs from patent and copyright extensions, along with trade diversion, costing Australians dearly.
Just like the TPP, the Trump Administration would do Australia a favour if it rescinded AUSFTA. Let’s hope he follows through with the threat.