The AUSFTA: Not Free Trade, But Close Enough
By Alicia Burns
Jun 2, 2004
 n May 18th, U.S Trade Representative Robert Zoellnick and Australian Trade Representative Mark Vaile signed the mutually beneficial Australia-United States Free Trade Agreement after nearly 14 months of negotiations. The agreement still requires the approval of each country's legislature before it will take effect, and despite the skepticism of pro-union, protectionist groups in both countries, it should be approved by the participants' legislatures. It is not an entirely fair agreement, as Australia will almost immediately end most of its tariffs while the United States will phase out its protections over a period of up to 18 years, but it is a step in the right direction for strengthening ties between the two countries, and making an already lucrative trading partnership more profitable for all involved.
Negotiations for the agreement began in February of 2003 and most expected the pact to be completed by the end of that year. However, talks hit a snag over the sugar taxes American producers impose, which force American consumers to pay nearly 3.5 times the international market rate per pound. According to Aaron Lukas of the Cato Institute, "the talks threatened to fall apart" because of "the U.S. position that increased market access for sugar is not an option, while Australia insisted that its exclusion would be a deal-breaker." However, Australia relented from its sugar demands, and the final deal does not include the commodity.
The main reason Australia acquiesced to the United States concerning sugar was because of the overall impact a free trade agreement would have for the country. Gaining essentially duty-free access to the U.S. market of more than 250 million people who comprise the world's largest economy is no small feat. Even with current tariffs, trade between Australia and the US is already worth $47 billion, and will only grow when the FTA is implemented. Eleven percent of Australia's exports go to the United States, making the US the largest importer of Australian goods worldwide and the U.S. is the source of 18% of Australian imports, making it the country's most valuable trading partner. The United States is the leading source of FDI (foreign direct investment) in Australia with a total investment of $26.1 billion in 2003, accounting for 36% of inflows and growing 25% annually over the past 5 years. Compared with a 17% average from the rest of the world, increased trade with the United States could significantly help grow the Australian economy. The US is the top source of Australian investment outflow as well, with Australia investing $34.2 billion in the US annually, which accounts for 64% of their total outgoing FDI. Additionally, Australia is a substantial exporter of human capital to the United States, with 10% of the country's workers abroad employed in the United States, according to a Centre for International Economics report prepared for the Australian Government Department of Foreign Affairs and Trade.
While far from perfect, the basics of this agreement call for Australia to end all agricultural tariffs, and for the U.S. to phase out most tariffs over time, with some ending in 4 years, others in 10 years, and some not ending for another 18 years. According to the United States Department of Agriculture, certain horticultural and beef products will be "safeguarded" before they are phased out in case of "significant price decreases on imports from Australia." Also, beef will be protected by "volume based safeguards during the transition period and price based protections in the post-transition period." Australia will end tariffs on: processed foods, oilseeds and oilseed products, fresh and processed fruits and fruit juices, vegetables and nuts, distilled spirits immediately, and the United States will immediately end its tariffs on processed pork and pork for processing.
Despite the inequities in the agreement, though, Australians are cheering the pact. Tim Harcourt, Chief Economist for the Australian Trade Commission called it a "new deal" for Australian exporters. According to Mr. Harcourt, the elimination of manufacturing tariffs will give all Australian manufacturers "unlimited access to the dynamic U.S. market" which will benefit small and medium sized producers. Additionally, the "lucrative government procurement market" worth an estimated $200 billion annually will give small firms, as well as individual professionals the opportunity to work with and for the United States easily.
The Australia-United States Free Trade Agreement is a step in the right direction, but it falls short of establishing true free trade relations between the countries. The powerful United States sugar, beef and other lobbying groups make truly tariff free relations between the United States and its trading partners nearly impossible. However, the benefits for Australia are significant, and if the agreement passes the legislature of both countries, it could be a first step towards an eventual genuinely free trade agreement.
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