Australia-US Free Trade Agreement Analysis

This assignment delves into the Australia-US Free Trade Agreement (FTA), requiring students to analyze its effects on various aspects such as trade flows, economic performance, and specific sectors. Students are expected to utilize provided research materials to evaluate the agreement's successes and challenges, drawing upon economic indicators, policy impacts, and expert opinions.

Assessing Australia’s Free Trade
with USA to understand the
impact of protectionist policies
from USA
November 9
2017
Recently, the President of United States expressed concerns about the
Free Trade Agreements and their impact on the US Economy. He
suggested the cancellation if free Trade Agreements. Australia is one
of the countries to affected , if any such policy measures were to be
taken. This paper asses the impact of such a policy

Contents
1. Introduction............................................................................................................................................3
2. The USA- Australia Free Trade Agreement..........................................................................................3
2.1 Some Stipulations of the Free Trade Agreement (FTA)......................................................................3
2.2 Major Topics of USA- Australia Free Trade Agreement....................................................................4
2.4 Trade Balances Since the Ratification of the USA Australia FTA......................................................5
2.5 Foreign Direct Investment...................................................................................................................6
2.6 Criticism of the US – Australia Free Trade Agreement......................................................................7
3. The Trans Pacific Partnership................................................................................................................8
4. Threats to Australia and Opportunities Arising Due to Adoption of Protectionist Policies by USA..10
5. Conclusion...........................................................................................................................................10
Bibliography................................................................................................................................................11

1. Introduction
The USA is the largest economy in the world with a nominal GDP of over US$18 trillion in
2015-2016 and a population of 323 million. ( The World Bank) Thus, the USA is a big market
and a source of goods and services for any country.
Australia has a per capita Gross National Income USD 65, 640 and a GDP of over of over USD
1.6 Trillion per year and provides a sizeable market of a population of over 24 million for US
exports. ( The World Bank) Australia is also, the fourth largest trading partner of Australia.
Australia’s most important trade and investment partners: the largest foreign investor in
Australia, Australia’s largest foreign investment destination, and the fourth largest destination for
Australian exports (2016).” (Australian Trade and Investment Commission)
The two countries are both high income group countries and hence, important trade markets for
each other. ( The World Bank) Recently, the President of USA announced in a series of talks, his
points of view on the ineffectiveness of Free Trade Agreements in improving the economy of
USA. This led to global concerns about the rise of protectionist voices. (Productivity
Commission). This paper examines the effects of such a policy by assessing the current Free
Trade Agreement with USA and the Free Trade Agreement in pipeline.
2. The USA- Australia Free Trade Agreement
The USA and Australia signed a Free Trade Agreement (FTA) on 1st January 2005. The
agreement covered a broad ranged of topics with trade in goods and services. Primarily, trade in
manufactured, agricultural goods and trade in services especially financial services were the
major topics of the Agreement. (Armstrong) (George) . Additionally, Intellectual Property
Rights, Government Contracts and Legal frameworks for setting of standards of goods and
services were also major components of the Agreement. (Tully)
2.1 Some Stipulations of the Free Trade Agreement (FTA)
2.1.1 Elimination of Duties Clause: Both parties agreed to eliminate custom duties on goods
originating in the other country and both parties agreed to non introduction of more duties for

goods originating in the other country as long as the FTA was in force. (Department of Foreign
Affairs and Trade, Australia)
In addition to the tariff barriers, the Free Trade Agreement also addresses non-tariff barriers such
as quotas, services and investment, e-commerce, barriers to participating in government
procurement .process etc. (Department of Foreign Affairs and Trade, Australia)
2.1.2 Non Treatment Clause: Each party assigned to the other a ‘non-discriminatory treatment’
i.e goods made of substantially altered in the other country would receive the same or somewhat
the same treatment as goods made or substantially altered within the country. This is the “Non
Treatment” clause. (Department of Foreign Affairs and Trade, Australia)
2.1.3 Transparency Clause: Australia agreed to enhancing the listing, pricing and selection of
medicines on the schedule of Pharmaceuticals described as the PBS list. (Department of Foreign
Affairs and Trade, Australia)
2.2 Major Topics of USA- Australia Free Trade Agreement
2.2.1 Agriculture and Allied Sectors
Both countries give each other preferential treatment in trade of agricultural goods and services.
This goes beyond treating each other as “Most Favoured Nation”, which is a stipulation of the
treaty. If the treaty is revoked, the Most Favoured Nation status would have to be renegotiated.
(Office of the United States Trade Representative)
The USA and Australia have also agreed to work on reach agreement that would phase out any
export subsidies for agricultural goods to each other. (Office of the United States Trade
Representative) Once, revoked, the treaty may lead to substantial trade barriers towards each
other, if protectionists policies were to take place. Australia is a major exporter of agricultural
products like grapes, beef, wool etc. The USA market would becoming less accessible to
Australia. On the other hand the Australian market would become less accessible to USA. Given
that the USA is the largest investor in Australia, any protectionist policies would hurt the multi-
national corporations based out of USA and have invested in Australia. On the other hand, the

implications are also great for Australia as Australia must seek to diversify its trade partners.
( Australian Trade and Investment Commission)
Additionally, Australia’s specialty food sector has gained recognition with a reputation for
quality in packaged food, organic products, specialty cheeses and confectionary. US specialty
food sales reached US$120.5 billion during 2015 and offers potential for Australia’s input.
(Tiffen)
2.2.2 Intellectual Property Rights and Government Procurement
The US- Australia Free Trade Agree has made significant strides in the protection of Intellectual
Property rights for both parties. The agreement stipulated “an increase in the duration of
copyright protection, for individuals to the life of the author, plus 70 years” and “commitments
to reduce differences in law and practice and participate in international harmonization efforts
with respect to trademarks” and several technical protection measures of intellectual property
(Richardson) These measures were taken to improve the quality of products in both countries.
(Richardson)
The agreement has increased the access to government contracts for American companies. A
revocation the deal, thus, implies a lesser competition from companies based out of USA.
Australia is not a signatory to the WTO Government Procurement Agreement on the same topic.
and therefore, participation in the process o Government contracts would be beneficial for USA
based firms. (Thurbon)
2.4 Trade Balances Since the Ratification of the USA Australia FTA
Table 1: Trade Balances or Net Exports of USA with Australia as a trading partner
Source:
(United States Census Bureau)
Year Net Exports for
USA to Australia
(in Million Dollars)
Exports Imports

2004 6,412.40 13,957.90 7,545.50
2005 8,246.30 15,588.50 7,342.20
2006 9,341.70 17,545.70 8,204.00
2007 10,563.20 19,178.20 8,615.00
2008 11,629.80 22,218.60 10,588.80
2009 11,587.80 19,599.30 8,011.50
2010 13,221.70 21,804.60 8,582.90
2011 17,383.30 27,626.20 10,242.90
2012 21,594.60 31,161.40 9,566.80
2013 16,851.20 26,123.70 9,272.60
2014 15,984.40 26,681.70 10,697.30
2015 14,150.60 25,034.10 10,883.50
2016 12,649.80 22,159.70 9,509.90
Declining exports from the USA to Australia imply that there was lower demand for US made
goods. It must be noted that during the period post 2012, when exports from USA to Australia
declined, domestic demand surged during the same in Australia. (Organization for Economic Co-
operation and Development). An excess of exports to imports affects the exchange rate of the
country. This could also imply, that the USA industries rely more on Australia than on the
Australia markets rely on the USA for export demand. The ramification of a cancellation of TPP
would be felt in the form of lower demand for goods from USA. This in turn may reduce
competition for Australian industries especially in agri-based industries like wine industry and
specialty foods industry,
Additionally, removal of a Free Trade Agreement allows Australia to place barriers to import of
high value imports like heavy machinery, etc. which could significantly affect the US Dollar –
Australian Dollar exchange rate, improving the competitiveness of the Australian Dollar.
2.5 Foreign Direct Investment
Australia is a also a significant investor in USA. However, the USA is one of the biggest
investors in Australia. Foreign Direct Investment is important to sustain the Australian economy
and would be important for the growth of the economy. Creation of trade barriers for companies
that invest in Australia by the USA may lead to the decline of for investment in Australia.

(Productivity Commission) There is a flip side to foreign investment too. Foreign investment
does not necessarily translate into equal distribution of wealth among households. (Productivity
Commission) For example, Foreign Investment in Australia can be heavily oriented towards the
natural resources sector. A fall in demand for natural resources in the world market, therefore
leads to a drop in investment in the sector which has a ripple effect on wages and household
income. This further leads to regional imbalances. (Kent)
2.6 Criticism of the US – Australia Free Trade Agreement
In 2010, the Australian Report on productivity found that the FTA had not generated significant
benefits for Australia until 2010. (Productivity Commission) Further, the Global financial Crisis
had a significant effect on demand from USA. (Blanchard, Dell'Arricia and Mauro) The world
trade structure has significantly changed since 2005. These are some of the factors that have been
attributed to the ineffectiveness of the FTA for Australia.
“The Australia–US agreement did not prevent the share of US trade in Australia from falling. It
could not defy gravity with the rapid growth of Asian economies, their competitiveness and their
proximity to Australia delivering lower cost and higher quality goods to the Australian market,
but it did provide a modest counterweight.” (Armstrong) Armstrong, (2015) believes that that
relative ineffectiveness of the USFTA in improvement of Australia’s trade gains has to do with
the failure of the o achieve a reduction in equity risk premium for Australia, an assumption that
was made by the Australian Government when the FTa was signed in 2005.
Another criticism of the FTA is that FTA does streamline Australia’s exports to the USA, due to
its sheer legal complexity and loop holes that could be discovered in various regulations such as
the Intellectual Property Law. (George) According to George, (2014)“Provisions such as
national treatment, standstill arrangements and 20-year copyright extension have significant
consequences” and that Australian policy makers did not understand the implications of the
provisions of the Free Trade Agreement completely while agreeing to be a party to the Free
Trade Agreement. Thus, the Free trade Agreement could have larger negative implications for
the Australian economy than was predicted. If the US- Australia Free Trade Agreement were to
be nullified then the negative ramifications could be contained. One example, is the

“transparency” clause on pharmaceuticals grants the US excessive power for setting standards
for pharmaceuticals manufactured in Australia leading to concerns about affordability of
pharmaceuticals. (Tully)
In addition, (Armstrong) also criticize the USFTA as one of the reasons for not allowing
Australia to capitalize on the growth of demand from emerging economies like China. Tully
(2016) criticized the FTA for the lack of accountability on the part of Australian officials and for
ignoring the social and cultural context of the two countries.
In the recent past, a group of Asian countries, prominently China and Japan, seem to have gained
importance as trade partners as the trade between USA and Australia seem to have taken a back
seat. (Armstrong) Hence, Australia may not lose massively since the new direction of Australian
trade seems to point towards more trade with Asian countries.
3. The Trans Pacific Partnership
The TPP is a multi lateral trade partnership between 12 countries including Australia, Canada,
Brunei, Malaysia, Mexico, Chile, New Zealand, Peru, Singapore, Vietnam, Japan, Malaysia,
Mexico, New Zealand, Peru, Singapore, and the United States of America. The USA is one of
the key countries that signed this trade agreement due to the size of its market. Protectionist
policies from USA could lead to the failure of the ratification of the Treaty/ The TPP offers a
very wide Free trade market for Australia. The countries that were meant to sign the agreement
are responsible for 40 % of the total GDP of the world amounting to approximately $107.5
trillion. Together, these countries account for 26 % of global trade flows and 793 million
consumers. (Amadeo)The treaty was designed in a way that it would be effective only if
countries that sign the treaty have a total of 85% of the total volume of the trade from these
countries. This would not be possible without the presence of the USA. Some are also of the
opinion that smaller countries like Malaysia agreed to sign the treaty so that they could have
better access to the larger market of the USA and that there is a likelihood of some of the original
expected signatories pulling out due to the lack of the incentive that the presence of USA market
has provided. (Amadeo)
On the flip side the TPP could have platform to the USA to wield greater political power in the
South China Sea region. (Amadeo)

The United States would, particularly, have to lower tariffs on beef, dairy and poultry and these
products are included in some of the top exports of Australia. Australia exports beef, coal , iron
ores , professional, technical and other services, iron ores and concentrates, among other
commodities. (Department of Foreign Affairs and Trade, Government of Australia) Thus, it
follows that Australia may lose out in terms of gaining greater access to the US market with
respect to these products.
On the other hand, imports from TPP countries include finished goods like passenger motor
vehicles, services like personal travel, refined petroleum, transport services, professional
technical and business services. As it is visible, TPP countries are crucial from Australian
exports since the total exports from country to TPP countries were valued at 34% of the total
Australian exports in 2015-2016. While the imports like LNG and professional services help
maintain the growth rate of the economy. (Department of Foreign Affairs and Trade, Australia).
The participation of USA could have ensured the elimination of some tariffs that were applicable
in spite of the US- Australia Free Trade Agreement. For example, the tariffs on Australia exports
to beef that are held by the United States “price based safeguard” are approximately valued at
$2.5 billion in the pear 2015-2016. These could have eliminated by the ratification of the TPP by
the USA. (Department of Foreign Affairs and Trade, Government of Australia)
The Trans Pacific Partnership is of particular importance because it is a comprehensive deal that
covers a broad range of points in international trade including financial products and services,
telecommunications, food and safety standards and most importantly, Intellectual Property
Rights. These subjects have traditionally been sources of barriers to World Trade. Additionally,
it is also a deal that addresses crucial issues like environmental abuses. (Amadeo) Hence, it fits
the context of the current global challenges well.
Some are of the opinion that Australia may not be negatively impacted to a great extent simply
because it would have boosted the Australian economy only by 0.7 per cent by the year 2030.
(Martin)

4. Threats to Australia and Opportunities Arising Due to Adoption of Protectionist
Policies by USA
The Australian Productivity Commission warned that approximately 100,000 jobs may be lost
from the economy due to the protectionist measures adopted by the USA. These losses may be
due to losses in Foreign Direct Investment and Foreign Institutional Investment. This reduces the
choices of goods for some consumers and may affect prices. For example, Australia imports
computing equipment from USA. The prices of computing equipment have fallen greatly since
2009. The Commission also suggested that loss of competitive tr The Australian Productivity
Commission( 2017) various likely scenarios that would result from a protectionists stance by the
USA. The report encouraged Australian government to adopt a pro- Free Trade stance either
completely or through regional partnerships through various regional Agreements (Productivity
Commission) which could turn the threat of protectionism into an opportunity.
On the other hand , the non-ratification of Transatlantic Trade and Investment Partnership or
TTIP by USA could have some positive effects on Australia. The partnership between European
Union and USA could have had led to job losses and reduction in investment in Australia due to
removal of trade barrier as an effect of the partnership (Corrs Chambers Westgarth Lawyers).
Protectionist policies by USA ensure barriers and reduced competitiveness of Euopean goods
and investment opportunities.
5. Conclusion
The protectionist policies of USA may affect Australia is a country with a large population with
a high per capital income. However, the lack of free access to the US markets may not
necessarily spell doom for Australia Free Trade Agreement between Australia and USA have not
shown significant gains for Australia. (Productivity Commission) (Tully)In fact, on occasions,
some have criticized the policy of pushing free trade agreements with A since the US- Australia
Free Trade Agreements have not resulted in a great rise in trade surplus for Australia and may
have had an opportunity cost in the form of diversion of trade with growing Asian economies
such as China. (George)
.Australia can levy plenty of trade barriers in retaliation to protectionist policies from the USA.
(Tully)This will allow the country to protect crucial sectors like agricultural sector, oil and gas

sector etc. Additionally, in the context of the evaluation of Free Trade with U SA, Australia must
evaluate the strategy it wishes to adopt in the future, whether it wants to encourage more trade
with growing economies like India and China . While it is possible that Australia can pursue
strong trade ties with several countries of the world, it should certainly take steps to that it does
not miss out on trade with several other emerging markets. Thus, protectionist policies by the
US alone many not strongly affect the economic position of Australia as long as it maintains its
stance on free and open trade with other countries of the world ,as recommended by
Productivity Commission (2017) of Australia. So far, there has been no research on the non-
monetary pros and cons of an FTA with the USA. For example, the health care due to stringent
standards set by the “transparency” clause ratification may have led to higher prices of
pharmaceuticals in Australia .
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