Agriculture the big winner from AUSFTA

Australia’s free trade agreement with the US is vital to the national interest and must be further promoted where possible, Australian Ambassador to the US, Dennis Richardson, told a WA Business News breakfast last week.

Mr Richardson said the FTA had delivered significant advantages for Australia, with exports to the US increasing by 9.3 per cent in calendar year 2006.

He said Australia’s dependence on capital equipment from the US in order to grow exports in the resources sector had defined the trade deficit between the two countries.

“They essentially have the capital goods that we need to grow our economy,” Mr Richardson told the breakfast audience.

“When our economy booms, companies like Caterpillar have champagne every day.”

To this point, the major beneficiaries of the FTA in Australia have been agricultural commodities, with lamb and dairy exports enjoying an increase within the first year of the agreement.

“The FTA brought down tariffs on lamb to zero, and in the first year of the FTA, lamb exports to the US increased 19.4 per cent, and that increase was maintained in the second year,” Mr Richardson said.

Dairy exports also increased significantly in the first year, by around 15 per cent.

Although beef is Australia’s largest single export to the US, Mr Richardson said international factors had directed Australian producers towards other markets, meaning that Australia’s beef export quota to the US had not been fully realised.

“Since the introduction of the FTA, Australian beef producers have taken a commercial decision to give a priority to the north-east Asian market, where the US has run into difficulties because of mad cow disease,” he said.

While the 18-year time limit on the beef quota was seen by some as unfair when the FTA was signed, Mr Richardson said the quota was currently 20 per cent below its maximum level.

Australian beef producers favoured the north-east Asian market, he said, because they were able to generate more profit than in the US.

“What that means is, when the north-east Asian beef market returns to long-term equilibrium, we’ll have a ready market to pick up in the US,” he said.

The FTA also facilitated access to the federal government’s procurement activity, Mr Richardson said.

Prior to the agreement, an Australian company could not tender for Australian government procurements in the US, unless certain specific conditions were met.

“The FTA removed that legal barrier, and in the calendar year 2006 we exported $110 million worth of manufactured goods in meeting the US government procurement market,” he said, while acknowledging that this was a small amount relative to the total size of the market.

The FTA between Australia and the US was signed in 2004 and removed two thirds of agricultural tariffs at the time.