Devil’s in the detail of FTA: Cusworth

WESTERN Australia could lose out in the long term under an Australia-United States Free Trade Agreement (AUSFTA) if bilateral trade arrangements are entered into at the expense of multilateral trade arrangements.

There is also a concern that preferential trade arrangements with countries such as the US – countries that have compatible cultural, political and economic situations – will divert trade and government resources away from other trade initiatives, to the detriment of Australia’s relationships with other trading partners, most notably in Asia.

Because WA is Australia’s most export-focused State, and with our major trading partners based in the Asian region, the US matters less to us as a trading partner than it does to the rest of Australia.

Chamber of Commerce and Industry of Western Australia economist Nicky Cusworth said it was important to view the AUSFTA with these concerns in mind.

“The devil is in the detail,” Ms Cusworth said regarding possible AUSFTA arrangements.

Getting it wrong, she said, could have a negative effect on WA trade if it was at the expense of other trade arrangements.

“WA is Australia’s most export-focused State.  We contribute more than any other State to national exports – 28 per cent last year – and we account for 40 per cent of gross State product,” she said.

“Trade matters to us and our international environment matters to us.

“The US, however, matters less to WA as a trading partner than it does to the rest of Australia. Nationwide, the US takes about 9 per cent of exports. For WA, it is more like 7 per cent. The gap on imports is much larger.

“So about 17 per cent of Australia’s imports come from the US, for WA that is more like 10 per cent.

“The flip side of that is, of course, that WA is even more focused and even more reliant on the markets of Asia, and they have been very important as growth areas over recent years for WA. So potentially, WA has less to gain and more to lose if this agreement happens to be a bad idea.”

Ms Cusworth said that, while the AUSFTA was referred to as a free trade agreement, it looked more like “selected managed access to each country’s markets on the basis of particular products and particular areas”.

While there was nothing wrong with an agreement of this type, she said, the economic models used to forecast the possible effects of the AUSFTA were based upon the presumption that there would be a uniform reduction in tariffs or in barriers to trade.

Ms Cusworth said these economic models failed to reflect what the AUSFTA would look like and therefore may not be appropriate to describe its potential effects.

She said that the question of whether the AUSFTA would have a negative impact on WA hinged on whether the agreements would be trade diverting and an alternative to multilateral trade arrangements.

“However important we conclude that this agreement is, and I think that it is, we need nonetheless to be aware that in the scale of things it is a multinational forum that remains by far the most important in the longer term,” Ms Cusworth said.

One of the most vocal critics of the AUSFTA is Ross Garnaut, Professor of Economics at Australian National University, who has argued that preferential trade agreements such as the AUSFTA divert energy from more valuable multilateral trade agreements, such as the Doha round of WTO negotiations.

Professor Garnaut has also said that preferential trade agreements complicate international trade and undermine trade liberalisation by focusing domestic political interest on narrowly focused international trade arrangements at the expense of broader agreements.

However, Federal Member for Curtin Julie Bishop said a free trade agreement would provide significant benefits to Australia and that “bilateral deals need not preclude multilateral results”.

“What does preclude a multilateral solution through the Doha round is in fact the domestic political pressures that exist within societies uncommitted to liberalisation,” she said.

“The farm lobbies of the European Union and Japan, for example, constitute a far, far greater barrier to reform of global agricultural trade than any bilateral deal in existence or preparation,” Ms Bishop said.

“The Australian Government recognises that liberalisation must be pursued wherever possible, both through a global and bilateral approach.”

Ms Cusworth said there were many “cold shower benefits” of free trade that were direct results of increased competition.

“When governments are trying to sell FTAs, they tend to focus on what appears to be the obvious positives, which is that there will be more opportunities for our exporters and they’ll get greater market access,” she said.

“The stuff that they feel will be a disadvantage they tend to steer clear of.”

Ms Cusworth said that the overall impact of an FTA was often positive as it prevented governments from implementing trade distorting policies, such as introducing subsidies.

“It forces them [governments] to agree to do things that, by and large, they ought not to be doing anyway in terms of subsidies and support they give to their own industries. Or the distortions and discriminations they put in place to try and discriminate between different types of businesses,” she said.

“The harsh reality is that in a truly competitive environment, anything that doesn’t kill you, does make you stronger.

“I have faith enough in WA’s business community that it will become stronger as a result of exposure to competition.”

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