AUSFTA – the $6 billion deal?

The misnomer

Australia-United States Free Trade Agreement

Preferential

Merchandise trade effects

Cutting tariffs preferentially not the same as cutting tariffs multilaterally – trade diversion

Tariff

Cost of car from

Japan

Tariff

Cost ofcar from

US

Additional merchandise trade effects

Small gains from any additional trade with the US – trade creation

Benefits from the market opening in the United States

A reality check – trade diversion?

For 896 out of 1213 product categories at the 4 digit level, US is NOT currently our major supplier• in textiles and clothing, primary suppliers are China,

Hong Kong, Taiwan• in ‘Motor cars and other motor vehicles’, US lags behind

Japan, Germany, Korea, Great Britain

East Asia will suffer as our trade is diverted

A reality check – market access?

For only 14 out of 1213 product categories at the 4 digit level, we are the US’s major supplier• includes beef, sheep meat, wool • includes lead ores, uranium ores, titanium, aluminium

oxides, manganese oxides

Opportunities so far have been at the ‘raw’ end• access either still controlled by quota• or already largely duty free (except magnesium, titanium)

Net merchandise trade effects?

Most detailed modelling available suggested a relatively small net trade gain of $127 million to Australia • a balance of trade creation and market access gains

against trade diversion• discounted for additional costs of rules of origin - NAFTA

style rules of origin attributed with adding 2% to cost of Mexican exports

But it’s all about investment!

DFAT/CIE suggested $4 billion gain from selective lifting of FIRB screening

FIRB modelled as something that affects equity risk premium

Risk premium is about ex post risks that cannot be diversified away• FIRB screening is ex ante – cost of applying is ‘a sure thing’• FIRB screening is one-way – does not affect the ability of Australian

investors to diversify offshore There will be small gains, but they will mostly flow to US

investors (who currently bear the cost)

But it’s all about services! (I)

Many of the promises have already been made on a multilateral basis under the WTO

Australia made more additional promises than US • US had fewer services trade barriers to start with• US claimed an exception for all market access measures,

whereas Australia only claimed an exception for market access measures affecting delivery by movement of natural persons

But additional promises generally minor

But it’s all about services! (II)

There will be discussions in the future to facilitate mutual recognition in the professions

But no action on US’s State-based residency requirements (because these covered by US exception for market access measures)

No chapter facilitating the temporary movement of natural persons

But there are opportunities in government procurement!

Agreement removes discrimination against Australia in the US government procurement market

But gains much smaller than modelled by DFAT/CIE• Canada not a good benchmark for access to US market

A much better result could have been achieved by signing on to the WTO government procurement agreement • would have opened up additional markets as well

Let’s not talk about IP!

Australia required to prevent circumvention of effective technological measures• are ‘regional playback control’ measures on DVDs an effective technological

measure? Australia required to institute much more prescriptive system for

creating safe harbours for ISPs Australia required to allow copyright holders to transfer rights by

contract • Can contract out of ‘fair use’ defence?

Australia required to extend term of copyright protection from life+50 to life+70

Australia NOT required to adopt US definition of ‘fair use’ or meet US criterion of ‘creative spark’

Additional benefits and costs

Costs from extending term of copyright• DFAT/CIE assessed the benefits to be an additional 0.33 per cent to

the copyright holder in NPV terms• Same assumptions suggest cost to Australia of up to $88 million per

year in net royalty payments

Small additional costs from payout to sugar producers (net welfare cost of taxation)

Small additional costs from funding ongoing consultation

On quantifiables, an overall net gain of $53 million per year

Will AUSFTA protect us against future US bilateral opportunism?

Agreement has MFN clause • If US grants new concessions to third parties in the future, it must

extend them to Australia But US is doing ‘pattern bargaining’

• offering same NAFTA template to each new comer No new concessions at all

• but Australia’s preferences still eroded when same concessions granted elsewhere

We need US and its new trading partners to multilateralise fully, so we get access to the new trading partners• But US hub and spoke tactic prevents this

An end to the madness?

So does this mean we need to sign a bilateral with Thailand before the US does?

Thai negotiations with US ‘going nowhere’ Why not get back to direct multilateral negotiation, where

there would be countervailing power against more pernicious elements of NAFTA-style agreements• IP • selective exclusion of agriculture• rules of origin• safeguards • investor-State dispute settlement • labour and environment

AUSFTA – the $6 billion deal?