The media pundit analyses of the Aus/US FTA are coming thick and fast now, and the picture is becoming a little clearer, although it won’t be crystal clear until the text of the Agreement itself is available. Presumably the pundits, like bloggers, are relying on the material released from Australian government sources (primarily the DFAT fact sheets), and comparing it with statements being released by the US government for domestic consumption there.
The most useful stuff I’ve found to provide some sort of guide to the benefits (if any) to be expected from a trade deal with the US is in an interview on this morning’s ABC Radio AM programme with Dr Andrew Stoeckel, Executive Director of the Centre for International Economics (via Gummo Trotsky). Stoeckel is the bloke who conducted research for the Federal Government on the economic benefits of a trade agreement, which came up with the much-touted figure of $4 billion (Australian) as the net annual benefit of such a deal to the Australian economy. That figure, however, was based on the exchange rate that then applied. Doing the same calculation on current exhange rates yields a net annual benefit to Australia of $(Aus)2.56 billion. However, as Stoeckel points out, that’s not the end of the story. The CIE analysis assumed that open access to the US sugar market would be achieved, but conversely didn’t factor in a number of gains that were in fact achieved by Australian negotiators, most importantly access to US government procurement programs. As Stoeckel observed: “There’ll be a new estimate. There’ll be some pluses to the estimate from what we estimated and there would be some negatives.”
Sugar access formed a significant part of the CIE analysis, so you might expect to see a significant drop in the net benefit figure, although on the other hand US government procurement is worth mega-billions annually and even modest Australian success in winning US government contracts would be worth big bucks. I suspect that any net benefit estimate at this stage is likely to contain major elements of educated guesswork, but it doesn’t seem unreasonable to suggest on what we currently know that the annual benefit of the FTA to Australia is likely to fall somewhere between $(Aus)1 and 2 billion. That’s well and truly worth having but, to put it in context, its no larger than the natural gas deal struck between Australia and China back in August 2002. Anyone wanting to get a realistic appreciation of the value of the FTA for Australia shouldn’t get carried away with the hyperbole of Howard government Ministers, any more than they should take the carping and whinging of the lefties and the arts industry luvvies at face value.
Ross Gittins makes the valid point in today’s SMH that bilateral trade agreements (like the Aus/US FTA) are anathema to true free traders, because in some senses they merely entrench protection and to an extent only achieve displacement/diversion of trade, increasing the volume of trade between the bilateral partners at the expense of pre-existing trade with other nations. However, I assume that Stoeckel would have taken this trade displacement/diversion into account in reaching his estimate.
Finally, John Quiggin also makes an important point, namely that the most significant long-term effect of the FTA may be not so much any immediate enhancement of Australia’s national income, but the increasing integration of Australia’s economy and regulatory structure with that of the United States. Peter Gallagher makes the same point:
It has always been likely that the biggest benefits from this agreement for Australia would be found not in the direct trade impact (because bilateral trade barriers were already low) but in the less tangible impacts of closer economic integration with the world’s most productive economy, one of our largest trading partners and our biggest source of (and destination for) investment flows. That benefit remains — only slightly tarnished by continued US agricultural protection.
JQ, however, clearly views the prospect of greater economic integration with the Yanks in much more negative terms (hardly surprising from his left-leaning perspective):
The real issue, is that of economic integration with the US. As the example of the European Union, cited by FTA supporters like Alan Oxley, shows, economic integration means common economic institutions. In the present case, it’s obvious that this means Australia adopting the institutions of the United States, and not vice versa. Examples that have come to light so far include the extension of copyright from 50 to 70 years and a range of other measures that enhance the capacity of US owners of intellectual property to act as discriminating monopolists. I expect that, when the details are rolled out, we’ll see things like restrictions on parallel imports.
I don’t find anything to disagree with there as such. I agree that copyright term extension is a bad thing although, as I argued yesterday, it’s not the end of the world. On the other hand, harmonisation of Australian laws with US competition law (especially its anti-monopoly provisions) would be a positive thing for Australia. In net terms I expect that harmonisation of Australian business laws with the world’s largest and most productive economy would realise net positive economic outcomes for Australia in the long term, although quite possibly at the expense of sacrificing a degree of practical Australian sovereignty in those areas of law-making.
However, that has also been true of Australia’s Closer Economic Relations treaty with New Zealand, as the arts industry luvvies discovered in the Project Blue Sky case (which torpedoed Australian content rules for film and TV as they related to the Kiwis). Strangely, we didn’t hear howls of outrage from the left when the High Court decided Project Blue Sky back in 1998: only when an Australian government jumps into bed with the evil American hegemon are the left’s outrage instincts aroused.
However, John Quiggin’s kneejerk opposition to increased economic integration with the US goes much further than specific concerns about adopting particular regulatory regimes (in intellectual property or whatever area), as his next paragraph makes clear:
There are two issues in deciding whether economic integration with the US is a good idea. The first is whether, in general terms, the economic and social institutions of the US are better than those of Australia. If you read the writings of FTA supporters, it’s pretty clear that they think this is the case, that we would be better off with less government intervention of all kinds, weaker unions, greater income inequality and so on.
Read it again and you’ll see the enormous logical leap JQ makes. By some arcane process he doesn’t explain, it seems that John believes a carefully negotiated treaty commitment to harmonisation of business laws will somehow lead to Australia adopting US extreme neoliberal policies and institutions across the board, leading to “less government intervention of all kinds, weaker unions, greater income inequality and so on“. It may well be that many in the Howard government subscribe to some such ideas, but the only way they’re going to be able to implement them is by persuading the Australian people of their benefits and getting relevant legislation passed by Parliament. The FTA is simply irrelevant, and John does his argument no favours by resorting to such desperate non sequiturs. The CER treaty with NZ didn’t result in Australians losing the ability to pronounce vowels or (in most cases) developing unnatural carnal desires for sheep. We might conceivably one day witness more extensive proposals for integration of some social and governmental institutions, just as the “Common Market” gradually evolved into the much more broadly integrated European Union. However, Australians will have the opportunity to evaluate and approve or reject any proposals of that sort if they ever happen. The FTA should be assessed on is own terms, not by reference to baseless “slippery slope” fear tactics.
Finally, neither JQ nor Peter Gallagher mention the most fundamental driver of bilateral trade deals and the broader question of increased economic integration between the US and Australia. With the apparent breakdown in Cancun last year of the DOHA Round of negotiations aimed at bringing agriculture into the WTO multilateral free trade regime, there is an increasing likelihood that the developed world may split into a series of trade blocs from which Australia could easily find itself excluded: Australia isn’t a natural partner in either the EU, NAFTA or ASEAN, and is unlikely to be admitted to any of them in the foreseeable future. In the absence of a successful push to re-start the DOHA Round, Australia’s best chance of avoiding increasing trade isolation lies in pursuing bilateral trade deals with the largest developed nations (i.e. the US and China).
That isn’t to say that a multilateral solution wouldn’t be vastly preferable for all sorts of reasons. But pursuing key bilateral deals doesn’t prevent us from also promoting the benefits of multilateralism for all we’re worth, whether via the Cairns Group or otherwise. We’d be unwise to put all our eggs in the multilateral basket given the high risk that DOHA won’t succeed. Being the only free trade virgin in a world of harlots isn’t an appetising prospect.