Hidden costs in US free trade: economist

30 Jul, 2003 10:00 PM

AUSTRALIA was unlikely to benefit from a bilateral free trade agreement (FTA) with the US, according to a leading policy analyst.

Policy think tank ACIL Tasman has published a new report "A Bridge Too Far" which seriously questions the benefits of an FTA with America.

The analysis came under fire by the federally-funded Australia Rural Industries Research and Development Corporation, which commissioned the report.

But ACIL Tasman trade economist Greg Cutbush said if Australia was going to provide tariff privileges to the US it could upset more important Asian trading partners because they did not get the same treatment.

China took one third of Australia's wool clip and any preferential treatment for the US on items such as textiles, clothing and footwear could cause a backlash.

Japan might also be upset if Australia offered preferential tariff treatment on US automotive products.

The ACIL report said Australia might be shut out of the US market if it did not sign an agreement - because other countries would be willing to oblige.

The US was negotiating 17 FTAs around the world, which still had to be approved by the US congress.

Mr Cutbush, speaking at a free trade breakfast in Cottesloe, said computer modelling showed a multi-lateral approach to free trade would benefit the Australian economy more than a bilateral or unilateral agreement.

He said Australia's gross national product and gross domestic product was predicted to fall after a bilateral FTA with the US.

"With all the caveats you could place on our modelling we think we have justified grounds for concern about what will happen," he said.

He said reduced trade opportunities with other countries was an important reason why Australia would be worse off under a FTA with the US.

Mr Cutbush said the US Farm Bill introduced last year - providing $19 billion in government support to US agriculture - entrenched US subsidies more than ever.

He said there were no signs of trade liberalisation in sugar and dairy which were some areas in which Australia expected to benefit.

Cuba was still locked out of supplying any sugar to the US, due to political considerations.

He said there was lack of transparency in the FTA negotiations between the US and Australia. "We are not that clear what is going on between negotiators," he said. "What is on the table?"

He said agriculture would be a big loser if not included in the FTA.

Mr Cutbush said rules of origin needed to be simple but in the North American Free Trade Agreement (NAFTA) there were 11,000 regulations.

"Is it going to be simple or the usual American standard, which is extremely complex," he said.

Rules of origin relate to a where a country imports something from one country and exports it to another.

Mr Cutbush cited the free trade triple rule for clothing between the US, Canada and Mexio, where cloth, yarn and garments all had to be made in one of the three partner countries before free trade was allowed.

He said this was tantamount to protectionism.

"We have to be sure the FTA is the real McCoy, and even if it is the real McCoy, we have plenty to worry about because the two economies are too similar in shape for this to be a big bang opportunity," he said.



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