TRADE policy is not usually thought of as a sexy headline grabber but the free trade agreement with the US made the front pages repeatedly. Trade Minister Mark Vaile described it as "the commercial equivalent of the ANZUS treaty", while US Trade Representative Robert Zoellick said it was "a unique agreement with one of America's greatest allies and friends".
Much controversy has surrounded the FTA, signed by the two men in Washington last month. Some Australian commentators have expressed concerns about the outcome, particularly given the absence of sugar from the deal. Others have questioned whether there should be an agreement at all.
Although signed, the FTA still has to pass Congress and the Australian parliament. If successful in its passage, it will come into force on January 1 next year.
The agreement has created some odd allegiances. In one corner is an assortment of anti-globalists, anti-Americans and multilateralists. Some opponents disagree with free trade and open economies in general. Others, concerned about defence ties with the US, highlight the symbolism of the FTA and a perceived meshing of strategic and economic interests. Some rural groups feel the FTA did not do enough to open up agriculture. Others fear the potential negative effects for local content in the creative industries or for the pharmaceutical benefits scheme.
Then there's the group that doen't shout slogans or lie down in front of motorcades. It's composed of the neo-classical economists -- hardly a radical breed -- who are mainly associated with the Australian National University. The "ANU school", led by professors Ross Garnaut and Peter Drysdale, tends to be more multilateralist, supporting reductions of protection through the World Trade Organisation processes and/or on a unilateral basis. They fear bilateral deals will distort the multilateral process.
In the other, pro-FTA, corner is another diverse bunch. Here, too, is a group of prominent economists -- the best known being Andy Stoekel and Warwick McKibbin of the Centre for International Economics. Stoekel believes the FTA will add $6.1billion a year to the economy. There are also groups in the business community such as the Business Council of Australia, and trade experts such as Alan Oxley, a former Australian ambassador to the WTO. Those who know they will benefit immediately are here, including some industry groups, particularly in manufacturing. Others, notably the professional service industries, think any agreement is a good start and too good an opportunity to pass up for future generations. There is also a group of trade pragmatists who believe that while multilateralism is preferable, the WTO is slow going and bilateral options are all that is on offer for trade liberalisation.
FTA critics say it sends the wrong signals to our major trading partners in Asia and undermines the WTO, and that a small country such as Australia will ultimately be harmed by a trade deal with the US.
The proponents of the agreement dismiss these arguments. They argue that in the case of Asia, the signing of the FTA coincided with similar announcements of agreements with Thailand and Singapore. More recently, the Association of South East Asian Nations has invited Australia (and New Zealand) to join in negotiations to liberalise trade between the ASEAN Free Trade Area and the trans-Tasman pact known as Closer Economic Relations. Australia is also scoping Trade and Economic Framework agreements with our major trading partners, Japan and China.
Chinese Premier Hu Jintao emphasised the strong future trade links with Australia in his address last year to parliament. Hu's visit came in the same week as that of George W.Bush, demonstrating that trade agreements can be simultaneously negotiated with the US and China, and other major trading partners. On a visit to Beijing last year, one very senior Chinese official assured me that Australia signing an FTA with the US would be seen as "a sign of Australia's great economic strength". He predicted that after WTO entry, China would be seeking bilateral trade partners and ASEAN and Australia would be the first cabs off the rank.
The second argument is multilateralism versus bilateralism. Economists such as Jagdish Bhagwati of Columbia University think a series of bilateral deals will have a "spaghetti bowl" effect that will be hard to unravel and will harm global liberalisation. But trade experts such as Richard Baldwin, of the Geneva-based Institute for International Studies, believe bilateralism need not undermine multilateralist efforts if they are WTO-consistent and can be made available to all.
Other economists, such as Peter Lloyd of the University of Melbourne, believe that while bilateral deals are "second best" to a multilateral system, countries often have no choice but to join them.
The big versus small countries argument is countered by examples of small countries, benefiting from deals with larger ones. This motivated Mexico to join Canada and the US in the North American Free Trade Agreement, Singapore to sign a deal with the US and New Zealand to sign up with Australia in the CER.
The FTA's "head-turning" effect has also been overlooked. Ian Wing, Austrade's Los Angeles-based regional director for the Americas, says it "will help raise the profile of exporting and raise Australia's credentials in the sometimes parochial American business community".
Despite its imperfections, the FTA is a good first step in the integration of the Australian and US economies.
Tim Harcourt is chief economist with the Australian Trade CommissionThe Australian:
