With the appropriate last-minute drama, an Australia-US free trade treaty is to go ahead and the Howard Government will be preening itself on cutting a deal that offers Australia major benefits.
The US accounts for a tenth of our goods exports and a fifth of our imports, shares that are markedly higher once trade in services is counted. With a few notable standouts, tariffs on both exports and imports are low. Hence achieving spectacular benefits was never likely. Instead, the objective was to make long term gains by integrating Australia into the world's largest and in many ways most dynamic economy.
Over the past fifty years, the key to the unprecedented rise in world prosperity, in which Australia has participated, has been steady liberalisation of world trade. Unfortunately, anti-globalisation activists have succeeded in derailing further progress through the World Trade Organisation processes. And there is a disturbing trend to erecting new trade walls, especially by the European Union. Hence, though Australia's trade is increasing rapidly with China and other Asian countries, without the treaty with the US, we risked trade stagnation.
The free trade treaty with the US changes that. It creates a platform on which the Australian domestic market is transformed from one of 20 million affluent people to one of over 350 million.
More than anything else the integration with the US will mean a gradual harmonisation of Australian prices for goods and services with those prevailing in the US. The vastness of the US market brings keener competition there and lower prices across the range of goods and services. Australian consumers are the obvious beneficiaries of this merging of markets but the greater competition and the potential for supplying niches will also ensure sharper focussed industries here in Australia. Also important in this respect is the opening up the $200 billion market for US government purchases.
The reduction of the largely minor tariffs on manufactured goods will also bring benefits. It must be remembered that with a ten per cent profit margin, even eliminating a tariff as low as 2.5 per cent is a powerful spur to increased sales as it means a 25 per cent profit improvement.
Progress in many agricultural areas was disappointing.
Lack of movement on American sugar tariffs is Australia's main frustration. That said, the only reason why the US price is so attractive is that the its market is heavily protected -- in other words the US sugar price is artificially high and not one that we should rely on to build a sustainable industry.
Australian producers also remain largely locked out of the US dairy markets. However most horticultural goods will see barriers removed, as will wine which has showed spectacular growth over recent years. Some increased openings are also achieved in beef (and in recent years, Australian growers have been keen to sell more than US quotas allow) and sheep meat which has been growing rapidly.
For its own part, Australia gave little away. The noisy entertainment industry has kept its protectionist local content restraints on imported material, though technology must surely eat away at the effectiveness of this. Australian negotiators also held the line on pharmaceutical purchasing which gives us prices on most medicines at half of the US domestic levels.
Negotiating the agreement on free trade with the US was relatively easy precisely because trade with our giant ally is already largely free. This means the short term benefits are hardly likely to be spectacular, but there is also little of the pain that uncompetitive sectors would suffer in the case of, say, free trade treaties with China or Japan. Moreover, the treaty does not lock us into a discriminatory trade pact -- there are no consequential tariff increases against other countries.
The US is progressively seeking to shore up free trade in an area incorporating Canada, Mexico and other countries in Latin America and Asia. The collapse of global multilateral trade negotiations, makes it important for Australia to be a part of this and integrating our economy closer that of the US has additional, if less definable, political and military advantages.
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