Martin Feil's criticism of the Australia-US Free Trade Agreement (Trade millstone around Australia's neck, 10/02) ignores its real gains. Feil argues that to assess the FTA, you only need "look at the numbers". According to him, a nominal increase in our deficit of goods and services trade of $4.41 billion with the US is proof of a failed FTA. But the deficit is in his numbers -- they show only half the picture.
The FTA covers almost all sectors of both economies, from trade in goods and services to government procurement, intellectual property and investment. Assessing the gains of the FTA by goods and services trade ignores the real success of the FTA -- promoting investment.
The AUSFTA came into effect on January 1, 2005. ABS data shows that in the 2005 calendar year, US investment in Australia was $325.3 billion. By the end of 2006, it was lifted to $362.8 billion. And by the end of 2007, it had risen to $445.9 billion, or an increase of $120.6 billion since 2005.
Arguing that the FTA is a failure because of an increased annual deficit of $4.41 billion in goods and services trade against an increase in total investment of $120.6 billion in only three years is absurd.
Growing investment matters. In February 2004, former chairman of the General Agreement on Tariffs and Trade (predecessor of the World Trade Organisation), Alan Oxley, opined in The Age that "in today's world, investment is as important for growth as trade ... (because it) is the vehicle that delivers new technology".
Modern industry is heavily dependent on sophisticated technology to help business achieve increasing levels of productivity. But that technology need not be developed in Australia. Similarly, technical expertise can also be an important business import.
Instead of assessing the dividends of the entire agreement, Feil's criticisms smacks of discredited mercantilism. And in doing so, he ignores these dynamic gains from free trade.
Australia's prosperity doesn't rely solely on ever-increasing exports. Imports help Australian businesses grow by providing cheaper or more advanced inputs, and in doing so make our businesses more competitive.
Free trade also provides economic benefits because it maximises the return consumers and producers can get from the allocation of scarce resources -- or put simply, buying more with less. And with the remainder, they are free to use excess capital to invest or buy other goods and services.
But that doesn't mean that the results of the FTA are perfect and there isn't room for reform.
During the passage of the enabling legislation for the FTA, then opposition leader Mark Latham introduced amendments to the Therapeutic Goods Act that have harmed Australia's investment potential. Latham's amendments included provisions requiring patent holders to determine whether they had a "reasonable prospect of success" before seeking to enforce their property rights in court. If the court deemed they didn't, they could be exposed to a $10 million fine. Meanwhile, a mischievous patent infringer could only be fined $110,000.
Latham's changes are arguably in breach of the FTA. And such an extreme has diminished the incentive for US pharmaceutical companies to conduct research and development and manufacturing operations in Australia. Any reform should include amending Latham's amendments.
But the biggest loss to Australia's national interest results from inconsistency between our FTA with the US and Australia's other FTAs.
In theory and fact, the boon from the AUSFTA was in the investment chapter. Under the FTA, US investments don't need to be screened by the Foreign Investment Review Board unless they are above $913 million.
Yet, non-US investors have a screening once a substantial investment hits as little as $100 million.
Australia also has FTAs with New Zealand, Chile, Thailand and Singapore. But these countries don't enjoy equivalent privileged treatment. And the cost is being borne by Australia's economic potential.
When completed, the AUSFTA was hailed as a "living agreement" that would deliver significant dividends in the long term.
The evidence shows that Australia is enjoying the gains. But it should cement the gains from free trade with all countries, not just the US, by completing the work the AUSFTA started.
And that means revising the Latham amendments and unilaterally harmonising and liberalising barriers to all investment into Australia.
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