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WebMemo #506 on Trade and Economic Freedom

May 18, 2004

Trading Down Under: Congress Must Act Fast

By

American producers have greatly benefited from trade agreements, such as NAFTA, but continue to face high tariffs around the world. While a global effort to reduce trade barriers through the World Trade Organization is the ideal path, this process has been slow. In the meantime, bilateral and regional free trade agreements are a means to advance trade liberalization. On May 18th, the United States will sign a free trade agreement with Australia. While it is tempting to delay a vote on trade in an election year, delaying action on the agreement would needlessly punish American producers and investors, who stand to greatly benefit from increased trade access to Australia. 

 

The agreement will:

  • Expand access to Australia's market for American manufacturers. The U.S.-Australia Free Trade Agreement (FTA) will eliminate tariffs on 99 percent of U.S. manufactured exports to Australia. Key manufacturing sectors such as construction equipment, furniture, medical equipment, and autos will benefit from this agreement. For instance, under the FTA, Australia will reduce its average tariff on motor vehicles immediately and will eliminate all such tariffs by 2010.[1]
  • Remove barriers to American farmers. Key agricultural products that will benefit from immediate tariff elimination include fruit juices, soybeans, almonds, sweet corn, potatoes, and tomatoes. Australia has recently announced that processed U.S. pork and frozen, unprocessed U.S. pork exported to Australia for further processing will be given access. U.S. producers continue to seek access for fresh pork, apples, citrus, and stone fruit, and the FTA creates a forum to accomplish these goals.
  • Facilitate U.S. investment in Australia. Investment provisions in this agreement will exempt the majority of U.S. investment from being screened by Australia's Foreign Investment Promotion Board by increasing the investment size above which regulators must be notified. Currently, investments over $50 million must be screened. According to the Center for International Economics, "The increase in the notification threshold to $800 million will eliminate the costs associated with complying with notification requirements for the majority of direct investment proposals in Australia. In the three years to the end of 2002, around 89 per cent of US proposals (or 174 proposals) for investment were under $800 million."[2]

Sealing the Deal

Despite the many benefits negotiated in this agreement, nothing will happen until Congress takes action. As wrote Rep. Cal Dooley, Rep. Ellen Tauscher, and Rep. Jim Davis in a March letter to Speaker Hastert, "It would be irresponsible to consider delaying an agreement that is commercially significant to so many sectors of the U.S. economy."

 

Moreover, this agreement will reinforce America's strong trading relationship with Australia. Australia is a like-minded partner in trade and has been an ally in the World Trade Organization. Like the United States, Australia has low trade barriers, strong property rights protection, a low level of regulation, and openness to foreign investment, according to the 2004 Index of Economic Freedom.

 

Despite these similarities, there are still barriers between the countries. Only through trade negotiations will markets be liberalized and contentious trade issues resolved. America has much to gain from this agreement; Congress should not delay making these gains a reality.

 

Sara J. Fitzgerald is a policy analyst in the Center for International Trade and Economics at The Heritage Foundation.



[1]The Centre for International Economics in Australia. "Economic Analysis of AUSFTA: Impact of the bilateral free trade agreement with the United States."

 

[2] Ibid.

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