Australia and the United States signed a free trade agreement in 2004 to strengthen their long-standing economic and political relationship. This paper argues that the Australia-United States Free Trade Agreement (AUSFTA) has contributed positively towards a remarkable expansion of total trade, investment flows and affiliate sales over a period of only eight years. This increased economic integration occurred despite adverse short-term factors such as the GFC and a sharp appreciation of the A$ due to resources and energy boom ± which slowed Australian exports into a recovering US market. While it may be too early to assess the precise contribution of the still evolving FTA, dynamic gains from more open market access and openness appear likely to continue long into the future.
Major findings of the paper are that:
Major findings of the paper are that:
- The Australian economy has not been decimated by the AUSFTA as predicted by many experts and its international ranking has actually increased from 15th to 12th largest in GDP terms ± although the FTA was only one factor, but a positive factor. largest services economy could be expected to directly benefit the competitiveness and outward looking stance of Australian services industries which account for over 80 per cent of GDP.
- Over the period of AUSFTA, bilateral trade in goods and services has grown rapidly from US$32.6 billion in 2004 to US$61 billion in 2011 (up 87 per cent). The two-way stock of bilateral investment has almost tripled from US$66 billion in 2004 to US$192 billion in 2011. Similarly, the sales, assets and employment of US and Australian affiliates has almost doubled over the period. US investment went from US$19 billion in 2001 (1.9% of global stock) to US$136 billion in 2011 (3.3%).
- Increased trade was facilitated by the FTA which reduced average tariffs by five percentage points and eased behind the border barriers. However, currency movements affect the cyclical pattern of trade. Over the period from 2004 to 2012 the Australian dollar appreciated 40 per cent against the US dollar, widening the US bilateral trade surplus. The strong correlation between currency movements and trade is cyclical and a strengthening of the US dollar would see a rebound in Australian exports, such as beef.
- There is little evidence of trade diversion because of the AUSFTA, though of course, the greater price competitiveness of US exports in the Australian market expanded market share.
- The expanding US surplus in trade in goods and services with Australia has partly reflected the resources and energy boom and a surge in imports of machinery and equipment needed to supply US and other companies building new export infrastructure, such as LNG terminals to supply China, Korea and Japan. Increased imports have also created jobs and exports.
- Australia emerged as a regional centre for US firms with surging investment in energy, resources, finance, aviation, biotechnology and clean energy ± while Australian corporates have expanded US operations in areas such as finance, biotechnology, packaging and property management, encouraged by the stronger Australian dollar (Ninth largest investor in the US in 2011).
- Direct investment provides a package of technology, know-how and capital which contribute positively to the host economy. Given this, a comprehensive study of the motivations of US and Australian investors and the impact of investment, together with role of the FTA would be timely ± especially bearing in mind the ongoing TPP talks to expand the framework of the FTA across the region.
- Further, patterns of investment and supply of services through affiliates are comparatively unknown. There are also significant discrepancies in bilateral statistics and around one third of more analysis of these hidden areas of investment would be useful.
- Greater economic integration can be partly attributed to the impact of the FTA in lowering barriers, harmonising regulations and providing a friendlier environment for firms of each.
- It is therefore likely that related negotiations towards D³KLJKstandard and comprehensive Trans- expansion of Australian and US trade and investment in the region and provide a pathway towards a free trade area of the Asia-Pacific region.
While the negotiation phase of AUSFTA was remarkably controversial, with heated claims that Australia would suffer large job losses, industrial disruption and a loss of sovereignty over areas such as health and intellectual property, the outcomes have been much more benign. Trade, investment and people flows have grown resiliently despite fluctuations such as the GFC, slower US growth and the rapid appreciation of the Australian dollar ± protected by assured openness for trade and investment.
The two-way expansion of corporate affiliates has reinforced inflows of capital, technology and knowhow into each country and stimulated competition and innovation. Competition gains occurred from the entry of US firms and direct investment via the introduction of new technologies, better practices and innovations. AUSFTA also reinforced bilateral linkages such as the 60-year strategic alliance under the ANZUS framework. Further reforms are likely to continue integration and growth.
Over the decade, Australia became a key supplier of resources and energy to China and its GDP doubled in a decade in current US dollars (from US$0.6 trillion to US$1.4 trillion) ± creating a greater market for SHU Fapita income and purchasing power has grown significantly, from around US$40,000 a decade ago to US$65,000 in 2011 ± creating a larger market for foreign firms seeking to expand trade, investment and affiliate sales. Twoway investment flows have also been (US$17 billion) and holdings of shale gas reserves in the Eagle Ford and Permian projects are forecast to be the two largest contributors to US oil and gas production growth through 2017.