No easy ride in the land of the FTA

By Tim Colebatch
Economics Editor
The Age
http://www.theage.com.au/news/business/no-easy-ride-in-the-land-of-the-fta/2005/08/19/1124435144593.html
August 20, 2005

IT WAS meant to be the big breakthrough for Australian exporters - but official statistics show Australia's exports to the US have fallen by 3 per cent since the start of the US free trade agreement.

In contrast, the first six months of our FTA with Thailand saw Australian exports surge 63 per cent.

With record commodity prices lifting Australia's export earnings by 16 per cent this year, and an agreement that was meant to let us "dock into the world's most dynamic economy", why have exports to the US gone backwards?

It is not the first FTA that has failed to deliver. In the two years of Australia's agreement with Singapore, exports there have slumped by 28 per cent. Yet Singapore's exports to Australia have shot up 67 per cent in that time. A trade surplus of $289 million in 2002-03 turned into a deficit of almost $4 billion in 2004-05.

The figures made for uncomfortable questioning yesterday at a parliamentary committee hearing, particularly when Austrade and the Department of Foreign Affairs and Trade sent along senior managers rather than trade analysts to explain them. Labor members of the Joint Committee on Foreign Affairs, Defence and Trade zeroed in on the failure so far of the Singapore and US deals, while officials tried to spin out of trouble with a wealth of hypotheses.

Officials said it was "still early days" with the US free trade agreement, which took effect on January 1, and we should not expect
results yet. "Our exports to the US have been in gentle decline since 2001," said Jeannie Henderson, director of the US/Canada desk. (They have fallen by 22 per cent, or $2.75 billion.)

She blamed the slump largely on the rise of the Aussie dollar, and said the Government was "very confident" that, over time, the FTA would help reverse the trend. "The United States market is extremely large and complex," she said. "It takes a while to work our way in."

But the official study last year of the Australia-US deal predicted it would lift exports this year by $1 billion, implying a rise of 10 per cent. US exports to Australia have risen 7.4 per cent so far this year, roughly in line with the study's estimate.

Surging gold and oil exports dominated export growth to Thailand, along with aluminium (up 53 per cent), cars and parts (27 per cent) and pharmaceuticals (19 per cent).

OUR EXPORTS: SOME SIZZLE, SOME FIZZ

New Zealand: the Tasman shrank

*1983-05: Our exports to NZ, up 10 per cent a year. To the world, up 8 per cent.*

Singapore: no gain here

*2003-05: To Singapore, down 15 per cent a year. To the world, up 5 per
cent.*

Thailand: Aussie invasion

*January-June 2005: To Thailand: up 63 per cent. To the world, up 16 per cent.*

US: where's the beef?

*January-June 2005: To the US, down 3 per cent. To the world, up 16 per cent.***

*/- Source: Bureau of Statistics

*** http://www.theadvertiser.news.com.au/common/story_page/0,5936,16322168%255E911,00.html

U.S. gains in one-sided trade deal

By SCOTT MURDOCH in Canberra
20 August 2005

THE much-vaunted free trade agreement with the United States has become one-sided, with no financial benefit to Australia.

Income earned by the U.S. through imports to Australia has increased by $724 million in the first six months after the deal came into effect on January 1 this year. But for Australia, exports to the U.S. have slumped by $123 million, or 2.7 per cent.

The finding came as the Government was accused of ramping up the publicity surrounding the deal before it was signed by former trade minister Mark Vaile - now Deputy Prime Minister - in May last year.

A parliamentary trade committee was told yesterday that industry groups believed the economic modelling used during the negotiations contained inflated forecasts.

The government, through the Centre for International Economics, claimed the Australian economy would benefit by $6 billion once the deal had been in place for a decade.

However, no economic goodwill has yet been felt in Australia. The Department of Foreign Affairs and Trade's U.S. director Jeannie Henderson told the hearing that Australian exports had been sliding for four years.

Since January the number of U.S. imports, particularly of pork which was a sticking point during the negotiations, are well up on last year.

In one positive contrast, the sale of Australian lamb into the U.S. has grown 29 per cent since January because of a tariff reduction from seven cents per kilo to zero.

"Our exports to the U.S. have been on a gradual decline since 2001, the exchange rate is one factor but the government is confident that the FTA and market access will turn that around," Ms Henderson said. "We are seven months down the track, we are seeing an impact in some specific areas where the market access has been from day one. We have always said the U.S. market is extremely large and complex and not easy to just move into."

Ms Henderson said the largest declines in exports had been recorded in confidential items, motor vehicles and crude oil. The drop in oil though, she said, came via Australia sending more of the commodity to Asia.

Trade committee chairman Bruce Baird, a Liberal backbencher, said he expected exports to grow once the deal had been in place longer.

Minerals Council of Australia public affairs director Brendan Pearson said the government's forecasts of economic benefits were overstated. The numbers, he said, had raised Australian producers' expectations of a potential trade windfall.