June 2003

In This ISSUE

The Australia-US FTA and Broader Economic Relations

The current negotiation of Free Trade deal with the United States is getting some attention in the Australian media. Some of the discussion centres around the issue of what effect such an FTA might have on Australia's economic relations with other economies, particularly those in Asia. In this discussion piece Alan Oxley poses some questions about the proposed FTA and suggests that fears raised by opponents of the FTA that it will damage our relationships are overstated.
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News

APEC Business Forum
The Australian Department of Foreign Affairs and Trade recently held an APEC Business Forum in Sydney. The forum was addressed by officials and experts on a number of issues including APEC's counter terrorism activities and the issue of security and trade.
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Peer review
Professor John McKay is conducting a review of Hong Kong's Individual Action Plan.
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Insurance Liberalisation Evaluation
The Australian APEC Study Centre is conducting a project to evaluate the progress made in the liberalisation of trade in insurance services in APEC economies.
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Secure Trade in the APEC Region
The Australian APEC Study Centre is hosting a Symposium of Maritime Experts to Assist in Implementation of APEC's Secure Trade in the APEC Region (STAR) Initiative in Melbourne on 18-20 June.
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Trade and Environment
The Centre is conducting a program aimed at raising awareness of environmental issues in the current Doha Development Round. This program will be dealt with in a forthcoming Special Issue of APEC Currents.

Lunchtime briefing on the European Union and the war in Iraq
On Monday April 14 Centre hosted a seminar to hear a European analysis of the consequences of the enlargement of the European Union (EU) and the likely trade effects on the Union of the war in Iraq.
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Successful ASC Consortium Meeting held in Phuket
The International Consortium of APEC Study Centres held its Annual Meeting and Conference during May.
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Publications

APEC as an Institution: Multilateral Governance in the Asia Pacific: the latest publication of the APEC International Assessment Network.
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Calendar of APEC Events

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Analysis I

Some questions about the proposed FTA with the United States and Australia’s international economic interests

Analysis by Alan Oxley

1. What is the attitude of Australia's trading partners?

None have expressed opposition to the idea directly or in principle.

• Japanese officials have expressed private concerns about US auto and auto components exporters securing preferential access to the Australian market under an FTA. Australian officials have told them they would work for outcomes that did not have that effect. Japan has proposed a closer economic relationship with Australia (during Koizumi's visit). Japanese Ministries are divided over whether that might include an FTA. Gaimusho is in favour. METI is opposed. The Australia-Japan Business Council favours such an approach.
• No negative views about an Australian/US FTA have been expressed in East Asia. Singapore and Thailand want FTA's with Australia. (Even Malaysian officials have started enquiring informally about such a possibility).
• New Zealand wants to negotiate a US FTA jointly with Australia. The Bush Administration is cool to negotiating an FTA with New Zealand. It remembers New Zealand's withdrawal from ANZUS.

2. Will it cause trade tension with Asia?

There is no evidence it will.

• Professor Ross Garnaut (ANU) argues that an FTA will create systematic discrimination against Asia, reduce Asian imports to Australia, reduce rates of return on investment and encourage exclusion of Australia from newly emerging regional groups in Asia.
• Two econometric models (commissioned by DFAT) showed that the overall impact of the FTA on third countries was either positive or neutral. One analysis suggested a very small fall in some imports from some Asian economies. Except for figures on the auto trade with Japan, the numbers are so small ($80 million for China - total exports to Australia in 2001 $9.8 billion -and $70 million for ASEAN (total 2001 exports to Australia $ 14.6 billion) and a fall in the rate of return on investment of 0.01 to 0.03 %) that they cannot be given weight. The conclusion of the studies was that the trade creation benefits of the agreement for third countries would outweigh any trade diversion, if there was any.
• The attitude of countries in the region seems not to be interest in retaliation as Garnaut fears, but to be interest in greater collaboration by negotiating FTAs with Australia
  Inclinations to exclude Australia from new, emerging regional groups: ASEM (which is losing its dynamic), the possibility of an Asian economic community which is under study (and likely to stay that way for a very long time), an ASEAN plus three group and an ASEAN/China free trade agreement were set in place well before Australia proposed a US FTA. The leading dynamic in the latest proposals seems not be exclusion of non-Asian economies, but competition for leadership of Asia between China and Japan. The rest of Asia will not want to be lead by either.

3. What can an FTA give Australia that the WTO can't?

The economic benefits from "deeper integration"

• Barriers to investment and movement of people, cross recognition of standards and qualifications can be agreed. New tax arrangements as well (and any other bilateral economic issue of interest) if Governments want them. The WTO does not have agreements on these issues.
• Commitments which improve the competitiveness of the Australian economy being implemented within two or three years. The benefits of commitments negotiated in the Doha Round are not likely to be enjoyed inside a decade.
• An opportunity to negotiate one-on-one for greater agricultural market access and to secure these benefits sooner than would be possible in the WTO.
• The opportunity not to be harassed by US contingent protection procedures (for application of countervailing, anti-dumping and safeguards duties) like other countries with FTAs with the US
• Securing the access of billions of dollars of exports to the US: the US and the EU will not agree to substantially alter WTO rules to remove the capacity for harassment by anti-dumping and other measures of contingent protection in the Doha negotiations.
• The immediate promotional benefit (of advertising Australia as an investment destination in the US). The
  successful negotiation of an FTA would have the publicity value equivalent to about $50 million of investment promotion in the US.

4. Will it undermine the WTO?

• The World Bank recently concluded after a major study that bilateral and regional agreements do not have a negative economic impact and do not undermine the WTO. See OUP/World Bank, "Trade Blocs", 2000.
• A few years ago the OECD concluded such agreements can be building blocks for global liberalization.
• Even if bilateral and regional agreements did undermine the WTO, would it be rational for Australia to eschew an FTA with the US which provided benefit because others had taken undesirable action?

5. Does the WTO permit FTAs if they do not reduce all trade barriers?

Yes. The claim that the WTO only permits FTAs if they reduce agricultural barriers is incorrect.

• The relevant GATT provision and WTO Understanding require "substantially" (in itself a qualification) all barriers to be reduced in an FTA; but the final test of acceptability is whether or not the total trade of partners outside the agreement is reduced or increased by the Agreement. Furthermore, the provision is not rigorously enforced.
• Every expansion of the EU made special provision for agriculture and was not ruled inconsistent with the WTO.

6. Will it weaken Australia's role in the Cairns Group?

No. The glue of the Cairns Group is mutual appreciation of common interest and competitive interest.

• At no stage has any member of the group accepted that membership means competitive interest in market access negotiations is set aside. Brazil, Argentina and Uruguay did not consult Australia before proposing a Free Trade Arrangement between Mercosur and NAFTA. Malaysia, the Philippines and Thailand did not consult Australia about preferential access provisions in AFTA on agricultural products. There is/was no expectation they would.
• Continuing Australia's leadership depends on quality, sophistication and diplomacy.

7. Will it weaken Australia's capacity to pursue other international interests?

There is no reason why it should. It depends on how well the Government resources its activities.

• Experience shows us Governments negotiated the most far-reaching results in the history of the GATT in the Uruguay Round while simultaneously the EC negotiated the Single Market Arrangement, the US negotiated NAFTA and Australia and New Zealand finalized ANZCERTA. For the governments concerned, each of those regional and bilateral agreements were major and substantive achievements.

Alan Oxley is Chairman of the Australian APEC Study Centre

News

APEC Business Forum held in Sydney 7 April 2003

The Australian Department of Foreign Affairs and Trade recently held a forum in Sydney. The forum was addressed by officials and experts on a number of issues including APEC's counter terrorism activities and the issue of security and trade.

Trade Minister Mark Vaile gave the keynote address APEC: regional markets for prosperity in which he discussed how the new environment is affecting Australian competitiveness, and what this might mean for our trade and investment in the Asia-Pacific region. Full text is available from DFAT.

Dr Geoff Raby Deputy Secretary of DFAT outlined the Australian Government's response to terrorism in a paper The costs of terrorism and the benefits of cooperating to combat terrorism. This paper is also available from DAFT.

Peer review

As part of the Osaka Action Agenda, established in 1995 all APEC Economies submit an annual Individual action plan (IAP) which details progress towards achievement of the Bogor Goals of free and investment in the APEC Region. IAP's progressively report on proposed and past actions on tariffs, non-tariff measures, and to facilitate trade and investment in the region under 15 broad policy areas. The IAP's are subject to a peer review process which has been recently strengthened.

In the peer review process each economy's IAP is evaluated from time to time by review team from another economy. Professor McKay has been chosen as the expert to review Hong Kong's IAP. The review will be published later this year.

Insurance Liberalisation Survey

The Australian APEC Study Centre is conducting a project to evaluate the progress made in the liberalisation of trade in insurance services in APEC Economies.

The project aim is to assess the impact of liberalization of the insurance services sector in Australia, Singapore and Indonesia for the period 1995- 2001 and undertake a comparative analysis of the results to identify practical lessons for APEC economies to support the goal in the Osaka Action Agenda of progressive reduction of restrictions on market access for trade in services.

The output will also assist Governments to participate in the liberalization of trade in services in the WTO negotiations and assist ASEAN economies with liberalization of services under the ASEAN Free Trade Area. It is one of four projects that the CTI has recently commissioned to assess the impact of liberalisation on APEC economies.

Ken Waller is lead consultant for the project which will present its report to APEC in June 2003.

Secure Trade in the APEC Region Symposium

The Australian APEC Study Centre is hosting a Symposium of Maritime Experts to Assist in Implementation of APEC's Secure Trade in the APEC Region (STAR) Initiative in Melbourne on 18-20 June. The STAR Initiative is one of several responses by APEC to the emergence of increased threats of terrorism over the past few years.

In 2002 APEC economies and other members of the International Maritime Organization (IMO) agreed to a new, comprehensive security regime for international shipping set to enter into force in July 2004. In launching the STAR initiative at the 2002 APEC Leaders Meeting in Mexico, the leaders called for enhanced port and shipping security and repeated the obligation to meet the IMO security regime by July 2004. In February 2003 APEC members met in Bangkok to discuss ways of enhancing anti-terrorism security while also boosting regional trade as part of STAR initiative.

The Australian APEC Study Centre has organised the Symposium to build on the short introduction provided at the Bangkok meeting and will concentrate on the maritime security element of the STAR initiative with a focus on developing country members. It will provide an opportunity to hear from experts on marine and port safety, customs and risk management as well as allowing developing APEC economies to share their experiences in increasing security vigilance.

The Symposium is being conducted by the Australian APEC Study Centre and is funded by the APEC Support Fund of AusAID. The Australian Department of Transport and Regional Services and The Department of Foreign Affairs and Trade are supporting the project.

Further information can be found on the Symposium site

Lunchtime briefing on the European Union and the war in Iraq

On Monday April 14 Centre hosted a seminar to hear a European analysis of the consequences of the enlargement of the European Union (EU) and the likely trade effects on the Union of the war in Iraq.

Staffan Jerneck who visited Melbourne as a special guest of the Australian government (Department of Foreign Affairs and Trade) outlined the journey towards the enlargement of countries into the EU making a total of 25 member states from 1 May 2003. There was considerable discussion on the effect of new EU members on policy, particularly on agriculture and the EU's role in the WTO.

He is Deputy Director of The Centre for European Policy Studies, a Brussels-based politically independent European think tank, which has excellent contacts with the EU Commission, the Council of Ministers, the European Parliament, business, politicians and other decision makers. CEPS has a strong influence on public policy as it anticipates important trends and issues in the EU.

Staffan Jerneck is an economist with previous experience with Swedish business organisations, particularly with the transition economies of Eastern Europe.

Successful ASC Consortium Meeting held in Phuket

The International consortium of APEC Study Centres held its Annual meeting and Conference in Phuket during May. The Conference was hosted by the Thai APEC Study Centre. See Thai APEC Study Centre website

Publications

APEC as an Institution: Multilateral Governance in the Asia-Pacific

This is the second volume of analysis published by APEC International Assessment Network (APIAN). It assesses the strengths and weaknesses of APEC's "soft" institutionalism, and its capstone policy report, Remaking APEC, identifies reforms that would close the credibility gap between APEC's promises and accomplishments. Thirteen chapters by leading scholars at APEC Study Centres investigate APEC's core agenda -- trade and investment liberalization and capacity-building -- delve into the inner workings of APEC's bureaucracy, and explore APEC's interactions with civil society, including the private sector and NGOs. It includes a timely chapter by John McKay of the Australian APEC Study Centre titled APEC's Role in Political and Security Issues.

APEC International Assessment Network (APIAN) is a collaborative independent project among participating APEC Study Centres. It has published three reports assessing APEC's progress towards its Stated goals and a previous volume of analysis on APEC's progress. APEC as an Institution is edited by Richard Feinberg. It is published by the Institute for South East Asian Studies. Further details can be found at http://bookshop.iseas.edu.sg/

Calendar

APEC Meetings for 2003

Please note: Because of the SARS outbreak in the region some APEC Meetings have been cancelled or postponed. You are advised to check these events on the APEC Secretariat Website