Trade and Investment Commission Market †Free Samples to Students

Question: Discuss about the Trade and Investment Commission Market. Answer: Introduction The USA is the largest economy in the world with a nominal GDP of over US$18 trillion in 2015-2016 and a population of 323 million. ( The World Bank) Thus, the USA is a big market and a source of goods and services for any country. Australia has a per capita Gross National Income USD 65, 640 and a GDP of over of over USD 1.6 Trillion per year and provides a sizeable market of a population of over 24 million for US exports.( The World Bank) Australia is also, the fourth largest trading partner of Australia. Australias most important trade and investment partners: the largest foreign investor in Australia, Australias largest foreign investment destination, and the fourth largest destination for Australian exports (2016).(Australian Trade and Investment Commission) The two countries are both high income group countries and hence, important trade markets for each other.( The World Bank) Recently, the President of USA announced in a series of talks, his points of view on the ineffectiveness of Free Trade Agreements in improving the economy of USA. This led to global concerns about the rise of protectionist voices.(Productivity Commission). This paper examines the effects of such a policy by assessing the current Free Trade Agreement with USA and the Free Trade Agreement in pipeline. The USA and Australia signed a Free Trade Agreement (FTA) on 1st January 2005. The agreement covered a broad ranged of topics with trade in goods and services. Primarily, trade in manufactured, agricultural goods and trade in services especially financial services were the major topics of the Agreement.(Armstrong)(George) . Additionally, Intellectual Property Rights, Government Contracts and Legal frameworks for setting of standards of goods and services were also major components of the Agreement.(Tully) Some Stipulations of the Free Trade Agreement (FTA) Elimination of Duties Clause: Both parties agreed to eliminate custom duties on goods originating in the other country and both parties agreed to non introduction of more duties for goods originating in the other country as long as the FTA was in force.(Department of Foreign Affairs and Trade, Australia) In addition to the tariff barriers, the Free Trade Agreement also addresses non-tariff barriers such as quotas, services and investment, e-commerce, barriers to participating in government procurement .process etc. (Department of Foreign Affairs and Trade, Australia) Non Treatment Clause: Each party assigned to the other a non-discriminatory treatment i.e goods made of substantially altered in the other country would receive the same or somewhat the same treatment as goods made or substantially altered within the country. This is the Non Treatment clause.(Department of Foreign Affairs and Trade, Australia) Transparency Clause: Australia agreed to enhancing the listing, pricing and selection of medicines on the schedule of Pharmaceuticals described as the PBS list.(Department of Foreign Affairs and Trade, Australia) Both countries give each other preferential treatment in trade of agricultural goods and services. This goes beyond treating each other as Most Favoured Nation, which is a stipulation of the treaty. If the treaty is revoked, the Most Favoured Nation status would have to be renegotiated. (Office of the United States Trade Representative) The USA and Australia have also agreed to work on reach agreement that would phase out any export subsidies for agricultural goods to each other.(Office of the United States Trade Representative) Once, revoked, the treaty may lead to substantial trade barriers towards each other, if protectionists policies were to take place. Australia is a major exporter of agricultural products like grapes, beef, wool etc. The USA market would becoming less accessible to Australia. On the other hand the Australian market would become less accessible to USA. Given that the USA is the largest investor in Australia, any protectionist policies would hurt the multi-national corporations based out of USA and have invested in Australia. On the other hand, the implications are also great for Australia as Australia must seek to diversify its trade partners. ( Australian Trade and Investment Commission) Additionally, Australias specialty food sector has gained recognition with a reputation for quality in packaged food, organic products, specialty cheeses and confectionary. US specialty food sales reached US$120.5 billion during 2015 and offers potential for Australias input.(Tiffen) The US- Australia Free Trade Agree has made significant strides in the protection of Intellectual Property rights for both parties. The agreement stipulated an increase in the duration of copyright protection, for individuals to the life of the author, plus 70 years and commitments to reduce differences in law and practice and participate in international harmonization efforts with respect to trademarks and several technical protection measures of intellectual property (Richardson) These measures were taken to improve the quality of products in both countries. (Richardson) The agreement has increased the access to government contracts for American companies. A revocation the deal, thus, implies a lesser competition from companies based out of USA. Australia is not a signatory to the WTO Government Procurement Agreement on the same topic. and therefore, participation in the process o Government contracts would be beneficial for USA based firms.(Thurbon) Trade Balances Since the Ratification of the USA Australia FTA Year Net Exports for USA to Australia (in Million Dollars) Exports Imports 2004 6,412.40 13,957.90 7,545.50 2005 8,246.30 15,588.50 7,342.20 2006 9,341.70 17,545.70 8,204.00 2007 10,563.20 19,178.20 8,615.00 2008 11,629.80 22,218.60 10,588.80 2009 11,587.80 19,599.30 8,011.50 2010 13,221.70 21,804.60 8,582.90 2011 17,383.30 27,626.20 10,242.90 2012 21,594.60 31,161.40 9,566.80 2013 16,851.20 26,123.70 9,272.60 2014 15,984.40 26,681.70 10,697.30 2015 14,150.60 25,034.10 10,883.50 2016 12,649.80 22,159.70 9,509.90 Declining exports from the USA to Australia imply that there was lower demand for US made goods. It must be noted that during the period post 2012, when exports from USA to Australia declined, domestic demand surged during the same in Australia. (Organization for Economic Co-operation and Development). An excess of exports to imports affects the exchange rate of the country. This could also imply, that the USA industries rely more on Australia than on the Australia markets rely on the USA for export demand. The ramification of a cancellation of TPP would be felt in the form of lower demand for goods from USA. This in turn may reduce competition for Australian industries especially in agri-based industries like wine industry and specialty foods industry, Additionally, removal of a Free Trade Agreement allows Australia to place barriers to import of high value imports like heavy machinery, etc. which could significantly affect the US Dollar Australian Dollar exchange rate, improving the competitiveness of the Australian Dollar. Australia is a also a significant investor in USA. However, the USA is one of the biggest investors in Australia. Foreign Direct Investment is important to sustain the Australian economy and would be important for the growth of the economy. Creation of trade barriers for companies that invest in Australia by the USA may lead to the decline of for investment in Australia. (Productivity Commission) There is a flip side to foreign investment too. Foreign investment does not necessarily translate into equal distribution of wealth among households. (Productivity Commission) For example, Foreign Investment in Australia can be heavily oriented towards the natural resources sector. A fall in demand for natural resources in the world market, therefore leads to a drop in investment in the sector which has a ripple effect on wages and household income. This further leads to regional imbalances.(Kent) Criticism of the US Australia Free Trade Agreement In 2010, the Australian Report on productivity found that the FTA had not generated significant benefits for Australia until 2010.(Productivity Commission) Further, the Global financial Crisis had a significant effect on demand from USA. (Blanchard, Dell'Arricia and Mauro) The world trade structure has significantly changed since 2005. These are some of the factors that have been attributed to the ineffectiveness of the FTA for Australia. The AustraliaUS agreement did not prevent the share of US trade in Australia from falling. It could not defy gravity with the rapid growth of Asian economies, their competitiveness and their proximity to Australia delivering lower cost and higher quality goods to the Australian market, but it did provide a modest counterweight.(Armstrong) Armstrong, (2015) believes that that relative ineffectiveness of the USFTA in improvement of Australias trade gains has to do with the failure of the o achieve a reduction in equity risk premium for Australia, an assumption that was made by the Australian Government when the FTa was signed in 2005. Another criticism of the FTA is that FTA does streamline Australias exports to the USA, due to its sheer legal complexity and loop holes that could be discovered in various regulations such as the Intellectual Property Law.(George) According to George, (2014)Provisions such as national treatment, standstill arrangements and 20-year copyright extension have significant consequences and that Australian policy makers did not understand the implications of the provisions of the Free Trade Agreement completely while agreeing to be a party to the Free Trade Agreement. Thus, the Free trade Agreement could have larger negative implications for the Australian economy than was predicted. If the US- Australia Free Trade Agreement were to be nullified then the negative ramifications could be contained. One example, is the transparency clause on pharmaceuticals grants the US excessive power for setting standards for pharmaceuticals manufactured in Australia leading to concerns about affordability of pharmaceuticals.(Tully) In addition, (Armstrong) also criticize the USFTA as one of the reasons for not allowing Australia to capitalize on the growth of demand from emerging economies like China. Tully (2016) criticized the FTA for the lack of accountability on the part of Australian officials and for ignoring the social and cultural context of the two countries. In the recent past, a group of Asian countries, prominently China and Japan, seem to have gained importance as trade partners as the trade between USA and Australia seem to have taken a back seat.(Armstrong) Hence, Australia may not lose massively since the new direction of Australian trade seems to point towards more trade with Asian countries. The Trans Pacific Partnership The TPP is a multi lateral trade partnership between 12 countries including Australia, Canada, Brunei, Malaysia, Mexico, Chile, New Zealand, Peru, Singapore, Vietnam, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and the United States of America. The USA is one of the key countries that signed this trade agreement due to the size of its market. Protectionist policies from USA could lead to the failure of the ratification of the Treaty/ The TPP offers a very wide Free trade market for Australia. The countries that were meant to sign the agreement are responsible for 40 % of the total GDP of the world amounting to approximately $107.5 trillion. Together, these countries account for 26 % of global trade flows and 793 million consumers. (Amadeo)The treaty was designed in a way that it would be effective only if countries that sign the treaty have a total of 85% of the total volume of the trade from these countries. This would not be possible without the presence of the USA. Some are also of the opinion that smaller countries like Malaysia agreed to sign the treaty so that they could have better access to the larger market of the USA and that there is a likelihood of some of the original expected signatories pulling out due to the lack of the incentive that the presence of USA market has provided.(Amadeo) On the flip side the TPP could have platform to the USA to wield greater political power in the South China Sea region. (Amadeo) The United States would, particularly, have to lower tariffs on beef, dairy and poultry and these products are included in some of the top exports of Australia. Australia exports beef, coal , iron ores , professional, technical and other services, iron ores and concentrates, among other commodities. (Department of Foreign Affairs and Trade, Government of Australia) Thus, it follows that Australia may lose out in terms of gaining greater access to the US market with respect to these products. On the other hand, imports from TPP countries include finished goods like passenger motor vehicles, services like personal travel, refined petroleum, transport services, professional technical and business services. As it is visible, TPP countries are crucial from Australian exports since the total exports from country to TPP countries were valued at 34% of the total Australian exports in 2015-2016. While the imports like LNG and professional services help maintain the growth rate of the economy. (Department of Foreign Affairs and Trade, Australia). The participation of USA could have ensured the elimination of some tariffs that were applicable in spite of the US- Australia Free Trade Agreement. For example, the tariffs on Australia exports to beef that are held by the United States price based safeguard are approximately valued at $2.5 billion in the pear 2015-2016. These could have eliminated by the ratification of the TPP by the USA.(Department of Foreign Affairs and Trade, Govern ment of Australia) The Trans Pacific Partnership is of particular importance because it is a comprehensive deal that covers a broad range of points in international trade including financial products and services, telecommunications, food and safety standards and most importantly, Intellectual Property Rights. These subjects have traditionally been sources of barriers to World Trade. Additionally, it is also a deal that addresses crucial issues like environmental abuses.(Amadeo) Hence, it fits the context of the current global challenges well. Some are of the opinion that Australia may not be negatively impacted to a great extent simply because it would have boosted the Australian economy only by 0.7 per cent by the year 2030.(Martin) Threats to Australia and Opportunities Arising Due to Adoption of Protectionist Policies by USA The Australian Productivity Commission warned that approximately 100,000 jobs may be lost from the economy due to the protectionist measures adopted by the USA. These losses may be due to losses in Foreign Direct Investment and Foreign Institutional Investment. This reduces the choices of goods for some consumers and may affect prices. For example, Australia imports computing equipment from USA. The prices of computing equipment have fallen greatly since 2009. The Commission also suggested that loss of competitive tr The Australian Productivity Commission( 2017) various likely scenarios that would result from a protectionists stance by the USA. The report encouraged Australian government to adopt a pro- Free Trade stance either completely or through regional partnerships through various regional Agreements(Productivity Commission) which could turn the threat of protectionism into an opportunity. On the other hand , the non-ratification of Transatlantic Trade and Investment Partnership or TTIP by USA could have some positive effects on Australia. The partnership between European Union and USA could have had led to job losses and reduction in investment in Australia due to removal of trade barrier as an effect of the partnership(Corrs Chambers Westgarth Lawyers). Protectionist policies by USA ensure barriers and reduced competitiveness of Euopean goods and investment opportunities. Conclusion The protectionist policies of USA may affect Australia is a country with a large population with a high per capital income. However, the lack of free access to the US markets may not necessarily spell doom for Australia Free Trade Agreement between Australia and USA have not shown significant gains for Australia. (Productivity Commission)(Tully)In fact, on occasions, some have criticized the policy of pushing free trade agreements with A since the US- Australia Free Trade Agreements have not resulted in a great rise in trade surplus for Australia and may have had an opportunity cost in the form of diversion of trade with growing Asian economies such as China.(George) Australia can levy plenty of trade barriers in retaliation to protectionist policies from the USA. (Tully)This will allow the country to protect crucial sectors like agricultural sector, oil and gas sector etc. Additionally, in the context of the evaluation of Free Trade with U SA, Australia must evaluate the strategy it wishes to adopt in the future, whether it wants to encourage more trade with growing economies like India and China . While it is possible that Australia can pursue strong trade ties with several countries of the world, it should certainly take steps to that it does not miss out on trade with several other emerging markets. Thus, protectionist policies by the US alone many not strongly affect the economic position of Australia as long as it maintains its stance on free and open trade with other countries of the world ,as recommended by Productivity Commission (2017) of Australia. So far, there has been no research on the non-monetary pros and cons of an FTA with the USA. For example, the health care due to stringent standards set by the transparency clause ratification may have led to higher prices of pharmaceuticals in Australia. References Australian Trade and Investment Commission. AUSTRALIAS 2 INVESTMENT FOOTPRINT IN THE US | Mapping Australias foreign direct investment in the US . Canberra: Commonwealth of Australia, 2017. The World Bank. Databank. 2017. 6 September 2017 https://data.worldbank.org/topic. Amadeo, Kimberly. Trans-Pacific Partnership Summary, Pros and Cons. 14 June 2017. 8 November 2017 https://www.thebalance.com/what-is-the-trans-pacific-partnership-3305581. Armstrong, Shiro. The Costs of Australia's 'Free Trade' Agreement with Amercia. 8 February 2015. 08 November 2017 https://www.eastasiaforum.org/2015/02/08/the-costs-of-australias-free-trade-agreement-with-america/. Australian Trade and Investment Commission. Market profile, Export Markets: United States of America. 2017. 08 November 2017 https://www.austrade.gov.au/Australian/Export/Export-markets/Countries/United-States-of-America/Market-profile. Blanchard, Olivier, Giovanni Dell'Arricia and Paolo Mauro. "Rethinking Macroeconomic Policy." Journal of Money, Credit and Banking (2010): 199-215. Corrs Chambers Westgarth Lawyers. Will an EU-US free trade agreement be the last straw for Australian manufacturing? 28 January 2014. 08 November 2017 https://www.corrs.com.au/thinking/insights/will-an-eu-us-free-trade-agreement-be-the-last-straw-for-australian-manufacturing/. Department of Foreign Affairs and Trade, Australia. Australia- United States Free Trade Agreement - First Draft. Washington DC; Canberra: Commonwealth of Australia, 2004. Department of Foreign Affairs and Trade, Government of Australia. TPP outcomes at a glance. 8 December 2016. 8 November 2017 https://dfat.gov.au/trade/agreements/tpp/outcomes-documents/Pages/outcomes-at-a-glance.aspx. George, Anna. A decade on, is the Australia-US FTA fit for the 21st century? 22 October 2014. 08 November 2017 https://theconversation.com/a-decade-on-is-the-australia-us-fta-fit-for-the-21st-century-33016. Kent, Christopher. Speech: After the Boom. 13 September 2016. 9 November 2017 https://www.rba.gov.au/speeches/2016/sp-ag-2016-09-13.html. Martin, Peter. Trans-Pacific Partnership will barely benefit Australia, says World Bank report . 12 January 2016. 8 Novemberq 2017 https://www.smh.com.au/federal-politics/political-news/transpacific-partnership-will-barely-benefit-australia-says-world-bank-report-20160111-gm3g9w.html. Office of the United States Trade Representative. Free Trade Agreements Australia. 2017. 8 November 2017 https://ustr.gov/trade-agreements/free-trade-agreements/australian-fta/advisory-committee-reports-us-australia-fta. Organization for Economic Co-operation and Development. 2017 Economic Survey of Australia. Paris: Organization for Economic Co-operation and Development, 2017. Productivity Commission. Bilateral and Regional Trade Agreements a. Canberra: Commowealth of Australia, 2013. . Rising protectionism: challenges, threats and opportunities for Australia. Canberra: Commonwealth of Australia, 2017. Richardson, David. Intellectual property rights and the AustraliaUS Free Trade Agreement. Canberra: Parliament of Australia, 2004. Thurbon, Elizabeth. Australias procurement policy leaves our exporters behind. 17 October 2014. 8 November 2017 https://data.worldbank.org/country/australia. Tiffen, Rodney. Mind the gap: benefits from free trade haven't quite gone the distance . 3 March 2010. 8 November 2017 https://www.smh.com.au/federal-politics/political-opinion/mind-the-gap-benefits-from-free-trade-havent-quite-gone-the-distance-20100302-pg6p.html. Tully, Stephen R. "Free Trade Agreements With The United States: 8 Lessons For Prospective Parties From Australias Experience." De Gruyter (2016): 395-418. United States Census Bureau. Trade in Goods with Australia . 2017. 6 September 2017 https://www.census.gov/foreign-trade/balance/c6021.html#1985.