Should Australia Continue Negotiating Bilateral Free Trade Agreements?: A Practical Analysis
University of New South Wales Law Journal, Vol. 27, No. 3, p. 667, 2004
36 Pages Posted: 16 Dec 2004
In February 2004, Australia and the US successfully concluded negotiations for the Australia-United States Free Trade Agreement (AUSFTA). The agreement resulted from 11 months of complex negotiations in which both sides were forced to compromise and withdraw from their initial positions. While the AUSFTA negotiations were barely noticed or reported in the United States (US), where American efforts to negotiate a regional free trade agreement (FTA) with the ten South American nations (commonly called the Free Trade Agreement of the Americas (FTAA)) took centrestage, the AUSFTA negotitions and completion have been at the forefront of media activity in Australia.
Upon taking effect, the AUSFTA will immediately eliminate tariffs on 99.5% of all trade between the two countries, making the agreement one of the most significant in terms of the reduction of tariffs ever achieved in a bilateral framework. Economic modelling anticipates that Australia stands to gain over $6 billion from the AUSFTA and the agreement has the support of every state premier, every large business association, every major industry association and most trade economists. But the agreement has not been universally supported. Some commentators believe Australia's involvement in the AUSFTA negotiations signalled its intention to abandon the multilateral framework in favour of operating in a more fragmented bilateral world. This article will prove that such an assertion lacks credible foundation by demonstrating not only Australia's continued commitment to the multilateral agenda, but also that the two frameworks can operate together; that is they are not mutually exclusive. In addition, the article will assert that if Australia wishes to maintain its place in the world, it has no choice but to negotiate bilateral agreements. The article does, however, caution that FTAs should not be negotiated without regard to their effect on the multilateral system and warns that too rapid an explosion of FTAs has the potential to destabilise the entire foundation of the multilateral trading system.
Part II will briefly explain origin of the multilateral trading system and the compatibility of FTAs with the system before detailing how vast differences of opinion between WTO Member States has stalled progress in the multilateral trading system and how, because of the current situation, many Members have begun negotiating FTAs to protect their own interests and further liberalise trade. The section will also highlight Australia's efforts to re-start multilateral negotiations as well as otherwise evidence its commitment to the multilateral framework. Part III analyses why nations are moving toward bilateral FTAs and demonstrates that nations are doing so in order to further the agenda beyond what can be accomplished multilaterally (whether it be in the form of increased trade liberalisation, market access, environmental protection, etc.) and, perhaps more importantly, to avoid their exports being outpriced and effectively excluded from many markets. This section also explains that Australia's failure to negotiate FTAs with key trading partners is risking its export markets and costing consumers. Part IV investigates FTA possibilities for Australia and finds substantial benefits could result from FTAs with several Asian nations. Part V explores several potential drawbacks of FTAs, including their effect on the multilateral system, the risk of trade diversion and the difficulty of gaining substantial trade liberalisation from FTAs. Part VI concludes that while the Australian government should negotiate more FTAs in order to drive the multilateral agenda and to prevent Australian exporters from being excluded from markets, it should also continue to fully participate in the multilateral process and take account of the effects of its FTAs on the multilateral system.
Keywords: International trade, free trade agreement, preferential trade agreement, WTO, bilateral, regional, multilateral, Australia
JEL Classification: F1, F13, F15, K33
Suggested Citation: Suggested Citation