Here are three reasons for trading businesses to take seriously a free trade agreement between Australia and the USA. First: it will be big. The World Bank measures the GDP of Australia as larger than the combined GDP of all of the 10 aspirants to EU membership. The USA’s economy is almost as large as that of the current EU of 15 countries. So the combined Australia/US region has a GDP, today, that is almost the same size as that of greater Europe. In fact, it’s economic impact is more widespread because an existing framework of agreements with NAFTA countries (Canada, Mexico), with CER (New Zealand) and with ASEAN members (free-trade agreements with Singapore and probably with Thailand) will transmit growth due to our trans-Pacific link throughout the Asia-Pacific region. Second: it will evolve rapidly. The growth prospects for the Australia/US ‘region’ are probably not as great as the growth prospects for the enlarged EU. We have bigger distances to contend with and we’re not attempting to achieve the degree of political and regulatory integration that characterizes the EU or Australia’s agreement with New Zealand. But markets are more flexible in Australia and the USA than in most of Europe and external barriers to those countries outside the ‘region’ are lower. So you can expect to see both Australia and the USA move quickly to extend the terms of their bilateral agreement to other regional countries who would like to facilitate trade and economic exchanges without going down the ‘deep integration’ path to adopting the same laws, administration or external relations. Third: it will be innovative. For all the hand-wringing that has taken place in the academic community over the past half-century about free-trade agreements, they have grown at biological rates without debilitating the multilateral system. But the WTO is in difficulty because it’s membership is too large and too diverse to continue to devise ‘one-size-fits-all’ agreements that respond to every members’ needs. Several of the WTO agreements are not implemented by governments that have neither the resources nor the national priorities needed to do so. The writing has been on the wall now for almost a decade: the multilateral system has to find a more sophisticated way to handle diversity while maintaining the essential uniformity of rights and obligations among its members. Just as the Australia-New Zealand Closer Economic Relations agreement in 1986 showed the way forward on multilateral agreements on services trade, the negotiators in the Australia-US agreement have an historic opportunity to show how regional agreements can accelerate the facilitation of trade and economic exchanges without harming the global trade enterprise.
Peter Gallagher is student of piano and photography. He was formerly a senior trade official of the Australian government. For some years after leaving government, he consulted to international organizations, governments and business groups on trade and public policy.
He teaches graduate classes at the University of Adelaide on trade research methods and the role of firms in trade and growth and tweets trade (and other) stuff from @pwgallagher