US motives in an FTA

Oth­er­wise intel­li­gent peo­ple are appar­ent­ly puz­zled about what the USA could get out of a Free Trade Agree­ment with Aus­tralia and, see­ing noth­ing obvi­ous that the USA might want assume that the US objec­tives are non-obvi­ous and pos­si­bly devi­ous.  It’s fer­tile grounds for con­spir­a­cy the­o­rists. The Oppo­si­tion Spokesman (Craig Emer­son), des­per­ate for notice, says that the Aus­tralian gov­ern­ment is in league with the USA in pur­suit of a hid­den agen­da to insti­tute high­er phar­ma­ceu­ti­cal costs and the ‘full sale of Tel­stra’ as part of the FTA deal. Like all mythol­o­gists, the pur­vey­ors of the assump­tion that the USA will demand com­pli­ance with the 70-year (‘Bono bill&#8217)copyright term or the abo­li­tion of the Phar­ma­ceu­ti­cal Ben­e­fits Scheme (PBS) in return for an FTA agree­ment are unde­terred by the lack of evi­dence. Nei­ther of these objec­tives is men­tioned in the one author­i­ta­tive state­ment of what the USA wants from the deal—the let­ter that the US Trade Rep­re­sen­ta­tive sent to the Pres­i­dent of the Sen­ate late last year. Nor has either yet emerged as an issue for the nego­ti­a­tions, accord­ing to gov­ern­ment offi­cials. In March, the US nego­tia­tor told the media that he wasn’t sure whether the claims by some US phar­ma­ceu­ti­cal com­pa­nies about pric­ing in the PBS was an issue that could be addressed in an FTA. It’s just not nec­es­sary to go hunt­ing around for devi­ous motives: the incen­tives are in fact obvi­ous. Even the eco­nom­ic advi­sors to the Aus­tralian gov­ern­ment had no prob­lem find­ing a pret­ty clear US motive in their report in 2001 on the like­ly ben­e­fits of an FTA.

“… For GDP, the net present val­ue of ben­e­fits [from an FTA]is US$15.5 bil­lion for Aus­tralia and US$16.9 bil­lion for the Unit­ed States.”

Hard to imag­ine a more straight­for­ward result.  The USA, which has for decades run a sub­stan­tial trade sur­plus with Aus­tr­lia, will be bet­ter off with a Free Trade Agree­ment (so will we) and will gain even more than Aus­tralia. Of course, there are debates over the CIE num­bers. In my paper on the poten­tial gains for Agri­cul­ture in the FTA (for the AUSTA Con­fer­ence) I sug­gest some rea­sons for think­ing that CIE may have under­es­ti­mat­ed the gains for Aus­tralia. As is often the case with mod­els of the wel­fare gains from trade its possible—even likely—that the gains have been under­es­ti­mat­ed for both sides. But wait… there’s more. Its a reli­able rule of thumb that the motives for almost any ‘region­al agree­ment’ will turn out to be more about for­eign pol­i­cy than eco­nom­ic gain. As it hap­pens, there are some non-obvi­ous gains for both the USA and Aus­tralia in an ambi­tious FTA. But that sto­ry has to wait for anoth­er post …

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