Free Trade Agreement Nearly Here

The Australia–US Free Trade Agreement is due to come into force on 1 January 2005. The deal, incorporated into Australian legislation and ratified by Royal Assent in August this year, will involve the abolition of many US tariffs that currently restrict the entry of Australian goods into lucrative US markets.

Picture of New York City

But the traffic flows both ways – US goods coming into Australia will also be immune from discrimination or artificial manipulation through locally imposed tariffs. At a very simplistic level, Australian hardware manufacturing companies should be relatively safe from “cheap US imports” because of the traditional strength of the US dollar compared to our own currency, and the fact that Australian costs of production (in US dollar terms) are low compared to those of many US companies. Asian exporters would probably undercut most generic US exports anyway.

Most focus, therefore, has been on the tremendous opportunities that exist for Australian companies to find new markets in the US$11 trillion annual economy.

The majority of Australian hardware goods will fall under the umbrella of Industrial (General) non-agricultural products. Australian exports to the US in this broad sector amounted to AUS$6.5 billion last year, but the removal of US tariffs should enhance the potential for Australian niche manufacturers to shore up trade deals within US markets. In a world where “points of difference” are highly prized, there are bound to be specific markets in which a US trade partner is eager to lock in exclusive arrangements with an Aussie supplier. See last month’s eNewsletter about tips on exporting goods to foreign countries.

Back Door Shut
On the subject of third-party imports and exports, there are many Australian manufacturers who might see the FTA Agreement as a means of avoiding tariffs on cheap South American commodities brought into Australia via the US. But the prospect of importing a low-cost Mexican hammer into Australia via a US port should be dismissed immediately. Rules of origin mean goods produced in either the US or Australia will only be deemed legitimate if they have undergone “sufficient transformation of raw materials or inputs from third countries…”

From Strine to Twang
There are many elements of the Agreement that will only become clear over coming years. Top-end hardware items that require extensive research and development will undoubtedly be produced in larger US markets, and introduced into Australia so freely that local firms will have no incentive to mount a counter-attack. In other words, Australia’s more specialised or technical manufacturing processes might diminish over time as we come to see the US as a natural provider of newly developed technologies. Just think of how US-made computers have made their way into Australia.

Trade links between our two countries are bound to tighten once the fine details of the Agreement have been ironed out, though it remains to be seen whether Australians will develop an American twang in their speech – or whether a new form of Yankee strine will appear in the offices of US hardware distributors.

For more information visit the Australian Department of Foreign Affairs & Trade website atwww.dfat.gov.au/trade/negotiations/us.html

By John Power