A free trade treaty struck between Canberra and Washington last month will cost the Australian government A$1.46 billion over four years, according to recently published analysis.
The cost to government coffers between fiscal 2004-05 and 2007-08 is based on the expected loss of tariff revenue from US imports, and assumes the pact will come into force on Jan. 1, 2005.
According to the Treasury Department, the financial cost will be around A$190 million in the year ending June 30, 2005, A$400 million in 2005-06, A$420 million in 2006-07 and A$450 million in 2007-08.
However, the estimates don’t take account of the scope for additional lost tariff revenue that could arise if imports from the US displace imports from other countries, the government report said.
“On the other hand, the estimates also do not take into account the potential economic growth that the agreement may generate and any additional taxation revenue resulting from this growth,” the government study said.
The Australia-US free trade agreement still requires approval from the US Congress and the passage of related legislation in the Australian parliament.
Prior to clinching the deal, the Australian government said the trade accord could add up to A$4 billion a year to gross domestic product.
The government has since commissioned a fresh independent examination of the likely economic benefits based on the agreed elements of the deal.
After 12 months of tough negotiations, Canberra failed to secure Australian sugar farmers greater access to the lucrative US market.
But they have ensured duty-free access for 97% of Australia’s manufacturing exports to the US, valued at A$5.84 billion last year, and improved access for Australia’s agricultural exporters, including beef and dairy producers, with 66% of agricultural tariff lines moving to zero from day one.
The major opposition Labor Party is yet to declare whether it will support the deal in the parliament.
The government report presented to the Joint Standing Committee on Treaties said the agreement is a valuable springboard from which Australia can pursue greater engagement and closer economic integration with the world’s largest economy.
It also helps to preserve Australia’s competitiveness in the US market as the US pursues bilateral trade deals with a range of other countries, it said in assessing the national interest impact of the treaty.
“Economic gains from the agreement are expected to be significant,” it said.
“The agreement will remove a significant number of direct and indirect trade barriers and creates new market access opportunities,” it added. (Dow Jones & Company, Inc.)