Analysis of the Economic Impact of the US-Australia Free Trade Agreement

5．Conclusion

In this paper the negotiation process and economic impact of the US-Australia FTA have been analyzed and are summarized as follows. First, theoretical explanations were given on the necessity of compromise, which is widely recognized in a general FTA negotiation, including that between the US and Australia. Although free trade can become a solution of negotiation, it is not assured that negotiations reach such a solution, and it remains likely that negotiations can be concluded even if certain tariffs are kept. Next, tracing the negotiation process and background of the US-Australia FTA, things that led to the exceptional treatment of sugar, dairy, etc. on the part of the US were clarified. The analysis of the economic impact of the conclusion of FTA between the US and Australia in employment of GTAP showed that under the US-Australia FTA, tariffs are eliminated mainly for agricultural products; that the static effect of tariff elimination is not so great macro-economically for both countries because of the limited weight of agricultural products in the overall economy; that the FTA has a limited adverse effect on third countries; that it is difficult to understand Australia's concession as inevitable from the viewpoint of bargaining theory; and that the US deferment in eliminating tariff quotas on sugar significantly harmed the expectable profit of Australia's sugar producers.

The conclusion of the US-Australia FTA is not expected to bring a great deal of macro-economic benefit to the US, and is probably more significant as a lever to gain the initiative in the WTO negotiations, and as a means to reinforce security. Meanwhile, Australia made a great concession by accepting the exclusion of sugar at the beginning of the negotiation, when tariff elimination on sugar was strongly expected in Australia, and as the macro-economic impact of the FTA is not small, it is difficult to understand Australia's justification of the agreement.