(1)   Did the Government, before, during, or after negotiations with the United States on the Australia-United States Free Trade Agreement (AUSFTA), estimate the impact of the agreement on the trade balance between Australia and the United States; if so, what were the results and, in particular, did the Government expect that the AUSFTA would alter the trade balance in Australia’s favour, the United States’ favour or that it would remain the same.

(2)   Is he aware of reports that in the first seven months of the current financial year that Australia’s trade deficit with the US has increased by $856 million to $7.7 billion compared with the first seven months of the previous year.

(3)   Is he aware that Australian exports to the US for the first seven months of the current financial year have fallen from $5.5 billion to $5.3 billion and that Australian imports from the US during this period have risen from $12.3 billion to over $13 billion.

(4)   What steps, if any, has the Government taken to improve the impact of the AUSFTA on Australia’s trade balance with the United States.

(1)   A Centre for International Economics (CIE) study commissioned by the Department of Foreign Affairs and Trade and entitled Economic impacts of an Australia-United States Free Trade Area was released in 2001 and a further study entitled Economic Analysis of AUSFTA was commissioned in 2004. The focus of the studies was not on the bilateral trade balance between Australia and the United States. Rather, they attempted to estimate the overall impact of the Agreement on Australia’s output and welfare. Both CIE reports did, however, include modelling which looked at changes in the direction of Australia’s exports and imports. In the 2004 report, the Global Trade Analysis Project (GTAP) model projected Australia’s exports to the United States would increase by A$3.3 billion and that imports from the United States would increase by A$6.5 billion in the long run (this part of the modelling did not look at short run effects). The report noted that the results of this part of the study should be regarded with caution due to the difficulties in modelling the complex factors affecting supply and demand. It is important to note that the 2004 report predicted the expected liberalisation of trade and investment under the free trade agreement would result in an increase in Australia’s overall welfare (measured as real GNP) of A$52.5 billion over 20 years.

(2)   Yes. These figures refer to Australia’s merchandise trade deficit with the United States and are correct.

(3)   Yes. These figures refer to Australia’s merchandise exports and imports, but exclude services exports and imports. Australian merchandise exports to the United States have been falling since 2001 due in major part to the appreciation of the Australian dollar against the US dollar. This trend continued in the first 7 months of the current financial year. However, when volatile export items such as crude oil and passenger motor vehicles are excluded, Australia’s merchandise exports to the United States grew by 1.7 per cent during this time, even as the Australian dollar appreciated by a further 1.9 per cent against the US dollar. The fall in exports of crude oil and passenger motor vehicles to the United States was due to market factors unrelated to the FTA. The fall in our crude oil exports to the United States coincided with a surge in our crude oil exports to a number of our trading partners in Asia. Australia’s services exports, which comprise around one third of total exports to the United States, rose by 4.1 per cent to A$4.45 billion in 2005.

(4)   The purpose of the Agreement is to increase Australia’s welfare by boosting two-way trade, investment, and domestic competition. Bilateral trade agreements are intended to boost the exports of both countries. The Government is working actively to maximise the Agreement’s positive impact on Australian exports. The Government has expanded Austrade’s US operations to include 23 new export facilitators, now giving it representation in 18 cities (an increase of 12). Under the FTA, Australian exporters gained access to the $200 billion US Government procurement market. In May 2005, Austrade established a Selling to Government office in the Australian Embassy in Washington. In this financial year, the Selling to Government team has assisted over 20 Australian companies to establish over $90 million worth of contracts. Available evidence suggests that opportunities under the FTA are being taken up by Australian business. The 2005 Sensis Business Index has found that over one quarter of exporting SMEs nominated the United States as a major export destination, a rise of five per cent from the beginning of the year. A combined Austrade and Sensis study indicates that as of February 2006, the United States is now the most popular export destination for Australian small to medium businesses, growing 14 per cent in a year to now be ahead of New Zealand and Britain. In 2005 Austrade directly assisted 46 per cent more clients than in 2004 to achieve export success in the United States, and these clients achieved combined sales totalling 44 per cent more than in 2004. Invest Australia has recorded an increase in inquiries of thirty per cent in 2005 from potential US investors in Australia. The Australia-United States FTA is a long term commitment to strengthening trade relations and economic integration with the world’s largest economy. The Agreement delivers benefits - and should be judged - across the breadth of the economic relationship.