The Australia US FTA: implications for international education Prepared for The Path to Cultural Understanding and Development 18th IDP Australian International Education Conference, Sydney 5-8 October 2004 Presentation by Andrew Stoeckel Executive Director Centre for International Economics, www.thecie.com.au Full study: Economic analysis of AUSFTA: Impact of the bilateral free trade agreement with the United States http://www.thecie.com.au/reports_list.htm
Update Agreement negotiated US Congress passes the deal ALP insisted on amendments to pharmaceuticals and copyright Amended legislation passes Australian Parliament Clarification of how our legislation gives effect to FTA Should come into force 1January 2005 2
What is the Agreement all about Comprehensive agreement covering trade in goods and services, investment, intellectual property few notable exceptions, e.g. sugar Contains bindings on services trade and provision for most favoured nation and national treatment Provides a framework for further liberalisation, especially services, including education 3
Investment liberalisation $50 million threshold lifted to $800 million notification required for investments with total assets greater than $800 million where acquisition cost is $800 million or more including non-residential real estate where takeover by foreign entity with assets greater than $800 million or accounts for more than 50 per cent of assets 4
0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 FDI restrictions in OECD countries Restrictions on foreign personnel and operational freedom Screening requirements Limits on foreign ownership 5 UK Ireland Austria Australia Mexico Turkey Canada Iceland Netherlands Germany Denmark Belgium Italy France Greece Sweden Portugal Hungary Spain US Czech Rep Switzerland Finland Norway NZ Poland Japan Korea
Australia s trade with the United States Australian imports (%) Other ASEAN(10) USA 19 EU Japan NZ 6
Australia s trade with the United States US exports (%) NAFTA Japan Australia 1.6 Other EU China 7
Distribution of tariff rates United States Percentage 40 35 30 25 20 15 10 5 0 Average tariff 2.8 per cent 0 0-5 5-10 10-15 15-20 20-25 25-30 30-35 35-40 40-45 45-50 >50 Tariff rate per cent 8
Distribution tariff rates Australia Percentage 50 40 30 Average tariff 3.8 per cent 20 10 0 0 0-5 5-10 10-15 15-20 20-25 25-30 30-35 Tariff rate per cent 9
Major barriers: Australia Textiles Wearing apparel Leather products Paper products Motor vehicles and parts 9.7% 19.1% 7.3% 3.8% 7.6% Metal products, wool products, ferrous metals (ave) 4.2% Professional services 0.2% 10
Major barriers in the US removed Dairy products (part) Beef Textiles (but rules of origin) Manufactured products (especially light metals) Motor vehicles (pick-up trucks) Other manufacturing 11
The economic gains from liberalisation Real consumption, GDP The economic gain is the net present value of this income stream New growth path Baseline Economic growth under businessas-usual Liberalisation Time 12
What should be in new growth path Trade creation Trade diversion Resource costs Extra competition dynamic effects Strategic response of other trading partners Liberalisation of investment Other costs, for example rules of origin 13
Changes in real GNP (welfare) 0.8 Percentage deviation... 0.6 0.4 0.2 Investment liberalisation Dynamic productivity improvement 0.0 Trade liberalisation 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 14
Present value of welfare and production gains: Australia 20 years 60 57.7 52.5 60 40 40 Reduction in risk premium $ billion 20 $ billion 20 Dynamic productivity improvement 0 Real GDP Real GNP 0 Real GDP Real GNP Trade liberalisation 15
Education and the Agreement Education barely mentioned in the Agreement Falls under services Current arrangements for services locked in more certainty to providers framework established for further liberalisation Working Group established to look into mutual recognition for professionals 16
Implications of AUSFTA for education Greater demand for education services Review of mutual recognition arrangements Degrees Experience Professional bodies Curriculum Specialisation US market already well supplied Competitive and efficient (for higher education) But US not a big market for Australia and vice versa 17
Global demand for higher education in Australia 120000 100000 80000 60000 China Malaysia India Indonesia 40000 20000 0 2000 2005 2010 2015 2020 2025 US 18
Summary Agreement due to come into effect 1January 2005 Both countries better off Trade already largely free Existing trade provisions for services locked in Working Group to look into mutual recognition issues Education issues with Asia, especially China, far more important 19
20
Dynamic effects: domestic Wagyu beef production, Japan tonnes 300 250 200 150 100 50 Market liberalisation BSE scare 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 21
Baseline Baseline matters for example, other FTAs other announced tariff cuts Example of beef 22
Investment liberalisation: what has not changed Limits or requirements for: newspapers broadcasting Telstra CSL Qantas International airlines other than Qantas Federal leased airports urban land shipping 23
Direct US investment in Australia historical-cost basis Depository institutions 5% Other finance and insurance 11% Utilities 4% Information 1% Manufacturing 29% Wholesale trade 8% Scientific and technical services 3% Other industries 16% Mining 23% 24
Sensitivity analysis 0.00025 Relative frequency 0.0002 0.00015 0.0001 0.00005 0 95% chance that estimates lie in this range 1096 1846 2595 3345 4095 4844 5594 6344 7093 7843 8593 $ million 25
Changes in employment and wage in Australia Per cent deviation... Employment 0.3 0.2 0.1 0.0-0.1 2004 2008 2012 2016 2020 2024 Per cent deviation Real wage rate 1.5 1.2... 0.9 0.6 0.3 0.0 2004 2008 2012 2016 2020 2024 26
Major sectoral changes Leather products Beef Manufactures Milk Rice and processed rice Construction Transport Education, health 27
Implications of Agreement for investment Through changed investment rules Through changed barriers to trade and services changes Australia s macroeconomic performance changes return to capital and leads to investment or disinvestment in key sectors dynamic effects can be important 28
Australia s trade with the United States Products imported from the US (%) Other Other mfg Services Aviation Automotive Telecom Agriculture Computers 29
Macro effects of investment liberalisation Australia restrictive c.f. most other OECD US is a large investor now changes could be made on MFN basis Restrictions increase the cost and risk of investing in Australia Could lead to a fall in the equity risk premium of 5 basis points range from 2 to 20 basis points 30
Real investment Per cent deviation 2.0 1.5 1.0 0.5 0.0 2004 2008 2012 2016 2020 2024 31
Drivers behind results Trade between countries Barriers to trade Assumptions of model data parameters theory 32
Why bother measuring effects Any policy change has benefits and costs To get a balanced view of benefits and costs means looking at: indirect invisible long term, as well as direct and visible Economy-wide models most valuable tool to achieve this balanced view 33
The broken window fallacy Window broken $500 not spent on new suit Loss of business for tailor $500 to glazier to fit new window No spending WHAT IS SEEN Glazier spends on supplier Supplier spend on goods and services More jobs WHAT IS NOT SEEN Fewer jobs Net effect: economy minus one suit, not seen 34
Measuring benefits and costs means using a model Direct effect: Indirect effect: Indirect effect: Increased exports to USA Less exports to, say, Japan Extra cost to produce export Direct effect: Indirect effect: Extra imports from USA Lower costs for users here Have to have a global economy-wide model to capture all these effects 35
Models Make assumptions explicit Allows repeatability Distill debate down to things that we can focus on and advance knowledge 36
Importance of trade between Australia and the United States Australia 2002 United States 2002 Exports to Australia A$30 bn Exports to the US A$17 bn % of total 11.3% 18.6% Imports from US as % of total % of total 1.7% Imports from Australia as % of total 0.7% 37
Composition of Australia s GDP Agriculture (3%) Mining (5%) Manufacturing (12%) Services (80%) 38