The Australia-United States Free Trade Agreement: An economic evaluation

Abstract

A bilateral Free Trade Agreement (FTA) between Australia and the United States came into effect on 1st January 2005. Since the U.S. is one of the main trading partners for Australia, it was anticipated that the FTA would bring a substantial increase in Australia's bilateral trade with the United States. It would also have important implications for Australia's other main trading partners such as Japan, and China. This paper seeks to provide a quantitative assessment of the impact of the FTA by undertaking simulations usingthe Global Trade Analysis Project (GTAP) model. By simulating the GTAP multi-country CGE model, the paper evaluates various economy-wide effects, sectoral level effects, and trade diversion and trade creation effects in the two countries in response to bilateral free trade. It will also identify the effects on trading partners outside the FTA. The results will provide a preliminary indication of the magnitude of welfare gains involved.