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"IMF Marks Down US Free - Trade Deal"

November 17, 2003, Australian Financial Review, By Mark Davis

As negotiations for a free-trade deal with the United States move into their final stages, research by the International Monetary Fund has concluded that such an agreement would be a negative for the Australian economy.

Economic modelling by IMF researchers showed that a free-trade deal with the US would shrink Australia's gross domestic product marginally because of the loss of trade with Japan, other Asian countries and Europe.

In a working paper published last month, IMF researchers Alvin Hilaire and Yongzheng Yang estimated that an FTA that dismantled all trade barriers between Australia and the US would boost Australian exports to the US by $US2.97 billion ($4.11 billion) a year.

But they also found that an FTA would increase US imports to Australia by $US5.25 billion a year and would cut imports from other countries by $US2.9 billion.

The total impact on the Australian economy was predicted to be a small 0.03 per cent cut in GDP, while the impact on the US economy was negligible.

"In the context of fairly low existing tariffs, the simulations point to relatively small overall welfare and output effects of an Australia-US agreement on the partners," the paper said.

"The slightly negative impacts on Australia are related to trade diversion from Japan, Asia and the European Union in machinery and equipment, basic manufactured products and textiles."

But the paper said that despite the overall negative impact on theAustralian economy, local agricultural producers stood to gain a significant new export market in the US, especially for processed crops and meat and dairy products.