Free Trade Agreements

FTAs are treaties or contracts between two or more countries to reduce or eliminate barriers to trade and investment.


They are overseen by the WTO, and can be between two (bilateral) or more countries (multilateral).

All FTAs have the following common features:

  • Schedule that reduces the tariffs (tax costs associated with imported goods and services).

  • Reduction or elimination of quota restrictions (number or value of goods or services being imported).

  • Ease or reduction in custom procedures, including amount of paperwork and time it takes for goods to pass over borders.

  • No discrimination between countries by not favouring one nation over another.


PURPOSE: Support trade of goods and services between countries to encourage economic growth and reduce poverty.

ROLE: Does this by removing barriers of trade, such as:

  • Eliminating tariffs

  • Removing quotas

  • Minimizing government subsidies that support their local industry over open global competition.


Benefits of FTAs to Aus Businesses:

Financial Growth

  • Reduced costs - elimination of extra costs such as tariffs, and enables access to a global supply chain to source cheaper or better quality raw materials.

  • Increased sales - gives access to new markets with reduced barriers, allowing them to reach more potential customers, increasing productivity, output, and sales → Leads to increase in economies of scale.

Promotes Innovation

To compete on a global scale, the Aus business must maintain a competitive advantage over both local and global businesses, meaning they must become more innovative in their processes, product, and marketing to maintain this competitive advantage.

Diverse Workforce

Provides access to a wider range of workforce expertise and knowledge, which leads to a more diverse employees. Workforce diversity allows the business to understand its new markets to increase customer satisfaction.


Challenges of FTAs to Aus Businesses:

More Competition

Increases competition within the domestic market as multinational businesses enter the Aus market, as well as when trading on the global market. It is difficult to compete with these multinational businesses as they have reached economies of scale so can offer products at lower prices.

Geopolitical Risk

Aus business opening operations in a new foreign market because of FTAs opens themselves up to geopolitical risk because after investing time and money into the new market, sudden political disagreements may result in assets being forfeited or sudden drops in demand, leaving excess stock for the business.

Ethical Issues

Aus businesses can more freely access resources from other countries and can set up offshore facilities that take advantage if cheaper labour. These countries may not have the same level of regulations on protection of the environment and labour standards, leading to negative public image with reduced demand from Aus consumers.


ANZCERTA (Australia- New Zealand Closer Economic Relations Trade Agreement)

A bilateral FTA between Australia and New Zealand that covers trans-Tasman trade in goods.

ROLE: Strengthens the trading relationship between Aus and NZ by eliminating trade barriers such as tariffs.

KEY FEATURES:

  • Eliminated all tariffs and quotas.

  • Trans-Tasman Foods Standards allows for easy flow of food products between borders.

  • Mutual recognition of trade standards and professional qualifications allows movement of labour between countries.

  • The Protocol on Investment means both countries benefit from lower compliance costs and greater legal certainty when investing in the other country.

AANZFTA (ASEAN Australia- New Zealand Free Trade Agreement

A multilateral FTA between Australia, New Zealand, and the countries of ASEAN (11 countries in Southeast Asia such as Cambodia, Malaysia, Indonesia, Vietnam, Thailand, etc, including recently joined Timor-Leste).

ROLE: Strengthens trading relationship with close surrounding countries by reducing trade barriers such as tariffs.

KEY FEATURES:

  • Eliminated a large % of tariffs and quotas.

  • Simplified customs procedures.

  • Regional rules of origin - goods originating in Aus, NZ or ASEAN member country will qualify for preferential tariff treatment.

  • Allows for the ease of movement of business persons (those engaged in trade and investment activities).