Australia has numerous free trade agreements with countries around the world, and they play an important part in Australia’s economic success, espcially when it comes to Australia’s top imports. These agreements generally aim to remove barriers for Australian businesses to trade with other businesses halfway around the world. The result: a wealth of new opportunities and mutual economic growth.
If you’re seeking to understand what free trade agreements are, how they work and what agreements you can benefit from in Australia, you are in the right place! Below we take a look at the nature of these agreements, why countries may enter into such agreements and what benefits they have brought to Australia.
A free trade agreement (FTA) is an agreement between two or more countries that removes barriers to trade and investment. For instance, an agreement may seek to remove tariffs, import quotas, subsidies, embargos or local content requirements between multiple countries. The removal of these barriers aims to encourage businesses to freely trade with and invest globally, facilitating economic growth in each nation taking part.
FTAs are normally formal written agreements drafted by the governments of two or more countries. Such agreements, however, usually maintain restrictions. A country may, for example, allow the trade of medicines to and from its borders, with the exception of medicines not approved by its own government regulators. Some agreements may also maintain tariffs on certain goods in order to protect domestic manufacturing from international competition.
Australia and other countries regularly enter into FTAs because of the large number of economic benefits they bring to their local businesses. These benefits include:
Australia currently has 14 free trade agreements in place with 18 countries. As of 2019, Australia is still looking to negotiate further agreements. FTAs cover about 70% of Australia’s two-way trade today (as opposed to only about 26% about five years ago).
Below, we take a look at each of these agreements and observe what benefits they’ve brought to Australian businesses.
Australia’s newest free trade agreement entered into force on 11 February 2020. PAFTA aims to build a ‘gateway’ for Australian businesses to enter into the Peruvian marketplace and strengthen our economic position in that region of South America. The agreement is said to be particularly beneficial for beef, sugar and dairy farmers who will attain “historic” access into the market. Some of the long-term aims of PAFTA include:
It’s also said that PAFTA offers the “best services commitments” that Peru has offered any other country, forging new opportunities for Australian mining services.
Since, 1 January 1983, the ANZCERTA is one of the world’s most comprehensive FTAs. Entered into between Australia and New Zealand, the ANZCERTA governs virtually all trade between the two nations. Australian businesses have enjoyed many benefits from Trans-Tasman trade because of this agreement, some of which include:
Our FTA with Singapore entered into force on 28 July 2003 and it has been key to our economic relationship with our South East Asian neighbour. Some of the benefits Australian businesses have enjoyed with this agreement include:
The United States is Australia’s largest investor and one of our most important trading partners. As of December 2018, the U.S. accounted for nearly 30% of our foreign investment stock. In 2018, they were also Australia’s third-largest trading partner for goods and services, worth around $75 billion. We imported over $50 billion worth of goods from the U.S. that year.
Coming into effect on 1 January 2005, this FTA has generated significant benefits for Australian business including:
Coming into force on 1 January 2005, the TAFTA has been key in allowing Australian businesses to take advantage of the numerous opportunities that Thailand has to offer. With the liberalization of trade between the two economies, Australia has been able to tap into the region’s second-largest economy. It has also been highly beneficial for Thailand, as this is the first FTA it has signed with a developed nation. The benefits for Australian business has included:
Entering into force on 6 March 2009, our FTA with Chile also provides huge benefits with our friends over in South America. Since the agreement came into operation, Australian businesses have started to spread across the Chilean nation and now exceed over two hundred. Some of the benefits the FTA grants Australian businesses include:
Our FTA with Malaysia came into effect on 1 January 2013. This is yet another detailed and comprehensive FTA that allows Australia to take advantage of the rich opportunities presenting itself amongst the Asian continent. It builds on the already comprehensive AANZFTA (discussed above), to which Malaysia is also a signatory.
Malaysia is one of Australia’s closest partners in the Asian region trade between Australia and Malaysia rising to $17.2 billion in the years 2011-12. The National President of the Australia Malaysia Business Council called MAFTA a “game-changer”, saying it’s “one of the best free trade agreements we’ve seen”.
Some the wide-reaching benefits that Australian businesses have enjoyed include:
Australia has always had strong economic ties with South Korea which has only been strengthened with the entry into force of KAFTA on 12 December 2014. It has significantly freed up trade between the two countries, with now over 99% of Australian exports being eligible for duty-free trade.
The benefits of KAFTA for Australian business has included:
Japan is currently Australia’s second-largest market for exports and one of our largest sources of overseas investment. Entering into force on 15 January 2015, the JAEPA gives Australian businesses greater access to markets and also provides larger protection for Australian investors.
One of the most important achievements for Australia contained in the JAEPA is greater entry into Japan’s agricultural market. This market is highly protected in Japan, and Australian business now have the ability to enjoy zero tariffs on goods like bulk wine, raw sugar, wheat and barley for animal feed as well as seafood.
Other benefits include:
It’s well known that China is Australia’s most important trading partner and plays a fundamental role in our country’s future wealth. China bought around $116 billion worth of Australian exports in 2017, whilst Chinese investment into Australia reached up to $65 billion by late 2017.
ChAFTA, which entered into force on 20 December 2015, takes this strong economic relationship to the next level. The wide range of benefits that Australians enjoy under this agreement include:
Since the Agreement came into force in 2015, the Australian economy has greatly benefited. China was Australia’s largest service market in 2017, with exports valuing over $15 billion in services. Australia had also invested over $77 billion in China by the end of 2017, whilst Chinese investment into Australia increased to $65 billion by the end of 2017 (up dramatically from just $6 billion around ten years ago).
On 17 January 2020, a new free trade agreement between Hong Kong and Australia entered into force. Hong Kong has the fifth-largest source of total foreign investment for Australia, boasting a stock of $118.8 billion in 2018. Additionally, Hong Kong features the eleventh largest level of total Australian investment, boasting $52 billion in 2018. The Agreement reaffirms the understanding that Hong Kong, a Special Administrative Region of China, operates on a ‘One Country, Two Systems’ basis.
The Hong Kong Free Trade Agreement will provide many benefits for Australian businesses, including:
The TPP was ratified by Australia in October 2018, a comprehensive agreement between a raft of countries including Canada, Japan, Mexico, New Zealand and Singapore. The aim of the Agreement was to assist Australian businesses in growing and to introduce over $15 billion to the economy by 2030. We were the sixth country to ratify the Agreement, and now we are one of eleven countries part of the TPP.
The Agreement has seen both the agricultural and professional services sectors gain access to further markets, including the Canadian market for grains, sugar and beef.
Australia signed a comprehensive FTA with New Zealand and the Association of South East Asian Nations (ASEAN) which entered into force in January 2010. Laos, Cambodia and Indonesia also followed in 2011 and 2012. ASEAN is an intergovernmental organisation consisting of ten countries and Australia’s relationship is important not only economically, but also culturally and politically.
Some of the key benefits that Australia enjoys under the AANZFTA include:
The countries included within this arrangement include Australia, New Zealand, Laos, Cambodia, Thailand, Indonesia, Brunei, Burma, Malaysia, the Philippines, Singapore and Vietnam.
The comprehensive economic partnership agreement between Australia and Indonesia came into effect on 5 July 2020. It aims to create the framework in which both countries will strengthen their economic co-operation. Indonesia, being a fast-emerging economy and very possibly the world’s fifth-largest economy by 2030, has for many years presented large opportunities for Australian companies. Some of these opportunities that IA-CEPA will unlock include:
IA-CEPA aims to operate side-by-side with AANZFTA, discussed above.
The United Kingdom and Australia signed a free trade agreement on 17 December 2021, and is yet to come into effect at the time of writing. The Agreement is comprehensive and comes at a significant time as the United Kingdom seeks to form economic partnerships after formally withdrawing from the European Union in January 2020. The Agreement presents a raft of benefits for Australian businesses, especially in the agricultural, forestry and fisheries sectors.
Some of the benefits include:
You can read more detail about the FTA in our blog outlining everything you need to know.
Negotiations are currently underway for an FTA between the European Union and Australia. Trade Minister Simon Birmingham wanted to reach a complete agreement with the EU by the end of 2020, but negotiations intensified when he said Australia would not “capitulate” to European demands over the exclusive use of central food names like ‘feta’ cheese and ‘parmesan cheese’. The Senator also claims that he will strongly defend over 170 foods and 230 spirits that the EU want protected.
Trade negotiations have also become particularly difficult due to recent discussions over climate change. Senator Birmingham has claimed France is trying to force Australia to adopt certain climate change targets as part of the FTA but said Australia would not agree on that the FTA should focus on “commercial realities”.
As of 2021, negotiations have now been paused and are expected to commence in February 2022.
There is a potential market in the EU that Australia could benefit greatly from should an EU-Australia trade agreement be reached. This includes agriculture, professional services and financial services.
It is unpredictable how the trade war between the U.S. and China will affect the FTAs that Australia has ratified.
Nevertheless, perhaps the key to surviving the current trade war is to sign and ratify more FTAs. FTAs could very well be the key to keeping our economic relationships clear and beneficial for all parties, helping generate revenue for national economies at a much faster rate.
It is important for businesses in Australia to remember that FTAs do exist for business, and they can and should be used to a business’ advantage.
We can help your business take advantage of the many FTAs Australia has to offer. For further information, please contact ICE Cargo and our international trade specialists.
