Australia has numerous free trade agreements with countries around the world, and they play an important part in Australian economic success. 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.
What is a Free Trade Agreement?
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 aim 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.
Why enter into a Free Trade Agreement?
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:
- Tapping into overseas markets. FTAs are a great way for Australian businesses to tap into otherwise unexplored or previously unreachable international markets. An Australian entrepreneur operating under an FTA, could, for example, access a range of products out of China to sell locally.
- Reducing import costs. With the removal of expensive barriers to trade, like tariffs and import quotas, importing materials to produce goods and services becomes cheaper. In turn, this helps local businesses offer competitive products at reasonable prices whilst maintaining profitability.
- Attracting overseas investors. With removing barriers to investment, Australian companies can access a range of potential international investors to help grow their business. FTAs incentivise overseas investors to consider investments in the Australian economy and create positive results for all parties involved.
What are the Free Trade Agreements with Australia?
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.
Peru-Australia Free Trade Agreement (PAFTA)
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:
- the complete removal of tariffs on beef over 2020 to 2025;
- enhanced access to the Peruvian sugar market for Australian business compared to other sugar exporting nations;
- duty-free access for Aussie wine, sheep meat, kangaroo meat, almonds and wheat – this has immediate effect; and
- duty-free access for pharmaceuticals and medical devices.
It’s also said that PAFTA offers the “best services commitments” that Peru has offered any other country, forging new opportunities for Australia mining services.
Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA)
Coming into effect on 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 business has enjoyed many benefits from Trans-Tasman trade because of this agreement, some of which include:
- The prohibition of all tariffs;
- The signing of the Trade in Services Protocol means that most services can be traded between Australia and New Zealand without restriction;
- The agreement in the form of the Trans-Tasman Mutual Recognition Arrangement allows for anyone who is registered to practice an occupation in Australia to practice in New Zealand (and vice versa);
- The signing of the March 2013 Investment Protocol makes it much easier for New Zealanders to invest their money into Australia (and vice versa); and
- The enjoyment of lower compliance costs for food exporters under the 1995 Food Standards Treaty. This treaty marked the creation of uniform rules for food standards and currently allows for greater consumer choice.
Singapore-Australia Free Trade Agreement (SAFTA)
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 elimination of all tariffs;
- The gradual easing of restrictions on the number of wholesale banking licenses;
- A better operating environment for financial services providers;
- The removal and easing of residency requirements for Australian professionals; and
- Reduced red tape in industries like education, e-commerce and professional services.
Australia-United States Free Trade Agreement (AUSFTA)
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:
- Gradual elimination on tariffs on almost all U.S. agricultural tariff lines;
- Greater incentives for U.S. investors to invest in Australian business;
- A system for implementing safeguards in case of an injury to domestic industry;
- Creation of a liberal trading platform for electronic commerce; and
- Banning a wealth of market access restrictions on service suppliers and on transfers.
Thailand-Australia Free Trade Agreement (TAFTA)
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:
- The removal of most Thai tariffs on goods exported from Australia;
- The removal of almost all quota barriers on imports from Australia;
- The remaining tariffs reducing to zero in 2020 (except for tariffs on skim milk powder and liquid milk and cream, which will be removed in 2025);
- Largely free access for Australian companies into the Thai service market; and
- Higher access for Australian investors in Thailand, allowing majority ownership for Australian investors in a whole range of industries.
Australia-Chile Free Trade Agreement (ACl-FTA)
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 to over two hundred. Some of the benefits the FTA grants Australian businesses include:
- The removal of all tariffs (with the exception of sugar) – namely, 92% of tariff lines;
- Removing tariffs on all existing merchandise trade from 1 January 2015;
- The creation of a liberalised investment and services system; and
- The creation of a strong system of intellectual property protection, so Australian businesses can keep what they create their own while enjoying the benefits of trade and investment with Chile.
Malaysia-Australia Free Trade Agreement (MAFTA)
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 themselves 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:
- Over 99% of Australian goods becoming eligible for no tariffs when exported to Malaysia;
- The removal of virtually all tariffs for goods such as plastics, and chemicals;
- The removal of 100% of iron and steel tariffs by 2020; and
- Australian investors are guaranteed the right to majority ownership in education, finance, telecommunications and professional services.
Korea-Australia Free Trade Agreement (KAFTA)
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:
- Over 99% of Australian goods exported to Korea are eligible to enter without paying any duties;
- Duty-free cheese, butter and infant formula quotas;
- Korea gradually removing the 40% tariff on beef by January 2028;
- Greater access to the legal, finance and accountancy fields in Korea for Australian law firms and accountancy firms; and
- A more open Korean economy to Australian investors, through a gradual reduction of barriers to important sectors.
Japan-Australia Free Trade Agreement (JAEPA)
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 business 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:
- Guaranteed access to Japan when providing investment advice;
- Almost all of Australia’s resources, energy and manufacturing products entering into Japan duty-free; and
- Removing certain tariffs on Japanese cars and electronics.
China-Australia Free Trade Agreement (ChAFTA)
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:
- A rapid reduction of tariffs in the agricultural sector (including dairy, beef, wine and wool);
- The removal of almost all duties on resources and energy exports by January 2029;
- Largely improved market access in the Chinese market for banks, insurance companies, law firms, education providers, healthcare business, construction companies and more; and
- Lower barriers to investment through an investment scheme that can be enforced through an Investor-State Dispute Settlement (ISDS) mechanism.
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).
Australia – Hong Kong Free Trade Agreement (A-HKFTA)
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 levels 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 mutual removal of import tariffs, providing certainty for Australian business and investors of a tariff-free future;
- Secure continued access to the Hong Kong market for Australian exporters (including the education, financial, and professional services sectors); and
- The promotion of investment into each other’s economies, including the creation of an Investor-State Dispute Settlement mechanism.
Trans-Pacific Partnership (TPP)
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 grow and 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.
ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA)
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:
- Significantly large reduction in tariffs for Australian business to enjoy across Southeast Asia;
- More certainty for Australian investors, including the enjoyment of legal protections when investing in the ASEAN nations; and
- A platform for economic engagement with ASEAN countries through agendas, projects and outreach activities.
The countries included within this arrangement include Australia, New Zealand, Laos, Cambodia, Thailand, Indonesia, Brunei, Burma, Malaysia, the Philippines, Singapore and Vietnam.
Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA)
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:
- a guarantees automatic issue of import permits for a range of Australian products like live cattle, sheep meat and frozen beef;
- over 99% of Aussie exports by value entering into Peru duty-free under improved arrangements compared to AANZFTA
- the complete removal of tariffs on frozen beef and sheep meat over the next five years;
- the gradual yet complete elimination of tariffs on dairy lines; and
- the gradual removal of tariffs on mandarins from 25% to 0% over the next 20 years.
IA-CEPA aims to operate side-by-side with AANZFTA, discussed above.
EU-Australia Free Trade Agreement: A Not too Distant Reality?
Negotiations are currently underway for an FTA between the European Union and Australia. Trade Minister Simon Birmingham wants 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”.
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.
The US-China Trade War: How it Affects Free Trade Agreements with Australia
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.
One Last Tip
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.