Australia Free Trade Agreement - Assignment Example

China- Australia Free Trade Agreement Name Institution Introduction International trade laws include the rules and customs that are aimed at handling trade between different countries. It is also comprised of legal rules and international treaties between different countries. The World Trade Organization is a body that governs the international trade between different countries. It provides a framework for the administration and implementation of agreements regarding the international trade. It has also put in place several principles that are aimed at promoting the international trade. Cross border transactions may be faced with different challenges including taxation. The international trade laws are therefore in place to ensure that such challenges are addressed (Yarbrough & Yarbrough, 2014). It may take a long period of time before trade between two countries is enforced. Free trade agreements are increasingly becoming common as most of the countries are increasingly forging closer economic ties. China- Australia Free Trade Agreement (ChAFTA) is one of the international trade agreements that were signed in 2015. The free trade agreement was signed in June 2015 by Australia’s Minister for trade and investment and the Chinese Commerce Minister. The prime Minister of Australia was also present during the signing of the agreement. This is an indication of how the agreement was significant between the two countries. A lot of negotiations and consultations were involved before the signing of the free trade agreement between the two countries. Free trade agreement between different countries may be difficult to implement as a result of the challenges that may be encountered. Several factors have to be taken into account before entering a free trade agreement. This may include the cultural issues, political issues and business etiquette (Bowman, Gilligan & O’Brien, 2015). The free trade agreement between Australia and China is sets to benefit both countries in terms of job creating and business opportunities. The free trade agreement has certain influences in both countries. The economic benefit between the two countries is an important aspect for the trade agreement. Legal aspects however exist in the free trade agreement between the two countries. Other countries around the world have also signed free trade agreements and it has been beneficial to the members. The legal aspects are however important for ensuring that the agreement are successful and any misunderstandings eliminated. The paper discuses both China and Australia’s Free Trade Agreement in relation to the international trade law and legal issues. Discussion Why China and Australia had not signed the free trade agreement before The main problem why China and Australia had not signed a free trade agreement before is mainly based on the legal issues. According to the World trade organization principles, balancing trade liberalization and other societal interest is a factor that must be considered (Ha, 2014). Australia had strict immigration policies which made it difficult for foreigners to carry out trade activities in the country. As a result of the strict immigration laws, the government could not sign the free trade deal as it would have allowed more Chinese Citizen to travel to Australia. Most of the members of the public were also concerned that more Chinese citizens were likely to settle in the country in case of a free trade agreement. This is a concern that was still evident among some of the local people during the signing of the free trade agreement between China and Australia. Most of the politicians as well as the Australian citizens were also concerned about the job losses (Ha, 2014). There was fear that the free trade movement will allow the flow of cheap labour from China and hence threatening the jobs of the Australian Citizens. There was a los concerns from the Chinese government that their citizens will end up being exploited in terms of labour. Some of the companies in Australia are known for paying less salaries and wages to the foreigners. There were a lot of suspicions among the two countries and hence making it difficult for the free trade agreement to be signed in the past. In the past, the economy of China was still growing and the country was still facing economic challenges. As a result of this it would have been difficult to maintain trade balance between the two countries as the economy of Australia has been performing well over a long period of time. According to the World Trade Organization principle, the market access requires the reduction of trade tariff and non-tariff barriers to trade (Tan, Sun & Lau, 2013). Under the circumstance in the past, it would have been unfair for Australia as it would not have benefitted from the reduction on trade barriers and tariffs. The Chinese market in the past did not have much to offer to the Australian market which is an indication that the Australians would not have benefited from the free trade agreement. The General Agreement on Tariffs and Trade (GATT) is considered as the backbone of the international trade law. GATT is concerned with unfair trading practices which may arise due to the differences in the economy of different countries. There were concerns in the past that cheap Chinese goods would have been dumped in Australia and hence leading to the unfair trade practices between the two countries. Other challenges between the two countries were also evident in the past. There was no agreement between China and Australia with regards to the intellectual property. The world Trade Organization Trade Related Aspect of Intellectual Property Rights article 63.2 requires signatories of the nations to raise the intellectual property rights (Tan, Sun & Lau, 2013). This was also an aspect of international trade law that was missing in the past between the two countries. International laws require a clear framework between the countries involved in the free trade zone with regards to taxation. The cross border operations require the countries to have clear policies on taxation to avoid any incident of double taxation. There were no policies between the two countries with regards to the taxation laws and hence making it difficult to implement the free trade agreement. Disputes are common among different countries with regards to trade. In the past, there was no dispute resolution mechanism that would have been used by the two countries to settle disputes. Article 23.1 of the World Trade Organization Law only came into effect in 1995 and it deals with the dispute resolution mechanisms (Piccardi & Tajoli, 2015). The movement of natural persons between the two countries was not possible in the past as there were no policies. The two countries also faced barriers to trade as a result of the different social and political factors. There was lack of understanding of trade laws governing the operations of foreign firms between the two countries. The political class in Australia was reluctant to enter into trade agreements with China. This is dues to the past disputes between the two countries with regards to other political issues. The technical barriers to trade existed between the two countries and hence impacting negatively on the free trade agreement (Piccardi & Tajoli, 2015). The presence of technical barriers makes it difficult for trade to take place between two countries. Why it took 10 years for the free trade agreement to be signed The negotiation between the two countries for the free trade agreement began in May 2005 and it was completed in November 2014 with the deal being signed in June 2015. The deal therefore took about ten years to be completed and it involved 21 rounds of negotiations (Wilson, 2012). A joint feasibility study was carried out within the ten year period. The feasibility study is usually aimed at uncovering the strengths, weaknesses or barriers of an existing business environment. During the ten year period, technical feasibility was jointly carried out between China and Australia. This was for determining the countries had technical expertise to sustain the free trade agreement. The technical feasibility is also important in terms of creating an understanding of the technical resources in the countries involved. Economic feasibility was also carried out for determining the positive economic benefits of the Free Trade Agreement between the two countries. The laws between the two countries are quite different when it come s to trade (Wilson, 2012). Legal feasibility was therefore carried out within the period for the purposes of determining the legal changes required to support the free trade agreement. Different legislations were also required for supporting the free trade agreement. Operational feasibility was carried out in the ten year period to ensure that the free trade agreement can be carried out effectively. The 21 round of negotiations were carried out after studying the outcome of different feasibility studies. Several amendments were also required for the deal to be successful. There were major differences between the two countries with regards to different laws and regulations. Changes were requires in the immigration laws for supporting the deal. The political issues also played out during the deal. The opposition was initially not in support of the deal and it led a campaign against the deal. This had negative impacts on the deal and it contributed to the lengthening of the negotiations. Australia has a stiff visa restriction laws that limited the number of foreign workers (Pearson, 2015). This was of major concern during the negotiation and changes were also required. The qualification of the workers in both countries was also a subject of negotiation within the ten year period. The wages and salaries of the workers were of concern during the negotiation and it took a long period of time for the two countries to come to a compromise. According to the World Trade Organization principles, the agreement has to ensure that discrimination is eliminated. This was also featured in the agreement was aimed at being free of any form of discrimination. Consultations with the other stakeholders was also carried out in both countries and hence lengthening the negotiation process. The members of the public as well as the business community were consulted during the negotiation period (Pearson, 2015). This is because the deal has a direct effect on them. The international law also had to be observed in every aspect of the negotiation and hence affecting the pace of the negotiations. Factors that led to the signing of the deal The deal was finally signed after the two countries reached an agreement with regards to the contentious issues. In Australia where the opposition was against the deal, a compromise was reached with the government to support the free trade agreement. The opposition backed the deal after it was satisfied with the legal protections (Saee & Mora, 2012). The changes to the migration regulations also contributed to the signing of the deal as it was a contentious issue. A deal was also reached with regards to the wages and terms of stay among the foreign workers. All the aspects of the international law were also satisfied and hence leading to the agreement. The trade barriers and restrictions between the two countries were also reduced and hence leading to a compromise. Trade tariffs between the two countries were also reduced to facilitate the free trade. This was carried out with the in accordance with the international law. Investment facilitation arrangements were also made between the two countries for eliminating any form of discrimination. A framework on how the companies will carry out their operations in both countries was developed and hence contributing to the success of the deal (Saee & Mora, 2012). All the principles of the World Trade organization as well as the other international law obligations were reached between the two countries. A dispute resolution mechanism was developed in accordance with the international laws and the World Trade organization principles. How the free trade agreement influences both countries The free trade agreement between the two countries has various influences. The migration policies and regulations in the two countries have been influenced by the agreement. In terms of movement of natural persons, China is required to provide guaranteed access to the Australian citizens and permanent residence to intra-corporate transferees for up to three years. This includes the executives, managers and specialists (Van Harten & Tienhaara, 2015). Guaranteed access to Australian citizens and permanent residents will also be provided to contractual service suppliers in some of the sectors for a period of one year or more depending on the stipulations in the relevant contracts. Installers, maintainers and business visitors will also enjoy the same for up to 180 days. Under the agreement, China will also be required to guarantee equivalent entry and stay for dependants and spouses of the Australians. On the other hand, Australia will be required to provide guaranteed access to Chinese citizens under the intra-corporate transferees and independents executives for up to four years. This will also be applicable to contractual suppliers, Chinese chefs, WuShu martial arts coaches, traditional Chinese medicine practitioners and mandarin language tutors (Van Harten & Tienhaara, 2015). Under the free trade agreement, Australian will be required to provide entry and stay for dependants and spouses of the Chinese citizens for a period of one year or longer. This is an indication that the free trade agreement has greatly influenced the migration policy at the country. The strict immigration policy in Australia has thus been greatly influenced by the free trade agreement. Australia will greatly benefit from cheaper prices with 5% tariff on the Chinese manufactured products such as the electronic goods. This will also have positive impacts on Chinese companies as it will be possible to sell their manufactured products to the Australian market in huge quantities. Tariffs on the Australian products such as coal and alumina which are on high demand in china will be eliminated (Piccardi & Tajoli, 2015). This means that China will be able to obtain a constant supply of the products at better process while Australia will be able to increase its revenue through the exploration of the products. The elimination of the tariffs will take place immediately or after four years. This is therefore an indication that the trade tariffs in both countries will be influenced. Trade tariffs of between 3-14% on some of the Australian manufactured exports to China will be eliminated within a period of four years which will makes the exportation process easier. Within 2-9 years, tariffs for animal products as well as the horticultural products will be eliminated and hence benefiting both countries (Piccardi & Tajoli, 2015). The tariffs will also be reduced or eliminated for some of the processed food including canned fruits and natural honey. Tourism between the two countries will be influenced positively. The Australian tourism and hospitality operators will be able to operate wholly owned subsidiaries in China. This will be beneficial to both countries as the Chinese citizens will also be able to invest in the tourism industry in Australia. The Australian firms in different sectors including health and aged care will be able to establish profit making institutions in Australia. The Australians will also have access to the Chinese traditions medicine which will be sold locally in Australia. This is an indication that the free trade agreement will have positive impacts on the health sector in the two countries. The free trade agreement will also enable the Australian businesses to take a majority stake in joint ventures that provides different services including forestry, fishing, hunting and agriculture. The financial and legal services sector will be influenced by the agreement. The agreement allows for a limit of 49% for ownership in the legal and financial services in both countries (Bowman, Gilligan & O’Brien, 2015). The Chinese state owned enterprises will be able to operate in Australia. However, some levels of scrutiny will be put in place to ensure compliance with the regulations as well as the international trade laws. In case of any changes that adversely affect the interest of both countries, the agreement provides the right for legal action to be taken. The free trade agreement is set to improve on the economic corporation between the two countries. It is expected that the free trade policy will have positive influence in the job market. More than 150,000 job opportunities will be created in Australia as a result of the agreement (Bowman, Gilligan & O’Brien, 2015). The foreign investment review board in Australia will also continue to scrutinize the Chinese state owned enterprises. The free trade agreement between Chinas and Australia is also likely to have some negative impacts. There would be no tariff reduction for some of the essential commodities such as sugar, rice, wool, cotton, wheat, maize and canola. This is an indication that the agricultural sector will not be primarily influenced by the free trade agreement. Local labour marketing tests is an important aspect of the labour market in Australia. However, for projects that are valued above $ 150 million, the Chinese investors will receive additional rights to bring in more temporary migrant workers without local labour marketing test (Tan, Sun & Lau, 2013). This is an indication that the free trade agreement will influence the labour practices in Australia. The number of Chinese migrant workers may also increase as a result of the free trade agreement. The free trade agreement therefore has potential advantages as well as disadvantages. All the trade practices between the two countries will however be in compliance with the international trade laws. The levels of market completion in the two countries will increase in some of the sectors. The Australia companies in the electronic sector will face competition from the Chinese companies. The presence of competition is likely to change how the marketing strategies of the companies. The quality of the products is also likely to experience changes as a result of the competition. Both countries are likely to benefit greatly from the free trade agreement in terms of economic development (Tan, Sun & Lau, 2013). This is considering that China is the second largest economy in the world. Conclusion In conclusion, it is evident that the international trade laws play an important role in governing trade agreements between different countries. The World Trade Organization plays an important role in ensuring that the trade agreements between different countries are developed and enforced. The free trade agreement between China and Australia is set to enhance trade and economic relations between the two countries. It is evident that the free trade agreement was not in place in the past due to the differences between the two countries. The conditions in the two countries were not favourable for a free trade agreement. It is evident that the free trade agreement was not possible in the past due to the strict immigration laws. The two countries negotiated for the deal for a period of about 10 years. The negotiation took a long period of time due to various factors. The deal took ten years to be signed since feasibility studies had to be carried out between the two countries. 21 rounds of negotiations were also carried out during the ten year period. It is evident that the international trade laws had to be considered during the negotiations. The free trade agreement between two countries had a lot of positive influence. The immigration regulations in Australia were changed to enable more Chinese workers to work in the country. It is evident that the trade agreement between the two countries will also see trade tariffs being reduced or eliminated in some of the sectors. The health sector in both countries will be influenced by the trade deal. However, it is evident that the free trade deal may not be fully implemented in the agricultural sector. Some of the labour practices in Australia will also be affected by the free trade agreement. References Yarbrough, B. V., & Yarbrough, R. M. (2014). Cooperation and governance in international trade: The strategic organizational approach. Princeton University Press. Bowman, M., Gilligan, G., & O’Brien, J. (2015). The Australia-China Free Trade Agreement and the Growing Acceptance of Chinese State Capital Investment. Asian Journal of Public Affairs, 8(1), e1. Ha, J. C. (2014). China-Australia Free Trade Agreement: Chinese Legal System, Contractual Implications and Alternative Dispute Resolution. Contractual Implications and Alternative Dispute Resolution (November 27, 2014). Tan, H., Sun, A., & Lau, H. (2013). CO 2 embodiment in China–Australia trade: The drivers and implications. Energy Policy, 61, 1212-1220. Piccardi, C., & Tajoli, L. (2015). Are Preferential Agreements Significant for the World Trade Structure? A Network Community Analysis. Kyklos, 68(2), 220-239. Wilson, J. D. (2012). Resource security: a new motivation for free trade agreements in the Asia- Pacific region. The Pacific Review, 25(4), 429-453. Pearson, D. (2015). What Makes for an Effective Free Trade Agreement? Examination of Theory and Evidence. In A New Paradigm for International Business (pp. 1-34). Springer Singapore. Saee, J., & Mora, R. (2012). 7 The effects of a free trade agreement between Australia and China with special reference to the Australian textiles and service industries. China and the Global Economy in the 21st Century, 107, 88. Van Harten, G., & Tienhaara, K. (2015). Half-baked China-Australia Free Trade Agreement is lopsided. Canberra Times (Australia). Read More