Free Trade Agreements and Their Impacts on the Australia`s Economy - Essay Example

International economics Student`s name University name Free Trade Agreements (FTAs) and Their Impacts on the Australia`s Economy Free trade agreement (FTA) is a kind of policy applicable to international markets. This policy must be negotiated by the respective member governments. The governments of the trading countries remove the restrictions on the imports and also the exports. Various regions across the world have set up free trade agreements for the betterment of their mother countries. Examples of such free trade agreements include the European Union and the North American free trade agreement. The ultimate goal of these agreements is to establish a genuine fair open market to serve all and that is the reason why many countries today are the members of the world trading organization (WTO) which is a form of a multilateral trade agreement. Free trade agreements involves goods and services that are not taxed, no trade barriers, unregulated access to both the markets and markets information in the member trading countries, inability of the major trading firms and brokers to distort goods and services markets due to the monopoly power imposed the respective member governments. However, there some governments across the world which impose certain still impose put in place protection policies which their sole goal to cushion the domestic employment through application of specific levels of tariffs on the imports and subsidizing certain goods for exports to certain favorable levels. This form of trade agreement is subject to several advantages or simply benefits to expound better and also subject to a number of demerits. The major advantage of this kind of agreement is that prices of goods lower hence many consumers can afford and spend less. However free trade agreement (FTA) creates a new realm of troubles specifically to the domestic industries which get open to the unstable competition as a result of the removal of the international trade barriers. Secondly, domestic instability sets in; local markets develop a trend of complete reliance on the global imports. Finally, FTAs are expensive to implement. They require enormous capital and effort to ensure they come into effect. For example, the NAFTA agreement was contract of twenty five (25) and was several hundred pages long. It was hard at convincing the member countries sign certain pacts which seemed not profitable on their side. Australia herself has entered into several free trade agreements with several trading partner countries. In total, Australia has seven free trade agreements (FTA). It has FTAs with the following countries; New Zealand, Malaysia, United States of America (US), Thailand, Chile, Singapore and finally the Association of South East Asian Nations (ASEAN). All these free trade agreements account for 26% of Australia`s total trade (http://www.dfat.gov.au/fta/). In this paper we are discussing the history and impacts of each of the free trade agreements on the Australia`s economy and its population. Bilateral free trade agreement is defined as an exchange agreement among two countries or trading parties whereby each party is entitled a favored trading status regarding the goods and services from the other party (signatory). It also involves the removal of tariffs and other forms of trade barriers between the two countries. A plurilateral free trade agreement is defined as trade between more than two countries or simply trading partners. It involves several nations across a region or generally the world. An example of a plurilateral trade agreement is the world trade organization (WTO) which is a trade agreement between many countries from different countries. In this trade agreement, member parties are offered a chance or choice of whether to agree to any new rules on the voluntary basis. No member state is subject to any unfair and oppressive regulations. Australia-new Zealand FTA was established in 1983. It is a well doing trade agreement with trade value of $21,554 billion in the year 2013. This trade agreement covers several goods ranging from agricultural products to manufacturing products as well as services. Australia mainly exports agricultural products and services to New Zealand, a country with population of 4.5 million as at 2013. Both economies enjoy an annual growth of around 8%. Also to note is that both nations have put in place measures to minimize the distortion of markets by brokers and trading firms. This free trade agreement has led to lowering of compliance costs for all types of industries in both nations, the two nations have removed many regulating barriers and there exist a significant customer choice in both nations. US- Australia FTA has resulted in inter-continental foreign investments. Australia investments in the US are worth AU $471,672 million whereas US investments in Australia net to about AU $ 657,888 million. This implies that both economies benefit mutually though US edges Australia slightly. In the year 2013, US trade with Australia was worth AU $ 54.8 billion. This FTA has not only increased attractiveness for US investors on Australia`s soil but also created and secured Australia`s interests in the sectors of health specifically the pharmaceuticals. This FTA led to abolished of two thirds (2/3) of tariffs on Australia`s agricultural exports to US, it also led to locking of access of the US service markets mostly in the fields of business and education. Finally, Australia investors had better access to US government market as a result of the FTA. Chile- Australia FTA pact was signed on 30th July 2008 but entered in operational force on 6th march 2009. It covers goods, services and foreign investments. It was decided that by the year 2015, only sugar will be subject to tariff of 8%. This FTA has led to major investment of Australia companies in Chile economy. A key feature of this trade pact is that both nations have agreed to have the protection of patents, trademarks, copyrights and intellectual knowledge. Australia- Thailand FTA trade pact entered into force in the early January 2005. This FTA has seen more market access for Australia companies, investment protection for the Australia investors in Thailand, easing of the immigration procedures for both nations. This has led to a well off trade between the two countries. In the year 2012-2013, both countries traded goods and services worth AU $ 19.4 billion and a GDP growth of 2.9 % in Thailand. Another FTA with Australia is the Australia- Malaysia FTA started on 1st January 2013. Malaysia is Australia`s 9th largest trading partner. This two-way trade was worth $ 18.2 billion in the year 2013. This implies that it has opened up new and better markets for the Australian goods and services, therefore its foreign exchange earnings are on the rise. As a result of the trade, Malaysia enjoyed an annual GDP growth of 4.7 % in the year 2013. Australia- Singapore free trade agreement (FTA) was entered into force by the two countries on 28th July 2013. It led to the elimination of all tariffs on goods but maintained restrictions on the wholesale banking licenses for the Australian banking investors in Singapore. Regardless of that, this FTA has foreseen tremendous market access for Australian exporters of services certainly in the fields of telecommunication, education, professional services and environmental sectors. This FTA resulted in a trade between the member parties worth AU $ 29.6 billion in the year 2012-2013. The Association of South East Asia countries (ASEAN), was signed by ministers of the member countries on 26th august 2014. Involves the following countries; Brunei, Indonesia, Lao, Malaysia, Philippines, Singapore, Thailand and Vietnam. Australia`s trade in the region was worth $ 113.9 billion in the 2013. Trade population is 653.6 million; therefore an extensive consumer market is available for the Australia products and services. It a fair trade agreement that covers all sectors, goods, services and ensures preservation and protection of intellectual property. Australia will benefit mostly from the commercial exports and investor opportunities in the member countries because it is the largest and stable economy in the region. Member nations in one voice agreed to extensively reduce tariffs and offer security and legal protection for foreign investors in the ASEAN countries. This implies that Australian service investors will too enjoy security and legal protection in any of the member countries they invest in. The proposed trans- pacific partnership (TPP) trade agreement involves twelve countries. It is currently under negotiation. Australia will be the major beneficially of this trade pact should it come into operational mode. This is because 70% of Australia`s trade flows in the Asian- pacific region. It will open up new trade and investment opportunities for Australia in the region. Definitely Australia will be the key player in the regions markets. The key features of this agreement are; the trade agreement will create an extensive electronic commerce market which will benefit the consumers and the businesses, it will provide better opportunities for the Australian education, mining, financial and agriculture sectors and finally better market will emerge for raw materials from Australia since new and bigger manufacturing and processing industries will be set up in the region. FTAs with Japan and South Korea which were recently concluded will have enormous influence over the Australia’s trade both positively and negatively. The FTA between Japan and Australia required an extensive period of seven to negotiate. Australia will acquire a new market for its agricultural products while Australia will benefit from the reduction of motor vehicle prices. Australian will acquire motor vehicles at much reduced prices. However, this will lead to loss of employment because motor vehicle production in Australia will stop in the coming few years. The General Motors Company has foreseen this aspect and it intends to withdraw from the production of vehicles in the year 2016 while Toyota plans to cease its operations come the year 2017. This will result to Australia becoming Japan`s second biggest automobile market because of the reduction of the trade tariffs. Therefore all motor vehicle manufacturing industries in Japan will close down hence creating shortage of jobs and develop reliance of global imported products. The general overview of this trade pact is represented in the below table. Figure: General Overview of the Japan- Australia FTA The other just concluded free trade agreement (FTA) is between the Australia and South Korea. This trade agreement was signed on 8th April 2014. The ultimate goal of this agreement was to reduce tariff barriers and create more opportunities for foreign investment in the republic of Australia. This trade agreement will see an investment of a fortune worth AU $ 68 million. The key features to note regarding this trade agreement are that there will be a significant reduction or total elimination of tariffs on Australia agricultural export products such as beef, dairy products, sugar and in the energy sector, natural gas exports will be subjection to tariff reduction. This essentially means that the country (Australia) will export more produce because consumer levels in South Korea will rise due to price reduction. This will result to increased foreign exchange earnings and definitely more domestic jobs will be created because more investors will be willing to invest in the well performing sectors. Also to note is that there will be a greater market access for the Australia service exporter to countries likes of Japan and South Korea. These service exporters will be the likes of law firms, banking sectors, telecommunications and other service providing sectors. This will positively broaden the Australia economy with increased annual growth. Lesser cross-border barriers will definitely create more attractive investment opportunities for the Australian investors. Finally, Australian investors in South Korea will have access to government procurement. The two recently signed free trade agreements (with Japan and South Korea) will strongly impact on the future Australian trading pattern. Australians will no longer manufacture vehicles but import from Japan. Japanese will vehemently benefit while the Australians will lose jobs. On the other side, Australians will positively benefit when they trade with South Korea. They will export more and more agricultural products. 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