Every day Australia and Australians benefit from international trade.
Australia has a population of only 22 million people and trade generates a global market of a growing seven billion. All around the world people are consuming Australian food and using locally produced products, whether it be operating computers with Australian software or drinking Australian wine. While many economists and organisations adopt and support the benefits of a free trade agreement (FTA), there are groups that promote the concept of ‘fair trade’ and disapprove free trade.Such groups classify free trade as being possibly disadvantageous to many people, predominantly in unindustrialized countries, where local producers and employees are susceptible to exploitation.
This essay will discuss the establishment of the ASEAN-(Association of Southeast Asian Nations) Australia-New Zealand Free Trade Agreement (AANZFTA). Also it will introduce organisations that initiate the concept of free trade and provide a detailed examination of some key advantages and disadvantages in trading with other nations.The ASEAN-Australia-New Zealand Free Trade Agreement may be one of the most significant trade agreements ever to be signed in the Asia-Pacific region. This agreement is Australia’s most important trade deal since the FTA with the United States in 2004 (AUSFTA) (Sandford, Kordvani, TanKiang, Lac & Strating, 2009). The AANZFTA is a multilateral agreement, that has been favoured by the Australian government in recent years and is explained as, a country can reduce its trade restrictions while other countries do the same, n other words it can bargain with its trading partners in an attempt to reduce trade restrictions around the world (Gans, King, Stonecash, & Mankiw, 2009, p. 189). The AANZFTA is Australia’s first FTA signing since the onset of the Global Financial Crisis (GFC) that occurred in 2007-08 and on 27 February 2009 the AANZFTA was signed in Thailand.
The FTA involves twelve developing and developed countries that have been bridged with the AANZFTA making it the largest FTA Australia has signed with any entity.These countries include, Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam, Australia and New Zealand, which all constitute one of the most dynamic economic regions in the world. The AANZFTA will be a benefit for a variety of exporters in the region engaging in business, including dairy farmers, car parts manufacturers and drug companies. As quoted in O’Malley (2009), Trade Minister Simon Crean states, With this level of trade, which is bigger than our trade with Japan or China or the United States, this agreement with ASEAN has great potential to increase job opportunities for Australian workers”. The AANZFTA extends across 12 economies and has a combined Gross Domestic Product (GDP) of $3. 1 trillion with over 600 million people (Edge, 2010). AANZFTA covers all sectors including services, goods, intellectual property (IP) and investment.
This is the first time ASEAN has embarked on FTAs to this degree simultaneously, making it an historic event.The AANZFTA entered into force on numerous dates during 2010 for Australia, New Zealand, Brunei, Burma (Myanmar), Malaysia, Philippines, Singapore, Thailand and Vietnam. On 1 January 2011 the AANZFTA entered into force for Laos, 4 January 2011 for Cambodia and on 10 January 2012 AANZFTA initiated for Indonesia (Department of Foreign Affairs and Trade, 2009).
The Australian government forecasts positive future prosperity with the decision of the AANZFTA and believes it will provide a number of benefits for Australia and Australians.Among the benefits from the FTA is a reduction in tariffs, which is a tax on goods produced abroad and sold domestically (Gans et al, 2009, p. 181).
The FTA binds current low tariffs, and over time, will eliminate tariffs on between 90 and 100 per cent of tariff lines, covering 96 per cent of current Australian exports to the region (O’Malley, 2009). Export growth has been essential to economic growth and job creation in Australia, for example, over 400 000 jobs were created between 1983–84, 1993-94 and by 2010, one in four jobs in Australia were related to exports (Edge, 2010).The most important change Australia will need to apply as a result of AANZFTA is the removal of tariffs for ASEAN countries that do not already have advantages from duty-free treatment, effectively, Vietnam, Indonesia, Malaysia and the Philippines. The main segments that will have an affect are textiles, clothing and footwear (TCF), automobiles and automotive parts, where current tariffs of around 10 per cent will be reduced to zero.For other sectors, where tariffs are generally either 5 or 0 per cent, reduction to zero will have a smaller impact (Sandford et al, 2009).
The AANZFTA also creates an initiation of a rehabilitated focus on bilateral agreements with ASEAN member nations. Bilateral agreements are defined as FTAs that are introduced between two countries (Gans et al, 2009, p. 189). The major organisation trying to bring direction to a disorganized world, that works to facilitate international trade is, The World Trade Organisation (WTO).In 1995 the General Agreement on Tariffs and Trade (GATT) was replace by the WTO. Many developing countries seek market economy status because it ensures they are investigated under normal World Trade Organisation regulations, if they are accused of dumping cheap goods into other countries (O’Malley, 2009). The WTO encourages multilateral trade and aims to lower trade barriers, it ensures that global agreements of trade between nations flow freely, smoothly and predictably as possible (Department of Foreign Affairs and Trade, 2009).
Functions of the WTO which now accounts for 97 percent of the world trade, administer trade agreements, provide a forum for negotiations, monitors national trade policies and handle disputes that arise from member countries (Gans et al, 2009, p. 189). Although as already discussed that International free trade establishes benefits, the WTO has many opponents of economic globalisation and a number of Critics and protestors who put forward arguments that oppose free trade and trade liberalisation.These opponents have charged the disadvantages that it undermines national sovereignty by promoting the interests of large multinational corporations and that trade liberalisation encourages leads to environmental damage and declining living standards for low-skilled workers in developing countries (Edge, 2010). In the short term, structural unemployment may occur with the removal of trade barriers.
A large number of local economies, families and workers will be impacted upon as it may increase difficulties to find employment and it will be necessary for government assistance (Department of Foreign Affairs and Trade, 2009).As economies become more dependent on global markets, means that businesses, employees and consumers are more vulnerable to downturns in the economies of our trading partners (Edge, 2010). Recession in countries of our trading partners will lead to decreases in demand for products exported by Australia, which will result in falling export incomes, lower GDP, lower incomes, and rising unemployment. ? Critics argue that International markets are not an even playing field, as countries with products in surplus may offer them on global markets at below cost.Some efficient industries may find it difficult to compete for long periods under such conditions. Further, countries whose economies are largely agricultural face unfavourable terms of trade (ratio of export prices to import prices) whereby their export income is much smaller than the import payments they make for high value added imports, leading to large CADs and subsequently large foreign debt levels (Edge, 2010).
It’s often argued that free trade with other countries destroys domestic jobs.Opponents of trade are often skeptical that trade creates jobs and respond to that everything can be produced more cheaply abroad (Gans et al, 2009, p. 187).
In conclusion, there are opponents who argue against economic globalisation for the reason International trade has the ability to establish an increasing threat of macro and microenvironments that will potentially harm businesses, employees and consumers. An ever-changing global economy is our major environmental factor that ‘in all reality’ is out of our control and n downturns its repercussions are devastating, as we all experienced and witnessed the GFC in 2007-08.If we can’t as a global market change something that is out of our control, lets at least change ‘what is’ and give ourselves an opportunity to thrive in a market that we all can benefit from. International free trade allows consumers to obtain a greater variety of goods and services and benefit more in the domestic economy. Having the ability to sell and export to a larger and increasing market means that a business can sell more and pay higher wages to Australian employees while earning more profit.International trade gives an opportunity of gains from trade based on comparative advantage and not absolute advantage, which allows a country to produce more at what they are good at. AANZFTA is the largest FTA Australia has ever signed, with some of its members being our largest trading partners. This makes it a historical event and the most comprehensive FTA that ASEAN has ever negotiated which will and has greatly benefited Australia and Australians.