Free Trade Agreements remain an important contributor to the growth and development of global trade in the modern world. Bilateral and multilateral FTAs are increasingly becoming an important vehicle for trade policies and diplomacy for various nations throughout the world (Levy 2009). In fact, a good number of FTAs have been signed, implemented and proposed in various parts of the world within the last two decades. However, the benefits and costs of these deals are a subject of economic debate. In general, this research finds that FTAs have an important impact on strengthening the policies that underpin regional integration in terms of trade and finances as well as lay the foundation for bilateral and multilateral market and market liberalization (Krugman 2008). On the other hand, the study found that the current wave of agreements is quite high. It can cause make rules and requirements to overlap because each nation is involved in several agreements. In turn, this phenomenon is likely to affect cross-border trade.
From a critical analysis of the previous studies on FTAs and their impacts on regional and international trade, this paper has made a number of findings. For instance, the free trade agreements implemented in the Asia-Pacific region over the last three decades have been studied widely, especially in regard to its possible or real impacts on business. In particular, a number of surveys of firms have been conducted in various nations that have maintained FTAs since the 1970s. The research paper has analyzed several surveys of firms in the region, which include Japan, Australia, China, Philippines, Thailand, South Korea and Singapore. More than 800 firms have been surveyed in the recent past to determine how FTAs affected their businesses. It has been found that most of these surveys have also attempted to shed light on some issues that those companies have faced in their attempt to adapt to those agreements (Department of Foreign Affairs and Trade 2008). For instance, studies have shown that issues, such as the utilization of preferences and the development of new business strategies to respond to the implementation of agreements, play an important role in determining the survival of firms (Baier & Bergstrand 2007). In addition, most surveys agree that the befits and costs of FTAs as well as in-country resources and new demands for businesses after the implementation of these rules are some of the major issues studied.
Impact of FTAs on the global economy and the Australian Case
Overall, the surveys carried out in the Asia-Pacific region agree that the positive impacts of FTAs are higher than the negative impacts, especially, those that affect firms and their businesses. For instance, it has been found that the use of FTA preferences remains significantly high, with most studies reporting on more than 20% of the responding firms. In addition, a large number of organizations do not consider the multiple rules of origin as a major cause of additional costs on business activities. Most of the surveys have further found out that the regional noodle bowl is not a significant cause of business harm on the organizations involved. In fact, most of the surveys have found that the existence and emergence of FTAs have not had a significant impact on the way regional organizations carry out their businesses. However, it has been shown that additional FTAs are set to emerge due to the increase in negotiations between nations (Baier & Bergstrand 2007). Researchers argue that the complexity of the regional “noodle bowl” is likely to increase in the next ten years, which will most likely have a significant impact on businesses and firms operating in the region. Moreover, the implementation of key policies, as well as an increase in the number of public-private partnerships or cooperation in the region, is considered as an important method for mitigating the potential risks and negative impacts of increased FTAs in the near future (Baier & Bergstrand 2007).
From a narrower perspective, the issue of FTAs and their impact on the Australian economy and business have been studied. Over the last two decades, Australia has made several efforts to enter into negotiations and develop FTAs with a number of regions, including some Asian nations, the US and a number of other countries. In addition, the country is still negotiating for more FTAs, which are likely to become real within the next few years (Krueger 2006). This study has attempted to investigate a number of issues related to the existing as well as proposed bilateral and multilateral FTAs between Australia and other nations.
One of the most important FTA that Australia has implemented in the last decade is the AUSFTA. Known in full as the Australia-United States Free Trade Agreement, AUSFTA was negotiated in 2004 under the mentorship of the American President George W Bush and Australian Prime Minister John Howard. Although it was initiated in an environment marked by intensive political issues, the FTA has become one of the most significant agreements between Australia and foreign nations. Studies have shown that Australia achieved a large stake in the successful conclusion and implementation of the agreement. On the other hand, the US developed a one-trade policy that includes the ability of its agricultural firms to reach out to the Australian market. In addition, studies have shown that Australia was able to retain only a minimal intervention affecting the international trade in goods, especially because the conclusion of the FTA was preceded by several decades of successive efforts to reduce tariffs and quotas (Krueger 2006). It has also been shown that the main elements of the AUSFTA included general traffic on imported goods worth 5% and slightly higher tariffs on such goods as clothing and textiles, vehicles and footwear (Snape 2008). It is worth noting that the trade agreement called for phasing out all other items apart from the aforementioned.
This research paper also finds that Australia partly achieved its dream of leading by example, especially by promoting regional and international liberalization of multilateral cooperation. For instance, the country has been aiming at promoting reform of most of the policies used for interventions, especially those adopted in the EU and the US. On the other hand, the study finds that the US was looking forward to maintaining the longstanding tradition of intervention within the domestic market as well as international markets for agricultural products, such as those policies stated in the Farm Bills that were signed into law in the 1960s and became effective within the consequent decades. Australia sought to make restrictions on the import of a few agricultural products, such as sugar, dairy products and beef.
The paper further states that the US has been making liberal use of emergency and anti-dumping assistance, with an aim of protecting some domestic manufacturers. For instance, the study finds that the US implemented a special policy to protect the domestic steel industry, but a looming retaliation by EU member states made the US to do the contrary (Snape 2008). Moreover, this study finds that one of the problems facing AUSFTA is that the US has been attempting to use the power of bargaining chip as an approach to multilateral trade agreements, aiming at obtaining large concessions with the foreign nations while offering as a minimal concession as possible (Hertel, Hummels, Ivanic & Keeney 2007). Thus, the implementation of the AUSFTA seems to have forced the US to concede more than it has ever done in other trade agreements. Therefore, this paper found out that this FTA has been a success for Australia.
Secondly, the paper has attempted to review the FTA between Australia and regional nations and economic organizations in the Pacific and Southeast Asia. In particular, the Thailand-Australia Free Trade Agreement (TAFTA) is of special interest in this study. It has been found that this FTA, which was implemented in 2005, has had a significant impact on both nations (Krueger 2006). Noteworthy, Australia is a highly developed, industrialized and westernized democracy, while Thailand is currently fighting to achieve industrial development, economic prowess and other problems facing third world nations. In fact, this was Thailand’s first FTA. The country hoped to use the agreement in increasing its economic growth. It is worth noting that the policies developed under TAFTA sought to increase the degree of liberalization of trade in goods and services, investment and increase the rate of cooperation in reducing trade obstacles through tariffs (Department of Foreign Affairs and Trade 2008).
For instance, the agreement sought to reduce tariffs on such products as sanitary and phytosanitary goods as well as anti-dumping measures. Moreover, it sought to extend to such trade categories as electronic commerce, competition policies, customs procedures, intellectual property and public procurement policy. Thus, TAFTA made Australia eliminate more than 80% of tariffs on all the goods imported from Thailand, especially agricultural products, such as pineapples, canned fruits and juices, fresh vegetables, processed foods, jewelry as well as small vehicles and trucks (Pomfret, Kaufmann & Findlay 2010). In addition, Australia agreed to eliminate tariffs on a number of other goods within the next 10 years, including imports on rubber and rubber products, plastic and plastic products, textiles and clothing imported from Thailand. On its part, Australia has benefitted from a 50% reduction on all the products and services exported to Thailand, including mineral ores, animal products, chemicals, dairy products and industrial goods (Pomfret, Kaufmann & Findlay 2010).
In addition, this research paper has attempted to determine the possible economic impacts of the proposed FTA between China and Australia. Known as Australia-China Trade and Economic Framework (ACTEF), this FTA entered into a negotiation stage in 2003 under the sponsorship of the two governments, led by Australian Prime Minister John Howard and Chinese president Hu Jintao. Within the last ten years, the two nations have attempted to develop a comprehensive understanding of the possible impacts of this FTA once implemented in 2015 (Hertel, Hummels, Ivanic & Keeney 2007). According to feasibility studies reviewed in this paper, it was found that Australia’s main need was to allow its products to reach out to the extensive Chinese market (Yu 2010). For instance, Australia’s extensive mineral resources are extensive and in need of ready markets, which can be provided by the expanding industrial sector in China. In particular, Australia targets to achieve a reduction on tariffs charged for resources exported to the foreign corporations stationed in the Chinese industrial regions, such as Guangzhou and Shanghai, most of which are American and European firms (Department of Foreign Affairs and Trade 2008). On the other hand, the research has found that China seeks to benefit from the reduction of the rate of tariff on industrial products, rice and other goods exported to Australia.
In addition, the research findings indicate that one of the most important needs for Australia is to ensure that the Chinese population has easy access to food, especially mutton, wool and other products.
From a broad perspective, it is clear that Australia’s entry into FTAs with foreign nations has extensive benefits to the national economy. For instance, studies have shown that the country’s specialization in specific products, such as mineral, manufactured goods and agricultural products, has made it possible to find ready markets through FTAs. It also allows entry of domestically scarce products at reduced tariffs (Hertel, Hummels, Ivanic & Keeney 2007).
Despite these findings, it has been shown that FTAs have a number of negative impacts on Australian firms and the national economy in general. For instance, most studies have proved that companies affected by the establishment of FTAs in the country have attempted to implement new business strategies to respond to the demands of the new policies involved. Although some report that the cost of implementing the new strategies is relatively low (considering the fact that most FTAs take at least 10 years to achieve full implementation), it is worth noting that a good number of studies reveal that the eventual cost of reversing business for organizations that face increased competition from foreign products is relatively high (Bagwell & Staiger 2007).
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