Chapter 6 Other Free Trade Agreements
ASEAN-Australia-New Zealand Free Trade Agreement
6.1
The Agreement establishing the ASEAN-Australia-New Zealand Free Trade
Agreement (AANZFTA) was signed on 27 February 2009 and came into effect on 1
January 2010.
6.2
For Australia it is a unique agreement — the largest plurilateral
agreement that Australia has signed outside the GATT/WTO. It is also our
largest agreement overall. It is the first time Australia and NZ have jointly
negotiated an agreement with other countries.[1] Australia, NZ and the ten
countries of ASEAN[2] have a total population
of around 600 million and an estimated GDP of $3.1 trillion.[3]
6.3
The Department of Foreign Affairs and Trade (DFAT) noted in its
submission, that the Agreement covers 20 per cent of Australia’s total trade in
goods and services (A$112 billion in 2008). For ASEAN it is the most
comprehensive agreement that the group has negotiated.[4]
6.4
DFAT explained that the Agreement offers:
...significant tariff reduction and elimination over time from
the more developed ASEAN member countries and Vietnam, including tariff
elimination on between 90 and 100 per cent of tariff lines in each country
covering 96 per cent of current Australian exports to the region.[5]
6.5
The NZ Deputy High Commissioner agreed with these assessments of the
importance of the AANZFTA. He also expressed satisfaction about the way
Australia and NZ were able to work together to achieve a significant outcome:
...there is no doubt that perhaps the most important
agreement that we have done, and indeed we have done together, is the ASEAN
Australian New Zealand free trade agreement with the tongue twisting acronym of
AANZFTA.
It is a very significant agreement: 600 million people,
which basically makes it the third largest grouping of populations in the world
after China and India. It has a combined GDP of more than $1.9 trillion and
accounts for more than $1.7 trillion of global trade. Two-way trade for us
makes ASEAN our second most important market internationally.
It is a critical partner of ours, and most importantly
perhaps it is our fastest growing—not only is it No. 2, but it is our fastest
growing. It exceeds $12 billion per annum in annual two-way trade and has more
than 121 per cent growth, so it is very significant for us.
That is serious money, that is a serious opportunity, and
what is very encouraging is the way in which Australia and New Zealand are
working together. Not only did we work together in the negotiations to finish
the agreement, but we are also working together to leverage those benefits from
the agreement back into our economies. So Austrade and New Zealand Trade and
Enterprise, those two bodies around trade promotion, have an active strategy to
try to leverage these benefits back for us.[6]
6.6
The effect of the AANZFTA is to immediately bind the 2005 applied
tariff rates “for all but a few lines”. This is significant because the WTO
bound rates for ASEAN countries are generally much higher than the applied
rate. The result is continuity and certainty of access for Australian exporters
and, as the rates are phased down and eliminated, greater opportunities in the
future.[7]
6.7
An overview paper prepared by DFAT comments that:
AANZFTA is most substantial in the goods area, reflecting the
fact that ASEAN has done more internal integration on goods than in the
non-goods areas.[8]
6.8
A review of the Agreement by Minter Ellison comments that the main
market effects will be on trade with Malaysia (total two-way trade A$14 billion
in 2007-08), Indonesia (A$ 10.8 billion) and Vietnam (A$8 billion). The
framework for trade with NZ will be unaffected; Australia already has FTAs with
Thailand and Singapore; and trade with Brunei Darussalam, Cambodia, Burma, Laos
and the Philippines, is small by comparison with the other ASEAN countries.[9]
6.9
DFAT considered that the outcome on services was good, based on the
inclusion of “WTO Plus” services commitments for sectors such as: professional
services, education, financial services, and telecommunications. The Agreement
makes provision for temporary business entry to include not only suppliers of
services but sales representatives and investors. It also includes better rules
for intra-corporate transferees in some ASEAN markets.[10]
6.10
Minter Ellison’s overall assessment of the services and investment
provisions was more subdued. The company rated market access for services as
“modest, but nevertheless important”. It notes that, in general, the agreement
achieves “standstill” on services, preserving existing protection levels; there
is little “rollback” of those levels.[11]
6.11
On a more positive note, Minter Ellison notes that the Agreement
provides certainty by binding protection levels against increases and
establishes a framework for continued negotiations for reduction and removal of
services trade barriers. Its assessment also comments that the commitment to
“standstill” is more than ASEAN has agreed to in the WTO negotiations.[12]
6.12
Other provisions for the services sector allow Australia to request
consultations if an ASEAN country offers better deals on services to another
AANZFTA country — with the aim of having those conditions extended to Australia
also. Minter Ellison comments that:
The practical effect of this probably will be negligible –
Australia could ask its ASEAN partners to do that in any event – but the symbolic
effect of including a MFN clause in the trade agreement is significant. It
highlights that liberalising services on a non-discriminatory basis is a
positive objective.[13]
6.13
Inclusion of an emergency safeguard provision is more worrying. It only
allows an ASEAN country to request consultations; but the aim of those
consultations would be to allow that country to escape from a commitment made
in the Agreement.[14]
6.14
DFAT’s assessment of the investment provisions indicates that the
Agreement provides greater transparency and certainty for Australian investors.
It also establishes an investor-state dispute resolution mechanism.[15]
6.15
The transparency provisions cover measures such as minimum standards of
procedural transparency; rights of review of administrative decisions; and
rights to make prior comments before new measures are adopted. The Agreement
provides for the establishment, within five years, of a work program to develop
market access schedules; covering pre-establishment issues such as foreign
equity limits, subject to the agreement of the parties.[16]
6.16
The Australian APEC Study Centre’s analysis noted that:
In a first for ASEAN, provisions to liberalise investment
form an integral part of the agreement alongside those for goods and services.
Parties agreed not to discriminate among ... investors and investments and to
prohibit performance requirements for them. Annexes set out the sectors and
activities which are exempted from these obligations.[17]
6.17
Minter Ellison comments that, unlike the AUSFTA, the AANZFTA does not
impact on Australia’s Foreign Investment Review Board’s thresholds. It also
adds that Australia and NZ have excluded the investment and dispute settlement
rules for matters between themselves.[18]
6.18
The New Zealand Deputy High Commissioner said that he expects that the
agreement will signal increases in services trade in investment:
There was one additional comment that I wanted to add on the
shifting pattern of trade, and that was to mention where I would expect there
to be an increase in trade is around the services and investment flows because,
through the ASEAN-Australia and New Zealand FTA, there is now an investment
chapter which provides real security of investment for Australian and New
Zealand investors. That is better than anything that New Zealand had in place
before the agreement was signed, so there is some real certainty now for a New
Zealand investor putting an investment into those countries.
I think that is important in a facilitating way and I expect
that part of the trade to change. I also expect services trade to change. For
example, for New Zealand education services, environmental and engineering
services are real priorities. Some of the benefits that we got out of the ASEAN
FTA and also out of the Malaysia FTA would give our two countries some
competitive advantages compared to other services suppliers. Again, I would
expect a modest, but important, shift into that part of the trade.[19]
6.19
Other features of the Agreement are:
n Provisions on
Intellectual property. It mainly reinforces the obligations under the WTO
agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS
Agreement), but also:
- extends
the TRIPS requirements on copyright infringement, to include “cases where a
person wilfully commits a significant infringement of copyright that is not
committed for commercial advantage or financial gain, but which has ‘a
substantial prejudicial impact’ on the owner of the copyright”
- adds a
commitment that central government agencies will use only legitimate computer
software and will encourage other regional and local government to do the same
- requires
the implementation of several measures to enhance the transparency and
management of intellectual property rights.[20]
n Economic Cooperation.
The Agreement provides for economic cooperation in the form of technical
assistance and capacity building to assist developing ASEAN countries in
implementing the FTA
- Australia has committed up to $20 million for these projects over
a five year period.[21]
6.20
In anticipation of the completion of this agreement, Austrade
restructured its representation in the ASEAN area into regional industry teams.
Each Senior Trade Commissioner and Trade Commissioner now leads one of these
teams, which complement Austrade’s industry coverage in Australia. Austrade
estimates that:
Based on the results from the Singapore-Australia FTA (SAFTA)
and the Thailand-Australia FTA (TAFTA) where export figures practically doubled
after implementation, it is anticipated that AANZFTA will deliver similarly
substantial export growth.[22]
6.21
Austrade also indicated that a commercial strategy was being prepared
to:
...identify by industry sector which countries offer key
opportunities to ensure Australian companies are informed and are able to make
the most of the window of opportunity offered by AANZFTA[23]
6.22
The analysis by the Australian APEC Study Centre concluded:
The agreement also adopts a more simplified structure than
many of ASEAN’s other FTAs, to the benefit of traders, investors and
governments. It minimises some of the complexity associated with multiple
“tracks” for liberalisation for different categories of products which have
been adopted in FTAs with other trading partners. AANZFTA limits commitments
for all parties to two “tracks:” sensitive products are differentiated from
“normal products” but are generally not excluded from tariff reductions. The
need for differential commitments among parties at varying levels of
development is recognised through lengthier time periods for tariff reductions.
Transparency is achieved through specification of agreed reductions and timing
for their implementation in schedules annexed to the agreement.[24]
6.23
The Sub-Committee asked the NZ Deputy High Commissioner whether he
expected major changes in trade patterns under the influence of the new
agreement. He commented;
Let me put it from the perspective of New Zealand. ASEAN is
our second largest trading partner as a block. Australia is our most important
trading partner. I do not expect that to change.
Where I do expect something of a change is perhaps a little
bit of a move to distribute some of that trade across a broader set of the
ASEAN countries. At the moment, for both of us, our focus has been particularly
around Indonesia, Malaysia, Thailand and Singapore.
The interesting thing is going to be the extent to which this
ASEAN-Australia and New Zealand FTA helps us get into new markets in a bigger
way. We already have for instance a fast growing trade with Vietnam. I would
expect Vietnam to be at the core of that. I would expect a modest, but growing,
trade with countries like Cambodia and Laos and I would expect the trade with
Malaysia to continue to expand fairly quickly too, especially as that economy
grows.
With Indonesia there are some very particular benefits to the
agreement. In terms of shifting the pattern of trade, I am not sure about that,
for the simple reason that from New Zealand’s perspective—which is a little bit
different to Australia—more than half the products that we ship to Indonesia
are agricultural products. They are beef and dairy.
There is a limit to the amount we could produce so that even
if tomorrow we got duty free access to Indonesia, we would not be flooding that
market with dairy products or with beef because there are a whole set of other
markets that we need to service and we would not have the kind of supply to
really put into that market anyway, so I would not expect that to happen.
I remember with the China negotiations there was a concern on
the part of the Chinese that this would shift the pattern of trade forever and
that if they removed the 20 per cent tariff on skim milk powder that they would
be flooded with New Zealand product.
I think the point we made to them was that, even if you
geared up every single farm in New Zealand just to produce for China you would
be producing less than 20 to 30 per cent of all of China’s demand anyway. In
the meantime we would not be servicing anywhere else in the world where we have
some very high value markets to protect, not least against Australian
competition.[25]
6.24
The Deputy High Commissioner said that the relationship with ASEAN could
be central to our future ties to the Asia-Pacific region:
... whenever you think about the Asia-Pacific region, it is
an inescapable fact that you have got ASEAN at its centre. Those 10 member countries
have been very deft about the way in which they have ensured that they are the
centre of gravity in the region.
They have been very clever in the way that they have
negotiated with China, Japan, Korea, Australia and New Zealand; where in each
case they have made sure that they are the centre of gravity. They are the
magnet around which everyone else is building processes. TPP comes at them from
another angle, pulling out some of their members, and clearly others are
actively thinking about how they might engage in that.[26]
Other FTAs Under Negotiation
China
6.25
In 2003 Australia and China signed the Australia-China Trade and
Economic Framework. As part of that agreement the two countries agreed to carry
out a joint feasibility study to determine whether to begin negotiations for a
bilateral Free Trade Agreement.[27]
6.26
The final report of the study, in March 2005, concluded that:
...an Australia-China FTA is feasible and, on balance, would
substantially benefit both countries. Should both governments decide to enter
into FTA negotiations covering goods, services, investment and bilateral
cooperation as outlined in the study, it is recommended that the negotiations
should begin as soon as possible.[28]
6.27
The first round of negotiations on the FTA was held in May 2005 and
there have now been fifteen meetings. The most recent was held in June 2010.
The DFAT update report on the latter meeting indicated that there were still a
number of difficult and sensitive issues to be settled.[29]
6.28
The report said that:
On market access for
goods there was a detailed discussion on both Australia and
China’s requests in agriculture and industrial products. ...There was also a
further exchange of views on how to deal with China’s sensitive sectors, in
particular agriculture.
Further progress was made in the goods chapters with broad
and productive discussions of trade in goods, rules of origin, sanitary and phytosanitary
(SPS) issues, technical barriers to trade (TBT)and customs
procedures.
Australia and China discussed possible elements to include in
the text of the services and investment chapters. On
services and investment market access, the two sides had a constructive and
detailed exchange of views on ...investment, financial services and movement of
natural persons...
Discussions were held on the institutional and framework,
intellectual property and electronic
commerce chapters ... Australia reiterated its interest in
including provisions on government procurement and competition policy in the FTA.[30]
Republic of Korea
6.29
In his evidence to the Sub-Committee, the NZ Deputy High Commissioner
commented on the value of NZ’s agreement with China and the significant impact
it has had on their two-way trade:
Obviously, the New Zealand-China Free Trade Agreement that we
signed has been a very significant agreement for us. To give you a sense of the
figures that we are talking about, we have had an increase of $1.1 billion
worth of trade with China, and that has happened during a global recession. To
put that in context for you, that is the equivalent for New Zealand of adding a
market the size of Korea to our export profile. So in the space of one year
since the FTA came into force we have added a market the size of Korea to our
trading experience.
Supplementing that agreement, we concluded the FTA with Hong
Kong late last year. That is the only FTA that Hong Kong has signed beyond the
one that it has with China. It complements very nicely the agreement we have with
China and recognises the fact that a lot of New Zealand companies operate out
of Hong Kong, looking to get access to the Chinese market.[31]
6.30
In April 2008 a joint non-government study by ITS Global from Australia
and the Korean Institute for International Economic Policy found that:
A free trade agreement between Australia and the Republic of
Korea offers significant opportunities to further strengthen our highly
complementary and growing bilateral trade and investment relationship, and
deliver gains to both countries through closer economic integration.[32]
6.31
The then Minister for Trade said that the Government was committed to
pushing ahead with the FTA and commented that:
The study clearly shows there is scope for a high-quality
Australia-Korea free trade agreement that comprehensively liberalises two-way
trade in goods and services as well as investment.[33]
6.32
In a Statement to the Parliament on 10 March 2009, the Minister
announced that agreement had been reached to commence negotiations for a Free
Trade Agreement:
Following the completion of two rounds of officials-level
preparatory talks in December last year, last week on 5 March 2009, the Prime
Minister and President Lee announced that the two countries had agreed to
launch FTA negotiations.
On the same day, I met my Korean counterpart, Kim Jong-hoon,
and we have agreed to hold the first formal round of negotiations in May.[34]
6.33
The most recent comments by the Department of Foreign Affairs and Trade
indicate that in the first five rounds of negotiations considerable progress
has been made:
The fifth round of FTA negotiations between Australia and
Korea was held in Canberra from 25 to 28 May 2010.
Real progress was again made at this round - both sides are
clearly keen to see this negotiation through to conclusion as quickly as we
can, and this has underpinned the constructive attitude both sides continue to
demonstrate. Nevertheless, significant challenges remain in achieving
improvements in Korea's goods market access offer, particularly on agriculture.
Overall, the majority of chapter texts have been effectively
concluded, including on topics such as Technical Barriers to Trade (TBT),
Sanitary and Phytosanitary Standards (SPS), Dispute Settlement, Customs
Procedures and Trade Facilitation, and E-Commerce, although all chapter
negotiations remain subject to the legal scrub process and the conclusion of
the agreement as a whole.
In the lead-up to the fifth round, the two sides exchanged
further clarifications regarding each side's respective goods market access interests.
At the round, Australia continued to highlight the improvements we need in
Korea's goods offer, particularly for priority agricultural products. Korea
similarly highlighted its interest in the elimination of Australia's tariffs on
its priority industrial products.
The two sides continued with constructive exchanges on
goods-related chapters. In addition to those chapter texts mentioned above,
these include chapters on Trade in Goods, Trade Remedies and Rules of Origin.
Despite the effective conclusion of some goods-related chapters, further
discussion will be required in certain areas. The two sides also continued to
discuss each side's proposals for enhanced cooperation in the agricultural,
energy and mineral resources sectors.
We also had substantial discussions on various services and
investment topics. Text negotiations in the five relevant chapters
(Cross-Border Trade in Services, Investment, Financial Services,
Telecommunications and Movement of Natural Persons) have moved close to
conclusion in most areas. Before the round, the two sides exchanged revised
services and investment market access requests, and the fifth round provided an
opportunity to further discuss each side's priorities and sensitivities.
Australia's requests have focused on sectors including financial services,
telecommunications, professional services and education.
Negotiations on other chapters, including Intellectual
Property Rights and Government Procurement, made further good progress. Both
sides also exchanged and discussed initial government procurement market access
offers, and this discussion will continue at future meetings.[35]
Japan
6.34
In 2006 a joint study on ways of enhancing economic relations between
Japan and Australia included an examination of the feasibility of a Free Trade
Agreement. The Final Report from that study concluded:
... that a comprehensive and WTO-consistent EPA[36]/FTA
would bring about significant benefits to Australia and Japan.[37]
6.35
This study followed the release in 2005 of a joint study of the costs and
benefits of trade and investment liberalisation between the two countries,
which found:
Overall, GDP and trade would increase in both countries as a
result of liberalisation. The estimated magnitude of the macroeconomic gains
varied between the studies, ranging from 0.66 per cent to 1.79 per cent for
Australia’s GDP in 2020, and between 0.03 per cent and 0.13 per cent for
Japan’s GDP in 2020.
In sectoral terms, it was found that the liberalisation would
result in an increase of exports, production and labour in the majority of
sectors on both sides. Output from Japan’s manufacturing (both durable and
non-durable), services, energy and mining sectors would all increase as a
result of liberalisation, as would output from Australia’s agriculture,
manufacturing (both durable and non-durable), services and energy sectors.
On the other hand, a significant decrease in some of Japan’s
agricultural sectors would be observed. The most noticeable change (decline) in
employment occurs in Japan’s Agriculture and food sector, but it grows in other
sectors of the economy.
In Australia, liberalisation was estimated to cause
employment to grow in the non-durable manufacturing sector. Bilateral trade was
estimated to increase considerably as a result of liberalisation. As may be the
case with FTAs, the studies found that some of this increase in bilateral trade
would be due to trade diversionary effects, which would have adverse impacts on
third countries, such as US, EU, China and ASEAN.
6.36
Since then, 11 rounds of negotiations have been held on the
Australia-Japan Free Trade Agreement. The most recent round was held in
Canberra from 19-23 April 2010. The DFAT Newsletter reporting on the
discussions, said that more than 50 sessions were held over the five days and
that “steady progress was made”.[38]
6.37
Speaking at a Japan-Australia Business Cooperation Committee FTA
Symposium in June 2010, the former Minister for Trade said:
Australia and Japan can be proud of the growth we've achieved
in our trade and investment relationship. It's therefore surprising that after
40 years we don't have an FTA (or Economic Partnership Agreement)
So we cannot afford to become complacent. While our economies
are already highly integrated, there is more work to do. This is why Australia
and Japan are pursuing a comprehensive Free Trade Agreement or Economic
Partnership Agreement.
It will raise the bar. It will bring both economies to a new
level of integration. And it will set the modern framework for our trade and
economic relationship.
Steady progress has been made since negotiations began in
2007. Australia has agreed to include specific chapters of interest to Japan on
food supply and energy and mineral resources. But we cannot shy away from the
challenges that remain.
Australia appreciates the sensitivities and complexities of
the Japanese agriculture system. Nonetheless, to be meaningful, an FTA must
include agriculture. The ANZFTAA agreement clearly demonstrated that we have
the ability to address sensitivities. So we should not just focus on the difficulties.
The opportunities on offer through an FTA are huge,
particularly in services and investment. And both countries can win from
high-quality commitments on agriculture in the FTA. Implementing the FTA would
be a powerful vehicle for change and it would deliver major benefits to the
Japanese economy.
For our part, Australia has worked hard to reform its
economy. Reform of some sectors has taken time and involved political pain. But
the reforms have been worth the pain.
As a result of our reforms, Australia has continued to grow,
both through the Asia Financial Crisis of the 1990s and, more recently, through
the Global Financial Crisis. Australia understands that reform takes time. We
stand ready to work with Japan to craft a commercially meaningful FTA that
takes account of this dynamic.
My key message today is that we cannot let difficulties and
sensitivities deter our efforts to forge a comprehensive agreement that expands
opportunity. The liberalisation of trade and investment is not just about the
two way flow of goods and services.
It would also serve to further encourage Australian and
Japanese companies to work together in third country markets across the region
– particularly through global supply chains and the use of public private
finance to progress infrastructure development.
We are optimistic that Australia and Japan can deal with our
respective sensitivities to conclude a high quality, comprehensive FTA which
delivers enhanced opportunities for both countries. Timing is important.
Australia considers a Japan-Australia FTA to be a critical pillar of our
region's modern architecture.[39]
Malaysia
6.38
In July 2004, Australia and Malaysia agreed to conduct parallel scoping
studies on a possible Free Trade Agreement. In 2005, the Department of Foreign
Affairs and Trade release the Australian study, which found:
An FTA would provide a basis for much stronger cooperation
and further liberalisation on a wide range of issues. It would tend to
encourage closer inter-agency cooperation between the two Governments. Possible
areas of greater cooperation and/or further liberalisation include customs
procedures, industrial technical barriers to trade, investment, the movement of
natural persons, electronic commerce, competition policy, intellectual
property, and government procurement. Cooperation in these areas would
substantially increase the gains from an FTA for both countries.
A free trade agreement is consistent with the broader
policies being pursued by both countries. For Australia, an FTA would deepen
its integration with the ASEAN economies, building on agreements negotiated
with Singapore and Thailand. It would help to promote Australia’s commercial
interests in Malaysia as it liberalises trade on a preferential basis with
other economies, including in the region. It would serve to complement and
reinforce liberalisation efforts in the regional and multilateral arena. More generally,
an FTA with Malaysia would strengthen the broader bilateral relationship.
For its part, Malaysia would benefit from a closer
relationship with the fourth largest economy in the region, and one of the most
strongly performing developed economies over the last decade. Malaysia’s
attractiveness as an investment destination would increase, particularly if it
were to liberalise further its investment regime and make it more attractive to
business.
The study concludes that the case for a free trade agreement
with Malaysia is very strong. Accordingly, it recommends that Australia seek to
enter into negotiations with Malaysia to establish a comprehensive and
WTO-consistent free trade agreement.
On goods, any FTA should cover all tariff and non-tariff measures.
It should address comprehensively impediments in services sectors, including
education, professional services, telecommunications and financial services.
There would also be significant benefits from steps to strengthen cooperation
and/or promote liberalisation in such areas as customs procedures, industrial
technical barriers to trade, investment, the movement of natural persons
(particularly business persons), electronic commerce, intellectual property,
and government procurement. Any FTA should include provision for review, so
that it becomes a basis for developing further cooperation over time.[40]
6.39
On 7 April 2005, Australia and Malaysia agreed to launch negotiations on
a bilateral Free Trade Agreement (FTA). Negotiations were paused in early 2007
to allow both sides to focus on finalising the ASEAN-Australia-New Zealand FTA, which was
concluded in August 2008 and entered into force on 1 January 2010. The then
Minister for Trade, Mr Crean, and his Malaysian counterpart, the Malaysian
Minister for International Trade and Industry, Mr Muhyiddin, announced the
resumption of bilateral FTA negotiations in October 2008.[41]
6.40
In April 2010 the 7th round of negotiations was held in Kuala
Lumpur. The DFAT update announced that: “Good progress was made across the
negotiations to further narrow areas of difference”. Taking into account the
newly activated AANZFTA the update commented:
The round sharpened the understanding on both sides of what
would constitute ‘AANZFTA–plus’ outcomes, and a process for exchanging market
access offers ahead of the next round was discussed.[42]
6.41
The 8th round was held in Canberra from 18-22 October 2010
and further progress was made with market access negotiations. Australia
provided Malaysia with a paper outlining its offer on tariffs and the
commitments it would ask in return. Initial access offers on services and
investment were exchanged.
6.42
Discussions were held on draft chapters covering: goods; rules of
origin; customs procedures; safeguards; sanitary and phytosanitary measures;
and on standards, technical regulations and conformity assessment procedures.
Progress was also made on issues such as: electronic commerce, competition
policy and intellectual property.
Under Consideration
India
6.43
Recent years have seen remarkable growth in the trading relationship
between India and Australia, fuelled by the many complementarities between the
two economies. Over the past five years, bilateral trade in goods and services
has increased by 24 per cent annually to US$16 billion in 2008–09. Two-way
investment is also significant, estimated at over US$1.5 billion including
portfolio investment in 2008.[43]
6.44
Against this backdrop, Australia and India agreed in April 2008 to
undertake a feasibility study for a possible bilateral free trade agreement
(FTA) to explore the scope for building an even stronger economic and trade
relationship. The feasibility study shows that significant barriers to goods
and services trade remain in both countries.
6.45
An FTA between India and Australia would be expected to address tariff
and non-tariff barriers. It would go beyond each country's commitments in
the World Trade Organization (WTO) and cover substantially all trade in goods.
Services liberalisation would seek to remove barriers that impose additional
costs on exporters and erode competitiveness. A possible FTA would be expected
to have substantial services sector coverage.
6.46
Australia-India investment flows are modest relative to bilateral trade,
reflecting both regulatory and other impediments and, to some extent, a lack of
awareness of business opportunities in the other country. A possible FTA may
address this imbalance by removing — or reducing — existing restrictions in
both foreign investment regimes. It could also focus on enhancing transparency
and strengthening investment protection mechanisms.
6.47
A comprehensive FTA offers scope to take the relationship to the next
level to the mutual advantage of both economies. It could foster even stronger
growth, including through more diverse trade and investment flows. Cooperation,
capacity building and exchange of information on other issues such as the
protection of intellectual property rights (covering all issues including TRIPS
& CBD, and GIs inclusive of non-food GIs), SPS & TBT matters,
competition policy and government procurement could also be considered during
possible FTA negotiations.
6.48
To make an assessment of the possible trade gains from the proposed FTA,
independent economic modelling was commissioned in both the countries for
the study. The results provide insights into how an FTA might impact on
bilateral trade and investment flows as well as economic welfare. ...The
results indicate that the welfare of the two countries would increase with the
conclusion of an FTA. The welfare gains for both the countries could be in the
range of 0.15 and 1.14 per cent of Gross Domestic Product (GDP) for India and
0.23 and 1.17 per cent of GDP for Australia. An Australia-India FTA could
result in a modest positive impact on total global economic output.
6.49
The Joint Study Group concluded that a bilateral FTA is feasible and
recommended that both governments consider the negotiation of a comprehensive
India-Australia FTA.
6.50
The then Minister for Trade and his counterpart the Indian Minister of
Commerce and Industry “endorsed the feasibility study recommendation noting
that both sides would need to undertake further internal processes before negotiations
could be launched”.[44]
6.51
The Minister added:
The joint study finds that an Australia- India FTA is
feasible. It makes a strong economic case that both Australia and India would
gain significant economic benefits from a comprehensive FTA. An FTA would open
up trade, investment and job opportunities in both countries.
An FTA with India will continue the momentum of Australia’s
economic integration with Asia – the fastest growing region in the world.[45]
6.52
The Minister also noted the rapidly growing trade relationship, allied
with India’s fast-growing economy, large population and the largely
complementary nature of the two economies:
India is Australia’s fastest-growing major two-way trading
partner, reflecting the largely complementary nature of the two economies.
Two-way trade grew 55 per cent to nearly $22 billion in 2008-09.
India is the world’s largest democracy and is a market of 1.2
billion people. Its youthful population, diversified economy, and growth
trajectory present significant opportunity for Australian business, especially
in the agriculture, energy, manufacturing, mining and services sectors.
Australia’s exports to India have increased by an annual
average of over 25 per cent over the past five years, making India our
fastest-growing major export market. It is our fourth-biggest export market, up
from 13th a decade ago.
Industry consultations in Australia and India revealed broad
support for an FTA with India; and Australia engaged stakeholders through
requests for public submissions and nationwide consultations.[46]
Indonesia
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In August 2007 Australia and Indonesia commenced a joint feasibility
study on a possible bilateral Free Trade Agreement. The study examined the
potential impact on the two countries of an FTA and included examination of the
implications for economic growth, trade, investment, commercial linkages and
competitiveness.[47]
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In summary, the findings of the study were positive and indicated that
completion of an agreement would be worthwhile for both countries:
The feasibility study finds that a bilateral FTA between
Australia and Indonesia would provide worthwhile benefits for Australia. It
finds that the gains for Indonesia would also be worthwhile, and would,
consistent with expectations, be of a greater magnitude.
More broadly, however, the feasibility study confirms that
while a range of impediments to bilateral trade will be eliminated by each
country as part of the recently concluded ASEAN-Australia-New Zealand FTA
(AANZFTA), significant barriers to trade and investment flows between Australia
and Indonesia will remain after AANZFTA enters into force.
The study shows that the greatest gains would be achieved
under an FTA that would eliminate tariffs and non-tariff barriers to all trade
between the two countries. At a minimum, a bilateral FTA should go beyond each
country’s commitments in the World Trade Organization (WTO) and under AANZFTA.
In negotiating an FTA, the study recognises that each party to negotiations
would take into account its potential domestic adjustment costs for each
sector.
The feasibility study also demonstrates that the objective of
an FTA negotiation ought to be the removal of all barriers to bilateral
services trade. Such barriers impose additional costs on exporters and
consumers, and retard economic competitiveness. A bilateral FTA would be
expected to cover all services sectors of importance to each country.
In the investment sphere, the study shows that
Indonesia-Australia investment levels, though not insubstantial, underperform
relative to growing bilateral trade and Australian investment in some other
ASEAN economies.
A comprehensive FTA that eliminates the widest possible range
of direct and indirect barriers to Australian investment in Indonesia would
enhance the bilateral relationship in a number of important respects. First,
Indonesia would be better placed to attract Australian investment, especially
in key mining and resources sectors. Second, Indonesian investors may become
more familiar with, and more confident about their ability to exploit the
investment opportunities available to them in Australia.[48]
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Having received the completed study the two governments have agreed to
consider its recommendations with a view to possible commencement of
negotiations toward an FTA.[49]