3.3: Features and Roles of Free Trade Agreements

Question 1

What is the definition of a Free Trade Agreement (FTA)?

Answer 1

A FTA is defined as a treaty between two or more countries that facilitates freer trade by removing barriers for international trade, leading to the development and growth of a country’s economy.

Question 2

What are three Roles of FTAs?

Answer 2

• facilitates the removal and reduction of trade barriers
• increases economic growth, dynamic business climate, foreign direct investment and transfer of technology and expertise
• reduce government spending by eliminating subsidies

Question 3

What are some Benefits to Australian-owned Businesses as a result of FTAs?

Answer 3

• allows countries to specialise in producing goods and services in which are most efficient for them to produce
• creates a greater tendency for specialisation which leads to economics of scale, which reduces the average costs of production and increases productivity and efficiency
• encourages innovation, spread of technology and production processes globally
• higher standards of living as a result of lower prices as well as increased consumer choice as countries are able to access gods, that a lack of natural resources would otherwise prevent

Question 4

What are some Challenges to Australian-owned Businesses as result of FTAs?

Answer 4

• increases in short term unemployment as some domestic businesses struggle to compete with imports
• greater difficulties may be experienced in establishing new businesses if they are not protected from large multinational firms
• production surpluses from countries can be dumped by selling at unrealistically low prices in Australian markets which can hurt efficient Australian industries

Question 5

What is the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA)?

Answer 5

The AANZFTA is a free trade agreement that came into force on January 1, 2010, with Australia and eight other signatory countries. The agreement sought to cover goods, services, investments and intellectual property by liberalising (relaxing) and facilitating trade among the signatory countries.

Question 6

What are the Key Features of the AANZFTA?

Answer 6

• extensive elimination of tariffs
• creation of rules of origin
• promotes greater certainty for foreign investors and Australian suppliers
• establishes a platform for economic cooperation

Question 7

What is the Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA)?

Answer 7

The ANZCERTA is a bilateral free trade agreement signed in 1983 and was one of the first models of an FTA for the world that is considered one of the most expansive. Covering all trans-Tasman trade goods, such as agricultural products it was the first to include free trade in services.

The central provision of this agreement was to create a World Trade Organisation (WTO) - a consistent Free Trade Area between the two countries to create a free single economic market with reduced trade barriers.

Question 8

What are the Key Features of the ANZCERTA?

Answer 8

• all tariffs and import/export restrictions are prohibited for goods originating from the Free Trade Area
• measures to reduce prices being determined by anything but supply and demand
• introduction of Australian New Zealand Food Authority Agreement
• mutual recognition of goods and occupation