What is a free trade agreement?
A free trade agreement is an arrangement between two or more countries to reduce or remove barriers to trade. Increasing business between the cooperating nations, they often cover import tariffs & quotas, products & services, and foreign investment regulations.
Reflecting the strategic importance of access to the world’s best businesses, free trade agreements aim to improve the competitive position of the countries under the agreement.
Depending on the agreement negotiated, FTAs are a great inducement for business to open up new markets, potentially increasing market share, accessing new technology innovations, and improving productivity.
They may also help with government procurement, protection of intellectual property rights, competition policies, and can provide many added business incentives.
Free trade agreements in Australia
While public awareness of free trade agreements has grown significantly in recent times, they are not a new development in world business – and Australia has been using them for over 30 years to strengthen its trade and business ties with other countries around the world.
Through the Australian Department of Foreign Affairs, these agreements have been created, often in intense negotiation, with the various governments of the respective countries.
As at March 2016, Australia has 10 active free trade agreements, with one signed, and five under negotiation.
Active free trade agreements
Australia – United States (AUSFTA)
Coming into effect in January 2005, the AUSFTA gives mutual access to the Australia and the United States economies. It includes improvements in regulatory and investment environments between the two countries and promotes business mobility.
Examples of successful US SME companies that have opened operations in Australia include Scytl Australia, TradeBeam Inc and CPI Australia Pty Ltd.
More information: The AUSFTA
UK Trade Agreements
Australia and the UK have an extensive economic and trade relationship. The UK is the second largest source of total and direct foreign investment in Australia.
By the end of 2014, total UK foreign investment in Australia was valued at $484.16 billion. Direct UK foreign investment in Australia was valued at $87.37 billion.
In 2014-15, two-way trade was worth around $21.1 billion, with imports from the UK $12.6 billion. The UK was Australia’s third largest services export market in 2014-15, with Australia’s services exports to the UK valued at $4.9 billion, and services imports from the UK valued at $6.23 billion.
British businesses have traditionally viewed Australia as an attractive base for regional operations and have invested in a wide range of industries, including infrastructure, pharmaceuticals, energy and travel industries.
Approximately a third of all regional headquarters operations in Australia are European, and of these, almost half are British.
Major UK investors in Australia include Shell, BP, British Aerospace, BT and Vodafone. Examples of successful UK SME companies that have opened operations in Australia include The Rickter Company and CDS Global.
More information: United Kingdom country brief
China – Australia (ChAFTA)
Effective from December 2015, the ChAFTA is a significant free trade agreement which covers Australia’s biggest trading partner. Notably, the agreement includes a rise in the threshold of foreign investment by Chinese entities in non-sensitive sectors, from $252 million to $1094 million.
Chinese projects in Australia valued over $150 million may also receive additional rights to bring in temporary migrant workers without local labour market testing.
More information: The ChAFTA
Korean – Australian (KAFTA)
South Korea is Australia’s 4th largest trading partner, and the Korea – Australia Free Trade Agreement (KAFTA) promotes increased Korean investment in Australia by removing tariffs on Korean products.
In addition, Korean businesses will have access to a higher Foreign Investment Review Board screening threshold, to help diversify and grow investment from Korea to Australia.
Since the agreement was activated in December 2014, Australia has seen a rise of 7.5% year-on-year of Korean imports (exceeding US$10 billion), at a time when total Korean exports fell by 7.4%. (Source)
More information: The KAFTA
ASEAN – Australia – New Zealand (AANZFTA)
Including the ASEAN countries of Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam, this FTA activated in January 2010 and was the first in which Australia and New Zealand have jointly negotiated with third party countries.
It is also the first time the Association of South Eastern Asian Nations has agreed to an FTA that covers all trade sectors, including goods, services, investment and intellectual property.
More information: The AANZFTA
Australia – New Zealand Closer Economic Agreement (ANZCERTA)
Australia’s longest held FTA, signed in 1983, this agreement covers a large range of trade issues with New Zealand, significantly all trans-Tasman trade on goods and services. Because of this, the World Trade Organisation (WTO) recognises ANZCERTA as a model Free Trade Agreement.
It is one of the world’s most open and successful free trade agreements. Over the last 30 years, two-way trans-Tasman trade has increased at an average annual rate of 8%. New Zealand is ranked third as an investment destination for Australia.
More Information: The ANZCERTA
Japan – Australia Economic Partnership Agreement (JAEPA)
The JAEPA covers the lowering of Australian tariffs on electronics, whitegoods and cars, resulting in lower prices for Australians. For example, a Japanese vehicle will be, on average, $1500 less expensive because of JAEPA. It came into effect in January 2015.
More information: The JAEPA
Malaysia – Australia (MAFTA)
The Malaysia – Australia Free Trade Agreement, activated in January 2013, gives Malaysian exports duty-free entry into Australia, and addresses other barriers to trade to simplify administration for traders.
More information: The MAFTA
Singapore – Australia (SAFTA)
Effective since July 2003, SAFTA promotes a more open and predictable business environment in areas such as telecommunications, regulation, competition policy, government procurement, technical standards, intellectual property, e-commerce, customs procedures and business travel.
It further strengthens trade and investment links, eliminates Singapore’s tariffs and provides cheaper inputs for Australian businesses on a range of products.
More information: The SAFTA
Thailand – Australia (TAFTA)
Thailand is one of Australia’s most important markets in South East Asia and enhances prospects for services trade and investment, improves the regulatory and investment environment and promotes increased business mobility. From its inception in January 2005, 95% of all current trade between Australia and Thailand is completely tariff free.
More information: The TAFTA
Australia – Chile (ACl-FTA)
This free trade agreement signifies our commitment with the Latin American market and encompasses trade in goods, services and investment.
Under the FTA, active since March 2009, all tariffs have been eliminated on existing merchandise trade in both directions. The FTA will support new trade and investment opportunities in Australia across a wide range of sectors.
More information: The ACI-FTA
Signed free trade agreements
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) consisting of 11 countries will become the largest FTA in the world, opening up $U28 trillion in trade.
Trans-Pacific Partnership Agreement (TPP) negotiations were undertaken by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam, concluding successfully on 6 October 2015.
The CPTPP will provide greater certainty for businesses, reduce costs and red tape and facilitate participation in regional supply chains, and allows other members to join in the future, amplifying its benefits.
Free trade agreements in negotiation
The Australia-European Union Free Trade Agreement
In November 2015, the Australian Prime Minister, the President of the European Council, and the President of the European Commission agreed to start the process towards a comprehensive and high-quality Free Trade Agreement.
To date, trade between the EU and Australia is strong, with the total two-way merchandise trade between Australia and the European Union (EU) worth almost $84 billion. The EU is Australia’s largest source of foreign investment and second largest trading partner, and in 2014, its foreign direct investment in Australia was valued at $169.6 million.
Bilateral discussions will begin to launch negotiations specifically around removing barriers to trade in goods, expanding services linkages & investment ties, and enhancing regulatory cooperation in specific areas to business.
The Australia – India Comprehensive Economic Cooperation Agreement
Recent years have seen remarkable growth in the trading relationship between India and Australia, fuelled by the many complementarities between the two economies. Two-way trade in goods and services has grown in value from $6.8 billion in FY2003-04 to $14.8 billion in FY2013-14.
Its intention is to broaden the base of merchandise trade by addressing tariff barriers and behind the border restrictions on trade in goods, facilitate growth in services trade by reducing barriers faced by Australian service suppliers and by increasing regulatory transparency.
An FTA could facilitate and encourage investment by reducing barriers, increasing transparency and enhancing investment protections.
Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) negotiations commenced September 2012.
IA-CEPA aims to strengthen and expand the trade, investment and economic cooperation relationship between Australia and Indonesia. It will help bring the region’s two largest economies closer together and will form a key part of Australia’s regional economic integration as part of the Asian Century.
Its aim is to improve economic competitiveness and investment and enhance economic cooperation in key drivers of economic growth.
More information: The IA-CEPA
Launched in 2009, the Pacific Agreement on Closer Economic Relations (PACER) Plus negotiations offer an opportunity to help Pacific Islands Forum countries benefit from enhanced regional trade and economic integration.
Participants include Australia, Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New Guinea, Republic of Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu.
Australia’s primary objective is to promote the economic development of Forum Island Countries through greater regional trade and economic integration.
More information: PACER Plus
The RCEP is an ASEAN-centred proposal for a regional free trade area, which would initially include the ten ASEAN member states and those countries, which have existing FTAs with ASEAN – Australia, China, India, Japan, Republic of Korea and New Zealand.
The RCEP will build on and expand Australia’s existing FTA with ASEAN and New Zealand, AANZFTA. It also complements Australia’s participation in bilateral FTAs with individual countries and the recently concluded Trans-Pacific Partnership Agreement (TPP).
The objective of launching the RCEP negotiations in 2012 is to achieve a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement that will cover trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement and other issues.
More information: The RCEP
The Australia – Gulf Cooperation Council Free Trade Agreement
Free Trade Agreement negotiations with the Gulf Cooperation Council (GCC), comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, commenced in July 2007.
Australia and the GCC share a significant economic relationship, encompassing trade and investment across a broad range of goods and services.
With a large proportion of world petroleum resources and a rapidly growing population, the GCC’s prospects for continued economic growth are strong. This fact, along with a plurilateral FTA, will help sustain growth in Australia’s trade and investment relations with the region.
The Australian Government is advocating strongly for a resumption of the Australia-GCC FTA negotiations.
More information: Australia-GCC FTA
If your company is thinking about doing business in Australia, contact International Accounting Solutions. We’ve been setting up, and managing foreign businesses in Australia for over 25 years.
For all up to date information on these Free Trade Agreements, and how they can benefit your company, contact us at International Accounting Solutions Services on +61 2 8298 5301 (international) or fill out the form on this page.
Last updated: April 19th, 2016