Australia’s Multilateral and Bilateral Free Trade Agreements
Expert reviewed • 21 July 2024 • 8 minute read
Australia's Free Trade Agreements
Like the majority of countries across the world, Australia in the last few decades has structured an extensive network of free trade agreements (FTAs). Australia, as a nation heavily dependent on trade, has actively pursued both multilateral and bilateral FTAs to open up new markets, reduce trade barriers, and foster economic growth.
Australian Multilateral Agreements
Multilateral agreements involve three or more countries agreeing to participate in trade agreements that reduce tariffs and coordinate regulatory barriers. Australia has been an active participant in several key multilateral trade agreements:
Examples:
- ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA): Effective from January 2010, this agreement links Australia with ASEAN countries and New Zealand. By participating in this multilateral agreement, Australia benefits from improved market access and strengthened economic integration with key regional partners. This strategy supports Australia's economic interests while balancing geopolitical considerations. This is important during times of tension with China, as Australia's increased diversity of its trade relationships reduces their reliance on any single market.
- Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP): The CPTPP is a high-standard trade agreement between Australia and 10 other Asia-Pacific countries, including Canada, Japan, and Singapore. The agreement, which entered into force in 2018, eliminates over 98% of tariffs among member countries and sets common rules for trade in goods, services, investment, and e-commerce. Additionally, under this agreement, Australian exporters gain preferential access to the Japanese market, with tariffs eliminated on beef, wheat, and dairy products. This has significantly boosted Australia's agricultural exports to Japan, with beef exports increasing by 20% in the first year of the agreement.
Australian Bilateral Agreements
Bilateral FTAs are agreements between two countries designed to give each other preferential trade terms, easier market access, and reduced tariff barriers. They are quicker to negotiate than multilateral agreements and can address specific trade issues between two countries more effectively.
Examples:
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Korea-Australia Free Trade Agreement (KAFTA): KAFTA, which entered into force in 2014, has substantially reduced trade barriers between Australia and South Korea. The agreement eliminates tariffs on over 99% of Australian exports to South Korea. As a result, this provides significant opportunities for Australian exporters in sectors like agriculture, resources, and manufacturing.
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China-Australia Free Trade Agreement (ChAFTA): Since December 2015, ChAFTA has opened enormous opportunities for Australian businesses by reducing tariffs and improving market access to China. The agreement eliminates tariffs on over 96% of Australian exports to China, including key commodities like wool, beef, and dairy. This is important as China is Australia's major trading partner.
This is made evident by the following pie chart.
As we can see from the image, China is Australia's biggest free trade partner, accounting for 35% of Australia's overall trade volume.
What are the Economic Impacts of FTAs?
Free trade agreements have thus substantially shaped Australia's economic landscape by:
- Trade Growth: FTAs have been instrumental in boosting Australia's trade flows. The reduction of tariffs and non-tariff barriers has made Australian exports more competitive in partner markets, while also providing Australian consumers with access to a wider range of imported goods at lower prices.
- Job Creation: The expansion of trade opportunities through FTAs has supported job creation in Australia, particularly in export-oriented industries. The Department of Foreign Affairs and Trade (DFAT) estimates that one in five Australian jobs is trade-related.
- Supply Chain Integration: FTAs have facilitated Australia's integration into regional and global supply chains. This has allowed Australian businesses to specialise in areas of comparative advantage and participate in cross-border production networks. Particularly evident in Australia's agreements like the CPTPP, access to foreign markets with countries like China, Japan, and South Korea has significantly increased.