ECON215 Essay

Submitted By ysl247
Words: 1732
Pages: 7

The decision for Australia to join the ASEAN Free Trade Area (AFTA) is the most ambitious economic agreement the country’s signed to date. The AFTA was originally formed in 1992 with the sole purpose of promoting trade liberation amongst its participating nations. There are numerous benefits for Australia joining the free trade area, including extensive tariff reduction & elimination commitments, also new export opportunities will arise with the provision of the regional rules of origin (Department of Foreign Affairs and Trade, 2009). The agreement will also provide certain legal protection for Australian investors, incentivising foreign trade & investment between ASEAN members. Furthermore, this decision will provide a platform for continuous economic engagement with one of the most dynamic business regions of the world, conveniently located next to Australia. Despite the plentiful advantages in joining AFTA, there are also concerns regarding the difficulty in reaching mutual agreements and potential trade deflection amongst the nations involved (Jayanthakumaran, 2014). Overall, Australia’s involvement in the AFTA is a very venturous agreement, which promotes economic prosperity but is not entirely without risk.
The proposition for Australia to join the ASEAN Free Trade Area was under consideration for nearly two decades before the agreement was signed. This decision was based on the recognition that trade agreements amongst neighbouring countries would allow further rules and commitment negotiations than what was possible at the present time multilaterally. The AFTA incorporates 12 economies, has a combined GDP of $3.1 trillion AUD and it represents 20% of Australia’s trade which has an annual value of $112 billion (Department of Foreign Affairs and Trade, 2009). The free trade area is most prominent in the goods trading area and binds pre-existing tariff rates which would otherwise, under the World Trade Organisation (WTO) standards be significantly increased. The low ASEAN tariff is beneficial for Australian exports and over-time tariff eliminations are also applicable with the more developed AFTA countries for over 90% of trades. Added to these benefits, the FTA also enhances Australian supply chain efficiencies with participating countries through the Regional Rules of Origin (ROO). The removal of supply chain barriers is highly beneficial for the manufacturing sector and the development of relationships between other competitive industries. The major sectors in Australia which will be affected by tariff removals are textiles, clothing and footwear (TCF) and automobiles and automotive parts. The pre-existing tariff rates for these sectors were approximately 10 per cent prior to the FTA agreement, but were reduced to zero post Australian participation. Other sectors were also impacted by the FTA zero tariff agreement, but were reduced from less than 5 per cent to zero, therefore making a smaller impact (Ellington, 2009). The steady removal of tariffs affects the major sectors greatly, as the Australian Textiles industry export has a previously secured tariff lines, but will be forcibly eliminated by 2020. On the other hand, Australian has both defensive & offensive interests in the Automotive Parts and Components industry, as 135 tariff lines were eliminated upon the implementation of AFTA and a further two in 2010. Indonesia is predicted to remove all but 5 tariff lines by 2020 for the automobile industry (Ellington, 2009). Although the implementation of the FTA will promote Australian trade with its neighbouring countries, it also poses as a threat for some export, as new competition will arise with the removal of tariff lines.
Australia has maintained its anti-dumping procedures for the purposes of controlling dislocation amongst import-competition, which is an issue that has arisen due to the removal of tariffs. But there are however, two trade remedies which Australia can utilise to counteract potential