Below trend growth to continue
As an exporter, you’ll want to take advantage of any reduced costs that come your way. Free trade agreements (FTAs) do just that – and will make certain markets more attractive than others because of the greater opportunities for your business.
Free trade agreements are deals between two or more countries to reduce barriers to trade between those countries. Barriers typically include tariffs and trade quotas, which protect a country’s local markets and industries by limiting external competition.
For example, prior to an FTA between Australia and Japan, the tariff on Australian beef was 38.5%. The Japan-Australia Economic Partnership Agreement reduces that tariff over time, making it less costly for Australian beef exporters to serve the Japanese market.
Another type of protectionist trade restriction is a trade quota, which is used to help regulate trade volume between countries. Imposed by a country’s government, trade quotas limit the number, or value, of goods that can be exported over a specified time period.
If you’re exporting items subject to a trade quota, you’ll be out of luck once the pre-determined quota has been reached.
Exporting goods or services to a country with an FTA in place with Australia means you’ll have fewer obstacles to overcome in reaching an overseas market. And by obstacles, we mean costs, such as customs duties and export tariffs, and duty-free trade quotas.
With a free trade agreement in place, these costs will be minimised or removed – and you can expect more generous trade quotas, if any. The benefits to your export business when doing business under an FTA can be hugely significant.
With lower – or completely eliminated – tariffs, you can afford to price your goods and services more competitively in the overseas market. For example, if your goods were subject to a 40% tariff in a country without a free trade agreement with Australia, your only options would be to increase your selling price accordingly or stay out of the market.
When that tariff is slashed or eliminated, the market becomes much more lucrative.
You can price your goods more competitively, which is good for consumers – and, ultimately, your bottom line.
Removing trade quotas removes uncertainty. When trade quotas restrict imported goods and services, you may have hungry customers overseas but no way of reaching them once the limits have been reached (by your business or your competitors).
Doing business with countries that have reduced or eliminated these barriers to entry means you can meet the demand based on your own objectives.
When deciding where you might export your goods or services, consider whether there’s an FTA in place or not. With an FTA in place, you can expect fewer impediments, lower tariffs (if any) and more generous trade quotas (if any).
You may also find that the entire export process has become easier to navigate thanks to each country’s commitment to encouraging two-way trade.
Australia’s export market in 2014 was valued at A$327 billion. The top five markets at that time were China, Japan, Republic of Korea, United States, and New Zealand.
Below is the current status of free trade agreements between Australia and other countries.
The FTAs that are operational include:
The following agreements are in negotiation:
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