February 15, 2017

Free trade agreements and what they mean for your business

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.

What are FTAs?

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.

Tariffs as a barrier to entry

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.

Trade quotas as a barrier to entry

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.

What FTAs mean to your business

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.

Lower tariffs

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.

Removal of trade quotas

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.

Countries that have FTAs with Australia

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.

In effect

The FTAs that are operational include:

  • China-Australia FTA (ChAFTA).
  • Australia-Chile FTA (ACLFTA).
  • Japan-Australia EPA (JAEPA).
  • Korea-Australia FTA (KAFTA).
  • Malaysia-Australia FTA (MAFTA).
  • Singapore-Australia FTA (SAFTA).
  • Thailand-Australia FTA (TAFTA).
  • Australia-New Zealand CER (ANZCERTA).
  • ASEAN-Australia-New Zealand FTA (AANZFTA).
  • Australia-USA FTA (AUSFTA).

In negotiation

The following agreements are in negotiation:

  • Australia-Gulf Cooperation Council (GCC) FTA.
  • Australia-India Comprehensive Economic Cooperation Agreement.
  • Indonesia-Australia Comprehensive Economic Partnership Agreement.
  • Pacific Agreement on Closer Economic Relations (PACER) Plus.
  • Regional Comprehensive Economic Partnership.
  • Trade in Services Agreement.
  • Trans-Pacific Partnership Agreement.

Next steps

  • Learn more about Australian Free Trade Agreements by country at the Australian Trade Commission’s website.
  • Take a look at the thorough information on Australia’s trade agreements on the Department of Foreign Affairs and Trade’s (DFAT’s) website.
  • See if NAB’s international payment options, trade finance and foreign currency accounts can assist your exporting venture.
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