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Contents
Trade Policies and Controversies ............................................................................................................ 3
CHINA AUSTRALIA FREE TRADE AGREEMENT (CHAFTA .......................................................................... 3
Advantages of CHAFTA ........................................................................................................................... 4
JAPAN AUSTRALIA ECONOMIC PARTNERSHIP AGREEMENT (JAEPA) ..................................................... 6
Advantages of JAEPA: ............................................................................................................................. 6
Disadvantages of JAEPA: ......................................................................................................................... 7
KOREA AUSTRALIA FREE TRADE AGREEMENT (KAFTA) .......................................................................... 9
Advantages of KAFTA: ........................................................................................................................... 10
Disadvantages of KAFTA ....................................................................................................................... 10
References ............................................................................................................................................ 12
Trade Policies and Controversies

While it is widely believed that free trade is a good policy all over the globe, there have been
numerous controversies that challenge trade policies in general. Most notable controversy is
regarding trade policy featuring strategic advantage to specific industries. While certain
industrial sectors are imperfectly placed in competitive markets and require government
backing, and in some cases funding, to achieve sustainable market share and profitability, it
leads to unhealthy protectionism. Another controversy surrounding trade policies focuses on
negative effects of globalisation on local industries, environment and work force. Free trade
agreements

CHINA AUSTRALIA FREE TRADE AGREEMENT (CHAFTA)

The central principle behind trade is that it enables consumption of goods and services that we
would not be able to consume on our own. Trade is reason why we have choice of best quality
at cheapest possible price. (Norberg, 2005).

Its a well-known globally accepted sentiment which argues that exporting is beneficial and
importing is detrimental. Mercantilism argument was based on the premise that nations wealth
and power were best served by increasing exports and collecting precious metals in return
(Steele, 1998).

However this premise is essentially flawed. If a nation was to limit imports, the protected
domestic producers would sell their produce locally at a higher price than free market. This
would result in lower exports, as the produce would be sold locally at better rates than in foreign
market. At the same time this would lower the welfare of consumers who have now paid a
higher price for the local good (Norberg, 2005) as this purchase has stripped them of a greater
portion of their disposable income.

For a country to effectively leverage their economic potential, they should export goods and
services where they have comparative advantage in production and they must import goods
and services which they are inefficient in producing.

The China-Australia Free Trade Agreement (CHAFTA) came into force on 20 December 2015.
China Australia Free Trade Agreement is extremely crucial since China is Australias third
largest trade partner and second largest origin of imports. Since the volume of trade and
Chinese tariffs on imports to China are high, any reduction in tariffs would certainly boost
competitiveness and profitability.

The Free Trade Agreement serves to deepen economic integration between both nations by
substantially enhancing liberalisation of trade practices, services procurements and foreign
direct investment. The agreement acts as a pillar which supports broader political and economic
affiliations that are aligned with common goals of both countries in global as well as regional
affairs.

Advantages of CHAFTA

Prior to commencement of free trade agreement, average tariff rate in Australia was 3.5% while
average tariff rate in China was 9.9%. CHAFTA has enabled that more than 96 per cent of
Australia's goods exports to China are entering duty-free or with privileged access.

In agriculture, CHAFTA completely eliminated remaining tariffs on Australian barley and


sorghum and assured a rapid tariff reduction on many critical Australian agriculture exports
such as seafood, meat and horticulture.

Under CHAFTA, China has offered service commitments to Australia at par with its
agreements with Hong Kong and Macau, which notably includes new or improved market
access for banking, insurance and securities industries as well as legal, education services and
healthcare and telecommunications businesses.

CHAFTA also provides improved access for host of Australian and Chinese skilled service
providers, businessperson and investors thereby providing them with greater certainty for
conducting businesses.

CHAFTA was also played an important role in offsetting Chinese deals with other ASEAN
member nations as well as New Zealand and Chile.

Disadvantages of CHAFTA:

Although CHAFTA incorporates major aspects to strengthen Australian commitment to


liberalised trade practices with China, all issues between governments have not been resolved
in the agreement and hence it does not qualify as hugely successful achievement.
There are many components in the briskly progressing bilateral economic association between
China and Australia that cannot readily be enfolded in a traditional free trade agreement and
go well beyond its jurisdiction, no matter how open-ended the negotiation is kept over time.

There are many uncertainties that persist in Australias move for achieving economic
diplomacy with China such as rigour and the independence of Australias assessment of its
nation-wide tactical interests and cross agreement impacts on Australias understandings with
other major economies like USA and EU.

Summary

Australia is an important player in the consideration of calculated diplomacy around Chinas


economic rise as a superpower on global level. With advent of CHAFTA, Australia stands to
leverage tremendously due to its close economic relations with China.

China has been facing enormous backlash against globalisation in South East Asian region due
to complex and challenging transition in world trading system with reigns of trade surplus
shifting sides from USA to China. Australia strongly supports trade liberalisation and
diplomatic regionalism and help China and other emerging economies to influence a new
direction and guidance in trade proceeding from Asian corridor.

CHAFTA has truly pushed Australia to play an important role along with China on global
avenue when China will be granted the presidency of the G20 thereby enabling Australia with
right set of mechanisms to achieve the desired outcome.
JAPAN AUSTRALIA ECONOMIC PARTNERSHIP AGREEMENT (JAEPA)

Free Trade Agreements are useful tools to provide increased market access, liberalise trade and
improve bilateral relationships among partners to agreement. Even World Trade Organisation
(WTO) supports free trade agreements albeit conditionally indicating that such agreements can
go beyond what may be available in a multilateral agreement at a given time (Understanding
the WTO). Having limited number of parties to negotiations of FTA facilitates the outcome by
means of quicker and easier dialogues. Considering the potential adverse effects of Free Trade
Agreements the Productivity Commission in its 2010 report on Bilateral and Regional Trade
Agreements (BRTAs) called for a more realistic, transparent process, including a post-
negotiation analysis to identify possible adverse impacts. (Productivity Commision)

The Japan-Australia Economic Partnership Agreement (JAEPA) commenced its duration on


15 January 2015 followed by conclusion of negotiations as announced on 7 April 2014 by
Australian Prime Minister Tony Abbott and Japanese Prime Minister Shinzo Abe. By far one
of the most liberalising agreements entered into by both nations, it is a valuable boost in
providing increased access for Australian exports to Japanese markets thereby supporting
growth by means of two-way investment. Since Australia and Japan share harmonizing
economies JAEPA will promote strong economic and political relationships between two
nations over the tenure of agreement.

According to the National Interest Analysis, JAEPA stands to liberalise Australias trade
relationship with Japan by considerable degree, making Japan Australias second-largest
export market and overall trading partner.

Advantages of JAEPA:

After commencement of JAEPA, Japanese tariffs have been set at zero (0) on 92.8 per cent of
its current imports from Australia. It is proposed to be further increased to 97.5 per cent of all
Japanese imports from Australia.

Australian exporters will have considerably enhanced access to Japanese markets in terms of
goods and services with a special boost to Australian agricultural sector. Due to elimination or
significant reduction in tariff on wide range of agricultural products such as wine, beef, cheese
and horticulture, Australian agricultural sector will reap rich benefits from Japanese market
access being equal or better than any other country further enhanced by first mover advantage
On the flip side, Australian consumers stand to experience price fall in notable Japanese
imported products such as cars and electronic consumer goods.

Australia will benefit hugely in terms increased productivity and utilization of resources as well
as improved trade revenue generation as a result of exports to Japan under this agreement.

Disadvantages of JAEPA:

Although the trade agreement between Japan and Australia has promised significant tariff
elimination or reduction, the agreement still is debated over concerns on non-tariff obstacles to
access Japanese markets

The Japanese market was described variously as complicated (Ms Lisson, 2014) and
difficult (Mr Dawson, 2014). Japan has traditionally followed a relatively complex and
layered regulatory framework which is highly discouraging to Australian businesses planning
to set up operations in Japanese market. A survey carried out in collaboration with Austrade,
Efic and the University of Sydney found that the key barriers to doing business in Japan was:
licences and standards (33 per cent), information about local culture (56 per cent) and
regulations (44 percent). (Export Council of Australia, 2014)

Summary

JAEPA will give Australian exporters considerably enhanced market access in goods and
services, by abolishing or significantly reducing tariffs on most of the Australian agricultural
exports, including cheese, wine, beef and horticulture as well as energy and resource products.
Japanese market access equivalent to or better than any other trading partners of Japan has been
assured in all areas of profitable interest to Australian service providers such as education,
engineering , financial and telecommunications. The trade agreement with Japan is especially
beneficial to Agricultural industry where Australian agri-exporters have comparative
advantage.

Trade agreements such as JAEPA give crucial competitive advantage for Australian business
and economy. Australia always needed a reasonable approach to maintain its competitive
position in growing Asian market and with bilateral agreement with progressive economies
like Japan and South Korea, it has managed to gain significant advantage for range of
Australian exports.
However JAEPA also comes with its own set of complex non-tariff obstacles that are deterrent
for Australian businesses and major exporters from performing profitably in Japanese market.
These barriers must be proactively eliminated or pushed for mitigation of risks to businesses
that arise from them.

Overall JAEPA has the potential to provide Australian economy and export industry with host
of profitable opportunities.
KOREA AUSTRALIA FREE TRADE AGREEMENT (KAFTA)

Donald H. Regan stressed on the need and rationale behind Free Trade Agreements by stating
that trade agreements promote global economic efficiency by restraining certain sorts of
national behaviour (Regan, 2006). Certain sorts of national behaviour which Regan was
specifically pointing towards were protectionism and deliberate market power exploitation. To
further expand on definition of Free Trade Agreements such as (NAFTA or KORUS FTA),
they are essentially trade treaties between two or more countries to establish a free trade area
where commerce in goods and services can be conducted without hindrances or tariffs, while
imposing uniform tariff on trade with non-member countries to the agreement (Business
Directory) .

Korean economy has been characterised by export oriented outlook and has been always in
search for profound trading partners to expand its destinations of export. In the aftermath of
Asian crisis of 1997-98, South Korea aggressively sought out the FTA route to promote its
position as a global economic player. South Korean presidents following the Asian crisis took
unilateral decisions in policy making to empower Korean Office of the Minister of Trade as a
crucial body in developing and evolving trade strategies which aligned with global aspirations
of the nation. In first decade of 21st century Korea entered in historic FTAs with the USA and
EU, consolidation of Korean hold on global economic front.

While Australia has always been a strong global player it has held limited power position due
to its increasing dependence on foreign direct investment and international trade with special
focus on exports of its high quality agricultural produce. Therefore Australia has been engaged
in strengthening its international trade position by entering in several regional and strategic
trade agreements. Australias bilateral focus is deliberately biased towards near abroad markets
with geographically critical FTAs signed with ASEAN-NZ (2009), Malaysia (2012) and most
notable being with Korea and Japan (both 2014).

Australia entered in Free Trade Agreement in 2014 with South Korea with a single minded
view to boost Australias agricultural industry by gaining access to South Korean market.
While the trade agreement has been promoted as thoughtfully formulated to secure market
access to Australian agricultural produce, there has been much debate in with regards to scope
of market access provided under the deal and impact of Investor-State Dispute Settlement
(ISDS) clause as well as intellectual property and environment chapters of the agreement.
Advantages of KAFTA:

The Korea Australia Free Trade Agreement has been modelled to eliminate tariffs on
Australias major exports to Korea as well as open new avenues of direct and indirect
investment and services.

Key Australian agricultural exports will gain crucial access to Korean consumers with tariffs
of nearly 300 per cent eliminated on key produces such as sugar, wheat, beef, wine, dairy and
seafood.

Independent impact analysis forecasts $5 billion trade between 2015 and 2030 with an
increased revenue of $650 million annually over period of 15 years.

Australian manufacturing industry also stands to gain from the agreement as increased
competitive pressures from Korean manufacturing giants would push for improved quality and
efficient production standards.

The treaty also ensured that with elimination of trade barriers and tariffs, both the countries can
export with respect to their own comparative advantages and benefit from cheaper availability
of resources from each others countries.

Disadvantages of KAFTA

Certain agricultural products such as rice are not part of Free Trade Agreement, thereby
challenging the all-inclusive nature of the agreement and setting proponent for only certain
type of industries.

The Korea Australia Free Trade Agreement includes a controversial clause for a device that
allows South Korean investors and corporations to commence legal actions against Australian
government if they feel their rights are infringed upon by Australian trade policies.

The clause called Investor-State Dispute Settlement (ISDS) has put Australian government in
perilous position wherein any policy change or trade reform impacting Korean investors profit
margins would lead to legal action against government.

Although the ISDS clause works bilaterally and offers protection to Australian investors in
Korea as well by providing secure market conditions for investors and enterprises in foreign
countries, it would negatively impact policy making and regulatory authorities of local
government.

Supporters of ISDS mechanisms say they provide certainty for investors and companies when
investing in foreign countries, but opponents say they lead to the loss of sovereignty and the
ability of governments to regulate in the national interest.

Summary

By entering in crucial free trade agreement with South Korea, Australia has gained significant
inroads in influencing regional politics and staked out a strong position to acquire export
opportunities and economic growth. Combined with Free Trade Agreement with Japan,
KAFTA will enable Australian exporters and investors strategic advantage in engaging various
levels of trade negotiations.

Conclusion:

Trade policies are crucial with respect to regulation of tariffs, taxes and import duties that
countries impose upon international trade. Preferential trade treaties are discouraged by World
Trade Organisation as an impediment to equal and free trade among all nations across the globe
but have potential advantages such as increased economic growth, better market access and
dynamic business climate. Free Trade Agreements also help in exchange of technology know
how and transfer of expertise while also boosting comparative advantage of weaker nations by
allowing them to focus on their natural and strategic strengths to develop their economies.
(Amadeo, 2017)

Having said so biggest reproach of free trade agreements is that they are primarily responsible
for job outsourcing. Reduction of tariff leads to increased import and countries with low cost
of living have cheaper cost of production. It may cause difficulties for local industries to
compete with cheaper imported products leading to some shutting down operations or
downsizing workforce.

Without environment production safe holds in treaty, emerging economies which are partner
to treaty would face high scale environmental degradation. Exploitation from stronger
economies to the treaty causes large scale deforestation and depletion of natural resources
reducing forests and fertile fields to barren wastelands.
Efforts must be taken to ensure trade protectionism is not taken up as resort to protect local
industries. Developed countries should partner with weaker economies to be boost sustainable
practices in agriculture and industries leading to reduction in imbalance in cost of production.

Outsourcing of opportunities and production from local markets can be combatted by ensuring
foreign countries produce locally and hire and train local workers on competitive technology.
This will be beneficial for both the trading partners as technology sharing would lead to
reduction in cost of transportation and mitigate risk of unreliability in meeting market demand
due to production or servicing the consumers at cheaper off shore centres.

References

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The Balance: https://www.thebalance.com/free-trade-agreement-pros-and-cons-
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Business Directory. (n.d.). Free Trade Agreements.

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Journal of Social and Personality Psychology, 3(1), 118.
Edwards, W. (1989). Modern Japan Through Its Weddings. Califonia: Stanford University
Press.

Export Council of Australia. (2014). Submission 18, p. [4]. Australias International Business
Survey.

Ilyenkov, E. V. (2008). Dialectical Logic; Essays on its History and Theory (1st ed.). Delhi:
AAkar Books Publishers.

Mr Dawson. (2014). AFGC. Committee Hansard, 10.

Ms Lisson. (2014). DFAT. Committee Hansard , 10.

Norberg, J. (2005). In defence of global capitalism.

Pettigrew, T. F. (1998). INTERGROUP CONTACT THEORY. AR Journals, 4(2), 6585.

Productivity Commision. (n.d.). Bilateral and Regional Trade Agreements, p. xxxiii.

Regan, D. H. (2006). What are trade agreements for? Journal of International economic law,
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Steele, G. (1998). The Money Economy. American Journal of Economics and Sociology.

Understanding the WTO. (n.d.). World Trade Organization. Retrieved 05 21, 2017, from
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