A Free trade area is basically a trade agreement between a set of countries that collectively have few or no tariffs between each other. Free trade areas allow the nations that are part of this trade bloc to focus on their comparative advantages and to produce goods that that they are more efficient at making which helps each country to move towards more efficient production possibility frontier thereby increasing the efficiency and profitability of each country.
Going forward the creation of Asean as trading bloc has immense potential as the Free trade area bloc .Asean (Association of Southeast Asian nations) is a political and economics organization of ten countries located in south East Asia .Asean command great political, economic and social influence in South East Asia and has been very effective in keeping a significant relevance and significance as trade bloc in the world trade community. Asean head of state has decided to trigger a free trade area or AFTA in 1992.The focus of AFTA is to increase the ASEAN’s competitive advantage as a production base geared for world market.one of the major steps in this direction is the liberalization of the of trade through elimination of the tariffs and non-tariff barriers among the Asean members. Moreover, the expansion of intra-regional trade gives the consumer in this trade bloc consumer wide choice and better quality consumer products.
Asean envisions the integration of the economic area .while working to integrate its own internal market, Asean counties has entered into free trade agreements with number of countries such as China ,Indi a, Korea and Japan and a Joint agreement with Australia and Japan. Not only are individual ASEAN countries attractive investment destinations, but the potential of an integrated region with a population of 600 million, a $2.3 trillion GDP, and good growth prospects has raised the lucrativeness of Asean as major destination of investments for potential investors.
Asean Economic community has represents the culmination of the long standing ASEAN’s countries aspiration to develop a regional integrated free trading economic area.
Now pushing to the point of discussion of the impact of AFTA on Australian businesses. The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) is the largest Free Trade Agreement that Australia has ever signed. AANZFTA will bind current low tariffs and over time, eliminate tariffs on between 90 and 100 per cent of tariff lines, covering 96 per cent of current Australian exports to the region. With trade barriers getting eliminated in the region, AANZFTA will deliver new opportunities across the board for Australian exporters and investors.
AFTA’s impact on Australian Trade
Asean currently absorbs around 14 per cent of Australian exports, making it Australia’s second largest overseas market behind Japan. Rising consumer incomes, the emergence of more sophisticated manufacturing and the need for infrastructure development in ASEAN will open up new opportunities for Australian exporters. ASEAN is likely to continue to increase in importance as Australian export market .Trade losses for Australian exports will be relatively small as the raw material and unprocessed agricultural products from Australia to Asean counties are excluded from the FTA regime which forms the large chunk of Australian exports to Asean. However, if AFTA is broadened to include these sectors, trade diversion costs for Australia will rise. Already, some ASEANs have nominated these goods for intra-regional tariff cuts. The burden is likely to fall more heavily on elaborately transformed manufactures (ETMs) such as electrical machinery, office machinery and telecommunications equipment. This is a possible source of concern for Australia since exports of ETMs to ASEAN have been increasing strongly over recent years, contributing to important structural changes for Australian manufacturing industries and thereby helping it gain prominence in world trade through utilization of its comparative advantages. AFTA is likely to stimulate greater economic growth in ASEAN, which will generate increased demand for products not cheaply available within the region – ranging from basic inputs to sophisticated consumer goods but also specialized high value goods such as telecommunication equipments, electrical machinery etc. The following YouTube link showcases a video describing about the huge benefits that this free trade area would help Australia and Asean to realize in the coming future. Together this free trade area would have GDP of 4 trillion dollars and 643 million consumer population.AANZFTA (Asean Australia New Zealand Free trade Area) will promote a ready made market for Australian service suppliers doing business in the region.
This is achieved through range of measures propounded under the legal and regulatory framework of the FTA agreement such as :
- bind existing levels of market openness in various service sectors;
- discipline domestic regulatory measures;
- guarantee certain legal protections for investment in their territories.
The trade potential between Asean and Australia and New Zealand which currently stand at 90 billion US dollars is likely to surpass the 150-200 billion mark. The growing middle class in Asean and demand of sophisticated goods and services in these countries would provide a great incentive to the countries in this free trade agreement with rich framework of sorts for countries in the region to factor the incentives in their policy and foster industrial and services based innovation according to comparative advantages every country is set to possess.
we therefore can certainly assert that this free trade area would be great initiative in this direction of multilateral free trade area which may provide a strong direction to other free trade negotiation like TPP (Trans-pacific partnership) and bilateral trade agreements between Asean and other countries such as China, India, Korea and Japan. Free trade regime is one of the best platform to use to increase the trade activity ,leverage intrinsic skills and utilize comparative advantage to reach the highest level of Production possibility frontier and in way reap the benefits of trade by creating more wealth for the nations in the free trade ,reduce unemployment and gain economic freedom.