Australia-ASEAN-New Zealand: a trade agreement with pay off

AANZFTA was ASEAN’s first region-to-region trade agreement, Australia’s first multi-country free trade agreement, the first time Australia and New Zealand were involved in joint negotiations and the first time ASEAN embarked on comprehensive negotiations covering all sectors simultaneously.

"Greg Earl, a long-time observer of the region, describes AANZFTA as a surprise hit with Australian business.”

Economic ministers from each region announced it as opening a “plethora of new opportunities” for businesses, effectively creating a free trade area of more than 600 million people with a combined gross domestic product (GDP) of $US2.3 trillion.

AANZFTA was described as a landmark and Australia’s most ambitious trade deal to date. The agreement aimed to provide greater transparency and certainty for companies doing business in the region and it included a chapter on Economic Cooperation to provide a framework for trade and investment-related cooperation.

Fitting with the ASEAN approach, a key component of AANZFTA was ongoing dialogue, including an annual consultation and future reviews. This was designed to maintain the agreement as a ‘living document’ with ongoing commercial relevance.

So what has AANZFTA delivered so far? It may be surprising to hear many of these hopes have been borne out.

Crossing borders

Economic Research Institute for ASEAN and East Asia (ERIA) Chief Economist Fukunari Kimura recently presented an encouraging report on the results to date.

Utilisation by companies has been high, with ratios increasing over time but bilateral free trade agreements including Singapore-Australia, Thailand-Australia and Malaysia-Australia have complicated matters. Where such agreements existed, they tended to be preferred for bilateral trade. When companies’ supply chains cross borders in the region, however, AANZFTA was the best option.

An Australian Chamber of Commerce and Industry survey on the use of trade agreements ranked AANZFTA the third best known and used framework of 14. Similarly, a survey by AustCham ASEAN, shows about three quarters of respondents view ASEAN as a priority region for their company.

Of these respondents, 80 per cent are attracted by a rising middle class, improved infrastructure and a better-skilled workforce. Former Australian Financial Review Asia Pacific editor and bluenotes contributor Greg Earl, a long-time observer of the region, describes AANZFTA as a surprise hit with Australian business.

Behind the border

The agreement is particularly admired for its economic cooperation agenda which was an innovation at the time. Rather than the standard Western agreement - often focusing on one-shot tariff reductions in specific areas - AANZFTA incorporated an ongoing process of encouraging greater economic interaction through a range of built-in agendas, economic cooperation projects and business outreach activities.

These include around $A30 million spent by Australia and New Zealand in various technical assistance and capacity-building programs to help regional countries implement AANZFTA.

The Australian National University’s Peter Drysdale has stressed the importance of this approach given “most of the problems businesses have to deal with are not those at the border, it’s those behind the border”. These cannot be negotiated in one shot.

AANZFTA has evolved with the addition of a ‘First Protocol’ to streamline certification processes for the movement of goods, ongoing reviews of non-tariff measures and a General Review. It has been an anchor for Australia’s and New Zealand’s economic engagement with ASEAN.

Do or die

AANZFTA can be seen as a successful model relevant to the current Regional Comprehensive Economic Partnership (RCEP) negotiations, particularly in promoting economic integration. It suggests there is value in getting an agreement in place and starting the processes that will enable ongoing efforts towards integration. And AANZFTA has been operating and delivering since just before RCEP negotiations began.

For supporters of RCEP, there is a sense of urgency in getting an agreement this year. Drysdale identified it as a “do or die” time. He suggested pressing on with RCEP is ASEAN and its partners’ best response to moves away from free trade elsewhere.

When launched, it was hoped AANZFTA would be a key catalyst for enhanced and accelerated regional integration. APEC Secretariat head Rebecca Fatima Sta Maria suggested AANZFTA members could be a “coalition of the willing” within the RCEP negotiations.

At a time of many threats to the global trading system, it is worth taking AANZFTA’s lessons to heart.

Melissa Conley Tyler is the Director of Diplomacy at Asialink

This article was originally published by East Asia Forum.