Australia-China Free Trade Agreement: Analysis & Recommendations A Working Definition of a Free Trade AgreementA free trade agreement in its most literal, ideal form is an agreement between two or more different countries not to impose tariffs or other restrictions on the flow of goods from one country to another. An ideal free trade agreement is a likely impossibility, because all countries have an interest in protecting the prosperity of their own producers and merchants by ensuring, at a minimum, that their access to domestic markets is not placed at a disadvantage by the presence of foreign goods.
Thus, a working definition of a free trade agreement could be an agreement on transnational trade that approaches the ideal of no restrictions, while maintaining a reasonable amount of safeguards for each country’s domestic producers, and which has five key components (Matteucci, 2005): Free trade in goods, in accordance with ‘origin rules’ concerning the sources of the component ingredients or parts of finished goods. Market access, meaning that tariff restrictions that are removed by a free trade agreement should not be replaced with other regulatory restrictions on where, how, or what amount of the goods reach the domestic market. Free trade in services as well as goods.
Examples of these would include banking, or purchasing insurance from foreign businesses. Sensible protection for intellectual property that encourages rather than stifles creativity and innovation. A clear process for dispute resolution. The Hub & Spoke Arrangement of FTAsThe current shape of most of the world’s free trade agreements is best described as a “hub & spoke” arrangement. This occurs when one country has free trade agreements with two or more countries that do not have free trade agreements with each other.
(Alba, Hur, & Park, 2008) For example, Australia (together with New Zealand) has a free trade agreement with the ASEAN nations and one with the United States, but the US and the ASEAN nations do not yet have their own free trade agreement. In this instance, Australia is the “hub” nation and the US and the members of ASEAN are the “spokes”. If a free trade agreement with China is concluded, another “spoke” would be added, since China does not yet have agreements with either of the other two parties. The significance of the hub & spoke arrangement is that it provides a definite export advantage to the “hub” country.
(Alba, Hur, & Park, 2008) On the other hand, it may make the conclusion of other free trade agreements more difficult. New free trade agreements can become limited by the conditions imposed by the existing ones, even if the same conditions do not actually exist in the new relationship. (Siddique, 2007: 218) Thus, the countries in any new agreement must not only assess their needs from the point of view of their respective economic circumstances but with respect to unrelated existing agreements as well.
In analyzing and recommending a best course of action for a Sino-Australian free trade agreement, the existing agreements with the US and the ASEAN nations will have to be referenced; the US agreement is relevant because it is comparable in scale, and the ASEAN agreement is relevant because of its application to the Asian market and economy.