Winners and Losers of Free Trade Agreements

26 Feb 2015

The proposed free trade agreement (FTA) between Australia and India will be hugely valuable to Australian businesses as India’s economy booms, says Dr Paul Brewer of UQ Business School.  

“India was poised to become the most populous nation in the world, and like china in 30-50 years’ time, it is set to be a world economic superpower,” Dr Brewer said.

“India should be very much at the top of Australia’s target market list.

“This proposed FTA may potentially mean a great deal.”

India’s newly appointed Prime Minister, Narendra Modi, has announced he will introduce reforms to address the country’s poor business reputation in order to build strong trade relationships with Australia and other prosperous nations.

“India has high levels of regulation, lots of licensing requirements, and lots of investment restrictions,” Dr Brewer said.

“The Indian government is intent on reducing those restrictions and difficulties to facilitate business internally as well as India’s import and export relationships.”

The Australian economy has secured several FTAs in recent months, including China and Japan, along with a potential FTA with India under consideration.

“The Australian government’s view is that Australia should be involved in international trade agreements because they bring benefits to Australian business and consumers.”

Dr Brewer says bilateral FTAs are not the ideal pathway toward lowered trade tariffs.

“The way to go about lowering barriers is for Australia to be involved in trade negotiations with other trading partners. It does that through the World Trade Organisation, which has 193 members. Unfortunately, agreement is becoming particularly difficult due to so many members,” Dr Brewer said.

“Regional trade agreements, such as APEC or ASEAN have been going on for years and haven’t resulted in much. There are multiple countries involved and making an agreement is problematic.

“In response, Australia has developed bilateral agreements with their important trading partners. We have one with New Zealand, the US, Singapore, Thailand, and Chile, more recently with Japan, China, South Korea and now it is India’s turn.”

Dr Brewer said having multiple FTA agreements may have a ‘spaghetti bowl’ effect on exporters and governments.

“One off arrangements with a variety of different countries with different clauses in them become very complex, especially for Australian exporters who if they’re interested in these countries need to understand how the FTAs work,” Dr Brewer said.

“Bigger firms can better cope with individual FTAs because they have the people and resources to develop databases, knowledge and skills about our foreign market.”

He said not all businesses would flourish under Australia’s portfolio of FTAs, and the Australian Government should make provisions to protect those who lose out.

“Unfortunately, a side effect of FTAs is that Australian firms sometimes cannot compete against foreign firms and potentially lose out, for example, in the textile and automobile industry,” Dr Brewer says.

“Those firms will be driven out of business in Australia and employees will lose their jobs. The government needs to continue to recognise these problems and needs to do things to help the people involved such as reemployment incentives and training, and skill enhancing.”

On the flipside, “Australian exporters and consumers, will benefit from FTAs through better access to goods and services such as cheaper high-tech products and textiles.”