The Abbott Government’s tough negotiations in an effort to seal an Indian Free Trade Agreement (FTA) next year should see 70 per cent of Australia’s two-way trade covered by a free trade agreement, PwC Asia Practice leader Andrew Parker said today.
“With President Obama unable to seal Congressional support for the fast-track legislation needed to complete a deal, the Trans Pacific Partnership (TPP) has been dealt a significant blow. It is likely that Australia will now turn its attention to the less advanced Regional Comprehensive Economic Partnership (RCEP) discussions,” Mr Parker said.
Mr Parker made the comments at the half way point between the Abbott and Xie Government announcing the China Australia Free Trade Agreement (ChAFTA) and its proposed ratification in December this year. The texts of the agreement are expected to be released this week.
“It has been a frantic two years of trade negotiations by the Abbott Government and the ChAFTA will join the Japanese and Korean FTAs to complete a trifecta of FTAs to come into force in the past year,” Mr Parker said.
“It is now up to businesses to take advantage of these agreements and not let the Asian opportunity to pass us by.
“Our research shows that by 2030, four of the worlds’ five largest economies in purchasing power parity (PPP) terms will be in Asia, and the region will account for more than 50 per cent of global gross domestic product (GDP).
“Asia will be home to 3.2 billion members of the consuming class, many of whom will live in 21 of the worlds’ 37 mega-cities which will be located in Asia.
“In 2014, China became the worlds’ largest economy in PPP terms and added more than $US 700 billion to its GDP, nearly half an Australian economy in one year. In the same period, the US added around $US 400 billion.
“The rise of Asia, fuelled by a fast growing and technology enabled middle class, is changing global supply chains rapidly.
“New trade agreements are both an enabler and response to these changes. Intra-Asian trade exceeds $US3 trillion and in 2016 will be more than the EU making it the largest trade zone in the world.
“The formation of the ASEAN Economic Community (AEC) at the end of this year will create a $2.4 trillion economy, the 7th largest in the world.
“As PwC has pointed out in “Passing us by” Australia’s relationship with Asia is a bi-lateral one. While 6 of our top 10 trading partners are in Asia, our stock of foreign direct investment in Asia is less than in New Zealand. We trade with Asia but we are not in Asia.
“While our Asian neighbours are growing at 5-7 per cent, Australia has entered a period of low growth where 2-3 per cent is a good outcome.
“We face challenges in finding answers to critical questions about how we diversify our economic base, create more better paid jobs and provide for an ageing population.
“The FTAs are ringing endorsements of Australia as a business partner by the Governments of China, Japan and Korea. We should not underestimate the head turning effect of these agreements.
“They are about trade, they are also about investment. They provide Australian companies with unprecedented access to these markets and in many cases, access that has not been granted previously to anyone.
“They also include “most favoured nation” clauses which ensure Australian companies have the benefit of any better deals given to third countries in the future.
“The FTAs are an open invitation to redefine our relationship with our key trading partners, not just in Australia but in the region.
“The FTAs though only open the door, it’s up to businesses to walk through that door. A free trade agreement should not be mistaken for trouble free trade – you still need to do your due diligence and consider risk mitigation strategies.
“The FTAs are large and detailed documents and the rules complex but they also offer significant benefits. If your competition is taking advantage of an FTA and you are not, your business will suffer a potentially significant competitive dis-advantage.
“While it’s too early to draw any conclusions, our experience suggests that business still needs to invest a lot more time in understanding the FTAs and educating themselves on the benefits they offer.”
