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Complexities in free trade agreement

Complexities in free trade agreement

The recent signing of the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) will open up a host of opportunities for businesses trading across the region, but brings with it some added…

The recent signing of the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) will open up a host of opportunities for businesses trading across the region, but brings with it some added complexities, a regional expert warns.

Allens Arthur Robinson partner Marcus Clark explained that although the agreement will generally eliminate or reduce tariffs across the region, Australian businesses will need to understand how this new agreement interacts with pre-existing bilateral agreements.

"It used to be pretty easy - you'd just look up one agreement, but now you have to look at a whole bunch of agreements and do the analysis side by side," he says.

For example, the existing Australia-United States Free Trade Agreement (AUSFTA) contains strict "rules of origins" provisions. This means that for an Australian manufactured export to qualify for reduced US tariffs it must have been "substantially transformed" in Australia.

In contrast, the AANZFTA works on the basis of "regionally cumulative" rules of origin, meaning that, generally speaking, as long as an Australian product was produced within the region covered by AANZFTA, it will qualify for reduced or eliminated tariffs.

Clark points out that if an Australian business exports to both the US and an AANZFTA signatory nation, it would have to consider how these two FTAs interact. While under the AANZFTA regionally cumulative rules of origin the business may be able to save money by switching the production of their exports to a cheaper ASEAN market, it then runs the risk of not qualifying within the stricter AUSFTA rules of origin.

Businesses should also be aware of the differing tariff rates offered under different agreements, Clark says. "Even within the [AANZFTA] region itself, the tariffs available under this new agreement are often not as good as those that Australia has managed to negotiate under bilateral agreements, such as the Thailand-Australia Free Trade Agreement (TAFTA)."

This means businesses will have to consider whether it is worthwhile to continue to trade under bilateral agreements, or to switch to the AANZFTA where - again - the rules of origin provisions are broader, he says.

Clark advises businesses to keep in mind that under domestic laws, individual businesses many still be able to negotiate better tariff rates than those provided by either the AANZFTA or bilateral agreements.

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