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AANZFTA : Building a Deeper Integration with Asean

It was in 2004 that leaders from the 10 countries of the Association of Southeast Asian Nations (Asean), Australia and New Zealand agreed to launch negotiations on a free trade agreement (FTA). Meeting in Laos, the 12 leaders agreed the FTA would be comprehensive, covering trade in goods and services, and investment.

AANZFTA talks, which began in March 2005, culminated in late February at the 14th Asean Summit in Hua Hin, Thailand, when the three parties signed the agreement.

Modelling conducted in 2000 found the agreement would add $48 billion to GDP across Asean nations, Australia and New Zealand over 20 years.

The agreement is Australia’s largest free trade agreement, surpassing the free trade deal between Australia and the United States.

Asean is now New Zealand’s third largest export market for merchandise goods. Asean-New Zealand trade has grown 24 percent per year over the past three years, with seven of the Asean member countries now featuring in New Zealand’s list of top 30 bilateral trading partners.

The trade deal was struck amidst the shadow of global crisis that has apparently raised concerns over protectionist measures as crisis-hit countries across the global are increasingly tempted to ignore free trade norms as they focus on reviving their economies.

AseanAffairs found it timely to obtain and present the perspective of trade ministers from the two developed economies of Australia and New Zealand which have just signed the historic free trade deal with Asean.

Simon Crean,  Minister of  Trade, Australia Simon Crean was appointed Australia’s Trade Minister in December 2007when the Rudd Labor Government took office.
Before this he held a range of Shadow Ministerial positions including Shadow Trade and Regional Development Minister, and Shadow Treasurer.  He was Leader of the Opposition from November 2001 to December 2003. In the previous Labour Government, he served as Minister for Primary Industries and Energy and Minister for Employment, Education and Training.

Q: What is the significance of the recent AANZFTA for Australia?

A: AANZFTA is an important agreement for Australia, and the region as well.It is the largest FTA Australia has concluded, and the most comprehensive one for Asean.The deal covers an area with a combined population of 600 million people and a GDP estimated at over $2.7 trillion.
As a group, Asean and New Zealand account for a significant part of Australia’s trade.In 2007-08, Australia’s two-way trade with this group was valued at A$103 billion, accounting for 21 percent of Australia’s total trade.This is larger than Australia’s trade with any single country, including China (13 percent), Japan (12 percent) or the United States (10 percent). The liberalisation that will occur under AANZFTA will directly benefit Australia and it will help ensure that Australia’s competitiveness in the region is not undermined as Asean continues to do trade deals with other trading partners. In addition, AANZFTA provides a solid platform for Australia’s deeper economic integration and engagement with the region.

Q: Which industry sectors in Australia should benefit the most from this agreement?

A: There will be broad benefits for all industry sectors in Australia, including agriculture, manufactures, minerals and services.For example, the FTA delivers, over time, tariff elimination commitments from the more developed Asean countries and Vietnam on between 90 and 100 percent of tariff lines covering 96 percent of Australia’s current goods exports to Asean.It also delivers greater certainty and transparenc

Q: Where do you see the two-way trade (value) between Australia and Asean in the next three years?

A: Australia’s two-way trade with Asean has grown by an annual average of 10 percent over the last decade. This is faster than Australia’s trade with any of its top 10 commercial partners, except China.While it is impossible to predict the value of two-way trade between Australia and Asean over the next few years, particularly given uncertainties associated with impacts arising from the current global economic crisis, I am confident about prospects for growth in Asean and Australian trade.

Q: Is there a possibility of a conflict between this group FTA and the bilateral deals Australia has signed with such Asean member countries as Singapore and Thailand, or could it facilitate the deals that have already been signed and those being negotiated?

A: AANZFTA and the bilateral FTAs that Australia has concluded are very much complementary in nature. The bilateral FTAs will continue to exist in parallel with AANZFTA and exporters will be able to choose whether to export a product under AANZFTA or the bilateral FTA’s tariff commitments. In some cases, the tariffs available under bilateral FTAs are more liberal than those under AANZFTA, nevertheless AANZFTA will create new trade opportunities not available through bilateral agreements. In particular, the use of regional rules of origin under AANZFTA will help Australia, New Zealand and ASEAN industry develop greater linkages into regional supply chains.

Q: When Australia has signed this FTA with Asean, it tacitly agrees to having Myanmar (Burma) as part of the group, and consequently allowing the oppressive junta to take advantage of the opportunities this trade pact has made possible. How would you respond to that comment?

A: Australia’s engagement with Myanmar (Burma) on trade issues takes place in the context of Australia’s trade relationship
with Asean. Australia concluded a comprehensive FTA with the 10 countries of Asean. Myanmar is a member of Asean (and is also a member of the WTO) and we have concluded an FTA with Asean. As a Least Developed Country, Myanmar has duty-free and quota-free access to the Australian market. Australia does not have trade sanctions against Myanmar, as we see our financial sanctions and travel restrictions targeted at the Burmese regime and its supporters as a more effective response to the situation in Myanmar.

Q: With the AANZFTA in place, Australia may be focussing on other Asean members rather than Myanmar, but we are wondering if there is a change in Australia’s policy towards Myanmar by putting trade and business interests ahead of concerns over human rights and democracy?

A: No. The conclusion of AANZFTA has no implication for Australia’s approach to human rights and democracy in Myanmar. Australia continues to press the regime to engage in genuine dialogue with opposition groups and ethnic minorities aimed at political reform, and to address a range of human rights concerns. Australia also remains active diplomatically in raising Myanmar with relevant countries and in multilateral fora.

Q: Australia has been trying to boost trade ties with Vietnam. Why is it important to recognise Vietnam as a market economy (whereas the Obama administration is under pressure not to do so)?

A: Australia has agreed to recognise Vietnam’s Market Economy Status in the context of the commitments made by Vietnam under the AANZFTA. This includes commitments by Vietnam relating to improved market access for Australian goods and services, as well as improved transparency of administrative requirements and procedures associated with trade in goods. In particular, Australia looked to Vietnam to make commitments in AANZFTA that were consistent with what would be expected of a market economy. Recognition of Vietnam’s Market Economy Status means that, in any future anti-dumping investigations by Australia in relation to imports from Vietnam, Vietnam will be subject to the same assessment process as other WTO Members.

Q: Why should Australia participate in the Trans-Pacific Strategic Economic Partnership Agreement?

A: On 20 November 2008 in the margins of the APEC Ministerial Meeting in Lima, Peru, Australia announced we would participate in negotiations for a Trans-Pacific Partnership Agreement (TPP), which is likely to comprise the P4 (Singapore, Brunei, New Zealand, Chile), Peru, the US and Vietnam. Australia considers there are significant strategic advantages in joining negotiations for a TPP. The Australian Government consulted broadly, with Australian industry, business, community and labour organisations, and there was widespread support for Australia’s early involvement. Australia’s participation will allow us to shape the direction of a potentially significant regional Agreement. The TPP represents an important opportunity to strengthen economic integration and liberalisation in the Asia-Pacific region and could provide a building block for an eventual Free Trade Area covering the Asia-Pacific region, a long-term objective.

Q: The partnership initiative aims to be a model of free trade in the Asia- Pacific. But there have been growing concerns over the ‘spectre of protectionism’ when the US postponed the trade talks. Please comment.

A: There is no relationship between growing concerns over increased protectionism and the postponement of the first round of Trans-Pacific Partnership (TPP) negotiations which were scheduled to commence on 30 March 2009. The decision to postpone the negotiations was simply due to delays in the confirmation of the new US Trade Representative (USTR). Now that the new USTR, Mr Kirk, has been confirmed, we hope there are new chances for advancement.

Q: How could free trade help the world come through the current economic crisis?

A: In the current climate of downward revisions to forecasts of economic growth, we can expect there will be growing calls for new protectionist measures in a misguided bid to try and prop up national economies and preserve local jobs. Australia argues strongly and consistently this is the wrong message. Going down the protectionist route does not save jobs. Quite the contrary, it sacrifices jobs. Trade is the great stimulator of the world economy and what the world needs now more than anything is growth. History has shown us that since 1950 world trade has grown three times faster than world output. Trade flows have suffered significantly in the global financial crisis, but trade is not the cause of the problem. However, trade can be a big part of the solution.


Tim Groser, Minister of Trade, New Zealand

Tim Groser also holds the portfolios of Minister of Conservation, Associate Minister of Foreign Affairs, Associate Minister for Climate Change Issues (International Negotiations). He is regarded as one of the world's leading experts on international trade, and until recently was New Zealand's Ambassador to the World Trade Organization (WTO), and Chair of Agricultural Negotiations for the WTO. Tim was elected to the New Zealand Parliament as a List MP in the 2005 General Election and again in 2008.

Q: What is the significance of the recent AANZFTA for New Zealand?

A: AANZFTA creates significant new opportunities for New Zealand exporters of goods and services and investors with one of the world’s most dynamic economic regions and New Zealand’s third largest export market. I believe that this FTA will strengthen commercial ties with the region as well as significantly raising the profile of New Zealand's businesses in the region.
AANZFTA also represents an important ‘building block’ in the growing East Asia trade and economic architecture and underscores our strategic commitment to greater regional integration. 

Q: Which industry sectors in New Zealand should benefit most from this agreement?

A: The AANZFTA agreement is a comprehensive FTA, and significantly, is the first time that Asean has agreed to negotiate an FTA as a ‘single undertaking‘– one that spans goods, services and investment, as well as intellectual property, electronic commerce and competition policy.
This means that there is significant scope for all sectors to benefit from the agreement. Specific benefits are in goods trade where tariffs on 99 per cent of New Zealand’s current trade with Indonesia, Malaysia, the Philippines and Viet Nam will be eliminated by 2020.

This outcome has a significant bearing on some of New Zealand’s key exports – predominantly primary sector exports such as dairy, meat and horticulture. In the services sector, the agreement secures new GATS- plus and in some cases Doha-Plus commitments in New Zealand’s priority services sectors, including in particular some significant outcomes for education services.

New Zealand investors and their investments will benefit from new and additional protections for their investments into the region, including the potential for recourse to binding investor-state arbitration procedures.

Q: Where do you see the two-way trade (value) between New Zealand and Asean in the next three years?

A: This importance of this FTA is reflected in the high rate of historical growth in trade between New Zealand and the Asean economies. Two-way trade is worth over $12 billion, with New Zealand exports to the Asean countries having increased 121 percent since 2000 to around $4.6 billion in 2008. Once the FTA comes into force I expect that we will see a continuation of this growth as more and more businesses look to enter the Asean market, and as the commitments secured under the agreement make businesses within the region more competitive vis a vis their competitors outside of the agreement.

Q: Is there a possibility of a conflict between this group FTA and the bilateral deals New Zealand has signed with other Asean members such as Singapore, or could it facilitate the deals that have already been signed and those being negotiated?

A: As well as opening new opportunities in Asean countries where New Zealand does not have existing FTAs, the Asean agreement builds on the outcomes of preexisting FTAs, particularly in the area of services and investment. For instance the Thailand-New Zealand CEP, unlike the AANZFTA agreement, has no chapter on services. Therefore the new commitments Thailand has made in New Zealand’s priority services sectors in the AANZFTA agreement represent a new benefit. Similarly, in investment, the AANZFTA agreement provides additional protections for New Zealand investors and investments into the region that build on existing FTA outcomes with Thailand and Singapore. Beyond purely commercial reasons, there are also significant strategic benefits as a consequence of concluding the AANZFTA agreement in addition to New Zealand’s bilateral FTAs. In particular, this places New Zealand at the heart of an ‘integrating region’.

Q: When New Zealand signed this FTA with Asean, it tacitly agrees to having Myanmar as part of the group, and consequently allowing the oppressive junta to take advantage of the opportunities this trade pact has made possible. How do you respond to this comment?

A: Myanmar’s membership of Asean, as with its membership of the WTO, requires New Zealand to deal with it in these contexts. This did not extended to bilateral engagement with Myanmar on, for instance, market access requests in goods, services or investment during the AANZFTA negotiations. It is important to note that FTA considerations do not in any way constrain the dialogue we have with countries on human rights. In bilateral and multilateral meetings New Zealand has consistently condemned human rights abuses in Myanmar and called for genuine reform. We will continue to do so.

Q: With the AANZFTA in place, New Zealand may want to focus on expanding the Trans-Pacific Strategic Economic Partnership Agreement. But the United States’ postponement of the scheduled talks in Singapore end March and its ongoing comprehensive review of trade policies could be a setback. What is at stake for New Zealand?

A: Expansion of the Trans-Pacific agreement offers a potential pathway to the APEC goal of free and open trade and investment in the Asia-Pacific region. A free trade agreement with the United States has been a top trade policy goal for New Zealand for many years – the United States is the world’s largest economy, with over 300 million consumers. The United States has requested that the first meeting
between the eight negotiating partners be postponed so that the new administration would have time to get trade officials in place and give some thought to US trade policy and priorities. I understand the reasons for the delay and am confident that the United States will
confirm its participation before too long.

Q: The United States’ delay, amidst the global recession, has apparently fuelled concerns over the rise of protectionism. How should New Zealand, along with its trade partners, respond to that threat?

A: Protectionist pressures are always a threat but in these uncertain economic times it is even more important that countries work together to maintain open markets. New Zealand and the other Trans-Pacific partners see the launch of this negotiation as an important signal of our commitment to open trade policies.

Q: The US government has been under pressure to overturn the Bush Administration initiative to include Vietnam in the Trans-Pacific Partnership negotiations. Why should, or should not, Vietnam be recognised as a market economy?

A: I can only speak for New Zealand. New Zealand and Australia recently became the first two OECD countries to formally recognise the economic liberalisation efforts of the government of Vietnam by conferring Market Economy Status. This was done in the context of the AANZFTA negotiations. Vietnam has undergone impressive economic transformation in recent years. Vietnamese accession to the World Trade Organisation (WTO), and now the completion of the AANZFTA, have been big achievements.

Q: Other than the FTA signed with Asean and the Trans-Pacific deal being negotiated, is there any other group FTA New Zealand would like to pursue?

A: Yes - achieving an outcome from the Doha Round remains New Zealand’s top trade priority. Despite the challenges of negotiating with 152 other individual members the WTO offers the greatest potential reward for a given negotiating effort. A Doha Round outcome would reform world agriculture, including setting new ceilings for domestic subsidies, eliminating export subsidies and reducing tariffs. All of those elements are important to New Zealand and would improve market conditions, particularly for our agricultural exports over time. The Doha Round is the biggest lever we have within our grasp to help restore confidence in our trading community. New Zealand is also negotiating a group FTA with the six countries of the Gulf Cooperation Council. This sits alongside bilateral FTA negotiations with Malaysia, Hong Kong, Korea and India.

Q: How could free trade help the world come through the current economic crisis?

A: New Zealand has long believed trade is a key driver of economic growth. New Zealand is an export-dependent economy by virtue of our geographic isolation and comparatively small population. Our businesses need to operate in a globally competitive environment. Our future standard of living depends heavily on the strength of its international connections – the flows of people, trade, capital, and ideas between New Zealand and the rest of the world. By maintaining and, more particularly, significantly improving market access exporters through a progressive and ambitious trade agenda, we can look to stimulate the economy and in doing so help safeguard the jobs and livelihoods of the many millions of people around the world, both in the developing and developed nations who work in, or support, export-oriented industries.

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