Top 5 FTA FAQs: A guide to understanding Australia’s free trade agreements

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After ten years of negotiations, Australia signed a high-profile free trade agreement (FTA) last year with China. Coming into force on 20 December 2015, the China-Australia Free Trade Agreement (ChAFTA) promised to unlock significant opportunities for Australia in China, which is our largest export market for both goods and services – accounting for nearly a third of total exports – and a growing source of foreign investment.

But what are FTAs, and how do they assist Australian businesses? According to recent research conducted by HSBC, this is not as straightforward a question as you might expect: HSBC’s survey found less than 20% of Australian companies are making use of our existing FTAs – primarily because of a “knowledge gap” on how to make FTAs work for their business.

Reflecting this finding, Ai Group’s International Trade team receives hundreds of questions from members every month concerning FTAs and how businesses can use them to their advantage. So what are these businesses asking us?

Here are the Top 5 Frequently Asked Questions (FAQs) we’ve heard over the past year – together with the answers:

  1. What is an FTA?

Free trade agreements are international treaties that are designed to reduce the barriers to trade and investment between two or more countries. They are in place to help protect local markets and industries. Trade barriers typically come in the form of tariffs and trade quotas.

  1. What are benefits of FTAs?

FTAs are designed to reduce barriers to trade by lowering duty rates on imports. They have the effect of restricting trade between nations and protect local markets. Removing local protection helps businesses access new markets, and can benefit consumers with a greater diversity of products. FTAs also provide access to government procurement and engage international supply chains. The benefits extend to increased protection for investors.

  1. Why should I know about FTAs?

Benefits of FTAs do not automatically apply. Reduced or zero tariffs will only be available to those companies that can prove they qualify for preferential tariff treatment under FTAs that Australia has entered into. The benefits apply only within the relevant countries and support your business competency.

  1. Where are Australian FTAs in force and which one should I use?

Australia has a total of ten FTAs in place, with New Zealand, the US, Chile, Thailand, Malaysia, Singapore, the Association of South East Asian Nations (ASEAN), South Korea, Japan and, most recently, China. Companies need to analyse tariff concessions to choose the one that provides the best benefit, as well as the ‘rules of origin’ that must be met to comply with FTAs. The FTA Portal is available to compare across FTAs and check which FTA might suit your product best.

  1. How do I use FTAs and take advantage of them?
    1. Determine the ‘harmonised system’ (HS) code for your product;
    2. Check the current tariff rate and the new rate under FTAs;
    3. Ensure your product meets ‘rules of origin’ required under the FTA and is eligible for a tariff reduction;
    4. Arrange correct documentation, e.g. Certificate of Origin.

Ai Group has a program to equip your business with all the information, skills and understanding you need maximise the benefits of FTAs. Find out more.

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Louise McGrath
Having joined Ai Group in 2000, Louise has managed a number of trade-related projects including trade missions, business matching and the development of export-related training programs. Since 2009 she has led Ai Group's service delivery to our smaller associations, providing governance, policy and business development support, and is Executive Officer of the Australia Saudi Business Council and the Australian Russian Dialogue.

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