We have discussed in a previous article the concept of a tariff and what role it plays in terms of governance and state policy. We also found out that, when there is a Free Trade Agreement in force between two countries, like Australia and Thailand, tariffs are either lowered to a manageable percentage or eliminated totally.
Why Countries Enter into FTAs
In this age of international trade, countries typically enter into FTAs in order to encourage foreign investment into their respective economies. For instance, member nations of the Association of Southeast Asian Nations or ASEAN have entered into what is now called as the ASEAN free trade agreement or AFTA that called for the elimination or reduction of tariffs between member nations to at least 1-5%.
Thailand, which is founding member of the ASEAN and one of the best countries for foreign investment, has also entered into separate FTAs with some non-ASEAN countries, including Japan, the United States and Australia.
Trade Relationship between Australia and Thailand
The trade relationship between these two countries is significant. According to the Australian Department of Foreign Affairs and Trade’s data, trading between the two countries between 2012 and 2013 alone turned out a total of AU$19.4 billion.
Short History of the Australia-Thailand FTA or ATFTA and Its Effect on Imports
It was previously expensive to import services and products from Australia to Thailand before the ATFTA fell into force. Previously, Australian businesses have to dish out up to 30% of the total value of their imports into Thailand as customs duty taxes, as tariffs as alternatively known. Thailand’s law only granted duty free exemption to 206 items.
Both countries subsequently signed the agreement, which went into force on January 1, 2005.
Upon the agreement taking effect, Thailand phased to zero the tariffs for almost 3,000 items. In effect, the country had lifted the tariffs for a total of 78% of Australian imports into Australia. A further 17% of import products had their tariffs eliminated by 2010. Both countries expect to eliminate the tariffs for the remaining items comprising import trade between them by 2025.
Other Key Outcomes of the ATFTA
The ATFTA also changed the foreign investment landscape between Australia and Thailand. Some of its key outcomes include:
- Easing the visa acquisition requirements and overall process for Australians looking to travel to Thailand for business purposes.
- Introducing more protections for Australian investors who contribute to Thailand’s economy, including the right to move money out of Thailand when they need to as well as impartial resolutions in the event of disputes with the Thai government.
- Allowing majority ownership for Australian investors in companies working in specific sectors that previously disallowed foreigners from having majority stakes in businesses that operate in the niche.
- Giving Australian companies more access to Thailand’s services market, and initiating efforts to improve the trade in services between the two countries in the future.
The ATFTA is a big accomplishment for both Thai and Australian businesses. The Australian DFAT noted a doubling of trade between the two countries after the ATFTA went into effect 10 years ago. This, of course, is a demonstration of how beneficial FTAs can be in the economies of signatory countries.
