The Strategic Significanceof AANZFTA
The origins of AANZFTA date back to the early 1990s when the thenPrime Minister of Thailand, Dr Supachai, visited Australia and suggested there should be a linkage between the ASEAN Free Trade Area (AFTA) which entered into force in 1993 and CER which entered into force in 1983. At the time this appeared to be an unlikely match. The CER had been reviewed in 1988 and amended to become one of the most ambitious and liberal FTAs in the world – with complete tariff elimination and a very forward‑looking services trade liberalization agreement. AFTA was a new agreement and with modest commitments limited to goods that would struggle to make progress in its early years.
A key development in understanding ASEAN’s evolution was the 1997-98East Asian Financial Crisis which severely affected several ASEAN countries. In response ASEAN recognized the need for economic liberalization and reform and decided to launch an ambitious program of negotiating FTAs with partner countries in the region to help drive its own internal reforms. In the early2000s it launched FTA negotiations with China, India, Japan and South Korea as well as with Australia and New Zealand (the ASEAN+1 FTAs). The stalling of negotiations in the WTO, following the failure of the 1999 WTO Ministerial Conference in Seattle, was an important factor in stimulating interest in FTAs as an alternative path to continued liberalization, and in the first decade of the twenty-first century there was increasing interest in the possibility of using the ASEAN+1 FTAs as they were being concluded as a platform for further economic integration in the Asian region.
This made the AANZFTA negotiations even more significant from both a strategic and economic perspective for Australia. CER had been conceived as an outward-looking agreement, that should also help strengthen the CER countries trading relationships with third countries, especially in the South-East Asian and Pacific regions. AANZFTA, and the possibility of it being the springboard into even more extensive economic integration into the region, seemed to be the natural culmination of the vision outlined by the Australian and New ZealandPrime Ministers when they launched the CER negotiations in March 1980. But the two countries’ place in the Asian region remained a disputed issue in ASEAN and other Asian countries, with some considering that broader Asian economic integration should initially be limited to ASEAN, China, Japan and South Korea.
The completion of ASEAN FTAs with Australia and New Zealand, andwith India, gave this debate serious momentum and pointed to the prospect of the next steps in regional economic integration covering a more extensive economic and geographical space. The importance of this debate on the future of the region was given further weight by the continued blockage of WTO negotiations and the economic challenges highlighted by the Global Financial Crisis of 2007-08.
AANZFTA decisively answered those critics within ASEAN who thought that economic integration with Australia and New Zealand would be impossible to achieve, because of these two developed countries’ high levels of ambition. At the same time, it demonstrated the benefits that the two countries could bring to their neighbours as AANZFTA was the most ambitious of the ASEAN+1 FTAs in both the depth of its commitments and in its coverage which included goods, services, investment, electronic commerce, intellectual property rights, competition, and temporary movement of natural persons.
It was because of these characteristics of AANZFTA that it was to provide more of a template and benchmark for the next stage in regional economic integration than any of the other ASEAN +1 FTAs – the RegionalComprehensive Economic Partnership negotiations (RCEP).
RCEP was launched in 2012 by ASEAN when it invited the six countries with which it had FTAs to join it in negotiating this new mega-regional FTA:Australia, China, India, Japan, New Zealand and South Korea. Without AANZFTA, Australia and New Zealand would not have been included in this invitation.
AANZFTA as a LivingAgreement
AANZFTA was envisaged as a living agreement and has proved to be this over the fourteen years of its existence. It was established to have a program of regular committee meetings of officials from the member countries to oversee implementation of the Agreement, carry out a built-in work program, share policy perspectives and information, and periodically review the Agreement and to pursue improvements to it over time. The Joint Committee, that oversees the work of the other committees, is required to regularly report to Ministers (usually annually). There has been active work in all these areas, including important policy work on identifying and addressing non-tariff measures (NTMs), and the adoption of two Protocols to amend AANZFTA. The first of these protocols entered into force on 1 October 2015.
It adopted improved approaches to the documentation requirements associated with meeting the rules of origin (ROO), and to implementation of the five-yearly amendments of the Harmonized System (HS) used in both the ROO and tariff schedules. The second of the protocols is a more extensive upgrading of the Agreement, with enhanced commitments on services and investment and the addition of new areas of coverage. The Second Protocol will enter into force when Australia, New Zealand, and at least four ASEAN Member States have completed ratification.
One of the most innovative aspects of AANZFTA was its economic cooperation work program. This has provided a mechanism to support capacity building and improved engagement between the member countries on trade policy issues. Unlike most traditional development assistance, it is overseen by the AANZFTA Committees and directly links into and supports the broader work of the members.
The economic cooperation has covered a wide range of trade-related issues including major programs to improve implementation and facilitation of goods trade, enhanced diagnostic skills and tools to improve sanitary and phytosanitary measures, and the strengthening of competition policy regimes and of intellectual property protection.
AANZFTA and other FTAs inAsia
ASEAN has been the leading initiator of economic institution building in the Asian region, and over the last 20 years has led the way inAsia becoming one of the regions of the world with the densest network of FTAs and associated instruments promoting economic reform, liberalization and cooperation. The network has been an important factor in the relative stability of economic growth in the region and continues to provide an important institutional framework to promote openness even in the contemporary international context of increased geostrategic competition.
ASEAN’S FTA network has three mutually supporting layers: the ASEANEconomic Community, with ASEAN’s own FTA at its core; the ASEAN +1 FTAs including AANZFTA; and RCEP as an overarching mega-regional agreement. An important basis of the network is the concept of ASEAN centrality – the otherFTAs should all support continued integration of ASEAN as a key production and investment area. This is recognized in AANZFTA, and its economic cooperation program has sought to strength ASEAN’s own continued economic integration, on the expectation that a strongly integrated ASEAN will be the most effective economic partner in both the +1 FTAs and RCEP.
RCEP will not reduce AANZFTA’s continuing importance, as AANZFTA, including its economic cooperation program, will complement and be an important intermediary between Australia’s and New Zealand’s direct engagement withASEAN, and engagement in the broader RCEP processes. This can occur through capacity building activities, information exchange, policy dialogue, and initial testing of ideas and proposals which can then be the basis for seeking broader regional buy-in through RCEP, whether on reducing regulatory impediments to trade, enhancing transparency, improving market access commitments or taking up new and emerging issues.
Australia also has bilateral FTAs with four individual ASEAN countries (and bilateral FTAs with China, Japan, New Zealand, and South Korea).These will maintain their importance: first, through providing for earlier or deeper liberalization in some areas, or more streamlined regulatory and administrative arrangements; and second, as forums to continue to test ideas and develop consensus to support taking these ideas into AANZFTA and/or RCEP to achieve more extensive regional liberalization and reform.
As regional FTAs, AANZFTA and RECP complement the bilateral FTAs by promoting common trade processes and requirements on a regional basis, and facilitating the formation of regional supply chains.
Business will be free to choose which FTA to use when importing and exporting goods: they will be able to use the FTA (the bilateral FTA, AANZFTA, or RCEP) which is most advantageous, but will need to ensure that whichever FTA they choose they comply with that FTA’s requirements on issues like rules of origin and documentation.
The other mega-regional in the Asia-Pacific, the Comprehensive andProgressive Agreement for Trans-Pacific Partnership (CPTPP), is outside theASEAN network but also complements it in encouraging and supporting economic openness and liberalization in the region. This is ensured by the fact that seven countries (Australia, New Zealand, Japan and four ASEANs, Brunei,Malaysia, Singapore and Vietnam) are in both RCEP and CPTPP and have strong interests in maintaining their complementarity. Several other RCEP members are seeking to accede to CPTPP or have expressed an interest in joining it. BothAgreements have their strengths and weaknesses and there is great potential for cross-fertilisation of ideas and reform proposals between them.
Written on 25 July 2024
Dr Milton Churche and Mr Michael Mugliston
