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.
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.
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.
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.
The ATFTA also changed the foreign investment landscape between Australia and Thailand. Some of its key outcomes include:
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.