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Published on April 16, 2008

After free-trade deals were put aside during the interim government, the government is back at the negotiating table again. This weekend, Asean, Australia and New Zealand are set to conclude a free-trade agreement (FTA). The deal is a part of Asean's effort to enhance economic ties within the region. Asean members have earlier concluded deals with China, Japan and South Korea.

If successful, Asean's deal with Australia and New Zealand will be the fourth one. In theory, FTAs are supposed to boost trade as the agreement should lift unfair protective measures on certain industries.

Moreover, lifting trade barriers should promote competition. But in reality, some uncompetitive industries or sectors are still protected. Thus, officials are faced with the challenge of how to balance the interests of all parties to strike a beneficial deal this weekend.

The negotiations to start the free-trade talks began in 2005. During a meeting of  ministers from both sides last year, the delegates agreed to aim for conclusion of the trade talks by the middle of this year.

Regional free-trade agreements should enable countries to enhance their economic strength. The Asean free-trade agreement (Afta) is a good example of how countries in the region can cooperate to increase their business activities.

Asean as a group is a larger trading partner for Australia (16 per cent) than any single country, including Japan (13 per cent), China (12 per cent) or the United States (11 per cent). 

However, Asean attracted only a modest 3.4 per cent of Australia's foreign direct investment as at December 2006. Asean member governments hoped that the agreement would attract more investment from Australia and New Zealand into the region.

The levels of economic development by Asean countries is uneven so trade negotiators will have to take into consideration how to accommodate those countries with lower levels of economic development.

Among official expectations of achievements from the FTA is that Australia and New Zealand reduce the complicated procedure when it comes to defining the origin of a product to enable the product to benefit from the tariff reductions under the agreement.

Complicated requirements on how to define the source of origin of the product under the so-called "rules of origin" can prevent a product from entering a country, in spite of its low tariff rate.

Australia and New Zealand meanwhile want more access to the service sectors of Asean countries. But some members are wary of fully opening the sector to them for fear of being less competitive than Australasian companies.

The agreement should also take into account the need from agricultural-based countries.

For instance, some Asean countries, with a large agricultural base, also fear a flood of dairy products after tariff barriers are lifted. 

Therefore, the governments should work out the most effective deal that would help farmers develop their industry. The deal would be perceived only as worthwhile if people can really see positive benefits from the agreement.

The governments should at the same time prepare their officials to cope in a globalised economy by providing the necessary assistance and technology. It should also provide incentives to companies to improve their production.

The benefit that each country receives from free-trade agreements largely depends on the ability of its private sector to adjust to a free-trade environment. In any event, the negotiations should help remind the government and workers that they have to improve their competitiveness to survive in the march toward globalisation.

Even in the absence of a free-trade agreement, countries can easily lose out in international competition if they fail to adjust themselves.

The Nation