Global Economic Issues (Unit 3 Topic 2)
Free Trade Agreements: useful websites
Economic effects of Free Trade Agreements: the Indonesian example
When examining FTA's, it is important to distinguish between 'outcomes' and economic effects.
The outcomes listed on the DFAT website are the changes to trade barriers between nations as a result of the enacted FTA. Generally this is the removal of trade barriers such as tariffs, quotas etc.
The bigger question to analyse is: what have been the economic effects as a result of nations enacting the FTA?
So we can do some intertemporal analysis to determine the nature and size of trade before the FTA and after the introduction of the FTA.
Let's workshop an analysis example of through examining the FTA between Australia and Indonesia:
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Australia entered an FTA with Indonesia in 2020.
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Prior to the FTA (2007 - 2019), total trade between the two nations grew at an annual average of about 5%.
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The dip around 2020 is likely a result of economic downturn of COVID pandemic, so let's start next analysis at 2021.
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After the implementation of the FTA, total trade between the two nations grew at an annual rate of 27% (2012 - 2024).
It is important to recognise that correlation doesn't always equal causation, so it is important to deepen analysis by looking at different aspects of trade and relationships to determine the connections and economic effects.
However, in this instance, the significant change in annual growth of trade can very likely be attributed to the improved market access (for both nations) introduced by the FTA.
How could I deepen my analysis to evaluate the economic effects of the FTA?
Step 1: Review the specific industry sectors where nations have sought to improve access to markets by the removal of trade barriers (eg. beef exports to Indonesia).
Step 2: Develop your own analysis of the intertemporal changes within those industries (before and after FTA) to determine the relative effects of the FTA.
Try to find examples where there is a positive effect, as well as examples where the FTA has had a limited (or negative) economic effect.
Use your examination of the positive versus negative effects to create your 'on balance' evaluation.