Australia's Recent FTAs: Insights from Theory and Modelling on Rationale, Welfare Gains and Political Heat

Peter Dixon

Economic Papers, 2015, vol. 34, issue 4, 208-217

Abstract: type="main" xml:id="ecpa12116-abs-0001">

This paper uses the theory of efficiency gains and terms-of-trade losses to explain the proliferation of free-trade agreements (FTAs). It then focuses on Australia's FTAs with Japan, Korea and China in a discussion of gains from FTAs. Continuing that focus, the paper explains why FTAs (and trade policies more generally) are politically divisive. With regard to the China-Australia FTA the conclusions reached in the paper are: (1) There will be a modest but worthwhile welfare gain for Australia; (2) The gain will be mainly from terms-of-trade improvement, not employment; (3) The Government is exaggerating the likely gain; (4) There will be losers as well as winners; (5) The Opposition is well within its rights to question labour-market aspects of the agreement; and (6) The formation of FTAs is likely to be a continuing process and the Government would best serve the Australian public by encouraging evidence-based discussion and providing answers to legitimate queries.

Date: 2015
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