China is already a very large trading partner of Australia, however still the Agreement of Free Trade among China Australia would increase exports and imports of multiple products between the nations. The Free trade agreement would open up new consumer market for both the nations and thereby also create huge financial investment opportunities for both the countries. Free Trade Agreement would facilitate Australian industries to open up its base in China and explore Chinese market by providing specialised products and services.
China’s has a competitive advantage in manufacturing goods where as Australia is rich in resources and minerals. Free Trade Agreement would enable Australia to expand its export base for minerals and resources in China. Thus, increased exports would be favourable for the Australian economy and push the business in Australia. Free Trade agreement would also facilitate Australia to expand its exports to other surplus products like agricultural products etc. Australia is a good tourism destination.
There is a problem related to the diversionary impact of Free Trade Agreement holds true only, if the below mentioned criteria’s are fulfilled. Firstly, both the parties in the contract should not be existing significant trade partners. Secondly, the parties to the contract should have and maintain the existing tariff limitations and restrictions to trade. In our case of discussion about Free Trade Agreement, both China as well as Australia is already existing trading partners of each other because of their complementary nature of economies. Hence, when such a relationship as mentioned above exists; there is no more dis-advantage relating to the diversion of resources.
Australia currently has very liberal and open trade policies. Also, it has a very low tariff base providing a stable foundation whereas China has a high tariff base which limits exporters in other countries to some extent. Thus, Free Trade Agreement would require China to lower their tariff base at an expedient pace, which would be beneficial to the exporters in Australia as they would be able to increase their exports of good in China at more competitive prices.
The economy of China has been growing and expanding at a frantic pace. Thus, it would be very important for Australian economy to form an alliance with China thereby placing the Australian economy on the path of medium to long term success. Moreover, joining hands with the second largest economy in the world would place Australia on global map in terms of International Trade.