Chapter 3: International Trade and FTA Flashcards
International Trade
The exchange of capital, goods and services across national borders
- Beneficial to consumers -> wider consumer choice (g/s not available in their country)
Free trade agreement
- An international treaty that facilitates stronger trade and commercial ties, and increase economic integration between participating countries
Incentives for International trade
- Australia government provides incentives and tax offset for Australian businesses participating in export-oriented activities
Incentives:
EMDG
- Export Market Development Grant
- Provides organisation substantial cash rebates for overseas marketing expenditure
- Reimbursement of 50% on eligible expenditure
- Minimum spend of $15k on overseas marketing
- Australian with maximum income of $50m
- Incurred to a maximum of $150k
Incentives:
TRADEX
- Gains an upfront exemption from Custom Duty and GST for imports intended for exports
- Imports can be exported as it is or modified before exporting
- An alternative to Custom Drawback Scheme where and upfront payment is required before recovery of the tax
- TRADEX provides significant cash flow benefit
- However, imports should be exported within 12 months
Incentives:
EFIC
- Export Finance and Insurance Corporation
- Government export credit agency
- Aus gov provide exporters with finance and insurance support to breakdown financial barriers when expanding overseas
- Work alongside with exporters and their banks to help provide loan, bonds, guarantees and insurance to meet exporter’s needs
- Also helps successful businesses to win, finance and protect their exports
Incentives:
Tax Incentives for R&D
- Government provide tax incentives for businesses that are involve research and development
- Companies will receive tax offset for engagement in R&D activities including activities overseas.
Benefits of FTA:
Benefits to consumers
- Wider consumer choice
- Promote competition that will encourage producers to reduce price, improve quality and increase innovation
Benefits of FTA:
Foreign exchange gains
- Receive hard currency through exports
- Use the currency to finance imports
- Easier finance transaction
Challenges of FTA:
Increase in domestic economic instability
- Due to FTA, economies are more dependent on one another
- Business, employees and consumers are vulnerable to economic downturn of not just their own but others as well.
Challenges of FTA:
Infant industries
- Difficult to achieve e.o.s without government protection
- Cannot compete against MNCs as they cannot reduce price like MNCs do
Key benefits of AANZFTA:
Extensive tax reduction
- Eliminate 96% tariff of Australian exports to ASEAN countries by 2020
- Producers: Cheaper exports -> Reduce price of g/s -> increase DD and profit
- Consumers: Cheaper and wider consumer choice -> improve SoL
- Tariff meat phased to 0
Key benefits of AANZFTA:
Regional Rules of Origin
- The criteria needed to determine national source of product
- New opportunities for Australia exporters to tap into international supply chain in the FTA
- Clear how businesses can label their products
Key benefits of AANZFTA:
Promote certainty for Australian suppliers and investors
- Legal protection for investment in ASEAN
- Set standard for treatment of investors and suppliers, increasing their confidence
Key benefits of AANZFTA:
Provides a platform for ongoing economic engagement
- International cooperation for build in agendas, economic cooperation and business outreach activities
