The existence of trade agreements which lower trade barriers and include more products under their scope generally facilitate trade.
We have highlighted the 10 ASEAN economies, as well as those countries that have FTAs with Australia.
What we see is Australia’s trade with FTA countries do not appear to see a higher trade-to-GDP ratio than implied by distance. But for some ASEAN countries, there is a noticeable outperformance in terms of their trade linkages.
Singapore, Malaysia, Vietnam, and Thailand’s overall trading relationship with Australia is greater than what would be expected based on distance.
On the surface, this would suggest the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), which came into existence in 2010, may have been behind the trade outperformance.
However, it was found companies still depended heavily on bilateral FTAs to conduct trade rather than to rely on the AANZFTA.
This means Australia’s better trade ties with Singapore, Malaysia, and Thailand can be attributed more to the bilateral FTAs with those countries than the AANZFTA.
This could also explain why the trade relationship with Indonesia and the Philippines are not as strong as they should be based on distance.
In fact, if the trade-to-GDP ratio for Indonesia and the Philippines is increased to two, which is half of Thailand’s ratio, it would result in an additional $US10 billion worth of two-way trade. This would be a 13 per cent increase in the current trade relationship between Australia and the whole of ASEAN.
With Indonesia being ASEAN’s largest economy and most populous member, and the Philippines one of the strongest growing economies in the region, there is a lot more scope for much stronger trade ties.
The Indonesia-Australia Comprehensive Economic Partnership is currently under negotiations. A successful conclusion could help lift Indonesia’s trade to GDP ratio closer to other ASEAN countries with existing bilateral FTAs.