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FTA Economics Presentation

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  • 1. FREE TRADE AREA
  • 2. WHAT IS A FREE TRADE AREA? A Free Trade Area is a group of countries that have signed a free- trade agreement and have few or no price controls in the form of tariffs or quotas between each other, it would also be considered an open border. Free trade areas allow the agreeing nations to focus on their comparative advantages and to produce the goods they are comparatively more efficient at making, thus increasing the efficiency and profitability of each country.
  • 3. FREE TRADE AGREEMENTS Free Trade Agreements (FTAs) have proved to be one of the best ways to open up foreign markets to exporters. Trade Agreements reduce barriers to exports, and protect interests and enhance the rule of law in the FTA partner country. The reduction of trade barriers and the creation of a more stable and transparent trading and investment environment make it easier and cheaper for companies to export their products and services to trading partner markets.
  • 4. EXAMPLES OF FTA • ASEAN Free Trade Area (AFTA) • Asia-Pacific Trade Agreement (APTA) • Central American Integration System (SICA) • Central European Free Trade Agreement (CEFTA) • Common Market for Eastern and Southern Africa (COMESA) • G-3 Free Trade Agreement (G-3) • Greater Arab Free Trade Area (GAFTA) • Dominican Republic–Central America Free Trade Agreement (DR-CAFTA) • Gulf Cooperation Council (GCC) • North American Free Trade Agreement (NAFTA) • Pacific Alliance • South Asia Free Trade Agreement (SAFTA) • Southern African Development Community (SADC) • Southern Common Market (MERCOSUR) • Trans-Pacific Strategic Economic Partnership (TPP)
  • 5. ASEAN FREE TRADE AREA (AFTA) ASEAN was first formed in 1967 with six member countries: Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand and was subsequently joined by Cambodia, Laos, Myanmar and Vietnam. The ASEAN Free Trade Area (AFTA) came into force on 1 January 1993. The ASEAN member countries also signed an agreement on the Common Effective Preferential Tariff (CEPT) Scheme on 28 January 1992 to eliminate tariffs and non-tariff barriers in the region.
  • 6. MAIN OBJECTIVES OF AFTA The main objectives of the AFTA are to: • increase the ASEAN region’s competitive advantage as a single production unit. • promoting inflow of foreign direct investments (FDI) from abroad and regional investments. • expand intra-ASEAN trade and investments.
  • 7. IMPACTS OF AFTA Effective 1 January 2010, Malaysia with five other ASEAN Member States is a complete free trade area. These countries have eliminated import duties on 99 per cent of products in the Inclusion List and AFTA is almost completely realised among the ASEAN-6. Malaysia has eliminated duties on 98.74% of its tariff lines in our ATIGA Tariff Schedules for 2013. We now only have 73 tariff lines or less than 1% (0.59%) that have duties of 5% to 20% covering tropical fruits and tobacco and highly sensitive products (rice), respectively.
  • 8. IMPACTS OF AFTA Number of Tariff Lines at 0% in the ATIGA Tariff Schedule of 2013.
  • 9. IMPACTS OF AFTA With the reduction and elimination of the import duties, producers/manufacturers can afford to buy raw materials at a cheaper price and better quality from ASEAN countries. This would lead to the reduction in costs of production due to the elimination and reduction in tariff. Due to the reduction in import duties, there is an increase in Foreign Direct Investment (FDI) which has a positive impact on producers/manufacturers and consumers. In 2012, total Intra-ASEAN FDI was USD20 billion compared to USD17.6 billion in 2011, a significant increase of 13.6 per cent.
  • 10. IMPACTS OF AFTA Flows of inward direct investment to ASEAN 2010-2012. (US$ million)
  • 11. IMPACTS OF AFTA Total exports of ASEAN countries have an increasing trend after the AFTA in 1993.
  • 12. IMPACTS OF AFTA (MALAYSIA) In Malaysia, the construction industry has had positive real growth of output since the year 2000 through 2002, while at the same time maintaining a steady amount of construction GDP share. In recent years, the growth of construction GDP has increased positively, from 1.01 percent in 2000, 2.33 percent in 2001, and 2.32 in 2002. The industry remains competitive with other ACF member countries and this growth was supported by the rapid expansion in the construction sector. Spending on expansion can also be seen under the Eighth Malaysian Plan (2001-2005). The construction industry in Malaysia has slight linkages with the rest of the economy.
  • 13. IMPACTS OF AFTA (MALAYSIA) Malaysia : Construction and GDP, 1999-2002.
  • 14. ADVANTAGES OF FTA • FTAs allow countries to specialize in the production of those commodities in which they have a comparative advantage. • FTAs lead to higher productivity by allocating scarce resources more efficiently to satisfy the needs of the economy. • Increased competition leads to innovation in technology and better marketing and distributing strategies. • Consumers have access to a large variety of products. • Creates many job opportunities in the export sector and reduces unemployment.
  • 15. ADVANTAGES OF FTA • Form diplomatic relations with other countries. • In conclusion, the economy grows on account of the rise in standard of living, the increase in gross domestic product and the increase in real income.
  • 16. DISADVANTAGES OF FTA • The complexity of the international trading system and can raise transaction costs for business. • Domestic economic instability increases as the local markets become dependent on global imports. • Domestic industries are open to unsustainable competition.
  • 17. CREDITS The internet. Everyone in the group except Jonas.

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