Eight years ago I published an op-Ed at the ABC warning the former Abbott Government not to sign anymore ‘free trade agreements’ (FTAs). This advice was obviously ignored and the Coalition signed a series of FTAs over subsequent years with more currently in the pipeline.
One of my key concerns with FTAs was that they reduce efficiency via two channels.
First, if Australia signs an FTA with a trading partner that is not the lowest cost producer it can create ‘trade diversion’. This situation arises when the importing country shifts its buying preferences from a more efficient, lower cost country whose goods are subject to a tariff towards the less efficient and higher cost FTA partner whose goods are not subject to a tariff.
