Question

Australia and New Zealand have had free trade with each other for many years (under the Australia-New Zealand Closer Economic Relations Trade Agreement). Discuss the economic benefits for New Zealand of free trade with Australia

Answer 1

Australia and New Zealand have one of the oldest free trade agreement called Australia- New Zealand Closer Economic Relations Trade Agreement or Closer Economic Relations (CER). This happened in 1983 on the basis of NAFTA which was an old agreement between the two countries called New Zealand Australia Free trade agreement back in 1966 (please do not get confused with North American Free trade agreement). Both countries have wide benefits out of this agreement. New Zealand enjoys a better economic position over Australia in terms of GDP i.e. the GDP of New Zealand is greater than that of Australia.

The economic benefits for New Zealand of CER are as follows:-

1. New Zealand is the world's 8th largest producer of dairy products to which this CER provides access to the market of Australia to sell its dairy products internationally.

2. CER enables any kind of tariffs or quantitative restrictions to the export and import of any product and services in either country which allows the producers to gain maximum profit.

3. The elimination of tariffs on trade gives the producer a platform in the market of Australia. Thus New Zealand has got a market share of their product in Australia and vice- versa.

4. The market is shared commonly by both the countries which make the producers of New Zealand more competitive and hence efficient in their production process. Therefore CER helps to increase the efficiency of the producers which in turn increase the productivity and income.

5. New Zealand tags any good as legal then it is also considered legal in Australia. Similarly, if any service is provided in New Zealand then the same service is allowed to be provided in Australia except a few for security reasons.

6. CER allows a work permit holder of New Zealand to work in Australia also.

7. This agreement increases the efficiency of the producers of New Zealand due to which they try to specialize itself. Hence CER promotes specialization in New Zealand and vice- versa.

8. Technology plays a vital role in the economic development of any country, CER helps New Zealand to develop its technology with the cooperation of Australia. Any new technology in Australia will help New Zealand to update itself.

9. There is a vast market of New Zealand in Australia and similarly, Australia also has access to the New Zealand market. This provides a variety of goods and services in the market.  

10. These country have a common competitive and foreign trade policy which creates a healthy competition among them. This triggers more innovation in various field in order to grow more.

11. Due to competitiveness, the prices tend to rise which is profitable for the economy.

12. CER pushes economic growth of New Zealand and Australia by creating a bigger market collectively with healthy competition.

Thus, these are the economic benefits of New Zealand due to the CER trade agreement.