The Sensitivity of Agricultural Trade in the Proposed FTA Between Australia and Japan: A Quantitative Assessment

The Australia-Japan Free Trade Agreement (AUJA-FTA) is already in the process of negotiation by the two governments. The success of this FTA will depend on the manner in which it deals with the problem of agricultural trade between the two countries. This paper analyzes the economic effects of the proposed FTA between Australia and Japan on both economies and on their trading partners. The Global Trade Analysis Project (GTAP) model and its version 6 database is used to simulate the effects of AUJA-FTA. The paper offers some preliminary evidence concerning the welfare impact of the FTA with special reference to the sensitivity of the decision to include agricultural trade into the proposed FTA. The responses of various production sectors to the FTA show the structural changes that may take place in the two economies. The results reveal that the inclusion of agricultural trade into the FTA is essential for Japan to maximize its gains. The benefits from the FTA will outweigh the costs.