Australia’s new free trade agreements with Japan and South Korea: Potential economic and environmental impacts

Abstract

This paper examines both the economic and environmental impacts of the two Free Trade Agreements that Australia has recently negotiated with Japan and South Korea using the Global Trade Analysis Project-Environmental general equilibrium model. We analyse two trade policy scenarios: first a Free trade scenario where bilateral tariffs are eliminated between Australia and Japan, and Australia and South Korea; second a Green trade scenario where the Free trade scenario is complemented by an environmental policy using an Emissions Trading Scheme. The results indicate that the two trade agreements enhance Australia’s trade at a modest expense to the environment. This paper illustrates that an Emissions Trading Scheme between Australia, Japan, and South Korea is an expensive policy to mitigate emissions arising from Free Trade Agreements.