Trade flows between Australia and China: An opportunity for a free trade agreement

The seemingly high degree of trade complementarity between Australia and China indicates that freer trade between these two countries is likely to lead to mutual trade gains. In this paper, this complementarity was assessed based on the use of revealed comparative advantage (RCA) indices. It is likely that trade gains could be achieved by Australia and China by adopting a bilateral free trade agreement. General equilibrium models – such as ABARE’s global trade and environment model (GTEM) – have been used by many researchers to quantify the economic effects of free trade agreements in recent times. This paper discusses some of the key issues involved in analysing the economic benefits of an Australia–China free trade agreement using GTEM