The AANZFTA Upgrade: The Three New Chapters (Part 1)
By Miguel Jaime Encarnacion
Published on 9 July 2025
The Second Protocol to Amend the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) entered into force on 21 April 2025. Regarded as one of ASEAN’s most progressive Free Trade Agreements (FTAs), it is the latest milestone in the partnership of ASEAN, Australia, and New Zealand—one which began with negotiations to link the ASEAN Free Trade Area and the Australia–New Zealand Closer Economic Relations Trade Agreement. ASEAN is Australia’s second largest trading partner (two-way trade valued at USD 121.9 billion in 2023), and New Zealand’s third largest (two-way trade valued at USD 16.54 billion in 2023).
This 2-part blog series examines the Second Protocol through two perspectives: first, the importance of integrating modern trade practices; and second, the impact of these enhancements on business utilisation. It concludes that the Second Protocol’s value is contingent on effective economic cooperation.
Part 1 focuses on AANZFTA’s new chapters: Trade and Sustainable Development (TSD), Micro, Small, and Medium Enterprises (MSME), and Government Procurement (GP). Part 2 examines Electronic Commerce (E-Commerce).
AANZFTA: Focusing on the Business Community
Following negotiations in 2004, AANZFTA was signed in 2009 and created a free trade area of over 600 million people. It is the first region-to-region FTA for the parties and ASEAN’s first FTA to simultaneously cover goods, services, investment, and intellectual property. In comparison, ASEAN’s agreement with other partners, such as China and India, address these areas separately.
The First Protocol, signed in 2014, addressed business concerns on AANZFTA’s implementation by simplifying information requirements on certificates of origin and consolidating rules of origin.
The Parties agreed to a General Review in 2017 to ensure that AANZFTA remained relevant in light of the evolving regional economic architecture, including the ASEAN Economic Community Blueprint 2025 and the negotiations for the Regional Comprehensive Economic Partnership (RCEP). AANZFTA Parties are also parties to RCEP.
The General Review was divided into two stages. Stage One noted positive implementation experience but emphasised a need for greater business engagement and MSME participation. Stage Two identified the need for a GP chapter and further discussion on TSD, which was subsequently endorsed in the 23rd ASEAN Economic Ministers – Closer Economic Relations Consultations.
The Second Protocol aims to ensure that AANZFTA retains its relevance to business and adds value to developments in other fora. Joint statements over the years such as “add greater commercial value” (2019), “relevant for businesses” (2022), “value-added elements which take into account modern trade practices” (2023), and “relevant to modern trade practices” (2024), underscore the expectation for quality business enhancements.
Negotiations concluded on November 2022, and the Second Protocol was finally signed on August 2023.
The New Chapters
The Second Protocol introduces three chapters that address modernisation gaps in the original agreement. While GP was already considered for a separate chapter, TSD and MSMEs were initially identified as cross-sectoral areas of cooperation. Eventually, all three were categorised as modern trade practices and became standalone chapters.
TSD (Chapter 13)
A first for an ASEAN-Plus FTA, the TSD chapter represents an ambitious initiative, particularly among developing states with limited institutional capacities. Despite the Parties’ diverse levels of political and economic development, they affirm a common understanding that TSD standards should not be used as a disguised means of trade protectionism or weakened to encourage trade or investment (Article 1).
Guided by the 2030 Agenda for Sustainable Development, Sustainable Development Goals and the Parties’ respective environmental and labour agreements, the chapter adopts a circumspect perspective on sustainable development—embracing economic development, social development, and environmental protection (Article 1). Cooperation is encouraged in several domains such as climate and environment, circular economy in manufacturing, energy, and labour (Article 2).
MSME (Chapter 16)
MSMEs represent 97.2% to 99.9% of ASEAN’s establishments. As a considerable generator of employment, MSMEs require an institutionalised, aggressive, well-coordinated, and interactive information campaign to effectively integrate in the region’s supply chain.
The establishment and maintenance of a publicly accessible information platform in an accurate and up-to-date format (Article 2) holds significant potential to address this issue. This will facilitate awareness of trade and investment-related laws and encourage AANZFTA utilisation. Furthermore, this is anticipated to attract a digitally-inclined ASEAN youth, and present an opportunity to harmonise youth participation in MSMEs with digitalisation.
Areas of cooperation include improvements in market access and participation in global value chains, promotion of good regulatory practices, and enhancement of MSME capability and competitiveness (Article 3). These are designed to reduce any barriers that may marginalise MSME participation. A Committee on MSMEs (Article 5) is established to provide guidance and collaborate with relevant experts, international organisations, and the private sector.
GP (Chapter 17)
The GP chapter emphasises the importance of transparency in laws, regulations, and procedures (Article 1). Transparency plays an important role in predictability and fairness. Each Party must make publicly available any legislation, regulation, or procedure related to GP. If appropriate, it is encouraged to provide unsuccessful suppliers with an explanation on their non-selection (Article 4). Parties must also put in place anti-corruption laws to ensure integrity (Article 7). Reinforcing these business values aligns Parties with international standards, making them more attractive and competitive as trade destinations.
AANZFTA introduces progressive provisions such as the use of electronic means for publishing notices (Article 5), the incorporation of environmentally sustainable procurement policies (Article 6), and MSME participation (Article 8). A Least Developed Country Party is also allowed to benefit from the chapter without undertaking obligations on transparency and cooperation (Article 2).
Common Features
The new chapters share several elements that incorporate them to AANZFTA’s overall framework. Cooperation (TSD Article 2; MSME Article 3; GP Article 9) and Contact Points (TSD Article 3; MSME Article 4; GP Article 11) provide a basic structure for information sharing and exchange.
Notably, Consultations and Dispute Settlement (Chapter 20) does not apply (TSD Article 4; MSME Article 6; GP Article 12). The FTA Joint Committee noted that the TSD was relatively new to ASEAN. Although this raises questions about implementation and accountability, this flexible approach reflects the Parties’ prioritisation on cooperation and capacity-building.
Economic Cooperation
While the new chapters are a welcome development, their impact remains limited unless they are implemented and utilised by the relevant actors. Yet, it is equally important to acknowledge that AANZFTA also possesses mechanisms to promote business engagement.
The original AANZFTA dedicated a chapter on Economic Cooperation (Chapter 12). In this context, the AANZFTA Economic Cooperation Support Programme (AECSP) was established in 2010 to increase business awareness leading to increased utilisation of AANZFTA opportunities. It consisted of two components: the Economic Cooperation Work Programme (ECWP) and the AANZFTA Support Unit. The ECWP promoted assistance across multiple components, including Services, Investment, Intellectual Property.
While there was an encouraging utilisation of AANZFTA, a 2015 Assessment observed that there was no systematic strategy for information dissemination. Nevertheless, AANZFTA also made significant contributions to raising business awareness. AECSP supported a total of 94 projects and benefited over 16,000 government officials and businesses. Some of its projects include Regional IP Public Education and Awareness Strategy, Enhancing SMEs Awareness and Participation in AANZFTA — Capacity Building for Cambodia, Lao PDR, and Myanmar. It also commissioned a cross-sectoral initiative on Lessons Learned from the RCEP Agreement & Other Relevant FTAs to aid AANZFTA negotiations.
There is still an Economic Cooperation chapter in the Second Protocol, but the AECSP has been succeeded by the AANZFTA Implementation Support Programme (AISP) which started on July 2022. Under the Regional Trade for Development (RT4D) initiative, the AISP has already commenced work related to the new chapters. For TSD, RT4D will help ASEAN implement labour and environment commitments. Its 2024-25 Economic Cooperation Work Plan includes a Communications Package designed to raise awareness to businesses, especially MSMEs.
Conclusion
The new chapters demonstrate a strategic pivot towards a trade framework that promotes sustainability and transparency. They align with ASEAN’s growing maturity in shaping external agreements and complement ASEAN 2045’s strategic goals of ensuring that FTAs remain modern through the inclusion of new and emerging issues, including environment, labor rights, and MSMEs.
However, AANZFTA’s long-term value ultimately hinges on its business utilisation. Despite the existence of cooperation frameworks such as AISP and RT4D, persistent gaps in business awareness pose challenges. Limited visibility to relevant trade laws can constrain businesses from capitalising on the advantages introduced by the upgrade.
To sustain relevance in the evolving regional architecture, more actionable programmes must be introduced to support social and environmental policies, MSME development, and institutional transparency. The Parties must promote the adoption of modern trade practices by businesses to strengthen their participation in the regional supply chain. Future assessments should articulate measurable indicators to evaluate the new chapters’ contributions to business utilisation.
Miguel Jaime Encarnacion is a Research Associate with the ASEAN Law and Policy Team at the Centre for International Law at National University of Singapore.