Australia's Free Trade and Protection Policies

Government Aims:

• Exposing local industries to imported goods ? more competitiveness.
• Focus resource on areas of economy where Australia has a comparative adv.
• Benefiting from Globalization ? consumer and business has access to goods and services on global market at lowest price.
• Aim of encouraging efficient firms to produce what the world economy demands ? structural changes in the economy ? economies of scale in production.

Policies:

• Historically one of the most highly protected country in the world, because manufacturer found it hard to compete because of small population + ?cost
• 1970-1980: Program to phase out all tariffs
• 1974: Whitlam Government, 25% cut on all tariffs.
• 1988: Hawke Government, reduces most tariffs to 5% by 1996 & abolish quotas + tariffs to 15% on cars, and tariff on textile, clothing and footwear (TCF) to 25% in 2000.
• Howard Government slowed the schedule of Hawke Government in 2000 because of concern for job losses in Passenger motor vehicle (PMV) and TCF.
• 1999: several hundred “nuisance tariffs” we abolished.
• Australia's reductions on protection have gone beyond the requirement of WTO and APEC.
• Australia now tends to reduce trade barrier in exchange for greater access to markets in other countries.

Implication of Australia's Policies

Firms:

• Forced to compete in world stage ? more efficiencies and economies of scale.
• Firms will restructure and reallocate resources to areas where Australia have a comparative advantage and also find new export market as the domestic market ?
• Some firms benefit because of cheaper capital goods and commodities in the world economy.
• More diverse export base.

Individuals:

• Dislocation of jobs as firms restructure ? unemployment.
• Import competing industries will close (mostly labor based), workers will need to retrain and find new jobs. This could be especially hard as most are non English speaking.
• This is short term, workers from manufacturing industry move to service industry.
• Consumers will be able to have access to more variety of goods at cheaper prices.
• Increased living standards, because of higher comp between firms.

Government

• ?tariffs ? ?revenue
• Government need to assist structural changes ? ?Govt spending.
• Policy is unpopular as the costs are visible, like structural unemployment, but the benefits are not as visible.

Impact of International Protection Levels on Australia

• Protection policies and Government subsidies in other countries cause hardship for Australia exporters. For example USA subsidies 21% of US farmer's income, causing our agricultural goods to have ?demand.
• Australia largely affected by protection of Agricultural products, ie. India tariff at 30%.
• WTO though made an agreement of 36% tariff cut on agricultural products, some country find loopholes in the agreement, causing hardship for our agricultural exporting country.
• Service sectors in many countries are closed to outside entrants, for example banking, telecommunication.
• In the WTO meeting (Doha round) Australia is pushing for agricultural trade liberation and arguing against the loopholes that countries exploit in the agreement to reduce agricultural tariffs.