Trade Liberalisation - PowerPoint Presentation

Slide1

Trade LiberalisationSlide2

Micro Reform – Trade Liberalisation

Trade liberalisation

is about

removing the barriers

that are designed to restrict international trade and shift towards the idea of free trade where there is an increase in the number of

free trade agreements

.

Two parts to trade liberalisation

Removal of barriers

Free Trade AgreementsSlide3

Barriers To Trade

Tariffs:

an indirect tax levied on selected imports to make them more expensive.

Subsidies:

government cash payments made to local producers to help them cover some of the costs of production. Enables firms to lower their export prices.

Import Quotas:

are designed to restrict the quantity of specific types of imports allowed into the country. Importers must obtain a licence which gives them a maximum number of imports for a particular good.Slide4

Trade liberalisation: Part 1 Removal of Tariffs

The major part of trade reform in Australia has been the

tariff reduction process

which is designed to reduce the government’s contribution to the cost of imports, many of which are used as inputs into the production process.

The tariff reduction program for phasing out and reducing tariffs began in 1988 and was accelerated further in 1991. Slide5

Trade liberalisation: Part 2 Reduction of Subsidies

As part of its trade liberalisation measures, the Australian Government has increasingly

reduced subsidies

or used them as financial incentives to help restructure the industry more efficiently.

Gross subsidies made by the federal government have decreased from around $25 billion in 1971–72, down to an estimate of

less

$2 billion by

2014

In addition, most subsidies granted now are conditional upon companies undertaking investment to upgrade plant, equipment and technology in order to improve efficiency.Slide6

Trade liberalisation: Part 3 Abolition of Import Quotas

Quotas were commonplace in the 1970s and early 1980s, especially on cars, textiles, footwear and clothing.

However, these have been progressively abolished.

The last quotas, applying to cheese, were terminated in 2000–01.Slide7

Trade liberalisation: Part 4 Free Trade Agreements

Australia has increasingly tried to negotiate bilateral free trade agreements (FTAs) with two or more individual countries.

Australia–New Zealand FTA (also known as ‘Closer economic relations’) in 1983

Australia–Singapore FTA in 2005

Australia–Thailand FTA in 2005

Australia–United States FTA in 2005

Australia–Chile FTA in 2007

Australia Japan FTA in 2014

Australia Korea FTA in 2014 Slide8

Trade liberalisation: Part 4 Free Trade Agreements

The aim of this type of trade reform include lifting the competitiveness of our exporters, establishing a business presence abroad, expanding Australia's market share in overseas countries,Slide9

Trade liberalisation

This concept of free trade is based on the belief that there are benefits to be gained from competition between nations and is aimed at improving international competitiveness.

What do we mean by competition?

Competition:

involves the nature and extent of rivalry in particular markets. The more competitive the market the more likely it is that firms will:

Operate more efficiently to keep prices down

Be more innovative

Respond to changing consumer preferences

Develop better productsSlide10

Trade liberalisation – Impact on Efficiency

Perhaps the major goal of all microeconomic reform policies is the desire to improve the efficiency with which resources are allocated in the Australian economy.

If the Australian economy is able to create a higher level of output with a smaller quantity of inputs, then our growth will be sustainable and prices should remain stable. Slide11

Trade liberalisation – Impact

on Low

Inflation

Trade liberalisation

helps to ease inflationary pressures on prices and achieve the goal of low

inflation as imports become cheaper due to removal of trade barriers. Many imports are also inputs into final goods produced in

A

ustralia.Slide12

Trade liberalisation – Full Employment

In the

SHORT TERM,

some Australian businesses may not be able to compete against cheaper imports leading to business closures and

structural unemployment.

In an effort to improve efficiency businesses may also restructure their production process leading to some workers being made redundant,

structural unemployment

In the

LONG TERM,

as we start to become more competitive there will be higher demand for Australian made goods and services locally and internationally, leading to more demand for workers and lower unemploymentSlide13

Trade liberalisation – External Stability

By improving the efficiency of resource allocation, microeconomic reforms are likely to facilitate external stability by:

lower prices will make us more internationally competitive which should boost export sales and assist domestic firms competing against imports

Rising exports and a decrease in demand for imports should improve the current account deficit.

HOWEVER –

some restructuring may require international; investment which may increase foreign debt and put pressure on the CAD. Slide14

Trade liberalisation – Equity in Income

In the

SHORT TERM,

equity in income may worsen due to structural unemployment

However, in the

LONG TERM,

due to the expansion in productive capacity and the higher levels of growth at lower prices we become more internationally competitive, leading to higher growth, more employment.

More employment means more people are earning a factor income which results in a more equitable distribution of income.