Australias Manufacturing Sector - Essay Example

Running head: 243-2 Questions Name Course Lecturer Date 1. Implications of further tariff reductions have for Australia’s manufacturing sector The rate of tariff in Australia is generally below the world standards. There are various manufacturing industries that are likely to be affected by tariff reduction in the country. This includes car manufacturing industries and textile, clothing and foot wear sectors. The car tariffs are expected to be reduced to up to 5 per cent, for instance. Initially, the primarily aim of reducing tariffs was to protect the manufacturing sector. There is a generally held perception that this has created benefits to the sector. Further reduction of tariffs is likely to have both positive and negative impact on the manufacturing sector. Under the positive impact it is expected that the industry will be more diverse and productive than before given that there will be lower cost on various imports used in the industries; that is, the material needed in the running of the country will be obtained easily and at a reduced cost (Wooden, 2001). As such, the manufacturing industries will be more competitive as compared to other developed countries. In addition, more products are likely to be manufactured and produced increasing productivity in the country. Indeed, this will result to more export oriented manufacturing industries. In addition, it is expected that manufacturing sector will increase resulting to increase in exporting activities among the manufacturing industry. It is important to note that previous reduction of tariffs led to the increase of the rate of export in the country. This was mainly seen in mineral and agricultural sector. Another positive impact that further reduction of will have on the manufacturing is that it will aloe manufacturers to develop new system and also be in a position to rebuild their houses so as to accommodate increased production. Essentially, the manufacturers will be able to lay foundation for the new businesses. As such, it will contribute to creation of another new ad dynamic export sector. The initial stage of tariffs reduction had recorded increase in production share. Indeed, this is likely to happen with another decrease of the tariffs rates. It is expected that the growth will feature in every manufacturing industry and not only in those which were characterised with subsides. On the other hand, there the manufacturing sector will be under pressure and competition from other manufacturing industries importing their goods to Australia. This will decrease employment opportunities in the sector. Nevertheless, one may argue that establishment of other industries as a result of the reduction may increase employment opportunities. In addition, it is argued that manufacturing sector is a growing sector in the country; and as such, it is not a major employer. A negative impact on lowering the tariffs is likely to be felt in the manufacturing sector. As seen earlier, proposed tariffs reduction would result to an increase in import penetration of the local manufacturing industry. In the last trend it has been reported the first reduction led to a 20 per cent penetration rate. Proposed reduction is perceived to increase the penetration rate to 65 per cent. As a result, the local manufacture are likely to left with approximately 35 per cent of the market and it is expected than less three out of four car manufacturing companies are likely to survive. This indeed is seen to be a major disadvantage to the country established industry. In addition to the above, the proposed reduction of the tariff would result to lowering of the cost of goods by approximately 8 per cent. Notably, this is an advantage to the customers given the fact that they will obtain goods at a lower cost. However, this is a major drawback to the home manufacturers given the fact that it would be hard to match the prices introduced into the market by the importers. As such, it would result to lower profit margins if not a loss. Furthermore, there is likelihood that the producers would be pushed towards trading one off against other leading to a decrease in the cost of goods including cars. However, it is important to note that cutting of some products tariffs especially cars would offer a national economic benefit. This is attributed to the fact that this would lead to increase to extra sales of imported good. One may argue that some manufacturing companies are intermediaries of raw materials are likely to be affected by another decrease in tariffs. Indeed, this may be true given that other industries that have been relying on the former will be reluctant to received raw materials at high cost given that they have an opportunity of obtaining the same material from another country at a reduced cost. This would not only affect the raw material manufacturing companies but also the source of these materials at a community level (Merrett, 2002). Indeed, with the above discussion it is quite obvious that the manufacturing industry is has to be impacted greatly by the reduction of tariffs. Notably, some of the impacts are positive while others will be a major drawback. As such, it is important to consider ways of balancing the outcomes given that the manufacturing industry is slowly picking as a major employment sector in the country. Of important to note is the fact that a disadvantage to the industry may a benefit to other sector in the economy. As such, the economy may be seen to gain rather loss by reducing tariffs on imports (Kenwood, 1995). 2. Discuss the changes in, and structure of the Australian financial system that led to the deregulation of the financial system in the 1980s In the Australian economy, the beginning of the twentieth century was primarily characterised with the federal governments seeking to directly influence the way the economy functioned so as to protect and raise the standard of living of particular groups in the community. The 1950s offer a stylish approach of what would be referred to as the traditional financial system as the structure and changes that resulted to deregulation would be derived from this period. Various institutions including the tariff system, basic wage, Commonwealth Court of Conciliation, home consumption price schemes and statutory marketing authorities came into existence in this period (Bowden, 2012; Cooper, 2011). It is important to note that the main objective towards the government ‘intervention’ was to not only raise the standard of living but also protect the economy that was under disturbance due to involvement in international society and economy. As such, the government adopted a policy that protect all farmers, manufactures and workers, for instance, However, this was seen as a comprise given that the high income earners in the country at that time earned from export of iron ore, coal, meat, mineral, wool and wheat. Despite the challenges and opposition that the government faced while embarking on the ‘protective policy’ a new institution was already established in the country (Lloyd, 2003). This is attributed to the fact that the government backed many forms of deregulation and allowed more competitive forces to work free. This process is referred to as deregulation and was primarily associated with trends and ideas of internationalism, neo-liberalism, and globalisation. The main aim of deregulation was to expose Australian producer to external competition and encourage international competition (Eason, 2001). Of important to note is the fact that the financial system is characterised by two major changes that resulted to deregulations; the first involved an interaction between the financial innovation and regulatory policy. As discussed below, before the main financial deregulation, the banks lost a huge percent of market share to financial institutions that were less regulated; a significant process that led to deregulation. After the deregulation period the trends perceived in the market share were overturned and as a result, the financial system was exposed to competitive forces. These competitive forces indeed put pressure on bank; the traditional full service suppliers and this resulted to reduction of cross-subsidies and cut margins. Prior to deregulation the financial system there were distinct sectors; financial intermediaries that comprised of institutions that were primarily involved in lending and borrowing; the managed funds sector that mostly comprised of the superannuation and insurance fund. Of important to note is that there was competition between these sectors. The financial intermediation was synonymous to banking which accounted for approximately 88 per cent of total assets within the sector. The bank services were characterised by low cost sources, cheques and saving banks deposited that were characterised with low interest (Wooden, 2001). On the other hand relating to the assets, about half of it was invested in the government securities and about 41 per cent was given as loans. Given that there were interest control in banks, loans were only given to borrowers who were creditworthy. Indeed, at that time banks had little competition from other institutions that had not started rapid development. In addition, the system was not opened to any foreign bank entry or offshore transactions. As such banking business was conducted through regulated prices. The managed funds sector which had approximately a third of the bank assets offered different services from the banks; that is, long term and favoured savings plans. However, there was some overlap in provision of mortgage that assisted in satisfying mortgage needs which were not met by the banks. The discussed structure faced various changes when the banks went through a period of decreasing markets share which corresponded to the growth of non-bank financial intermediaries including finance companies, unit trust building societies and merchant banks. Indeed, the trend reflected competitive challenges placed on banks by financial regulations. For instance, the interest rate controls kept the whole structure of the bank rates lower than the market clearing levels with an emergence of a market that was ready for funding at high rates. With this trend, the bank got involved in this market through the creation of non-bank subsidiaries that conducted business outside the banks and therefore, free from the regulatory constraints (Wettenhall, 2002). The downward trend of the bank market share was made worse by the rise in inflation leading to the rise of nominal interest rates in the financial markets that are unregulated; as such, most depositors became less attracted to the sector. Therefore, combined assets of the non-banking financial institutions increased six times while that of the banks three times. Of important to note is the fact that the growth of alternative financial institutions was also facilitated by advancement in data processing and communication technology. With the decreased of the regulated sector relative to the unregulated one, the prevailing regulatory controls and monetary policy that had been previous designed, ended up being ineffective. The above resulted to the deregulation of the financial system in the country (Edwards, 2000). The second observed change was a shift in economics of production o the bank usual or traditional financial service. This involved a move towards pricing and production of main products on a separate basis which was stimulated by the establishment of unique suppliers including cash management trusts and mortgage managers. In addition to this, it is important to note that there were changes in the way the government used the banks in achieving monetary policies. Under this, the government imposed several constraints on the banks that included control on the interest rates that the banks gave on their deposits, imposed limits on growth of the balance sheets n maturity of deposits. However, as a result of deregulation, the aforementioned impose were dismantled. 3. Discuss the importance of national competition policy since 1995 and the role of the Australian Competition and Consumer Commission Competition policy essentially includes a wide range of policy actions that are primarily aimed at increasing competition in a given economy. As such it encompasses market structure, regulation and business conduct. The NCP was established in Australia after various reforms were made through the Hilmer Report’s which undertook an inquiry into the National Competition Policy. The main aim of the national competition policy (NCP) is to improve the living conditions and welfare of the community through increasing the efficiency of the economy. This is mainly seen in areas where NCP is applied. As such, it encourages providers/producers of services and goods to provide consumers with suitable products at lowered prices and improved quality levels. This is attributed to the fact that competition is a great tool that is used to encourage providers or suppliers to find more efficient and effective ways of offering their services and goods; therefore, through the increase of efficiency NCP essentially assist in the expanding of the productive capacity of the country’s economy level. As such, it not only increases real incomes but it also improve the material means through which various social needs including environmental standards and community services are fulfilled (OECD Australia, 2009). Appropriate application of NCP principles has resulted to increased productivity and lowered prices in various sectors including electric supply. This is significant given the fact that productivity growth is a major driver of improved living standards. In addition, competitive pressure has increasingly played a major role in raising the economy capacity even on the mounting inflation. This is important given that the Australian economy has been exposed to high international pressure (Khor, 2009). Pressure has also risen from the low productivity rate that was experienced between 1970s and 1980s (Garnaut & Fitzgerald, 2002). Furthermore, the increase production has been accompanied by lower prices in various sectors including telecommunications as thus contributing towards low inflation in the country. Through an increase competition among producers, the effective competition policy has promoted lower prices, an advantage to the consumer both directly and indirectly. Of important to note is the fact that lowering the inflation rate, the capacity of the economy is improved; that is, the country is in a position to achieve high growth pace before inflationary pressure go up (Morris, 2002). NCP has facilitated price adjustments and as such encouraging innovation and initiative among various players in the economy. With this, the economy is prepared to handle and respond to external economy shockers and the changing opportunities in the market. In addition to this, NCP is able to accommodate competition conflicts that may arise in regard to social objectives. This is attributed to the fact that it provides regional, social, equity and environmental criteria that are considered while addressing public interest (Lloyd, 2003). NCP serves to increase the rate of competition reforms within a given framework. This increases progress in various sectors in the economy; for instances, it give confidence to infrastructure reforms. NCP permits for the continuation of pricing arrangements under which some community in the rural regions are provided for services at a less cost. This is made possible though community service obligations that are imposed by the government on the service providers. As Wettenhall (2002) notes, the NCP essentially raise the welfare and living welfare of all the Australian by increasing the efficiency of the country economy. Through an increase in efficiency, the policy is able to expand the productive capacity of the economy, Indeed, this not only raises material ways through which different social objectives are met but also increase the level of real incomes. Of important to note is the fact that lack of good competition may lead to undesirable impact such as reduced production, inflated prices, less choice of consumer, poor management, wasted material, and inefficient work practices. Australian Competition and Consumer Commission is a sovereign statutory authority and a consumer and national trade practices protection law enforcement body. The ACCC primarily promotes fair trade and competition in the market for the business, consumers and the community to benefit. The body administer its roles by administering the Prices Surveillance Act 1983 and Trade Practice Act 1974. It is also important to note that it has other responsibilities under other enacted legislation. Under its role in the financial sector, the body is responsible for handling consumer complains on credit, health insurance, and foreign exchange contracts. Of important to note is that in order to handle these issues it obtain cooperation agreements with territory and state fair trading agencies. This is made possible through provisions of laws which are mirrored in territory and state fair trading legislation. As such, it has responsibilities in protecting consumers in issues relating to securities, future contracts, insurance contracts, deposit products, superannuation, and retirement savings. It is important to note that the above role of ACCC is also seen in its goals which include; use resources effectively and efficiently, inform the community on Trade Practice Act and other important laws regarding consumer and products; enhance competition in the regulatory activities, and improve the conduct of the market. Notably, another role of ACCC is seen through its collaboration and support of various bodies including ASIC which is mandated with the task of investigate various ways of educating consumers on their rights in relation to consumer protection. This is mostly seen in the rural and regional areas and among the indigenous communities. Essentially, this regulation is aimed at ensuring the businesses and other stakeholders compile to the consumer protection, competition and fair trading laws (Jones, 2002). 4. Impact of deregulation on the rural sector in Australian Deregulation in the rural sector had various impacts on various industries in the rural sector.. For instance, it is believed that cost in some commodities have improved as the lowering of the Australian dollar will make the rural exports attractive (Edwards, 2000). However, most commentators argue that the financial sector has been negatively affected. One of the rural industry was affected by the deregulation policy is the dairy industry. It is important to note that dairy farming is the fourth largest industry in the rural region (Dairy Australia, 2003). It consists of four main sectors that include production, manufacturing, processing, vending or distributing. Historically, in all States, the milk market has been regulated in all the aforementioned sectors. However, of significant to note is that before deregulation, the difference between manufacturing milk and manufacturing milk was prominent in the industry. Manufacturing milk was used in the industry to manufacture milk products while the market milk was processed into drinking milk. The NSW Dairy Corporation controlled the supply of market milk annually. This was done through system of personalized milk production Under deregulation policy, there were some adjustments that reflected variation in producer return as a result of developments in the global markets. A few years after deregulation, there was approximately 17 % decline in the number of farms in the industry (Dairy Australia, 2003). Under this, the NSW estimated about 200 dairy farms left the industry between the month of July and December in 2000. This is a high number given that in 1999 about 49 dairy farms have been left. In addition to this, milk production went down due to farm retirement and poor seasonal condition. The average farm gate price also fell in most States. For instance, in 2000-01 it was estimated that the farm gate price was paid at 25 cent per litre compared to 36 cents per litre in 1999. In order to counter the negative effects of deregulation on the industry, the NSW has resulted to increase in the annual payments; however, the annual payment differed from one farm to another. Essentially, the effect of deregulation has varied in the industry where many farmers have exited the industry. However, adjustment assistance to the deregulation market resulted to the farmers increasing their scale of production. In addition, there has been an increase in supply and quality of feeds in order to improve herd productivity and capacity (Dairy Australia, 2003). As a result of deregulation, the milk market has become competitive. Indeed, the ACCC has noted that since the deregulation, the price of branded milk products have gone down. In relation to this, the long term effect is expected to been seen in the increased export of milk products to other countries. As such, the country will be in a good position to compete effectively in the market. Indeed, this will be made possible by ensuring that the major markets for the milk products are tightly controlled given that there is increased corruption in the world daily market. However, it is important to note that increased import restriction and tariffs in the world market may in a way affect the expectation of the deregulation policy in the country in relation to the daily industry. Various states government reacted to the deregulation policy by establishing various projects that are aimed at helping the farmers to adjust to the introduced schemes. Such projects provided assistance and information that is expected to assist the farmers in improving their farms and adjust to the changes. The Dairy Deregulation Impact and Assessment Committee was also established in order to evaluate, give recommendation and report to Parliament the financial impacts that the dairy industry is facing as a result of deregulation. As a result of this, the industry has efficient production methods that are accompanied by a good positioned export growth. In addition, there has been an increase opportunity in the Asia continent. Essentially, it is expected that the deregulation policy together with strong relationship established with potential markets will indeed increase milk production and wipe away the negative impact felt through the deregulation transition. The lending institution in the rural region has also been impacted by the deregulation policy. The impact may be categorized into two broad categories; impact on the creditor-farmers relationship and effects on the financial services. Indeed, it is believed that post deregulation created uneasiness in the farmer-bank relations. This was experienced given that prior to the deregulation, there was an established relationship between the farmers and banks; the farmers concentrated on their farms while the bank manager managed their financial products. This was as a result of gradual abolition, commercialisation or privatization of public funding programs and institutions (Brennan & Pincus, 2002). Indeed, in this industry, deregulation increased intricacy in the financial products. Farmers started accusing banks of foisting credit on them in an inconsiderate manner, adjusting interest rates without consulting them and refusing to handle financial negotiations. Essentially, farmers have been discouraged in engaging with financial institution after deregulation. For instance in Kangaroo Island, the new generation of farmers have been discouraged in establishing farms independently due to complexities and difficulties in obtaining credit (Edwards, 2000). Of importing to note is the fact that as a result of the changes in the financial deregulation, the lending institutions, banks especially, developed financial products that sought to meet specific requirements of farmers in the sector. Despite this, however, there was a gap created between the farmers-institution relationships. Furthermore, this gap required excellent management due to the complexity of the products introduced. References Bowden, B (2012) The rise and decline of Australia unionism; a history of industrial labour from the 1820s to 20101; A Journal of Labour and History, 51 Brennan, G & Pincus, J (2002), Australia’s economic institutions. In G. Brennan & F.G Castles, Australia reshaped: 200 Years of institutional transformation. 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