Australias Active Involvement in the Trans-Pacific Partnership - Case Study Example

Australia’s active involvement in the Trans-Pacific Partnership (TPP) Name Professor Institution Course Date Australia’s active involvement in the Trans-Pacific Partnership (TPP) Although most Pacific countries are believed to be latecomers in terms of economic growth, economic experts claimed that the region emerged to have potential for business in the late 20th century (Fazzone 2012: 696). The leaders from these nations, particularly Australia realized that trade liberalization can enable the country realize economic prosperity. As a country which had struggled after the economic crisis of 2008, Australia government believed there was need to cooperate with other countries to form strong trading blocs (Li 2012: 1). In the recent years, Australia has participated in drafting of various trade agreements to open its boundaries for international business. Some Australian policy analysts have argued that Australia’s active involvement in the Trans-Pacific Partnership (TPP) agreement will not only ensure new market access opportunities for Australian exporters and investors, but will also help to reshape its post-mining boom economy (Rimmer 2016: 632). In this paper, the essay will argue in support of the Australian policy Analysts. To put the essay into context, this paper will describe Trans-Pacific Partnership and critically explain how it will shape Australia. The Trans-Pacific Partnership abbreviated as TPP is a form trade agreement which has been created among 12 countries within the Pacific Rim region (Amari 2016: 11). Capling & Ravenhill (2011: 554) claimed that this trade agreement started as Trans-Pacific Strategic Economic Partnership Agreement in 2005 and signed by Brunei, Singapore, Chile and New Zealand. In 2008, more nations joined the formulation of the agreement bringing the number to 12. The countries which joined in 2008 comprise of Australia, United States, Canada, Malaysia, Peru, Vietnam, Mexico, Japan and Peru (Amari 2016: 11). After 7 years of the negotiation and consultations, the countries signed the final plan on 4th February 2016. The draft is presently waiting the consent take into effect (Higgott & Stubbs 2016). The trade agreement has 30 chapters and aims at promoting the economic prosperity, Improving innovation, competitiveness and productivity, supporting job creation and retention, improving the living standards, creation and retention of jobs, decrease level of poverty, promoting good governance, transparency, environmental protections and enhanced labor (Higgott & Stubbs 2016). In addition, Trans-Pacific Partnership has measures for lowering tariff and non-tariff trade barriers to trade to its members. Australia experienced one of the most debated mining-boom from 2005 to 2012 (Bramble 2015). The country underwent changes in major economic indicators. During the mining boom period, the rate of employment increased in Australia, hence leading to increase income growth. The growth of income and disposable income led to rise of purchasing power and high consumption. However, post-mining boom has seen a rise in employment rates in Australia particularly among casual, unskilled and semi-skilled workers. The situation is attributed to decrease in mining activities. Pham, Bailey and Marshall (2013) pointed out that mining boom in Australia also led to high cost fuel because high demand for powering mining machines. However, the post-mining boom has seen a reduction in oil prices in Australia. The low high oil prices and low unemployment rates which came with mining boom led to high inflation (Pham, Bailey & Marshall 2013). During the boom, there was also high demand of minerals such as iron ore, coal, LNG and metallurgical in Asian countries resulting to increase in product prices. For instance, the price for iron rose from $20, $30 per tone and even further (Bramble 2015). In the post-mining boom, the prices of these minerals have declined thus decreasing the income of mining companies and individuals. As the Australia mining bubble has gone down, real estate market has continued with the growth that began with the boom. Bramble (2015) asserted that the deflation of the mining boom has led to increase in prices of building, hardware and garden supplies, housewares, and electrical goods. The analysis offered by Department of Foreign Affairs and Trade argued that the Trans-Pacific Partnership makes up part of microeconomic reform agenda of the Australian government to promote diversification of its economy during the post-mining boom (Department of Foreign Affairs and Trade 2016b). Australia government involvement in Trans-Pacific Partnership is therefore beneficial to investors and exporters to balance the current situation. Like many other, free trade agreements, TPP is based on the various trade theories and models such as Heckscher-Ohlin model, Ricardian Model and endogenous model, economies of scale. The exporting and importing of products can be analyzed based on the Heckscher-Ohlin model. This model argues that nations are likely export goods which they cheaply produce and import those ones which need more resources to produce. Trade is not just about exporting but also getting profits. As such, when local prices are low, the business people do not get more profits as they would have wanted. Ma and Lu (2011: 73) contended that sometimes when the demand is high in the international markets, exporting products give the investors and exporters opportunities to increase their profits. Opening of international market enable Australia to acquire products which they do not produce or produce in small quantity. TPP is observed as a good chance for improving trade amongst members of this trading bloc. Research points out that the total population of all members stands at 800 million, while the total sum of GDP is roughly $28.6 (Amari 2016: 12). A research in 2011 found out that more than half of the Pacific nations had posted a high growth rate compared to the world average that stood at 5.1 percent. Study also revealed that most of the Pacific countries from Asia experienced high growth rate of over 3 percent from 2010 hence making the Asia-Pacific nations significant destinations and sources for investment and world trade (Michael 2015: 483). With the situation, Australia will benefit from high sales of products. In fact, the country has started to benefit from the trade agreement. The reports show that Australian export to the US, Singapore, Malaysia and Peru have increased tremendously in the recent years (Li 2012: 4). It therefore means that it offers significantly improved export opportunities to the investors and exporters from these countries. On the other hand, it creates a platform where Australia can acquire products that are expensive to produce. Michael (2015: 485) posited that with the demand for product or consumption has relatively going down during the post-mining-boom era due to reduction in income levels, Trans-Pacific Partnership has therefore provide Australia the opportunity to access markets such Japan, the US, Singapore, Malaysia and other member states to sell their products (Rimmer 2016: 630). Imports and exports enable an economic growth for the individual investors and exporters, and the country. Additionally, endogenous model can be used to explain the correlation between trade and growth from another perspective. Sohn and Lee (2010: 685) claimed that this model holds that foreign direct investment and trade enhance knowledge overflows across nations. It is this knowledge which raises productivity of human capital and physical capital. Other growth factors in endogenous model include learning by doing effect and research and development (Sohn & Lee 2010: 685). The trade influences these factors leading to growth. For instance, when other members of the TPP open their borders for trade, Australian investors will be able to cross boundaries to do business in foreign countries. In this way, they will learn various strategies such as research and development and business strategies which they can implement in Australia to improve the trade and economy. According to Ricardian model, countries can often have a comparative advantage over others on the basis of advanced technology and natural resource. Other countries can only match such advantage by agreeing on free trade. Therefore, TPP enable member countries to benefit from technology and other infrastructure which can be used in trade, government and education (Capling & Ravenhill 2011: 561). Free trade agreement enhances knowledge spillover between high developed and developing countries. For instance, the US is technologically advanced compared to Australia. Hence, TPP will enable Australia to improve its technology. Technology is not only used for research and development, but also for production and marketing. Rimmer (2016: 631) held that the competition in business sectors steered by technology will improve innovativeness and effectiveness of manufacturing practices in Australia. Banks (2003: 5) argued that TPP is likely to increase ‘dynamism’ and flexibility in Australian managers and firms. Majority of imports tend to be better products. Such products put pressure the managers to analyze and enhance local products. International trade also exposes Australian investors and exporters to global best practices such as product development, marketing and pricing (Banks 2003: 5) Free trade can make and exporters create economies of scale. Ma and Lu (2011: 69) argued that economies of scale imply that large scale production can be attained with low cost. In the context Trans-Pacific Partnership, Australia can import cheap raw materials to attain economies of scale in their production. Similarly, Australian investors can move their production in a country with cheap raw materials to manufacture more products at low cost. Firms from different countries in the Pacific region are likely to create strategic alliances to gain some competitive advantage. Kneller, Morgan and Kanchanahatakij (2008: 705) contended that when free trade has resulted into strategic alliance, firms work together by pooling resources so as to realize economies of scale. In most cases, companies in strategic alliance share resources like human capital and technology. The advocates of Trans-Pacific Partnership think that the trade agreement will help Australia enjoy trade as it dismantles tariff and non-tariff barriers such as quotas, levies and embargoes (Higgott & Stubbs 2016). With measures termed as ‘behind borders’ being adopted to reduce trade restrictions, Australia investors and exporters are presented with the opportunity to increase production and profits. The report about the TPP showed that it will eliminate 98 percent of the tariffs in Pacific Rim for member countries to ensure efficient movement of goods (Higgott & Stubbs 2016). Tariffs are considered to be a tax on the consumption. Banks (2003: 4-5) argued that tariffs inflate the price of imports and the price for local competing goods. Eliminating or reducing such tax implies that customers can purchase similar quantity of products for less money and still an option of spending on other commodities. Removing trade tariffs enable investors to import more cheap products and bring Australian market, hence variety products to choose from. Bramble (2015) opined that post-mining boom created a mini-boom in the construction industry. The demand for construction materials increased prices in the market putting the burden on the investors. Trans-Pacific Partnership as provided alternative solution to property owners as they can now acquire building materials from trading bloc members at a cheap price. Also, low tariffs in the Pacific Rim will make Australian investors to import more products and sell products at cheaper costs. Trans-Pacific Partnership can help Australia reduce the unemployment rate (Kneller, Morgan & Kanchanahatakij 2008: 704). As stated earlier, Australia has been increasingly experiencing unemployment rates in the post-mining-boom. As a free trade agreement, it allows members to work in other countries. Singapore, Malaysia and Japan are some of the Asian countries which highly need labour. The labour demand is attributed to growth of manufacturing industries. As the individual get their income from foreign countries, they invest in Australia thus increasing the growth rate. Australians could highly benefit from working and living in Singapore because the country enjoys a high standard of living compared to other member of TPP. Shamim (2011) pointed out that Singapore is a tax haven and businesses and individuals enjoys low rate. The tax regime makes the foreign employees to have a high income and have a high standard of living. Furthermore, the low tax in Singapore makes the Australian working in the country to have more money to save and invest at home. Scholars and researchers have claimed that Trans-Pacific Partnership creates a fair playing ground for foreign trade (Higgott & Stubbs 2016). TPP limits discriminatory treatment, favoritism and subsidies which are always provided to enterprise owned by the governments. The agreement therefore, makes easier for the foreign private firms to stay competitive in international markets. Higgott and Stubbs (2016) posited that Australia has several private firms which have felt that protectionism in the world limits them from expanding and competing on the international stage. Particularly, the protectionism in the US has made it difficult for Australia investors to compete fairly (Capling & Ravenhill 2011: 569). Therefore, the trade agreement sets common environment standards all through Trans-Pacific Partnership trading area, thus setting equal platform for all members in terms of exporting product and services. Rimmer (2016: 625) postulated that Trans-Pacific Partnership work as geo-strategic driver. Geostrategic as a branch of geopolitics is one of the most discussed topics. The review of alliances as powerful countries seeks influence trade and politics has intensified focus on geostrategic. Some political and economic analysts argue that Trans-Pacific Partnership will reinforce Australian links to Pacific Asia bearing in mind that China is growing its influencing the region (Higgott & Stubbs 2016). According to Higgott & Stubbs (2016), the argument is that it in Australia has interest in the region just like US and other Western power hence will use this agreement to make en route to the region to neutralize the China’s rising power. The proponents of the TPP argued that if China is allowed to influence the region, they might give their investors and workers upper hand business (Rimmer 2016: 632). While China is believed to proposed rules which favor them, Trans-Pacific Partnership suggests rule based integration, which is comprehensive and fair to partners. It means the trade agreement is a centerpiece for Australia’s trade and foreign policy with regard to the Pacific. The realist perspective also holds that forming alliance help countries protect their interests (Samples 2011: 28). However, this essay does not entire agree that Trans-Pacific Partnership will be beneficial to Australia. Various drawbacks have also been discovered in the trade agreement. Reducing trade non-tariffs can sometimes be bad for a country. For instance, it will allow cheap products into Australia leading to market saturation (Michael 2015: 483). For a country which is already facing low demands for products after post-mining boom, the trade agreement may lower sales hence reducing the pace Australia’s economy growth. Another economic effect of TPP could be unemployment. The free agreement allows citizens of member country to seek for employment in Australia. Jeronim, Izurietaa and Sundaram (2016) argued that Australia is already facing increased unemployment following post-mining boom and allow foreigners to seek for in the country could plunge it to high rates of joblessness. The TPP has an investor-government dispute clause which disadvantage Australia in this free trade (Lamy 2015). Like any other country, Australia may just slightly reduce its tariffs or non-tariff barriers to protect its firms. However, this may not go well with foreign investors who seek total elimination of the tariffs hence legal action. Therefore, according to Rimmer (2016: 633), it means that to some extent TPP empower a foreign business or investor take legal action against the government. In conclusion, the analysis of Trans-Pacific Partnership has found out that involvement of Australia in the trade agreement will reshape its post-mining boom economy in different ways. The essay has established that investors and exporters will be able to access more markets to sale their products. The trade agreement also removes tariffs and non-tariffs barriers, enabling investors to produce and acquire resources for production at cheap prices. Removal of trade barriers also offers a fair playing ground, hence competitive trade. The essay has found out that the trade agreement is more than just trade and will shape Australian influence in the Pacific Rim. Despite the benefits in post-mining boom, the trade agreement also poses challenges to Australia. Trade liberalization set by TPP may result to high unemployment rates, dumping of goods dumping of goods and imbalance of trade, hence Australia recommends for review of these issues before ratification. References Amari, A 2016, ‘The Trans-Pacific Partnership (TPP) Agreement’, Asia-Pacific Review, vol. 23, no. 1, pp.11-20. 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