Australias Main Concern on Current Trade Policy - Example

FREE TRADE AGREEMENT By student’s Name: Code+ Course: Instructor’s Name: University Name: City, State: Date of submission: Abstract; In the recent past negotiations of Free Trade Agreements has been seen to be the Australia’s main concern on current trade policy. However, Australia has been able to sign Free trade agreements with countries such as United States, Thailand and Singapore. Currently there are plans underway to sign a similar agreement with China. Introduction In April 2005 both China and Australia agreed to commence negotiations regarding Free Trade Agreements. Since then both countries have had made progress by starting exchange information basically on trade and investment and have efforts to examine areas of common interest in the proposed agreement on free trade for the two countries. Recently China’s economy has become one of the leading economies in the world characterized by a population of around 1.348 billion people and which contributes to more than 700 million people in the workforce. However China’s integration into the world economy is estimated to have a great impact regardless of whether China has to negotiate trade agreements with other countries, regions or individuals who may wish to become trading partner or not. Australia has been seen to commit to lower tariffs and therefore competition has been stiff from countries like China who produce at low costs. As a trading partner therefore China has a great influence on Australian economy. In the year 2011 China has been ranked as the second largest Australian trading partner in goods and services. This accounted for 10 per cent of its exports and 13 percent of its imports. It’s estimated the bond between these two countries will continue to become stronger and stronger and their economies expected grow by over 8 percent annually due to benefit bilateral trade under Free Trade Agreement. Such an agreement with china presents a lucrative opportunity for Australia to improve on the terms that will form the basis of its future trade. Tariff elimination on merchantable and restrictions reduction on service trade and investment on the basis of bilateral trade will improve the current competitive situation of the exporters and investors from Australia relative to new foreign competitors currently in the Chinese market (Chunlai 2009). A recent independent study on the new Australia- China negotiations indicates the economies of both countries is expected to raise with high margins and will gain enormously from that bilateral trade treaty (Joel,2013). Presence of complementarities across the two countries has continued to grow and trading bonds becoming stronger as its almost impossible for the two countries to survive without depending on each other. Trade and Economic Relations The relationship on trade between the two countries have continued to grow substantially in the past few years which is a perfect reflection of stronger and more consistent growth in their economies , bilateral investments as well as the trade complementarities. Both countries are favored by the fact that their economies are open and vibrant which relies heavily on the international trade for the stimulation of their economic growth. In year 2011 China had recorded a GDP of US$ 7.298 trillion, GDP per capita of US$5,414 and GDP growth of 9.2%. Recent statistics indicates that China has become the second largest Australian partner in trading. An Australian vast resource which includes; iron ore, alumina, crude petroleum, coal, wool and aluminum top the list in their export major components and they are attributed to this strong bonding between these two countries due to their demand on Chinese industries. On the other hand the China’s export which automatically becomes Australian imports includes; computers, footwear, games, clothing, toys and other manufactured goods (Muhammed, 2007). Key Interests and Benefits The negotiation of free trade agreements between China and Australia targets the following; The reduction or the removal of both tariff and non-tariff barriers directly affecting the bilateral trade in goods which is targeted to reduce the transaction costs as well as improving the efficiency in the two countries. Reduction or the removal of barriers relating to regulation which usually restricts services so as to support improved trade inflows across goods and services that are if interest to both countries. Implementing measures targeted encourage foreign investment between the two countries, therefore creating a room for firm foundation for both countries’ future economic relationship. Direct Beneficiaries The Australian industries that will benefit the most from this agreement are minerals, wool, non-ferrous metals, cereal grains and wool tops these commodities forms the basis for Australian exports to China where they are processed into finished goods for example wool used to make clothing which are later imported by Australia. On the other hand the Chinese Industries that would benefit most through the free trade agreement will include; the manufacturing industries like the textiles, miscellaneous manufacturers that include the toys and the goods used for sporting and the wearing apparels. Similarly the service sectors in both countries will not be left behind (Rahul, 2004). Trade Complementarities Due to its vast resource endowment in mineral and agricultural resources Australia has contributed too much in speeding the economic growth in industrialization of China where it has become a major supplier of material inputs as well as energy. However the rapid industrialization in China has led to urbanization as people move from rural areas in urban areas to work in industries and this has a great effect as it reduces a great number of people who depend on limited land resources for food. Therefore the effects of urbanization lead to scarcity of food to meet the needs the people working in urban areas and therefore increases demand for commercial food, therefore an increase in demand for Australian food products from China. Barley from Australia has for example become a key element in production of beer in China. Also, since China dominates the production of iron and steel, it relies heavily on iron ore from Australia .Thirdly the demand for oil and gas from Australia has increased the China’s investment in Australia (Appleyard, Dennis, Field, Alfred, Cobb, Steven, 2010). Textile Industry China has been seen to dominate the global textile and clothing market with huge imports in both the developed and the developing countries’ market. Australia is one of the leading importers of wearing apparels from China. The Council of Textile and Fashion Industries of Australia Limited is the body that represents all the textile industries in Australia. The industry in the recent past have been seen to provide for over 80,000 jobs in Australia and an yearly turnover of more than $7billion and a notable capital expenditure each year .This industry therefore contributes much in the growth of Australian economy. The industry dominates around 10 per cent of the industries in the manufacturing sector. This sector has significantly contributed to the growth of other sectors in the economy such as the service and the manufacturing sector where the demand for labour is very high. This enables the producing firms (producers) to improve on the levels of production. This increased production usually in large scale leads to economies of scale whereby the production firms are able to cut on prices which makes the consumers better off as they enjoy the price-cut. However due increased demand of manufactured goods other firms get into the industry and the competition increases leading to improvement on the quality of manufactured goods in the economy. However the Chinese have heavily relied on fine wool from Australia which is used as the raw material for the manufacture of wearing apparels exported to Australia. Benefits to China Due to Tariff Reduction Chinese wool business will be able to compete favorably with other fibres used for the purpose of making clothes. Tariff reduction will have a positive impact on the domestic producers of wool. The Australian wool producers will get high chances for commercial survival and hence an alternative source of supply to the Chinese textile manufacturing industry. Benefits to Australia Reduction in prices of wearing apparels to consumers that would lead to increased demand for wool from China and thereby boosting the profitability of wool producers and processors in Australia. The increased demand for wool by China will make sure that the global market for wool remains competitive. Conclusion Australian government is ready to make negotiations with the Chinese government on Free Trading Agreements as has been seen that the two countries cannot survive without depending on each other. Although the agreements with United States and Thailand has failed to produce better results the negotiations between the Chinese and Australia is speculated to be the best deal due strong trading bonds that has already existed between them. Effort to removal trading barriers between the two countries has raised caution in the recent past hence the negotiations have not been reached (Ohlin, 1933). However a group of members from Council of Textile & Fashion Industries of Australia (TFIA) held a discussion as to whether there should be a removal of both tariff and non-tariff barriers in the textile industry between the two countries. While a bigger percentage supported China the members however could not agree on the potential the China has in dominating the market and its role in the supply of the wearing apparel, hence this potential can only be only be realized on the removal of these barriers for both countries to enjoy free trade as there exists over dependency as far as the textile industry is concerned where the China cannot manufacture clothing without the wool and therefore creates a large market for wool growers in Australia (Wolfgang ; Becker,2007). On the other hand China will require market for the wearing apparel and Australia provides them a market. After the members had consulted they concluded that there will only be small impact on the market when an agreement is reached to remove what was termed as ‘just tariffs’. However the members identified non-tariff barriers that included; pricing- where the transparency levels could not be estimated by calculation, seller concentration-the over increasing number of domestic requires in the Chinese product market will have to brand their products so as to able to survive competition, intellectual property- Chinese ideas and concepts will be easily accessed that may pose a great threat in its production capacity and its ability to remain competitive, capital-lack of required capital; to penetrate the Chinese market, Licensing agreements –like issues relating to property rights where many companies have found it to be a tedious exercise to obtain license in order for them to sell goods in the Chinese market, poor payments from export debtors-to Australia where the export producers fail to honour the payment agreement by paying less or delayed payments, low labour and input costs-China is seen to benefit more at the expense of Australia in terms of labour as well as other inputs and bureaucracy-long procedures involved to gain entry into the Chinese market (Leong, 2006). It is worth noting that these barriers are not exclusive of other textile and clothing manufacturers in most developed nations such as United States of America and the European Union. Therefore the TFIA comes up with the following recommendations; A Free Trade Agreement should be opposed between Australia and China up to the time when the Australian industry would clearly see the mutual benefits that would accrue to them upon signing the agreement. If the agreement will be reached sooner than expect the Australian textile industry will be disadvantaged. China must consent and prove on how they can reduce the already identified non-tariff barriers. This should also apply to the Australian goods to surpass the guidelines provided the World Trade Organization. Australian tariffs ought to be organized in steps in line with the government policy regarding the tariffs. The industry will outright reject sudden zero for zero tariffs. Comparing the size of both countries then the Chinese tariffs ought to be phased at a path that is steeper as compared to that of Australia. Any agreement meant to be reached should take into account measures and procedures that would make efforts to integrate the manufacturing sectors regarding the two nations. This needs to be done following a manufacturer’s concession system. Any agreement to be reached must conform to the current anti-dumping control measures. All economic modeling performed for the study done by the members of FTIA ought to be provided for the analysis of industry and gives its recommendations to the government. References Appleyard, Dennis R,,Field, Alfred J, Cobb, Steven L. (2010). “Economic Integration’’ In: International Economics. Boston: McGraw-Hill Irwin .Chapter 17, pp.392-417. Chunlai Chen. (2009). China's integration with the global economy: WTO accession, foreign direct investment and international trade Cheltenham.UK; Northamptone. Joel Atkinson. (2013). Australia and Taiwan: bilateral relations, China, the United States, and the South Pacific. Ocala, Fla: Atlantic Pub. Group. Khai Leong Ho. (2006). China and Southeast Asia: global changes and regional challenges. Singapore: Institute of Southeast Asian Studies. Boston: Artech House Muhammed Abu B Siddique. (2007). Regionalism, trade and economic development in the Asia- Pacific region. Cheltenham, UK: Northampton. Ohlin, B. (1933).Interregional and International Trade. Harvard: University Press, Cambridge, Massachusetts. Rahul Sen. (2004). Free trade agreements in Southeast Asia. Singapore :ISEAS. Wolfgang Blaas; Joachim Becker. (2007). Strategic arena switching in international trade negotiations. England; Burlington Read More