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ECO Y12 > Topic 2 - Part 3: Free Trade and protection > Flashcards

Topic 2 - Part 3: Free Trade and protection Flashcards

1
Q

Was Aus a historically high or low protectionist country?

A

Historically, was a high protectionist country

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2
Q

When did Aus shift away from protection?

A

In 1973

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3
Q

In what periods of time did Aus phase out almost all tariffs?

A

In the 1990s and 2000s

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4
Q

What are 4 ways of the gov’s main aims in reducing protection?

A

Make domestic industries more internationally competitive by exposing them to competition to M goods

Encourages effective reallocation of resources and to concentrate the economy on areas where Aus has a comparative advantage

Allows Aus to benefit from greater integration with th global economy by giving consumers and businesses access to g+s on global markets at the lowest possible prices

Encourage efficient firms to produce what the global economy demands

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5
Q

What has been the avg tariff level change?

A

From 36% in 1968/9 –> 0.7% in 2022

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6
Q

Why did protectionist policies in Aus come under attack in the early 1970s?

A

organisations argued that protection resulted in ↑inefficiency, ↑ prices, misallocated resources, and made Aus less internationally competitive, damaged trading performance and reduced living standards in the LT. Even though protectionist policies typically have a beneficial ST effect, it does not provide benefits in the LT

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7
Q

What did the Whitlam gov in 1973 do?

A

25% across the board tariff cut

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8
Q

What did Aus do in 1988?

A

Commenced a comprehensive program of trade liberalisation and Aus reduced its tariffs faster than any other advanced economy in the subsequent decaade

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9
Q

What % of imported goods are tariff free?

A

60% of all imported goods, with the remainder being manufactured goods subject to a tariff rate of 5% or less. These tariffs don’t apply to imports from countries which Aus has a FTA with such as Korea, Jap or China

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10
Q

What are some examples of aus policies regarding free trade and protection?

A

Protectionist policies going under attack from early 1970s

Whitlam gov in 1973

In 1988 trade liberalisation

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11
Q

What % of farm income do subsidies account for in 2020? Does Aus have the lowest level of agricultural protection in the AUD?

A

2% of farm income. Has the lowest level of agricultural protection

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12
Q

What % of farm income do subsidies account for in the US, EU and Japan?

A

US: 11%

EU: 19%

Jap: 41%

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13
Q

What is the export market development grants scheme (EDMG)? STATS, and the benefits?

A

It reimburses small to medium sized exporters for some of their costs in promoting X in new markets.

Provides $150 million in grants to between 3000 and 5000 Australian businesses to help find export markets

EMDG scheme was effective, and each dollar spent generates net eco benefits valued from $1.55 to $7.03

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14
Q

What is a bilateral FTA?

A

Bilateral agreements involve just two nations. They are the easiest agreements to negotiate as they only need to factor in the interests of the two participant countries.

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15
Q

What are the effects of bilateral trade agreements?

A

While bilateral trade agreements reduce overall protection, they generate fewer economy-wide benefits than broad trade liberalisation and the increased amount of bilateral agreements have created inconsistent trade rules

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16
Q

What are the two bilateral trade agreements that I’m memorising?

A

ANZCERTA (New zealand - Aus FTA)

CHAFTA (China-Australia FTA)

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17
Q

What are the 5 things to consider when discussing a bilateral agreement?

A

When was the agreement ssigned?

Why is the economy important to Australia (Trade and Investment)

What are our main exports to and imports from this country?

What is our trade position with this country?

What are the main benefits of this agreement for AGRICULTURE, MINING, MANUFACTURING, SERVICES, INVESTMENT, CONSUMERS, LABOUR MARKET

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18
Q

When was the ANZCERTA signed?

A

Signed March 1983

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19
Q

Why is NZ important to Aus in trade? (2)

A

All tariffs and quotas between the two countries were eliminated by 1990

Total trade evaluated at A$28.6bn (decent amount)

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20
Q

Why is NZ important to Aus in investment? (2)

A

Aus is NZ’s largest investment destination, which is worth A$47bn

Aus invests A$97bn into NZ in 2018

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21
Q

What is the value of exports to NZ?

A

$5.58bn

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22
Q

What are the top 3 exports to NZ and how much is it worth?

A
  1. Broadcasting equipment ($189M)
  2. Packaged medicaments ($166M)
  3. Computers ($145M)
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23
Q

How much are imports from NZ worth?

A

$5.17bn

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24
Q

What are the top 3 imports from NZ and how much is it worth?

A
  1. Gold ($322M)
  2. Wine ($257M)
  3. Other Edible Preparations ($254M)
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25
Q

What is our total trade position with NZ?

A

Total exports = $5.58b (as of 2020)

Total imports = $5.17b (as of 2020)

Trade balance = 5.58-5.17 = approx $0.41bn surplus

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26
Q

What are the main benefits of ANZCERTA on agriculture, mining, manufacturing, services sectors? (1)

A

Essentially completely removed tariffs on both countries exports of agriculture, mining, manufacturing and services, which is beneficial for both countries as it allows for good competitiveness

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27
Q

What are the main benefits of ANZCERTA on investment? (2)

A

March 2013 investment protocol allows transfers in and out of Aus and NZ freely and without delay

Investors between the two countries are perceived to be investors from the same country → easy investment

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28
Q

What are the main benefits of ANZCERTA on consumers? (1)

A

Access to both Aus and NZ markets → greater consumer choice

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29
Q

What are the main benefits of ANZCERTA on businesses? (1)

A

Extra access to combined markets of both NZ and Aus

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30
Q

What are the main benefits of ANZCERTA on the labour market (2)

A

Trans Tasman Travel Arrangement (TTA) states that Australians and New Zealanders are allowed to visit, reside and work in each other’s country without restriction

375 000 NZ citizens in Aus, 57 000 Aus citizens in NZ

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31
Q

When was CHAFTA signed and implemented?

A

Signed June 2015, implemented December 2015

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32
Q

Why is China important to Australia in trade? (3)

A

Largest trading partner (38.8% of Aus exports, 24% of imports (2021))

More than 93% of Aus exports to China are duty free in 2019 and this will increase to 98% once CHAFTA has been fully implemented

Buys more Aus agriculture produce than any other country and provides Australia an advantage over our competitors without agricultural exports

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33
Q

Why is China important to Australia in investment? (1)

A

Investment in Australia has been growing greatly with almost $91.8 billion by the end of 2021

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34
Q

What is the value of exports to China?

A

$102bn

35
Q

What are the top 3 exports to China and how much are they worth?

A

1.Iron ores and coal (63.9bn)

  1. Petroleum Gas ($9.55bn)
  2. Coal Briquettes ($6.34 bn)
36
Q

What are the top 3 imports from China andhow much are they worth?

A

1.Computers ($4.3bn)

  1. Broadcasting equipment ($3.82bn)
  2. Refined Petroleum ($1.46bn)
37
Q

How much are imports from China worth?

A

$57.2bn

38
Q

What is our trade position with China?

A

Total exports = $102bn (as of 2020)

Total imports = $57.2bn (as of 2020)

Trade balance = 102-57.2 = approx. $44.8bn surplus

39
Q

What are the main benefits of CHAFTA on the agriculture sector? (2)

A

Aus duty free quota for wool from 2016 onwards

All tariffs on dairy products will be phased out over 4 years to 11 years

40
Q

What are the main benefits of CHAFTA on the resources, minerals, manufacturing sector? (2)

A

When CHAFTA comes into full effect, 99.9% of Australia’s resources, energy and manufacturing exports will be duty-free

Tariffs on coking coal fully eliminated (worth $5bn)

41
Q

What are the main benefits of CHAFTA on the services sector? (2)

A

Improved access to Chinese markets for Australian banks, insurers, professional service suppliers and education exporters as well as health, aged care, construction, manufacturing and telecommunications services businesses

Banks, insurers, lawyers and universities will find it much easier to operate in China with Australian companies able to open hotels, restaurants and nursing hotels

42
Q

What are the main benefits of CHAFTA on investment? (2)

A

China has granted Australia a Renminbi quota (of 50b) to invest in Chinese securities ⟹ which will allow approved Australian financial institutions to invest offshore Chinese currency in Chinese financial products, including securities

Australia will have access to the financial markets of one of the world’s most powerful economies as it finally begins to liberalise its economy

43
Q

What are the main things to discuss when looking at the benefits of a bilateral trade agreement?

A

AGRICULTURE, MINING, MANUFACTURING, SERVICES, INVESTMENT, CONSUMERS, LABOUR MARKET

44
Q

What are the two main multilateral trade agreements that Aus is in?

A

AANZFTA (ASEAN-Australia-New Zealand FTA)

RCEP (Regional Comprehensive Economic Partnership)

45
Q

What are the 6 things to discuss when discussing Aus’s multilateral trade agreements?

A

When was the agreement signed?

Which/how many countries are involved?

Why is this agreement important to Aus and global economy

What are the key features of these agreements

What are the main benefits of this agreement?

What are the criticisms of this agreement?

46
Q

What should you discuss in the main benefits of a multilateral trade agreement?

A

Effects on businesses, individuals, services and general effect

47
Q

When was the AANZFTA signed?

A

Signed in January 2010

48
Q

Which/how many countries are involved in the AANZFTA?

A

12; Australia, New Zealand and ASEAN member countries

49
Q

Why is the AANZFTA important to Aus and the global economy?(2) use stats

A

It covers around 20% of Australia’s trade in G+S and effectively creates a free trade area of over 685 million people with a combined GDP over US$3 trillion

Aus and the other countries in the agreement are complementary economies where Aus has great demand for their exports from these countries while these countries have massive demand from Aus for their exports

50
Q

What are the key features of the AANZFTA? (3)

A

Extensive tariff reduction and elimination commitments (96% of Aus X)

Regional rules of origin provide new opportunities for Australian exporters to tap into international supply chains in the region.

Provides a platform for ongoing economic engagement with ASEAN through a range of built-in agendas, economic cooperation projects and business outreach activities

51
Q

What are the main benefits of the AANZFTA? (3)

A

Extremely high investment among countries due to rapid growth of Asian countries with higher investment into Australia assisting with alleviating pressure from savings-investment gap. (Increase in investment by 20%)

Supporting the development of more efficient and competitive industries through tapping into global supply chains through regional rules of origin. This will boost Aus economy by 20bn due to increased IC

Reduced tariffs on imports and exports. Increased market access via tariff reduction and elimination

52
Q

What are the 2 main criticisms of the AANZFTA?

A

It will cause trade diversion. Although thee regional agreement is largely perceived as beneficial for Aus, a normal criticism of any preferential trade agreement is that it can result in trade diversion

Free trade can lead to pollution and other environmental problems

53
Q

What is trade diversion?

A

trade is diverted from a more efficient exporter towards a less efficient exporter

54
Q

When was the RCEP signed, and after how long?

A

Signed in late 2020, after 8 years of negotiations

55
Q

Which countries are involved, and how many?

A

15 countries; Aus, NZ, China, South Korea, Japan, ASEAN

India if they choose to join

56
Q

Why did India refuse to join the RCEP?

A

Because they had worries about reducing protection on agriculture

57
Q

Why is the RCEP important to Australia and the global economy? (3)

A

It will be one of the biggest multilateral agreements, covering 30% of the global economy and the world’s population

Easier trade amongst countries → improved living standards, and improved efficiency in the countries

Encourages inflow of foreign investments

58
Q

What are the key features of the RCEP? (2)

A

Exporters and importers only need to use a single set of rules and regulations to access preferential trade treatment in any of the 15 RCEP countries

Will eliminate close to 90% of tariffs within 20 years

59
Q

What is preferential trade?

A

This is the term used in the WTO for trade preferences, such as lower or zero tariffs, which a member may offer to a trade partner unilaterally.

60
Q

What are 2 general benefits of the RCEP?

A

89% of current Aus X to the region will benefit from immediate duty free access, rising to 94% once fully implemented

76% of Aus imports from the region immediately duty free under RCEP, rising to 93% → improved standard of living as access to cheaper goods

61
Q

What are the benefits of the RCEP on the services sector? (3)

A

Commitments from the countries will benefit Aus firms that supply legal, architectural, engineering services

Will benefit healthcare services such as nursing, paramedicine, acupuncture, dentistry

Will also benefit services of private secondary, higher and adult education

62
Q

What are 3 benefits of the RCEP on investment?

A

Free transfer of investment related capital without delay and prohibitions

Greater protection for Aus investors

No discrimination against foreign investors from RCEP countries (Minimum standard of treatment of investor under international law)

63
Q

What are 3 benefits of the RCEP on businesses?

A

Allows parties to maintain competition laws and regulations that forbid anti-competitive practices

Platform for SMEs to participate in and benefit from opportunities and programs in the RCEP

Creation of balanced rules for effective enforcement of intellectual property rights, including copyright rights

64
Q

What are 3 criticisms of the RCEP?

A

Foreign labour market access could cost local jobs (There will be lower tariffs, which could hurt local producers)

Trade diversion (Kind of becoming like the EU trading bloc)

Ignoring human rights issues in Myanmar which is part of RCEP (which can be contradictory to Aus beliefs about equality etc.)

65
Q

What are the effects of Australian (reduction of) Free trade policies on firms? (4)

A

Individual firms that operate in marginal, import competing industries will shrink unless they can increase their competitiveness

Reducing Production exposes local industries to competitive pressures, forcing them to develop the innovation and efficiency necessary to compete on a world stage.

Tariffs reduce input costs for many firms that import capital goods for their production processes

Leads to restructuring of operations in firms with aims of staying in business or putting their focus on specialising in one aspect of production.

66
Q

How can a firm’s operations be restructured? (4)

A

Adopting a new production tech to production costs

Eliminating less profitable product lines

Finding opportunities for exporting in response to decline in share of domestic market

Offshoring global supply chains to countries with low wage costs and high population

67
Q

What are the effects of Aus’s reduction of free trade policies on individuals? (3)

A

Decreased Protection levels→ restructuring of industries and cuts in local production→ Unemployment in ST

Decreased protection→ brighter LT prospects for Employment levels. This is because it will promote IC in firms with resources being shifted, and increased demand for labour in these firms, improving LT employment

Decreased protection –> increased living standards and higher consumer purchasing power because consumers purchase goods which are the most efficient meaning lowest price. Also, higher quality as there is an increase in IC and need to differentiate

68
Q

What are the effects of a reduction in tariffs on clothing goods from 17.5% to 10% on industry employment?

A

Industry employment reduced by over 5%

69
Q

Does the Aus gov fund retraining programs to help redundant workers adapt their skills to find employment?

A

Yes

70
Q

What are the effects of a Aus’s reduction in protection on the government? (3)

A

Cutting tariff will decrease gov revenue as tariffs provide indirect tax revenue to the government. However, sustainable EG due to improved allocative efficiency will raise revenue in LT

There are Political consequences of tariff reductions as it is generally unpopular with communities and gov are concerned with popularity of their policies and votes

Increased spending requirements to assist the structural process through expenditure on unemployment benefits and retraining programs to aid unemployed individuals

71
Q

What is an example of the gov assisting the structural process and providing benefits and retraining programs to aid unemployed individuals?

A

Financial support also provided to certain industries to assist with adjustment process-PMV industry policy includes specialised assistance including job search assistance and industry specific training

$155bn Growth fund to support transition of PMV industry after prod ended in 2017

72
Q

What are 2 OTHER eco effects of Aus lowering protection?

A

Phasing out protection has an impact on Australia’s economic growth and standard of living. In the ST, decreased protection increases imports which lower standards of living as there aren’t creations of jobs, in thee LT, resources move to more productive areas –> higher rate of EG and living standards

In the short term, phasing out of protection can have a significant effect on Australia’s trading performance and CAD. CAD will worsen as imports rise, as imports will be cheaper. However, there should be improved IC and reduction of CAD in the LT as exports grow

73
Q

What are the implications of protectionist policies towards Aus for Agriculture. (3)

A

Agricultural subsidies and trade barriers in the world are reducing Australian agricultural exports by between $8bn to $10bn a year

In 2020, China imposed punitive tariffs on wine, causing major damage to the Australian wine industry

Possible boost of $US 9bn in agricultural exports by 2020 if global trade liberalisation is achieved by the WTO’s Doha Round (but it wasn’t approved)

74
Q

What are the implications of protectionist policies towards Australia for the mining and resources industry? If there are any, if not explain why not. (2)

A

Faces very few barriers to trade due to high demand worldwide and other economies do not have the resources to provide domestic alternatives – tariffs will only increase costs rather than encourage exploration of energy resources

Export restrictions are imposed by Australian government which try to secure energy supplies for the domestic economy e.g. WA Govt’s domestic gas reservation policy requires a proportion of state’s natural gas production to be made available for domestic use

75
Q

Explain the implications of protectionist policies towards Aus for the manufacturing industry? (2)

A

Inconsistent or varying health regulations for processed food increase difficulty for Australian exports to penetrate foreign markets

Face few barriers to trade due to substantial reduction in industrial tariffs in recent decades (negotiated through multilateral trade agreement)

76
Q

Explain the implications of protectionist policies towards Aus for the services industry

A

Mostly the result of natural barriers caused by geography and transport costs, language and cultural differences, and local tastes and preferences, rather than purely protectionist policies

Liberalisation of trade in services could increase Australian services exports by $11bn per year by 2025

77
Q

What are the implications on Aus of foreign protectionist policies towards Aus individuals? (2)

A

Higher world prices for protected goods and services

Reduced incomes for domestic farmers, service providers and producers of intellectual property

78
Q

What are the implications on Aus of foreign protectionist policies towards Aus firms? (3)

A

Reduced profits, especially where farm goods, services or IP which are imported inputs, exports are less competitive and struggle to penetrate foreign markets

Reduced sales globally due to competition with subsidised producers – supply is raised, and price is reduced on global markets

Risk of dumping from overseas sources is increased

79
Q

What are the implications on Aus of foreign protectionist policies towards Aus government? (2)

A

Pressure on Aus. Governments to make reciprocal arrangements (increase domestic tariffs) to reduce protection against Australian exporters

Pressure on Aus. Government to fight increased protection from our trading partners (e.g. the USA lamb and steel cases)

80
Q

What are the implications on Aus of foreign protectionist policies towards the Aus economy? (3)

A

Reduced economic growth from exports where protection exists (e.g. farm products)

Global barriers to trade in services costs Australia about $2bn per year (Productivity Commission)

Global economic growth (GWP) is reduced due to reduced efficiency and lack of comparative advantage across a range of economies

81
Q

What is the likely future of Aus mining and energy industries? (5)

A

Will probably remain Australia’s more important export industries

Production capacity in Aus will continue to increase as large-scale mining construction projects have been completed in recent years

Global shift away from coal → Reduce Australian coal exports in coming years. Commodities such as iron ore will remain strong as there aren’t any substitute products

Natural gas is being accepted more as a ‘transition’ source of energy to gradually reduce emissions → support demand for Aus LNG exports in the Short and medium term (shift from coal –> natural gas in trade)

Decline in commodity prices

82
Q

What is the likely future of Aus agricultural industries? (3)

A

Agriculture faces major LT challenges such as more extreme weather patterns from climate change including increased drought, bushfires, floods and threats to livestock

Global food prices increased significantly in recent years, lifting farm incomes

Processed food Industries that add value to traditional agriculture likely to play larger role in exports, as they have been afforded greater market access under FTA (e.g. wine and dairy). Global demand for high quality processed foods is continuing to grow especially from middle classes of China and India

83
Q

What is the likely future of Aus manufacturing sector? (4)

A

Gradual reduction in older, import-competing manufacturing sector

Smaller, export-oriented manufacturing has continued to grow, at a lower rate during 2000s than in 1900s

Specialised manufacturers expand their markets by producing high quality goods aimed at specific niche markets

Growth expected to continue at a slower pace

84
Q

What is the likely future of Aus services industry? (6)

A

Afforded greater market access under recent FTAs (RCEP)

Likely to continue growing as a proportion of the economy

Experience growth in sectors such as healthcare, education, financial services, business services, housing and infrastructure

Service X fell sharply following the onset of the Covid-19 pandemic, but is expected to recover by the mid 2020s

Future export earnings are dependent on increased overseas travel (tourism, education)

ICT has become Australia’s fourth-largest export at around $5 billion, and will likely continue to be like that

ECO Y12 (14 decks)

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