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Question:

(1) What is a Free Trade Agreement? What range of goods and services are covered in the new agreement between Australia and China? Identify the types of trade and investment policies covered in this agreement and the timelines involved. 
(2) Which industries are likely to be directly affected both positively and adversely by this trade agreement in Australia and China? Explain your answers. What factors will determine how these industries will respond to the new bilateral trading conditions in the short and long term? Explain your answers. 
(3) Choose an industry in Australia or China that will be directly affected by this trade agreement and use economic theory to explain the impact in terms of equilibrium price and quantity traded. 
(4) Identify industries likely to be indirectly affected by this trade agreement in both Australia and China. Explain why you chose these industries. 
(5) Discuss the strengths and weaknesses of economic theory to guide our decision making in terms of international trade. Explain your answer in terms of theoretical assumptions and welfare outcomes. 
(6) Reflecting back on the entire ECON11026 course this term, which topic did you find the most interesting or relevant? Explain your choice. What was the most important thing you learned about economics during this term? 

 

 

Answer:

(1) Definition:

Free trade agreement allows doing the business of the goods and services in between the two or more countries free without any tariffs or hurdles/interfere but labor and the capital cannot move freely in between the countries. In this agreement, the country can cross the border of the other country free and does not pay the taxes while doing commerce of goods & services.

Assumptions:

There are many products on those the export of them from Australia to China is free and the government does not levy the tariffs on them. These are.

  • Food products such as beef, wine, dairy, seafood and horticulture but in the product of beef and the milk powder certain volume decided that is easily export without Tariff
  • Products like sugar, rice and cotton as these products have the sensitive demand in the market of China.
  • Certain Mineral ores on which the tariffs are removed like coal and alumina
  • Services those are provide by the Australian population. Services of legal advice, medical, mining and construction

The above all transactions of the free trade give the opportunity to the China to make an adverse investment in the Australia. A bilateral trade effects on the economy of both international countries (Abraham & Frederick , 1997).   

Trade and investment policies are the framework laws and regulations that applies on the transactional / operations while doing international business. Regulations from an international business authorities like WTO (world trade organizations) and bilateral FTAs (free trade agreements).

Analysis

The types of trade and investment policies in the free trade agreement in between china and Australia are-

Liberalization commitments done at multilateral level under the WTO (world trade organization)- these are important for an international trade.

Competition Policy

Regulatory transparency

Economic integration- It is among china and Australia that supports the environment of the business through integration of financial services.

 

(2) Definition:

Free trade agreement negotiated by the Australia with china Jointly with the new Zealand, Japan, Malaysia, United states and Singapore whereas the Bilateral agreement with India, Korea and Indonesia. Therefore, these countries are direct affected by the agreement in between Australia and the china.  Industries affected by the FTA are- Beef & lamb exporters, Dairy, Sugar, Seafood, horticulture, Wine, Rice, Wool, Mining and Grains (Yasui, 2011).

The positive benefits are-

  • Benefits occurred because of the liberalization of goods and services
  • The powerful/ dynamic value of long term agreement
  • Implementation of new trade policies
  • Trade benefits to the GDP (Gross domestic product) of both the countries

Negative impacts were face due to the limited accessing trends. It is due to the lack of data available and the time consuming in setting the new business conditions by the exporters. Most of the changes were notice in the pattern of trade and took many years to make exporters in doing adjustments in the rules of the new trade. So, that barriers will get reduce progressively.

Assumption:

There are various factors like Investment, transportation, demography, energy, natural resources, Transport costs & institutions      are  the factors those gives the shape to the trade of the particular industry and decides on the basis of these that for how long they run? Few of these are-

Demography- The world goes through with the various changes in the size, and the composition of population. It affects on the patterns of trade and the level of demand in import business. Composition of the labor force relates with the transition that shows the increase share of the educated & participative workers. 

Investment: The capital uses by the new industry entered into an international trade. Savings in the own domestic country helps in increasing the capital.

Technology: Most of the innovative machines used in the production. New countries entered into an international trade with the drivers of progress in technology but the transfer of it became difficult. It helps in expanding the trade by reducing costs and gives the new shape to the advantages comparatively. 

Analysis

Bilateral trade agreements increases tto govern the investment in an international trade , run the risk by regulatory divergence. The other determinants of technology,movement of manforce,direct trade is through licensing.

 

(3) Definition

Agriculture that was directly affect by the Trade agreement in between Australia and the china. Tariffs are the major barriers faced by the exporters of Australia in pursuing the competition with the market of china. Many of the exporter’s of Australia of wool, wheat, sugar and cotton are restricting their quantity of business in these sectors with the tariff quotas. In the last decade, the dairy consumption of China was restricted in the market because of tariffs around 15 %. The meat consumption increases in China and faces the tariffs up to 25 %. Australia is the biggest supplier of wool and china is the producer of wool textiles and the difference if any is maintain by the tariffs (Hastings,2005). In the same way, the tariffs also affect sugar. The consumption of sugar in china also increased with the enhancement of the consumption of the beverages and the processed food. Whereas Australian exporter still face the problem of the Tariff of 15 % that enhance to 50% once the allocated tariff quotas reach there. Other industries are still awaiting for the benefits to avail. FTA (free trade agreement) with its associated reduced tariffs is highly beneficial for the export’s revenue of the Australia (East Asia Analytical Unit Department of Foreign Affairs and Trade,2000.).

Assumption

The economy of the China involves a huge agriculture sector and spread over all large geographical areas. Most of the producers relies on the rates of tariffs those applies by the government of china makes ensure that the less effective means of production does not prevent the competitiveness in the market. Agriculture may be the highly crucial / critical industry in china due to the country’s social and the cultural factors.

Analysis

The forces of the market under the supervision of the government of the china       encourage the producers of their own domestic country to consider all resources that may achieve the advantages of the competition (World Trade Organization, 2012). This agreement was in between these two countries related with the agriculture trade acknowledge the advantages of the competition through the availability of the workforce and the advantage of the Australias superior production. Australia maintained rigid restrictions that should not negotiate with the aim of reducing risk in the domestic and export industries of Australia. Similarly, China has also tried to do the various attempts in improving its regulations with an introduction of the unit of the supervision in quality of products. It involves the inspection of the various import product.It requires the testing f products at the various intervals to check or meet the quality of standards.

 

(4) Definition

Service industries are adversely affected indirectly by the FTA (free trade agreement)  in between Australia and china. Employment in the Chinese sector of services in 2015 falls down from the base line and this percentage falls in all the financial and the communication services. Employment in the service sector of china       was about to grow at the average rate of the 2.52 %. The 0.1 falls in the service sector of employment as related to the level of the base line (Department of Foreign Affairs and Trade,2005). It means the trade liberalization of services; its employment would increase in the lower rate by 2.51 % instead of 2.52%. In the other way the decrease in the service sector of employment is less than its base line level that does not indicates dismissals but shows the lesser rate of hiring.

Assumption

Trade in services is well establish in Australia as the export service and the Chinese servicing export approaches and reaches until billions. There are various modes of services those are offered by the Australia to leave the positive impact on the economy of their own country such as firm that provides the services to international visitors like tourism services or an insurance firm of the Australia who sells insurance to the people resides in the China. An Australian bank opens its branch in the china that means the services of the financial institution provides in the foreign country.

Analysis

The effects of bilateral investments in the sector of services reduce the acquired rates of return for Australian investment in the service sector. Services trade liberalization estimated an increment in the gross domestic product in both the countries through increased capital and improved productivity. In CHAFTA, China has offered the Australia its commitments towards its best services (China FTA Study Taskforce,2005). This involves the access of market for the banks of Australia, securities, insurance, law firms with all professional services such as exporters of education services, health services, Production and telecommunication services in china. In present, Service sector comprises 72 % economic activity of Australia. This agreement gives the guarantee in accessing the existing market for supplying the services of Australia. The other preference is that this fastest growing service market CHAFTA includes the framework for the mutual recognition in the qualification of services by the professional bodies of China and Australia.

(5) Definition

Strengths and the weakness in the terms of the cultural and the economic related with an international trade in between China and Australia. The advantages are that it leaves the great impact globally on the other various countries with the different industries. Various growth opportunities means in the regional growth areas. In addition, a positive effect notices on the European culture. Whereas, disadvantage are in the forms of threats that impact on the integration and the development.

Assumption

The Europe is not only the Australia’s largest investment and the trade partner but it is the largest economy in the world with the Gross domestic product $ 18 trillion which is 9% greater than the United States (Ball,2005). Japan that is more than seven times greater than the china and almost similar of the GDP of Australia, it is the largest in the international trading follows the bilateral trade that means the exports in the goods. Influence of the same is worldwide on Europe, Asian & US market. Proper strategic alliance follows for pursuing the policy of security in the trade and enhances the Exchanges of the security issues.  During the Second World War, it was notice that cultural and social relations in between the Australia and the Europe were together by the democratic values. Concerns related with the threat majorly considers the process of regional integration but over the Competition in the European market causes the insecurity of food, inequality impacts on the society and loss in the revenue of the economy. Some of the non-government organization in Fiji criticized the Europe for their pressure on economic and political areas to bring up the new markets in the developing countries in Asia. Such groups criticize and had fight upon the Australian and the Europe development plans for elimination the trade barriers than economic development. The major concern is the threat that leaves the impact on the unfair competition in the market causes the insecurity and inequalities (Boehm,1993).

Analysis

The above study results in the outcomes of understanding the role of markets in the worldwide. The impact of the Australian market with its economy is possible by a competitive environment, increased productivity, efficiency and the levels of production. Increase in the economy of the own country i.e. domestic from international business as economy is dependent on global markets.

 

(6) Definition

The most important interested thing in this whole term is the Oligopoly. It is the market where most of the firms doing their business and creates the competition at the huge scale. In market, the industry dominated by few sellers & these are known as Oligopolies. Oligopoly has its own structure of the market. It results from the different forms of complicity that reduces the competition. Each seller is aware about the action of the other seller. Decisions of one firm leave the impact on the other one (Big banks running an oligopoly, says Virgin Money chief,2011).   

 

Assumption

Competition arouses from the oligopoly market gives the different types of results. In some cases, the firms follows the restrictions imposed on the practices of their trade for increasing the prices of their products & controls the production activity in the same way as controls the monopoly. A formal agreement creates the collusion known as cartel. It is moreover elaborate with the help of an example: Cartel is OPEC that has the deep pressure on an international price of oil. Firms those create the collusion stabilizes the unstable markets that reduces the risk for making investment and the development of the product. Legal restrictions of the country where they are trading are impose on such collusions are followed by the firms. To avoid the collusion in between the firms an effective communication must be there.  

Analysis

The analysis of oligopoly is very sensitive to all the values those defines the structure of the market. It is very tough to measure the dead loss in the trading. Trade loss represents the differentiation of products produced by the firm shows that oligopolies may initiate the level of differentiation in an excess form to smother the competition.

 

References

Abraham Katz U.S. (Council for International Business) to Frederick L. Montgomery Chairman (Trade Policy Staff Committee), 1997. ”China Working Group Recommendations to USTR on China's Accession to WTO”,  17th March.

Ball. Y,2005. “Rio Tinto Boards Steel Train for China”. Australian Financial Review. 14 September.

Boehm. M,1993. “20th Century Economic Development in Australi”. 3rd ed.

Big banks running an oligopoly, says Virgin Money chief,2011. url=https://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8266582/Big-banks-running-an-oligopoly-says-Virgin-Money-chief.html.

China FTA Study Taskforce,2005. “Australia- China Free Trade Agreement Joint Feasibility Study”. Department of Foreign Affairs and Trade.

Department of Foreign Affairs and Trade,2005. “Australia-China FTA Negotiations – Interests and concernsof Australian services industries”.<https://www.dfat.gov.au/geo/china/fta/facts/services_2.html> at 20 August.

East Asia Analytical Unit Department of Foreign Affairs and Trade,2000. “China embraces the

Market”. 20-29

Hastings. M,2005. “The politics of Australian LNG supply to California” – It’s all about the game (part 3)’ .Energy Bulletin <https://www.energybulletin.net/8706.html> at 5August .

World Trade Organization, 2012. “Trade Facilitation Negotiation Document” .TN/TF/W/165 Rev. 13, 24 October. Geneva. Available at: https://docsonline.wto.org/DDFDocuments/u/tn/TF/W165R13.doc.

Yasui. T, 2011. “Case studies on systematic exchange of commercial information between customs administrations in bilateral and regional arrangements”.  WCO. Research Paper, No. 11.Available at www.wcoomd.org/en/topics/research/activitiesand-programmes/~/media/A69B791DADF9434DB5BEB2B8CF11D92A.ashx. 

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