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Globalisation and trade liberalization are worldwide phenomena that have significantly changed Australia's trading relationships over the past decades.

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Introduction

Globalisation and trade liberalization are worldwide phenomena that have significantly changed Australia's trading relationships over the past decades. Traditionally , Australia is a highly protected country against foreign competitors by using methods of protection such as tariffs and subsidies. However, since the 1980s Aust and many of the world economies has faced substantial reductions in trade barriers in order to promote what we known as Free Trade. Australia gradually reduced its trade protections, which can be any actions by national governments that will give an artificial competitive advantage to domestic producers over foreign producers. The changes to the free trade and protection policies has caused a significant improvement in the number of Free Trade Agreements (FTA) and a shift in Australia's trading relationships, which in turn has affected firms, individuals and also the Australian government. Since the mid 1970s, Australia has started to reduce protection by cutting tariffs, tax on imports, from average tariff levels of 23% in 1968 -69 to 4.4% in 2001. Traditionally, the highly subsidized industries (any form of support to keep domestic industries competitive) are sectors such as motor vehicle and textile, clothing and footwear (TCF). These industries have a fixed low tariff level between 2000 - 2005, to allow them to restructure and become more internationally competitive. Australia's tariff reduction levels have gone way below those required by international trade agreement such as WTO agreement and the APEC. ...read more.

Middle

Before a country would increase its economic growth, it must increase the level of exports then imports by increasing productivity, level of output per unit of resource input over a set period of time. According to the Production Possibility Frontier Figure 1.1, Country A will need to increase its production level in order to move the frontier outwards, which means more resources are to be used to produce more Goods and Services (G&S). When the production has increased, this means that there can be more export if there's strong export demand. If the country has more export than import, the country is improving in economic growth and owes less CAD. Graph 1.1 Normally if one country reduce its trade barriers for another country, then that country will do the same. For example, the Australian - Thailand FTA in 2003 where Australia has provided Thailand with more investment opportunities in return Thailand sweeps away all the tariffs on products imported from Australia. By encouraging free trade, Australia could benefit from the high export revenue, therefore reducing the level of CAD. Australia's import and export volumes has increased dramatically over the past 30 years. In Table 1.1, it shows that the export of G&S has raise from $245m in 1973 to $8066 in 2003. While imports increased from $476m to $8298m within the same period. ...read more.

Conclusion

Lower protection results in lower costs prices and also a more diversity of choice. Competition between foreign and domestic companies would improve the quality of G&S as it also improves the standard of living for individuals. Individuals as in the roleof consumers now can benefit from the greater variety and better quality of G&S. As to the Government sector, reduction in protection means cutting tariffs, which will lead to a reduction in government revenue. In the short term, the government would need to increase its expenditure on unemployment to those individuals who lost their job resulted by less trade barriers. The gov also needs to consider on the political consequences of tariff reduction. In the short term, structural unemployment rate would rise and this would affect the voting ratios for the government as benefits of tariff reductions and free trade promotion would take a much longer period to arrive. Through the significant change of Australia's protection levels and the promotion of free trade, it is obvious that Australia's major trading partners is shifting from European countries to the high trading potential Asian countries. This is due the enormous demand in many developing countries, which results in a greater market for export. This has brought a positive impact on Australia's primary base industries such as minerals, therefore increasing the amount of export revenue for Australia. Free trade and the reduction in Protection result in the better performance of export as it generates Australia's economic growth, which in turn benefits firms, individuals and the government sectors overall. ...read more.

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