Gains from lower trade barriers
Reduced trade barriers have been key elements in the increased
prosperity the world has seen in the post-1945 era. These lower barriers
have allowed greater specialisation of production with consequent gains in
cheaper goods enjoyed by all parties.
At the present time, the average tariff on imports into Australia is
3.8 per cent. In 1983/84 the tariff equivalent averaged 21 per cent for
agricultural products and 13 per cent for manufactures.
The rapid reduction in Australian tariffs did not cause high levels of
unemployment. Present levels of unemployment are lower now than they were
during the mid-1980s.
Drivers for liberalisation
Multilateral agreements under the GATT and WTO have been the leading
arrangements bringing greater liberalisation but narrower agreements, like
the European Union and Canada-US bilateral free trade, have also been
significant. For Australia, the bilateral NAFTA and CER agreements with
New Zealand have made important contributions in allowing Australia and
New Zealand to become, in substance, a single economy.
Unilateral, non-reciprocated trade reform also offers benefits –
indeed, Australia’s liberalisation has in the main been of this nature,
with tariff and other barriers being reduced following reports of the
Productivity Commission or its predecessors. These unilateral reductions
have then been used as bargaining coin to seek concessions from other
countries in trade negotiations.
Although trade liberalisation works best if all parties participate,
gains are also made with unilateral liberalisations where others do not
reciprocate. Unilateral liberalisations result in a relative contraction
or improved efficiency of the tariff-reducing country’s less competitive
businesses. These outcomes allow more to be produced with the same labour,
capital and other resources.
Benefits of liberalisation
Traditionally, trade benefits have been seen most clearly where
countries have vastly different economic structures. Comparative advantage
in different areas of production has allowed both countries to gain as a
result of specialisation. (The so-called Heckscher-Ohlin
This view of trade gains has been at the heart of the process over a
long period; England sent manufactures to Australia and received primary
products in return.
More recently, the increased income levels stemming from the European
Union (EU) have highlighted different forms of gains or, perhaps more
accurately, a different view of the same gains. The EU gains were realized
by countries with structurally similar economies.
The gains came from intra-industry trade – the trading partners
appeared to be buying and selling goods that they already made in their
home countries. The gains from this intra-industry trade following
liberalisations between countries that have similar economic profiles have
come from two directions:
- increased competitive pressures on suppliers that previously went
less heavily challenged in their home markets - businesses
facing increased competition usually lift their performance to the
benefit of consumers in all participating countries; and
- a variation of the traditional comparative advantage gains but one
that takes advantage of the increased specialisation of modern
production and the increased number of stages through which materials
are put prior to reaching the final consumer.
Over the years there have always been calls for trade liberalisation
conditional on some measure of "fairness". After all, it could
be said that those countries that pay very low wages are at a trade
advantage with high-wage countries like Australia.
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