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Introduction

In simple words trade policy can be defined as rules and regulations set by government in relation to trade between countries, exchange of goods and international trade. It helps in defining standards for trade relation between countries. This paper aims to evaluate trade policy in Australian market; it will include analysis on trade policy of the region and its impact on economy, industry and employment scenario of the region. This paper will include both positive and negative impact to present a true analytical perspective on the topic. This paper is based on secondary data analysis; information is collected from various sources such as books, journals, reports, newspaper and other reliable secondary sources.

Trade policy helps in defining various tariffs that define taxes and barriers in trade, these barriers aims to ensure that domestic market should not get hampered due to international trade practices. There are different types of trade policies implemented by government, it include national policy that aims to give protection to citizens and local business environment (Sharma, 2006). Another is bilateral trade policy that aims to establish trade relation between two countries. Third type of policy is international trade policy that aims to foster developing regions.

Trade policy of Australia is based on economic growth and economic openness. It also aims to improve international competitiveness in various markets. Governments aim to ensure that all policies are in best interest of national good. There are different types of unilateral, multilateral, regional and bilateral policies made by Australian government to achieve set objectives. This paper will present analysis on different trade agreements of Australia, its success and issues; later on recommendations for improvement are provided based on research made. This paper will help readers in understanding trade policy of Australia and its impact on its growth and development.

Trade Policy in Australia

Trade policy of Australia aims towards rapid development of the economy to sustain increasing rate of population growth, immigration by providing employment opportunity for everyone. Trade policy aims to support development in the region, for example population growth in Australia is at the rate of 21 percent, therefore similar rate of growth in production and investment in the region. It is not economically possible for region to achieve self-sufficiency; rather there is need for increasing import to efficient resource access and export for increasing total earnings. Therefore, to ensure a stable position it is crucial to ensure balance between net capital inflows should not reduce capital reserve (/www.aph.gov.au, 2015).

Trade policy of Australia is based on five core principles, unilateralism, non-discrimination, separation, transparency and invisibility of trade reforms. Tariff is the primary trade management instrument used by Australian government. There had been reduction in Tariff rate to 3 percent in the year 2014. In the year 2014, the MFN tariff for industrial product was 3.3 percent and on agricultural products it was 1.4 percent. Majority of tariff rates range within 5 percent. There are seven types of rates in the region; it includes four ad valorem, one specific, one compound, and one alternate rate. Presently overall there is low tariff rates prevail in the market but there is wide difference in seen. For example tariff rates in agriculture products are very low, whereas textile and clothing are very high (8.4 percent) (World Trade Organization, 2015).

Apart from tariff, wide range of prohibition, restriction and safety issues are implemented by the government with the objective of protecting public health, safety, and environmental concern. Different items that are prohibited for import in Australia include diamonds, dogs, living tissues and suicide devices. Different types of trade agreements are signed by Australian government with other countries to ensure free trade environment (Elek, 2010). There are 9 regional trade agreement signed by Australian government with 16 regions. It also offers non-reciprocal trade preferences agreement to developing countries by allowing a duty free and quota free entry to Australian market. Different type of tariff concession is being allowed to support growth of local industry in the region. Further, anti-dumping measures are also implemented to protect domestic market; it is implemented under 5 year sun set clause. 57 anti-dumping investigations were launched by Australian government between years 2010 -2013.

Apart from this, taxation rate remains low in Australia, it remain dependent on direct tax. 99.9 percent of indirect taxes from international trade are contributed in form of custom duty. Indirect taxes remain low in the region, presently 10 percent GST is imposed on production chain, 33 percent on luxury cars, and 29 percent on wine. For direct tax, progressive taxation policy is implemented that ranges from 4 percent to 45 percent. 30 percent on corporate income, 46.5 percent is fringe benefit tax. Trade policy is a complex phenomenon that includes import, export and investment policies; it includes strategies like import, export and investment. Import policy also impact decisions regarding national and international investments. Australia ha frees trade agreements with China, USA, Japan, Korea, and Trans-Pacific partnership countries, New Zealand, Chile, GCC, India, Malaysia, Indonesia, European Union, Thailand and Singapore.

Impact on Australia’s Trade Policy on Industries

Next element is to evaluate impact of trade policy on industry. General perspective states that liberal trade policy helps in enhancing productivity. There is strong relation between liberalization and domestic reform policy. However, contradictory views are present on impact of policy on domestic industry; there is need for proper reforms in order to enhance competitiveness in the market. Different research papers have been evaluated to understand impact of trade policy on industry concentration. According to a research on Switzerland market, bilateral reduction in technological barrier on trade was evaluated in context of European Union. A difference in difference model was used to evaluate concentration and it causes intense price competition in the market causing difficulty to survive by small firms that have low R&D intensity (Burghardt, 2013).

Another research was conducted on developing market like Bangladesh to evaluate the impact of trade policy on industrial capacity. It was found that trade liberalization lead to increase in industrial capacity and utilization; it encourages production and export of manufactured goods. A research was conducted to evaluate impact of FDI Liberalization on industrial growth in Sri Lanka (Athukorala & Jayasuriya, 2004).

This paper evaluates market-oriented policy reforms that were started in the year 1977 in relation to FDI and trade; major findings of the paper states that trade policy facilitated in turning primary product export region to manufacturing region; it facilitated in increase in total domestic import, productivity increased and increase in employment opportunities in the region (Rashid, 2000).

In terms of business and investment Australia ranked at 10^th position in the global market. Government has taken several initiatives to cut red tape and foster efficiency in business world, it has a goal to cut $A 1 billion red tape every year. Liberal investment market is present in Australia, but restrictions are imposed in few industries including airport, civil aviation, real estate, shipping and telecommunication. It has bilateral investment promotion and protection agreements with 22 nations.

Further in terms of Australia, benefits of trade policy are being enjoyed by various industries. Agriculture is fundamental industry; policy development aims to foster sustainable support with measures. Newly added policy to this sector is Sustainable Agriculture Stream, there are number of bilateral and plurilateral agriculture agreements that help in access of information, protocol sharing, trade facilitation etc.

Next is mining industry that contribute 8.6 percent to the GDP; there is no industry specific restrictions imposed on this industry, free foreign investments are allowed. Manufacturing policy in Australia aims to increase multi factor production, it contribute 7.1 percent to the GDP. Next is service sector that contributes 71 percent to the GDP, policies have been included in financial sector, banking reforms helped in implementing new capital and liquidity requirements (World trade organization, 2015).

The FTA agreement will help in growth of Horticulture, agriculture, Wine, diary, beef and wool industries in Australia. For example, there was tariff of 12 to 25 percent on beef, 14 to 30 percent on alcohol. This trade agreement will change industry scenario and help in its expansion. Removal of restriction from sea food will lead to free import-export. The double tax cut in dairy industry is positively welcome by dairy sellers in Australia; it is expected to become the second largest export product in Australia.

According to a recent article, changing tariff structure of Australian policies is harming industries. The Trans Pacific Partnership, preferential agreement is for patent extensions for biologics will help in preserving patents for high cost medicines for longer period of time, it will also limit competition from generic medicines and impose higher cost on customers as well as government.  According to analyst, there is need for opting strategic approach instead of trade as industry policy approach (Thurbon, 2015).

According to another article, only free trade agreements do not help in economic development of Australia, rather it might cause supply side shock in the region. For example, Australian companies are trying to enter Chinese market, but they need to develop innovative and entrepreneurial skills to succeed in such competitive market. Another issue is increasing investment from foreign market, which is being criticized on the ground that it will lead to increase in foreign ownership in the market. For example, the AUSFTA, in which US invested $800 million in non-sensitive sectors. Such action will increase foreign participation in agriculture and real estate sector and impact domestic players adversely (Davison, 2015).

Recent FTA made by Australian government will cause loss to different industries including sugar, wheat, canola, cotton, Rice and Maize. Here had been no changes made in trade policies of these items as they are regarded as nonnegotiable by Chinese government. Further, agreement with Japan will also impact automobile industry adversely; it will create a disruptive scenario in the market. Reduction in tariff cost of Japanese cars will impact safety for local manufacturers adversely by creating a price disruptive scenario in the market. On contrary, it will also give business scope for beef industry and Japan is expected to be the biggest market for Australian beef industry (Pascoe, 2014).

Impact on Australia’s Trade Policy on Economy

As per economic theory, trade policies cause liberalization that has strong positive impact on the economy. However, it is difficult to sustain the growth rate after a period of time. Free trade agreements facilitate in trade liberalization and removal of different taxes on import, export. According to dynamic theory of trade dynamic gains like economic growth, availability of resources and employment opportunity is higher than static gains like relocation of resources. However according to neoclassical approach, trade liberalization policies by open economy also might lead to react like closed economy due to increasing in rate of saving, fear of exportation; however increase in investment will facilitate in rise in income and growth rate (Banks, 2003). Another is endogenous growth theory, which states that trade policy leads to innovation, imitation and adaptation, which causes permanent development (Hutchens, 2014). Theory of international trade states that, such policies facilities in providing comparative advantage to the region. Economists have stated inverse relationship between growth and trade barriers. Different tools that can be used to gauge trade indicators and its impact include tariff average, non-tariff coverage ratio.

There is no doubt that trade policies have helped in liberalization of Australian economy; it has helped in increasing market competitiveness and growth. Australian economy is service dominated (70 percent) market share followed by mining and manufacturing industry. There had been 20 percent decline in terms of trade in comparison to its historic high in year 2011 (Armstrong, 2015).

All non-agriculture products trade between Australia and US are duty free. There had been huge cut noticed in tariff by Australian government in the year 1973, 1988 and 1991. A tariff cut schedule was fixed by Hawky government in the year 1988 to induce economic growth and development. Australia has a strong trade policy; despite of economic crisis in year 2009, Australia is among the most open economies in the world. There has been tremendous fall in tariff rate from 1988 to 2000; it came down from 35 to 5 percent. Further, diagram below represents data on economic growth in Australia supported by its tariff policy;

(The World Bank Group, 2013)

Above picture shows that since 1972 to 2012, export and import services in Australia shows a rising trend, however export is on the higher side in comparison to import. Further, tariff rate shows a decreasing trend. Analysis showed that liberalization of trade facilitated in economic growth of the region. There had been increase in export commodity prices in recent time, there is increase in business service segment which help in increasing total output.

According to a recent article it is recommended to dump free trade agreements as they are matter of concern in terms of economic development of the country. According to analysis, if the FTA is with a partner that is not lowest cost manufacturer then it might lead to a situation in which importing country might end up buying materials from high cost and less cost efficient country due to trade diversion. This might also create loss of tariff revenue for a country. Apart from this, rule of origin also increases complexity in procedure; it causes restrictions at import from third party. ROO can cause an increase in total administrative cost.

Impact on Australia’s Trade Policy on Employment

Improved market condition and industrial growth facilitates in lowering unemployment and provide new opportunities. Open markets lead to better contribution in employment and productivity. As per previous studies in this topic, there has been fall in tariff barriers and rise in non-tariff barriers. There is interrelationship between rise in trade and income, however very little study presents to prove rise in wages due to trade policy reforms, further it is also not sure that it will lead to increase in wage of each employee.

There is risk of market inequality due to trade reforms, for example, unskilled laborers in industrialized and developed regions lose their work to low wage country or developing nation. For example, several MNC from USA outsource their production to Asian region. Apart from this, trade also causes competition among worker which impacts their bargaining power adversely. Trade policy impact labor market, wage market, distribution market etc.

A research was conducted to evaluate impact of trade policies on wages and employment in Mexico market, major findings states that decreasing trade barrier lead to increasing percentage of low skill workers, it states that trade policy liberalization leads to wage inequality. Decrease in import barrier in a particular industry lead to reduction in relative wage rate by 2 percent but it do not influence employment opportunities (Feliciano, 2005).

In general trade reforms help in labor market development, gives new opportunity, productivity in the market, it also increases total income. However, labor market of Australia needs attention and strategic action to manage unemployment problem and wage gap (Martin, How many jobs? The China-Australia Free Trade Agreement will create hardly any, 2015). There is lack of work in the market as underutilization of employee’s increases to 15 percent. However, new trade policy initiatives taken by the government will help in opening new job opportunities, it is expected that free trade agreement will facilitate in providing 178,000 additional jobs between 2016 and 2035. According to Australian bureau of statistics, there is average increase of 13000 jobs since September 2013, leading to 330,000 new jobs (SloanI, 2015).

Recently Australian government has signed Free trade agreements with China, Japan and Korea; however, no information is available on number of jobs that will be created through this agreement. It include skeptical clause regarding employment; for example this agreement made it easier for Chinese lead business in Australia to hire Chinese laborer for manufacturing and conducting business, however as per clause it is mentioned, they can hire Chinese employees when there is unavailability of Australian laborers (Martin, How many jobs? The China-Australia Free Trade Agreement will create hardly any, 2015). There are economists who believe that restrictive policy environment helps in better growth as it help in implementing structural employment opportunities.

Conclusion

There is strong interrelation between trade policies, industrial, economic growth and job market. It is a cyclical relationship in which each and every element is correlated with each other. If a trade policy is beneficial for economy, generally it will benefit any industry which will help in job growth. This analysis helped in understanding strong interdependence of elements, economic activity is of great significance.

There is lack of fair trade rules regarding basic commodities in the market; trade game is fixed and managed by primary exporters. There is need to ensure stability in the market by controlling price fluctuation. Any discomfort in the market causes price fluctuation, hampering demand-supply adversely (CRAWFD, 2012). According to analysis, it is very unlikely that there will be fall in import prices but export price easily fluctuates with policy changes, which causes instability in the market.

There is no doubt that Australian government is trying hard to push a healthy policy that will increase market competitiveness, promote trade and investment in the region and also reduce transactional cost. Major findings of the report states that Australian economy is open and progressive, trade policies have helped in its growth, GDP contribution and access to different markets. Further, different industries such as Dairy, mining, agriculture is benefited from trade policy of the company, however, textile and other sectors still fail to gain an benefit from policy reform. However, while making policies, certain clause can impact industry adversely also by restricting employment opportunities and resource access.

Though Australian Trade policy is very effective but there are loopholes which need to be corrected through strategic action, major problem is to control job market, to stabilize work opportunities for both skilled and unskilled labor. To make strategies that would help in growth of textile, automobile and other industries with high tariff rate, otherwise these industries might shift to other nation causing huge loss.

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