Aggregate Supply policies    Goals of AS policies  Productivity v efficiency  Productivity v competitiveness  The impetus for AS policies  BP supply side initiatives  Industry policy  Microeconomic reforms  Labour market reforms  Benefits of LM flexibility  Trade liberalisation  MRPs and  internal stability  MRPs and  external stability  MRPs and equity  MRPs and living standards

Copyright © All rights reserved. Site administered by CPAP and content provided by Romeo Salla    


 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

Next page

Trade Liberalisation

Trade liberalisation includes any government policy initiative that is designed to promote free trade or reduce restrictions to free trade (typically referred to as protection).  

Internationally, protection of local output and jobs has been commonplace for centuries.  It mainly occurs in the form of quotas or tariffs, where quotas involve a restriction on the volume of imports coming into a country and tariffs are a tax on imported items.  Both quotas and tariffs protect local producers from competition and therefore protect output, employment and incomes.  Whilst this is likely to work in the short term, it is unlikely to generate net benefits in the longer term.  This is because higher levels of protection prevent cheaper or more competitive products from taking market share away from local producers, which in turn reduces pressure to minimise both costs and prices.  Accordingly, there is less incentive to improve efficiency and performance.  Over time, the overseas producer tends to become relatively more efficient as they are required to lower costs in order to achieve some sales in the market.  By further improving productivity or efficiency, they are then able to reduce prices and eventually gain a foothold in the Australian market.  Local producers, again under threat, once more seek the protection of government policies and ask for an increase in tariffs to once more protect Australian jobs.  This process becomes destructive as inefficiency of local import competing producers becomes entrenched, raising the cost structure of the Australian economy and increasing the likelihood that foreign governments will retaliate and protect their local producers from those Australian exporters that have a comparative advantage, such as our mining and agricultural sectors.  

With the Australian government embracing the long term benefits of trade liberation and reducing most forms of protection over time, it forces local businesses to restructure in an effort to combat higher levels of competition and to take advantage of the new opportunities developing in global markets.  This policy increases the likelihood of other countries adopting a similar policy approach, further opening up export markets to efficient Australian producers.

Trade Policy Statement (April 2011)

The importance of trade liberalisation was highlighted in the government's Trade Policy Statement made in April 2011 'Trading our way to more jobs and prosperity'.  The government remains committed to a liberalisation agenda as a means of boosting productivity and efficiency across the economy and enhancing Australia's international competitiveness.  

'Reducing government-imposed restrictions on trade at home has the beneficial effect of exposing local businesses to international competition, compelling them to innovate, to be efficient and to restrain the prices they charge local consumers…………Australia's trade policy will be driven by ongoing productivity-raising domestic reform coupled with the negotiation of improved access for exporters to overseas markets. The best trade policy is domestic economic reform designed to boost the productivity and international competitiveness of Australian businesses.'


Trade liberalisation will continue to be pursued via the government's commitment to the policies of World Trade Organisation, such as the conclusion of the DOHA round of Trade negotiations (currently stalled as at 2013), as well as a determination to continue with its tariff reduction program, to develop more free trade agreements and to support measures that reduce a reliance on non-tariff barriers.  This includes regulations that stifle foreign free trade, such as the quarantine laws that prevented foreign apple imports into Australia for more than 80 years.

Overall, Australia's trade policy is underpinned by five key principles.  These are as follows:

  1. Unilateralism:  economic reform that is pursued at home should not be conditional upon similar reforms being undertaken by our trading partners.
  2. Non-discrimination: seeking to minimise the number of agreements that offer preferential treatment to some countries only, and therefore discriminate against others.
  3. Separation:  to ensure that there is a clear separation of trade policy and foreign policy such that geo-political tensions do not prevent Australia from extracting the economic gains that are offered by free trade.
  4. Transparency: the negotiation of agreements with other countries and the direction of Australia's trade policy more generally should be open to scrutiny, allowing informed and meaningful debate.
  5. The indivisibility of trade policy and economic reform:  Trade policy and microeconomic reform policy go 'hand in hand' such that trade liberalisation is a key platform of the government's reform agenda.

Playing by the rules - anti-dumping measures

The Australian government is increasingly concerned about countries dumping goods into local markets to the detriment of domestic production and employment.  In the 2013-4 budget, the government announced a number of measures designed to further protect against a behavior that poses a threat to Australian living standards.  These measures include:

Tariff reductions/reducing assistance to Australian industries


Tariff reductions, under the heading of tariff reform, have featured heavily in discussions about the value of microeconomic reforms since the 1990s.  Tariffs were largely introduced to protect domestic production and employment, particularly in the manufacturing sector, with 98% of all tariffs in place to protect manufacturers.  Whilst there has been some slowdown in the rate of reduction of tariffs in the late 1990s, tariff reductions still remain a feature of current microeconomic reforms.  They recently fell to as low as 5% in the motor vehicle and some textiles industries in early 2010 after being as high as 57% for motor vehicles and 180% for many textiles in the early 1980's.  Tariffs that remain at 10% for some textiles are also earmarked to fall to 5% in 2015.

Free trade agreements (FTAs)

A key feature of Australia's trade liberalisation agenda is its willingness to enter into FTAs where protection of member country goods and services is significantly reduced.  The effect on the domestic economy can be the same as that experienced when reducing assistance more generally, given that FTAs involve the reduction/removal of barriers restricting the free movement of goods and services between member countries.  The importance of FTAs in the context of trade liberalisation is underlined by Australia's former Trade Minister, Simon Crean:

"Australia's comprehensive and high quality FTAs can be building blocks for multilateral and regional trade liberalisation…… the Government's activism on all trade fronts: at the multilateral level through the WTO, via our participation in regional institutions such as APEC and through our pursuit of bilateral and regional FTAs, to create a self-reinforcing network of trade commitments to the benefit of Australian exporters, a cascade effect,"

View Australia’s FTAs

Test yourself Previous page