Chapter 6 Riley

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Chapter 6: Australia’s Trade Policy 149
Chapter 6
Australia’s Trade Policy
Australia has a long history of protection in the manufacturing sector where tariffs and quotas have been
used to shield domestic firms from direct import competition. Much of this protection was put in place
after Federation in 1901 when Australian governments used a policy of protection from imports to
develop the manufacturing sector through the creation of infant industries and domestic employment.
A centralised wage fixing system was also adopted to set minimum or award wages for workers in
this sector. Levels of protection were increased during the Great Depression in the 1930s to protect
domestic employment levels, with the British Preferential Tariff reaching over 30%, and the General
Tariff Rate for non Commonwealth countries rising to over 60%. These high levels of protection from
import competition for manufacturing remained in force until the early 1970s, with the effect of raising
the domestic cost structure and the price of domestic and imported manufactured goods in Australia.
AUSTRALIA’S POLICIES TOWARDS PROTECTION

In 1973 the Whitlam Labor government introduced a 25% ‘across the board’ cut in protection to
stimulate greater industry efficiency and lower the prices of imported consumer, intermediate and capital
goods. However protection was increased in the late 1970s and 1980s as domestic industries such as
passenger motor vehicles (PMV), textiles, clothing and footwear (TCF), and steel were subjected to
intensified import competition. These industries lobbied the government successfully for higher levels
of protection. This lobbying was referred to as ‘rent seeking’ behaviour as industries attempted to win
favourable treatment from the federal government through the maintenance of protective assistance,
or increased assistance, on the grounds of higher import penetration displacing jobs in manufacturing.
Table 6.1 shows that in 1989 nominal rates of assistance were as high as 65% in the clothing and footwear
industry and the manufacturing sector had three times the average level of assistance as agriculture. As
a result, export industries (such as mining and agriculture) were penalised by paying higher input costs
and Australian manufacturing had low levels of efficiency, exports and innovation. Consumer choice
was reduced and the price of imports raised for consumers and industry. The Industries Assistance
Commission (IAC), argued that lower levels of protection would give firms a greater incentive to become
more efficient and increase exports, helping to reduce the current account deficit in Australia’s balance
of payments. Over following decades the assistance to manufacturing was dramatically reduced.
Table 6.1: Nominal Rates of Assistance for Selected Australian Industries (%)
Industry 1980-81 1989-90 2000-01 2009-10 2016-17
Textiles 26 23 6 4.4 2.2
Clothing and footwear 63 65 19 12.7 2.2
Fabricated metals 20 13 4 4.4 1.6
Transport equipment 40 22 9 2.0 2.2
Manufacturing average 14 9 3 4.7 1.9
Agricultural average 3 3 3 4.7 0.5

Source: IAC (1981-92), Annual Reports and Productivity Commission (2000-19), Annual Reports.
© Tim Riley Publications Pty Ltd Year 12 Economics 2023

150 Chapter 6: Australia’s Trade Policy © Tim Riley Publications Pty Ltd
Figure 6.1: Decline in the Average Rates of Effective Assistance 1989-2001 (%)
Source: Industry Commission (1994), Annual Report.
In 1983 the newly elected Hawke federal Labor government agreed with the IAC’s view that the scaling
back of protection would enable Australia to achieve the following potential gains from free trade:
• Increased specialisation and economies of scale in production would result in a lower cost structure
for manufacturing and improve the overall efficiency of Australian industry.
• A greater mix of output (from both domestic and overseas sources) would increase the quality and
quantity of goods available to Australian consumers, lower prices and raise general living standards.
• Increased competition between firms in the tradable goods sector (exports and import substitutes)
of the economy, and with international enterprises, would lead to lower prices and more exports.
• Incentives for firms to innovate would rise through the use of the latest cost reducing technology
(including information and communications technology or ICT) to increase competitiveness.
The Hawke government (1983-1991) implemented a policy of dismantling industry protection on a large
scale in the May 1988 Economic Statement. This change in industry policy recognised the increasing
internationalisation of the Australian economy, and the need for efficient export firms to maintain
their competitiveness in overseas markets. The government argued that the reduction in protection
would have both microeconomic benefits for the manufacturing industry as well as macroeconomic
benefits for Australia. The 1988 Industry Statement phased in cuts to protection over four years, with
the protection of manufacturing falling from an average of 15% in 1989 to 10% by 1993-94 and then
to 5% in 2000. The reduction in the rates of protection for manufacturing are shown in Figure 6.1.
Year 12 Economics 2023 © Tim Riley Publications Pty Ltd

© Tim Riley Publications Pty Ltd Chapter 6: Australia’s Trade Policy 151
Figure 6.2: Effective Rates of Assistance in Manufacturing 2015-16 to 2020-21
Source: Productivity Commission (2022), Trade and Assistance Review 2020-21.
The textiles, clothing and footwear (TCF), passenger motor vehicle (PMV) and steel industries were
exempted from these cuts in protection (see Figure 6.1). They were put on separate industry plans,
designed by Senator John Button, to introduce a gradual ‘phasedown’ of tariff and quota protection,
giving employees and management in manufacturing firms time to restructure and minimise transitional
costs such as structural unemployment and the retraining of workers. These industries had three years to
facilitate plans for structural change in order to receive continued support from the government. This
allowed time for resources to be reallocated and a process of voluntary redundancies to be implemented.
Around 6,373 retrenchments were planned by 1991, reflecting a loss of jobs in major Australian
industrial regions where the TCF, PMV and steel industries were located.
The 1991 Building a Competitive Australia Statement was introduced by the Hawke Labor government
to accelerate the pace of tariff reform in Australia by announcing the following new measures:
• The reduction of the majority of tariffs to 5% by 1996;
• The abolition of import quotas for PMV and a reduction in tariffs for PMV to 15% by 2000;
• The abolition of import quotas for TCF in 1993, and a reduction in tariffs to a maximum of 25%
by the year 2000; and
• The exemption from sales tax of a wider range of business inputs used by manufacturers, farmers
and miners. The intention of this policy was to eliminate any taxes on export industries.
The Howard government, elected in 1996, was committed to Labor’s previous tariff reforms. It cut
tariffs for PMV products to 15% in 2000, and these tariffs were frozen until January 1st 2005, when
they were cut to 10%. Automotive tariffs of 10% were reduced to 5% in January 2010, and would
stay at this level until 2015. The Automotive Competitiveness and Investment Scheme (ACIS) was
introduced in 2001 to provide transitional assistance to the automotive industry during the move to a
lower tariff environment. However ACIS was scaled back after the decision by Ford, General Motors
and Toyota to shut their car plants in 2016-17 and leave the industry. Tariff protection was an average
2.2% for the TCF industry and 3.8% for the PMV industry in 2016-17. Effective rates of assistance for
manufacturing fell to an average 1.9% between 2015-16 and 2020-21 as shown in Figure 6.2.
The benefits from reduced protection were estimated by the Productivity Commission (PC) as a gain
of $4b in GDP for Australia through additional export volumes and a higher rate of economic growth.
Figure 6.3 illustrates the significant reduction in tariffs for all manufacturing industries in the 1990s
in terms of both nominal and effective rates of assistance compared to the levels that prevailed in the
1960s, 1970s and 1980s. Large disparities between certain industries were also removed such as those
between the highly protected TCF and PMV industries, compared to manufacturing as a whole.

Two measures of industry assistance or protection include the nominal and effective rates of assistance:
1. The nominal rate of assistance is the percentage difference between the price the domestic producer
receives with protection and the price the producer would receive in the absence of protection.
2. The effective rate of assistance is the amount of protection expressed as a percentage of the domestic
value added to production. This is a more accurate measure of the protection of domestic industry
from imports which is used by the Productivity Commission (PC) and is shown in Figure 6.3.
The reasons for the change in government industry assistance policy in the 1980s and 1990s were to:
• Raise the competitiveness and efficiency of Australian industry, especially the tradable goods sector;
• Increase the rate of economic growth through structural reform of industry. By reducing the cost
structure of industry this would improve technical, allocative and dynamic efficiency; and
• Encourage higher levels of productivity and technology industries (i.e. ‘sunrise industries’) to
increase their export shares, especially in the fast growing Asian market and other global markets.
Figure 6.3: Average Rates of Effective Assistance for Manufacturing Industries
1968-69 to 1996-97 (%)
Source: IC (1996), Annual Report 1995-96.

Recent Australian Tariff Assistance

Estimates of protection by the Productivity Commission (which replaced the Industry Commission
in 1996) indicate that there was a significant decline in measured assistance to the manufacturing and
agricultural sectors between 1970-71 and 2017-18 as shown in Figure 6.4. For example, the estimated
effective rate of assistance for manufacturing was around 35% in 1970-71, whereas in the 2000s it was
around 5% and fell to 1.5% in 2017-18. This decline was driven in particular by the 25% across the
board tariff cut in 1973, the abolition of tariff quotas, and the broad programmes of tariff reductions
that commenced in the late 1980s. For agriculture, the estimated effective rate of assistance was over
25% in 1974-71, yet by 2006-07 it was around 5% and had fallen to 3.3% in 2017-18.
Figure 6.4: Effective Rates of Assistance to Manufacturing and Agriculture

1970-71 to 2017-18 (%)
Source: Productivity Commission (2019), Trade and Assistance Review 2017-18, Melbourne.
Tariffs have direct effects on the returns of Australian producers. Tariffs on imported goods increase the
price at which these goods are sold to consumers in the Australian market and allow domestic producers
of similar products to increase their prices. Tariffs also increase the price and cost of goods that are used
as inputs and penalise local industries. The Productivity Commission’s revised series of tariff assistance
on outputs was $1.8b in 2019-20 (see Table 6.2) compared to $3.3b in 2014-15. The fall in assistance
on outputs reflects reductions in tariffs on motor vehicles and parts, and TCF products in 2015 to 5%,
and lower output in tariff assisted activities such as PMV, metal products, food, beverages, tobacco,
petroleum, coal, chemical and rubber products. The estimated cost penalties to user industries of tariffs
was -$1.73b in 2020-21. After deducting the tariff input penalty (-$1.73b) from the output assistance
($2.08b), net tariff assistance was estimated at $350.7m in 2020-21 as shown in Table 6.2. The increase
in output assistance in 2020-21 was to industries affected by COVID-19 such as tourism and aviation.
Table 6.2 Total Tariff Assistance 2016-17 to 2020-21 ($m) - *Revised estimates in 2020-21
2016-17 2017-18 2018-19 2019-20 2020-21

Output assistance $2,373.7m $2,322.1m $1,967.9m $1,822.3m $2,087.8m
Input penalty -$2,097.5m -$2,057.7m -$1,703.2m -$1,515.3m -$1,737.1m
Net tariff assistance $276.2m $264.4m $264.7m $307.0m $350.7m

Source: Productivity Commission (2022), Trade and Assistance Review 2020-21, Canberra.

AUSTRALIA’S POLICIES TOWARDS FREE TRADE

Since the May 1988 Economic Statement, the Australian government has continued the process of
reducing the protection of manufacturing. This was a unilateral policy decision to open the Australian
domestic market to international competition from imports, helping to promote free trade. The
Australian government hoped to increase industry efficiency and export competitiveness, with the
Productivity Commission (2017) estimating further economic gains if the average 5% general tariff on
about 50% of imported products (mainly manufactured goods) was eliminated.
In April 2011 the Australian government released a Trade Policy Statement outlining its commitment to
free trade. In October 2012, the Australian Government issued the Asian Century White Paper with a
commitment to negotiate trade agreements with Asian nations such as China and India. In 2017 the
Australian government’s Foreign Policy White Paper argued in favour of advancing regional trade and
investment integration. Australia’s main bilateral and regional agreements are illustrated in Figure 6.5.
At the global multilateral level Australia became a member of GATT in 1947 and the WTO in 1994.
Australia helped to form the Cairns Group of agricultural free trading countries in 1986. This group of
17 countries (Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala,
Indonesia, Malaysia, New Zealand, Paraguay, The Philippines, South Africa, Thailand and Uruguay)
sought to achieve free trade in agriculture, by getting trade in agriculture on the agenda of the Uruguay
Round of GATT talks in 1986. The Cairns Group sought the elimination of protectionist trade barriers
in trade blocs such as the European Union, where agricultural subsidies distort world trade flows.
The aims were to reduce agricultural subsidies and to improve access to global agricultural markets.
The Uruguay Round was completed in 1994, and led to the first ever agreement on rules for trade
in agriculture. The 10th WTO Ministerial Conference of the Doha Round of trade talks (2001-15)
was held in Kenya in 2015. A ‘single undertaking’ on all issues was not reached and the Productivity
Commission (2017) concluded that although the Doha Round was unfinished it was effectively over.
However there was an agreement to eliminate all agriculture subsidies and the entry into force of the
Trade Facilitation Agreement to simplify and harmonise trade procedures. Australia is also involved in
negotiations over WTO agreements on environmental goods (2016), information technology (2015),
trade in services (2016), government procurement (2014) and trade rules for global electronic commerce.
At the regional and multilateral level, in 1989 Australia helped to establish the Asia Pacific Economic
Co-operation (APEC) forum in response to the formation of trade blocs and agreements such as the EU
and NAFTA. At the 1994 APEC meeting, the Bogor Declaration was signed, committing APEC nations
to eliminate all trade barriers by 2020. At the APEC Trade Ministers’ meeting in China in May 2014,
Ministers agreed to take steps towards APEC’s goal of a Free Trade Area of the Asia Pacific (FTAAP). A
further regional free trade initiative was the signing of the ASEAN-Australia-New Zealand Free Trade
Area (AANZFTA) Agreement in Thailand in February 2009. Australia also signed the Comprehensive
and Progressive Agreement for Trans Pacific Partnership (TPP) agreement with Brunei, Chile, New
Zealand, Singapore, Peru, the USA and Vietnam in February 2016. It is also negotiating the Regional
Comprehensive Economic Partnership (RCEP) which includes ASEAN, Australia, China, India,
Japan, Korea and New Zealand. At the 18th round of RCEP negotiations in March 2018, there was
recognition of the need to intensify negotiations in light of increasing US protectionism and the USA’s
withdrawal from the TPP in 2017-18. A further regional agreement is the Pacific Agreement on Closer
Economic Relations (PACER) which was signed in 2017 between Australia and Pacific Island nations.
The lack of progress in multilateral forums such as the WTO has accelerated agreement making at the
bilateral and regional or plurilateral (between countries in different regions) level including by Australia.
In 2014-15 Australia’s bilateral agreements with Korea, Japan and China entered into force as shown
in Figure 6.5. Agreements were also concluded with Indonesia, Peru and Hong Kong (2020). On a
bilateral and regional basis Australia had negotiated and signed 17 trade agreements by 2021 with its
major trading partners to increase market access for Australian exports.

Figure 6.5: Australia’s Bilateral and Regional Trade Agreements 1983-2022
Notes: Regional Comprehensive Economic Partnership Agreement (RCEP)
Pacific Agreement on Closer Economic Relations (PACER)
Of the 18 bilateral and regional trade agreements, 16 were in force in 2022, with the Australia-UK
Agreement and the Australia-India Economic Co-operation and Trade Agreement not yet in force. Two
agreements entered into force since 2018-19:
• The Indonesia-Australia Comprehensive Economic Partnership Agreement came into force on July
5th 2020.
• The Pacific Agreement on Closer Economic Relations (PACER) Plus Agreement (between Australia,
New Zealand and nine Pacific Island nations) came into force on December 13th 2020.
A range of free trade agreements continue to be negotiated such as the following:
• Australia and the European Union - negotiations launched in 2018.
• Australia and the Pacific Alliance (Chile, Colombia, Mexico and Peru) - launched negotiations in
2017.
• Australia and the Gulf Co-operation Council - negotiations launched in 2007.
The bilateral trade agreement ANZCERTA (1983), established a free trade zone between Australia and
New Zealand in the 1990s, and led to the growth in trans Tasman trade, a restructuring of manufacturing
in both countries and promoted the free movement of labour and capital between the two countries.
Since 2003 Australia has signed bilateral trade agreements with Singapore (2003), Thailand (2005), the
USA (2005), Chile (2009), ASEAN and New Zealand (2010), Malaysia (2013), Korea (2014), Japan
(2015), China (2015), Indonesia (2019), Hong Kong, Peru (2020) and India (2022). These agreements
mean that over 80% of Australia’s trade is now covered by bilateral and regional trade agreements.
Australia is also in negotiations with the EU and the UK on possible future trade agreements. Despite the
growth of bilateral trade agreements between Australia and its major trading partners, the Productivity
Commission (2015) raised concerns over the lack of transparency of some of the provisions negotiated
and whether such agreements would lead to trade creation because of the often complex rules of origin
that can be applied to the goods traded. Other criticisms of bilateral trade agreements are the costs of
negotiations; the extent of coverage of the agreements; and the length of time taken to complete the
negotiations, which in some cases have taken many years before signing and completion.

Australia’s Multilateral Trade Agreements: The WTO and APEC

The benefits of trade liberalisation are greatest if the liberalisation is undertaken multilaterally, because
reductions in trade barriers between large numbers of countries increase the extent of market access
for exporters and the growth in trade and investment flows. The most important multilateral trade
agreement to Australia is the World Trade Organisation (WTO) which is a forum for sovereign nations
to negotiate and enforce agreements on the conduct of international trade. It evolved from the General
Agreement on Tariffs and Trade (GATT), established in 1947 by 23 countries including Australia. The
WTO replaced GATT in 1995, and in 2022 had 164 member nations. The WTO oversees approximately
60 agreements on trade matters (such as trade in goods, services, investment and intellectual property).
In broad terms the agreements require all member governments to apply their trade rules in a consistent,
transparent and non discriminatory manner. Key features of the agreements are detailed in Extract 6.1:
• The Most Favoured Nation Rule requires that WTO members must grant to all their trading
partners the conditions they grant to their ‘most favoured nation’ trading partner.
• The National Treatment Rule requires that countries should set conditions for imported goods and
services no less favourable than those for domestically produced goods.
• Countries must ‘bind’ their tariffs and other barriers, and the country is ‘bound’ by these levels.
• Transparency Rules require member countries to make their trade laws and regulations publicly
available and to notify the WTO of any changes.
Changes to trade rules governed by the WTO occur principally through ‘rounds’ of multilateral trade
negotiations involving all members of the WTO. At the ninth Doha round of talks (refer to Table
6.3) a Trade Facilitation Agreement was negotiated and agreement was reached to abolish agricultural
subsidies at the 10th Ministerial Conference in Kenya in 2015. The negotiation and bargaining process
involves members making ‘concessions’ (i.e. a commitment to reducing a trade barrier) in exchange
for concessions made by other members. Decisions are made on a consensus basis with proposals for
changes only adopted after all members agree (i.e. a ‘single undertaking’). The average global tariff rate
of 40% in the late 1940s had been reduced to around 5% in the mid 1990s as a result of GATT rounds.
Extract 6.1: The WTO, A Global Rules Based Trading System

The WTO provides a framework of rules for international trade and is based in Geneva. This multilateral framework was
established in 1947 as GATT. Currently there are 164 member countries of the WTO.
The Key Trade Rules
WTO provisions require members to apply their trade rules in a transparent and non discriminatory manner.
The key elements of the system are:
• The Most Favoured Nation (MFN) rule, which bars a member country from discriminating between ‘like’ products of other
members or from favouring non WTO members over members.
• The National Treatment rule which prevents foreign products, having satisfied quarantine and customs requirements, from
being treated less favourably than domestically produced goods.
• Rules to discipline protective measures (e.g. tariffs, subsidies and other non tariff barriers) and rules to discipline trade
distorting subsidies at the export level.
Consensual Decision making
Agreements are negotiated through consensus, limiting the extent to which large trading nations can exploit their economic
power, and in turn, providing opportunities and legal protections for small and medium sized trading nations such as Australia.
Dispute Resolution
Where a trade dispute occurs, WTO members are committed not to take unilateral action against perceived violations of their
rights. If conciliation is unsuccessful, the parties in dispute must argue their case before an independent panel within the WTO
with appeals to a separate body possible. The outcome is then confirmed by the WTO Dispute Settlement Body which is
constituted by all the member governments of the WTO.

Table 6.3: Coverage of Multilateral Trade Rounds by GATT and the WTO
Year Round Coverage Participating Countries
1947 Geneva Round Tariffs 23
1949 Annecy Round Tariffs 13
1951 Torquay Round Tariffs 38
1956 Geneva Round Tariffs 26
1960-61 Dillon Round Tariffs 26
1964-67 Kennedy Round Tariffs and anti dumping measures 62
1973-79 Tokyo Round Tariffs and non tariff measures 102
1986-94 Uruguay Round Tariffs and non tariff measures 123
2001-15 Doha Round Tariffs and non tariff measures 164

The Uruguay round in 1994 led to the first ever reduction in agricultural protection and new agreements
on trade in services, investment and intellectual property. Significant progress was made in advancing
the long running Doha round of trade negotiations at the WTO Ministerial Meeting in Nairobi, Kenya
in December 2015 where countries agreed to abolish all government subsidies to farmers, including
export subsidies. This was to be effective immediately for developed nations, with developing nations
to follow by 2018. Multilateral trade reform in the WTO is the most effective way to improve national
and global welfare compared to preferential trade agreements (PTAs) which can discriminate against
non parties to those agreements and lead to trade diversion rather than trade creation.
At a regional level Australia was a founding member of the Asia Pacific Economic Co-operation (APEC)
forum in 1989 which is a multilateral regional trade forum (rather than a trade bloc or free trade
area). APEC’s 21 members include the advanced countries of the USA, Japan, Australia, New Zealand,
Canada, Brunei and Chile; the NIEs of Singapore, South Korea, Taiwan and Hong Kong SAR; the
developing nations of China, Indonesia, Thailand, Malaysia, Philippines, Vietnam, Mexico, Papua New
Guinea and Peru; and the transition economy of Russia. APEC is a discussion forum on trade policy
issues and has developed mechanisms for closer trade and investment links in the Asia Pacific region.
APEC is a powerful forum representing 2.9b people, 60% of world GDP and 48% of world trade.
The APEC Bogor Declaration was an agreement signed by APEC leaders in 1994 in Indonesia to
dismantle trade barriers by 2020. At the APEC meeting in 2009 in Singapore, leaders responded to
the Global Financial Crisis by rejecting any moves towards increased protectionism, and strengthening
trade and investment links within the APEC region (i.e. regional economic integration). Support was
also given to finalising the WTO’s Doha round of trade talks, and working towards a Free Trade Area of
the Asia Pacific (FTAAP) with an expanded membership of countries. Average tariff levels across APEC
members were estimated by the Productivity Commission to have fallen to 3% in 2004.
APEC’s approach to economic integration and trade liberalisation is based on ‘open regionalism’ where
reductions in trade barriers are on a non discriminatory basis by liberalising trade between members,
but not discriminating against non APEC members. In this way APEC initiatives are consistent with
the WTO’s guiding principles for free trade. Recent APEC leaders’ meetings were held in Beijing
(2014), and Manila (2015), where there was a renewed focus on achieving the Bogor Goals. In 2016
in Lima the APEC leaders’ theme of Quality Growth and Human Development supported free and open
trade and investment. APEC leaders met in Da Nang in 2017 and in Port Moresby in 2018. The 2019
APEC meeting in Chile, was cancelled due to political unrest, but held as a virtual conference in 2020.

Australia’s Bilateral Trade Agreements: ANZCERTA and AUSFTA

Australia signed ten important bilateral trade agreements with major trading partners between 1983
and 2016 as shown in Figure 6.6. It also signed agreements with Indonesia in 2019, Hong Kong and
Peru in 2020 and India in 2022. The first major bilateral free trade agreement was the Australia-New
Zealand Free Trade Agreement which was signed in 1965. This was a response to Britain’s entry into the
European Common Market in the 1960s, with both Australia and New Zealand experiencing the loss
of an important export market. With limited progress made in forming a free trade area between the
two countries, a new agreement known as the Australia New Zealand Closer Economic Relations Trade
Agreement (ANZCERTA or CER) was signed in 1983 with the following objectives:
• Strengthening the broader economic relationship between Australia and New Zealand;
• Developing closer economic relations between the two countries through a mutually beneficial
expansion of free trade;
• Eliminating barriers to trade and investment between Australia and New Zealand in a gradual and
progressive manner and with a minimal level of disruption; and
• Developing trade between Australia and New Zealand under conditions of fair competition.
ANZCERTA has led to closer economic integration between Australia and New Zealand through a
reduction in tariff and non tariff barriers on all goods. This has resulted in less protected and more
efficient manufacturing industries in both countries. The ANZCERTA has also led to the free flow of
labour and capital resources between the two countries. In 2009 Australia and New Zealand signed
the ASEAN-Australia-New Zealand Free Trade Area Agreement (AANZFTA) to enhance trade with
ASEAN. In 2011 the Closer Economic Relations Investment Protocol was signed by Australia and
New Zealand to reduce restrictions on foreign investment in both countries.
The Australia-United States Free Trade Agreement (AUSFTA) was signed in 2004 with an agreement
to reduce tariff and non tariff barriers to trade in agriculture, manufactured goods, services, investment
and intellectual property. Both countries reduced most tariffs to zero upon entry to the agreement in
2005. This led to around 97% of tariff lines being duty free, with the remaining non tariff lines such as
clothing and textiles to be phased to zero by 2015. For Australian agricultural exports to the USA the
tariffs on two thirds of line items were reduced to zero in 2005 with further reductions to be phased in
over 18 years. For beef and dairy exports, tariff quotas were increased in the USA to allow increased
quantities of imports of Australian beef into the US market.
One of the major benefits of the AUSFTA was an increase in manufactured exports to the USA. Estimates
by the Productivity Commission (2005) suggested that the AUSFTA could increase Australia’s GDP
by between 0.4% and 0.7% within ten years of operation. Services trade was estimated to grow by 6%
because of the reduction in regulations and rules over government procurement in Australia and the
USA. However critics of the AUSFTA argued that changes to the Australian Pharmaceutical Benefits
Scheme and access by US firms to Australian film and television markets would lead to higher prices and
a loss of cultural sovereignty. The AUSFTA has benefited the USA through increased manufactured and
service exports, whilst Australia’s exports increased by a lesser margin, resulting in a trade deficit with
the USA. The Australian government lobbied the Trump Administration in 2018 to maintain AUSFTA.
Figure 6.6: Australia’s Bilateral Trade Agreements

REVIEW QUESTIONS
AUSTRALIA’S POLICIES TOWARDS
PROTECTION AND FREE TRADE
1. Why did the Australian government use a policy of industry protection for much of the twentieth century?
2. Discuss the costs to households and the Australian economy of such high levels of protection.
3. Why did the Australian government implement policies to reduce protection in 1988?
4. What measures were taken by the Australian government in 1988 and 1991 to reduce the protection of
Australian manufacturing? Refer to Table 6.1 and Figures 6.1 and 6.2 in your answer.
5. What are the ‘plan’ industries? Why were they given more time to adjust to lower levels of protection? What
adjustment costs did plan industries face? Discuss recent trends in reducing protection from the text, Figure 6.4
and Table 6.2.
6. Distinguish between Australia’s unilateral, bilateral, regional and multilateral policies to promote free trade in
the 1980s, 1990s and 2000s.
7. Explain the advantages and disadvantages of multilateral trade agreements (such as the WTO and APEC)
and bilateral trade agreements (such as ANZCERTA and AUSFTA) to Australia.
THE IMPLICATIONS OF REDUCING AUSTRALIAN PROTECTION

The benefits to Australia in reducing protection have been experienced in the long run as the economy
has become more efficient and competitive. These benefits have been permanent as the Australian
economy has become more internationalised and product and factor markets more flexible in allocating
resources to more efficient export and import competing industries. Reform of industry protection is
part of the government’s microeconomic reform agenda in achieving the following long run benefits:
• The reduction in protection has exposed previously protected industries and firms to more
import competition. More effective import competition has reduced prices and costs and lessened
inflationary pressures in the economy. More competition between firms in product markets has
reinforced competition in factor markets such as the labour market and the capital market.
• Import competition has increased competitive pressure on workers and managers to review work
practices and encouraged firms to become more competitive to maintain their profitability and
market share. Firms are more likely to eliminate restrictive work and management practices in an
effort to enhance productivity and efficiency in competing with imports for market share.
• The reduction in trade barriers has released resources, previously locked into inefficient and less
competitive industries and firms (i.e. ‘sunset industries’), to more efficient, productive and growing
industries (i.e. ‘sunrise industries’). This process of structural change has enhanced the economy’s
productive capacity and increased employment in the tradable goods sector of the economy.
• Lower levels of protection have redistributed income away from the government and inefficient
industries to consumers and efficient export firms in the form of lower prices, taxes and costs.
Estimates of the long run gains from cuts in industry assistance in the Industry Commission’s Annual
Report in 1989-90 suggested a permanent gain in Australia’s GDP of $4b. This increased output was
sourced from exports (volumes were estimated to rise by 8.6%), including manufactured exports.
Employment growth was estimated to increase by 0.1% in aggregate terms and the CPI to fall by 3.8%.

The costs to Australia of reducing its barriers to trade have been confined to the short run, with
uncompetitive industries contracting and unviable firms going out of business. Lower employment
levels have occurred in the TCF, PMV and steel industries which have experienced restructuring and
rising levels of structural unemployment. Structural adjustment has also led firms to introducing the
latest technology and they have tended to substitute more capital for less labour to achieve higher
productivity, and this has resulted in redundancies and the retrenchment of many workers in plan
industries. According to the Productivity Commission (2012), between 1996-97 and 2010-11, $22b
in budgetary assistance was allocated for structural adjustment in industry. In addition, direct assistance
has been given to displaced workers through the social security system and job training programmes.
Other costs of reducing protection include the effects on regional economies dependent upon
manufacturing industries for employment and support services. Cities such as Geelong, Newcastle,
Whyalla, Elizabeth, Melbourne, Port Kembla and Wollongong have high levels of structural
unemployment because of structural change in the PMV, TCF and steel industries. The Australian
government is responsible for labour market adjustment and provides funds for the retraining and
relocation of the structurally unemployed in the federal budget. This adds to federal government
expenditure, but is an important means of retraining displaced labour, providing displaced workers
with income support, and helping workers to find new employment. The Productivity Commission
estimated that $140m had been spent on regional adjustment funds between 1996-97 and 2010-11.
The Global Financial Crisis and Australian Industry Assistance

The Global Financial Crisis in 2008-09 increased pressure on governments to protect local industries.
Although governments committed to resist such pressures, trade restricting measures were introduced in
many countries, including assistance to the car industry, guarantees of bank deposits and funding, and
assistance for commercial property projects. In Australia, whilst tariffs and other protective assistance
have declined in recent years, direct budgetary assistance to industry has risen. In 2019-20 Australian
government budgetary assistance was $11.8b with new assistance measures announced for industries
most affected by the impact of the COVID-19 pandemic such as tourism, education and the arts.
In response to the Bracks Review (2008) of the automotive industry, the Australian government
announced a $6.2b assistance package between 2009 and 2021. Tariffs were cut from 10% to 5% on
January 1st 2010, and the new $3.4b Automotive Transformation Scheme (ATS) was introduced. In
the TCF industry most tariffs fell to 10% on January 1st 2010 and to 5% in 2015. Following the Green
Review into TCF industries in 2008, the government announced a TCF Post 2005 Assistance Package
which provided $747m in new spending to the TCF industry between 2005 and 2015, including a
TCF Structural Adjustment Programme of $50m to support labour market adjustment.
The Australian Car Industry in 2013-14

In 2013 the major car producers Ford and Holden announced the closure of their plants by 2016,
with Toyota announcing in early 2014 the closure of its plants by 2017. It was estimated that up to
50,000 jobs may be lost or 5% of the manufacturing workforce. The reasons given for the decisions
included the high cost of manufacturing in Australia, competition from low cost overseas competitors
and the high value of the exchange rate in reducing competitiveness relative to imported cars. The
Australian government announced assistance in 2013 for the Melbourne, Geelong and Adelaide regions
affected by the car plant closures. This included an Innovation and Investment Fund for new job creation
in Melbourne and Geelong, and a $155m Growth Fund, including a skills and training programme
($30m) to assist automotive workers to find new jobs. Other programmes included in the Innovation
and Investment Fund, were an Automotive Diversification Programme ($20m) to assist automotive supply
chain firms to diversify and enter new markets, and a Regional Infrastructure Programme ($30m) to
support investment and employment in affected regions. The Productivity Commission (2013)
estimated that $30b was provided in tariff and budget assistance to the car industry between 1997 and
2012 and yet it still remained uncompetitive and eventually shut down car manufacturing plants.

Overall Australia has improved its economic performance by dismantling protection unilaterally and
pursuing free trade objectives through bilateral, regional and multilateral trade agreements. The long
run gains from reducing industry protection outweigh the short term costs of adjustment borne by
particular industries such as the car, steel and TCF industries. These benefits include increased exports
and economic growth, lower consumer prices, more employment in growing industries and higher
domestic incomes. In addition, many of Australia’s major trading partners (such as China and ASEAN)
have also lowered their tariffs. The long term gains of reducing Australian protection are the following:
• An improvement in international competitiveness of export and import replacement industries;
• Improving the efficiency of the allocation of the economy’s resources and a lowering of inflation;
• Diversifying the economy’s export base, with less dependence on agricultural exports; and
• Supporting the microeconomic reform agenda which seeks to raise multifactor productivity.
THE IMPLICATIONS OF INTERNATIONAL PROTECTION

Australia is an active member and participant in multilateral and plurilateral trade organisations such
as the World Trade Organisation (WTO) which replaced GATT in 1994; the Asia Pacific Economic
Co-operation forum (APEC); the Cairns Group of countries of free trading primary exporters; the
Organisation of Economic Co-operation and Development (OECD); and the Group of 20 (G20). Such
international multilateral organisations and agreements assist in securing the gains from international
trade by providing research, forums for discussion, and negotiations on ways to reduce tariff and non
tariff barriers, thereby increasing market accessibility and international trade and investment flows.
GATT and the Uruguay Round (1994)

Through the General Agreement on Tariffs and Trade (GATT), tariffs on manufactured goods were
cut from an average of 40% in 1947 to approximately 5% by 1985. Global tariff liberalisation through
GATT promoted rapid growth in world trade, with the volume increasing by 500% in the 1950-1975
period, but the rate of expansion fell in the 1980s because of the absence of GATT rules for trade in
agricultural products, and the proliferation of non tariff barriers such as domestic and export subsidies.
These two factors were of particular importance to Australia’s trade with the rest of the world:
• The absence of GATT codes for trade in agricultural commodities denied Australia market access
for its wheat exports, because US wheat subsidies through the Export Enhancement Programme
(EEP) and EU wheat subsidies through the Common Agricultural Policy (CAP) led to depressed
world wheat prices, cutting export returns to Australian farmers. Japanese and Korean rice subsidies
also had a similar effect on Australian rice exports.
• New non tariff forms of protection such as ‘voluntary export restraints’, and a variety of anti-
dumping measures impeded the growth of world trade according to the principle of comparative
advantage, penalising efficient commodity producers like Australia, in favour of less efficient
producers in the US and EU. Such measures led to trade diversion rather than trade creation.
Trade in services and intellectual property (e.g. copyright, patents and trademarks) were also not covered
by a GATT code of trade rules. The Uruguay Round of GATT (1986 to 1994) led to the conclusion of
new agreements in the following categories of world trade which affect Australian trade:
• The GATT agreement on trade in agriculture provided for a 36% reduction in agricultural subsidies
and a 21% reduction in the volume of production; all import quotas were to be converted to tariffs
and reduced by 35%; and the Japanese and Korean rice and beef markets were to be opened up to
import competition. These measures were to be implemented by 2000.
• The GATT agreement on trade in services (GATS) brought trade in services such as finance,
insurance, banking, technology and entertainment under WTO rules for the first time.
• The GATT agreement on trade in intellectual property rights (TRIPS) led to a new framework
being developed for trade in copyright, trademarks and patents.

• The GATT agreement on trade related investment measures (TRIMS) related to direct investment
guidelines for industrial and emerging economies, and the relationship between multinational
corporations (MNCs) and host governments.
• The GATT agreement on trade in manufactured goods led to tariffs being cut by 15%, and a
further undertaking was made to review tariff levels at the Millennium Trade Talks in 2000.
In macroeconomic terms, the projected benefits to Australia of the Uruguay Round measures suggested
increased output and faster growth in export volumes than import volumes for most sectors of the
economy. Capital investment was also projected to rise in all sectors.
At a global level, Australia’s commitment to internationalising its economy through tariff reform enabled
it to play an important and credible role in promoting policies for free trade at the Uruguay Round of
GATT. The main outcomes of the Uruguay Round for Australia were threefold:
1. The scaling down of agricultural subsidies in the EU and USA.
2. Governments that subsidised agriculture were forced to adhere to WTO rules on agriculture.
3. Increased market access for trade in services was a boost for Australia’s service exports.
The Uruguay Round also led to the replacement of GATT by the WTO in 1995, as a permanent forum
for trade negotiations. The WTO was given greater powers to monitor and control world trade. These
include powers extending to goods, services and intellectual property rights; limiting the use of anti-
dumping actions; using sanctions to resolve trade disputes; and restricting government support for
industry through control over subsidies. In 2017 the US government under former President Trump
blocked appointments of new judges to the WTO’s Appellate Body because it took too long to resolve
trade disputes and did not protect against Chinese trade practices.
The WTO and the Doha Round (2001-15)

A new round of WTO trade talks began in Doha, Qatar in 2001. The main objective of the Australian
government at the WTO’s Doha Round (also known as the Doha Development Agenda or DDA) of
trade talks was to achieve substantial improvements in market access for Australian exporters:
• In agriculture, Australia negotiated for the complete elimination of agricultural export subsidies
(e.g. total subsidies for agriculture in OECD countries rose to US$327b in 2000).
• In manufacturing, Australian negotiators sought greater market access for exports than the average
15% cut in tariffs negotiated at the Uruguay Round.
• In services (which make up 20% of Australia’s total exports), Australia sought improved access to
overseas markets in priority areas such as business, finance and education.
The Australian government’s participation in the WTO’s Doha Round was to gain multilateral support
for free trade, especially in agricultural trade.
In September 2003 the fifth WTO Ministerial Conference of the Doha Round was held at Cancun
in Mexico. WTO members were unable to agree on the scope and pace of reform and the conference
negotiations ended in deadlock. Following the breakdown of the Doha talks in Cancun, a framework
package was agreed to by the WTO General Council in Geneva in July 2004. The key outcomes of
the Geneva Framework Package in 2004 were suggested reforms covering trade in agricultural goods,
manufactured goods, services, customs and border procedures.
The WTO Ministerial Conference in Hong Kong in December 2005 led to agreement on an ‘end date’
for agricultural subsidies, the structure for reductions in trade barriers for agricultural and industrial
goods, and an ‘end date’ for reducing regulations over trade in services. Further negotiations were held
in Geneva in 2006 but the talks became deadlocked over ‘loopholes’ aimed at reforming world trade in
agriculture.

The July 2008, April 2011 and December 2011 Meetings in Geneva
The Doha Round of negotiations continued in 2007 and 2008 between the Group of 6 (G6) of Australia,
Brazil, the European Union, India, Japan and the United States. Progress needed to be made on the
‘triangle’ of trade issues including cuts in US farm support; increased agricultural market access in the
European Union; and lower tariffs on manufactured goods in China, Brazil and India.
In July 2008 the goal of the WTO Ministerial Council meeting in Geneva was to agree on the
‘modalities’ (i.e. the formulas and methods) to be used to cut tariffs and agricultural subsidies. However
the talks collapsed eventhough 18 of the 20 topics discussed were agreed upon. Commentators argued
that the increasing power of China and India had swayed the talks with their refusal to reduce their farm
subsidies because of global food shortages and the threat of increased imports from other countries.
The eighth Ministerial Conference of the Doha Round was cancelled in Geneva in December 2008
because of the Global Financial Crisis and a lack of agreement on the ‘modalities’ for agriculture and
industry market access. The Conference was later held in Geneva in December 2011 with leaders of the
G20 and APEC calling for a ‘fresh approach’ to negotiations.
The WTO Bali Meeting in 2013 and the Nairobi Meeting in 2015
The ninth WTO Ministerial Conference of the Doha Round was held in Bali in December 2013 where
a package of measures such as the Agreement on Trade Facilitation, reforms to agricultural trade, and
measures to assist the trade of developing countries were agreed upon. Following the breakthrough
at the Bali Meeting, the tenth WTO Ministerial meeting was held in Nairobi, Kenya, in December
2015. After days of negotiations agreement was reached in the following areas but there was no ‘single
undertaking’ of members to agree on all measures and the Doha Round was declared over by DFAT:
• Agreement by developed countries to eliminate all agricultural export subsidies immediately and
developing countries were given until 2018 to eliminate their subsidies;
• Entry into force of the Trade Facilitation Agreement in February 2017 to simplify and harmonise
international trade procedures for goods (e.g. customs, licensing and transit procedures);
• Agreed tariff reductions under the Expanded Information Technology Agreement extended to
201 additional goods including consumer electronics, IT software and hardware;
• Progress with building on the 2012 APEC Environmental Goods Agreement to remove tariffs on
a range of environmental goods such as solar panels, wind turbines and energy saving technology;
• The 2014 Government Procurement Agreement to open up government procurement markets
based on competition, transparency and non discrimination; and
• Progress on the Trade in Services Agreement between the USA, EU and Australia.
Since the WTO’s Nairobi meeting there has been little progress made on the Environmental Goods
Agreement and the Trade in Services Agreement and the WTO’s Appellate Body has ceased functioning.
China’s Imposition of Trade Barriers on Australia

In 2020-21 China imposed a range of trade barriers including tariffs, anti-dumping legislation and bans
on a range of Australian exports. These included barley, beef, wheat, cotton, wine, lobsters, timber, coal
and coral trout. It also issued directives for Chinese not to travel to Australia for tourism or education.
The justification for this disruption to trade is unclear but one factor is the Chinese government’s
displeasure at the Australian government for calling for a global WHO inquiry into the COVID-19
pandemic. The Australian government lodged formal complaints with the WTO in 2020-21 over these
Chinese trade barriers. The implications of such bans on Australian exports to China, include a loss of
income and markets for Australian exporters, and the need to diversify and find new export markets for
these products. A further implication is the lack of access for Chinese consumers and businesses to high
quality Australian products which would reduce living standards and disrupt supply chains.

Figure 6.7: The Growth of Bilateral and Regional Trade Agreements
Source: Productivity Commission (2017), Rising Protectionism: Challenges, Threats and Opportunities, Melbourne.
Because of the slow progress in finalising the Doha Round, Australia has followed the global trend
of negotiating and signing bilateral and regional trade agreements with many of its major trading
partners. The number of Preferential Trade Agreements in the world grew dramatically from nine in
the 1960s to around 300 in 2014 as shown in Figure 6.7, with around 40% of the total in the Asia
Pacific region. Since 2003 Australia has signed bilateral agreements with Singapore, Thailand, the USA,
Chile, ASEAN, Malaysia, Korea, Japan, China, Peru, Hong Kong, Indonesia and India. Some 70% of
Australia’s imports are now covered by a preferential trade agreement leading to a fall in tariff protection.
Rising Global Trade Protectionism

The most important trade policy issue concerning the global rules based trading system in 2020 was
the uncertainty of increased protectionism in the USA under former President Donald Trump (Extract
6.2). The USA had taken a number of trade policy decisions that were not supportive of the predictable,
liberal and rules based world trading system and could lead to a global trade war. These included:
• Withdrawal of the USA from the Trans-Pacific Partnership (TPP) Agreement.
• Renegotiation of the North American Free Trade Agreement (NAFTA) with Canada and Mexico,
the United States-Korea Free Trade Agreement and agreements with the European Union and UK.
• Imposition of tariffs on steel and aluminium imports into the USA from Russia and China, on the
grounds that these imports were considered a threat to US national security.
• Imposition of tariffs on other Chinese imports citing concerns about intellectual property rights.
In this protectionist environment, it is likely these steps would lead to a cycle of retaliation by the major
trading partners of the USA such as China, Canada and the EU. This would be detrimental to the
growth in world trade and investment and negotiations over international trade liberalisation.
Extract 6.2: The Future of the World Trading System
“The world trading system is under greater strain than at any time since the 1930s. Most prominently, the United
States has levied tariffs on steel and aluminium imports, under the cover of national security grounds, as well as
Chinese and Mexican imports more generally, and has blocked appointments to the WTO’s dispute settlement body.
China has reciprocated with tariffs of its own, and a cloud hangs over trading relations between the world’s three
largest trading economies (China, the EU and USA).
These strains come on top of broader, longer standing factors constraining the WTO. There is a fundamental lack of
consensus among members on a range of issues, and discontent in parts of the community with the world trading
system and globalisation. While these forces do not, at present, constitute an existential threat to the world trading
system, its authority and credibility are at risk.”

If protectionist measures spread to other countries, it would weaken world economic growth. China
for example responded to the US increase in tariffs by imposing higher tariffs on a range of US imports
including agricultural and manufactured goods. According to IMF modelling (2018) greater global
protectionism would lower consumer welfare by making tradable consumer goods more expensive.
Rising protectionism in all countries could also lead to a 10% increase in import prices and reduce
global output and consumption by about 1.75% after five years and close to 2% in the long term, while
global flows of investment and trade could fall by even more than the decline in world output.
The rise in US protectionism is based on the perceived inequality of the distribution of benefits from
globalisation and large US trade deficits with trading partners such as China. This includes the decline in
manufacturing employment in the USA and the concentration of job losses in trade exposed industries
and regions. The Productivity Commission (2017) argued in Rising Protectionism: Challenges, Threats
and Opportunities for Australia to oppose protectionist sentiment and to support strong adjustment
policies for displaced workers as a result of structural and technological change. In 2020 the global
economy contracted by -3.3% as global supply chains were disrupted by the COVID-19 pandemic.
REVIEW QUESTIONS
THE BENEFITS AND COSTS OF REDUCING PROTECTION AND THE
IMPLICATIONS OF INTERNATIONAL PROTECTION
1. Discuss the impact of Australia’s unilateral reduction in protection on competition, productivity and
efficiency for previously protected firms and industries.
2. Discuss the estimated macroeconomic benefits to Australia of the reform of industry assistance.
3. Explain the costs of reforms to industry assistance to firms and workers in industries and regions affected by
tariff cuts and the abolition of quotas such as TCF, PMV and steel.
4. How does tariff reform affect consumers, firms and the government? What are the long run economic
gains from the reform of industry assistance?
5. Why does Australia participate in the WTO? What are the effects of EU and US agricultural subsidies on
Australian exporters?
6. What were the main positive outcomes of the Uruguay Round for Australia?
7. What were Australia’s main objectives at the Doha Round of WTO talks?
8. Discuss the outcomes of the Doha Round at the Nairobi meeting of the WTO in 2015.
9. Why was there increased protectionist sentiment under the former US Trump Administration?
10. How could rising US protectionism undermine the growth in world output and trade?
11. Define the following terms and abbreviations and add them to a glossary:
bilateral trade agreement APEC

Doha Round ASEAN
effective rate of assistance CAP
industry statement DDA
international competitiveness EEP
multilateral trade agreement GATT
nominal rate of assistance IC
protection IMF
regional trade agreement PC
structural change PMV
subsidies PTAs
tariffs TCF
trade war WTO

[CHAPTER 6: SHORT ANSWER QUESTIONS

Net Tariff Assistance by Industry Sector, 2016-17 to 2019-20 ($ millions)
2016-17 2017-18 2018-19 2019-20
Primary production 338.4 355.8 186.5 125.8
Mining -114.9 -102.1 -55.4 -52.2
Manufacturing 1,270.6 1,169.0 1,162.3 1,158.0
Services -1,217.9 -1,158.4 -1,028.7 -924.6
Total 276.2 264.4 264.7 307.0

After deducting the input tariff penalty from the output assistance, net tariff assistance (for the Australian economy)
was estimated to be around $307 million in 2019-20, down from over $700 million in 2012-13.
This fall reflects both high relative growth in the services sector (which incurs significant tariff penalties on inputs),
especially relative to the manufacturing sector (a significant beneficiary of tariff assistance), together with some
reductions in tariffs applied to manufactured products and the uptake of tariff concessions under Australia’s
preferential trade agreements.
Source: Productivity Commission (2021), Trade and Assistance Review 2019-20.
Refer to the information above on net tariff assistance and answer the following questions. Marks
1. What is meant by the term ‘tariff protection’? (1)
2. How does the imposition of a tariff protect a domestic industry? (1)
3. Analyse the trends in net tariff assistance by industry sector between 2016-17 and 2019-20. (4)
4. Explain TWO costs and TWO benefits of reducing protection in the Australian economy. (4)

[CHAPTER FOCUS ON AUSTRALIA’S TRADE POLICY

Conclusions on the Merits of Trade Agreements
“The Commission has previously raised questions about the merits of trade agreements. The overall
conclusions are as follows:
• Multilateral trade reform offers potentially larger improvements in national and global welfare than a
series of bilateral agreements. While the slow progress of the Doha Round of multilateral trade reform
has accelerated preferential agreement making, the trade diverting effects of bilateral agreements should
not be forgotten.
• Australia gains more from reducing its own tariff barriers than from the tariff reductions of a bilateral
trade agreement partner.
• The benefits of increased merchandise trade emanating from bilateral trade agreements have been
exaggerated.
• Different and complex rules of origin in Australia’s preferential trade agreements are likely to impede
competition and add to the costs of firms engaging in trade.
• The nature and scope of negotiating concessions should be assessed from a national structural reform
perspective before entry into negotiations, rather than primarily for export opportunities. The text
of proposed trade agreements should be made public and a rigorous analysis independent of the
negotiating agency published with the final text.”
Discuss the main elements of the Australian government’s trade policy and evaluate the costs and benefits of
Australia pursuing bilateral free trade agreements at the expense of multilateral trade agreements through
the WTO.
[CHAPTER 6: EXTENDED RESPONSE QUESTION

Discuss the costs and benefits of protection and the reasons why the Australian government has reduced the
protection of Australian industry and pursued a policy of free trade.

CHAPTER SUMMARY
AUSTRALIA’S TRADE POLICY
1. Australia has a long history of protection in the manufacturing sector where tariffs and quotas have been used
to shield domestic firms from import competition.
2. Since the early 1970s both nominal and effective rates of assistance given to manufacturing have been cut by
the Australian government. Cuts in protection were undertaken in the 1988 Industry Statement, followed by the
1991 Industry Statement, which accelerated the pace of tariff reform. Further cuts in tariffs were made by the
Australian government in 2005, 2010 and 2015.
3. The main reasons for the change in government policy towards reducing protection were to increase the
efficiency and international competitiveness of Australian industry, and to increase economic growth through
a process of structural reform in industry which could lead to a more efficient allocation of the economy’s
resources.
4. The short term costs of the reduction in protection for Australian manufacturing are an increase in structural
unemployment in plan industries (such as textiles, clothing and footwear, passenger motor vehicles and steel)
and the resources needed to finance retraining, relocation and redundancy schemes for displaced workers in
these industries and industrial regions of Australia.
5. Australia’s policies towards free trade include the following:
• A unilateral decision was taken in the 1980s, 1990s and 2000s to dismantle protection and open up the
Australian economy to import competition, especially in manufactured goods.
• Australia has negotiated bilateral free trade agreements with countries such as New Zealand, Singapore,
Thailand, the USA, Chile, ASEAN, Malaysia, Korea, Japan, China, Indonesia, Peru, Hong Kong and India.
• On a regional basis Australia has signed the ASEAN-Australia-New Zealand Free Trade Area Agreement
or AANZFTA (2009) and the Trans Pacific Partnership Agreement or TPP (2015). It is also negotiating a
Regional Comprehensive Economic Partnership (RECEP) with ASEAN and a Pacific Agreement on Closer
Economic Relations (PACER) with Pacific Island nations.
• On a multilateral basis, Australia is a vocal proponent of free trade in the World Trade Organisation (WTO)
rounds of trade talks (such as the Uruguay and Doha Rounds), and forums such as Asia Pacific Economic Co-
operation (APEC), ASEAN and the G20.
6. The major benefits of the reduction in protection in Australia include a more competitive and efficient
manufacturing sector which exports to the world market and contributes over 20% to Australia’s merchandise
exports. Other positive outcomes include employment gains in efficient industries, and at the macroeconomic
level, a higher rate of economic growth has been achieved.
The major short term costs of the reduction in protection in Australia have been a rise in structural
unemployment and structural change in affected industries and industrial regions. The Australian government
has also financed the cost of retraining and the relocation of displaced workers.
7. The extent of international protection has an adverse impact on Australian exporters. This is especially the
case for agricultural exporters who compete with subsidised wheat, dairy, beef, sugar and rice in European,
American and Asian markets such as Japan and South Korea. Australia has played an active role in the
WTO forum to achieve reductions in agricultural subsidies which deny market access to Australian farm
exports. The Doha Round of WTO talks was largely concluded in Nairobi in 2015 with a decision to abolish
agricultural subsidies by 2018. Other outcomes included a Trade Facilitation Agreement, an Expanded
Information Technology Agreement, an Environmental Goods Agreement and a Government Procurement
Agreement. In 2019-20 China Imposed trade barriers on a range of Australian exports such as barley
and wine, forcing Australian exporters to diversify and find alternative markets. Australia lodged a formal
complaint against Chinese trade barriers with the WTO in 2020-21.

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© Tim Riley Publications Pty Ltd

Chapter 6: Australia’s Trade Policy 149

AUSTRALIA’S POLICIES TOWARDS PROTECTION

Industry 1980-81 1989-90 2000-01 2009-10 2016-17

Textiles 26 23 6 4.4 2.2

Clothing and footwear 63 65 19 12.7 2.2

Fabricated metals 20 13 4 4.4 1.6

Transport equipment 40 22 9 2.0 2.2

Manufacturing average 14 9 3 4.7 1.9

Agricultural average 3 3 3 4.7 0.5

© Tim Riley Publications Pty Ltd Year 12 Economics 2023

Source: Industry Commission (1994), Annual Report.

Year 12 Economics 2023 © Tim Riley Publications Pty Ltd

Figure 6.2: Effective Rates of Assistance in Manufacturing 2015-16 to 2020-21

Source: Productivity Commission (2022), Trade and Assistance Review 2020-21.

© Tim Riley Publications Pty Ltd Year 12 Economics 2023

Source: IC (1996), Annual Report 1995-96.

Year 12 Economics 2023 © Tim Riley Publications Pty Ltd

Recent Australian Tariff Assistance

Figure 6.4: Effective Rates of Assistance to Manufacturing and Agriculture

2016-17 2017-18 2018-19 2019-20 2020-21

Input penalty -$2,097.5m -$2,057.7m -$1,703.2m -$1,515.3m -$1,737.1m

Net tariff assistance $276.2m $264.4m $264.7m $307.0m $350.7m

© Tim Riley Publications Pty Ltd Year 12 Economics 2023

AUSTRALIA’S POLICIES TOWARDS FREE TRADE

Year 12 Economics 2023 © Tim Riley Publications Pty Ltd

Figure 6.5: Australia’s Bilateral and Regional Trade Agreements 1983-2022

© Tim Riley Publications Pty Ltd Year 12 Economics 2023

Australia’s Multilateral Trade Agreements: The WTO and APEC

Extract 6.1: The WTO, A Global Rules Based Trading System

Year 12 Economics 2023 © Tim Riley Publications Pty Ltd

Year Round Coverage Participating Countries

1947 Geneva Round Tariffs 23

1949 Annecy Round Tariffs 13

1951 Torquay Round Tariffs 38

1956 Geneva Round Tariffs 26

1960-61 Dillon Round Tariffs 26

1964-67 Kennedy Round Tariffs and anti dumping measures 62

1973-79 Tokyo Round Tariffs and non tariff measures 102

1986-94 Uruguay Round Tariffs and non tariff measures 123

2001-15 Doha Round Tariffs and non tariff measures 164

© Tim Riley Publications Pty Ltd Year 12 Economics 2023

Australia’s Bilateral Trade Agreements: ANZCERTA and AUSFTA

Year 12 Economics 2023 © Tim Riley Publications Pty Ltd

THE IMPLICATIONS OF REDUCING AUSTRALIAN PROTECTION

© Tim Riley Publications Pty Ltd Year 12 Economics 2023

The Global Financial Crisis and Australian Industry Assistance

The Australian Car Industry in 2013-14

Year 12 Economics 2023 © Tim Riley Publications Pty Ltd

THE IMPLICATIONS OF INTERNATIONAL PROTECTION

GATT and the Uruguay Round (1994)

© Tim Riley Publications Pty Ltd Year 12 Economics 2023

The WTO and the Doha Round (2001-15)

Year 12 Economics 2023 © Tim Riley Publications Pty Ltd

China’s Imposition of Trade Barriers on Australia

© Tim Riley Publications Pty Ltd Year 12 Economics 2023

Figure 6.7: The Growth of Bilateral and Regional Trade Agreements

Rising Global Trade Protectionism

Extract 6.2: The Future of the World Trading System

Year 12 Economics 2023 © Tim Riley Publications Pty Ltd