Australian report shows benefits of trade liberalisation
July 17, 2009
By Ann Harrap
Like most countries, Australia has been significantly affected by the global economic crisis. While it has to date effectively avoided a recession, the slowdown in the economies of major trading partners - China, Japan, the US and the EU, among others - has seen Australia's growth cut significantly in the past six months.
As has been the case in South Africa and all around the world, there is vigorous debate in Australia about appropriate responses to the global economic downturn. The Australian government is convinced that resorting to protectionism is the wrong way to go and remains determined to fight protectionism at home and abroad.
Despite the commitments made by world leaders at the Group of 20 meetings in Washington and London to avoid protectionism, some countries have introduced protectionist measures. And it is unlikely that we've seen the last of these.
Against this backdrop, it is worthwhile sharing Australia's experiences about the significant benefits that trade liberalisation has brought to our country.
Last month Australia's Minister for Trade, Simon Crean, released a new comprehensive study, entitled Benefits of Trade and Trade Liberalisation, prepared for the Australian government by the Centre for International Economics (CIE).
The study demonstrates that Australia's approach to trade liberalisation over the past two decades has delivered substantial benefits to national prosperity, individual incomes and employment over that time.
For working families, the benefit over the past two decades has been significant - the study shows trade liberalisation has benefited the average working family by up to A$3 900 (R25 500 at current exchange rates) each year and boosted Australia's gross domestic product (GDP) by between 2.5 percent and 3.5 percent each year.
Australians are, on average, wealthier and have higher skilled jobs thanks to trade liberalisation and economic reforms undertaken since 1988.
The study also finds that Australia's manufacturing sector became more resilient and export-focused as a result of trade liberalisation in the sector. Between 1998 and last year, manufacturing export volumes increased by more than four times and average real wages increased by 6 percent in the manufacturing sector.
Importantly, the negative impacts of the tariff cuts on import-competing sectors were offset by the positive benefits on exports. As protection was reduced for manufacturing through the 1980s and 1990s, exports rose as a percentage of GDP.
The trend in manufacturing towards capital intensive and export-oriented goods resulted in changes to manufacturing employment, with a 60 percent rise in skilled and managerial positions and a 15 percent drop in manual and production workers.
Overall, the report concludes that lower levels of industry assistance produced "a more dynamic manufacturing sector".
The CIE report also tackles the misconception that Australian jobs are being exported to countries such as China and India. It finds that employment depends on the overall level of demand in the economy, not the level of imports or exports.
The study also finds that one in five Australian jobs are related to trade. It finds that 13 percent of jobs are related to production of exports, and 10 percent to the shipping, distribution and retail of imports - a total of more than 23 percent.
And the study provides evidence that a resort to protectionist policies would damage the global economy and delay recovery.
The report sends a message that there have been concrete benefits from trade liberalisation and it is a strong reminder of the importance of engaging, rather than retreating, in the face of global recession.
The CIE study is available to view at www.dfat.gov.au
Ann Harrap is the Australian high commissioner to South Africa
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