(BEO3378) International Economics and Finance 国际经济理论作(2)

For afreetradeagreement

Although China has reduced a large extent of tariff when joining the WTO, Chinese average tariff level is still in a higher level relative to Australian. China commits to reduce to zero about tariffs of most products of being imported from Australia; Australia commits to fall to zero tariffs for all products imported from China eventually. Falling prices will further expand imports due to Chinese consumer increasingly demand for imports, which is trade creation effect. Due to China-Australia Free Trade Zone, no matter in the case of trade creation and trade diversion, China and Australia import prices go down compared to the original. Electronic products, wool dairy products are rich in demand price elasticity, so cancelling tariff measures will make the Sino-Australian bilateral trade volume increase and form trade expansion effect. After the completion of China-Australia Free Trade Area, the domestic markets of Australia and China will be merged into a unified big market, enterprise production scale and the corresponding expansion obtain scale economic benefit. For example, dairy products industry has always been the advantage industry in Australia, but New Zealand dairy products have strong competition. It has deep influence on market share. China-Australia Free Trade Area makes Australian dairy industry gain more market share and drives the cost down by Jun, Huang and Chou (2005). Against afreetradeagreement

However, part of Chinese gross domestic product will be replaced by Australian imports. In the letter of intent for China-Australia FTA, tariffs are reduced to zero, which means a large number of exports from New Zealand FTA to China since 2008 will be subject to severe impact, especially in dairy products. After the completion of China-Australia Free Trade Area, effects of competition will also highlight within the region competition and the competitiveness of area. China and Australia will specialize in the professional division of labor and industrial division of labor according to their comparative advantage and competitive advantage. Specialized division of labor in the area will be further refined and deepened, in turn, this will increase regional competition. In the zero tariff of China-Australia Free Trade Agreement, it means that it will have huge impact on agriculture and mining because of losing high tariffs. (Dollar and Kraay 2004)

Part 4 :Key costs and benefits of ChAFTA

Benefits

The trade creation effect

The FTA involves the tariff concession in both parts. China promises not to impose tariff for most Australia’s goods while Australia promises not to impose tariff for all goods from China. Because of the price reduction caused by no tariff, the demand of imported products will be expanded in both countries. After that, the original income could buy more goods and thus create the trade volume. For example, the import price of cereal, dairy products, iron ore and wool will be reduced in China, so the consume volume will be expanded.

Benefits from comparative advantage in some industry

CHENG (2008) examined the comparative advantage of both China and Australia and concluded that the trade mode of China and Australia exactly reflects the comparative advantage in factor endowments. China exported textiles and garments with high labor intensity and Australia exported resource-based products. There is an intense comparative between China and Australia.

Cost

The cost of unexpected shocks and crises

Unexpected shocks and crises will forced the company to treat with new method and thus increase cost. For example, the trade of iron sand between Australia and China, Thomas (2012) argued that China's steel industry is sensitive to the international commodity market price, and will affect the production of iron sand in Australia. If the demand from China is weak enough, the producer of Australia will have to find new buyers and thus increase the transaction cost. Identify the main winners and losers in China and Australia

According to the research made by Cheng (2008), Australia would benefit from the FTA more than China. Actually, the FTA can increase exports volume of Australia by enhancing the Australia’s advantages. He estimated that, from the macro perspective, FTA will result in an upward trend of 0.08% in GDP of China and 0.6% in Australia’s GDP. As a result, both countries are winners.

Actually, both countries will be the winners of the FTA, otherwise they will not to contribute a considerable efforts and time to negotiate with each other for FTA. Still, it should be mentioned that although FTA will benefit both countries, its mechanism is not automatic, both companies and policy-makers should always be ready to make strategies and plans for adapting to the new environment in FTA.

Reference:

Australian Bureau of Statistics, 2015, 2013-14 KEY FIGURES. Available at:

http://www.abs.gov.au/ausstats/abs@.nsf/mf/8155.0[Accessed 14 July 2015]

Australian Department of Foreign Affairs and Trade, 2015,

country-and-commodity-pivot-table-fy2014. Available at:

http://dfat.gov.au/about-us/publications/Documents/country-and-triec-pivot-table-fy2014.xlsx[Accessed 14 July 2015]

Dawei, C 2008, 'A CHINESE PERSPECTIVE ON THE CHINA--AUSTRALIA FREE TRADE AGREEMENT AND POLICY SUGGESTIONS', Economic Papers, vol. 27, no. 1, pp. 30-40.

Thomas,S 2012, ' Mine Your Own Business!: Economic Interdependence and Sino-Australian Relations in the 2000s ', Master Thesis at the Department of Political Science, University of Oslo. Dollar, D. and A. Kraay 2004 “Trade, Growth, and Poverty”, Economic Journal, no. 114.

Hong, X and Ran, Z 2013. “Opportunities and Challenges of Establishing the China-Australia Free Trade Agreement”．Contemporary Economics，vol. 27, no. 1, pp.70－71．

Jun, Y., J. Huang and H. Chou 2005 “Econom …… 此处隐藏：4601字，全部文档内容请下载后查看。喜欢就下载吧 ……