Economics - Business Presentation - Assessment – Answer

November 23, 2018
Author : Sara Lanning

Solution Code: 1GAA

Question: Economics Assignment

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Economics Assignment

Case Scenario/ Task

  1. Trade and Comparative Advantage

In April 2014 the Australian government signed new trade agreements with both Japan and Korea.

  1. What were the main changes in the trade agreement between Australia and Japan?
  2. What were the main changes in the trade agreement between Australia and Korea?
  3. From analysing these trade agreements, in what products and services do you think Australia, Japan and Korea have a comparative advantage?
  4. Who were the winners and losers from these trade agreements in Australia, Japan and Korea?
  5. Do you think that these trade deals benefit all three countries equally?

OR

  1. Fiscal Policy

    1. Has the government been following an expansionary or contractionary fiscal policy between 2010 and 2015? Give evidence to support your answer. You need to consider what was happening to the budget deficit or surplus over this period.
    2. Does a budget deficit always indicate an expansionary fiscal policy? Does a budget surplus always indicate that fiscal policy is contractionary? Explain your answer.
    3. What type of fiscal policy – expansionary or contractionary – was the government implementing in its May 2015 Budget? Give figures to support your answer.
    4. Do you think that Australia’s fiscal policies between 2010 and 2015 have been the correct policies for the economy over this period?

OR

  1. Income inequity in Australia 

The benefits of economic growth are notshared equally and can result in an unequal distribution of income - and this can have some disadvantages for the economy.

  1. How unequal is the distribution of income in Australia? Has the distribution of income become more or less equal over the past 10 years? Give evidence to support your answer.
  2. What are the causes of income inequality?
  3. What actions does the government take to make income distribution more equal in Australia? Why does the government do this?
  4. Do you think income inequality is good or bad for the economy? Give reasons to support your answer.

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Solution: Economics Assignment

Free trade agreements between countries clearly spell out the taxes and duties imposed on their imports and exports and this will give a dynamic business climate between the two countries who have signed the trade agreement. This paper discusses about the trade agreements between Australia and Japan and also trade agreement between Australia and Republic of Korea. As these are two trade agreements are the most recent of the Australia’s trade agreements and as these countries are the most important trading partners of Australia in the recent decade, it becomes crucial to discuss the facts of these trade agreements.

The JAEPA (agreement between Japan and Australia for an Economic partnership):

As Japan is the second largest trading partner and also the largest export market, the trade agreement between these two countries would provide improvements in the market access for the products and services that are exchanged between these two countries by significantly reducing the tariffs imposed between these two countries (JAEPA, 2015). The important commodities on which the export tariffs have been reduced include beef, wine, natural cheese, horticultural products and energy products. And in the case of services, Australian service providers in Japan would have better market access in Japan in areas such as education, legal, financial services, telecommunication services, etc. And at the same time, Australian consumers would enjoy Japanese products at cheaper rates particularly in areas of electronic consumer products and also cars. The JAEPA agreement has 20 chapters with each chapter dedicated to the provisions and tariffs of particular sector of goods and services. Initial parts of the agreement highlights the general provisions of transparency, administrative proceedings and also other general procedure of trade between the two countries. The second chapter is about the reduction and phasing out of tariffs imposed on various goods and commodities of trade between the two countries. Chapter 3 of the agreement sets the rules of origin and checks whether a good or a commodity qualities for preferential tariff treatment and this constraints the goods to be either  manufactured totally in Japan or in Australia with those materials that made the rules  and with no imported material content from other countries (Report_144, 2015). Chapter 4 sets the custom procedures that will be applicable to the goods and services traded between the two countries and the parties involved. When the parties involved follow the respective customs procedures to be in a consistent, impartial and reasonable and also transparent procedures in order to facilitate smooth and legitimated trade flows between the two countries. While chapter 5 details on sanitary and I phytosanitary measures that are applicable to the strengthening of information exchange between the two countries through establishment of a subcommittee, chapter 6 sets out the technical regulations and conformity assessment procedures under which the enhanced information exchange takes place. The majority of the export between Australia and Japan is of food items that are traded between the two countries, chapter 7 is for strengthening the exports and imports of trade items between the two countries. Similarly chapter 8 is about the energy and mineral resources that are being traded between the two countries and chapter 9 is about the rules and procedures that are set out for the trade in services between the two countries and this has been changed to guarantee Australian service suppliers access to Japanese market in the areas of commercial interest.  Chapter 10 involves the trade of telecommunication services and its rules and regulations, and other chapters related to particular sections of trade in services like financial services dealt with in chapter 11 and government procurement in chapter 17. Chapter 20 provides the final provisions of trade between the two countries that would help the JAEPA to operate as a treaty of trade between the two countries.

JAEPA 2015, has made changes in the duties and taxes imposed on agricultural commodities like beef, dairy and also horticultural products that will give wide market access to the exporters and importers of these commodities in the two countries. The main changes in the JAEPA agreement has benefitted many industries including agricultural, manufacturers, resource exporters.

Main Changes in the trade agreement between Australia and Korea:

A free-trade agreement between Korea and Australia was signed in the year 2014 promises a 73% increase of agricultural exports. Korea is the third-largest export market for Australia and ranks fifth in the largest market for agricultural exports of Australia. . Small businesses are provided by a export opportunities in Korea due to the free-trade agreement of the Korea-Australia free-trade agreement KAFTA. It has been elated by the Minister for trade Andrew Robb that greater potential for small and medium business (is provided in this agreement) to benefit from this agreement.  84% of the Australian products will enter Korea duty free and this would increase to 99.8% after the full implementation of the agreement. Similarly 86% of the Korean Products will enter Australia duty free and the remaining would be phased out in the span of 8 years (Herbert, 2014).

Agricultural commodities like wheat, beef, sugar, dairy and cherries and oranges will benefit from the tariff rates and would encourage more manufacturers and producers to export their produce to Korea. (ANDEV, 2015) Many component producers and medium scale manufacturers from Melbourne south-east creates opportunities and competitiveness in the Korean market automated bots and components Case more competitive traders 8% tariff will be eliminated on these, parts and components. Lowered tariffs for small businesses will ensure less costly business” that would support competitiveness and more profits for the small and medium scale businesses. Investment opportunities in Australia and Korea will also improve due to the KA FTA agreement and this will strengthen the ability and attract more investments from Korea into Australia and from Australia into Korea.

Products and services in which Australia, Japan and Korea have comparative advantage:

Australian imports and exports for the year 2014, reveal the following comparative advantage in certain commodities like minerals (19.83), raw materials (4.02), fuels (1.54), Animal products (2.93), etc. The Major product categories imported by Australia are Consumer goods (41.65%), Capital goods (30.07), Machines and Electrical goods (24.56%),Fuels (15.93%),Intermediate goods(14.41%). Transportation (12.82%), miscellaneous (10.27%) and raw materials (10.03%).  Similarly the major product categories of exports from Australia and their product share in Exports include raw materials (61.37%), Minerals (30.08%), Fuels (26.6 %), intermediate goods (15.91%), consumer goods (14.1%) and Animal (6.39%). Source: (Exports_Imports, 2016)

In the case of Japan, we have the import and export data for the year 2014, which reveals the comparative advantage in the following products. Japan has revealed comparative advantage in capital goods (1.71), Machine and electrical equipment (1.6), consumer goods (0.84), transportation (2.34) and metals (1.3) and intermediate goods (0.96). In the case of major import categories consumer goods (34.1%) and Fuels (31.87%) play a major share. Raw materials (28.4%), capital goods (21.87%), Mach and Elec (19.77%) and intermediate goods (13.74%) play an important share in imports of Japan. Similarly the major exports from Japan include product categories like capital goods (47.28%), Mach and Elec (33.56%), consumer goods (23.77 %), transportation (23.65%), and intermediate goods (21.7%). Source: (Exports_Imports, 2016)

In Republic of Korea, we have the comparative advantage in the following good – capital goods (1.74); Mach and elec (1.75), intermediate goods (1.16), transportation (1.4), metals (1.22) and plastic and rubber (1.67). The major imports to Korea include product categories like fuels (35%), raw materials (30.38 %), capital goods (26.2%), consumer goods (24.12%), and Intermediate goods (19.02%). Similarly the major exports share from Republic of Korea include product categories of capital goods (50.52%), Mach and Elec (34.56%), consumer goods (24.69%), intermediate goods (23.5%) and transportation (19.8%). Source: (Exports_Imports, 2016)

The imports and exports of the three countries show their comparative advantages in certain commodities. Japan has comparative advantage in commodities like transportation (2.34%) and capital goods (1.74). Republic of Korea has highest comparative advantage in Mach and electrical goods followed by capital goods. And Australia has the highest comparative advantage in Minerals (19.83) and raw materials (4.02) and Animal (2.93) (Carbaugh, 2007).

Winners and Losers of the trade agreements between Australia, Korea and Japan:

If we see the winners and losers between the two countries of Japan and Australia, it seems obvious that Japan is the winner as more than three quarters of exports to japan from Australia consists of natural resources and they are made to be tariff free and 44.5% of the exports from Japan to Australia is of motor vehicles and they are still subject to 5% tariff.  When consumers are taken into consideration, a 5 % tariff cut on motor vehicles will result in3% price cut in the imported vehicles which will make the Vehicles made out of imported parts much cheaper for the consumer. (Janda, 2014) Similarly the tariff cut in electronic goods will make the consumer electronic goods much cheaper making them less costlier than they were before (Hubbard et al., 2013). For the manufacturers, it seems that Japanese manufacturers would be much better off than the Australian manufacturers, as Japanese manufacturers sell a lot more goods in Australia than the Australian manufacturers do in Australia. (Layton and Robinson, 2012) Those exporters of Minerals and resources from Australia are true winners as Japan is eliminating all the tariffs on resources over the next 10 years with some removed totally with immediate effect. The losers in the JAEPA seems to be the farmers and agriculturalists as they are greatly disappointed by the tariff cuts and these tariffs not being phased out altogether (Johnson, 2014). The Dairy industry is also facing a greater disappointment as the extra 20000 tonne duty free cheese quota is not enough as they are being mixed up with the Japanese products and this quota would not be enough. Tariff cuts and elimination of wine tariffs of Australia’s wine would place them on a level playing field with the Chilean wine.

The FTA between Australia and Korea, has resulted in some winners and losers on both sides (countries). In the Australian- Korean Free trade Agreement – KAFTA, car manufacturers are the major losers as Korea is the world’s largest auto manufacturers and removing the tariffs would hurt the local car manufacturing industry in Australia. (Lucas, 2013).

Will Trade deals benefit all the three countries equally?

Australian Government has been entering into trade deals with south Asian countries over the past decade in order to expand its potential for trade in other countries. This has led to both benefits and some harm to certain industries in Australia and also other countries. As theory of comparative advantage points out, free trade agreement is not a total win-win situation for countries but rather a win-lose situation for some industries and win-win situation for some industries in both countries.

The benefits of free trade between the Australia and Japan and Australia and Korea is that it makes the prices of goods and services much more competitive as the world prices are more competitive than the local prices which will lead to more efficiency in production methods of beef and dairy products in Australia and educational & financial services in Japan. (Hubbard et al., 2013) Similarly free trade between Korean and Australian trade, would make auto making prices much more competitive in Australia, though the car manufacturers might suffer. As countries become more economically dependent on one another, the world becomes a much safer place and the free trade agreements between Australia, Japan and Korea would make them more interdependent and hence will make them a much safer place for other international relations.

However, there are some problems with free trade agreements too (Salvatore, 2001). As the trade between these countries improve, some industries might be better off and some industries might become worse off. For example the free trade agreement between the three countries has helped the beef industry, animal product industry and services industries like education and financial services of Australia in Japan much more competitive and profitable where as the free trade agreement between Australia and Korea has affected the Car and auto making industry in Australia much badly as this has resulted in the elimination of local producer in automotive industry.

Conclusion:

From the above sections on the changes made in the free trade agreements between Australia and Japan and Australia and Korea, we can see that all the three countries are bound to have more benefits and some hindrances in their path of international development. As the Australian Government is on its way to the expansion of international trade in the South Asian and Asian countries, it has entered into free trade agreements with various counties like China, Japan and Korea and into talks with various other countries like India. The pros and cons of free trade agreements outweigh each other and mutual interdependence develops between these countries as a result of these free trade agreements.

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