Importance of Cross-Country Trade and Investment Agreements - Assignment Example

Introduction The benefit of preferential trade agreement and free trade agreement between china and Australia would creates more advantages between the two states since, it entails an economic growth, accession of local lobbies as well as voters and creation of ambassadorial and political link between the two states. The impact of FTA may be somehow dissimilar to those anticipated; Australia is highly liberalized economy far from its key market as well as depicts a comparative advantage in primary products. This makes it odd in relation with many OECD states. In its trade association with china, which is economically as well as physically large, it imports superior processed goods which make it uncharacteristic of North-south PTAs (Alan Sitkin 2013). Importance of cross-country trade and investment agreements The benefit is that it would lead to growth in imports from china due to low production cost unlike from non-partner country as well as the Australia economy will experience steady exports market leading to growth in foreign venture in to the country as well as creating a greater growth income and job creation to the local citizen. Most beneficiaries of this trade agreement are the common consumers who depict their purchasing power growth and also improved completion as well as available alternatives in products (Alberto Alesina 2005). A much more welfare impact for government is the eradication of the classic terms of trade externality that exist in unilateral set of trade rules. The very distinctive effect is enhanced access of market with its reduction in the number of attendant in tariff as well as non tariff like declined policy. Venture promotions are made possible by way of preferential market right of entry that makes the member states more attractive venture location. Venture provisions within these agreement, which project speculators may encourage venture. The benefit of cross country trade agreement is that it aid in getting rid of lethargic pace of global trade compromises as well as attain significant power over normal setting as well as rulemaking in trade and venture. Moreover, cross country trade agreement may serve as a foreign policy toll which may exist so as to cement relationship as well as encourage partner states to keep on political as well as economical improvements (Bank 2011). The cementing of ambassadorial ties may as well serve to build new geopolitical coalition. reasons for which a country prefers to sign a FTA with key trading partners PART B Reasons to sign FTA Strategic trade theory There is demonstration effect since, signing china –Australia re trade agreement will provide a way for growing bilateral trade as well as strengthening mutual advantageous economic ties between the two states. Also FTA will promote the development of businesses due to strong ties in trade, venture, energy as well as mineral resources. In this regards, FTA majorly doesn’t deal with regulatory restriction that firms experience in GVC.FTA has aid to the extent that additionally reducing the tariff barriers in china by reducing cost of trade. The FTA helps in integrating firms into a worldwide supply as well as value chain. The venture depict a significant chapter in creating a more probable as well as safe venture environment between china and Australia, encouraging a growth in flows to Australia (Bernard M. Hoekman 2002). The economic advantage from international trade are strengthened as well as improved when two or more states agree to a mutual minimization in trade restrictions. by widening the market, concentrated liberalization of trade lead to a growth in competition as well as specialization among states hence giving s broader boost to effectiveness as well as customer incomes. also, the multinational decline in trade restriction might minimize political opposition of free trade in every of the states entailed, this is due to the fact that groups that oppose trade reorganization may join the campaign for free trade where they depict a chance for exporting to other states in the trade agreement. moreover, free trade agreement between the two countries is significant strategy for liberalization of global trade (Birkin 2012). Free trade therefore permits numerous participants to attain the greatest likely advantage from trade. The transaction cost The living standards of customers who buy the product will be improved for three key reasons; that trade improves the number of sorts of products for customers to choose from, free trade area minimizes the price of each product sold in the market and that free trade might grows the supply of the product in other market as well as lead to reduced price for the product. Where the product is one that customers buys frequently and in dissimilar sorts over time, then since trade will grow the volume of sorts existing to every customers, trade will enhance the welfare of every customers. it is on the basis of assumption that each customer assumes more sort, free trade by growing the volume of assortment will grow number of welfare. First the change of free trade commands alternations in industry in both states (Hadrian Geri Djajadikerta 2015). Even though the production increases, productive effectiveness increases also. As a result, it is likely that every firm will require lying of resource in moving to free trade. As much as every firm didn’t minimize resources, it is likely that some companies will be pushed out of business in shfiti9ng to long run free trade equilibrium which are those firms that will most likely losses local consumers than they gain in foreign consumers or those firms unable to adjust the traits of their product to serve the global market unlike the local market only. Probable cost of free trade area occurs where one doubts the hypotheses that more sorts are frequently preferred by customers. The assumption is that consumers have full information about a product’s price in the market as well as the traits of the product. it therefore implies that customers will spend more time and cost in understanding a product existence in the market. How FTA can enhance competitive advantage and promote bilateral trade and investment opportunities Free trade area encourages allocation of resource, growth in the level of income, savings as well as venture and consequently enabling a state to realize expansion even a wholly employed economy. Trade creates stimulus for demand to the lagging economies, moreover, specialization by way of trade doesn’t only advantage the export industry but entire other industries linked to the export market (John B. Cullen 2009). By growing the size of the countries market as and consequently the production capacity, local firms may advantage from external as well as internal economies of scale, international trade as well means more competitive pressure on local firms that stimulate study as well as growth. All of the above consideration result to comparative advantage to the country might be depicted as a framework of forces. Those firms specializing within the, market have a comparative advantage are on a much stronger foothold to obtain competitive advantage in manufacturing standardized product within the marketing this regards, the four key forces that impact the comparative advantage of union in a product as observed above are the technology, existing labor force, demand as well as the policies that improves trade. How FTA can promote bilateral trade and investment opportunities A bilateral trade agreement is an agreement created into between two states in which parties agree to minimize tariffs, quotas as well as other trade restriction between two states. Bilateral as well as regional trade agreement are aspect of worldwide trading system alongside multilateral trade agreement, the initial of which was the free trade area entered between two states which leads to removal of trade restriction (Kuratko 2013). Free area encourage bilateral trade and investment opportunities since, there is an economic open upon between the two countries which as a result leads to competition from foreign market and an opportunity to on more market for investment. this factor is all brought about by reduction in tariff, removal of trade barrier and embargos. All this factors encourage free movement of goods and service between member states and as a result, the opportunity for doing business is encouraged and a result, the bilateral trade between two states is improved. the political pressure between two states is enhanced due to free trade area which creates an ideal investment environment between two states. PART C FTA between Australia and China The opportunities created by the FTA between Australia and China The free trade agreement between Australia and china is a bid to an association that is merely providing Australia unparalleled right of entry to the global fast growing location as well as a firm position in china’s anticipated expansion but as well provides china with mutual right of entry to Australia market. The FTA will majorly improves the competitive benefit in major segments will creates a chance of reducing the cost of product as well as raw material and labor for firms in Australia which is outsourced from china. this will fasten the pace of transformation in global supply chain as well as Australian firms will require to make the very most of the opportunities for expansion as well as clinch for change (Rugman 2002). The competitive advantages that FTA will offer to Chinese firms China has growing business opportunity across the globe with sophisticated manufacturing plant which provides Chinese an opportunity for exploring Australian market, Moreover, china is depict a large growing economy across the globe which is anticipated to overtake USA to be the largest economy. with population of 1.3 billion, 20% of the global population, china economy is average 10% yearly and is anticipated to grow by 7% each year. This is quite big as compared to Australians economy and as a result, china will benefit from FTA with Australia much than Australia will benefit from FTA agreement. China is therefore depicting a stable economic expansion with highly skilled labor force, they are very innovative with knowledge based factories that is well positioned to act in respond of Australians priorities. This is some of competitive advantage that encourages china to invest in Australia. How Chinese business firms can leverage opportunities created through this FTA. Chinese business firms can pull the opportunities created by FTA by investing in Australia. this is possible since, Chinese firms will take advantage of free trade with no restriction, low tariffs and quotas as well as the favorable terms of trade. Australia at present is one of the global economies progressing country and consequential, FTA agreement would imply a benefit to Chinese firms to invest in Australia. the transaction cost for producing a product will be low unlike buying from other non member state as well as the presence of financial services in Australia will boost the Chinese firms in financing the investment. In this regards, it is apparent that FTA will create mutual, benefit between the two states and consequently will encourage bilateral and investment opportunities and thus an implication of economic progressing between china and Australia. AUSTRALIA-CHINA TRADE › TOTAL EXPORTS 98.3 › TOTAL IMPORTS 54.3 › TOTAL TWO-WAY TRADE 152.2 › SHARE OF AUSTRALIA’S From the above data analysis, it can be observed that Australia is exporting more than China is importing with Australia’s total market share of 23%. This is an indication that Australia is an investment hub for Chinese firm in which case they need to capitalize on free trade agreement. As a result, the Chinese firms should focus on Australia’s top most imports such as the computers, clothes, furniture mattress and toys, prams and games. this is provided in detailed in the table below. top 5 most imports from China Telecommunications equipment 5.6 2 Clothing 5 3 Computers 4.9 4 Furniture, mattresses and furniture 2.3 5 Prams, toys, games and sporting 2 PART D; Impact of FTA industry-specific opportunities Free trade area will lead to the following factors Increased Exports. The will be growth in the level of economic expansion due to wide market in the foreign market. low tariffs on exports will lead to improved quantity of exported goods leading to growth in economy y and employment opportunity. 4. Economies of Scale. Where the nation may specialize in a specific production, they may advantage from economies of scale as well as low cost, this is more specifically right in market with high fixed cost. The advantage of economies of scale is that it will lead to lower price of the product in the market. 5. Increased Competition. With more local firms doing business, they will face international competition leading to creation of more incentives to reduce cost as well s improve the effectiveness of production. It might control local monopolies from charging too high price on the product. Challenges With growing market that is outgrowing government control, china is at present faced with the challenge of reforms despite high growth rates, huge challenges remain inclusive of marked regional dissimilarity an established as well as floating population some time fixed officialdom, high rate of unemployment as well as ecological concerns is a challenge to the Chinese government. The economic and political challenges as well affect the FTA New avenues of FDI that have been created and how Chinese business firms can utilize competitive/locational advantages of Australia The Australian economy is growing very fast which provide an opportunity for investment since, there is wide haven for doing business in Australia and consequently, investors are assured of the returns from capital invested in Australia economy. the political stability, improved infrastructure with skilled labor forces are some of the FDI that have attracted existing foreign investors in the country in which believe that this incentives will encourage more investors china. Australia is located in a strategic place with worldwide trade as well as venture ties with proven track record of creation and innovation position Australia as the best investment hub globally which is current ranked as among the top investment hub globally according to 2013 world direct investment (Bernard M. Hoekman 2002). Locational advantages that a Chinese firm can utilize to improve its competitive position The location of global insurance companies in china is impacted by the proximity to the regulatory body, transparency for the award of operating permit, present and future market demand as well as existence of other foreign venture. Special economic places as well as other major areas in china depict a positive impact on FDI (Hadrian Geri Djajadikerta 2015). china has a good infrastructure, well equipped port as well as communication and transport network such as the coastal regions of Guangzhou, Shanghai, Tianjin, Dalian and Qingdao. Compared to other parts of China, these cities have better infrastructure that supports transportation of cargoes. They as well as provide improved ports with enough facilities capable of catering for large as well as growing volume of exports. Conclusion The FTA agreement between china and Australia would lead to mutual benefit in terms of economic growth, enhances quality product with low prices due to competition from foreign firms. the outcome of creation of bilateral trade agreement is an intricate system of overlapping plans which many states fear due to negative impact since is it is not equipped to deal with such immense intricacy. Reference list Alan Sitkin, ‎B 2013, International Business: Challenges and Choices - Page 47, Sydeny. Alberto Alesina, ‎S 2005, The Size of Nations, Melbourne. Bank, AD 2011, Methodology for Impact Assessment of Free Trade Agreements, London. Bernard M. Hoekman, ‎M‎E 2002, Development, Trade, and the WTO: A Handbook - Volume 1, Cingage Leening, New York. Birkin, J 2012, Business Advantage Advanced Teacher's Book - Page 94, John Wiley, New York. C. L. Lim, ‎KE‎L 2012, The Trans-Pacific Partnership: A Quest for a Twenty-first, Cingage Learning, London. Hadrian Geri Djajadikerta, ‎Z 2015, A New Paradigm for International Business: Proceedings of , China. John B. Cullen, ‎PP 2009, International Business: Strategy and the Multinational Company, John Wiley, London. Kuratko, D 2013, Entrepreneurship: Theory, Process, and Practice, Sydney. Rugman, AM 2002, International Business: Theory of the multinational enterprise, Cingage learning, New York. Read More