Government Intervention in Trade - Essay Example

Government Intervention in Trade. Introduction Economic revolution across the world has resulted to an obvious growth in trade among different countries as well as enhancing regional and international trade blocs. It is important to consider here that such growth has been greatly influenced by such factors as political, economic and cultural orientations of the countries involved. Many governments are determined to expand their trading partners in line with the benefits that have been put across in relation to international trade. Australian government has vigorously tried to engage in trade with limitless nations in America, Europe, and Asia as well as in Africa. This probably explains to some extent the growth and stabilization of the Australian economy (Baucus, 2001). The Australian government has tried to formulate trade policies that maximize the countries trade gains. The policies have enabled Australia to secure markets for its goods and services through its rigorous approach to bilateral, regional and multilateral trade. Australia has done this by signing of free trade agreements with countries such as Singapore, New Zealand, Thailand, USA etc. however, free trade agreements has been crippled more often than not by many governments who certainly think that such agreements do not favor their economies. This has made such agreements to be preferential whereby the governments will only engage in them when they are favored and will retract when they think the economic benefits are not leaning on their side (Bhagwati & Jadish, 2002). The general agreement on trade and tariffs has set out conditions through which a member of a free trade area can retract from the agreement which is usually a prescribed period of time usually not less than ten years. This is clearly shown under Article 14 of the GAAT. Member countries however for one reason or another have objected this ruling and this has caused more mayhem in international trade. Economic liberalism that were imposed by GATT and by the WTO has contributed to the course that ,many countries have taken where they liberalize more on the easy trade areas and liberalize less on the pressured trade areas (Sexton, 2003). Essentially this makes countries divert trade fares from the undeveloped low-cost countries to the developed higher-cost countries. This would see replacement of trade involving high-cost producer countries and low-cost import countries. This biased nature delimits the meaning and the general objectives as outlined in the GATT and the WTO making free trade lose it meaning and relevancy. A question of equity among member states of a certain free trade area will certainly be the order of the day for the unstable economies (Stiglitz, 2002). In this regard it will be difficult to rely on free trade areas for any member country. This is because the net gains from diverted trade and trade creation is barely a question of empiric circumstanced rather than factual. Australian economy can be accounted for from natural trade other than from the preferential trade in free trade areas. For instance, according to Garnaut, (2002) the agreement on free trade between the US and Australian has been depicted to be economically detrimental to Australia. This relationship has been shown not only to affect the economic relationships between these two countries but has also been said to affect the political harmony between them and to the East Asia . As Garnaut, 2002 postulates, Australia has always sought for consolidated exportation expansion to boost its economy. This is in contrast with other economically stable export countries. Australia seeks to maintain less non-discriminatory barriers to imports a motive which has encouraged economic integration between her and many other export countries. However, the agreement on free trade between her and the US has become a great threat to this approach and has scared away natural trade with other countries. By engaging in this agreement, Australia indirectly affects the trading systems and policies of other countries (Brennan, 2003). Economic analysis of the effects of removal of all import barriers from the US shows that Australia will enjoy a percentage trade gain of 0.5 by the year 2020. This is a much reduced percentage gain when compared to the expected trade gain if Australia removes the protection offered against imports from any country including the United States (Davis et al, 2002). According to Baucus 2001, there were major exceptions in the free trade agreements between the United States and Australia regarding agricultural products. This imposes great losses to Australia whose economy is greatly influenced by the agricultural sector. In reality Australia finds it hard to secure easy trade partners in East Asia for her agricultural produce as she is now tied by the trade agreement which in one way or another scares other trade partners especially from the East Asia. Research by the Department of Foreign Affairs and Trade of Australia shows that agreement on free trade between Australia and the United States has diverted all motor vehicle and machinery from East Asia to suppliers from the United States. Similarly, textile imports have also been diverted from East Asia to the United States. This relationship ends up costing the government more than could actually have cost if the trade was to be carried out in the East Asia (Centre for International Economics, 2001). This trend has received some negative reactions from the East Asian countries towards Australia. The political influence that the United States usually has towards Asian countries has also been impacted indirectly on Australia. The political aura has therefore greatly affected the trade between Australia and Asian countries leave alone the disorientation of the trade tariffs and systems that she has been forced into by the free trade agreement between her and the United States (Garnaut, 2002(a). The Australian Bureau of Statistics (2002) showed that Australia depends on the whole world for her export goods. According to research done by the Bureau, between 2001 and 2002, 60.7 percent of her exports went to the Western Pacific region in comparison to the 10 percent which went to the United States. It is therefore evident that the agreement on free trade between these two countries is more preferential. As earlier depicted, the agreement is out to ruin the Australian economy. Destruction of the export market to the Western Pacific has a big blow to the Australian economy given the export margin to the region. Reports have therefore shown that economic growth which have seen Australia rise from economic recession from the 1990 to economic prosperity in the year 2001 has been a contribution of the world with the Middle East making a significant proportion (Vaile, 2002). Despite the fact that the united states have had claims that exports from Australia to America has greatly risen over the past few years, the Australian Bureau of Statistics has disapproved the claim and have actually shown that exports to China has in fact increased than exports to the united states. Trade expansion in Asia which took place in the early 1980s greatly favored trade with Australia. Trade system reforms in Australia which took place between 1983 and 1991 and the trade implemented policies in 1993 greatly favored trade between her and the Asian countries which greatly influencer the status of the Australian economy today. The current situation is henceforth threatening and raising mistrust between Australia and the United States regarding the transparency and the need for the agreement which is more beneficial to one member and detrimental significantly to the other. Australia thinks that she is being exploited to provide a ready market for the United States exports while on the other hand the United States has protected itself from importing from Australia by the nature of the agreement (Legge, 2003). In the 1980s, the APEC and WTO supported the trade liberalism across the western Pacific by realizing that the countries support each other in developing the economies. Recently the regional trade organizations have weakened their support to multilateral trade liberalism and have shifted their support to bilateral liberalism where they are aligned towards the developed countries interests in trade agreements. This has seen their interest in many bilateral trade agreement and smaller regional trade agreements where there discrimination against the less developed and developing countries. This has not been different in the case of Australia and the united states in regard to the free trade agreement. The financial crises in the Western Pacific region and especially in Middle East lowered the confidence that the trade organizations had on the potentiality of this region. This saw the diversion of trade agreements from South Asia to Europe and the America. (Davis et al, 2002) It has been argues that the Australian- United States Free Trade Agreement (AUSFTA) has recently been the cause of rise in commodity prices in Australia. For instance, the rise in domestic sugar prices has been attributed to the agreement. This phenomenon has affected adversely the living standards of the populations as well as the general economy of the country. The agricultural sector has also been affected and there has occurred a challenge to the Australian farming methods by the much modernized agricultural companies of the United States. Despite that this has somehow boosted the agricultural output of the country, the same has had adverse effects on cultural practices and there has been fear that the free trade agreement is oriented to degrade the culture of the people. The introduction of genetically modified products in the Australian market as well threatens the health sector of the people not to mention the elimination of the cultural food crops and natural species of plants and animals which have been a culture of the people of Australia (Mathis, 2002). The pharmaceuticals benefits Scheme is predictably going to be affected by the trade agreement and it has been argued that the United States describes the board as a potential trade barrier and therefore they want the body eliminated. This has been predicted to raise the prices of prescription drugs locally. The Australian culture and arts industries will be affected in one way or another. The availability of arts from the united states within the country probably at cheap prices due to the protected tariffs of imports challenges the consumer market in as far as arts and cultural artillery are concerned. Also the availability of US made clothes and textiles gradually threatens the culture of the people (Brennan, 2003). Australia and other governments have the responsibility of protecting its population’s against unemployment. Unemployment ousts the government more than anything else. This significantly influences the governments to come in between trade agreements to protect its people from unemployment. The overexploitation of the United states directly or indirectly to the Australian populations threatens the loss of jobs to the people. The government should therefore realize that it’s the high time they respond to the situation and probably retract from the agreement or revise the agreements made so that the local populations can feel at ease (Centre for International Economics, 2002). The issue of threatened national security is another political motive that makes governments intervene trade agreements. The Australian government here has the capacity of ensuring that local industries which are an integral part of national security are secured by the governments during exportation and importation. As such, the government should therefore ensure that such industries are secured from external completion from foreign companies. In doing so, the government may be required to intervene in trade agreements. The governments may also be required to ban certain exports to other countries including military good. This enhances national security and maintains the secrecy of the military power of the country (Hawthorne, 2003). In every trade fare, the parties are out to make some economic gain. However a party may pull out of an agreement if they feel that they are nor gaining economically in any way. In this regard, the government may pull out of the agreement. In doing so, the government may in turn impose high tariffs and trade barriers if they feel threatened by the other party (Monbiot, 2003). In case of the United States, the government is out to gain economic and political influence. The government therefore tries to develop trade agreements regionally and globally in an attempt to extend their influence to other countries. Apart from political motives, governments may be required to protect young industries within the country. In so doing, they may be forced to rule over certain trade agreements with other countries. In doing so, the governments try to protect the young industries from extra specific competition from established industries internationally (Wood, 2003). Some governments are directly involved in limiting the number of investors in a certain industry in order to realize certain strategic trade plans. This ensures that the limited companies enjoy a less competitive market for their goods and services. Such initiatives require protecting the investors both locally and internationally and therefore this happens to be a cause of some government’s intervention in trade agreements. The Australian government should ensure that American investors are controlled in such industries like the arts and cultural artifacts. This will enhance the preservation of culture of the people which is being threatened by the free trade agreement between Australia and the United States (Drysdale, 2002). Cultural degradation is an influence of free trade in many instances. The governments sometimes try as much as possible to preserve the culture and heritage of its people and in doing so, regulation of the external market is paramount. For instance, the Australian government should try to contain the cultural influence from United States. As an epitome of cultural predilection, Australian government should introduce barriers against imports that threaten the culture of the people. Generally, many governments intervene in trade agreements to preserve the cultural orientation of a people. In the same regard, the entertainment industry which is also a target should be controlled. For example the French government banned the use of certain words on radio and TV. The United States is regarded by many countries as a threat to cultural background. This is due to its wide expanse of products in the entertainment industry (Wolfwood, 2001). Conclusion It is evident that trade agreements contributes significantly to the growth of the economy of a country. For this reason the government must be very conscious of the agreements may be in bilateral, regional and multilateral agreements. This ensures that the trade agreement will be beneficial to both members and avoids cases of exploitation of a country by another. Sometimes some trade agreements may turn to threaten the economic integration, political stability and cultural attributes of a country. The case of the free trade agreement between the United States and Australia as discussed seems to be more preferential than free trade. The nature of the agreement sees the United States exporting more cheaply and extensively to Australia but on the other hand Australia has less to enjoy because the United States fails to offer free market for the agricultural produce from Australia. This has also affected the political relationship between Australia and other countries which happened to be trade partners at one time or another. Consequently, the economic stability and growth of Australia has been affected adversely leading to tension increasing between the United States as Australia. This is also similar to what other countries experience as a result of trade agreement References Australian Bureau of Statistics. (2002). International Merchandise Trade, 5422. Canberra: June Quarter 2002 Baucus, M. (2001). Speech to the Commodity Club. New York: Senate Finance Committee. Bhagwati & Jadish. (2002.) Free Trade Today. New York: Princeton University Press. Brennan, T. (2003). Globalization and its Terrors: Daily Life in the West. New York: Routledge Centre for International Economics. (2002). Economic Impacts of an Australia-United States Free Trade Area. Canberra: Australian Department of Foreign Affairs and Trade Davis, Lee, McKibbin & Andrew S. (2002). Economic Benefits from AFTA-CER Free Trade Area. Sydney: Centre for International Economics Drysdale, P. (2002). The Trade Relationship with Japan, Brisbane: Japan Economic Forum Garnaut, R. (2002). An Australia-United Free Trade Agreement. New York: First Century Hawthorne, S. (2003). The Australia-United States Free Trade Agreement: Free Trade or Free Access for US Companies? Arena Magazine Legge, J. M. (2003). An Australia-US Free Trade Agreement - Myth and reality. Hawthorne: Wild Politics Mathis, J. H. (2002). Regional Trade Agreements in the GATT/WTO :Article XXIV and the Internal Trade Requirement. The Hague: Asher Press Monbiot, G. (2003). The Age of Consent: A Manifesto for a New World Order, London: Flamingo. Sexton, S, (2003). GATS, Public Services and Privatisation, London : The Cornerhouse publishers  Stiglitz, J. (2002). Globalization and its Discontents. London: Penguin Books. Vaile, M. (2002). United States Free Trade Agreement Finds Benefits Exist. Canberra: Press Release Wood, E. M. (2003). Empire of Capital. London: Verso  Wolfwood, T. (2001). Resistance is Creative: False Options and Real Hope. Melbourne: Spinifex Press. Read More