Australia's movement towards free trade

Essay by lisalaw139High School, 12th grade May 2004

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Over the past quarter of the century, Australia has transformed from being a highly protected economy to being one of the least protected economy in the global world. The focus of the government's trade policy had been active participation in cooperative attempts to reduce global protection as seen by their active support in the World Trade Organisation and Asian Pacific Economic Cooperation forum. One of the more unique features of the Australian economy has been their unilateral actions in reducing their own barriers across the board. While the benefits of these reductions are still an issue, the reform programs adopted by the Australian government resulted in many changes including structural changes and increased competitiveness of the Australian economy.

Free trade describes the movement of goods and services between national boundaries without restrictions or constraints. These restrictions are usually imposed by the government to give domestic producers an artificial advantage over foreign competitions, usually in various protective measures such as the imposition of tariffs, quotas, local content rules, embargoes and the payment of subsidies to local producers.

The major reason why the Australian government has engaged in protection reductions is because of the unfavourable effects of protection. Protection leads to the maintenance of inefficient markets as it discourages productivity, innovation and efficiency and consequently has lack of international competitiveness by world standards. In addition, inefficient markets lead to misallocation of resources as they compete with efficient markets and therefore result in higher production costs.

Free trade on the other hand is seen as the mechanism to achieve growth and improvements in living standards. Countries should be able to specialise in the production of goods and services in which they have a comparative advantage in. Specialisation allows economies of scale to be achieved and produce higher living standards as they gain access...