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Free trade agreement, ausfta assignment 1 Document Transcript

  • 1. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTA TABLE OF CONTENTSI INTRODUCTION 2II INTERNATIONAL TRADE HISTORY 3III THE GATT 5IV THE WTO AND THE MOST FAVOURED NATION 6V REGIONAL AND BILATERAL TARDE AGREEMENTS 7VI WHAT IS AUSFTA? 8VII POSITIVES OF AUSFTA 9VIII DISADVANTAGES OF AUSFTA 10IX IS THE MULTILATERAL FTA THE BEST OPTION? 11X CONCLUSION 12BIBLIOGRAPHY 14 1
  • 2. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTAI INTRODUCTIONInternational trading among nations dates back thousands of years toAncient Egypt. Such trading was incredibly vital for the Egyptians’prosperity and there is no record of whether such trade was free ordiscriminatory. However, the free trade concepts were first recognised andsupported by economists in the eighteenth century. Their theories wereadopted by most nations for a few decades until the US followed restrictedexport and import policies. Eventually, the economy worldwide went into theGreat Depression in the thirties of the last century. Following this economictragedy, to rise out of the global crisis and the economic effects of theSecond World War, in 1947 twenty three nations agreed on establishing theGeneral Agreement on Tariffs and Trade in what is known as the GATT.The GATT’s aim was to remove trade barriers among nations and open thedoor once again to free trade. Negotiations continued for 47 years, liftingmany barriers and resulting in the establishment of the World TradeOrganisation (WTO) that replaced the GATT. Discussions concerningmultilateral agreements continued through the WTO and reached nowherein the Doha negotiation round, leaving all nations to follow their ownbilateral and regional free trade agreements. By way of example, a bilateralagreement is in place between Australia and the US, namely AUSFTA.Regardless of whether such agreements are beneficial or harmful for theworld free trade, there is a need to go 2
  • 3. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTAback to the multilateral system through the WTO in order to haveliberalised free trade world, normal trade relations, and non-discriminatory free trade policy to the weaker-economy countries.II INTERNATIONAL TRADE HISTORYInternational trading among nations goes as far as millenniums, back toKing Solomon of Israel. He entered into trade agreements with othernations to import gold, silver, precious metals, wood, chariots andhorses, as well as export farm products such as olive oil, wine and 1grains. It even dates further beyond Solomon’s age to Ancient Egyptwhich had international trading sea-routes with Byblos in Lebanon andAfrica to import various kinds of wood, metal, incense, and precious 2stones. However, the free trade was first regarded by the economist 3Adam Smith who wrote “The Wealth of Nations” in 1776. He believedthat if foreign countries can supply his nation with commodity cheaperthan they themselves can make, better buy it from them and export 4some part of the produce of his nation’s own industry.1 King, P. & Stager, L. 2001, ’The means of existence’, in Life in Biblical Israel,Westminster John Knox Press, Kentucky, p. 194.2 Dollinger, A. 2000, ‘Ancient Egyptian overseas trade’, Overseas trade during thepharaonic period, Kibbutz Reshafim. Retrieved 29 January 2011 fromwww.reshafim.org.il/ad/egypt/trade/3 Bhagawati, J. 2002, Free Trade Today, Princeton University Press, Princeton andOxford. P. 3.4 Smith, A. 1994, ‘Restraints upon importation from foreign countries’, in Wealth ofNations, Random House Inc., New York, pp. 364-365. Retrieved 31 January 2011 fromhttp://www2.hn.psu.edu/faculty/jmanis/adam-smith/Wealth-nations.pdf. 3
  • 4. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTABefore and during Smith’s time, the mercantilism was vastly spread inEurope. Mercantilism was an economic system in which nations’ wealthdepended on its capital (gold, silver and trade value) in a steady and 5unchangeable international trade. While it supported more exports ofcommodities, it encouraged less or no imports, and acknowledged thattrade had been a zero-sum game; i.e. international trade is gained by a 6nation at the expense of other nations. However, this system began todecline by the end of the eighteenth century when Smith’s theory ofAbsolute Advantage began to be adopted by many nations in Europe.The Absolute Advantage concept is based on the capability of producinga specific product by a nation in a better and more efficient way than 7others.Following the Absolute Advantage theory, an improved notion, namely theComparative Advantage theory, was constructed by the economist DavidRicardo. He believed that efficiencies and abilities of a country to produce 8certain products are at variable levels compared to other countries. Thismeant that a country could rank highly in the car industry, while plummetingin the cellular phone industry. Meanwhile, another country could achievethe opposite, making the trade between these two5 Webster’s Online Dictionary 2006, Princeton University, New Jersey. Retrieved 31January 2011 from www.websters-online-dictionary.org/definitions/mercantilism6 Wild, J, Wild, K, & Han,J. 2010, ‘International Trade’ in International Business, PrenticeHall, New Jersey, pp. 178-180.7 ibid, p. 180.8 ibid, p. 182. 4
  • 5. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTAcountries equally beneficial and fulfilling the Comparative AdvantageTheory.The above-mentioned theories, as well as the subsequent modern tradetheories until the late twentieth century, pioneered in paving the way forinternational free trade, birthing the GATT and the WTO.III THE GATTBefore introducing and discussing the GATT among several nationsaround the world, the volume of free trade was at its peak at the end ofthe nineteenth century. However, the US went back to the zero-sumgame and restricted its imports, causing other nations to restrict theirexports to the US, contributing to the Great Depression that crippled 9economies of the US and the world. Further, two world wars in the firsthalf of the nineteenth century added salt to injury. During that period,trade barriers such as high tariffs on imports and exports, administrativedelays, quotas on imports and exports, and currency control (whichunfortunately are still applied today in some nations) hindered free trade.In 1947, the GATT was successfully formed. Through eight rounds ofnegotiations from 1948 to 1994, it achieved significant results in reducingtariffs and breaking other trade barriers that led to the prosperity of free9 Wild, J, Wild, K, & Han,J. 2010, ‘Business-Government Trade Relations’ in InternationalBusiness, Prentice Hall, New Jersey, pp.210-211. 5
  • 6. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTA 10trade. Moreover, the last round of GATT firstly, added agreements onservices, intellectual property, and agricultural subsidies, and, secondly,debated the increasing non-tariff barriers that were a result of 11nationalism and trade conflicts worldwide . This round was the basis offorming the WTO and ceasing the GATT.IV THE WTO AND THE MOST FAVOURED NATIONThe WTO is an organisation that is responsible for regulating trade aroundthe world by helping importers, exporters, manufacturers, and producers ofgoods and services to conduct their business peacefully in order to ensure a 12thriving economic world. WTO promotes a system that is able to advancepeace, resolve trade conflicts amicably, provide more choices for productsand services, raise incomes and make life better, and, above all, encourage 13the principle of the Most Favoured Nation (MFN). The term Normal TradeRelations has replaced MFN and it denotes equal favours and treatment toall WTO’s partners without discrimination. That is, when a country reducesits trade barriers or opens its market, it should do the same with other 14trading partners. However every rule has exceptions where undersupposably strict conditions, some countries were10 ibid. p. 211.11 ibid, pp. 211-212.12 ‘World Wide Web’, What is the WTO. Retrieved 2 February 2011 fromhttp://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm13 ibid.14 ‘World Wide Web’, Principles of the Trading Systems. Retrieved 2 February 2011 fromhttp://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm 6
  • 7. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTAallowed to discriminate and establish regional or bilateral free tradeagreements such as, North American Free Trade Agreement (NAFTA) orAUSFTA.V REGIONAL AND BILATERAL TARDE AGREEMENTSFrom Institutional perspective, the aim of establishing GATT and WTOwas to regulate the international trade in such a way to reduce oreliminate trade barriers, open the doors for ethical competition amongnations, and implement non-discriminatory trade policies. However, theincreasing numbers of bilateral, and regional trade agreements mighthave created a situation where the rich countries became wealthier andthe poor became increasingly destitute, which defeats the principles ofthe MFN; the weaker-economy countries might be disadvantaged for thebenefit of the super-power country. AUSFTA is a great example wherethe Australian culture started to Americanise and the Australian economyis being devoured by huge American companies that are continually 15acquiring Australian companies.Meanwhile, even though regional integration - such as Association ofSoutheast Asian Nations (ASEAN) - has great benefits such as regardstrade creation, political cooperation and employment opportunities, its15 Lloyd, C. 2004, ‘AUSFTA as free trade imperialism’ in the regionalisation of allAustralia’, Dissent, No.15, pp. 44-47. 7
  • 8. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTAmain drawbacks is the loss of national sovereignty by surrendering it to a 16foreign policy.VI WHAT IS AUSFTA?AUSFTA is a bilateral trade agreement between Australia and the USthat has come into effect on 1 January 2005. It ensures access of theAustralian products to the US market and encourages improving the 17investment and business environment between the two countries. Afew of the main objectives of this agreement are:a) making Australia as a destination for US investment;b) increasing export opportunities to the US for our manufacturers, food processors, and service providers;c) minimising and/or eliminating tariffs on agricultural and non- agricultural products, commercial vehicle and spare parts, ship repairs and maintenance, lamb and sheep meat products; and 18d) increasing Australia’s duty free beef quota substantially.16 Wild, J, Wild, K, & Han,J. 2010, ‘Regional Economic Integration’ inInternational Business, Prentice Hall, New Jersey, pp. 248-250.17 Austrade 2008 (updated 20 February 2009), ‘Australia-United States Free TradeAgreement (AUSFTA)’, Austrade, Australian Government. Retrieved 8 February 2011 fromhttp://www.austrade.gov.au/default.aspx?Mode=BusyEditing&ArticleID=8310#Business_sectors18 Dept of foreign affairs and trade 2007, ‘Australia-United States Free Trade Agreement:Fact sheets’, Department of Foreign Affairs, Australian Government. Retrieved 10 February2011 from http://www.dfat.gov.au/fta/ausfta/outcomes/01_overview.html 8
  • 9. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTAA live example of reaping AUSFTA’ benefits is a medium-size Australiancompany (Nupress Tools) which manufactures custom-made glassfacades for high-rise buildings. Before AUSFTA, it was impossible toexport this company’s products to the US as they were faced with “BuyAmerican” culture; however, after the agreement, major projects werecompleted in the US such as The Shakespeare Theatre in Washington 19DC using Nupress Tools. 20VII POSITIVES OF AUSFTAFrom a nation-wide perspective, the strong trade ties between Australiaand the US through AUSFTA has benefited Victoria, NSW andQueensland, mostly in relation to the increased export opportunities ofbeef, meat, sugar and dairy as well as the production of automotive. Theburden of tariffs and quotas have almost been diminished, in which caseproducts are sold at cheaper prices in both countries. On the other hand,mutual recognition of some professionals such as overseas-trained-doctors, for example, fills the severe shortage in rural Australia health-service sector. In general, more liberalisation for service providers on the19 Austrade 2007, ‘Benefits of AUSFTA appear clear to Newcastle Business: Australianexport case study’, Austrade, Australian Government. Retrieved 10 February 2011 fromhttp://www.austrade.gov.au/Benefits-of-AUSFTA-appear-clear-to-Newcastle-business/default.aspx20 Swaab, F. 2006, ‘A Summary of the Australia-United States Free Trade Agreement’,AUSFTA summary. SWAAB Attorneys. Retrieved on 12 February 2011 fromhttp://www.swaab.com.au/publications/AUSFTA%20Summary.pdf 9
  • 10. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTAbusiness, financial, transport and education levels provides moreintegration between the countries and helps the labour market.Elimination of barriers on electronic trades encouraged product suppliersto offer their products freely and carry on with e-commerce withoutbureaucracy, while certain consumer agencies fight fraud and deceptivekinds of trade for the protection of consumers in both countries. Finally,the AUSFTA gives greater protection than WTO’s Multilateralagreements for intellectual property relating to emerging media. 21VIII DISADVANTAGES OF AUSFTAAUSFTA’s many pros are not limited to those mentioned above, howeverits cons need not to be ignored. If Australia can balance between thepros and cons, it may reap the benefits that will help Australian exportersand producers. Professor Christopher Lloyd of University of NewEngland, Sydney was very pessimistic in his article about theimplications of the AUSFTA. He viewed it as Free Trade Imperialism andregionalising Australia to the US. Whether we agree with his views ornot, they should be taken seriously in order to have clear understandingabout the best for Australia’s national interest. The following points detailsome of Lloyd’s fears:21 Lloyd, C. 2004, ‘AUSFTA as free trade imperialism’ in the regionalisation of allAustralia’, Dissent, No.15, pp. 44-47. 10
  • 11. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTAa) AUSFTA does not benefit Australia economically as the gains from tariffs are minimal.b) It does not achieve the comparative advantages, as the US does not open its markets for the Australian agriculture.c) The Australian way of balancing between capital, labour, and social equality will be overtaken by the American capitalism and hence the total control of the materialistic finance that will assassinate Australian production, culture and social relations, and finally,d) Australia will lose its national identity and integrity by blindly following US policies in getting rid of Medicare, Pharmaceutical Benefit Scheme (PBS), and workplace relations (Work-choices Act adopted by the Howard Government was one of the worst examples in following American policies and affected thousands of employees).IX IS THE MULTILATERAL FTA THE BEST OPTION?The WTO’s Doha negotiations around the multilateral free trade havebeen inactive (since 2006) upon the division among its members onmajor topics relating to trade barriers, and as a result of that, hundreds of 22bilateral and regional trade agreements emerged worldwide.Accordingly, the countries that had the weaker economy and did notpossess negotiating powers were disadvantaged. On the other hand, the22 Amal Al-Muhairy 2009, ‘The Multilateral System in the Free Trade Agreements is thebest option for small economies’, Alittihad, Alittihad Arabic Newspaper. Retrieved on 13February 2011 from http://www.alittihad.ae/details.php?id=124&y=2009 11
  • 12. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTAdiscrimination resulting from these agreements might have diverted thetrade from the most efficient countries to the most inefficient ones, and 23accordingly, jobs and incomes suffered tremendous losses. InAustralia, there was a campaign against AUSFTA that included diversegroups such as environmental groups, advocators for public health andeducators, students, trade unions, pensioners and many others whobelieved that Australia’s devastating trade with The US is analogous to 24murdering a country.Therefore, I would recommend going back to the WTO’s multilateral freetrade agreements with immediate re-start of Doha negotiations. The dealshould be agreed among all members and should cover assurance of nofuture protectionism, achieving trade liberalisation, reaching fair farm 25trade reforms and, finally, addressing the media intellectual property.X CONCLUSIONThe increasing numbers of bilateral and regional free trade agreementsafter halting of the WTO Doha round in 2006 have disadvantaged many23 Drysdale, P. 2011, ‘Free trade agreements Vs multilateral trade negotiations’,Commerce top stories, Thailand Business News. Retrieved 12 February 2011 fromhttp://thailand-business-news.com/news/top-stories/28894-trade-policy-needs-to-go-global24 Bailey, J. 2007, ‘Australia-US free trade agreement – Fair trade or foul?’, Impacts andfightbacks, Bilaterals.org. Retrieved on 15 February 2011 fromhttp://www.bilaterals.org/spip.php?article1523725 Pritchard, K. 2011, ‘2011:make-or-break year for Doha’, News and advice for businesspeople, Real Business. Retrieved on 20 February 2011 fromhttp://realbusiness.co.uk/management/2011_makeorbreak_year_for_doha_deal 12
  • 13. Magdy ShamalyInternational Business, GSB 726 – Assignment 1 28/2/2011Free Trade Agreement - AUSFTAnations and established a discriminatory policy against non-members.The GATT and WTO’s main aim was to remove trade barriers andencourage the principle of the MFN or Normal Trade Relations. However,the bilateral and regional systems have contributed to new ways oftrading imperialism where the culture, economy and politics of a weakercountry are controlled by the stronger one. Nations that enter into suchagreements should evaluate them from a nation-state perspective so thatthey may not be disadvantaged and subsequently reap the benefits forthe best of their nation’s interests. However, for a worldwide system,WTO’s nations need to continue their talks and reach a unified worldmultilateral free trade system, integrating their bilateral and regionalagreements into that system.Word count:2,097 Words 13
  • 14. Magdy Shamaly International Business, GSB 726 – Assignment 1 28/2/2011 Free Trade Agreement - AUSFTA BIBLIOGRAPHY• Amal Al-Muhairy 2009, ‘The Multilateral System in the Free Trade Agreements is the best option for small economies’, Alittihad, Alittihad Arabic Newspaper. Retrieved on 13 February 2011 from http://www.alittihad.ae/details.php?id=124&y=2009• Austrade 2007, ‘Benefits of AUSFTA appear clear to Newcastle Business: Australian export case study’, Austrade, Australian Government. Retrieved 10 February 2011 from http://www.austrade.gov.au/Benefits-of-AUSFTA-appear-clear- to-Newcastle-business/default.aspx• Austrade 2008 (updated 20 February 2009), ‘Australia-United States Free Trade Agreement (AUSFTA)’, Austrade, Australian Government. Retrieved 8 February 2011 from http://www.austrade.gov.au/default.aspx?Mode=BusyEditing&ArticleID=8310#Busines s_sectors• Bailey, J. 2007, ‘Australia-US free trade agreement – Fair trade or foul?’, Impacts and fightbacks, Bilaterals.org. Retrieved on 15 February 2011 from http://www.bilaterals.org/spip.php?article15237• Bhagawati, J. 2002, Free Trade Today, Princeton University Press, Princeton and Oxford. P. 3.• Dept of foreign affairs and trade 2007, ‘Australia-United States Free Trade Agreement: Fact sheets’, Departement of Foreign Affairs, Australian Government. Retrieved 10 February 2011 from http://www.dfat.gov.au/fta/ausfta/outcomes/01_overview.html• Dollinger, A. 2000, ‘Ancient Egyptian overseas trade’, Overseas trade during the pharaonic period, Kibbutz Reshafim. Retrieved 29 January 2011 from www.reshafim.org.il/ad/egypt/trade/• Drysdale, P. 2011, ‘Free trade agreements Vs multilateral trade negotiations’, Commerce top stories, Thailand Business News. Retrieved 12 February 2011 from http://thailand-business-news.com/news/top-stories/28894-trade-policy-needs-to- go-global• King, P. & Stager, L. 2001, ’The means of existence’, in Life in Biblical Israel, Westminster John Knox Press, Kentucky, p. 194.• Lloyd, C. 2004, ‘AUSFTA as free trade imperialism’ in the regionalisation of all Australia’, Dissent, No.15, pp. 44-47.• Pritchard, K. 2011, ‘2011:make-or-break year for Doha’, News and advice for business people, Real Business. Retrieved on 20 February 2011 from http://realbusiness.co.uk/management/2011_makeorbreak_year_for_doha_deal• Smith, A. 1994, ‘Restraints upon importation from foreign countries’, in Wealth of Nations, Random House Inc., New York, pp. 364-365. Retrieved 31 January 2011 from http://www2.hn.psu.edu/faculty/jmanis/adam-smith/Wealth-Nations.pdf• Swaab, F. 2006, ‘A Summary of the Australia-United States Free Trade Agreement’, AUSFTA summary. SWAAB Attorneys. Retrieved on 12 February 2011 from http://www.swaab.com.au/publications/AUSFTA%20Summary.pdf 14
  • 15. Magdy Shamaly International Business, GSB 726 – Assignment 1 28/2/2011 Free Trade Agreement - AUSFTA• Webster’s Online Dictionary 2006, Princeton University, New Jersey. Retrieved 31 January 2011 from www.websters-online-dictionary.org/definitions/mercantilism• Wild, J, Wild, K, & Han,J. 2010, ‘International Trade’ in International Business, Prentice Hall, New Jersey, pp. 178-180.• Wild, J, Wild, K, & Han,J. 2010, ‘Business-Government Trade Relations’ in International Business, Prentice Hall, New Jersey, pp.210-211.• Wild, J, Wild, K, & Han,J. 2010, ‘Regional Economic Integration’ in International Business, Prentice Hall, New Jersey, pp. 248-250.• ‘World Wide Web’, Principles of the Trading Systems. Retrieved 2 February 2011 from http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm• ‘World Wide Web’, What is the WTO. Retrieved 2 February 2011 from http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm 15
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