Trade Liberalisation

Many of the dramatic changes that are occurring in the world of international trade
can be summed up in one phrase- trade liberalization. This means the removal of barriers,
particularly those imposed by governments, to the free movement of goods and services
between countries.
Amongst these are tariffs imposed on imports, and non-tariff barriers such as import
quotas or quality rules designed to limit or exclude imports which might threaten domestic
industries. The opposite of ‘free trade’ is protectionism in which governments maintain such
barriers around their economy so as to protect local industries and jobs from competitive
imports.
The theory behind the ‘the free trade’ approach is that if tariff and other barriers are
removed, local industries will be exposed to international competition, and only the most
efficient and competitive will survive. Inefficient companies and industries will be forced to
close and the capital invested in them will move to more successful industries.
Thus, its supporters say, a country’s resources and capital will becomes concentrated
on those areas in which it does best, leading to greater economic efficiency, higher outputs and
higher incomes. Nations end up specializing in those areas in which they have a ‘comparative
advantage’ and use the higher incomes earned to buy in the things they no longer produce.
In Australia, a protectionist approach would mean high tariffs on, for example,
imported shoes and clothing, so as to maintain those industries here in the face of cheap Asian
imports. In recent years the government has taken the opposite approach of reducing tariffs, and
quotas and exposing these industries to international competition.
Because Australian wages are relatively high, the clothing, textile and footwear
industries here have shrunk dramatically and are now confined largely to the top end of the
market where labour costs are not so critical.
Jobs have disappeared, but we get cheaper clothes and shoes, imported from China and
elsewhere. Instead Australia concentrates on areas where we are more competitive, such as
agricultural and mineral exports and some hi-tech manufacturing.
Trade liberalization also means that producers operate in a global, rather than a
national market. So a country such as Indonesia, for example, as a competitive producers of
clothes, can self to the whole world not just its domestic market, which means economies of
scale and cheaper clothing for all.
There is also a push for the liberalization of investment, as well as trade. This means
the freeing up or removal of the regulations and restrictions which host governments often place
on foreign investors. These restrictions often include where they can invest and how they should
operate, or requirements that foreign companies have local partners or they use certain
minimum amount of local content in their products.
Another important trend is the globaisation of production, that is companies spreading
the different parts of their operations around the world according to where each part can be done
most cheaply.

I. Answer these questions

1.What kinds trade liberalization make dramatic changes?
2. What does mean ‘protectionism’ to protect local industries, explain !
3. Give example, the positive impact of trade liberalization in Indonesia.
4. What is the advantages of liberalization of investment?
5. Why globalization production is important for companies ?