Application Exercise 8p: Mix and match definitions on trade liberalisation
Column A: Term | Column B: Definition | Column C: Example |
Subsidies | Cash payments to exporters or local producers (import-competing) to help cover production costs, allowing them to sell their output more cheaply. | The EU pays farmers to produce certain products |
Bilateral free trade agreement | An arrangement between two countries to reduce or remove restrictions on trade between the two countries that are signatories to the agreement. | China-Australia Free Trade Agreement (ChAFTA) |
Non-tariff barriers | Barriers to trade that don’t use tariffs, but include licenses, bio-security measures and bans | Australia prohibiting NZ apple imports |
Infant industries argument | A rationale for protectionism, based on the idea that newly-operating industries do not have the economies of scale that their older competitors from other countries may have, and thus need to be protected until they can attain similar economies of scale | Australia’s Passenger Motor Vehicle industry was strongly protected in the early days by very high tariffs |
Comparative advantage | Principle that two countries can both gain from trade if they focus on producing and trading in the product that they are more efficient at producing relative to another country (i.e. have lower opportunity cost) | Australia has a lower opportunity cost for the production of oranges compared to New Zealand |
Tariffs | Indirect taxes levied by Government on imports to make them more expensive, relative to locally-made items. | Pre-1973, average rate of 36% on manufactures |
Multilateral free trade agreement | An arrangement between a group of countries to reduce or remove restrictions on trade between all countries that are signatories to the agreement. | The Trans-Pacific Partnership |
absolute advantage | Principle that two countries should trade because they either can’t produce a good or service at all or produce it cheaply enough. | Australia’s production of coal |
Trade liberalisation | The progressive removal of all forms of protectionism in international trade including cutting or abolishing tariffs, reducing subsidies, abolishing import quotas, increasing free trade agreements, scaling back non-tariff barriers. | The advent of the World Trade Organisation to oversee free trade |
Economies of scale | The idea that firms (or countries) can produce cheaper goods or services if they produce them in larger quantities, because they can spread fixed costs across a larger volume of output. | Amazon using very large volumes of output to reduce their per-unit cost of production |
Globalisation | The spread of business and international trade across national borders as if there was only one large market. | A manufacturer in China assembling iPhones to be sold all over the world |
Import quotas | Legal restrictions on the quantity or type of imports permitted into the country. | The EU imposes quotas on numerous agricultural imports, including beef, cereals, eggs, poultry, pork and dairy products |