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Example research essay topic: Impact Of Tariffs And Quotas On Wool Trade - 2,255 words

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Impact of Tariffs and Quotas on Wool Trade Between Australia and China Economic and trade connections between Australia and China have an inspiring history. As early as the 1670 s according to historical records, Chinese-owned fishing boats headed south in the summer to look for this Chinese food delicacy in the waters of Australia's north. The humble sea slug appeared Australia's first processed food export. Later, the arrival of European settlers in Australia led to the development of trade relations with China. Australia and China established formal diplomatic relations in 1972. But the true expansion of economic and trade ties between the two countries began when China decided to open its economy in 1978.

The last two decades can be described with extraordinary trade growth. Nowadays, two-way trade has reached A$ 10 billion. Primary Products are at the core of Australia's exports to China accounting for around 60 % of the total exports. China became Australia's largest market for wool. Recently, Australia and China agreed on a Model Wool Contract. It was designed to provide Chinese buyers and Australian sellers with greater confidence and certainty.

Nevertheless, there is room for further improvement in the administration of many of the business exports. 1 According to Australian Deputy Prime Minister Mr. Tim Fischer, this agreement will "ensure that uncertainties in the quality of wool provided, delivery times and terms of payment -- which have complicated and impeded the trade -- are addressed effectively. " It will foster an improved level of understanding between the wool and wool textiles industries of Australia and China. It is also expected to promote the long term prospects for the wool trade between the two countries. Australia satisfies over 50 percent of China's wool import demands. China used to buy 136, 000 tones of wool, worth some $ 590 million, in 1998.

The Model Wool Contract would provide the basis for a smoother and more transparent wool trade. It was for direct use by Australian exporters and Chinese importers. The Model Wool Contract had received high level government support both in Australia and China. 2 Two-way investment between Australia and China is another important part of the bilateral economic relationship. There is much to offer to each other.

The economies of the countries make the them ideal investment partners. According to Australian statistics, at the end of June 1999 China had investments here worth A$ 2. 85 billion, while Australian investment in China was valued at A$ 1. 44 billion. The key point for opening opportunities for Australian and Chinese investors is the reforms in Australias respective economies. 3 Talking about the trade issue with other countries, there is much to say about the agreement with World Trade Organization. Trade negotiations have an important role to play in expanding economic and trade linkages.

Tim Fischer, former Trade Minister, concluded an agreement on bilateral market access related to China's accession to the World Trade Organization (WTO). It was a significant achievement in the bilateral relationship. China's membership of the WTO is expected to bring great benefits to Australian exporters and will also help China. Negotiators for the Australian government finalized the specific terms of Australia's agreement regarding China's WTO accession just weeks ago.

The benefits to Australian companies will not really begin to flow, however, until China finalizes its WTO agreements with its other major trading partners, thereby paving for way for WTO entry. Two main hurdles recently cleared were a final agreement between China and the European Union, and the granting of Permanent Normal Trading Relation status to China by the United States Senate. The relevant parties hope these developments will lead to China's WTO accession later this year or early next year. When China finally enters the WTO, the benefits for Australian companies will fall into three main categories. First, the reduction of tariffs and trade barriers for Australian goods and services being sold into China. Second, the gradual elimination of restrictions on Australian investments in China.

Third, the long-term institutional commitment of China to open its economy and be governed by international trade and investment standards. Some of these benefits will be felt immediately, while the bulk of the benefits to Australian companies will only be felt over an extended period. One of the immediate benefits to Australians will be improved market access for agricultural and wool. Tariffs on a wide range of agricultural and wool products will be reduced. 4 A free trade agreement with the US, the successful completion of the Doha WTO round, and strengthening links with Asia are the key priorities for Australia, Federal Trade Minister Mark Value said: You " ve stated in the past that a free trade agreement (FTA) with the USA is Australia's key bilateral trade priority." What sort of impact will a US FTA have on Australia's economic and trade performance?

An FTA with the US, the world's largest economy, would deliver economic benefits to Australia. Two studies commissioned by the Government have found the potential benefits of an Australian-US FTA. The first of these, carried out by the Center for International Economics, showed that complete removal of tariff and non-tariff barriers to bilateral trade could increase GDP by as much as 0. 4 per cent, or around $ 4 billion annually. The second study, carried out by the APEC Study Center, looked at the wider economic, trade and regional implications.

Australia's overall trade strategy is to pursue every opportunity at the multilateral, regional and bilateral level. Those opportunities must complement each other -- and ultimately must support the multilateral trade negotiations now underway in the World Trade Organisation (WTO). In 1997 Australia adopted the "White Paper on Foreign and Trade Policy", which sets out an action plan for the coming 15 years, including strengthening of the international trading system and export promotion. China plans to secure its diplomatic relations with Australia by expanding cooperation on the wool trade, according to Chinese textiles officials.

China hopes to forge a stronger relationship with Australia in the wool trade. It can influence political and economic ties between the two countries, " said Ji Jun, director of international cooperation at the China National Textile Council. China is proposing that Australia invest 3. 2 million US dollars on three model wool factories in China. It is expected to promote the consumption of Australian wool in Chinese industry. Canberra provided 3. 2 million dollars of financial assistance to China's wool industry between 1993 and 1996. The industry imports around 100, 000 tons of Australian wool a year. (1).

Australia continues to open up to trade from China with huge expansion in two-way trade to the benefit of both countries, some $ 9. 5 billion in 1998 and well over $ 15 billion today. Under the umbrella of the WTO, further expansion will take place. As the China economy continues to grow, the next six years will in fact be six profitable years of huge opportunities for trade in both services and merchandise, tourism expansion as well as investment expansion. Prices for wool quotas in China have risen from around RMB 1, 800 /tonne at the end of 1998 to about RMB 3, 0004, 000 /tonne in August 1999.

This adds an estimated A$ 1. 10 /kg to the price of wool. As a result there is considerable resistance from China to any price increases in raw wool markets. Although some quotas are allocated to mills, most are given to traders or merchants, which either sell their quota to mills or import the wool and sell it to mills. The total Normal Trade quota for 1999 is expected to be at least 120 my, up 10 my from 1998. Delays in quota allocation have inhibited the consistent flow of raw wool to mills. Despite the uncertainties, however, Chinese imports of Australian raw wool rose by 40 % in the eight months to August 1999.

Quota Utilisation 1998 and 1999 Quota (my) 1998 1999 E 1 st batch 2 nd batch 3 rd batch Total 1 st batch (July ' 99) 2 nd batch Normal Trade 60 40 10 110 60 80 Processing Trade 120 60 0 180 Total 180 100 10 290 Source: The Woolmark Company, China Branch E = estimated. The quantities agreed for the tariff rate quotas are 242. 3 my for raw wool and 65 my for wool top from 2000. Quota access is to grow by four equal steps to 287 my and 79 my respectively by 2004. These quantities will apply once China accedes. The quotas are global and apply to imports from Australia and all other WTO members. 5 Volume quotas currently in place will be increased at progressive rates over the next four to five years. In the case of industrial products, tariffs will be reduced over a four- to five-year period.

Tariffs on products will fall from as much as a rate of 40 per cent down to 10 per cent. The second category of benefits for Australian companies will be the improvement of investment climate in the key sectors in China's economy. Australian companies could play a significant role in those sectors. The benefits for Australian companies with existing or new investments in China will be twofold. Within a significant period of time, Australian investors encountered obstacles in treatment before Chinese regulatory bodies.

The state-owned enterprises were usually treated more favorably than foreign-invested enterprises. But, at the present time, everything changed. It is hard to if there are any losses from the trading arrangements, except for those state-owned companies. As we have already mentioned, China has been the most important buyer of Australian wool. In broad terms, exports of wool and semi-manufactures, like scoured wool and wool tops from Australia to China currently reaches one-fifth of Australian production. Within China, the wool industry is especially important because of its economic and political significance to ethnic minorities living in the pastoral region.

This region is vulnerable to overgrazing and land degradation. Wool is the major source of cash income in some districts. Sheep meat is an important part of the food supply for ethnic minorities. The balance between wool and sheep meat in the sheep industry influences the total quantity of wool produced and the type of wool produced. The quality composition of the wool clip determines the types of products into which wool can be processed and thus the extent of competition between domestic wool and imported wool.

Developments in Chinese wool production are important to Australia because China is a major wool consumer and a processor of domestic and imported wool for the Chinese market and export. The clothing and textile industries are already an important component of the Chinese economy and significant in its overall development strategy. China is now the world's largest exporter of clothing and second largest exporter of textiles. Despite the obstacles incurred from widespread restrictions on trade in clothing and textiles reflected in the Multi-fiber Arrangement that regulates world trade in clothing and textiles. 6 While it is obvious that wool in aggregate competes with synthetic fibers, artificial fibers and cotton in markets for clothing and textiles, it is less clear how wool of different origins competes in determining the shares of Australian wool and other wool in Chinese output of clothing and textiles. This is because wool processing uses specialized assets.

Firms in the wool processing business in China and elsewhere are interested in maintaining the throughput of their operations. Blending wool from different countries may also have positive effects on processing performance. In economic terms, the issue is whether Chinese wool and imported wool are substitutes or complements. Formulation of other Australian policies for the wool industry depends upon knowledge of the economic interaction of domestic Chinese wool production and wool imported from other countries, principally Australia.

Australia has an ongoing interest in maintaining access to the Chinese market, the emerging role of China in the world textile industry, and Chinese participation in world trade generally. Chinese demand for Australian wool has been most unstable over recent years both cause and effect of the profound difficulties for the Australian wool industry associated with the demise of the reserve price scheme and the protracted recovery following that Australian-induced debacle. Knowledge of the supply side of the Chinese wool industry is obviously critical to Australian understanding of the short-term and long-term outlook for wool upon which many private investments and government decisions are based. Moreover, understanding (if not resolution) of perennial Australian disputes in the wool industry concerning exports of Australian Merino sheep largely depends on economic information on wool supply in major wool producing countries. 7 Bibliography: Christopher Findlay. Challenges of Economic Reform and Industrial Growth: China's wool war.

Sydney: Allen & Unwin, 1999. David Robertson. East Asian Trade after the Uruguay Round. Cambridge: Cambridge University Press, 1998.

Drysdale J. Impact of Trade. China and Australia. New York: Cooper Publishers, Inc. , 1997.

Lopez, Michael and Zhi Wang. WTO Accession for China and Taiwan: Potential Trade Impacts. United States Department of International Trade, AO- 242, July, 1997. Michalski, W. , R. Miller and B. Stevens.

China in the Twenty First Century: An Overview of the Long-term Issues. Paris: OECD, 1996. Kym Anderson (ed. ) New Silk Roads: East Asia and world textile markets. Sydney: National FT University Press, 1993.

Ross Garnaut and Living Song. China: twenty years of economic reform. Canberra: Asia Pacific Press, 1999.


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Research essay sample on Impact Of Tariffs And Quotas On Wool Trade

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