CHAPTER 2: GLOBALISATION AND LIBERALISATION

Introduction

1 The removal of trade barriers, combined with improvements in international

communication, technology and transportation, has led to increasingly interdependent and
trade-exposed economies. The realisation of the opportunities presented by a competitive
global marketplace for the world’s consumers, producers and service providers has
maintained the momentum for governments and business to continue the push for trade
liberalisation.

2 Throughout its investigations, the Committee found a perception that Australia is

undertaking trade liberalisation faster than other nations, thereby giving overseas nations an
advantage in Australia, while reciprocal advantages are not yet available to Australian
exporters. The reality is that the international trade arena has undergone significant reform in
recent decades, and tariffs are being reduced or abolished throughout the world. There has
been a gradual recognition of the high costs of protectionist policies, resulting in a shift
towards trade liberalisation.

3 Australia’s agriculture industry relies heavily on export, with only a small

proportion of goods produced for domestic consumption - over 70 per cent of Australia’s
farm produce is exported. 1 Because of its reliance on exports, the agriculture industry in
Australia has much to gain from trade liberalisation. The benefits are tempered by the costs
of adjusting to the changed commercial environment faced by some businesses, and indeed,
by some industries and regional areas as a whole. Governments have responsibilities to
ensure effective adjustment policies are in place to assist individuals, industries and regions
adapt to new market circumstances and to explain the need for integration into the
international economy. This responsibility should not be borne by government alone. As
representatives of a sector likely to be a major beneficiary of reform, agricultural industry
leaders have responsibilities to work with governments in this role.

Globalisation and trade liberalisation

4 Economic globalisation refers to the growing interdependence amongst sovereign

states in areas such as trade, investment and communication. It is an integration of economic
processes across political borders which results in business behaviour being oriented to world
markets, rather than particular national markets. Increasing economic integration is a
phenomenon evident in two major new trends:

· an accelerating growth in international trade in absolute terms and also as a proportion

of production. World trade is expanding at a faster rate than world output,
meaning countries are becoming more dependent on foreign trade; and

· production is increasingly organised on a global, rather than national, basis. This is

manifest in the fact that 40 per cent of world trade in the 1980s was managed
within multinational companies and that rates of foreign direct investment have
1
Department of Primary Industries and Energy, submission, no. 19, p 1.
4 ADJUSTING TO AGRICULTURAL TRADE REFORM

risen spectacularly. In addition, money markets have internationalised resulting

in a global capital market.2

5 National economic policy reforms are seen as a necessary consequence of a

changing world economy where globalisation is a key feature. Globalisation is accompanied
by the adoption of trade liberalisation strategies in an increasing number of countries. Table
2.1 shows the increasing numbers of countries participating in the General Agreement on
Tariffs and Trade (GATT) rounds aimed at removing trade barriers since 1947. The GATT
was the principal international trade organisation from 1947 to 1994. It grew out of a failed
attempt to create an International Trade Organisation, with binding agreements. GATT
began as an Agreement on trade, but grew over the years into an informal organisation,
characterised by multilateral negotiations known, as “rounds”.

Table 2.13

The GATT Trade Rounds

Year Place/name Subjects covered Countries

1947 Geneva Tariffs 23

1949 Annecy Tariffs 13
1951 Torquay Tariffs 38
1956 Geneva Tariffs 26
1960-1961 Geneva (Dillon Round) Tariffs 26
1964-1967 Geneva (Kennedy Round) Tariffs and anti-dumping measures 62
1973-1979 Geneva (Tokyo Round) Tariffs, non-tariff measures, “framework” 102
agreements
1986-1994 Geneva (Uruguay Round) Tariffs, non-tariff measures, rules, services, 123
intellectual property, dispute settlement,
textiles, agriculture, creation of WTO, etc.

6 As of September 1997 the World Trade Organization (WTO) has 132 member
countries, three quarters of which are developing countries or countries in transition to
market economies. During the Uruguay Round, more than 60 developing countries and
transition economies implemented trade liberalisation programs autonomously. 4 Further
evidence of the international trend to adopting trade liberalisation policies can be seen in the
signing of the 1994 Bogor Agreement by the 18 members of the Asia Pacific Economic Co-
operation (APEC) group. The Bogor Agreement committed signatories to move to free and
open trade

2
Baldev Raj Nayar, “Globalisation, Nationalism and Economic Policy Reform”, in Economic and
Political Weekly 26 July 1997, vol 32, No. 30, pp 94-95.
3
World Trade Organization, Trading into the Future, February 1998, p 5.
4
World Trade Organization, Trading into the Future, February 1998, p 7.
 GLOBALISATION AND LIBERALISATION 5

7 by 2010 for developed countries and 2020 for developing countries. As well,
agricultural ministers of OECD countries met in March 1998 and referred to the trend to
greater liberalisation of agricultural markets:

According to OECD Secretariat calculations, support to agricultural producers, as measured

by the Producer Subsidy Equivalent, has fallen from an OECD-wide average of 45 per cent
of the value of production in 1986-88 to an estimated 35 per cent in 1997. During the same
period, total transfers from consumers and taxpayers due to agricultural policies decreased
from a share of 2.2 per cent of GDP to 1.3 per cent, reaching a level of US$280 billion in
1997. There has been some shift away from price support towards direct payments and other
policy measures that are less distorting to production and trade, that allow greater influence
of market signals, and are more efficient in the targeting of support. 5

8 Underpinning the trade liberalisation process is the economic principle of

comparative advantage. Liberalising countries accept that they will prosper by taking
advantage of their assets (natural, human, financial and technological resources) to produce
goods and services efficiently and then trade those for goods and services produced more
efficiently by other countries. The extent to which trade can occur is dependent on
restrictions operating to protect local industries. As liberalisation policies remove the
restrictions on trade between countries, producers have access to inputs produced more
efficiently as well as access to more customers for their product. New overseas markets are
opened to exporters, broadening opportunities to existing export industries and opening
markets for industries not previously involved in export. Trade liberalisation increases
imports as well as exports. This increases competitive pressures on domestic companies, the
end result is more efficient production practices and increased price competition, resulting in
benefits for consumers. Trade is not an end in itself but a means of exchange to direct
resources to their most efficient use. Efficient use of resources facilitates economic growth,
resulting in higher national income and improved living standards.

9 Successive Australian governments have agreed that Australia cannot afford to

exclude itself, or be excluded, from globalisation.

Globalisation rolls on regardless of Australia’s policy choices and reinforces the need for a
liberal trade strategy. There is no future in hiding behind a fortress Australia. 6

10 The Department of Primary Industries and Energy (DPIE) forecasted the likely
picture for Australia in liberalising trade in the Asia-Pacific region:

A 1995 study by the Australian Bureau of Agricultural and Resource Economics, (ABARE),
(AustraliaÕs agricultural exports: Implications of APEC trade policy reform) found that for
APEC countries Òwhen protection is removed under liberalisation, each country is likely to
become more specialised in the products in which it has a comparative advantageÓ. As a
result, ABARE concludes, Australia is likely to produce and export more agricultural
products and import more manufactured products. 7

5
Ministerial Communiqué from the Meeting of the OECD Committee for Agriculture at
Ministerial level, 5-6 March 1998, p 2.
6
Department of Foreign Affairs and Trade, Trade Liberalisation: Opportunities for Australia,
Canberra, 1997, p 29.
7
DPIE Submission No 19, p 5.
6 ADJUSTING TO AGRICULTURAL TRADE REFORM

11 While recognising the benefits of globalisation and trade liberalisation, the

Committee is also aware that Australia’s engagement with the world economy comes with
disadvantages. Economic interdependence does not simply mean closer economic linkages.
It follows that an economic policy of one country, even if it is basically of a domestic nature,
has an influence on other countries. The adage has long been used in reference to our largest
trading partner, “When Japan sneezes, Australia catches a cold”. Australian production and
trade has been assisted by world economic growth, but has also suffered downturns as a
result of global events such as the 1987 stockmarket crash and the current Asian economic
crisis. Such events impact on Australia’s production and export activities and add to the
uncertainty felt by many producers, exporters and the community.

Trade Protectionism

12 For most of Australia’s post-Federation history, agricultural production was

supported by policies offering greater certainty in a different era by protecting producers and
consumers against the volatility of world market price fluctuations.

Assistance to Australian agriculture prior to 1982 was in various forms including price-
related intervention, quantitative and tariff-related protection against imports, input
subsidies, natural disaster (eg drought) relief and aid for rural adjustment. The aggregate
level of support was not, however, high relative to many competing exporting nations. In
the 1970s and early 1980s, for example, the Australian rural sector received rates of
protection considerably below its counterparts in Europe and North America. 8

13 The perceived benefits of protectionism are underpinned by arguments that tariffs

provide protection for infant industries; help to balance the Australian economy; help
maintain and enhance employment; and ensure our national security. However,
protectionism weakens the economy by creating an imbalance between sectors and
misdirecting valuable resources away from their most efficient use. Exporters are hurt by
protectionism, as the costs of inputs are higher due to minimal competition, and overseas
markets are closed or severely restricted due to other nations’ tariff policies. This is
significant for Australia’s agriculture sector which relies on exporting 70 per cent of its
production to world markets where real prices are declining:

The international agricultural environment for many years had been one where gradually
increasing productivity and the effects of protectionism have resulted in supplies rising more
rapidly than demand, leading to a gradual downward trend in real prices received for farm
products. 9

14 In recent decades, protection for most Australian agricultural industries has been all
but removed and production has been based on clearer market signals. Australian agriculture
is also benefiting from the liberalisation policies of its trading partners, undertaken
multilaterally, regionally, bilaterally and unilaterally.

8
Wonder, Bernard (Department of Primary Industries and Energy), Australia’s Approach to
Agricultural Trade Reform, address to conference at Washington, US, 1995, p 4.
9
Wonder, Bernard (Department of Primary Industries and Energy), Australia’s Approach to
Agricultural Trade Reform, address to conference at Washington, US, 1995, p 4.
 GLOBALISATION AND LIBERALISATION 7

International Trade Reform

World Trade Organization

15 The powers of the GATT were limited by its status as a provisional agreement and
organisation, having no standing in international law. It had achieved significant trade
liberalisation, but by the 1980s new developments in international trade, such as the
globalisation of the world economy, expansion of international investment and expansion of
international trade in services and agricultural products, signalled the need for a new
international agreement on trade.

16 A major outcome of the Uruguay Round was the creation of the WTO, from 1
January 1995. The WTO has superseded the GATT organisation, and its main purposes are
to:

· help trade flow as freely as possible;

·
· serve as a forum for trade negotiations; and
·
· conduct dispute settlement.10

17 The WTO differs from GATT in several important aspects. Firstly, its decisions are
binding in international law. Agreements made under the auspices of WTO negotiations
have the effect of a contract, with penalties applying if either party breaks the agreement. An
important underpinning of the WTO is the “most favoured nation” principle - that all
members of the WTO will be treated equally in the trade arena - nations cannot elect to give
special trading advantages to one specific nation, or impose any discrimination.

18 A second important role of the WTO is that it takes an active role in dispute
settlement. Allegations of broken commitments under WTO agreements are arbitrated by the
WTO through a series of tribunals.

19 Agricultural trade, which had been only covered partially by GATT agreements in
the past, was fully included in the Uruguay Round agreements. The complete inclusion of
agricultural trade was particularly important for Australia, because of the high proportion of
our agricultural products traded in international markets. The Agriculture Agreement
concluded under the Uruguay Round committed member countries to convert non-tariff
barriers to tariffs and to then reduce those tariffs, allowing for different levels of reductions
for developed and developing nations. While the international agriculture market still
contains significant distortions, the unchecked trend towards protectionist agricultural
policies has been interrupted. The main provisions of the Uruguay Round Agriculture
Agreement are outlined in Table 2.2.

10
World Trade Organisation internet site: www.wto.org
8 ADJUSTING TO AGRICULTURAL TRADE REFORM

Table 2.211

Uruguay Round Targets for cutting subsidies and protection

Developed countries Developing countries
6 years: 1995-2000 10 years: 1995 – 2004
Tariffs:
Average cut for all agricultural
products -36% -24%

Minimum cut per product -15 % -10%

Domestic Support:
Total AMS cuts for sector
(base period: 1986-88 -20 % -13 %
Exports:
Value of subsidies -36% -24%

Subsidised quantities -21 % -14 %

(base period: 1986-1990)

20 The Australian Bureau of Agricultural and Resource Economics (ABARE)

estimates that the Uruguay Round Agreement on Agriculture could increase Australia’s
agricultural exports by almost $1 billion every year. 12 Specific commitments made under the
Uruguay Round which will benefit Australian agriculture are detailed at Appendix C.

21 The formalisation of the WTO as an organisation under international law has

important ramifications. Nations applying for accession to the WTO must make
commitments to open their markets and to abide by the WTO rules, through a series of
membership negotiations. Applicant nations must firstly detail their trade and economic
policies. Following this, existing WTO members enter bilateral talks with the applicant
nation, to negotiate trading rights. The new member’s commitments apply equally to all
WTO members under the “most favoured nation” approach. This process gives current
member nations such as Australia important leverage into new markets, as trade rights are
negotiated with important regional markets.

22 Several countries are currently negotiating membership of the WTO. Australia is

heavily involved in negotiations with these countries and is seeking major gains in market
access. Negotiations were concluded for Bulgaria in 1996 whereby secure commitments
were gained which will protect market access for exporters of beef, sugar and other products.
Negotiations also achieved guaranteed global access for 250 000 tonnes of sugar and 11 000
tonnes of beef. In addition, agreement was reached which will result in the removal of
discriminatory tax arrangements, adoption of new customs valuation legislation and
elimination of subsidies on Bulgaria’s exports of agricultural products to both Australia and
our important Asian export markets.

23 An interim package was agreed to with Taiwan, also in 1996. Under this
agreement Australia gained early access for products into Taiwanese markets, including a 40
per cent reduction in the tariff discrimination for Australian beef, double quota access for
Australian

11
World Trade Organization, Trading into the Future, February 1998, p 17.
12
DFAT submission, no. 17, p 4; DPIE submission, no. 19, p 3.
 GLOBALISATION AND LIBERALISATION 9

24 apples (2400 tonnes) and first time access for stone fruits (1000 tonnes) and citrus
(600 tonnes) in 1997. The Australian Horticultural Corporation (AHC) estimates that
$15 million of Australian apples, citrus and stonefruit will have been sold in the Taiwanese
market by the end of 1998 as a direct result of Taiwan's liberalisation policies. Upon
accession to the WTO, Taiwan will progressively further liberalise 800 tariff lines, covering
the bulk of Australian exports and will open its market to imports of Australian rice, liquid
milk, animal offals, mangoes and nashi (currently banned).

25 Other countries involved in market access negotiations for accession to the WTO
include China,13 Saudi Arabia, Ukraine, Croatia, Latvia, Lithuania, and Estonia.

26 Unilateral trade reforms gave Australia a head start in the WTO’s Uruguay Round
agreements, as the agricultural industry had already achieved many of the objectives of the
Agriculture Agreement:

In only 20 tariff lines out of some 4,000 commitments made by Australia in the Round was
Australia required to go beyond the tariff phasing already undertaken as part of the domestic
reform program, and in those few cases the reductions were made to achieve specific
benefits. In contrast, the benefits and concessions secured by Australia in the Round were
enormous... 14

27 The lasting significance of the Agricultural Agreement is that it marked a starting

point for multilateral negotiations on agriculture and it committed all WTO nations to
agricultural trade reform. While Australian agriculture benefits from the gains in market
access, reduced export subsidies and reduced domestic support, the real benefit for Australia
is the commitment from WTO members to continue agricultural trade reform into the 21st
century.

28 In its submission to the Committee, DPIE indicated there was a long way to go for
agricultural trade liberalisation:

Although reform has achieved significant improvements for agricultural trade, international
markets remain highly distorted and not all Australian agricultural industries operating in
satisfactory market conditions. AustraliaÕs trade policy aims to continue to pursue mutually
supportive bilateral, regional and multilateral approaches to advance further trade
liberalisation to reduce the impact of market distortions and to improve market access.

29 Australia’s involvement in international trade reforms, outlined below, helps to lift

the nation’s export capability. As the Department of Foreign Affairs and Trade (DFAT)
describes it, Australia’s involvement in multilateral trade negotiations to date has been
characterised by an ability to “punch above its weight”.15

30 Australia also has significant involvement in trade negotiations through its

membership of the Cairns Group which consists of Australia; Argentina; Brazil; Canada;
Chile; Colombia; Fiji; Indonesia; Malaysia; New Zealand; Paraguay; Philippines; Thailand
and Uruguay. The Group was formed to promote further liberalisation of world agricultural
trade, and was an influential third force in the Uruguay Round negotiations on agriculture,
alongside the United States of America (US) and the European Union (EU). The Cairns
Group met in Sydney in April 1998 to work on a strategy for the next round of WTO
13
China has given a public undertaking not to introduce export subsidies on agricultural and food
products.
14
DFAT, submission no. 17, p 2.
15
Department of Foreign Affairs and Trade, Trade Liberalisation: Opportunities for Australia,
Canberra, 1997, p 49.
10 ADJUSTING TO AGRICULTURAL TRADE REFORM

negotiations on agricultural trade, to begin in 1999. Through the Cairns Group, member
countries have wielded significant influence in WTO negotiations, in excess of what the
individual nations could have achieved.

Regional trade liberalisation

31 Australia’s regional trade negotiations have been predominantly pursued through

the APEC forum and the Australia New Zealand Closer Economic Relations Trade
Agreement (CER). The CER eliminates tariffs on virtually all trans-Tasman trade and has
generated substantial gains for both partners since it was signed in 1983. Australian
manufactured exports have especially benefited.16

32 APEC was formed in 1989 as an informal group providing a forum for regional
dialogue among Asia-Pacific economies. The group has since become the primary regional
vehicle for promoting open trade and practical economic cooperation and is identified as a
cornerstone of Australia’s regional trade policy.17 APEC includes Australia; Brunei
Darussalam; Canada; Chile; People's Republic of China; Indonesia; Japan; Republic of
Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Republic of the Philippines;
Singapore; Taiwan; Thailand and the US. Its pursuit of liberalisation is based on most
favoured nation principles, which - consistent with the WTO principles - does not
discriminate against countries outside APEC.

33 Under the 1994 Bogor Agreement, APEC Members are committed to achieve free
and open trade by 2010 for developed countries and 2020 for developing countries. The
Bureau of Industry Economics has forecast that when in place, the reforms contained in the
Bogor Agreement could add another $3.6 billion per year to Australia’s agricultural
exports.18 The Australian government has announced that it intends to focus on the following
objectives within the APEC forum for 1998-2000:

· accelerated liberalisation of priority sectors (including establishing special teams to

pursue Australia’s interests);
·
· harmonisation of standards and mutual recognition arrangements;
·
· streamlining customs procedures;
·
· freeing government procurement regimes;
·
· facilitating business travel;
·
· identifying and removing impediments to services trade;
·
· encouraging appropriate electronic commerce policy frameworks; and
·

16
Department of Foreign Affairs and Trade, Trade Liberalisation: Opportunities for Australia,
Canberra, 1997, p 42.
17
Department of Foreign Affairs and Trade, Trade Outcomes and Objectives Statements 1998,
March 1998, p 135.
18
National Farmers’ Federation submission, no. 2, p 9.
 GLOBALISATION AND LIBERALISATION 11

· constantly improving members Individual Action Plans to open markets for Australian
goods and services.19
·
34 At the culmination of the Uruguay Round in Marrakesh in 1994 it was noted that
“free trade areas have greatly increased in number and importance since the establishment of
GATT in 1947 and today cover a significant proportion of world trade”. 20 In other regional
developments, ASEAN members in 1992 decided to establish the ASEAN Free Trade
Agreement (AFTA) and Brazil, Argentina, Paraguay and Uruguay have formed Mercosur
(Southern Common Market). The CER partners are undertaking activities with AFTA to
promote trade and investment in the region and similar activities are being explored between
CER partners and Mercosur.

35 Australia’s regional trade policy needs to build on the trade liberalisation objectives
of the WTO and ensure that its interests are advocated and protected in regional trade
groupings.

Bilateral trade negotiations

36 Bilateral trade negotiations are an integral component of the combination of

strategies which Australia employs in pursuing its trade policy objectives. It is through
bilateral negotiations that Australia essentially captures the benefits of multilateral and
regional trade agreements. DPIE provided the Committee with details of progress on a range
of bilateral issues since the conclusion of the Uruguay Round. The following lists some of
the gains Australia has obtained through its post-Uruguay Round bilateral trade efforts up to
mid-1998, but it should be recognised that the impact of the Asian economic crisis in some of
these markets is likely to result in interruptions to the realisation of gains for some products.

United States of America

37 Removal of previous quarantine restrictions on access to the US markets for

Australian citrus from the Sunraysia and Riverina areas resulted in exports of up to
$20 million per annum.

Mexico

38 MexicoÕs decision to eliminate the 10 per cent tariff on scoured wool and wool
tops from Australia since the end of 1996 has been accompanied by an increase in the
volume and value of wool exports to Mexico (See graph 2.1). Mexico followed up this
decision with the further elimination of the 10 per cent tariff on wool noils and waste,
effective from 1 January 1997. The potential for wool processing in Mexico may increase by
40 per cent to 8 million kilograms by 2000 according to current projections and estimates by
industry sources. North American demand for Australian wool is expected to expand
following the launch of the International Wool SecretariatÕs development plan aimed at
positioning the Mexican textiles industry to take advantage of the opening up of the North
American market under the North American Free Trade Agreement (NAFTA).

19
Department of Foreign Affairs and Trade, Trade Outcomes and Objectives Statements 1998,
March 1998, p x.
20
Final Act embodying the results of the Uruguay Round of Multilateral Trade Negotiations,
Marrakesh, 15 April 1994, Special distribution, 30 March 1994, Annex 1A: Multilateral Agreements on
Trade in Goods, General Agreement on Tariffs and Trade 1994, 1(a).
12 ADJUSTING TO AGRICULTURAL TRADE REFORM

Graph 2.121

Aus tralian wool e xports to M e xico

30

25
A$ m illio n

20

15

10
1990- 1991- 1992- 1993- 1994- 1995- 1996- 1997-
91 92 93 94 95 96 97 98

Japan

39 In December 1995 a Memorandum of Understanding was signed with Japan

allowing access for Australian oysters (sourced from Tasmania) for the first time.
Liberalisation of Japanese markets in 1991 saw the imposition of a 70 per cent import tariff
on beef which reduced 10 per cent per year until 1993, where it remained at 50 per cent. As
a result of the Uruguay GATT negotiations in December 1993, it was agreed that from 1995
the tariff on beef imported into Japan would decrease by a further 1.9 per cent each year until
it reached 38.5 per cent in the year 2000. On 1 April 1995 the tariff on both chilled and
frozen beef reduced to 48.1 per cent. The present rate is 42.4 per cent. Graph 2.2 illustrates
the tariff decline for Japanese beef imports.

Graph 2.2

Japane s e Be e f Tariff

70
65
60
55
Per cent

50
45
40
35
30
1991 1995 2000

21
Source: DPIE/Wool International. Exports of woolled sheep and lambskins not included.
Direct exports no longer represent the totallity of Australian wool being processed in Mexico. Top
made in the United States from Australian wool is also being processed in Mexico.
 GLOBALISATION AND LIBERALISATION 13

40 The value of beef exports to Japan has increased from $938 million in 1991-92 to
$1078 million in 1996-97, shown in Graph 2.3.

41 Japan will expand its wheat market by 175 000 tonnes to 5.74 million tonnes and
the applied tariff of 65 yen/kg must reduce to the bound rate of 55 yen/kg by 2000. Access to
Japan’s barley market will be increased by 42 500 tonnes to 1.37 million tonnes and the
applied tariff of 46 yen/kg must reduce to the bound rate of 39 yen/kg by 2000. The applied
tariff of 106 yen/kg for wheat and meslin flour must reduce to the bound rate of 90 yen/kg by
2000.22 The value of cereals exports (excluding unmilled barley) to Japan has increased from
$114 million in 1992-93 to $159 million in 1996-97.

Graph 2.323

E x po rts o f be e f to J a pa n

1 800 000
1 600 000
1 400 000
1 200 000
$ '0 0 0

1 000 000
800 000
600 000
400 000
200 000
0
1 9 9 1 -9 2 1 9 9 2 -9 3 1 9 9 3 -9 4 1 9 9 4 -9 5 1 9 9 5 -9 6 1 9 9 6 -9 7

42 Japan also agreed to 15 per cent tariff reductions on fresh fruit and vegetables,
including 40 per cent tariff reductions for fresh grapes, asparagus and shallots. The value of
fruit and vegetable exports to Japan has increased from $68.5 million in 1992-93 to $125
million in 1996-97.

Graph 2.4

Se le cte d agricultural e xports to Japan

2 00 0 00 Cereals
1 80 0 00
Vegetables and fruit
1 60 0 00
1 40 0 00
1 20 0 00
$ '0 0 0

1 00 0 00
80 00 0
60 00 0
40 00 0
20 00 0
0
19 92 -93 1 99 3-9 4 19 9 4-95 1 99 5-96 19 96 -97

22
Values for barley, wheat and flour exports to Japan are commercial-in-confidence.
23
Source: DPIE
14 ADJUSTING TO AGRICULTURAL TRADE REFORM

43 Japan liberalised rice imports with the establishment of a minimum access quota
based on four per cent of domestic consumption rising to eight per cent of domestic
consumption by 2000. The Ricegrowers Co-operative, the sole exporter of rice, estimates
exports to Japan valued at around $65 million in 1996 with the expectation of sales valued at
approximately $100 million in the year 2000.

44 Japan also pledged, as part of its APEC Individual Action Plan agreed to in
November 1996, a revision of its administrative arrangements towards facilitating the entry
of plant and animal imports.

Korea

45 Korea agreed to open a minimum access tariff quota for all barley and barley
products of 14 150 tonnes with a final quantity of 23 582 tonnes at an in-quota tariff rate of
20 per cent. It also provides global access of 30 000 tonnes for malting barley and 40 000
tonnes for malt at a tariff of 30 per cent.

46 Korea has agreed to bind and reduce tariffs by at least 10 per cent on all fruit and
vegetable products. Tariff quota access has also been opened for onions, garlic, capsicum,
potatoes and oranges. The oranges quota will open at 15 000 tonnes and rise to 57 017
tonnes with an in-quota tariff of 50 per cent and an out of quota tariff of 99 per cent
(reducing to 50 per cent).

47 Korea reduced tariffs on 182 dairy items on 1 January 1998 and will allow access
for poultry and poultry products through the Australian Quarantine and Inspection Service
(AQIS) negotiating a bilateral quarantine agreement. It has also opened its rice market based
on one per cent of domestic consumption rising to four per cent in 2004. Korea also reduced
tariffs on raw sugar from five per cent to three per cent on 1 January 1998.

Hong Kong

48 Negotiations were successfully concluded in July 1997 to ease stringent health and
quarantine regulations. This resulted in the first substantial quantity of milk being flown in
daily from northern Queensland by Malanda Milk. Hong Kong has also pledged under its
APEC Individual Action Plan, adopted at the Leaders Conference in November 1996, to
relax import restrictions on rice by 1997 and on meat and poultry by 2000.

Philippines

49 Philippine economic liberalisation has included the traditionally sensitive area of

agriculture, where tariffs and quantitative restrictions are being reduced in areas of interest to
Australia. Reform measures include:

· tariffication of non-tariff measures affecting live cattle, beef and beef products,
pigmeat products;

· reduction of tariffs, including those on milk and cream, cheeses, confectionery and pet
food; and
·
· removal of quantitative restrictions on sheep and goat meat, live pigs, chicken and
poultry.
 GLOBALISATION AND LIBERALISATION 15

The removal (in 1991) of the import levy on live cattle resulted in a substantial increase in
exports - the value of live cattle exports to the Philippines increased from $9 million in 1991-
92 to $108 million in 1996-97.24

Graph 2.5

Live cattle e xports to the Philippine s

Va lue no n-br e e ding a nim a ls $

Va lue br e e ding a nim a ls $

10 B r e e ding animals - 120

9 le ft axis
8 100
7 N on-br e e ding animals
- r ig ht axis 80
6
5 60
4
3 40
2 20
1
0 0
1 9 9 2 -9 3

1 9 9 3 -9 4

1 9 9 6 -9 7
1 9 9 1 -9 2

1 9 9 4 -9 5

50 Negotiations have been conducted through the Australia-Philippines Meat, Dairy 1 9 9 5 -9 6

and Livestock Working Group to further facilitate the live cattle, dairy and meat trade to the
Philippines. Tariff reductions on several fruits and vegetables have been accelerated, for
example, tariffs on citrus, apples and stonefruit have reduced from 20 per cent to 10 per cent
over three years.

Thailand

51 Thailand has gone beyond the minimum 10 per cent cuts and agreed to reduce
bound tariffs by 2004 on grapes, pears, apples and oranges. Thailand has also agreed to
Australia’s request for a 30 per cent tariff on processed fruits, including pineapples, peaches
and pears. In September 1995 Australia and Thailand signed an understanding which
resolved quarantine issues and set conditions for the import of Australian citrus. Exports of
oranges to Thailand increased under this arrangement.

Graph 2.6

E x p o rts o f fre s h o r d rie d o ra n g e s to T h a ila n d

450 000
400 000
350 000
300 000
D o lla r s

250 000
200 000
150 000
100 000
50 000
0
1 9 9 1 -9 2 1 9 9 2 -9 3 1 9 9 3 -9 4 1 9 9 4 -9 5 1 9 9 5 -9 6 1 9 9 6 -9 7

24
Source: Department of the Parliamentary Library.
16 ADJUSTING TO AGRICULTURAL TRADE REFORM

52 In late February 1995, Thailand increased its skim milk powder quota from 55 000
tonnes to 88 000 tonnes. Improved market access and tariff reductions for Australian exports
of ready-to-eat breakfast cereals were negotiated at the Australia-Thailand Joint Trade
Commission in 1995. Thailand also agreed to liberalise shelf life restrictions by 1998.

Malaysia

53 Under the Customs Valuation Code of the Uruguay Round Malaysia has agreed to
end uplift duties on imports over a 5 year period. These uplift duties especially affected
orange juice exports from Australia. Malaysia has also applied a zero tariff on liquid milk,
beyond its obligations under the Uruguay Round. Australian liquid milk exporters now
supply 60 per cent of the import market.

Indonesia

54 The Indonesian fresh fruit and vegetable market has opened up following the
removal of trade bans and gradual reductions in tariffs. Bilateral cooperation within the
Australia/Indonesia Working Group on Agriculture and Food Cooperation has also facilitated
improvements in the access of live cattle to Indonesia over the last few years. Indonesia
removed previous barriers to trade in April 1994, relating to the gender of live feeder cattle
imports to Indonesia, this opened the market for Australia to export cattle other than steers
into Indonesia. In 1991-92 Australia exported cattle to Indonesia valued at $7 million. In
1996-97 cattle exports to Indonesia had increased to $237 million.

Graph 2.7

L iv e c a ttle e x p o rts to I nd o ne s ia

Va l u e n o n -b r e e d i n g a n i m a l s $
B r e e di n g a n i m a l s - l e ft a x i s
Va l u e b r e e d i n g a n i m a l s $

14 250
N o n -br e e di n g a n i m a l s - r i g h t a x i s
12
200
10
150
8

6
100
4
50
2

0 0
1 9 9 2 -9 3

1 9 9 4 -9 5
1 9 9 1 -9 2

1 9 9 3 -9 4

1 9 9 5 -9 6

1 9 9 6 -9 7

India

55 Australia and India signed a major trade agreement in November 1997 which will
progressively wind back trade barriers against 470 rural and industrial exports to India by
March 2003. It is estimated that the deal will increase Australian exports to India by $30
million in the short term and by up to $200 million per year when the agreement is fully
implemented. Oranges, orange juice, seafood, and dairy products are among the primary
industry products set to benefit from improved access from March 2000. The Indian
Government has announced that it will reduce its tariffs to average ASEAN-APEC levels
within five years.
 GLOBALISATION AND LIBERALISATION 17

56 DFAT provided the Committee with an additional list of key market access wins
for the agri-food sector during mid 1996 and 1997. These are set out in Appendix D.

57 The market access information provided above, and in Appendix D, indicates that
trade liberalisation is actually occurring in world markets and that Australia is benefiting
directly from its trade strategies. It is not just in market access that Australian agribusiness is
capturing new opportunities. For example, the Committee met with the Bennett family in
northern Tasmania who own a dairy farm and cheese manufacturing business, Ashgrove
Farms Pty Ltd. Ashgrove is a small company which saw opportunities for import
replacement when the Uruguay Round cut EU subsidies for English-style cheese and,
consequently, the price of imported product into Australia rose from $13/kg to $18/kg. The
company is the only producer of English style cheese in Australia and the four years that it
has been in cheese production have seen the business grow to produce 100 tonnes of cheese a
year. The company's sales increased 30 per cent each year since establishment and in
1997/98 the company expected sales to increase 100 per cent. Ashgrove Farm Cheese is
marketing product in all Australian states and is currently developing export markets.

58 Notwithstanding the successes of trade negotiations, the Committee recognises that

reform is an on-going process and more needs to be achieved. Specific measures to improve
market access are discussed in greater detail in chapter five. The pace and extent of reform
has been uneven across countries and commodities. While total world farm trade is worth
around US$460.7 billion per year,25 world agricultural subsidies amount to over half that
figure (US$280 billion per year) and tariffs on agricultural products are at least ten times
greater, on average, than tariffs on industrial products.26

Establishing priorities

59 DPIE advised the Committee that the establishment of an inter-departmental

Market Development Task Force reflects the importance the government attaches to bilateral
trade activity. It is chaired by the Secretary of DFAT and comprises Deputy Secretary level
representation from DPIE, Austrade, the Department of Industry, Science and Tourism
(DIST) and DFAT and reports to the Minister for Trade. It aims to ensure that Australian
efforts are properly focused on achieving realisable outcomes. The Task Force meets four
times a year to review two groups of markets: 14 key markets and 11 smaller emerging
markets (each reviewed twice yearly). As well as reviewing major objectives for each
market, three or four priorities are identified for particular targeting over the following six
months. These priorities are selected according to importance and to the potential to achieve
real progress. In its first year, the Market Development Task Force pursued 101 priority
objectives, achieving positive outcomes or measurable progress in 86 cases. These ranged
from better access for Australian sugar, rice and citrus in Japan, to financial services licences
in China and Thailand, and valuable progress on Double Taxation Agreements with Mexico,
Russia and South Africa.27

25
DPIE. Figure is for 1995 and includes intra-EU trade estimated at US$156.5 billion.
26
Cairns Group Farm Leaders Communiqué, 31 March 1998, Sydney.
27
The Hon Tim Fischer, Minister for Trade, speech to the Australian Press Club, 4 March 1998.
18 ADJUSTING TO AGRICULTURAL TRADE REFORM

Trade reforms within Australia

Tariff reductions

60 Over the years, tariffs have been determined by governments on the advice of a
tariff agency. The Tariff Board had this role until 1972, when it was replaced by the Industry
Assistance Commission (IAC). The IAC held public investigations into direct and indirect
protectionism, and was superseded by the Industry Commission (IC) in 1990. In turn, the IC
is amalgamating with the Bureau of Industry Economics (BIE) and the Economic Planning
Advisory Commission (EPAC) to form the Productivity Commission.

61 Steps towards tariff reduction began in the 1960s, with the abolition of import
quotas. However it was not until a long-term review of tariffs was initiated in 1971 that
substantial changes took place. In July 1973 the Commonwealth Government introduced an
overall 25 per cent cut in tariff levels and by 1985 tariffs had fallen by an average of 40 per
cent. However, this average had been achieved by decreasing protection for lightly protected
industries, while increasing protection for heavily protected industries through the use of
non-tariff measures such as the re-introduction of import quotas.28

62 In 1988 the Commonwealth Government announced that tariff rates would be

standardised across all industries except the motor vehicle and textile, clothing and footwear
(TCF) industries (and some others where tariffs were already low). All tariffs above 15 per
cent would be phased down to 15 per cent by 1992. All tariffs between 10 and 15 per cent
would be phased down to 10 per cent by 1992. In 1992, these rates were again revised
downwards, to a single rate of 5 per cent in 1996.

63 In June 1997, the Government announced revised tariff rates for the motor vehicle
industry. Motor vehicle tariffs are frozen at 15 per cent from 2000 to 2004, reducing to 10
per cent in 2005. TCF remains the only other heavily protected industry, with tariffs around
25 per cent, falling to 5 - 17.5 per cent in 2005.

64 By 1995, protection had been abolished for many agricultural products, including
barley, cotton, fresh horticultural products, grain legumes, corn, tobacco, meat, oats, oilseeds,
rice, sorghum, wheat and wool. For other industries, such as citrus, dairy, dried vine fruits,
sugar and wine and brandy, tariffs are being progressively reduced or eliminated. Industries
have also seen significant change to their statutory arrangements, with less emphasis on
statutory marketing, although a number of State-based industry authorities remain in place. 29

65 Traditional statutory arrangements which pooled commodities and distanced

producers from their end markets are being transformed into arrangements where market
signals are clearer for producers and prices better reflect quality, as Mr Bernard Wonder of
DPIE told the Committee:

...we have come from a set of marketing arrangements that were not so focused on individual
producers, their farm gate returns, where their product went and the like. But we have moved
in more recent times into a more focused environment where producers are seeing much
clearer signals for what it is that they sell, for what it is worth in different markets, premiums

28
Department of the Parliamentary Library, Free Trade or Protectionism? Australia’s History and
Arguments For and Against, Background Paper no. 16, 1996-97, p 6.
29
Wonder, Bernard (Department of Primary Industries and Energy), Australia’s Approach to
Agricultural Trade Reform, address to conference at Washington, US, 1995, p 7.
 GLOBALISATION AND LIBERALISATION 19

for different grades and the like. The signals they receive in their pocket are very much
focused on what they receive for their product on the world market. 30

Microeconomic reforms

66 Tariff reductions have been coupled with other microeconomic reforms. The float
of the Australian dollar in 1983 and deregulation of the financial market were significant
events which opened the way for reform and deregulation of other industries such as
telecommunications, transport and energy. The national competition policy, implemented in
1995, ensures that government business enterprises and statutory authorities are subject to the
Trade Practices Act 1974, and sets out rules for privatisation of public utilities. Labour
market reforms including a renewed emphasis on education and training and social security
reforms have also significantly impacted the Australian economy over the last two decades.

67 Examples of specific agricultural liberalisation since the mid-1980s include:

· all States agreed to deregulate milk prices beyond the farm gate31;
·
· assistance to the manufacturing milk sector from Commonwealth marketing support
arrangements is declining and will end in 2000;
·
· domestic marketing arrangements for wheat were deregulated in 1989 and the
underwriting scheme which guaranteed growers a minimum price was removed;
·
· deregulation of egg marketing has occurred in New South Wales, South Australia,
Victoria and Queensland; and
·
· the discriminatory sales tax regime for local fruit and vegetable juices was removed in
1995.32

68 Following deregulation of the domestic market for wheat in 1989 there are now
many more marketing options for growers to sell their wheat. Growers can now better
respond to market signals by, for example, directly contracting with millers to supply
particular types of wheat under a forward contract or a range of other pricing options. This
has led to niche marketing opportunities and the development of wheats for noodle, pasta,
biscuits and industrial uses such as starch and gluten. The use of wheat for stock-feed, has
almost doubled since deregulation to around two million tonnes per year. This in part
reflects the increased demand from the dairy and feedlot industries for feed grains as well as
the increased marketing options available to growers. Deregulation has assisted the
development of storage, handling and transport options with potential cost savings for
growers (for example, warehousing of grain with the bulk handling companies, increased on-
farm storage and road transport, and the use of private co-operatives for selling wheat). In
addition, a wheat futures market commenced operation in Australia in 1996.
30
Transcript of Evidence, 25 March 1998, p 148.
31
State and territory governments have responsibility for the production, processing and
distribution of market (liquid) milk which is predominantly for domestic household consumption.
States other than Queensland and New South Wales have deregulated the processing, vending and
retailing sectors of their market milk industry (post farmgate de-regulation). Milk prices in deregulated
states which were previously administratively set are now determined by market forces. Post farmgate
deregulation in New South Wales and Queensland is scheduled to occur on 1 July 1998 and 1 January
1999 respectively.
32
Industry Commission, Stocktake of Progress in Microeconomic Reform, Canberra, 1996, p 118.
20 ADJUSTING TO AGRICULTURAL TRADE REFORM

69 These microeconomic reforms constitute unilateral trade reform to achieve better

outcomes for Australia’s trade interests. According to the IC:

While individual reforms in Australia have produced demonstrable gains, these might not
seem significant in isolation. But collectively they offer the prospect of a substantial boost to
living standards. 33

Benefits and Costs of Australia’s trade reforms

70 Australians are enjoying the benefits of trade liberalisation, with increased exports
and lower prices for consumers. DFAT claims that, if tariffs remained at 1988 levels in the
car manufacturing industry, imported cars would cost 25 per cent more than current prices
(saving $10 000 on a $40 000 car). Clothing and footwear would cost around 14 per cent
more than current prices - saving the average family around $300 per year. 34 DFAT uses
data from an economic model developed by the Centre for International Economics (CIE) to
indicate:

· significant long term gains in real wages and living standards have flowed from
liberalisation. Total gains from tariff reductions since 1986-87 amount to
around 1.5 per cent of Gross Domestic Product (GDP) (around $1000 extra per
year for each Australian family);

· further liberalisation by removing all tariffs is likely to deliver short term net increases
in jobs, and in the longer term, a one per cent gain in GDP; and

· multilateral liberalisation by others in APEC would add around 0.2 per cent to
Australia’s GDP, equivalent to $150 per year in income to the average
Australian family. Removal of all non-tariff barriers would deliver significant
additional gains.

· DFAT considers the above estimates to be conservative. 35

71 A diverse range of Australian industries have benefited from globalisation and

trade liberalisation. In the agriculture sector, food products in particular have benefited from
liberalised trade agreements with Asia-Pacific nations. Manufacturers have responded to the
fall in tariffs by increasing productivity and increasing their export market. Service
industries such as tourism, education and information services have grown to the extent that
they recorded a trade surplus for the first time in 1995-96. Graph 2.8 shows the growth in
agricultural exports over the last 40 years and highlights the increasing growth rate occurring
since the substantial liberalisation reforms started to take effect.

33
Industry Commission, Stocktake of Progress in Microeconomic Reform, Canberra, 1996, p 30.
34
Department of Foreign Affairs and Trade, Trade Outcomes and Objectives Statement 1998,
Canberra, March 1998, p 43
35
Department of Foreign Affairs and Trade, Trade Liberalisation: Opportunities for Australia,
Canberra, 1997, p 16.
 GLOBALISATION AND LIBERALISATION 21

Employment benefits

72 Job creation is a major positive outcome of trade liberalisation. As industries

become more competitive and exports increase, job opportunities are also created:

· a 1996 survey of Austrade’s exporter clients showed nearly 60 per cent had either
increased employment or expected to do so as a result of exporting;

· a 1996 survey by the Australian Bureau of Statistics indicates that exporters are
increasing their employment more than non-exporters; and

· modelling conducted in 1997 by the Centre for International Economics indicates that a
one per cent increase in agricultural mining and manufacturing commodity
exports would result in over 16 000 additional jobs within two years,
concentrated largely in service industries.36

Graph 2.8 - Value of Australian farm exports, 1955/56 - 1995/96 37

Australian farm exports

25 000
20 000
(A$ million)

15 000
10 000
5 000
0
1955-56 1965-66 1975-76 1985-86 1995-96
Ye ar

73 The IC has analysed the effect on employment growth over the ten years to 1992-
93 of trade liberalisation and Australia’s integration into the international economy. The IC
found that over 300 000 net jobs were created through expansion in trade. Increased exports
generated more than half a million jobs, while some 200 000 jobs were lost to rising
imports.38 Graph 2.9 shows that in agriculture, 42 600 jobs were created over the ten year
period due to increased export demand and 19 300 jobs were lost due to increased import
demand for final and intermediate goods - resulting in a net gain of over 23 000 jobs created
due to trade expansion. Many of the industries contributing to export growth in agriculture
undergo some form of processing before leaving Australia. Adding value to the product
requires a range of labour inputs which contribute to employment growth. In addition,
growth in agricultural industries is accompanied by growth in servicing industries, such as
transport and packaging, contributing to overall employment growth.

36
Department of Foreign Affairs and Trade, Trade Liberalisation: Opportunities for Australia,
Canberra, 1997, p 23.
37
ABARE, Australian Commodity Statistics 1997, p 6. Figures are in current dollars.
38
Department of Foreign Affairs and Trade, Trade Outcomes and Objectives Statement 1998,
Canberra, March 1998, p 45.
22 ADJUSTING TO AGRICULTURAL TRADE REFORM

74 According to Professor John Chudleigh, Principal, Orange Agricultural College,

University of Sydney, agriculture has been Australia’s fastest growing employment area for
the last three years:

...there has been a growth of over 20,000 new jobs in the [wage and salary earner] area over
the two years to June 1997. Total employment in agriculture, including farmers and other
self employed people, has also grown over this same period leading to a total growth in
employment over the last 2 years of 22,700. This is an enormous increase in employment
for a sector which employs 5.7 per cent of Australia’s total work force and which many
perceive to be in a state of decline. 39

Graph 2.9

Effects of Exports and Imports on Job Creation by Sector

200
'000 employed

150

100

50
Export demand

0 Import demand

-50

-100

-150 Wholesale & T ransport &

Agriculture Mining Manufacturing
retail trade communications

Source: Industry Commission, Microeconomic Reform and Structural Employment, October 1997.

Average employment in agriculture has increased from 367 000 in 1991-92 to 380 000 in
1996-97.40 Also, contrary to popular belief, the proportion of the Australian population
living in rural areas has increased since the mid-1970s, reversing the long term urbanisation
trend.41 The Committee believes the growth in total employment in agriculture has been
predominant in sectors which are capturing the benefits of trade liberalisation by expanding
export activities.

39
Chudleigh, J., “Agricultural Industries Provide the Fastest Employment Growth Area in
Australia”. Professor Chudleigh includes all areas of rural production in his definition of agriculture,
including horses, horticulture, fishing and forestry, as well as the service industries to agriculture and
agribusiness.
40
ABARE, Australian Commodities, vol. 5, no. 1, March 1998, p 97.
41
Borland, Jeff, “Rural labor markets in Australia - a review”, Proceedings of the National
Agricultural and Resource Outlook Conference, Canberra, 3-5 February 1998, p 144.
 GLOBALISATION AND LIBERALISATION 23

75 The Committee found that the bureaucracy was hesitant to provide empirical
evidence linking trade reform to prices received by primary producers and consumers.
Mr Ivan Roberts of ABARE told the Committee that trade liberalisation is only one of many
factors influencing farmers’ returns:

I think there is a very important point here about the perceptions that farmers may have
about the benefits that come from trade liberalisation because they do not see them as
separate from the overall returns that they receive. There are many, many factors which will
influence the returns that farmers receive. They involve technological developments
internationally, rates of productivity change, rates of increasing demand, changes in demand
for processed products versus unprocessed productsall of those factors. There has been a
trend for over 100 years of declining real prices for agricultural commodities because the
growth in productivity and the growth of production have been outstripping the rate of
growth in demand.

That is a trend which is behind the scenes. If we make an appraisal of the benefits that arise
from trade liberalisation, we are making an appraisal relative to the situation that would be
without trade liberalisation. You can still have a situation where real prices are declining
over time but they will not decline as much if you have trade liberalisation, because market
opportunities are going to be greater and world import demand is going to be higher. You
will have less competition from subsidised products from elsewhere. It is one of these
difficult issues to communicate because you cannot see the benefits of that directly, although
those benefits are there. 42

76 While there may be limits to finding statistical evidence which demonstrates a link
between trade liberalisation and benefits received by primary producers, the economic theory
remains the strong conviction within government and within industry leaders. The
Committee noted comments supporting trade liberalisation from several industry leaders
during the visit by the Cairns Group farm leaders in March 1998. The President of the
Australian Dairy Farmers’ Federation, Mr Pat Rowley, said that Australian dairy farmers
would receive prices 30 per cent higher if they exported into unprotected markets. Similar
comments were expressed by the President of the Australian Canegrowers’ Council, Mr
Harry Bonanno, who said the world market price for raw sugar would rise by 25 per cent if
tariffs and import embargoes were lifted. 43 President of the Cattle Council of Australia, John
Wyld, said the increase in the world beef trade following full liberalisation would be worth
$5 billion over the next 15 years. The beef industry is targeting a 50 per cent reduction in
import barriers in the EU and the elimination of the Japanese beef tariff. President of the
Wool Council of Australia, Mr Rod Thirkell-Johnston, referred to a study by ABARE
showing that the removal of barriers in the US market alone would benefit woolgrowers by
up to $157 million - in the first year of introduction - an average $3000 per woolgrower. 44

77 It is clear that these industry leaders recognise substantial opportunities to arise

from agricultural trade liberalisation. The Committee also noted comments by Mr Graeme
Samuel of the National Competition Council:

…reductions in protection have acted as a competitive discipline on Australian industries,

encouraging Australia’s industries to become more competitive, innovative and outwardly
oriented. 45

42
Transcript of Evidence, 25 March 1998, p 150.
43
NFF Press Release, 29 March 1998.
44
NFF Press Release 30 March 1998.
45
Samuel, Graeme, National Competition Council: Trade Liberalisation, presentation to the 1997
Conference of Economists, University of Tasmania, 30 September 1997.
24 ADJUSTING TO AGRICULTURAL TRADE REFORM

78 The Committee recommends that:

(1) the Australian Bureau of Agricultural and Resource

Economics place high priority on research into the economic
impact of trade liberalisation (within Australia and globally)
for regional Australia and Australia’s primary industries. A
major aspect of the research should be aimed at finding
direct linkages between trade reform, farm returns and
employment. Another major aspect of the research should
be to consider the impact of agricultural trade reform on
consumer prices.

Adjustment to change

79 The Committee acknowledges the inevitability that some businesses and industries
will not gain from trade liberalisation if they do not adapt to changing circumstances. Trade
liberalisation results in increased competition. Some industries or individual companies find
it difficult to compete in a more open market where high quality, lower cost imports are also
available. There will be job losses in some sectors, countered by increased employment in
industries expanding their markets. This makes the task of “selling” the changes much
harder. As Mr Roberts explained to the Committee, the livelihood of those adversely
affected by reforms is put under threat:

There are a number of issues about convincing people about the benefits of trade
liberalisation. If, in fact, we started off with a clean slate and there was no protection at all, it
would be quite easy to push the issues or advance the arguments that trade liberalisation
provides benefits to the economy. But, when there are significant groups within the economy
that are receiving protection or support, the ability to say that trade liberalisation is going to
benefit all is greatly reduced. What tends to happen is that, when particular industries are
provided with assistance, it diverts resources from others in the economy into those assisted
activities at a cost to others in the economy and at a cost to the economy as a whole.

That assistance also tends to get capitalised in the value of the assets of the people in those
industries. They tend to be concentrated in particular regions. When a government decides
that it is going to liberalise and reduce assistance to those specific activities, it can threaten
the value of the assets, the land and other assets that people have in those protected
activities. 46

80 The Committee received submissions from the pork, chicken, sugar and dried vine
fruits industries, all of whom are facing serious challenges to their traditional domestic
markets. The concerns of these industries are referred to in detail later in this report (chapter
3). The citrus industry also faces continuing restructuring following the removal of the tariff
on fresh imports and the reduction of the tariff to five per cent on frozen orange juice
concentrate. The Australian Citrus Growers told the Committee:

Growers returns are being dragged down by low-priced imports of orange juice concentrates
which are aided by a negligible tariff. The response from Canberra is that low tariffs are a
part of the big picture and will achieve access to new markets with better days for the
industry.47

46
Transcript of Evidence, 25 March 1998, p 147.
47
Australian Citrus Growers Inc., submission no 23, p 1.
 GLOBALISATION AND LIBERALISATION 25

81 The citrus industry has also faced adjustment pressures arising from the removal of
a sales tax advantage for fruit juices with a minimum of 25 per cent local content.
Nevertheless, citrus growers are responding to these changes with a continual rise in citrus
exports during the last ten years. In 1996-97 citrus exports were valued at $138 million from
a total production worth an estimated $320 million. This compares with exports valued at
$32 million in 1986/87 from production worth $175.3 million). While exports comprise only
around 20 per cent of the 700,000 tonnes produced, they now account for an increasing
proportion of the industry’s gross value of production (see graph 2.10).

Graph 2.10

Aus tralian Citrus Production and Exports

350

325

300

275

250

225
$ m illion

Valu e o f citru s
200
pro du ction
175 Valu e o f citru s
exp orts
150

125

100

75

50
2

7
3

6
/9

/9

/9

/9

/9

/9
91

92

93

94

95

96
19

19

19
19

19

19

Year

Source: Australian Citrus Growers Inc.

82 Table 2.3 shows that the number of licensed citrus exporters has increased since
1991.

Table 2.3
Number of citrus exporters48
Year 1991 1992 1993 1994 1995 1996 1997 1998

Number of licence holders 81 108 113 105 113 113 127(a) 108(b)
(a) revised licensing arrangements explain significant increase in licences issued in 1997
(b) 1998 figure to May only and expected to increase when navel season commences.

48
Source: Australian Horticultural Corporation
26 ADJUSTING TO AGRICULTURAL TRADE REFORM

83 In 1996-97, 51 per cent of the Australian orange crop was processed, 29 per cent
was consumed domestically as fresh product and the remainder was exported as fresh
product. The large processed volume reflects the dominance of valencias in Australian
orange production, accounting for more than half citrus production since 1970. In the
Sunraysia district, on average, specialist citrus growers produce a larger proportion of higher
valued navels, lemons and limes, mandarins and grapefruit than growers in the
Murrumbidgee Irrigation Area (MIA) and Loxton, who produce more valencias. ABARE
data indicates that farm cash income estimates show citrus production is more profitable on
average in Sunraysia than in the MIA and Loxton, reflecting the composition of production
and the relative returns of each citrus variety. Producers of citrus for the fresh domestic and
export markets who have not had high levels of government assistance have demonstrated
their ability to compete with international producers of fresh citrus and single strength orange
juice.49

84 The restructuring of agricultural industries to allow them to operate in new,

liberalised business environments also invariably results in the displacement of labour from
one set of activities to another. In rural areas where there is a high degree of dependence on
single economic activity, the displacement is likely to be severe if that industry is adversely
affected. A challenge for government when implementing trade liberalisation policy is to
provide for a flexible labour market, with re-training and incentives for unemployed workers
to move to new industries or locations. Labour issues are discussed in greater detail in
chapter six of this report. Education and training are critical elements for improving the
adaptability of people and reducing costs of adjustment toward an internationally competitive
economy.

Structural adjustment policies

85 The appropriate approach in the face of disruptions caused by the implementation

of liberalisation and competition reforms is to complement those policies with compensation,
training and social “safety nets” for those most at risk. In Australia, the Commonwealth
Government has provided structural adjustment policies to assist rural people and
communities facing financial hardships caused by market or climatic conditions. Programs
offering assistance to the agricultural industry are provided under the Government’s
Agriculture - Advancing Australia initiative. The four key objectives of the policy are:

· To help individual farm businesses profit from change -

·
· by helping farmers build on their business management knowledge and
experience (Farm Business Improvement Program); and
·
· with improved financial tools, such as the new Farm Management Deposits
Scheme, to enhance farmers' capacity to manage the significant
climatic and price risks in farming.
·
· To ensure the farm sector has access to an adequate welfare safety net -
·
· through a new income support payment for farm families experiencing
severe financial hardship (Farm Family Restart Scheme); and

49
ABARE, “Australian Citrus Industry and Government Assistance”, ABARE Current Issues No
98.2, May 1998.
 GLOBALISATION AND LIBERALISATION 27

· by extending welfare arrangements available to farmers in severe drought

to other equally exceptional circumstances (Exceptional
Circumstances).
·
· To provide incentives for ongoing farm adjustment -
·
· by encouraging farmers without a future in the industry to leave it (Farm
Family Restart Scheme); and
·
· by encouraging farmers of retirement age to transfer ownership of the
business to a younger generation of their family (Retirement
Assistance for Farmers Scheme).
·
· To encourage social and economic development in rural areas -
·
· with funding to assist communities develop strategic regional plans (Rural
Strategic Planning Initiative); and
·
· by introducing a flexible grants program to assist communities use their
assets and talents to meet their challenges and build better futures
(Rural Communities Program).

86 A number of other options for adjustment assistance to the industry are available to
the Government as measures to offset the impact of increased import competition in domestic
markets, such as:

· application or increase of tariff, application of temporary tariffs or slowdown in the

rate of tariff reductions;
·
· specific industry adjustment packages;
·
· rules governing the labelling of imported products;
·
· imposition of anti-dumping and countervailing tariffs; and
·
· labour market reforms.

The application and choice of measures should be a transparent process involving full
consultation between the Commonwealth government and industry. The Committee
recommends that:

(2) the Commonwealth Government acknowledges its

responsibilities in providing practical industry adjustment
measures designed to improve the international
competitiveness of industries adversely affected by trade
liberalisation. The government should provide more
information to the public on the availability of industry
adjustment measures.
28 ADJUSTING TO AGRICULTURAL TRADE REFORM

87 Trade liberalisation is just one of many factors bringing about substantial change in
economies and employment markets throughout the world. Mainstream economic debate on
trade liberalisation centres not so much on the need for reform, but on the pace of economic
reform and related industry adjustment policies. Substantial reforms undertaken by the
primary industries sector have demanded an adjustment to change by the Australian
community. The rapid rate of technological development, coupled with globalisation of
communication and transport, has also impacted on the Australian economy.

88 In the course of its inquiry, the Committee has seen evidence that Australian
agricultural industries and individuals are adjusting to change, with a shift in culture from
producing commodities for bulk markets to tailoring products to meet the requirements of
particular markets.50 However, the Committee has found that the adjustment to change is met
with resistance by some, particularly those perceiving themselves to be “at risk” in the new
operating environment. There is also a great level of scepticism among rural communities
and primary producers about the need to reform. Chapter 3 of this report discusses the need
for continued leadership from government and industry to explain the necessity for change.

50
Wonder, Bernard (Department of Primary Industries and Energy), Australia’s Approach to
Agricultural Trade Reform, address to conference at Washington, US, 1995.