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New Reports Confirm The Benefits of Liberalisation

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Department of Foreign Affairs and Trade

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New research released by the Department of Foreign Affairs and Trade
(DFAT) confirms the significant benefits that flow from liberalising trade
and investment. This follows the recent reaffirmation by APEC Leaders in
Vancouver of their commitment to continuing liberalisation.
DFAT today released three new reports to improve understanding of the impact
of trade and investment liberalisation in the APEC region and to stimulate
further work on the impact of liberalisation in APEC member economies.

These new reports build on the success of recent research by DFAT into
the impact of liberalisation on the Australian economy. That research,
which was published in a brochure (Trade Liberalisation: How Australia Gains)
and a book (Trade Liberalisation: Opportunities for Australia), concludes
that trade liberalisation has boosted Australia's international competitiveness
and provided significant gains to consumers and families.

Each of the new studies cover a number of different experiences of liberalisation
at the economy-wide and sectoral level in economies other than Australia,
drawing on both case studies and modelling techniques. The results of the
studies confirm that liberalisation promotes higher incomes, sustainable
jobs, cheaper inputs for business, improved access to technology, and greater
consumer choice.

'Switching On': The Effects of Liberalisation in Asia's Electronics Industry

In a study drawing on economists in the regional PECC (Pacific Economic
Cooperation Council) network from China, Indonesia, Malaysia and the Philippines,
researchers collaborated to examine the impact of liberalisation on the
electronics sectors in their respective economies. The research was coordinated
by Assoc. Prof. Christopher Findlay of Adelaide University and Dr. Mari
Pangetsu, of the Centre for Strategic and International Studies in Jakarta.

The research found that liberalisation has been a powerful force for
the integration of domestic markets with world production systems. Output
and employment in the electronics industries of these economies has grown.
As a result of liberalisation of foreign investment policy, inward foreign
investment flows have grown significantly, promoting growth in exports and
accelerating the transfer of technology.

Case studies illustrated how firms have successfully responded to rising
import competition. For instance, research revealed how one firm in China
manufacturing computer equipment has been able to double sales levels annually
for the past decade, by responding to rising import competition with aggressive
research and development, product diversification and new marketing techniques.
'Pulling the Threads Together': The Effects of Liberalisation in Asia's
Textiles and Clothing Industry

Trade in textiles and clothing in Asia is likely to continue to grow
strongly, according to a second study recently commissioned from the regional
PECC network, also led by Assoc. Prof. Christopher Findlay and Dr Mari Pangetsu.

Research showed that foreign investment liberalisation has been very
important for industrial success, providing much-needed foreign capital
and promoting industrial competitiveness. Foreign investment has provided
new technologies and offered a demonstration effect of the gains from new

Firms have responded to rising import and export competition through
attention to efficiency, marketing and distribution. "Branding"
- the strategy of developing market knowledge of brand names - has been
particularly successful for some firms. For one Indonesian firm which has
invested in its brand names, domestic sales in the 1990s have grown annually
at 30% and exports at 15%.

Effects of APEC Liberalisation: Focus on Thailand and Indonesia

A third study examining the economy-wide impact of liberalisation on
APEC economies was undertaken by economists from Thailand and Indonesia
and Australia, and led by Dr Andy Stoeckel of the Centre for International
Economics and Professor Warwick McKibbin of the Australian National University.

This study concluded that liberalisation caused resources to be used
in more efficient industries and led to higher levels of investment, thereby
increasing the productive capacity of the economy. For APEC as a whole,
welfare (as measured by real consumption) could be 1.4 per cent higher in
2020 than otherwise as a result of trade liberalisation. Significantly,
the bulk of these gains arise from an economy's own liberalisation program,
not that of other economies.

In the case of Thailand, elimination of tariff barriers by the Bogor
timetables would yield in 2020 a real GDP 3.3 per cent higher than otherwise.
For Indonesia the increase in real GDP could be nearly 6 per cent higher.

Further Work in APEC

The impact of liberalisation will be a subject for further research in
APEC. At the APEC Ministerial Meetings on 21 and 22 November endorsed an
Australian proposal for an APEC work program to improve understanding of
the impact of liberalisation on APEC economies. Work will commence in 1998.

For additional copies of these research reports, please call Andrew Szwajcer,
APEC and Regional Trade Policy Branch, DFAT, on (02) 6261 3421.

For information or copies of the report on the Australian economy, please
call Nicolas Brown, Trade and Economic Analysis Branch, DFAT on (02) 6261

Last Updated: 19 September 2014
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