International Trade

Please read the following article by Peter Martin: “The Election Campaign’s Other Big Lie: the Coalition Hasn’t Delivered ‘Export Agreements”. The paper can be found following the assignment’s questions. 1 The article criticizes the Coalition government for claiming during the recent election campaign that the free trade agreements with Japan, Korea and China the Coalition government signed had created exports. Please answer the following questions:

1. In the article Peter Martin, the author, criticized the Coalition government by making the following important statement: “In every case for which we have clear evidence, our trade agreements seem to have boosted imports more than exports” From the UN Comtrade Database please use real data of Australia’s bilateral trade with the following three countries: New Zealand, Thailand and the US to evaluate if the critique made by Peter Martin above is justified by the data.

A few important notes:

(i) The article by Peter Martin mentions Japan, Korea and China. Yet, the free trade agreements with Japan, Korea and China became effective only recently, which prevents us from having the data for a few years following those agreements in order to evaluate the argument made by Peter Martin. That’s why you are asked to evaluate the argument using data of Australia’s trade with New Zealand, Thailand and the US.

(ii) Australia and New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), under which all tariffs and quantitative import and export restrictions on trade in goods originating in Australia and New Zealand were removed, became effective on 1 July 1990. Australia’s free trade agreements with Thailand and the US became effective on 28 July 2003 and 1 st January 2005, respectively.

(iii) You are asked to get the data from UN Comtrade Database and not from any other source. It is the purpose of this exercise to ask students to learn how to collect data from UN Comtrade Database, the largest dataset of international trade at the country-sectorproduct levels.

(iv) In order to evaluate the statement above by Peter Martin please collect the data for the period 1995 to 2015 only. In order to get the data from UN Comtrade Database students need to take the following steps: 1 The paper also is available online at:

Step 1: use the following link to log into the UN Comtrade Database:

Step 2: click on Legacy Annual under Legacy.

Step 3: select Express Selection under Data Query

Step 4: get the data by making the following selections:

 For Classification choose SITC1 for New Zealand and SITC 2 for Thailand and the US.

 For Commodity Codes/ Text type AG0 (i.e. you want to get the country-level aggregate export and import data and not trade data at sector level). Note that it is AG0 (AG Number Zero) not AGO (AG Letter O).

 For Reporters Codes / Text use Lookup to select Australia.

 For Partners Codes/ Text use Lookup to select New Zealand, Thailand and the US.

 For Years please enter 1995, 1996…to 2015 for Thailand and the US and 1980, 1981…to 2000 for New Zealand.

 Select both Import and Export.

 Submit your selections.

 Download the data. Please note that you are encouraged to use graphs and diagrams in your answer. 2 (40 points)

2. Assume that Australia trades with South Korea only and that both countries currently impose import tariffs on goods exported by the other country. Using concepts such as the consumer surplus, the producer surplus diagrammatically provide a welfare analysis of the impact of the creation of a free trade area (FTA) between Australia and South Korea on the welfare of Australia as an importer and on the welfare of Australia as an exporter. (20 points)

3. Peter Martin mentions in his article the fact that Australia’s free trade agreements with South Korea had 5205 rules of origin. Please explain what the rules of origin are and for what purpose members of a FTA use those rules of origin. Explain why the complexity of Australia’s free trade agreements that Peter Martin describes in his article may have a negative effect on Australia’s exports. (15 points)

4. Assume that the world consists only of Australia, South Korea and New Zealand and that in free trade South Korea is the most efficient producers of electronics. Assume now that Australia decides to sign a FTA with New Zealand. With the creation of the AustraliaNew Zealand FTA Australia now imports electronics from New Zealand. Using the demand 2 Since Australia’s free trade agreements with countries such as Japan, Korea and China were signed only recently2 the data of Australia’s trade with these countries do not allow us to evaluate the statement by Peter Martin. and supply curves please illustrate the equilibrium in the Australia’s market of electronics before and after the Australia-New Zealand FTA. If Australia’s new government now decides to leave the FTA with New Zealand please diagrammatically provide a welfare analysis of the impact of this decision on the welfare of different groups: Australian producers, consumers and government. 

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