Disputes between Indonesia and Australia in International Trade

This document discusses the disputes between Indonesia and Australia in international trade, focusing on the demand and supply of A4 copy paper and the effects of tariffs on trade patterns. It also explores the valuable benefits gained by both countries through their trade deal and the effects of specific tariffs on the welfare of Australia's producers, consumers, and government.

International Trade

Table of Contents
Q1. Graphical illustration of the disputes between Indonesia and Australia using concepts of
demand for A4 copy paper and the supply of A4 copy paper.....................................................3
Q2. Valuable benefits gained by Australia and Indonesia through this deal..............................3
Q3. Graphical representation of trade patterns...........................................................................4
Q4. Graphical representation of effect of tariff on the trade pattern of both the countries.........5
Q5. Effects of the specific tariff on the welfare of Australia’s producers, consumer, and the
government..................................................................................................................................7
REFERENCES................................................................................................................................9

Q1. Graphical illustration of the disputes between Indonesia and Australia using concepts of
demand for A4 copy paper and the supply of A4 copy paper
After three years of the battle against the Australian anti dumping duties, Indonesian
manufacturers are expecting to resume the A4 copy paper export in the four months however
everybody is not happy with resolution of dispute.
If exporter sells the product to Australia at price less than the home market price for same
product or the below cost and price of product causes injury to Australian industry which makes
same kind of the product, then Australian government can impose special custom duty to
equalise price with home market prices or full products cost whichever higher.
The demand for the A4 copy paper will decrease if the supply from Indonesia is stopped
as supply would be limited. If the imports are increased the dumping of paper in Australia will
increase the supply affecting the local suppliers of the copy paper.
In the situation of free trade the supply will reduce which will make the demand stable.
The prices of the paper will not be falling as in dumping of paper from Indonesia.
Q2. Valuable benefits gained by Australia and Indonesia through this deal
The government of Australia and Indonesia have signed free trade deal called as IA-
CEPA for strengthening the ties between the countries. This deal will bring major wins for
Australian farmers which includes the producers of the gains, meat, poultry farming, horticulture

and more will be beneficial because of the lower tariff. Along with that it will result into
improved and enhanced access to the Indonesian market (Niami and et.al, 2019). The Australia's
suppliers and the investors will also be at advantage of it as it will create greater certainty in
respect to the entry and carrying out the operation in the Indonesian market. This deal will result
into reduction in the tariff rates on frozen beef and other meat products and the steel producers
will be provided with the duty free access to the 250k tonnes of the rolled steel coil. On the other
hand, it will also be beneficial for the Indonesia as well. The consumers of the Indonesia will
have easy access to the premium products of Australia. This relationship will benefit and support
the countries in adding value in respect to its own beef production.
Q3. Graphical representation of trade patterns
Initially, in order to develop graphical representation of the demand and supply trade
patterns between both the countries, it is essential to ascertain the price of the A4 paper which is
being traded.
Assume that at present demand and supply of A4 paper are in equilibrium in Australia.
Therefore, this indicates that:
D= S. Hence,
100- 20P = -20 + 20P
100+ 20= 20P + 20P
120 = 40P
P = 30
Similarly, now it can be assumed that demand and supply in Indonesia is also at
equilibrium point indicating that:
80- 20P = 40+ 20P
40P = 40
P = 1
Therefore, it has been ascertained that the price of A4 paper in Australia is 30 and in
Indonesia is 1.
Now import equation can be used for further calculation in Australia:
Import = MD(P) = S(P) – D(P)
When Price = 30,
MD(P) = 100- 20P – (-20 + 20P) = 120 - 40P

MD(P) = -1080
Additionally, since Indonesia can export the produce, the export equation for the country can be
denoted by:
Export = XS* (P) = S(P) – D(P)
XS(P) = 40 + 20P – (80 – 20P) = -40 + 40P
XS(P) = 0
Since the export was obtained at 0, this indicates that there is absence of any trade in Indonesia.
Now if free trade is allowed between Australia and Indonesia, then the world trade price needs to
be obtained. This can be done by equating import demand with export supply, i.e.:
MD(P) = XS(P)
120 - 40P = -40 + 40P
160 = 80P
P = 2
At the world price 2,
MD(2) = XS(2) = 40
Q4. Graphical representation of effect of tariff on the trade pattern of both the countries
The imposition of the tariff if imposed on the Australia's import will have an impact over
the demand and supply of the same. The domestic consumers will face the higher prices which
20
2
1
3
XS
MD
P
Q

will result into loss or reduction of the consumer surplus. But there will be gain on the part of the
domestic producers surplus as now the producers will be protected on account of the cheap
products and will result into receiving the higher price (Greenlaw and Shapiro, 2017). But the
overall welfare of the nation will be at stake or loss. It can be illustrated with the help of an
example, assume the without trade the price and quantity are P and Q. Of the country imposes
the tariff, the price will rise to P2 and the level of output will be at Q3. The share of the domestic
producers in the market will also rise to Q4 and the import will reduce to the Q3. This is because
the domestic producers are being protected from the cheaper imports from the Indonesia.
Therefore, the imposition of tariff on the import in the Australia will lead to decrease in the
demand of that product, leading to increase in the demand of the domestic product.
In case, the Australian government asks the Indonesian producers to pay the tariff on
export in order to sell the A4 copy paper to the Australia. The same situation occurs as the
Indonesia will recover the amount from the consumers of the Australia having same implication
over the demand and supply of the goods (Dong and Kouvelis, 2020). Also, it will have a
negative impact over the consumers of the Australia and will be beneficial for the producers and
the government.
The implementation of tariff will cause reduction in the demand of the product among the
consumers which is because of the increase in the price in Australia while in Indonesia it will

not have any effect. The quantity demanded of the product will decline leading to reduction in
the production of the product and import as well. This imposition of tariff either on the producers
of Indonesia or the importers of Australia will have impact over the well being of the importing
country and not on the exporting country.
Q5. Effects of the specific tariff on the welfare of Australia’s producers, consumer, and the
government
The imposition of the specific tariff will have a huge impact over the welfare of the
importing country such as Australia. The affected parties will include consumers, producers and
the government as well. The consumers of the product of Australia will face decrease in the level
of well-being because of the tariff. The rise in the price of the both imported products and the
domestic substitutes leads to the reduction the consumer surplus. On the other hand, the
producers of the importing country might experience a rise in the well-being (Beghin and et.al,
2017). A rise in their product price in respect to the domestic market will lead to generation of
the surplus within the industry. Along with that, an increase in the price will result into
increasing the output level of the current established firms and will also induce the establishment
of the new firms and as the consequence of the same, it will result into increase in the
employment leading to profitability. The government will face a positive impact of it. As it will
receive it in the form of revenue and is generally included in the general funds which is being
collected by the govt. from the different sources. These funds will provide assistance to the
government in regard to their spending programs resulting into helping the certain group of
people in the country (Kim and Bohanes, 2020). Thus, someone within the Australia will attain
or will be the recipient of the benefits. Therefore, the imposition of specific tariff in Australia
will be beneficial for all except the consumers as they will be required to pay more for that
product. This can be easily understood by looking at the below graph and table. The quantity of
imports and the exports is represented with the blue line, positive welfare effects is depicted in
the black and the negative effect is highlighted in red.

Welfare effect of an import tariff on Australia
Importing country
Consumer surplus -(A+B+C+D)
Producer surplus +A
Government revenue +C
National welfare -B-D
Since there is only negative element on the overall national welfare which indicates that
the tariff imposed by the importing country will result into reduction in the national welfare.
Therefore, it can be summarized from the above that whenever the tariff is implemented it will
result into fall of the national welfare. Higher will be the tariff, the more will be the loss in
regard to the national welfare. The tariff also cause the redistribution of income and along with
that the producers and the government gain in respect to their spending while the consumers
losses. Therefore, these are effects of implementation of tariff on Australia.

REFERENCES
Books and Journals
Beghin, J. and et.al, 2017. Welfare costs and benefits of non-tariff measures in trade: a
conceptual framework and application. In Nontariff Measures and International
Trade (pp. 119-138).
Dong, L. and Kouvelis, P., 2020. Impact of tariffs on global supply chain network configuration:
models, predictions, and future research. Manufacturing & Service Operations
Management. 22(1). pp.25-35.
Greenlaw, S. A. and Shapiro, D., 2017. 3.2 Shifts in Demand and Supply for Goods and
Services. Principles of Econ 2e.
Kim, S. M. and Bohanes, J., 2020. Australia–Anti-Dumping Measures on A4 Copy Paper,
DS529. World Trade Review. 19(3). pp.480-484.
Niami, M. and et.al, 2019, October. Impact of the Indonesia Australia Free Trade Agreement.
In 3rd International Conference on Globalization of Law and Local Wisdom (ICGLOW
2019). Atlantis Press.