Homework_integration [60 marks]

1. [Maximum mark: 20] 20N.2.HL.TZ0.2

The Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP), Australia and Japan

1. In 2018, Australia signed the Comprehensive and Progressive Agreement

for Trans-Pacific Partnership (CPTPP)*. The agreement creates the third
largest free trade area in the world, covers nearly 500 million people and is
worth more than US$12 trillion. The members of the agreement have stated
that economic integration and free trade is important to help foster good
political relations and inclusive growth for all nations.

2. The trade agreement will aim to gradually eliminate most trade protection
within the member countries. The agreement will see tariffs eliminated for
Australian cheese and beef exports to Japan, and increased quotas for the
export of rice to Japan from 4400 to 8400 tonnes. Nikkei Asian Review
reported that “Fast-food restaurants in particular are embracing the import
as a way to cut costs to cope with rising wages.” Additionally, Japanese food
manufacturers will be able to lower production costs for rice-based meals
and benefit from increased stability of input prices. The benefits from the
agreement for Japan’s economy are projected to exceed US$70 billion, but
some industries would be negatively affected.

3. Japanese farmers are worried about the increase in imported food from
Australia. Furthermore, the Japanese government is concerned about the
effects of the CPTPP on Japan’s food self-sufficiency—Japan relies on other
countries for over 60 % of its food. In response to these concerns the
Japanese government has offered support for domestic farmers to diversify
production into other crops. The government also plans to subsidize the rice
farmers through the initial phase of lowering trade barriers.

4. The agreement is said to be worth more than US$37 billion to Australian

agricultural exports. It is hoped that CPTPP and the falling value of the
Australian dollar will help Australia to reduce its current account deficit, but
some economists have argued that this can take a long time. According to
some estimations, the short-run price elasticity of demand (PED) for
Australian exports is 0.2 and the short-run PED for imports in Australia is 0.4.
 However, the long-run PED for Australian exports is 1.1 and the long-run
PED for imports in Australia is 1.3.

5. There have also been concerns about the CPTPP from trade unions in
Australia. They argue that it deregulates the labour markets and gives
corporations from other countries an ability to take legal action against
governments for implementing laws that raise wages or protect the
environment, if the foreign corporation can prove that the law hurt their
commercial interests. One university lecturer said that the future costs to the
taxpayer could be significant if foreign companies take the Australian
government to court.

6. The trade agreement would allow workers from other countries to work in
Australia without employers being required to check if Australian citizens
are available to fill the jobs before the migrant workers are employed. It is
estimated this may risk 39 000 jobs in Australia. Furthermore, environmental
activists have expressed concerns that the negative environmental and
social effects of the agreement have not been well considered. This may
lead to conflicts with Australia’s commitment to the United Nations’
Sustainable Development Goals.

Adapted from Karp, P., 2017. Revived Trans-Pacific trade deal undercuts
Australian jobs market, unions say. The
Guardian, Copyright Guardian News & Media Ltd 2021,
https://www.theguardian.com/australia-news/2017/dec/19/
revived-trans-pacific-trade-deal-undercuts-australian-jobs-market-unions-say;
Kodachi, H., 2019. Australian rice
finds favor in Japan as cheaper option, Nikkei Asian Review,
https://asia.nikkei.com/Business/Markets/Commodities/
Australian-rice-finds-favor-in-Japan-as-cheaper-option.

* The CPTPP includes eleven member countries: Australia, Brunei, Canada, Chile,
Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
(a.i) Define the term free trade area indicated in bold in the text
(paragraph [1]). [2]
 Markscheme

(a.ii) Define the term quotas indicated in bold in the text (paragraph
[2]). [2]

Markscheme

(b) Using price elasticity of demand (PED) data from the text and
the J-curve effect, explain the most likely impact of “the falling
value of the Australian dollar” on Australia’s current account
(paragraph [4]). [4]

Markscheme

Answers may include:

explaining that in the SR PEDx+m is <1

due to time lags/contracts/relatively unresponsive to price changes,
therefore, the depreciation will worsen the CA in the SR / improve in
the LR
 however, in the LR the PEDx+m>1 resulting in an improvement in the
CA
SR PED=0.6 and LR PED=2.4

(c) Using an international trade diagram, explain how “increased

quotas for the export of rice to Japan” will affect the price of rice
in Japan (paragraph [2]). [4]

Markscheme

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

The use of P and Q on the axes is sufficient for a demand and supply diagram. The world supply curve must
be labelled Sw, or Sworld. A title is not necessary.
(d) Using information from the text/data and your knowledge of
economics, evaluate the view that free trade is beneficial to
Japan’s economy. [8]

Markscheme

Examiners should be aware that candidates may take a different approach which, if appropriate, should be
rewarded.

Do not award beyond Level 2 if the answer does not contain reference to the information provided.
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the
strengths and limitations. Opinions and conclusions should be presented
clearly and supported with appropriate evidence and sound argument.

Responses may include:

Definition of current account surplus.

Economic analysis may include:

economic integration theory

economies of scale
balance of payments
protectionism
externalities
AD/AS
economic growth
employment
inflation
comparative advantage.

For free trade:

Third largest free trade area in the world (paragraph [1]) larger market
leading to possible economies of scale.
 Encourages good political relations and inclusive growth (paragraph
[1]).
Worth in excess of US$70 billion to Japan’s economy (paragraph [2]) –
exports increasing, may lead to economic growth.
Lower prices of imported products, such as Australian cheese and beef
for restaurant owners (costs of production), reducing the impact of
higher wage costs in Japan. (paragraph [2]).
Lower prices of rice for Japanese consumers.
Farmers may access an opportunity to diversify into other crops
(paragraph [3]).
Japanese may have job opportunities in Australia (paragraph [6])
May help with trade imbalances between Japan and other countries
like Australia.

Against free trade:

Concerns of food self-sufficiency/food security (paragraph [3]), over

60 % already imported. This may have long-term implications if there is
an overreliance on food imports.
Subsidies for Japanese farmers are needed to help diversification
(paragraph [3]), results in opportunity costs and production
inefficiencies.
Removing some forms of trade barrier may only be replaced by others
– subsidies (paragraph [3]) and the benefits may be mitigated.
Some industries negatively affected (paragraph [2]), may lead to
structural unemployment issues.

Any reasonable evaluation.

2. [Maximum mark: 20] 19N.2.SL.TZ0.1
Japan–European Union Economic Partnership Agreement (JEEPA)

1. In July 2017, the Japan–European Union Economic Partnership Agreement

(JEEPA) was announced and it may come into force in 2019. Jointly, Japan
and the European Union (EU) currently account for 28 % of global gross
domestic product (GDP). The trade agreement could raise the EU’s exports to
Japan by 34 % and Japan’s exports to the EU by 29 %. Economists say that
this trade agreement marks a determined effort to combat rising
protectionism and sends a powerful signal that cooperation, not trade
protection, is the way to tackle global challenges.

2. The largest benefit to Japan will be for Japanese car manufacturers, as

Europe will gradually lower tariffs from 10 % on Japanese cars. Car tariffs are
a big concern for Japanese car manufacturers, who struggle to compete
with South Korean car manufacturers. South Korean cars are sold to the EU
tariff-free thanks to a free trade agreement signed in 2011. Within Europe,
car manufacturers are one of the largest sources of jobs. Car manufacturers
in the EU are concerned that cutting tariffs on car imports from Japan may
lead to a large increase of Japanese cars into the European market.

3. The trade agreement will also resolve non-tariff barriers, such as technical
requirements and regulations. More importantly, however, the EU and
Japan will make their environmental and safety standards on cars the same,
which will make trade easier.

4. Japanese politicians have been defending their relatively inefficient farmers

for a long time. Now, Japan will lower tariffs on European meat, dairy
products and wine, cutting 85 % of the tariffs on food products coming into
Japan. This includes removing the current 30 % tariff on some European
cheeses, such as cheddar and gouda cheese. However, imported camembert
cheese will face a quota. This may be because Japan produces some
camembert cheese.

5. JEEPA is particularly alarming for United States (US) beef and pork farmers
because Japan has been the biggest export market for US beef and the
 second biggest export market for US pork. Any preferential tariff that EU
farmers receive will make it much tougher for American farmers to sell meat
in Japan.

6. With this trade agreement, the EU and Japan are trying to promote the
values of economic cooperation and environmental conservation, which
are both important for long-term economic growth and sustainability.
However, JEEPA faces significant challenges because it will have to be
passed by the Japanese Parliament, the European Parliament and European
national governments. There is no guarantee that all governments will
agree to the economic partnership.

[Source: adapted from The Japan-EU Trade Agreement: Pushing Back Against
Protectionism, http://globalriskinsights.com,
15 July 2017; Japan-EU trade agreement may hurt U.S. meat producers, by
Katherine Hyunjung Lee, Jul 12, 2017, Medill
News Service, https://dc.medill.northwestern.edu; and A new trade deal between the
EU and Japan, The Economist (London,
England), Jul 8th 2017, https://www.economist.com/finance-and-
economics/2017/07/08/a-new-trade-deal-between-the-eu-andjapan.
© The Economist Newspaper Limited, London, July 8th 2017]
(a.i) Define the term quota indicated in bold in the text (paragraph
[4]). [2]

Markscheme

(a.ii) Define the term sustainability indicated in bold in the text

(paragraph [6]). [2]
 Markscheme

(b) Using an AD/AS diagram, explain the impact of the trade

agreement between Japan and the EU (JEEPA) on Japan’s
economic growth (paragraph [1]). [4]

Markscheme
Candidates who incorrectly label diagrams can be awarded a maximum of [3].

For AD/AS, the vertical axis may be “price level” or any similar terms such as “average (general) price level”.
For the horizontal axis, “real (national) output/income” or “real GDP”. Any relevant abbreviations are
acceptable.
A title is not necessary.
(c) Using an international trade diagram, explain the likely impact
of Japan “removing the current 30 % tariff” on the level of
cheddar cheese imports. (paragraph [4]). [4]

Markscheme
Candidates who incorrectly label diagrams can be awarded a maximum of [3].

The use of price and quantity for the axes is sufficient. The domestic supply curve may be labelled as Sdomestic
or Sd or just S and the European supply curve may be labelled SEurope, SEU, or Sworld, or Sw.
A title is not necessary.
(d) Using information from the text/data and your knowledge of
economics, evaluate the possible consequences of the trade
agreement between Japan and the EU (JEEPA). [8]

Markscheme

Examiners should be aware that candidates may take a different approach which, if appropriate, should be
rewarded.

Do not award beyond level 2 if the answer does not contain reference to the information provided.

Command term
“Evaluate” requires candidates to make an appraisal by weighing up the
strengths and limitations. Opinions and conclusions should be presented
clearly and supported with appropriate evidence and sound argument.

Responses may include:

A definition of:

tariffs
quota
trade protection
trade agreement.

Strengths of the trade agreement:

 The trade agreement could raise the EU’s exports to Japan by 34 % and
Japan’s to the EU by 29 %, increasing AD and thus creating economic
growth and jobs in all economies involved (paragraph [1]) (candidates
may argue that the impact on growth is indeterminate since net
exports may fall with downward pressure on growth in the short run).
The trade agreement marks a determined effort to overcome problems
associated with trade protection (paragraph [1] – combat rising trade
protectionism) such as higher prices.
Will make Japanese car producers more competitive with European
and Korean producers, increasing employment in the Japanese car
industry (paragraph [2]).
Lower prices for Japanese consumers of meat, dairy products and wine
(paragraph [4]).
The loss of trade protection for producers, eg Japanese farmers, will
force them to become more efficient (paragraph [4]) if they are to
remain competitive.
The deal will also resolve non-tariff barriers, such as technical
requirements and regulations, which will increase trade (paragraph
[3]).
The proposed deal also addresses sustainability (paragraph [6]).
It would be easier to sell to European/Japanese consumers, which
creates a larger market, resulting in expansion of production.
Consumers in both countries will have access to a wider variety of
goods at lower prices as a result of freer trade.

Limitations of the trade agreement:

Trade agreement still allows for some tariff barriers and some non-tariff
barriers (paragraph [4]).
JEEPA faces challenges, as it will have to be passed by the Japanese
Parliament, the European Parliament and European national
governments (paragraph [6]), so there is no guarantee that it will
happen.
The agreement will disadvantage some producers in all economies.
Possible unemployment in industries where trade protection is
reduced, eg the EU car industry (paragraph [2]) and farmers in Japan
 (paragraph [4]).
Korean car manufacturers may lose market share in the EU market to
the Japanese producers (paragraph [2]).
US beef and pork producers might lose market share in Japan because
EU producers would have better access to the Japanese market
(paragraph [5]).
Governments will have their tariff revenues reduced.
Possible infant industries, such as the cheddar cheese industry in
Japan, may not be able to compete (paragraph [4]).

Any reasonable evaluation.

3. [Maximum mark: 20] 20N.2.SL.TZ0.4
Trade strategies in the Philippines

1. For more than 20 years the Philippines has been limiting the volume of rice
it imports. However, the agreement with the World Trade Organization
(WTO) that permitted these restrictions expired in 2017. In early 2019, the
government replaced the quantity restrictions with tariff protection. A 35%
tariff on imported rice from the Association of Southeast Asian Nations
(ASEAN)* was imposed to protect the domestic rice industry in the
Philippines. Following the replacement of the quota with a tariff, rice prices
are expected to fall significantly. However, urban households want the
president to allow rice to be imported without any tariffs to reduce food
bills even further.

2. The poorest quintile of households in the Philippines consumes nearly

twice as much ordinary rice and 20 times more National Food Authority
(NFA) rice compared to the richest quintile. Rising food prices are pushing
up inflation as a result of increasing salaries in urban areas. The daily
minimum wage in Manila, the Philippine capital, will increase by 4.9 %, the
highest hike in six years, to the equivalent of US$10.11. Farming and fishing
provide the livelihoods for around one-third of the labour force in the
Philippines. Land reform programmes are slowly being implemented to
change the current situation of unfair ownership of land and resources by a
few individuals. However, uncertainty continues to discourage investment
in adequate irrigation systems in the countryside. As an agricultural country,
irrigation in the Philippines is very important. Improvements in the quality
of infrastructure services will help cut the cost of doing business, attract
more investment, and enhance productivity around the country. Food
manufacturing, including food and beverage processing, remains the most
dominant primary industry in the Philippines. This has become a focus in
the hope of increasing farm incomes, because this part of the economy is
currently dominated by big international companies. Major exports of
processed fruits and nuts include mangos, pineapples, bananas and
peanuts.
 3. The Philippine Export Development Plan (PEDP) 2018–2022 calls for
boosting the export of services, increasing export competitiveness, and
exploring new markets. Efforts have already been made to harmonize the
country’s standards, testing, certification and quality accreditation of
products to improve trade and comply with standards in the European
Union. The PEDP aims to increase the volume and value of exports by
encouraging investment in production processes and supply chains.
Another strategy to achieve the plan’s objective is to exploit existing and
new opportunities from trade agreements.

4. The Philippines lacks the infrastructure needed to attract export-oriented

manufacturing. To support the PEDP, the government needs to increase its
spending on new airports, roads and bridges. These public works are critical
to boosting the incomes of people in poorer areas by connecting them
better to Manila. To allow for this extra spending, a series of tax reforms was
started: the income tax for the highest income earners has been raised from
30 % to 35 %, and indirect taxes have been increased.

[Source: Adapted from Philippines News Agency, “Proposed Ph Export Plan Backs PDP
2017-2022 Targets”, June 21, 2018,
https://www.pna.gov.ph/articles/1039017.]

* ASEAN consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar

(Burma), Philippines, Singapore, Thailand and Vietnam.

(a.i) State two functions of the World Trade Organization (WTO)

(paragraph [1]). [2]

Markscheme
(a.ii) Define the term inflation indicated in bold in the text (paragraph
[2]). [2]

Markscheme

(b) Using a Lorenz curve diagram, explain the possible impact on

the distribution of income in the Philippines when “the income
tax for the highest income earners has been raised from 30 % to
35 %” (paragraph [4]). [4]

Markscheme
Candidates who incorrectly label diagrams can be awarded a maximum of [3].

For the vertical axis, the label may be cumulative percentage of (national) income or percentage of
(national) income (GDP and GNI are valid alternatives to income but wealth is not acceptable). For the
horizontal axis, the label may be cumulative percentage of population/people/households or percentage of
population/people/households. A title is not necessary.
(c) Using an AD/AS diagram, explain the impact on the potential
output of the Philippines of the government increasing its
“spending on new airports, roads and bridges” (paragraph [4]). [4]

Markscheme
Candidates who incorrectly label diagrams can be awarded a maximum of [3].

For AD/AS the vertical axis may be average (general) price level, or price level. The horizontal axis may be
real output, real national output, real income, real national income, real GDP or real Y. Any abbreviations
are acceptable. A title is not necessary.
(d) Using information from the text/data and your knowledge of
economics, evaluate the use of export promotion as a means of
achieving economic development in the Philippines. [8]

Markscheme

Examiners should be aware that candidates may take a different approach which, if appropriate, should be
rewarded.

Do not award beyond Level 2 if the answer does not contain reference to the information provided.
Command term
“Evaluate” requires candidates to make an appraisal by weighing up the
strengths and limitations. Opinions and conclusions should be presented
clearly and supported with appropriate evidence and sound argument.

Answers may include:

Definitions of economic development, export promotion.

The link between export-led growth and economic development.

Advantages of export promotion may include:

The PEDP 2017–2022 wants to boost the export of services, which

could bring in more export revenue due to its higher value, increasing
incomes of workers in numerous services, allowing for a better
standard of living and higher tax revenue for the government
(paragraph [3]).
Increased exports of processed foods rather than unprocessed foods
will increase farm incomes (paragraph [2]).
If boosting exports and increasing export competitiveness (such as the
standards, testing and certification) is successful, then more export
revenue should come in (paragraph [3]), providing the government
with more tax revenue which could be spent on development
objectives.
Removing regulations should make it easier for exporters to run their
business and to export their products (paragraph [3]).
 Investment in the production processes and supply chains (paragraph
[3]) should reduce the costs of production over time and make the
goods more export competitive.
Exploiting existing and new opportunities from trade agreements
(paragraph [3]) should increase export revenues in sectors that are
competitive.
If more is exported, then more can be imported and the tariffs on rice
can be lowered, benefitting low-income families (paragraph [1]).

Disadvantages/limitations of export promotion may include:

Export promotion could favour economic activities in urban areas

which could lead to higher prices and wages in these areas, especially
in Manila (paragraph [2]); higher domestic prices and inflation,
affecting all families negatively as real incomes and purchasing power
falls, and therefore lower income families are most negatively affected,
lowering standards of living, and possibly increasing inequality and
poverty.
Export promotion will be difficult to achieve when investment in
much-needed irrigation systems that would improve productivity in
farming as well as infrastructure to help farmers connect to export
markets, is discouraged (paragraph [2]).
There is a lack of access to export markets due to the lack of
infrastructure, which would also hamper export promotion.
The Philippines lacks the infrastructure needed to attract export-
oriented manufacturing (paragraph [4]) from overseas.
Other countries may resist increased exports from the Philippines.
Reliance on a narrow range of exports (such as processed food) may
be risky.
More will be spent on infrastructure by the government. Although the
budget may have more income from an increase in income tax, poorer
households may suffer due to a higher indirect tax on a range of goods
(paragraph [4]).

Any reasonable evaluation.

Candidates may argue that export promotion may lead to economic growth. As long as they have
established a clear link between economic growth and economic development, such arguments should be
fully rewarded.

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