Trade

Introduction

Australia has always been a trading nation. Its political, immigration and cultural links with other countries have been reinforced by trade and investment, with its high reliance on imports such as electrical appliances, cars, clothes, footwear, PCs and watches being a reminder of these trade links. The influx of imported products has benefited Australia but in recent decades, the reliance on them has caused problems for its economy. Such problems have included trade deficits, whereby the value of imports has exceeded that of exports by between $12 and $20 billion each year. They also include foreign debt in money owed overseas, which has increased from roughly $19 billion to $527 billion since the 1980s, as well as causing unemployment. Australia's current trade and economic policies, particularly its push for stronger trading links with Asia-Pacific countries, reflect the attempt at tackling these ongoing problems.

Although Australia relies heavily on its overseas foreign investment and employers, with hundreds of foreign companies operating in Australia, it is also a high exporter of goods, services and capital, with 60% of its exports going to the Asia-Pacific region. Agricultural goods and minerals dominate Australia's exports, as do some of its service firms such as Qantas which is well known overseas, especially in its region. This chapter will explore Australia's trade links in its membership with regional trading blocs and agreements, and its shift away from its traditional trading partners such as Britain, and the types of goods exported.

The composition and direction of Australia's trade

For many years, Britain was Australia's major trading partner, with its purchase of Australian farm products and supplies to Australia of consumer goods. Britain's trade with Australia has declined since the 1960s, so that it now ranks sixth behind Australia's top five trading partners. Australia still exports primary products such as minerals, wheat and fruit to Britain and other western European countries despite the decline in trade. However, Japan has become Australia's largest trading partner with its importing of Australian wool, and minerals such as coal and iron ore. Other regional Asian countries have become major importers of Australia's primary products, especially wheat. Japan and also the United States have replaced Britain as Australia's main source of consumer goods. As well as supplying food, raw materials and manufactured goods, Australia currently provides services such as education, training and software development to its Asia-Pacific neighbours.

Regional trading blocs and agreements

Australia's regional links are evident in its trading blocs with countries sharing in common policies, to mutual economic benefit at the expense of outside nations, and to act together to assist trade through quotas and tariffs.

Closer Economic Relations Treaty Agreement (CERTA)

Australia's first trading agreement in its region was the New Zealand-Australia Free Trade Agreement (1965), which was a response to Britain's move away from trade in the British Commonwealth to join the European Economic Community (ECC). This was followed by a call for closer economic ties and the signing of the Australia-New Zealand Closer Economic Relations Trade Agreement (CER) in 1983. In 1988 the two countries agreed to implement free trade in goods from 1990 and discussions are ongoing for increased harmonisation of competition policy, banking and accountancy regulations, as well as mutual links in migration, tourism, transport, and the relaxing of export subsidies between the countries. Points of friction remain on issues such as Australia's strict quarantine laws. CER is recognised as one of the world's most successful free trade agreements.

APEC

Australia belongs to the Asia-Pacific Economic Cooperation (APEC) group (1989). APEC began in response to the growing interdependence of Asia-Pacific economies, and has 18 member nations located around the Asia-Pacific Rim that includes Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russia, Singapore, Taiwan, Thailand, United States and Vietnam. The significance of APEC can be seen in its member countries' increase in exports, valued at approximately US$2.5 trillion and representing about 43% of total world exports, as well as imports, valued at approximately US$2.4 trillion and representing about 44% of total world imports in recent years. More than half of Australia's exports go to APEC countries and about 40 percent of imports and much of its foreign investment come from these. Australia seeks from APEC the promotion of free trade in the region and other countries, to protect and project regional interests in wider negotiations such as the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) negotiations and to develop cooperative projects in improving the economic performance of member countries and the region in general.

ASEAN Free Trade Area (AFTA)

Another major Asia-Pacific trading bloc is the Association of South-East Asian Nations (ASEAN) Free Trade Area (AFTA). Australia's exports to AFTA countries exceed exports to either the European Union or North America. Its member countries include Burma, Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam. AFTA's future goals coincide with Australia's regional trading aims. These goals include liberalising trade in ASEAN by progressively removing tariff and non-tariff barriers, attracting foreign investors, and adapting ASEAN to the rise of other regional trading blocs.

Foreign investment

A high level of foreign investment into Australia has allowed faster development of its domestic resources. In 2003, foreign investment into Australia reached $904.4 billion, up by $47.4 billion or 5.5 percent on the previous year, with direct investment rising 8.4 percent to $233.5 billion. Australia's government has a regional headquarters program aimed at encouraging global companies to establish regional bases in Australia by stressing its economic strengths, cultural diversity and stability. It has further used this to promote its image as a gateway to the Asia-Pacific with strong trade and cultural links with countries in this region. In the late 1990s, Australia's unique stability and economic strength was shown by its remaining relatively unscathed by the Asian Financial Crisis, which was caused by a boom of international lending to the region followed by a sudden withdrawal of funds. Many Australian companies retained a presence in countries hit by the crisis such as Thailand, Malaysia and Indonesia. Australia has since benefited from honouring its regional trade links now that conditions have improved. Further, its ability to adapt to such crises has now been seen by many overseas investors to be proven. Such investors with a regional base in Australia include American firms, Dow Chemical, Hewlett Packard and Microsoft, the Finnish firm, Nokia, and German firm, Siemens.