Trade

Introduction

Australia has always been a trading nation. Its political, immigration and cultural links with other countries have been reinforced by international 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. The increasingly complex pattern of Australia's trade links and the broadening of its export base reflect the attempt at tackling these ongoing problems.

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, which are Japan, the United States, China, New Zealand and South Korea. 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. Japan, the United States and China have further replaced Britain as Australia's main sources of major import items such as passenger motor vehicles, crude petroleum, freight services and computers.

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Global trading blocs and agreements

The integrated nature of the world's economy has made it essential for Australia to engage in dialogue with other countries on trade issues. Australia does this through its bilateral and multilateral negotiation of free trade agreements and the establishment of trading blocs. See animation 1

European Union (EU)

The European Union (EU) was established to remove barriers to the free movement of capital, labour and services within Europe and to establish trade barriers against non-member countries. The EU is one of Australia's largest trading partners-it is the largest source of foreign investment in Australia and, in turn, most of Australia's overseas investments go to the EU. Further agreements have been signed to ensure a continuing and expanding market in Europe for Australia's wine, coal and wool exports. However, the policy of increasing trade barriers, in particular the EU Common Agricultural Policy (CAP), has led to the retaliatory use of protectionist policies by the United States and other trading blocs. Such trade wars have impacted on Australia and, in the case of the EU CAP, its reliance on primary exports.

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North American Free Trade Association (NAFTA)

The NAFTA trading bloc includes the United States, Canada, Mexico and Chile. NAFTA aims to integrate the economies of North America as a defence against the trade protectionism of the EU. This addition to the number of existing trading blocs has put pressure on smaller trading countries like Australia.

World Trade Organisation (WTO)

The World Trade Organisation (WTO) is the only global international organisation that monitors and administers the rules of trade between countries. It was established in 1993 through the General Agreement on Tariffs and Trade (GATT), and facilitates international agreements by regulating the use of subsidies and enforcing sanctions on non-compliant countries. It further assists producers, exporters and importers with issues related to the trade of goods, services, and intellectual property. Australia is involved with the WTO in assistance to the trade and economic development of countries in the Asia-Pacific region.

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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, the Philippines, Russia, Singapore, Taiwan, Thailand, the 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)

A 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 EU or North America. Its member countries include Burma, Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, the 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.

Bilateral free trade agreements

Closer Economic Relations Treaty Agreement (CERTA)

Australia's first trading agreement was the New Zealand-Australia Free Trade Agreement (1965). This was a response to Britain's move away from trade in the British Commonwealth to join the European Economic Community (ECC) and the desire for closer economic ties between Australia and its region. The first agreement to address this was 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, with ongoing discussions 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.

Australia-United States Free Trade Agreement (AUSFTA)

Since 2003, the Australia-United States Free Trade Agreement (AUSFTA) has primarily sought an end to long-standing agricultural trade barriers between the two countries. The agreement has also sought protection for Australian investment into the US market and to significantly expand exports such as meat. It has further expanded Australian service industries, particularly telecommunications and IT, with the adoption of US industry models and integration with them. Some have criticised this for the possibility of damage done to Australia's multilateral standing and ability to secure trade benefits through the WTO. Other concerns are over Australia's insignificant bargaining power, with its economy only 4% the size of the US economy, and threats to jobs due to the removal of tariffs on Australian textile, clothing and footwear and in car manufacture. The agreement has also challenged rules for quotas put on Australian content in film, television, and music. This has lead to fears of being swamped by cheap US imports threatening the competitiveness of these industries and Australia's cultural identity. The desire of US farming interests to remove Australian quarantine laws has been of further concern.

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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 per cent on the previous year, with direct investment rising 8.4 per cent 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. 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.