Australia and the European Union: bilateral economic trade and investment links

Introduction

Australia's largest trading and investment partner and an increasingly influential force in world affairs is the European Union (EU). It is Australia's largest source of imports, including capital goods, which are integral to Australia's technological development and economic growth, and is its second largest market for exports of both goods and services. Further, the influential position of the EU in the World Trade Organisation (WTO) and the Organisation of Economic Cooperation and Development (OECD) makes it a valuable ally in the development of global trade and investment policies. Australia is, in turn, a relatively open, sophisticated and easily accessible market for the EU, and is growing strongly with a higher level of import growth than intra-UN trade growth. Australia provides the EU with a link to the Asia-Pacific region, with over 80 EU companies operating in Australia, and assists the EU in the WTO and OECD in development cooperation activities in this region. The following case study discusses the Australian government's involvement in this link and the major treaties and agreements as well as social justice and equity implications for Australian trade and regional development.

Australia and the European Union

The EU consists of some of the world's largest economies, including Germany, the United Kingdom, France and Italy. Its recent enlargement from 15 to 27 member states has made it even more influential with an economy comparable in size to the United States.

A more unified Europe with its growing influence on international trade has become a significant bilateral trade and investment partner for Australia. The two parties have drawn on shared political, economic and social ties dating back to English and European settlement. While the nature of this relationship has changed, the economic partnership remains the mainstay of the relationship. Discussions with Europe on bilateral trade began in 1976 with ministerial consultations between the European Commission and Australia. These have grown to include talks on multilateral trade matters and international relations, with cooperation on strategic and security issues, education, science and technology, environmental protection, development aid, competition and consumer policy.

• The EU population is 457 million, over 22 times Australia's population of 20 million (approximately the combined population of the Czech Republic and Hungary
• In land mass, Australia is twice the size of the EU, whose total area is marginally greater than the area of Western Australia and the Northern Territory combined
• The EU has 20 official languages, requiring bilingual approaches
• Most of the EU has adopted a single currency as part of the 'Euro area', which represents the second-largest financial market after the United States and deals in the world's second most traded currency, behind the US dollar
• Approximately 45 per cent of the Reserve Bank of Australia's international reserves are held in Euro currency
• Almost 90 per cent of Australians claim European ancestry, with over 40 per cent of Australia's overseas-born population (4.5 million) originating in the EU
• Of second languages spoken in Australian homes, 33 per cent are European
• Nearly half of one million Australians living and working abroad are in Europe
• The EU is expected to expand with future accessions of Bulgaria and Romania (2007), Croatia (pending its cooperation with the International Criminal Tribunal for the former Yugoslavia) and Turkey (pending debate over the legitimacy of its cultural and other ties to Europe)

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Bilateral economic trade and investment links

The EU remains Australia's largest trading and investment partner. Australia's total trade of exports and imports with the EU was worth $48.9 billion in 2004-2005, and total two-way investment was $193.6 billion. The direction and composition of these market flows are outlined below.

Exports and investment into the EU

The increasingly integrated EU market, which is moving toward the free movement of goods, services and labour, has had significant appeal as a target for Australian exports. In 2004-2005, exports to the EU had risen 7 per cent to $13.8 billion, accounting for 11 per cent of total exports. The EU is the third largest market for Australian exports after Japan (19 per cent), and ASEAN (12 per cent), but above China (9 per cent) and the United States (8 per cent). Australia's normally high level of primary exports, such as wool, had been relatively lowered by weak EU demand and agricultural market barriers. These and other primary products such as coal, lead and nickel and iron ores continue to form the biggest part of Australia's export-base. Exports of processed primary products, such as wine (Australia is the largest supplier of wine to the EU, totalling $1.3 billion in exports), and manufactured items, such as machinery, medical and transport equipment, have continued to increase. The EU is also Australia's largest overseas market for the export of services and second-largest target for Australian investors. Services exports, such as travel, transportation and shipment and education, totalled at $7.6 billion over 2004-2005, and investment into the EU totalled $193.6 billion in 2003. Future opportunities for investment and export markets are in information technology, financial services, infrastructure, environmental goods and services and education.

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Imports and investment into Australia

Total imports from the EU have risen 11 per cent to $35.1 billion over 2004-2005, representing 24 per cent of total imports. The EU remains Australia's principle source of imports, ahead of ASEAN (16 per cent), the United States (15 per cent), China (13 per cent) and Japan (12 per cent). The most highly demanded imports were manufactured goods such as medicines, passenger vehicles, telecommunications equipment, aircraft and parts. The EU is also Australia's largest source of imported services, with imports worth $9 billion. European investment into Australia totalled $374.4 billion in 2004.

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Restrictions on Australia's market links

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. The reaction of Australian producers and trade representatives has included:

• Complaints that EU export subsidies on sugar are in breach of its obligations to reduce such subsidies under the WTO Agriculture Agreement
• Complaints by Australia that new labelling requirements for wine imported into the EU are a barrier to trade, for its increased cost and restriction on the use of many common descriptive words used on wine labels to describe product qualities and production methods
• Protection sought from the WTO for the right of Australian producers to protect product names for wine and other agricultural goods, such as cheese and processed meat, within the EU
• Further reductions sought on EU coal subsidies, particularly since the accession to the EU of coal producing countries such as Poland and the Czech Republic

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