Australian Trade And Investment Essay, Research Paper

Trade and investmentAustralia’s export structures have changed considerably over the past 15 years. Although trade in commodities remains strong, new services and sophisticated manufacturing export markets have emerged.Merchandise exports were valued at $86 billion in 1998-99. During the same year, Australian exports of services totalled $26 billion. Exports recorded seven per cent average annual growth in the five years to 1998-99. They now account for 20 per cent of GDP, compared with around 15 per cent in the mid-1980s.Japan remains Australia’s largest single export market, buying one-fifth of total merchandise exports. The United States and Korea each account for eight per cent of exports, and New Zealand for six per cent. The United Kingdom, Taiwan, China, Singapore, Hong Kong and Indonesia are all significant export markets.Australia’s imports are dominated by manufacturing. The two largest import items in 1998-99 were cars and computers, accounting for seven and five per cent respectively of total merchandise imports. Supplier of advanced manufacturesAustralia is generating new strengths as a supplier of advanced goods and services. Over the 1990s, exports of elaborately transformed manufactures (ETMs), with high levels of value-adding, have grown at an average annual rate of 14 per cent, well above the growth rate for these products in Japan and Germany. Products such as components for mechanical and electronic equipment, as well as assembled motor cars, have recorded strong growth in the last decade.Australia is also developing a new competitive edge in high-technology exports, such as scientific and medical equipment, telecommunications, software and aerospace products.Australia maintains its position as a leading exporter of major commodities. Key commodity exports in 1998-99 include coal (valued at $9.3 billion), iron ore ($3.8 billion), wheat ($3.4 billion), beef and veal ($2.9 billion), petroleum and other gases ($1.7 billion) and cotton ($1.6 billion). In the last 50 years Australia has become a world leader in scientific instrumentation, nanotechnology, solar engineering, astronomy, immunology and drug design. (ACIO)

At the same time, the degree of processing which Australian exports undergo has been steadily increasing, reflecting the increasing sophistication of Australia’s export mix and higher levels of value-adding of raw materials in Australia. Unprocessed foods, fuels, minerals and other primary products declined from 46 per cent to 37 per cent of merchandise exports between 1988-89 and 1998-99.Export diversificationReforms within the Australian economy have helped make it more flexible and responsive to change.During the recent East Asian economic crisis, for example, exporters diversified into new markets in North America and Europe, as well as in the Middle East and South America.In 1998-99, merchandise exports to Saudi Arabia grew by 95 per cent, to Egypt by 71 per cent, to Mexico by 46 per cent and to Chile by 39 per cent.Export growth to East Asia recovered considerably towards the end of 1999, signifying a positive export outlook for 2000.Education, professional, communications, insurance and financial services exports totalled $8.4 billion in 1998-99.Tourism now accounts for 14 per cent of Australia’s total export earnings and is Australia’s leading services export item (see p. 49). Australia is a leading exporter of major commodities.

Trade prioritiesAustralia has a strong interest in the removal of barriers to investment and trade in goods and services. The White Paper on Foreign and Trade Policy identifies Australia’s main trade priorities as:? domestic reform ? improving bilateral relations ? improving the regional framework for trade ? strengthening the international trading system and ? promoting exports. Australia places a high priority on achieving further liberalisation at three levels – through bilateral relationships, with Asia Pacific Economic Cooperation (APEC) and with the World Trade Organisation (WTO). At a bilateral level, the Australian Government has worked to build trust with countries in the region, and to reach mutually beneficial outcomes. APEC is the central focus of the Government’s regional strategy.As the only forum that brings together the world’s major trading nations, the WTO provides the most effective means by which broad-based trade reform can be achieved.The WTO’s third Ministerial Meeting in Seattle in December 1999 failed to reach agreement on an agenda for a further round of trade negotiations. Australia will continue to support efforts to launch a new round of negotiations covering all sectors. In the interim, Australia will work to ensure that progress is made in the mandated negotiations on agriculture and services.As one of the world’s most efficient agricultural producers, Australia has a particularly keen interest in ensuring that trade in agricultural goods is liberalised along with trade in other areas.In order to promote the liberalisation of agriculture, Australia founded the Cairns Group of Fair Trading Agricultural Exporters in 1986. The Cairns Group has proven to be an effective force for liberalisation in a sector that continues to be subject to disproportionately high levels of protection.One of Australia’s key goals over the coming years is the establishment of stronger links between the Australia New Zealand Closer Economic Relations Trade Agreement (CER), Australia’s economic relations agreement with New Zealand and the ASEAN Free Trade Area (AFTA).A task force to examine the feasibility of establishing an ASEAN-CER free trade area by 2010 was formed in October 1999. Australia is represented on the task force by former deputy Prime Minister and Trade Minister, Mr Tim Fischer.On the domestic front, Australia has taken significant steps to open its own economy further. Tariffs have been reduced to five per cent or less in almost all sectors, quotas have been eliminated and non-tariff barriers significantly reduced.The increasingly open nature of the Australian economy has been complemented by a sustained program of domestic restructuring and a sound macro-economic policy.Foreign investmentAustralia recognises that international investment is a key aspect of international trade, and welcomes investment, subject to certain basic rules. Many Australian firms are substantial investors in other countries, and Australia has long maintained a position as a net capital importer, drawing on foreign savings to allow faster development of domestic resources. Considerable investment continues in export-oriented mining and energy projects.Foreign investment in Australia in 1998 had reached $571 billion, of which $253 billion came from members of APEC. Australian investment abroad totalled $249 billion, with $135 billion invested in APEC countries.Invest Australia, the Australian Government?s national investment agency, promotes Australia as an investment location, facilitates major projects and provides a wide range of services to companies seeking to establish or invest in operations in Australia.

Foreign investment by Australian companies overseas is vital to the global corporate strategies of many Australian companies. Australian companies have foreign investments valued at over $250 billion, the bulk of which are located in the United States, the United Kingdom and New Zealand.Export financeThe Export Finance and Insurance Corporation (EFIC), Australia’s official export credit agency, complements the private sector by providing a specialised range of insurance, guarantee and finance facilities not normally available commercially.In particular, EFIC serves small- to medium-sized enterprises whose low export turnover make them less attractive to the private sector. In 1998-99, it supported exports totalling $7.6 billion (or about seven per cent of Australia’s exports).APECThe APEC forum was established in Canberra in 1989 as an informal group of 12 economies whose objective was to promote economic cooperation in the Asia Pacific region.It has since developed into the region’s premier economic organisation, its membership now numbering 21 economies covering North and South America, East Asia and Oceania. APEC members represent a region of over two billion people and account for around half the world’s trade.APEC’s work is about generating exports, increasing economic growth and creating jobs. It seeks to achieve this by promoting more open markets for trade and investment and making it easier to do business in the region by, for example, simplifying administrative procedures relating to trade and making different national systems more compatible.APEC is also helping to build the institutional capacity of developing country members and is playing a role in dealing with some of the problems that led to the Asian economic crisis.In addition to its economic focus, APEC provides an important mechanism for Asia-Pacific leaders to discuss current regional and international issues at their annual meeting.Australia is an active member of APEC and is committed to achieving APEC’s goal of free and open trade and investment by 2010 in industrialised APEC economies and 2020 in developing ones. Implementation of these goals will result in significant improvements in access to regional markets for Australian exporters and investors.Currently, over two-thirds of Australia’s goods and services exports go to other APEC economies while around 70 per cent of Australia’s imports come from APEC countries.Austrade – the Australian Trade Commission – is the Australian Government?s export and investment facilitation agency. Austrade helps organisations throughout the world do business with Australia and Australian companies increase their exports.

Foreign policy

Due to Australia’s geographic location and the orientation of its trade and strategic interests, the Asia Pacific region has long been the focus of its foreign policy. But as a country with a prosperous and diverse economy, a technologically advanced society, and a long history of strong commitment to liberal democratic values, Australia also looks beyond the region to play an active role in the development of solutions to global economic, social and strategic problems.

In August 1997, for the first time in its history, the Australian Government took the decision to set out explicitly the principles and priorities in Australia’s international policies in the White Paper on Foreign and Trade Policy. The paper looked at the major opportunities and challenges facing Australia in its international relations over the coming 15 years.

The two fundamental trends in the international environment that affect the development of Australia’s foreign and trade policies have been identified as globalisation and the economic and political rise of East Asia. To meet those developments, Australia’s policy framework combines elements of continuity and change, including:

? reaffirmation of the Asia Pacific region as Australia’s highest foreign and trade policy priority

? development of Australian interests in other regions, in line with Australia’s global role

? recognition that the most fundamental means of promoting Australia’s national interests lies in developing bilateral ties with other nations

? selectivity in the pursuit of multilateral diplomacy, with most effort given to the issues that most closely engage Australia’s national interests

? active pursuit of Australia’s trade interests at the bilateral, regional and multilateral levels, with particular emphasis on the promotion of trade and investment liberalisation in forums like the World Trade Organisation and APEC.

In line with the emphasis given to Australia’s ties with the Asia Pacific, and reflecting the weight of trade and strategic interests, four relationships have particular importance for Australia – those with the United States, Japan, China and Indonesia, Australia’s largest neighbour. These countries also include the most powerful economies in the region.

Australia also has significant interests in its relationships with the ASEAN states and the Republic of Korea, and growing links with South Asia. The significance of Australia’s engagement with its region was dramatically evident in Australia’s reaction to the East Asian economic crisis, and to developments in East Timor – on both occasions, Australia acted speedily and effectively to help achieve equitable outcomes.

Historically, Australia has developed close ties with New Zealand, Papua New Guinea, and the other island states of the South Pacific.Australia places great emphasis on the need for foreign and trade policies to be informed and guided by the values of the community it represents. In Australia’s case this means drawing on its strong traditions of liberal democracy which have been uniquely fashioned in its tolerant and multicultural society.This is reflected in Australia’s absolute rejection of racial discrimination and its strong commitment to, and effective pursuit of, human rights and sustainable development. Australia participates in United Nations and other international forums relating to the status and advancement of women, children and indigenous peoples. More broadly, Australia is active in multilateral diplomacy and has been a consistent supporter of the United Nations Charter and the work of the UN’s various agencies. Australian Truce Monitors Sari Sutton and Barbara Wymarra share some time with youngsters at Arawa on Bougainville.(Department of Defence)

Australia has long been active in international efforts to address regional and global environmental problems. Australia advocates the adoption of imaginative, effective, and flexible initiatives to meet these problems, recognising that global action must be equitable and practicable. For these reasons, for example, the Australian Government advocates differential national greenhouse gas emission targets, rejecting flat-rate target approaches that would ignore the reality of differing national economic circumstances and which would actually be more costly.Australia has also played a major role in the development of international regimes to prevent the proliferation of missiles and of nuclear, chemical and biological weapons, as well as the prohibition of nuclear testing. Australia has supported the development of international measures to ban the use of, and trade in, anti-personnel landmines, and measures to deal with the humanitarian disaster caused by landmines. Australia has ratified the Ottawa Treaty banning the use, stockpiling, production and transfer of anti-personnel mines, and Australia’s defence forces have already destroyed their stocks of mines – four years ahead of schedule.

Australia’s Trade

As a world trader, Australia has enjoyed strong comparative advantages in the mining and agricultural sectors for more than a century. It is developing new strengths as an international supplier of advanced goods and services.

For the past five years Australian exports of goods and services have averaged 7 per cent growth. Exports of goods and services account for 19 per cent of GDP, compared with around 15 per cent in the mid-1980s. This reflects diversification of exports and a shift to leading-edge manufacturing and services.

Over the last ten years sophisticated manufactures (or elaborately transformed manufactures) have led growth in Australian merchandise exports (average growth rate of 13 per cent per year). In 1999 merchandise exports were valued at $87 billion. Reflecting diversification of Australia’s exports, in 1999 primary products accounted for only 56 per cent of merchandise exports. In 1989 they accounted for 66 per cent of Australia’s merchandise exports.

In 1999 services exports rose 6.3 per cent over 1998, totalling $27 billion. Australia is also developing a new competitive edge in high-technology exports, such as scientific and medical equipment, telecommunications, software and aerospace products. At the same time, Australia maintains its position as a leading exporter of major commodities.

Policy framework

Elements of Australia’s trade policy include:

? domestic economic reform

? bilateral trade strategies

? regional srade strategies

? multilateral trade strategies

? trade promotion

? sectoral trade strategies

Domestic economic reform

The Government remains committed to ensuring that ongoing domestic economic reform will continue to benefit Australian exporters. Recent microeconomic reform such as competition policy reforms, sectoral liberalisation in the telecommunications, energy and financial sectors, labour reforms and tariff reductions have assisted the international competitiveness of Australian exporters. The Government’s taxation reform program will benefit exporters by reducing costs still further.

Bilateral trade strategies

The Government continues to place a strong emphasis on bilateral initiatives to achieve better market access for Australian exports.

The Market Development Task Force (MDTF), established in 1996 is driving bilateral efforts in key target export markets. It represents a whole-of-government effort to open world markets to Australian exports of goods and services.

Regional trade strategies

Australia’s regional trade policy aims to promote growth in regional trade and investment through deeper integration and to ensure that our interests are protected and pursued in regional fora such as the:

Asia Pacific Economic Cooperation (APEC) grouping;

Association of South East Asian nations Free Trade Area (AFTA)/Australia and New Zealand Closer Economic Relations Trade Agreement (CER); and

Southern Cone Common Market of South America initiatives.

The APEC Individual Action Plans set out how each economy will move to achieve the region’s free trade goals. Australia is actively exploring new trade opportunities created by this development.

Multilateral trade strategies

Australia seeks also to advance trade liberalisation on a global basis with other members of the World Trade Organisation (WTO). The WTO is an effective rules-based system providing stability, predictability and transparency in international commerce. As the only forum that brings together the world’s major trading nations, the WTO provides the most effective means by which broad-based trade reform can be achieved.

The WTO’s third Ministerial Meeting in Seattle in December 1999 failed to reach agreement on an agenda for a further round of trade negotiations. Australia will continue to support efforts to launch a new round of negotiations covering all sectors. In the interim, Australia will work to ensure that progress is made in the mandated negotiations on agriculture and services.

As one of the world’s most efficient agricultural producers, Australia has a particularly keen interest in ensuring that trade in agricultural goods is liberalised along with trade in other areas.

In order to promote the liberalisation of agriculture, Australia founded the Cairns Group of Fair Trading Agricultural Exporters in 1986. The Cairns Group has proven to be an effective force for liberalisation in a sector that continues to be subject to disproportionately high levels of protection.

Trade promotion

The Australian Trade Commission (Austrade) is Australia’s official export facilitation agency. Austrade targets its assistance to small and medium-sized businesses, including those in rural and regional Australia, helping to reduce the time, costs and risks involved in entering and expanding overseas markets. During the 1998-1999 financial year Austrade helped 12 000 Australian companies achieve more than A$6 billion in export sales.

Sectoral trade strategies

Market access facilitation teams have been established to pursue improved market access for automotive; textile, clothing and footwear; information industries and processed foods and agriculture sectors. Efforts combine use of bilateral contacts with industry and government decision-makers, involvement in relevant regional and multilateral dialogue and parallel efforts to promote the Australian product and develop market interest.

Lowering barriers to trade

Australia wants open, fair and competitive trade between nations. It is a right of government to apply tariffs and other measures, for example, excise duties and sales taxes at the border, provided they do not discriminate between one country and another or make any special considerations for domestic producers. Due largely to previous rounds of multilateral trade negotiations, as well as regional and bilateral efforts, international tariff barriers have been reduced significantly. However, there remain a range of measures that can lead to distortions in the international trading system.

The widening trade reform agenda takes in other issues such as:

? unjustified quarantine restrictions

? barriers to investment

? customs valuation methods

? conflict between national and international standards

? import licensing

? quota restrictions

? export subsidies.

As well as working to make international trade freer and fairer through the World Trade Organisation (WTO), Australia places a high importance on its involvement in the Asia Pacific Economic Cooperation (APEC) group and on bilateral negotiations with its trading partners.

Australia has carried forward the free trade and investment agenda agreed by APEC leaders at Bogor in 1994. Along with other APEC members, it has tabled annually an Individual Action Plan (IAP), which sets out how it will move to achieve the region’s free trade goals.

A high-level, interdepartmental task force on bilateral market development, set up in 1996 to target and coordinate Australian resources more effectively in key markets, is also shaping Australia’s trading future. Australia has regular meetings with many of its trading partners in the form of joint economic and trade commissions.

Australia as an international buyer and seller

Australia has a high standard of living and a growing economy. It buys billions of dollars worth of goods and services from our international trading partners.

Many of the most expensive imports are used to maintain and develop Australia’s advanced information and physical transport industries.

Australia’s three largest import items in 1999 were cars ($6.8 billion; 7% of total merchandise imports), crude petroleum ($4.7 billion; 5% of total merchandise imports) and computers ($4.6 billion; 5% of total merchandise imports).

Computers and telecommunications equipment alone account for a tenth of the total value of imports.

Aircraft, trucks, heavy equipment and machinery account for almost another tenth of the value of imports.

The great bulk of imports are for producers rather than consumers.

Top 10 merchandise imports in 1999

Value ($ million) % of total imports

Passenger motor vehicles 6787 7

Crude petroleum 4682 5

Computers 4618 5

Telecommunications equipment 4510 4

Aircraft and parts 2934 3

Medicaments 2552 3

Motor vehicles for goods transport 2400 2

Computer parts 2168 2

Motor vehicle parts 2152 2

Non-monetary gold 2005 2

Source: ABS data on DFAT STARS database

Australia has a strong base in natural resources and efficient agricultural and mining industries. This is reflected in the merchandise it sells to the world.

Fuels and minerals generate about a third of merchandise exports, with coal, iron ore, aluminium and petroleum products near the top of the list.

Australia remains a major international supplier of agricultural commodities such as wheat, meat and wool and exports of other agrifood products such as wine, dairy products and canola are growing rapidly.

Top 10 merchandise exports in 1999

Coal $8.4 billion

Non-monetary gold $4.8 billion

Iron ore $3.6 billion

Aluminium $3.3 billion

Wheat $3.1 billion

Meat $3.0 billion

Aluminium ores $2.8 billion

Wool $2.5 billion

Crude petroleum $2.3 billion

Refined petroleum $1.8 billion

Source: ABS data on DFAT STARS database

Reforms within the Australian economy have helped make it more flexible and responsive to change.

During the recent East Asian economic crisis, for example, exporters diversified into new markets in North America and Europe, as well as in the Middle East and South America.

Export growth to East Asia recovered considerably in the second half of 1999 and the export outlook for 2000 is positive.

Seven Asian markets were among Australia’s top 10 export markets in 1999. They are Japan, Korea, Taiwan, China, Singapore, Hong Kong and Indonesia. Japan remains Australia’s largest single export market, buying almost one-fifth of total merchandise exports. Among non-Asian markets, the most significant for Australian exporters are the United States, New Zealand and the United Kingdom. In total, these 10 markets accounted for 60 per cent of Australia’s exports in 1999.

Australia’s top 10 export markets in 1999

% of total exports

Japan 17

USA 8

NZ 7

Korea 6

Taiwan 4

China 4

Singapore 5

UK 4

Hong Kong 3

Indonesia 2

Source: ABS data on DFAT STARS database

Australia’s export base has diversified over the past 15 years, thanks largely to new international business opportunities and greater competitiveness of Australian businesses. As a stable democracy with a well-educated work force, a tradition of innovation and a strong and expanding information infrastructure, Australia has developing strengths in services, advanced manufactures and intellectual property.

Tourism is one of Australia’s largest and fastest-growing industries. Generating more than $16 billion in foreign exchange earnings a year, inbound tourism contributes three per cent of Australia’s gross domestic product. Tourism now accounts for 14 per cent of Australia’s total export earnings and is Australia’s leading services export item.

The Australian Tourist Commission offers information to intending visitors in several European and Asian languages.

In the past decade, education has become one of Australia’s major export earners, generating over $3 billion in 1999. Third in the English-speaking world behind the US and Britain, the number of overseas students in the higher education sector in Australia is increasing at a far greater rate than its larger competitors. Australian Education International provides useful information for intending students.

Music, film, computer software and pharmaceuticals are among Australia’s fastest growing export industries.

Selected trading partners – 1999

($billion)

Source: ABS data on DFAT STARS database

Foreign Direct Investment (FDI)

Australia recognises that FDI, both inwards and outwards, delivers tangible benefits to Australia and contributes to our economy. Inward FDI assists our economic development, including contributing to improved export competitiveness and export flows. Outward FDI has enabled Australian businesses to generate growth and build networks in global markets.

Foreign investment in Australia in 1998 had reached $571 billion, of which $252 billion came from members of APEC. Australian investment abroad totalled $249 billion, with $132 billion invested in APEC countries.

Invest Australia, the national investment agency, is tasked by the federal government with promoting Australia as an investment location. The agency works with Australian States and Territories and through Australian embassies and the international network of Austrade, to increase investment in Australia.

From its 14 offices around the world Invest Australia promotes Australia as an attractive investment location, facilitates major projects, and provides services to companies wanting to establish or invest in operations in Australia.

Services include:

? identifying and promoting investment opportunities in Australia

? providing strategic advice

? coordinating and connecting investors with the right government contacts

? assisting with the establishment of regional headquarters

? streamlining the immigration process

? finding the right joint partner or strategic ally

? providing information on relevant foreign investment regulations

? assisting with grants to undertake pre-feasibility and feasibility studies for major investments;

? for qualifying large investors, a Major Projects Facilitation service to assist companies through government approvals quickly and efficiently.

MERCHANDISE AUSTRALIA BUYS IN INTERNATIONAL MARKETS

Source: ABS data on DFAT STARS database

Bibliography

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