AustraliaINTRODUCTIONAustralia, island continent located southeast of Asia and forming, with thenearby island of Tasmania, the commenwealth of Australia, a self governingmember of the Commenwealth of Nations.
The commenwealth of Australia is made upof six states–News south Wales, Queensland, South Australia, Tasmania, Victoria,and Wester n Australia–and two territories–the Australian Capital Territoryand the Northern Territory. Australia, including Tasmania but excluding external territories, covers a landarea of 7,682,300 sq. km, extending from Cape York (100 41′ S) in the north some3,680 km to Tasmania (430 39′ S), and from Cape Byron (1530 39′ E) in the eastsome 4,000 km west to Western Australia (1130 9′ E). Basic DataPopulation (estimates), July 1995, 18,322,231, with the age structure under 15(female 1,929,366; male 2,032,238), 15-64 (female 6,017,362; male 6,181,887), 65and over(female 1,227,004; male 934,374).
Population growth rate is estimated at1. 31% (1995 est. ). Literacy rate age 15 and over can read and write (1980 est.
). English is the official language, with modern Australian English a conglomerateof British, American, and their own phraseology and spelling. BecauseAustralia is one of the most multicultural nations in the world it is possibleto find vibrant ethnic communities using almost every other worldlanguage. Australian school children have the highest rate of learning Asianlanguages, particularly Japanese and Chinese, of any industrialized westernnation – in recognition of their future as a member of the Asia-Pacific region.
Labor force is 8. 63 million(september 1991) by occupation of finance and service33. 8%, public and community services 22. 3%, wholesale and reatail trade 20. 1%,manufacturing and industry 16. 2%, agriculture 6.
1%(1987). Political SystemAustralia has a federal system of government, and a long history as a multipartyparliamentary democracy. There is no written Bill of Rights, but fundamentalrights are ensured by law and respected in practice. The Commonwealth (federal) government and the six state governments operateunder written constitutions that draw on the British tradition of a CabinetGovernment, led by a Prime Minister, which is responsible to a majority inParliament’s lower house. The Federal Constitution, however, also contains someelements that resemble American practice (e. g.
, a Senate, in which each statehas equal representation). The Head of State is Queen Elizabeth II, thereigning British monarch, but she exercises her functions through personalrepresentatives who live in Australia (i. e. , Australian citizens who serve asthe Governor-General of Australia, and the Governors of the six states). Australians are debating whether their country should become a republic, give upties with the Queen, revise the constitution, and adopt a new flag.
Members of the Federal House of Representatives are elected for three years, andnational elections were last held in March, 1993. Lower-house elections, thus,are due no later than mid-1996, but earlier scheduling is a matter of discretion. (The Prime Minister may recommend that the House be dissolved at any time, andthe Governor-General traditionally follows such advice. ) Current politicalcommentary focuses on two likely “windows” for national elections: August-October, 1995, and March-May, 1996. Members of the Senate are elected for six years.
June 30, 1996 is the next dateon which Senators’ terms expire, and a regular election for half the members ofthe Senate is due before that time, but no earlier than July, 1995. Under complex conditions specified in the federal Constitution — in essence,extended deadlock between the House and Senate — both houses may be dissolvedsimultaneously, so that ensuing national elections would involve all seats inParliament. This “double dissolution” is unusual, and has occurred only sixtimes since the Constitution entered into effect (1901). All major parties support the U. S.
-Australia alliance and stress the importanceof close relations between Australia and the United States. Thus, thislongstanding and stable pattern is essentially unaffected by the outcome ofnational elections. The ruling Australian Labor Party (ALP) maintains close ties to the trade unionmovement and has held office since 1983. During that period, the government hascarried out major restructuring of the economy (e. g.
, floating the Australiandollar, cutting tariffs by substantial amounts, reducing and simplifyingregulations that affect business). Liberalizing trade and enhancing economicintegration with Asia-Pacific countries are major tenets of the ALP and, inparticular, of the incumbent Prime Minister, Paul Keating. The opposition Liberal-National Coalition is often described to Americans as themore “conservative” party. It upholds traditional social values and stressesthe importance of a free market, entrepreneurial approach to economic growth(i. e. , it promotes an updated version of the classical liberalism originated byAdam Smith).
The Liberal Party is the senior partner, holding 79 of theCoalition’s 101 seats in the current Parliament. The National Party isidentified closely with the interests of farmers, and its supporters residemainly in rural areas. Two minor parties, the Australian Democrats and the Western Australia “Greens”,are represented only in the Senate but have political and media effects that aredisproportionate to their numbers. They take highly visible stands on variouseconomic, political, environmental, and social issues, challenging the majorparties to respond in ways that meet their concerns. KEY ECONOMIC DATAAustralia has a prosperous Western-style capitalist economy, with a percapitaGDP comparable to levels in industrialized West European countries. Rich innatural resources, Australia is a major exporter of agricultural products,minerals, metals, and fossil fuels.
Primary products account for more than 60%of the value of total exports, so that, as in 1983-84, a downturn in worldcommodity prices can have a big impact on the economy. The government is pushingfor increased exports of manufactured goods, but competition in internationalmarkets continues to be severe. Australia has suffered from the low growth andhigh unemployment characterizing the OECD countries in the early 1990s. In 1992-93 the economy recovered slowly from the prolonged recession of 1990-91, a majorrestraining factor being weak world demand for Australia’s exports.
Growthpicked up so strongly in 1994 that the government felt the need for fiscal andmonetary tightening by year end. Australia’s GDP grew 6. 4% in 1994, largely dueto increases in industrial output and business investment. A severe drought in1994 is expected to reduce the value of Australia’s net farm production by $825million in the twelve months through June 1995, but rising world commodityprices are likely to boost rural exports by 7.
7% to $14. 5 billion in 1995/96,according to government statistics. DOMESTIC ECONOMY STATISTICS (all figures in millions of U. S. dollars*)Calendar Year1994 19951996(e) (p)1. Gross Domestic Product298,613309,038337,700(89-90 prices)2.
GDP Growth Rate (%)**5. 14. 2 3. 63. GDP per Capita16,68217,07418,4494.
Government Spending26. 7 25. 125. 0(% of GDP)5. Inflation (%) 2. 53.
5 4. 26. Unemployment Rate (%)9. 78.
5 8. 07. Foreign Exchange Reserves10,13012,40013,500(year end)8. Avg. Exchange Rate 1.
36 1. 371. 30(US$=1. 00)9. Net Foreign Debt (year end) 119,291118,300123,200 10.
Debt ServiceRatio (%)11. 4 12. 112. 4 11. U. S.
Economic/MilitaryNANA NAAssistance*Exchange rate fluctuations must be considered when analyzing data. **Percent changes are calculated in Australian dollars. (e) Estimate (p)Projection1. General Policy FrameworkAustralia’s gross domestic product (GDP) in 1994 was estimated to be US $317. 6billion. Real GDP is estimated to have grown by 4.
3 percent, a substantialimprovement from 1993’s 3. 2 percent. Nevertheless, the impact of the recessionwhich began during the third quarter of 1989 and ended in 1991 continued to befelt; unemployment hovered between 9. 5 and 10 percent during 1994. U.
S. economic interests in Australia are substantial, including directinvestment worth approximately US $16 billion and a bilateral trade surplus ofapproximately US $6 billion (up by approximately US $600 million from 1993). Although in area Australia is the size of the contiguous United States, itsdomestic market is limited by a small population (17. 7 million people).
Theproduction of agricultural commodities and primary products is an importantcomponent of the economy; Australia leads the world in wool production, is asignificant supplier of wheat, barley, dairy produce, meat, sugar, and fruit,and a leading exporter of coal, minerals and metals, particularly iron ore, gold,alumina, and aluminum. Export earnings are not well diversified; in 1993,primary products accounted for 60 percent of the total value of goods andservices exports. The drought which Australia suffered in 1994 affected the agricultural sectorseverely. The wheat crop, for example, was cut by an estimated 51 percent fromthe previous year, reducing export earnings and necessitating the importation ofwheat, corn, and sorghum. Some commentators believe that the drought may reduceotherwise-attainable real GDP growth (as shown in the data table above) byapproximately 0. 5 percent.
To increase Australia’s international competitiveness, the government hascontinued its longstanding effort to reduce protective trade barriers andderegulate large segments of the economy. Privatization of government servicesat both the federal (airlines, banks, telecommunications) and state level (watertreatment, transportation, electricity, banks) is being pursued. The governmentintends to sell the remaining 75 percent of Qantas to the public in 1995. Tradereforms begun in June 1988 resulted in an end to import quotas on all buttextiles, clothing, and footwear, and lower tariffs on most imports. Althoughthe 20 percent preference given by the federal government to Australian and NewZealand firms bidding on government contracts was abolished November 1, 1989,and civil offsets in December 1992, some state and territory governmentscontinue to apply preferences in their contracts. The Australian Government continued to provide substantial fiscal stimulus tothe domestic economy in 1994.
The budget deficit reached US $9. 6 billion (3. 4percent of GDP). Public sector borrowing more than funded the deficit, and tookthe form of treasury notes (US $427 million), treasury bonds (US $10. 1 billion),and cash drawdowns (US $4.
9 billion). As part of its Australian Fiscal Year(AFY) 1994-95 budget, the government announced its intention to cut the deficitto 1 percent of GDP by AFY 1996-97. The money supply is controlled through an open-market trading system of ninedealers who act as a conduit between the Reserve Bank and the financial system. Transactions may involve purchases, sales, or trade in repurchase agreements ofshort-term treasury securities. Depending on liquidity conditions, the ReserveBank may bypass dealers and buy or sell short-term treasury notes directly withbanks on a cash basis. Banks do not normally hold liquid deposits of any sizewith the Reserve Bank.
Instead, they hold call-funds with the authorizeddealers. If a bank needs cash on a given day, it either borrows from otherbanks or withdraws funds it has on deposit with the dealers. Under the abovemoney supply control system, foreign exchange flows and government deficits andcredits have only limited impact on the money supply. The government also usesinterest rate changes to influence the money supply. In 1994, officialgovernment interest rates were increased twice, by 75 basis points in August,and a full percentage point in October, to reach 6. 5 percent.
A strong supporter of the Uruguay Round negotiations liberalizing internationaltrade, the Australian government moved rapidly to ratify the Uruguay Roundagreements and became a founding member of the World Trade Organization (WTO) onJanuary 1, 1995. Australia also advocates liberalizing trade within the Asia-Pacific region; it is a leading member of the Asia Pacific Economic Cooperation(APEC) forum, and strongly supported the November 1994 Bogor Declaration, inwhich APEC leaders set the goal of free trade in the region by the year 2020. The challenge the government will face in 1995 is to maintain moderately highreal growth and reduce unemployment without causing a revival of inflation and amassive increase in the current account deficit (by virtue of the impact growthhas on the demand for imports). Many economists believe that the desired gainsin growth and employment will come, but are worried that unless the governmentcuts the budget deficit faster than currently planned, both of the feared sideeffects could be produced by an overheating economy.
2. Exchange Rate PoliciesAustralian Dollar (A$) exchange rates are determined by international currencymarkets. Official policy is not to defend any particular exchange rate level. In practice, however, the Reserve Bank has a comfort range in mind when lookingat exchange rate movements.
It is active in “smoothing and testing” foreignexchange rates in order to provide a generally stable environment forfundamental economic adjustment policies, and intervenes occasionally to combatspeculative attacks on the Australian dollar. Australia does not have major foreign exchange controls beyond requiring ReserveBank approval if more than A$5,000 (US $3,650) in cash is to be taken out ofAustralia at one time, or A$50,000 (US $36,500) in any form in one year. Thepurpose is to control tax evasion and money laundering. If the Reserve Bank issatisfied that there are no liens against the money, authorization to take largesums out of the country is automatic. The regulation does not affect U.
S. trade. 3. Structural PoliciesPursuing a goal of a globally competitive economy, the Australian government iscontinuing a program of economic reform begun in the 1980s that includes anaccelerated timetable for the reduction of protection and micro-economic reform. Initially broad in scope, the Australian government’s program is now focusing onindustry-by-industry, micro-economic changes designed to compel businesses tobecome more competitive. The strategy has three principal premises: protection must be reduced; the paceof reform needs to be accelerated; and industry must learn to do without highlevels of protection.
Towards these ends, a phased program to cut tariffs by an average of about 70percent was begun July 1, 1988, to be completed on June 30, 1996. Specifically,in approximately equal phases, except for textiles, clothing, footwear and motorvehicles, all tariffs will be reduced to 5 percent. Along with these measures,some of the few manufactured products still receiving bounties (productionsubsidies) will have those benefits reduced each year until the bounties expire. The Uruguay Round agreements will force faster-than-planned tariff reductionsin only a small number of cases. As noted in Section five (below), local content requirements on televisionadvertising and programming and certain government procurement practices mayhave adverse effects on U. S.
exporters and service industries. 4. Debt Management PoliciesAustralia’s gross external public debt now exceeds US $67. 7 billion, or 23. 5percent of GDP. That figure represents 46 percent of Australia’s gross externaldebt; the remaining 54 percent is owed by the private sector.
Gross interestpayments on public debt totaled US $4. 0 billion in AFY 1993/94, representing 6. 7percent of exports of goods and services. Private sector debt service totaledUS $4.
0 billion, an amount equal to another 6. 7 percent of export earnings. Onan overall basis, therefore, Australia’s debt service ratio was 13. 4 percent,down substantially from AFY 1992/93’s 14.
9 percent. Falling internationalinterest rates caused the drop in the debt service ratio. Standard and Poor’sgeneral credit rating for Australia remained AA during 1994. INTERNATIONAL TRADEIn the past 10 years, the intensity of Australia’s trade has increased, and thecomposition and direction have changed noticeably. Part of the shift in thepattern of trade, especially since the late 1980s, has reflected cyclicalinfluences such as subdued demand domestically and among Australia’s OECDtrading partners. But much of the shift is structural and has been underpinnedby policy measures which have opened Australia to more international competition.
The structural shift in the pattern of trade can be expected to continue andaccelerate. Australia has long been of lower middle rank in export intensity,but its exports-to-output ratio has risen appreciably in the past 10 years. Theconstant-price ratio has risen by about seven percentage points, reflectingsturdy growth in export volumes. The current price ratio has recorded a moremodest rise, largely reflecting recent depressed commodity prices. Composition of TradeAustralia’s resource endowments and efficient farming, pastoral and miningpractices have given it a clear competitive advantage in primary production.
Amajor share of export revenue depends on sales of primary products and willcontinue to do so. But commodity prices fluctuate widely and have shown afalling trend relative to manufacturing and services. Thus, the FederalGovernment sees benefit in diversifying Australia’s composition of exports, andin particular increasing its exports of services and high-value-addedmanufactures. Australia still runs a significant deficit on its trade in services.
But in thepast 10 years, its services exports have grown more strongly than merchandiseexports. By 1992-93, services exports had risen to about 3. 3 times their 1982-83value, whereas merchandise exports had risen to about 2. 9 times their 1982-83value.
If these trends continue, the services deficit will be eliminated in afew years . The broad balances in Australia’s merchandise trade reflect the traditionalpattern – large surpluses on trade in primary products and large deficits ontrade in manufactures. But in the past 10 years, exports of manufactures(especially Elaborately Transformed Manufactures or ETMs) have grown strongly. In 1982-83, manufactures accounted for a little over 20 percent of merchandiseexports; by 1992-93 their share had risen to a little over 29 per cent – thecorresponding share for ETM exports had risen from 12 per cent to almost 20 percent during the same period. Australia’s performance in increasing its ETMexports compares favourably with that of other developed countries. Traditionally, Australia’s exports have been dominated by large enterprises orby marketing bodies that pool the output of primary producers.
In recent years,however, small and medium-sized enterprises have achieved significant exports ofmanufactures, and it appears likely that such enterprises will be a major sourceof export growth through the late 1990s and beyond. InflationAfter recording an annual average inflation rate of 8. 25 per cent throughout the1980s, the annual rate fell to 0. 3 per cent in the December quarter of 1992. At1.
9 per cent in the September quarter of 1995, the underlying inflation rate wasbelow that of most of Australia’s major trading partners. Continued wage restraint, improved productivity, increased competitive pressuresand a broadly based decline in inflationary expectations have been importantinfluences, and have provided a significant stimulus to Australia’sinternational competitiveness. Balance of paymentsAustralia has long maintained a position as a net capital importer, drawing onforeign savings to allow faster development of domestic resources. As aconsequence, Australia has typically recorded a deficit in the current account. The current account deficit in 1994-95 was $27 billion: six per cent of GrossDomestic Product (GDP). The current account deficit improved in the early 1990s,largely reflecting an improvement in the balance of merchandise trade, a lowernet services deficit and lower net income payments overseas.
The current account deficit has widened as imports, particularly of capitalgoods, have increased in response to the strengthening domestic economicactivity. The current account deficit, forecast to fall as a proportion of GDP,remained broadly unchanged in dollar terms during 1995-96. Current stability indollar terms reflects a rise in the net income deficit offset by an improvementin net export volumes and terms of trade. Australia-US Bilateral TradeThe trading relationship between Australia and the United States traces itsorigins to early last century when American whaling and sealing vessels firstput into Australian ports during their Pacific voyages. The first Americanvessel to dock in Sydney Harbor, the Philadelphia in 1792, brought a cargo ofbeef, pitch, tobacco and rum that was welcomed by the early settlers. Over the years, trade between the two countries has flourished, but the balanceof trade has always favored the United States.
The balance of trade has beenrunning at a ratio of two to one in favor of the US since the mid-1960s, but isfast approaching the three to one mark. In fiscal year 1993-94 (July 1-June 30),the trade deficit was $A8,942 million, up from $A8,063 million in 1992-93 and$A6,522 million in 1991-92. Imports from the United States to Australia grew 7. 2 percent from 1992-93 to1993-94. In 1993-94 the US exported a total value of $A14,016 to Australia.
Exports from Australia to the US increased 2. 6 percent from 1992-93 to 1993-94. In 1993-94 Australia sent $A5,074 million worth of exports to the US. From the US to AustraliaThe US is Australia’s largest source of imports representing over 20 percent ofthe total Australian market. Manufactured goods make up the majority of USexports to Australia, growing from 84. 8 percent in 1988-89 to 90.
4 percent in1992-93. Principal imports from the US to Australia in 1993-94 included:Computers ($A1,060 million) Aircraft and equipment ($A891 million) Parts andaccessories for computers and office equipment ($A739 million) Measuring,checking and controlling equipment ($A527 million) Internal combustion engines($A421 million)From Australia to the USAustralia has always been reliant on trade. In the past ten years, the intensityof its trade has increased, and the composition and direction have changednoticeably. Traditionally, Australia’s exports have been sold in the US, Japanand the industrialised nations of Europe. In recent years, however, trade to theindustrialised countries has grown modestly relative to trade directed at theindustrialising countries of Asia. Between 1988 and 1992 Australian exports toAsian markets grew from $US17.
7 billion to $US25. 7 billion, an increase of 45per cent in five years. Along with the change in the direction of trade has been a transformation in thecomposition of trade which is evident in exports to the US. The largest area ofAustralian export growth to the US is no longer in the traditional area ofprimary products, such as foods, minerals and fuels, but is now in manufacturedgoods. While total exports to the US fell slightly between 1989-90 and 1993-94,manufactured exports rose strongly, particularly Elaborately TransformedManufactured goods which increased at an average annual rate of 11 percent. Exports of electrical machinery and appliances to the US increased from $A37.
2million in 1989-90 to $A115. 2 million in 1993-94. Over the same five year period,exports of parts and accessories for office equipment and computers grew from$A87. 6 million to $A306.
1 million. Principal exports to the US from Australia in 1993-94 included:Meat of bovine animals ($A1,004 million) Passenger motor vehicles ($A151million) Aircraft and associated equipment, spacecraft, satellites and parts($A259 million) Parts and accessories for computers and office equipment ($A306million) Wool and animal hair ($A167 million)Prospects for Future TradeAlthough fundamentally strong, the trading relationship between Australia andthe United States is not always smooth. There are long-standing concerns overaccess to US markets, particularly for key Australian agricultural products. Since the US introduced quotas on sugar imports, Australian sugar exports to theUS have dropped 15 percent. Access to the US market for Australian beef is atits lowest level since 1983 as a result of the Meat Import Law.
Australia isalso concerned over the impact of US agricultural export subsidies on Australianexports to third countries, particularly for wheat, barley, malt and dairyproducts. Removal of US trade barriers and trade-distorting practices is not only in theinterest of Australian exporters, but also recent studies have identifiedsubstantial benefits to US industry and consumers from such action. A report bythe United States International Trade Commission, released in November 1993,concluded that simultaneous US liberalization of significant US importrestraints would result in a net economic gain of $US19 billion to the USeconomy. Consistent with the large trade and economic relationship between Australia andthe US, both countries are in continual contact. The trade policies of bothparties are well known to the other and contentious issues have usually beenaired through Bilateral Agricultural Trade Consultations (held biannually) andthe annual Ministerial level Trade and Investment Council which had itsinaugural meeting in June 1993.
Over the last decade, Australia has taken substantial steps to open the nation’seconomy through micro-economic reforms and significant tariff reductions. Whilesome had worried that freer trade would hurt Australian business, in fact overthe past ten years, while the effective rate of assistance to Australianmanufacturing has fallen around 50 percent, Australian manufactured exports haveincreased by 23 percent. Australia has worked closely with the US in multilateral forums to address tradeliberalisation and economic issues, notably the Uruguay Round of GATT tradenegotiations and through the Asia Pacific Economic Cooperation (APEC) process. Trade plays a vital role in the economic well-being of both the US and Australia. While the nations’ economies are very different in scale, both rely heavily ontrade to fuel economic growth.
Australia and the US are committed toliberalising trade and instituting the most efficient system of global traderules. The United States is Australia’s second largest trading partner. Total tradebetween the US and Australia grew by 4. 2 percent from 1992 to 1993 to $A19. 1billion and prospects for continued growth are strong.
With regard for eachother’s interests and recognition of the benefits of liberalised trade, there isscope for further significant trade expansion and still closer economic tiesbetween the United States and Australia.Trade Highlights of 1993-94Overall merchandise tradeThe growth in current dollar merchandise trade slowed during 1993-94 -exports increased by just over six per cent while imports grew by over eight percent; In real terms, export growth outstripped the increase in imports – 8.4 percent for exports and 8.0 per cent for imports;Australia recorded its fourth consecutive annual trade surplus – $A141million; however, this was down by over $A1 billion on the 1992-93 level; TheAsia Pacific Economic Co-operation (APEC) group remained Australia’s majorregional market, accounting for almost three-quarters of merchandise trade.ExportsJapan was Australia’s largest export market, taking almost a quarter oftotal merchandise exports;Exports to the Asian region overall grew by almost seven per cent to $A41billion;Elaborately Transformed Manufactures (ETMs) exports grew 14 per cent toalmost$A14 billion – they now account for 20 per cent of all merchandise exports;Despite a five per cent fall in export earnings, coal remained Australia’slargest commodity export;Exports of computers and office machinery, parts and accessories increasedin aggregate by 30 per cent to almost $A1 billion – assembled computer exportsgrew by over 60 per cent during the year;The value of wool exports held steady during 1993-94 – a five per centincrease in volume was offset by lower average prices (although prices recoveredduring the second half of the year);There were significant falls in exports of both crude and refined petroleumoil;The growth in wine exports typifies the increasing diversity of Australia’sexport base – they have increased over the last decade at an annual trend rateof over 40 per cent;The latest Australian Bureau of Statistics (ABS) Manufacturing Surveyrevealed that exporting manufacturers were performing significantly better
