Australia's Trade Policy

The Australian Government's ambitious trade policy is geared towards increasing economic activity, creating jobs and getting a fair deal for Australia in the international marketplace. This all adds up to more jobs, more choice for consumers, and a higher standard of living for all Australians.

The Minister for Trade in conjunction with the Department of Foreign Affairs and Trade, is responsible for negotiating with foreign Governments to ensure better trade conditions for Australian products. The Government pursues this goal at every level:

Multilaterally through the World Trade Organization (WTO) by negotiating trade agreements which provide the legal ground-rules for international trade
Regionally through Asia Pacific Economic Cooperation (APEC) and other international fora by strengthening regional trade links and pursuing common trade and economic goals
Bilaterally through the negotiation of free trade agreements, such as with Singapore, Thailand and the United States that deliver substantial gains to Australia and which cannot be achieved in a similar timeframe elsewhere. We also work to expand markets and address market barriers in a range of countries and sectors , including Japan and China.
The Government places a high priority on consultation with business and the community, to ensure that the trade policy objectives developed by the Government sufficiently reflect the views, concerns and ambitions of the Australian public.

The Department provides services to Australian business to access overseas markets in coordination with Austrade. These include databases of information on key markets and sectors. We also provide specialised student kits on trade policy.

Source: Government of Australia, Department of Foreign Affairs

Australian merchandise trade, 2004-05:
Exports (A$m): 126,703
Imports (A$m): 149,519
Total trade (exports + imports) (A$m): 276,222
Merchandise trade deficit (A$m): 22,816

Australia's trade in services, 2004:
Exports of services (A$m): 34,457
Imports of services (A$m): 35,578
Services trade deficit (A$m): 1,121

Australia's investment, as at 30 June 2005:
Level of Australian investment abroad (A$m): 590,365
Level of foreign investment in Australia (A$m): 1,107,192


Source: Department of Foreign Affairs and Trade, Australia

Exports of goods and services

Based on DFAT’s Trade Exports Classification (TREC), total Australian merchandise exports comprised 56 per cent Primary products, 9 per cent Simply Transformed Manufactures (STMs), 22 per cent Elaborately Transformed Manufactures (ETMs) and 13 per cent other merchandise exports. The overall composition of Australia's merchandise
exports has been similar since 1998.

Major Australian Exports, 2004-2005 (A$ million)
Coal :17,116
Iron ore: 8,079
Crude petroleum: 5,696
Non-monetary gold: 5,642
Bovine meat: 4,880

Australia's main merchandise export destinations, 2004-05
Japan: 19.7%
China: 10.2%
Republic of Korea: 7.7%
United States: 7.4%
New Zealand: 7.2%

Source: Department of Foreign Affairs and Trade, Australia

Imports of goods and services

Australia’s merchandise imports (based on DFAT’s TREC classification) have historically been dominated by ETMs. Other components imported into Australia comprise Primary products, STMs, ETMs and Other merchandise imports.

Major Australian imports, 2004-05 (A$m):
Passenger motor vehicles: 11,597
Crude petroleum :9,704
Computers: 5,791
Medicaments (incl. veterinary): 5,719
Telecommunications equipment: 5,031

Australia's main merchandise import sources, 2004-05:
United States: 14.2%
China: 13.3%
Japan: 11.5%
Germany: 5.8%
Singapore: 4.9%

Source: Department of Foreign Affairs and Trade, Australia

BALANCE OF PAYMENTS – DECEMBER QUARTER 2004

Data released this morning by the Australian Bureau of Statistics show that Australia’s current account deficit (CAD) for the December quarter 2004 was $15.2 billion reflecting a widening of both the net income deficit and the trade balance.

The net income deficit increased by $758 million to $8.2 billion, driven by higher profits earned by foreign-owned Australian based companies, consistent with strong growth in profits across the economy. The trade deficit rose by $180 million to $7.0 billion, with solid export growth offset by continued strong growth in import volumes.

Export volumes grew by 1.3 per cent in the December quarter, mainly reflecting growth in Australia’s exports of resources and manufactured goods. Exports of other mineral fuels (mainly oil and LNG) grew by 11.7 per cent in the quarter, while exports of metal ores and coal grew by 6.1 and 4.8 per cent. Exports of rural commodities fell in the December quarter as late rains adversely affected the size of the 2004 grain harvest. Many rural areas are also still experiencing low sub-soil moisture levels after the drought, again keeping rural output down. Service exports fell by 1.2 per cent in the December quarter.

Import volumes grew by 3.2 per cent in the December quarter, to be 13.1 per cent higher through the year, consistent with the current strength of national income growth. Imports of capital goods are 19.4 per cent higher through the year, consistent with very strong growth in business investment. Consumption and service imports have also been growing solidly, supported in part by strong growth in household incomes in line with a falling unemployment rate and solid wages growth.

The terms of trade grew by 1.6 per cent in the December quarter to be 9.9 per cent higher through the year, and are now at their highest level since the September quarter 1974. The increase in the terms of trade over the past year mainly reflects strong increases in coal, iron ore and base metal prices.

Australia’s net foreign debt was $422 billion (current prices) in the December quarter, an estimated 51 per cent of GDP. The general government share of Australia’s net foreign debt has fallen sharply in recent years, accounting for only 5.0 per cent of total net foreign debt in the December quarter – well below the 17.2 per cent share in 1996. With the debt servicing ratio currently at 9.3 per cent of export income, Australia’s ability to service its net foreign debt is very strong, and certainly much stronger than in the early 1990s when the debt servicing ratio hit a peak of 20 per cent of export income.

While Australia’s export volumes rose in the December quarter, export growth over the past year has been flat and lower than is typical for this stage of the world economic cycle. In part, this is due to the high level of the exchange rate, which in trade weighted terms was more than 8 per cent higher than the post-float average over the December quarter. Furthermore, while strong growth in the world economy, particularly in the United States and China, has created a surge in demand for mineral and energy commodities, long lead times in the planning and construction of new mining projects have meant that supply increases have been slow. Combined with rail and port bottlenecks, which may reflect inadequate investment by state governments, this has resulted in only moderate growth in the volumes of our commodity exports over recent quarters. In value terms, however, Australia has benefited from a sharp increase in mineral prices on world markets.

Over the past three years, Australia’s mining industry has invested around $26.5 billion in the expansion of productive capacity. As this new capacity comes on line, including over 2005 06, it is likely that Australia’s exports of mineral commodities will increase significantly. Combined with easing import growth, this should see a narrowing of Australia’s current account deficit over the period ahead. Moreover, increases in export prices coming into effect in April 2005 should see the CAD narrow further, consistent with forecasts released today by ABARE for 16 per cent growth in commodity export earnings in 2005-06.

In marked contrast to previous increases in the CAD, the current increase has occurred at a time of stability in Australia’s macroeconomic aggregates. The Government’s budget is in surplus, more than $70 billion of government debt has been repaid since March 1996, inflation and interest rates are exceptionally low by historical standards and the unemployment rate is at 30 year lows. It is nonetheless important to maintain a strong programme of economic reforms that will further strengthen the Australian economy and enhance the sustainability of economic growth.

Source: Commonwealth Treasurer, Press Release