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at exchange rate movements. It is active in “smoothing and testing” foreign
exchange rates in order to provide a generally stable environment for
fundamental economic adjustment policies, and intervenes occasionally to combat
speculative attacks on the Australian dollar.
Australia does not have major foreign exchange controls beyond requiring Reserve
Bank approval if more than A$5,000 (US $3,650) in cash is to be taken out of
Australia at one time, or A$50,000 (US $36,500) in any form in one year. The
purpose is to control tax evasion and money laundering. If the Reserve Bank is
satisfied that there are no liens against the money, authorization to take large
sums out of the country is automatic. The regulation does not affect U.S. trade.
3. Structural Policies
Pursuing a goal of a globally competitive economy, the Australian government is
continuing a program of economic reform begun in the 1980s that includes an
accelerated timetable for the reduction of protection and micro-economic reform.
Initially broad in scope, the Australian government’s program is now focusing on
industry-by-industry, micro-economic changes designed to compel businesses to
become more competitive.
The strategy has three principal premises: protection must be reduced; the pace
of reform needs to be accelerated; and industry must learn to do without high
levels of protection.
Towards these ends, a phased program to cut tariffs by an average of about 70
percent was begun July 1, 1988, to be completed on June 30, 1996. Specifically,
in approximately equal phases, except for textiles, clothing, footwear and motor
vehicles, all tariffs will be reduced to 5 percent. Along with these measures,
some of the few manufactured products still receiving bounties (production
subsidies) will have those benefits reduced each year until the bounties expire.
The Uruguay Round agreements will force faster-than-planned tariff reductions
in only a small number of cases.
As noted in Section five (below), local content requirements on television
advertising and programming and certain government procurement practices may
have adverse effects on U.S. exporters and service industries.
4. Debt Management Policies
Australia’s gross external public debt now exceeds US $67.7 billion, or 23.5
percent of GDP. That figure represents 46 percent of Australia’s gross external
debt; the remaining 54 percent is owed by the private sector. Gross interest
payments on public debt totaled US $4.0 billion in AFY 1993/94, representing 6.7
percent of exports of goods and services. Private sector debt service totaled
US $4.0 billion, an amount equal to another 6.7 percent of export earnings. On
an overall basis, therefore, Australia’s debt service ratio was 13.4 percent,
down substantially from AFY 1992/93’s 14.9 percent. Falling international
interest rates caused the drop in the debt service ratio. Standard and Poor’s
general credit rating for Australia remained AA during 1994.
In the past 10 years, the intensity of Australia’s trade has increased, and the
composition and direction have changed noticeably. Part of the shift in the
pattern of trade, especially since the late 1980s, has reflected cyclical
influences such as subdued demand domestically and among Australia’s OECD
trading partners. But much of the shift is structural and has been underpinned
by policy measures which have opened Australia to more international competition.
The structural shift in the pattern of trade can be expected to continue and
accelerate. 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. The
constant-price ratio has risen by about seven percentage points, reflecting
sturdy growth in export volumes. The current price ratio has recorded a more
modest rise, largely reflecting recent depressed commodity prices.
Composition of Trade
Australia’s resource endowments and efficient farming, pastoral and mining
practices have given it a clear competitive advantage in primary production. A
major share of export revenue depends on sales of primary products and will
continue to do so. But commodity prices fluctuate widely and have shown a
falling trend relative to manufacturing and services. Thus, the Federal
Government sees benefit in diversifying Australia’s composition of exports, and
in particular increasing its exports of services and high-value-added
Australia still runs a significant deficit on its trade in services. But in the
past 10 years, its services exports have grown more strongly than merchandise
exports. By 1992-93, services exports had risen to about 3.3 times their 1982-83
value, whereas merchandise exports had risen to about 2.9 times their 1982-83
value. If these trends continue, the services deficit will be eliminated in a
few years .
The broad balances in Australia’s merchandise trade reflect the traditional
pattern – large surpluses on trade in primary products and large deficits on
trade 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 merchandise
exports; by 1992-93 their share had risen to a little over 29 per cent – the
corresponding share for ETM exports had risen from 12 per cent to almost 20 per
cent during the same period. Australia’s performance in increasing its ETM
exports compares favourably with that of other developed countries.
Traditionally, Australia’s exports have been dominated by large enterprises or
by marketing bodies that pool the output of primary producers. In recent years,
however, small and medium-sized enterprises have achieved significant exports of
manufactures, and it appears likely that such enterprises will be a major source
of export growth through the late 1990s and beyond.
After recording an annual average inflation rate of 8.25 per cent throughout the
1980s, the annual rate fell to 0.3 per cent in the December quarter of 1992. At
1.9 per cent in the September quarter of 1995, the underlying inflation rate was
below that of most of Australia’s major trading partners.
Continued wage restraint, improved productivity, increased competitive pressures
and a broadly based decline in inflationary expectations have been important
influences, and have provided a significant stimulus to Australia’s
Balance of payments
Australia has long maintained a position as a net capital importer, drawing on
foreign savings to allow faster development of domestic resources. As a
consequence, Australia has typically recorded a deficit in the current account.
The current account deficit in 1994-95 was $27 billion: six per cent of Gross
Domestic Product (GDP). The current account deficit improved in the early 1990s,
largely reflecting an improvement in the balance of merchandise trade, a lower
net services deficit and lower net income payments overseas.
The current account deficit has widened as imports, particularly of capital
goods, have increased in response to the strengthening domestic economic
activity. The current account deficit, forecast to fall as a proportion of GDP,
remained broadly unchanged in dollar terms during 1995-96. Current stability in
dollar terms reflects a rise in the net income deficit offset by an improvement
in net export volumes and terms of trade.
Australia-US Bilateral Trade
The trading relationship between Australia and the United States traces its
origins to early last century when American whaling and sealing vessels first
put into Australian ports during their Pacific voyages. The first American
vessel to dock in Sydney Harbor, the Philadelphia in 1792, brought a cargo of
beef, pitch, tobacco and rum that was welcomed by the early settlers.
Over the years, trade between the two countries has flourished, but the balance
of trade has always favored the United States. The balance of trade has been
running at a ratio of two to one in favor of the US since the mid-1960s, but is
fast 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 to
1993-94. 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 $A5,074 million worth of exports to the US.
From the US to Australia
The US is Australia’s largest source of imports representing over 20 percent of
the total Australian market. Manufactured goods make up the majority of US
exports to Australia, growing from 84.8 percent in 1988-89 to 90.4 percent in
Principal imports from the US to Australia in 1993-94 included:
Computers ($A1,060 million) Aircraft and equipment ($A891 million) Parts and
accessories for computers and office equipment ($A739 million) Measuring,
checking and controlling equipment ($A527 million) Internal combustion engines
From Australia to the US
Australia has always been reliant on trade. In the past ten years, the intensity
of its trade has increased, and the composition and direction have changed
noticeably. Traditionally, Australia’s exports have been sold in the US, Japan
and the industrialised nations of Europe. In recent years, however, trade to the
industrialised countries has grown modestly relative to trade directed at the
industrialising countries of Asia. Between 1988 and 1992 Australian exports to
Asian markets grew from $US17.7 billion to $US25.7 billion, an increase of 45
per cent in five years.
Along with the change in the direction of trade has been a transformation in the
composition of trade which is evident in exports to the US. The largest area of
Australian export growth to the US is no longer in the traditional area of
primary products, such as foods, minerals and fuels, but is now in manufactured
While total exports to the US fell slightly between 1989-90 and 1993-94,
manufactured exports rose strongly, particularly Elaborately Transformed
Manufactured goods which increased at an average annual rate of 11 percent.
Exports of electrical machinery and appliances to the US increased from $A37.2
million 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 ($A151
million) Aircraft and associated equipment, spacecraft, satellites and parts
($A259 million) Parts and accessories for computers and office equipment ($A306
million) Wool and animal hair ($A167 million)
Prospects for Future Trade
Although fundamentally strong, the trading relationship between Australia and
the United States is not always smooth. There are long-standing concerns over
access to US markets, particularly for key Australian agricultural products.
Since the US introduced quotas on sugar imports, Australian sugar exports to the
US have dropped 15 percent. Access to the US market for Australian beef is at
its lowest level since 1983 as a result of the Meat Import Law. Australia is
also concerned over the impact of US agricultural export subsidies on Australian
exports to third countries, particularly for wheat, barley, malt and dairy
Removal of US trade barriers and trade-distorting practices is not only in the
interest of Australian exporters, but also recent studies have identified
substantial benefits to US industry and consumers from such action. A report by
the United States International Trade Commission, released in November 1993,
concluded that simultaneous US liberalization of significant US import
restraints would result in a net economic gain of $US19 billion to the US
Consistent with the large trade and economic relationship between Australia and
the US, both countries are in continual contact. The trade policies of both
parties are well known to the other and contentious issues have usually been
aired through Bilateral Agricultural Trade Consultations (held biannually) and
the annual Ministerial level Trade and Investment Council which had its
inaugural meeting in June 1993.
Over the last decade, Australia has taken substantial steps to open the nation’s
economy through micro-economic reforms and significant tariff reductions. While
some had worried that freer trade would hurt Australian business, in fact over
the past ten years, while the effective rate of assistance to Australian
manufacturing has fallen around 50 percent, Australian manufactured exports have
increased by 23 percent.
Australia has worked closely with the US in multilateral forums to address trade
liberalisation and economic issues, notably the Uruguay Round of GATT trade
negotiations 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 on
trade to fuel economic growth. Australia and the US are committed to
liberalising trade and instituting the most efficient system of global trade
The United States is Australia’s second largest trading partner. Total trade
between the US and Australia grew by 4.2 percent from 1992 to 1993 to $A19.1
billion and prospects for continued growth are strong. With regard for each
other’s interests and recognition of the benefits of liberalised trade, there is
scope for further significant trade expansion and still closer economic ties
between the United States and Australia.
Trade Highlights of 1993-94
Overall merchandise trade
The growth in current dollar merchandise trade slowed during 1993-94 -
exports increased by just over six per cent while imports grew by over eight per
cent; In real terms, export growth outstripped the increase in imports – 8.4 per
cent for exports and 8.0 per cent for imports;
Australia recorded its fourth consecutive annual trade surplus – $A141
million; however, this was down by over $A1 billion on the 1992-93 level; The
Asia Pacific Economic Co-operation (APEC) group remained Australia’s major
regional market, accounting for almost three-quarters of merchandise trade.
Japan was Australia’s largest export market, taking almost a quarter of
total merchandise exports;
Exports to the Asian region overall grew by almost seven per cent to $A41
Elaborately Transformed Manufactures (ETMs) exports grew 14 per cent to
$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’s
largest commodity export;
Exports of computers and office machinery, parts and accessories increased
in aggregate by 30 per cent to almost $A1 billion – assembled computer exports
grew by over 60 per cent during the year;
The value of wool exports held steady during 1993-94 – a five per cent
increase in volume was offset by lower average prices (although prices recovered
during the second half of the year);
There were significant falls in exports of both crude and refined petroleum
The growth in wine exports typifies the increasing diversity of Australia’s
export base – they have increased over the last decade at an annual trend rate
of over 40 per cent;
The latest Australian Bureau of Statistics (ABS) Manufacturing Survey
revealed that exporting manufacturers were performing significantly better
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