TRADE MATTERS 2012 Australia – trading with the world

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Ship in portAustralia is a great trading nation with an open, diverse and resilient economy. Australia is a major exporter of minerals and fuels, including iron ore and coal. We export many other goods and services - such as education and travel, beef and wheat, pharmaceuticals and cars. Imports provide Australians with access to a wide range of competitively-priced products and services from around the world. Imports are also used by Australian business as inputs for the production of new goods and services.

About Australia

Australia is a stable, democratic nation in the fastest growing region of the world. We have strong trade and economic links with Asia-Pacific countries and we are well placed to take advantage of the growing opportunities in the region.

Australia has a strong financial system, low unemployment and low public debt. We have a highly-skilled workforce. Australia has an export-oriented economy, with a strong focus on minerals and energy, premium quality agricultural and services products, innovation and creativity. In 2011, the value of Australia's trade with the world totalled more than $600 billion.

Why Australia trades

Five principles guiding Australia's trade policy

Australia's Minister for Trade and Competitiveness, Dr Craig Emerson, released a statement on Australia's trade policy in April 2011. The statement presented five principles to guide our trade policy:

Unilateralism Ongoing, trade-related economic reform should be pursued in Australia without waiting for other countries to reform their trade policies.

Non-discrimination Reductions in tariffs offered to one country should be offered to all others.

Separation Foreign policy considerations should not be entangled with trade policy.

Transparency The public should be kept closely informed of the nature and progress of international trade negotiations.

Indivisibility of trade policy and economic reform Trade policy and microeconomic policy are as one; the best trade policy is domestic economic reform.

What are tariffs?

A tariff is a tax imposed on an imported good. The additional charge is passed on to the consumer, increasing the cost of imported goods. These taxes keep the price of imported products artificially high, giving locally-produced goods a price advantage. They are a barrier to free trade.

Trade provides numerous benefits but sometimes these are not well understood.

MYTH: With all the global financial uncertainty, Australia should close the economy to minimise external risks.

FACT: Protectionism itself is the biggest threat to global economic recovery. During the Great Depression of the 1930s, some economies thought limiting imports to protect their key industries would help them recover. Unfortunately, global trade slowed dramatically as a consequence. Trade fosters economic development and creates jobs. Increasing – not decreasing – trade is the best way to achieve global economic recovery.

MYTH: As a food-producing nation, Australia shouldn't import foreign produce.

FACT: Australia is a leading agricultural producer, and exports around two-thirds of total production to the world. Australia actively seeks to lower agricultural trade barriers, which improves Australia's opportunities to export. Food imports provide Australian consumers with greater choice, including food which we don't produce.

MYTH: Imports will bring in plant and animal diseases.

FACT: The Government is committed to maintaining Australia's quarantine standards. Australia maintains robust, science-based quarantine requirements to protect human and animal health and our unique flora and fauna. Australia exports about two-thirds of our total farm production and we expect other countries not to use their quarantine requirements as barriers to our exports. For that reason we must also apply rules at our own borders, consistent with our international obligations.

MYTH: Australia doesn't get anything from Free Trade Agreements (FTAs).

FACT: Australia's FTAs provide the framework for increased trade and investment with our major trading partners, helping to bring money into our economy and provide jobs. For example, the Australia-New Zealand Closer Economic Relations Trade Agreement removes all tariff charges on goods trade across the Tasman. Streamlined import/export processes have also facilitated trade and reduced costs to business. Reducing barriers to services trade is a key part of FTAs, such as the Singapore-Australia Free Trade Agreement, which entered into force in 2003. Services now account for 33 per cent of Australia's exports to Singapore, compared with 16 per cent of Australia's total exports to the world.

MYTH: Trade liberalisation harms our local manufacturers.

FACT: Australia has become a more open, export-oriented economy over the past 30 years with the floating of the dollar and the reduction of tariffs and industry protection. Over this period manufacturing output rose by an average of 1.5 per cent per year and the volume of manufacturing exports rose each year by an average of 6.7 per cent. The Australian manufacturing sector has also shifted up the value-added chain over recent decades. Australia's top manufacturing exports now include high value-added, niche products such as pharmaceuticals, professional scientific instruments and specialised machinery. This is consistent with the Government's commitment to a high-skill, high-wage future for manufacturing.

MYTH: Imports are bad for our economy and local businesses.

FACT: Imports improve Australian living standards. They keep prices competitive and provide a wider variety of goods and services for consumers to choose from, and for Australian businesses to use as components of new goods. Imports also encourage Australian businesses to be innovative and efficient.

MYTH: Trade liberalisation puts local jobs at risk.

FACT: Trade creates well-paid jobs. Studies find exporters are more likely to pay higher wages, and that increasing a country's level of exposure to trade leads to higher levels of economic output over time. In Australia, one in five jobs is now trade-related, that's over 2 million positions. Trade liberalisation improves the competitiveness of Australian businesses and supports a high-wage future for Australian workers. The Australian Government is also helping by investing in skills, education and infrastructure, and improving regulation.

MYTH: Foreign investment is against the national interest.

FACT: Australia welcomes foreign investment because it ensures our continued economic growth and prosperity. Foreign capital has allowed the Australian people to enjoy higher rates of economic growth, employment and a higher standard of living than could have been achieved through domestic savings alone. Foreign investors have helped to establish new industries in Australia, created employment, developed skills and introduced new technologies. It's also true that many foreign owned enterprises are joint ventures between Australian and overseas interests. Australia also benefits from investing overseas.

What is a Free Trade Agreement?

A Free Trade Agreement (FTA) is negotiated between two or more countries. Under an FTA, countries improve access to each other's markets and lower barriers to trade. FTAs can also liberalise services trade, encourage investment, enhance economic cooperation, protect intellectual property and grant access to government procurement.

Multilateral trade liberalisation and reform remains the Government's trade policy priority, but Australia is also building a network of bilateral and regional FTAs to advance our trade interests.

The Australian Government pursues high-quality, comprehensive FTAs with our key trading partners where they offer net benefits to Australia, are World Trade Organization-consistent, and support the global trade system.

Australia is a party to six FTAs, which entered into force in the following years:

Australia concluded an FTA with Malaysia in May 2012. Entry into force is subject to domestic approval processes.

Australia is undertaking FTA negotiations with:

China, The Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates), India, Indonesia, Japan, Republic of Korea and the Trans-Pacific Partnership (Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, Vietnam).

Trade and Australia's mining and energy sectors

Trade has fuelled a rapid expansion of Australia's mining and energy industries over the last decade. These activities have created jobs, attracted investment, generated economic growth, and helped protect Australia from global economic shocks. Australia has benefited from its abundance of resources, stable governance, and a sharp rise in the demand for commodities over the past decade.

At the end of 2011, export revenue from mineral and energy commodities accounted for 60 per cent of Australia's total export dollars, with mining contributing 11 per cent to Australia's GDP. More than 220,000 Australians were employed in mining in 2011 - an increase of 183 per cent in the last 10 years.

Demand from Asia

The main driver of demand for Australia's commodities has been the rapid urbanisation and industrialisation of emerging economies in Asia, particularly China and India. Intensified steel making in Asian countries, as well as higher consumption of energy, substantially drove up commodities prices in the 2000s. Between 2003 and 2011, global prices for Australia's resource exports (in US dollar terms) increased by more than 300 per cent. Australia's iron ore and coal industries, which provide the principal ingredients in steel production, benefited considerably. In the past five years these activities yielded an average annual growth rate of 36 per cent for iron ore and 17 per cent for coal.

In the decade to 2011 strong investment in mining and energy has been vital to increasing productive capacity, which has enabled Australia to meet rising overseas commodities demand, and boosted spending in the domestic economy. The liquefied natural gas (LNG) industry, in particular, has attracted large amounts of investment. This will help position Australia as a global LNG supplier and, most likely, secure strong export receipts well into the future.

Information and contacts

Department of Foreign Affairs and Trade
Advancing Australia's interests overseas
www.dfat.gov.au/trade

Austrade
Information for new and existing exporters
www.austrade.gov.au
13 28 78

Australia's Free Trade Agreements
www.fta.gov.au

Australian Government Department of Foreign Affairs and Trade