Australia WT/TPR/S/244/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. Since its previous Trade Policy Review in 2007,  Australia, one of the most open economies in 
the world, has successfully weathered the global fi nancial crisis.  Followi ng a prolonged period of 
expansion, resulting from sound macroeconomic polic ies and structural reforms (of which trade 
liberalization, induced by an exceptionally high de gree of transparency, has long been an integral 
part) together with more favourable terms of trade,  the global crisis caused a slowdown in Australia's 
economic growth from 3.8% (2007/08) to 1.4% (200 8/09).  However, the downturn has been milder 
than in most other advanced countries, with grow th rebounding to an estimated 2.3% (Table I.1).  
This milder slowdown and s ubsequent rebound were due to, inter alia , strong demand, especially 
from China, for commodity exports, a flexible exchange rate, a h ealthy banking sector, and a timely 
and significant policy response to the crisis, invol ving the $A 42 billion Nation Building and Jobs 
Plan (Box I.1).1  Although Australia is still considered one  of the most competitive economies in the 
world2, it has experienced a marked decline in multi-f actor productivity (MFP) growth, which is a key 
determinant of Australian enterprises' internationa l competitiveness and domes tic living standards in 
the longer term (Box I.2).  This slowdown in MFP gr owth is due mainly to special developments in 
three sectors:  agriculture;  mining;  and electricity, gas, and water (Chapter IV).3  Whereas inflation 
remained relatively stable, at around 3%, before dropping to 2.3% (2009/10), the unemployment rate 
rose gradually from 4.5% in 2006/07 to 5.5% in 2009/10.  Despite Australia's impressive human 
development performance, there has been a slight increase in income inequalit y (which the authorities 
attribute in large part to methodology changes).4  The changing patterns in international trade and 
foreign direct investment (FDI) reflect the risi ng importance of China as Australia's export market, 
and the fall in outward FDI to the United States owing to the global financial crisis and the 
appreciation of the Australian dollar. 
Table I.1 
Selected macroeconom ic indicators, 2005-10  
  2005/06 2006/07 2007/08 2008/09 2009/10 
Real GDP ($A million, 2008/09 prices) 1,150,644.0 1,191,655.0 1,237,320.0 1,255,241.0  1,283,799.0 
Real GDP (US$ million, 2008/09 prices) 860,02 0.1 936,938.7 1, 109,659.5 935,907. 7  1,133,594.5 
Current GDP at market price ($A million) 1,001,440.0 1,091,633.0 1,185,740.0 1,255,241.0  1,284,670.0 
Current GDP at market price (US$ million) 748, 501.3 858,296.4 1, 063,401.3 935,907. 7  1,134,363.6 
GDP per capita at current market price ($A) 48,752.0 52,303.0 55,771.0 57,770.0  57,965.0 
GDP per capita at current market price (US$) 36,438.5 41,123.2 50,016.8 43,073.3  51,183.1 
National accounts  (% change)  
Real GDP (at 2008/09 prices) 3.1 3.6 3.8 1.4 2.3 
Consumption 2.8 4.2 4.4 0.8 2.0 
Private consumption 2.8 4.3 4.7 0.2 2.1 
Government consumption 2.5 3.7 3.2 2.8 1.8 
Table I.1 (cont'd) 
                                                      
1 IMF (2009a) and (2010a). 
2 In 2010, Australia ranked 5th (out of 58 countries) (12th in 2007) in the IMD World Competitiveness 
Yearbook .  Furthermore, in 2010 Australia ranked 15th (out of 133 countries) (19th out of 131 in 2007/08) in the 
WEF Global Competitiveness Index , in which Australia's most problematic factors included restrictive labour 
regulations and access to financing (IMD, 2010;  and WEF, 2010). 
3 Productivity Commission (2009c). 
4 In 2009, Australia ranked 2nd (out of 182 countries) in the UN Human Development Index (HDI) 
(UNDP, 2009).  According to Australian Bureau of Statis tics, the Gini coefficient rose from 0.314 (2006) to 
0.331 (2008). WT/TPR/S/244/Rev.1 Trade Policy Review 
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  2005/06 2006/07 2007/08 2008/09 2009/10 
Gross fixed capital formation 8.8 5.4 10.4 0.8 2.5 
Exports of goods and non-factor services 2.2 2.5 4.0 2.6 5.5 
Imports of goods and non-factor services 7.3 9.1 14.6 -3.3 5.3 
XGS/GDP (%) (at current market price) 19.5 19.7 19.7 22.7 19.8 
MGS/GDP (%) (at current market price) 21.1 20.9 21.8 22.1 20.2 
Unemployment rate (%)  5.0 4.5 4.2 4.9  5.5 
Labour participation rate (%) 64.6 65.1 65.5 65.5  65.4 
Productivitya      
Labour productivity 1.5 0.7 1.0 0.6  2.3 
Capital productivity -3.1 -2.4 -2.8 -4.5  -2.5 
Multi-factor productivity -0.6  -0.7 -0.7 -1.8  0.0 
Prices and interest rates  (%)  
Inflation (CPI, % change) 3.2 2.9 3.4 3.1 2.3 
90-day bank bill (end-period)  5.97 6.43 7. 80 3.20 4.89 
90-day bank bill (average-per iod) 5.68 6.33 7.30 4.79 4.04 
Government bond yield (end-period) 5.79 6.26 6.45 5.52 5.10 
Government bond yield (average-period) 5.39 5.80 6.17 5.02 5.50 
Exchange rate      
US$/$A (financial year average) 0.747 0.786 0.897 0.746  0.883 
Real effective exchange rate (% change) 2.0 3.5 8.9 -12.1 .. 
  (% of current GDP, unle ss otherwise indicated)  
General government fiscal balance      
Revenue 26.1 25.5 25.7 23.8  22.5 
Tax revenue 24.6 24.1 24.2 22.2  20.6 
Expenditure 24.2 23.7 23.7 25.9  26.1 
Net operating balance 1.9 1.8 2.0 -2.0  -3.6 
Commonwealth government debt -0.4 -2.7 -3.8 -1.3  3.3 
Saving and investment      
Gross national savings 22.5 22.6 23.3 23.9 -21.6 
Gross domestic investment 27.9 28.2 29.6 28.72 28.3 
Savings-investment gap -5.4 -5.5 -6.3 -4.2 -6.7 
External sector      
Current account balance  -5.4 -5.5 -6.3 -3.2 -4.3 
Net merchandise trade  -1.5 -1.2 -1.8 0.9 -0.2 
Merchandise exports 15.2 15.4 15.3 18.4 15.4 
Merchandise imports 16.7 16.6 17.1 17.5 15.7 
Services balance 0.0 0.1 -0.2 -0.3 -0.1 
Capital account 0.0 0.0 0.0 0.0 0.0 
Financial account 5.5 5.6 6.2 3.2 4.4 
Direct investment -0.6 1.1 2.5 1.4 1.3 
Terms of trade (2007/08=100) 88.9 94.8 100.0 108.3 107.2 
Merchandise exports (% change)b 20.2 10.2 7.6 27.6 -13.0 
Merchandise imports (% change)b 12.5 8.3 11.6 8.6 -7.4 
Service exports (% change)b 6.0 10.4 10.2 4.4 -0.2 
Service imports (% change)b 4.6 8.7 18.1 5.3 -4.8 
Table I.1 (cont'd) Australia WT/TPR/S/244/Rev.1 
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  2005/06 2006/07 2007/08 2008/09 2009/10 
Foreign exchange reserves ($A billion, end-period)c 60.6 77.0 32.8 48.0 33.4 
Foreign exchange reserves (US$ billion, end-period)c 45.31 65.4 29.4 35.8 28.5 
in months of imports of goods and non-factor 
services 3.4 4.0 1.5 2.1 1.5 
Net external debt ($A b illion) 494.9 539.6 600.4 624.3 671.9 
Net external debt (US$ b illion) 367.8 458.1 578.0 506.5 572.6 
Debt service ratiod 9.4 11.5 12.2 10.4 10.5 
.. Not available. 
a Labour productivity = GDP per unit of labour input;  capital pr oductivity = GDP per unit of cap ital services;  total factor 
productivity = GDP per combined unit of labour and capital.  
b  Growth rates on goods and services trade are based on Australian dollars. 
c Excluding gold, SDRs (Special Drawing Rights) and reserve positi on in the IMF.  Figures are taken from the Reserve Bank of 
Australia, as at 8 October 2010. 
d Net interest payments to exports of goods and services. 
Source :  Australian Bureau of Statistics online information;   and Reserve Bank of Australia online information. 
2. Despite Australia's sound macroeconomic ma nagement and relative economic strength, 
downside risks to the immediate economic outlook are posed by, inter alia,  the withdrawal of the 
economic stimulus package, global economic a nd financial fragility, as well as exposure to 
commodity prices, reliance on short-term external debt, and the high and growing  indebtedness of 
households.5  Long-term trends that will continue to  shape the economy include the continuing 
emergence of China and India6, a growing but ageing population, climate change, and technological 
change.  There is also concern about Australia's  growing dependence on mining, which may amplify 
the business cycle, as the economy will become more vulnerable to swings in its highly favourable 
terms of trade, which are forecast to improve by a further 17% in 2011 to around record levels.7  
One of the major economic challenges confronting Au stralia, with potential trade policy implications, 
is to formulate appropriate macroeconomic and stru ctural policies to facilitate adjustment to the 
effects of its improved terms of trade, owing to the boom and increased inward FDI in mining as well 
as the associated appreciation of the Australian dollar.  The latter is likely to reduce the 
competitiveness of import-competing activities and non-mining exports, unless productivity in these 
activities can be improved.  Clearly, structural adjustment by the non-mining economy will be required.  
 
                                                     
 
5 The authorities clarified that the risks are balanced by Australia's sound public finances, a strong and 
well regulated banking system, a flexible exchange ra te and product and labour markets, limited foreign 
exchange risk, and the fact that fore ign borrowing reflects increased investment  Furthermore, they explained 
that while national savings have persistently fallen shor t of domestic investment, the majority of increased 
investment over the past few years has occurred in the mining sector and is not directly linked to household 
indebtedness. 
6 According to the authorities, these countries are the key drivers of the shift of global strategic weight 
towards Asia, from which Australia is a key beneficiary.  According to the IMF, Australia's growing integration 
with emerging Asia underpins its favourable medium-term growth prospects;  however, it brings with it 
vulnerabilities to which policy will need to respond as shif ting resources to the mining sector without giving rise 
to inflationary pressures will be challenging.  The imp act on Australia's terms of trade from industrialization and 
urbanization in China and the rest of emerging Asia is e xpected to be long-lived and to remain more than 40% 
above the average for the 1990s (The Treasury, 2010c;  and IMF, 2010a). 
7 The term business cycle (or economic cycle) refers  to economy-wide fluctuations in production or 
economic activity over several months or years (IMF 2010a;  and The Treasury, 2010d). WT/TPR/S/244/Rev.1 Trade Policy Review 
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Box I.1:  The economic stimulus shield  
Australia's strong fiscal position in the wake of the gl obal financial crisis allowed for the launch of a range 
of fiscal stimulus measures, of which the largest wa s the two-year, $A 42 billi on Nation Building and Jobs 
Plan, announced in February 2009.  To help cushion the economy from the worst effects of the global 
recession and strengthen future economic growth, the Plan was aimed at building lasting infrastructure 
necessary for enhancing long-term productivity, and supporting jobs. 
The Plan funded or provided for:  
(a) the Building the Education Revolution programme, investing $A 16.2 billion in building and 
refurbishing primary and secondary school infrastructure and maintenance; 
(b) $A 5.9 billion to boost the number of social and defence-force houses by around 20,000 and to 
fast-track repairs and maintenance of existing social housing;  
(c) $A 1.7 billion for investment in higher and vocational education as well as trade training centres;   
(d) $A 800 million to enhance local community facilities and infrastructure; 
(e) $A 2.3 billion to improve regional road and rail infrastructure and safety, through repairs to regional 
roads and black spots, and the installation of boom gates at rail crossings; 
(f) an additional 30% tax deduction for small and general businesses buying eligible assets;  and 
(g) one-off cash tax bonus payments up to $A 900, to  eligible families, single workers, students, 
drought affected farmers, and others having earned less than $A 100,000 in 2007/08 and paid tax. 
These stimulus measures are being implemented broadly in line with planned timeframes.  By 
December 2009, it was estimated that 71% of the infrastructure stimulus  projects under the Nation Building 
– Economic Stimulus Plan were under construction, about 17% were completed, and over 60% of the 
budget of the Plan (i.e. $A 25.8 billion) had been used for targeted bonus payments, tax breaks, and 
medium-term infrastructure.  Accord ing to the Treasury the overall stimulus supported around 200,000 jobs. 
Without the stimulus plan, it is estimated that the economy would have contracted by 2% in 2008/09 and the 
unemployment rate would have risen to 8.25%, thus creating a vicious downward spiral in the economy and plunging Australia into recession. 
Source : Information provided by the Australian authorities;  Australian Government (2009), Nation 
Building Economic Stimulus Plan – Commonwealth Coordinator General's Progress Report to 
31 December 2009 .  Viewed at:  http://www.economicstimulusplan.gov.au/documents/pdf/ 
YearinfocusWEB4.pdf [1 October 2010];  and Australian Government online information.  Viewed at:  http://www.economicstimulusplan.gov.au/pages/theplan.aspx [1 October 2010]. 
 
Box I.2:  Productivity and economic reform:  from success to challenge 
Concerns about declining productivity growth and per capita income growth in the early 1980s provided an 
impetus to the wide ranging economic reforms begun in the mid-1980s and continued in the 1990s with the adoption of the National Competition Policy (NCP).  Th ese two waves of reform involved first the largely 
unilateral lowering of border protection, notably tariffs, and then behind-the-border reforms of infrastructure 
and labour markets.  The extent of economic reform in Australia is perhaps best illustrated by the drop in the effective rate of assistance for manufacturing from 25% to 5% over two decades or so.  The outcome 
was a surge in multi-factor productiv ity (MFP) growth to an average an nual rate of 2.3%, during the 
1993/94 to 1998/99 productivity cycle, more than d ouble the long-term average rate of 1.1%, propelling 
Australia's ranking from 12
th to 2nd amongst key OECD countries.  Improved MFP growth thus accounted 
for more than half of the 3.1% averag e annual growth rate of incomes during  the 1990s.  In the first cycle of 
this century to 2003/04, average annual MFP growth re turned to the long-term av erage of 1.3%.  However, 
in the current partially completed cycl e since then, MFP growth has fallen to an annual aver age of -0.2%.  
Given its importance in raising living standards in the longer term, this very significant slowdown in 
productivity growth has understandably been of concern.  
Box I.2 (cont'd) Australia WT/TPR/S/244/Rev.1 
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Some 70% of this recent rapid dec line in MFP growth can be attribut ed to specific developments in 
three sectors:  mining;  electricity, gas, and water;  and agriculture (Chapter IV).   As the special factors 
reducing productivity in these sectors wash through the production processes, and new investments begin to contribute to output, some recovery in MFP growth can be expected.   
However, the likely recovery in th ese sectors provides no grounds for complacency.  Improved productivity 
ultimately depends on the performance of individual firms and competitive pressures that result in more efficient firms and industries prevailing over others.  The main lessons from the unprecedented MFP growth 
of the 1990s were that broad, enabling reforms, together with the pervasive, competitively driven 
deployment of breakthroughs in information and communications technologies, provided exceptional opportunities to change production pr ocesses and re-design workplaces to  improve productivity.  In this 
regard, heightened market competition is crucial in encouraging cost reductions and product and process 
improvements, including through innovation and its diffusion.  
Australia's first two waves of reform can be seen as  mainly focused on incentives and market flexibility.  
Not all opportunities have been exhausted.  For example, competitive reforms in coastal shipping and 
aviation, significant transport inputs, offer the potential to stimulate innovation and thus productivity more widely.  Implementation of scheduled tariff reductions  for the automotive, textile, clothing and footwear 
industries can be expected to  deliver further net benefits.  By contrast, subsidies to these or other sectors are 
unlikely to yield commensurate gains.  Such support to investment or production tend to distort competition.  
While a case can be made for subsidies where market signals are inadequate, such measures need to be 
well-targeted to ensure that the public benefits excee d their costs.  Notwithstanding Australia's exemplary 
record concerning transparency, in cluding extensive use of cost-benefit analysis by the independent 
Productivity Commission, little of the nearly $A 17.5  billion of gross annual Commonwealth assistance to 
industry is regularly evaluated to determine wh ether such assistance yields value for money. 
While unfinished business remains in these and other areas concerning incentives and market flexibility, 
there is relatively more to be done in building capabilities in the human capital area.  This change in 
emphasis was reflected in the evolution and broadening of reform measures from the NCP to the 2005 "third wave" National Reform Agenda (NRA).  However, implementation of the NRA under the auspices of the 
Council of Australian Governments (COAG) Reform Council, which plans to achieve a seamless national 
economy, has been rather slow. 
Source: Productivity Commission (2009c), Australia's Productivity Performance , Submission to the House 
of Representatives Standing Committee on Economics, September.  Viewed at:  http://www.pc.gov. 
au/__data/assets/pdf_file/0005/91382/productivity-growth.pdf [3 August 2010].  
(2) RECENT ECONOMIC DEVELOPMENTS  
(i) Growth, incomes, and employment 
3. The Australian economy has weathered the global financial crisis relatively well.8  One of the 
main economic developments has been the boost in national income9 owing to the commodity price 
boom, which pushed the terms of trade to their highest level in more than half a century.10  If not 
temporary, the large improvement in terms of trad e, which could "possibly prove to be the largest 
external shock to ever hit the Australian economy"11, will likely have far-reaching implications for the 
pattern of growth and structure of the economy by necessitating a reallocation of resources.  Sectors 
                                                      
8 By 2009, Australia was the third fastest growing economy of the 33 IMF advanced economies;  one 
of three economies not to fall into t echnical recession;  and the economy with  the lowest level of Government 
debt (approximately 10% of GDP) (Australian Government, 2009a). 
9 GDP per capita in Purchasing Power Parity terms increased from US$36,357 in 2007 to US$39,230 in 
2009 according to World Bank data.  Viewed at:  http://databank.worldbank.org/ddp/home.do. 
10 IMF (2009a). 
11 The Australian , "Industry aid will spark rate rise, Ke n Henry warns", 23 November 2010.   WT/TPR/S/244/Rev.1 Trade Policy Review 
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whose output prices have risen, thus making them mo re profitable, will seek to expand by attracting 
inputs of labour and capital from less profitable sect ors whose output will decline as a share of GDP.  
Hence, one of the principal policy challenges faci ng the Government will be whether to help these 
sectors resist change or help them adjust to it.12  Clearly, both macroeconomic and structural policies 
have an important role in this regard. 
4. After rising steadily from 2001, real GDP growth slowed sharply to 1.4% in 2008/09 due to 
slowing business investment, related to declining commodity prices, tightening credit conditions in 
global capital markets, and slowing world growth (Table I.1).13  According to the IMF, real GDP 
growth is projected at 3-3.5% in 2010 and 2011, with private investment in mining and commodity 
exports taking over from public demand as the main dr iver of growth;  by contrast, the authorities 
forecast GDP growth of 3.25% over 2010 and 3.75%-4% over 2011 a nd 2012 underpinned, inter alia,  
by the positive prospects for mainly resource-relate d investment, strong growth in resource exports, 
and a gradual pick-up in business investment.14  According to the IMF, output will likely remain 
below potential for some years;  nevertheless, th e authorities predict that the economy will return to 
full capacity in 2011.15   
5. Since 2007, there have been minor changes in the sectoral pattern of Australia's GDP and 
employment, which remain dominated by services (T able I.2, Chapter IV);  the GDP share of 
manufacturing dropped from 10.3% in 2006/07 to 9.3% in 2009/10, while that of mining rose from 7.7% to a peak of 9.8% during the same period as resources flowed into the sector, driven by booming 
world prices for commodities and strong demand from emerging economies.  
Table I.2 
Basic economic indicators, 2005-10  
    2005/06 2006/07 2007/08 2008/09 2009/10 
  (Annual % change) 
GDP by economic activity at 2008/09 pricesa      
Agriculture, forestry and fishing 2.8 -15.3 6.9 17.6 -1.2 
Mining 1.9 8.5 2.0 2.6 6.2 
Manufacturing -0.3 1.9 4.0 -5.9 1.5 
Electricity, gas, water and wast e services 1.7 1.0 0.2 3.8 2.7 
Construction 8.2 5.5 7.0 3.0 0.5 
Services 3.4 4.0 3.9 1.8 2.3 
 Wholesale and retail trade 2.4 3.7 3.9 0.7 2.6 
 Accommodation and food services 2.8 1.6 -0.2 -3.2 -2.1 
 Transport, postal and warehousing 3.1 5.8 5.5 -1.2 2.4 
 Information media and telecomm unications 4.1 6.2 6.2 1.1 1.2 
 Financial and insurance services 6.0 10.4 8.2 0.1 3.0 
 Rental, hiring and real estate services 4.7 -5.2 -3.3 4.6 1.8 
 Professional, scientific and tec hnical services 2.5 0.7 3.3 3.9 3.8 
 Administrative and support services 2.5 5.0 5.9 -4.2 1.5 
 Public administration and safety 2.3 4.6 0.5 5.7 0.0 
 Education and training 1.5 1.8 2.1 3.0 2.6 
 Health care and social assistance 5.0 4.1 5.0 5.5 3.6 
Table I.2 (cont'd) 
                                                      
12 Reserve Bank of Australia (2010c). 
13 IMF (2009a). 
14 IMF (2010b);  Reserve Bank of Australia (2010b);  and IMF (2010a). 
15 The Treasury (2010c). Australia WT/TPR/S/244/Rev.1 
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    2005/06 2006/07 2007/08 2008/09 2009/10 
 Arts and recreation services 2.1 6.5 2.3 7.6 0.0 
 Other services -0.4 2.1 1.9 1.8 -1.1 
 Ownership of dwellings 3.9 2.5 3.0 2.7 2.9 
  (%) 
Share of sectors in GDP, current pricesb      
Agriculture, forestry and fishing 3.0 2.4 2.4 2.4 2.3 
Mining 7.2 7.7 7.6 9.8 8.4 
Manufacturing 10.8 10.3 10.1 9.3 9.3 
Electricity, gas and water 2.5 2.3 2.3 2.2 2.1 
Construction 7.2 7.6 7.7 7.7 7.9 
Services 69.3 69.7 69.9 68.7 70.0 
 Wholesale and retail trade 9.6 9.5 9.5 9.3 9.3 
 Accommodation and food services 2.6 2.5 2.4 2.3  2.3 
 Transport, postal and warehousing 5.2 5.5 5.4 5.1 5.2 
 Information media and telecomm unications 3.5 3.4 3.3 3.3 3.3 
 Financial and insurance services 10.0 11.0 11.7 10.9  10.6 
 Rental, hiring and real estate  services 3.1 3.1 3.1 2.8 2.7 
 Professional, scientific and tec hnical services 6.0 6.1 6.3 6.4 7.3 
 Administrative and support services 2.7 2.7 2.7 2.5 2.5 
 Public administration and safety 5.6 5.5 5.2 5.2 5.2 
 Education and training 4.6 4.5 4.3 4.3  4.4 
 Health care and social assistance 6.0 6.0 6.1 6.0  6.2 
 Arts and recreation services 0.9 0.9 0.9 0.8 0.8 
 Other services 2.1 1.9 1.8 1.8 1.8  
 Ownership of dwellings 7.3 7.1 7.3 7.8  8.4  
Share of sector in total employment      
Agriculture, forestry and fishing 3.5  3.4  3.3  3.3  3.3  
Mining 1.3  1.3  1.4  1.6  1.6  
Manufacturing 10.2   9.9  9.9  9.4  9.1  
Electricity, gas and water 1.1  1.0  1.1  1.3  1.2  
Construction 8.7  9.1  9.1  9.2  9.1  
Services 75.4  75.3  75.3  75.2  75.7  
 Wholesale and retail trade, 15.4  15.3  15.2  15.0  14.7  
 Accommodation and food services 6.7  6.7  6.6  6.6  6.8  
 Transport, postal and warehousing 5.0  5.0  5.2  5.5  5.2  
 Information media and tel ecommunications 2.4   2.4   2.2   2.1   1.9   
 Financial and insurance services 3.8  3.9  3.8  3.7  3.6  
 Rental, hiring and real estate serv ices 1.9  1.9  1.9  1.8  1.7  
 Professional, scientific and technical services 7.1  7.2  7.3  7.2  7.6  
 Administrative and support services 3.5  3.4  3.3  3.2  3.4 
 Public administration and safety 6.1  6.2  5.9  6.2  6.2   
 Education and training 7.4  7.2  7.4  7.4  7.5  
 Health care and social assistance 10.3  10.3  10.3  10.6  11.0  
 Arts and recreation services 1.8 1.7 1.8 1.9 1.8 
 Other services 4.1 4.0  4.3  4.2  4.1  
a Based on chain volume measures.  
b Percentage of gross value added at basic prices. 
Source : Australian Bureau of Statistics, Australian System of National Accounts, ABS Cat. No. 5204.0; and Labour Force, 
Australia, Detailed, Quarterl y, ABS Cat No. 6291.0.55.00B.  WT/TPR/S/244/Rev.1 Trade Policy Review 
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6. Despite the temporary economic stimulus package (Box I.1), unemployment and 
under-employment16 has followed an upward trend since Australia's previous Review (to 5.5% in 
2009/10) due to the effects of the global financ ial crisis, which made the economy run below 
capacity.17  According to the IMF, unemployment is e xpected to drop gradually to 5.1% in 2011.18  
The authorities consider that various forward-looking indicators continue to suggest solid growth in 
employment over the years ahead as the economy is expected to return to full capacity in 2011.19   
(ii) Prices 
7. During the review period, consumer price infla tion (CPI) slightly exceed ed the officially set 
target rates of 2%-3% (section (3)(i)), largely due to the effect of the currency depreciation and the 
higher tobacco excise (Chapter III), before modera ting to 2.3% in 2009/10 as a result of weaker 
demand growth, lower wage increases in 2009, and the appreciation of the exchange rate (Table I.1).20  
With the output gap forecast to close by mid-2011,  further increase in the tobacco excise, large 
increases in the prices of utilities, and inflationa ry pressures from the mining boom, inflation is 
projected to re-emerge at 3% over the next three years, the top of the target range.21   
(3) MAIN MACROECONOMIC POLICY DEVELOPMENTS  
(i) Monetary and exchange rate policy 
8. During the period under review, the Government endorsed the inflation target (2%-3% over 
the cycle) of the Reserve Bank of Australia (RBA ) and its independence in setting monetary policy.22  
As indicated above, CPI rates slightly exceeded target levels in 2007/08 and 2008/09.  To contain 
inflationary pressures in these years (and prior to th e onset of the global financial crisis), the RBA had 
progressively raised the official cash rate on several occasions.  Should the recovery unfold as 
expected, and downside risks dissipate, monetary policy will need to tighten further to contain 
inflation pressures generated by  the China-fuelled mining boom.23 
9. Australia has maintained its floating exchange ra te system, which tends to rise with the terms 
of trade, thereby reducing the prices of imports and thus domestic inflation, as well as facilitating the 
reallocation of resources.  However, foreign exch ange market operations may be undertaken by the 
RBA when the market threatens to become excessively volatile or when  the exchange rate is clearly 
                                                      
16 According to the Australian Bureau of Statistics (ABS), under-employment rose from 6.6% in 2006 
to 7.7% of the working population in 2009 (ABS online information, "1370.0 - Measures of Australia's Progress, 2010".  Viewed at:  http://www.abs.gov.au/ ausstats/abs@.nsf/Lookup/by%20Subject/1370.0~2010~ 
Chapter~Underemployment%20(4.3.3) [18 November 2010]. 
17 Unemployment has increased, but less so than in many other advanced countries.  As prior to the 
crisis the economy was at full capacity and it was hard to hire qualified and skilled workers, when the crisis 
came employers preferred to reduce the employees working hours rather than have recourse to widespread 
layouts;  thus, in 2008 while 200,000 full-time jobs were lost 180,000 part-time jobs were created, significantly 
cushioning the unemployment rate (The Treasury, 2009c). 
18 IMF (2010b). 
19 Reserve Bank of Australia (2010b);  and The Treasury (2010c). 
20 Reserve Bank of Australia (2010b). 
21 IMF (2010a) and (2010b). 
22 Reserve Bank of Australia online information.  Statement on the Conduct of Monetary Policy  by the 
Treasurer and the Governor of the Reserve Bank of Australia, 30 September 2010.  Viewed at:  
http://www.rba.gov.au/monetary-policy/framework/stm t-conduct-mp-5-30092010.html [1 October 2010]. 
23 IMF (2010a). Australia WT/TPR/S/244/Rev.1 
 Page 9 
 
 
inconsistent with underl ying economic fundamentals.24  These operations are invariably aimed at 
stabilizing market conditions rather than meeting ex change rate targets;  explanations of these 
interventions are set out in the RBA's Qu arterly Statements on Monetary Policy.  
10. The responsiveness of the exchange rate to co mmodity price fluctuations helped stabilize 
export incomes, while the hedging of currency risk  has minimized any negative impact on corporate 
or bank balance sheets.25  Following a period of steady appreciation, in 2008/09 the exchange rate 
against the U.S. dollar depreciated sharply (Table  I.1), driven by falling commodity prices, global 
uncertainty, and investors' search for safe ha ven assets, thus temporarily boosting exports and 
reducing imports.26  Since then it has started to appreciate again supported, inter alia,  by Australia's 
strong economic growth relative to other develope d economies, the increase in the RBA's cash rate, 
the record high terms of trade, the rebound in pr ices for iron ore and coal, strong business confidence, 
a low risk assessment of the sovereign finances in Australia, and the weakening of the U.S. dollar.27  
The Australian dollar is expected to remain high over the short term as these factors are not expected 
to dissipate quickly.  According to the IMF, by 2 010 the national currency was broadly in line with 
fundamentals but mildly overvalued;  this ove rvaluation could dissipate with the eventual 
normalization of interest rates in the United States and other advanced economies.28  The recent strong 
appreciation of the Australian dollar relative to the U.S. dollar was also presumably due in large part 
to interest rate differentials th at have stimulated carry-trade.  
(ii) Fiscal policy 
11. Following a period of continuous fiscal surpluses (about 2% of GDP), the Australian 
Government's fiscal position shifted to a deficit eq uivalent to 2% of GDP in 2008/09 (Table I.1) 
largely reflecting reduced tax revenues, and the implementation of the temporary economic stimulus measures (Box I.1).
29  Increased investment spending by states and public corporations is not taken 
into account in these calculations.  The fiscal deficit is expected to narrow from 3.6% of GDP 
(Table I.1) in 2009/10 to 2.8% in 2010/11, before moving back to a small surplus by 2012/13 or 2013/14 as a result of the exit from the temporary stimulus plan and rising government receipts as 
growth picks up.
30  
12. The improvement in Australia's terms of trad e owing to the boom in commodity prices and 
consequent appreciation of the exchange rate has pr ompted a debate over the role of fiscal policy in 
the longer term, with some suggesting that the fe deral government should consider setting aside the 
surpluses resulting from the resource  boom in a "stabilization fund".31  Insofar as such a fund were 
invested overseas, it would mitigate the appreciation of  the Australian dollar's exchange rate and thus 
the threat of "Dutch disease". 
                                                      
24 APEC Secretariat online informati on.  Viewed at:  http://www.apecsec.org.sg [20 February 2001];  
and WTO document WT/TPR/S/104, 26 August 2002. 
25 IMF (2010a). 
26 As policy rates declined further and faster in the United States than Australia, the interest rate 
differential widened and this acted to limit the depreciation. 
27 The depreciation of the Australian dollar sustaine d exporter incomes as the U.S. dollar price of 
commodity exports fell sharply in late 2008.  CBS onlin e information.  Viewed a t:  http://www.cbs.gov.ws/ 
publications/pub/exrdev/10/cbsexratesdev10Mar.pdf and http://www.cbs.gov.ws/publications/pub/exrdev/10/ cbsexratesdev10July.pdf [2 October 2010]. 
28 IMF (2009a) and (2010a). 
29 According to the IMF, by 2009 this deficit was appropriate given low public debt by advanced 
country standards;  however, further fis cal adjustment would be needed to return to surplus if trend growth and 
the terms of trade turn lower than assumed (IMF, 2009a). 
30 Reserve Bank of Australia (2010b);  and IMF (2010a). 
31 Reserve Bank of Australia (2010c). WT/TPR/S/244/Rev.1 Trade Policy Review 
Page 10 
 
 
(4) MAIN STRUCTURAL POLICY DEVELOPMENTS AND CHALLENGES  
13. Soaring export prices and low unemployment s eem to have temporarily reduced the appetite 
for further reform.32  As a consequence, structural reforms in certain areas appear to have slowed or 
have failed to deliver during the period under revi ew (section (1)).  At the same time, productivity 
growth has dropped markedly (Box I.2).  Structural  reform for improving Australia's international 
competitiveness has been focused on  the regulatory framework, innova tion, adjustment to climate 
change, and domestic support to a few sectors, especially automotive products.  Other areas of 
ongoing reform include the energy and telecomm unication markets (Chapter IV).  Transport 
infrastructure reform remains a major challenge (C hapter IV).  According to a 2010 report by the 
Treasurer, an ageing population and climate change present, inter alia,  significant long-term risks for 
the economy and the sustainability of government finances.33  As the population ages, the rate of 
economic growth will slow and pressures for governme nt spending will increase, particularly in the 
health sector.  These challenges are being addressed th rough a broad agenda that includes:  supporting 
productivity growth through investment in infr astructure, innovation, skills, and education;  
overhauling the health system to ensure it deliver s maximum value for money;  and adhering to a 
disciplined fiscal strategy.34  Many of these policy options to deal with structural adjustment will have 
cost-of-living implications in the form of higher el ectricity, water, and road bills, which could be an 
impediment to reform, and may push the budget into deficit over the next 40 years, if corrective 
policy action is not taken.35  According to the Treasury, in light  of Australia's difficult medium-term 
fiscal position (section (3)(ii)), refo rms should be "budget-neutral".36 
Tax reform 
14. A substantial tax reform programme  is under way to make the tax system fairer, simpler, and 
more competitive internationally.37  More specifically, the authorities intend to increase taxation of 
natural resource rents (e.g. iron ore, coal, oil, a nd gas) as well as to reduce the tax burden and ease 
compliance costs for small businesses.  Among the majo r tax reforms envisaged are:  the introduction 
of a Minerals Resource Rent Tax (MRRT);  the extension of the Petroleum Resource Rent Tax 
(PRRT) to all onshore and offshore oil and gas projec ts;  a cut in the company tax rate from 30% to 
29% (from 2012 onwards for small firms, 2013 for ot hers);  and measures to build superannuation 
adequacy.38  Furthermore, there is a long-standing need to reform state taxes, some of which are 
poorly designed and impose large deadweight lo sses on the economy, and to get industry assistance 
through the tax system (or otherwise) focussed on dea ling with market failures rather than continuing 
to support inefficient industries at the expense of the community.39  In September 2010, the Treasury 
                                                      
32 The Australian,  "Red Book's hard reading for Labor", 27 September 2010.  Viewed 
at:  http://www.theaustralian.com.au/news/fe atures/red-books-hard-reading-fo r-labor/story-e6frg6z6-122592969 
7035 [1 October 2010]. 
33 Commonwealth of Australia (2010). 
34 The CPRS is designed to deliver significant reductions in Australia's carbon emissions in a 
cost-effective way, while protecting Australian businesses and jobs during the transition period;  it is expected 
to, inter alia,  reduce emissions by 5% below their 2000 levels by the year 2020. 
35 The Treasury (2010c);  and The Australian,  "Red Book's hard reading for Labor", 
27 September 2010.  Viewed at:  http://www.theaustra lian.com.au/news/features/r ed-books-hard-reading-for-
labor/story-e6frg6z6-12259296970 35 [1 October 2010]. 
36 The Treasury (2010c). 
37 Australian Government online information "A Tax Plan for our Future".  Viewed at: 
http://www.futuretax.gov.au/pages/topic_wh ytaxreform.aspx [1 September 2010]. 
38 For the superannuation plan, the authorities envisage to increase retirement savings by gradually 
raising the superannuation guarantee from 9% to 12% (The Treasury, 2010c). 
39 The Treasury (2010c). Australia WT/TPR/S/244/Rev.1 
 Page 11 
 
 
suggested the elimination of stamp duties on real estate,  the reform of state payroll and land taxes, and 
the phased introduction of road congestion pricing.   
Pension system reform  
15. In May 2009, the pension system was reformed to provide more support to those who need it 
most, and to enhance the sustainability of the pension system.40  The increase in the pension was 
delivered without placing additional long-term pressure  on the Budget.  The income test arrangements 
were revised to better target the pension to those most in need.  Pension payments were changed so 
that they are simpler to understand and available on a more flexible basis.  To respond to the long-
term cost of demographic change, the authorities are to increase the pension age progressively to 
67 years, at a rate of six months every two years, beginning in 2017.   
Labour market reform 
16. As of 1 July 2009, Australia moved to a new legal and institutional framework for workplace 
relations, with the commencement of the Fair Wo rk Act 2009.  The new framework is a significant 
shift from previous legislation, offering a stronger fo cus on enterprise level bargaining to closely link 
wages with productivity in the workplace.  A number  of initiatives to boost labour force participation 
have included:  increasing incentives to work, thro ugh personal income tax cuts and increases in the 
Child Care Tax Rebate;  reforms in education, em ployment services, and health;  and the Productive 
Ageing Package to support mature-age participatio n through practical measures, e.g. retraining and 
re-skilling programmes and enhanced assistance th rough the Keep Australia Working Career Advice 
Line.41  
(5) BALANCE -OF-PAYMENTS DEVELOPMENTS  
Current and trade accounts 
17. Reflecting the savings-investment gap, Australia 's current account deficit peaked in 2007/08 
(6.3% of GDP, Table I.3) largely due to constrai nts on export volume growth relating to drought and 
bottlenecks in the export supply chain;  strong im port growth owing to buoyant domestic demand and 
an appreciation of the real effective exchange rate;  and increased investment income deficit reflecting 
higher interest payments on foreign debt and la rge dividend payments to foreign investors, 
particularly by the resource sector.42  In 2008/09, the current account deficit was reduced considerably 
(3.2% of GDP) reaching the lowest annual level of the review period;  the trade account turned to 
surplus, mainly reflecting large increases in co mmodity contract prices negotiated in early 2008 for 
iron ore and coal exports, as well as the sharp exchange  rate depreciation;  since then it has turned 
back to a deficit.  The current account deficit is e xpected to narrow to less than 2.5% of GDP in 2010 
and 2011 as improved terms of trade should help genera te a trade surplus;  however, it is forecast to 
widen to about 6% of GDP over the medium term .43 
18. Growing external liabilities used, inter alia,  for the financing of current account deficits are a 
potential source of vulnerability for the economy.  Debt service payments on Australia's relatively 
high external debt remain the principal reason for th e net income deficit, equivalent to about 88% of 
the current account deficit in 2009/10 (Table I.3), reflecting mainly interest and dividends paid to 
                                                      
40 Commonwealth of Australia (2010). 
41 Commonwealth of Australia (2010). 
42 Australia's current account deficits largely reflect  high investment rather than low saving, and should 
be sustainable as long as investment leads to growth in export capacity (IMF, 2008). 
43 IMF (2010a).  WT/TPR/S/244/Rev.1 Trade Policy Review 
Page 12 
 
 
foreign investors in Australia (net of inco me received on Australian investment abroad).44  Between 
2006/07 and 2009/10, net external debt increased by 24. 5% (Table I.3);  in June 2010, the private 
sector, especially financial corporations, continue d to account for 83.8% of  foreign debt although 
public sector debt has increased almost tenfold since September 2007 (Table AI.1).45  While 
Australia's net external liabilities are relatively high, at about 60% of GDP, gross external debt is 
lower than in many advanced countries, at just under 100% of GDP.46  Similarly, short-term external 
debt remains sizable, at 46% of GDP, but is lower than in many advanced countries. 
Table I.3 
Balance of payments, 2005-10 
($A million)  
    2005/06 2006/07 2007/08 2008/09 2009/10 
Current account  -54,075 - 60,541 -73,980 - 40,515 -56,103 
Goods and services balance -15,354 -13,231 -24,579 5,887 -5,965 
Goods balance -15,476 -14,048 -21,894 9,186 -4,561 
Exports 154,035 169,524 182,952 231,564 201,458 
Imports 169,511 183,572 204,846 222,378 206,019 
Services balance 122 817 -2,685 -3,299 -1,404 
Receipts 41,641 45, 956 50,645 52,873 52,546 
 Transportation 8,186 8,546 9,129 7,342 6,376 
 Travel 22,624 25,161 28,252 31,096 33,285 
 Finance and insurance 1,492 1,444 1,420 1,616 1,304 
 Royalties and licence fees 771 887 778 872 1,064 
 Telecommunication 445 377 309 290 237 
 Computer and information 1,199 1,484 1,587 1,786 1,506 
 Other business 5,180 6,369 7,394 7,779 6,688 
 Personal and cultural 647 608 726 797 788 
 Government goods and services n.e.s.a 1,097 1,080 1,050 1,295 1,298 
 (Tourism-related services) (26,728) (29,398) (32,370) (34,506) (35,866) 
Payments 41,519 45,139 53,330 56,172 53,950 
 Transportation 14,838 15,732 16,797 15,832 13,835 
 Travel 15,089 15,934 20,153 22,082 23,354 
 Finance and insurance 1,646 1,822 2,216 1,325 1,198 
 Royalties and licence fees  2,688 3,181 3, 514 3,526 3,585 
 Telecommunication 543 499 488 607 506 
 Computer and information 1,067 1,431 1,478 1,641 1,553 
 Other business 3,647 4,450 6,569 8,549 7,492 
 Personal and cultural 1,080 1,108 1,163 1,565 1,241 
 Government goods and services n.e.s.a 921 982 952 1,045 1,186 
 (Tourism-related services) (21,373) (22,810) (27,431) (27,917) (28,556) 
Income balance -37,884 -47,001 -49,496 -45,407 -49,224 
Credit 27,937 38,318 44,217 42,823 35,901 
Debit 65,822 85,319 93,713 88,231 85,124 
Current transfers -837 -309 95 -995 -914 
Credit 5,314 6,002 6,255 6,657 6,380 
Debit 6,151 6,311 6,160 7,652 7,294 
Table I.3 (cont'd) 
                                                      
44 Garton, Sedgwick, and Shirodkar (2010). 
45 Australian Bureau of Statistics online informati on.  Viewed at:  http://www.ausstats.abs.gov.au/ 
ausstats/meisubs.nsf/0/19A7112FC836013ECA25778F00204B18/$File/A3374925K [1 October 2010]. 
46 IMF (2010a). Australia WT/TPR/S/244/Rev.1 
 Page 13 
 
 
    2005/06 2006/07 2007/08 2008/09 2009/10 
Capital and fina ncial account  54,435 61,153 72,572 39,873 56,613 
Capital account -141 281 -232 -611 -132 
Financial assets -3 423 -1 -244 14 
Credit 3 489 9 2 4 
Debit -6 -66 -10 -246 10 
Capital transfers -138 -142 -231 -367 -146 
Credit 0 0 0 0 0 
Debit -138 -142 -231 -367 -146 
Financial account  54,576 60,872 72,804 40,484 56,745 
Direct investment -5,675 11,507 29,117 17,665 17,398 
Australian's direct investment abro ad -29,750 -34,432 -27,291 -30,474 -17,550 
Foreign direct investment in Australia 24,074 45,938 56,407 48,140 34,948 
Portfolio investment  64,937 66,370 -4,084 49,220 68,112 
Assets -59,996 -76,609 -65,469 4,008 -92,470 
Liabilities 124,933 142,97 9 61,385 45,212 160,582 
Financial derivatives -3,511 2,006 -7,043 -3,726 -5,951 
Assets 13,037 12,700 -4,365 30,682 37,651 
Liabilities -16,548 -10,694 -2,678 -34, 408 -43,602 
Other investment  4,431 1,116 10,523 -10,779 -28,743 
Assets -18,228 -21,090 -31,802 -51,415 -20,009 
Liabilities 22,659 22,206 42,325 40,636 -8,734 
Reserve assets  -5,605 -20,127 44,292 -11,896 5,929 
Net errors and omissions -359 -613 1,407 642 -510 
a "Services n.e.s." include manufacturing services, maintenance and repair services, and construction.  
Source :  Australian Bureau of Statistics (2010), Balance of Payments and Interna tional Investment Position - 5302.0 , June. 
19. Since 2006/07, a peak year, Australia's inte rnational (foreign exchange) reserves have 
dropped significantly, from $A 77 billion equivalent to 4 months of imports of goods and services in 
2006/07 to $A 33.4 billion or 1.5 mont hs of imports in 2009/10 (Table I.1).  This drop is due mainly 
to the withdrawal of Future Fund (Government budget surpluses) deposits from the reserves, for 
investment in other assets;  it also reflects va luation losses arising from the appreciation of the 
Australian dollar, which has reduced the va lue of reserves in Australian dollar terms.47  The 
authorities consider that the low reserves level is not a problem because of Australia's floating dollar.   
(6) DEVELOPMENTS IN MERCHANDISE TRADE  
20. As a result of the increased openness of the Aust ralian economy to international trade, and its 
integration into the world economy, the ratio of its  trade (exports plus imports) in goods and services 
to GDP increased from 40.6% in 2006/07 to 44.8% in 2008/09, before dropping to 40.0% in 2009/10 
(Table I.1).  
21. Since its previous Review, Australia has rema ined largely dependent on commodity exports 
(metalliferous ores, mineral fuels, food), particul arly mining products, reflecting the world prices 
boom (Chart I.1, Table AI.2);  agriculture exports ha ve been adversely affected by the appreciation of 
the national currency and drought-re lated constraints (section (3)(i), Chapter IV).  The share of 
manufactured items (machinery and transport equipm ent, automotive products) in total imports has 
fallen slightly since 2006 (Chart I.2, Table AI.3). 
                                                      
47 Furthermore, the RBA indicated that there is a large difference between changes in net and gross 
reserves owing to the use of foreign exchange swaps (a  type of foreign exchange derivative) for liquidity 
operations in the domestic market.  The fall in gross reserves between 2006 and 2007 was due to a reduction in the level of swaps outstanding, held for domestic liquidity operations (Reserve Bank of Australia, 2008). WT/TPR/S/244/Rev.1 Trade Policy Review 
Page 14 
 
 
Chart I.1
Product composition of merchandise trade, 2006 and 2009
2006 2009
(a)    Exports (f.o.b.)
Other consumer goods   
6.6
Manufactures
18.0
Total:   US$123.3 billion Total:  US$153.8 billion  
(b)    Imports (f.o.b.)
Automotive 
products
11.8Chemicals
10.6Other transport 
equip.  4.2
Manufactures
76.2
Office machines &
 telecommunication equipment  
11.7Other electrical 
machines  
4.0
Non-electrical machinery
10.8Textiles & clothing
3.9Other mining
1.3Fuels
13.2
Non-electrical machinery
11.6Other
3.2
Other electrical 
machines
4.0Non-ferrous metals
4.8
Other semi-manuf.  
8.7Other transport 
equipment  2.3 Chemicals
10.8
Manufactures
72.2
Office machines &
telecommunication equipment
   10.7
Total:   US$132.7 billion Total:   US$158.9 billion Per cent
Manufactures
14.9
Mining
57.2Machinery
3.9Other agriculture
2.3
Machinery   
4.5
Other consumer goods  
   10.8Other
0.6Food
13.0
Ores & other 
minerals
19.7
Fuels
24.0Other
4.9
Other semi-manuf.
2.1
Ores & other
minerals
22.9Agriculture
15.3
Non-ferrous metals
7.6
Source :  UNSD, Comtrade database (SITC Rev.3).Other consumer goods 
10.4
Mining
13.9Other consumer goods
4.9
Other semi-manuf.  
2.7
Other semi-manuf.
8.8Other agriculture
3.4Food
14.5
Agriculture
6.2Agriculture
5.5
Mining
 14.5
Automotive
products
9.5Fuels
29.5Chemicals  
4.2Chemicals  
4.1Other 
7.1
Textiles  & clothing
3.8Other mining
1.2Fuels
12.7Gold
7.7Gold
5.6
Mining
51.4Agriculture
18.0
Gold
4.6Gold
3.3
 Australia WT/TPR/S/244/Rev.1 
 Page 15 
 
 
Chart I.2
Direction of merchandise trade, 2006 and 2009
2006 2009
(a)    Exports (f.o.b.)
Other Asia  
12.7Asia
70.1
Total:   US$123.3 billion Total:  US$153.8 billion
(b)    Imports (f.o.b.)
Other
7.8 Other Asia  
12.6EU27
20.7
United States
14.0EU27
19.7China
17.8
 Thailand 
5.8
Singapore
5.6
United States
11.3
Total:   US$132.7 billion Total:   US$158.9 billionPer cent
Asia
77.5
Other Asia  
10.9Middle East
3.4Japan
19.8
Korea, Rep. of
3.3Korea, Rep. of   3.9United States
6.2Singapore 
 2.8
Other Asia  
10.0United States
4.9
Source :  UNSD, Comtrade database (SITC Rev.3).Japan
8.3EU27
8.7Middle East
3.8
Asia
57.8Asia
57.4Japan
9.8
New Zealand
3.1EU27
12.5
India 
5.4Japan
19.5
Malaysia  3.8Chinese Taipei
3.8Chinese Taipei
3.3
Singapore
6.1China
12.5
Korea, Rep. of
8.0Korea, Rep. of   
7.5
Other
11.2New Zealand
3.3Thailand
3.6Singapore  2.7China
21.7
China
14.5
Malaysia   3.8New Zealand
5.5India  7.4
Other   
5.5Other 
7.5New Zealand
4.0
 WT/TPR/S/244/Rev.1 Trade Policy Review 
Page 16 
 
 
22. Australia's merchandise trade with East Asia was further reinforced between 2006 and 2009 
(Chart I.2) mainly as a result of the virtual doubling of China's share of total exports.  Notwithstanding some fluctuation in trade shares,  more than 72% of total merchandise trade has 
continued to be conducte d with trading partners from the As ia-Pacific Economic Cooperation (APEC) 
and around 15% with members of the Association of East Asian Nations (ASEAN) (Tables AI.4 
and AI.5).  China, Japan, the EU, Korea (Rep. of), India, and the United States were Australia's main 
markets in 2009.  New Zealand's share in Australian foreign trade fell during 2006-09;  in 2009, it accounted for 3.6% of Australia's total merchandise trade.  
(7) T
RENDS AND PATTERNS IN FOREIGN INVESTMENT  
23. During 2007-09, Australia's stock of inbound fo reign direct investment (FDI) expanded by 
about 10% to $A 436 billion (Table I.4).  The ov erall pattern of the FDI stock has remained 
unchanged;  it is concentrated in mining, manuf acturing, wholesale and retail trade, finance and 
insurance, and property and business services.  It or iginates mainly in the EU, the United States, and 
Japan;  the share of inward FDI stock originating in Australia's RTA partners (Chapters II and III) 
declined gradually.  
24. Since 2007, the stock of Australian investment overseas has varied considerably and has not 
exceeded the value of inward FDI (Table I.5).  It  remains concentrated in manufacturing, and in 
finance and insurance services.  The United Stat es, the EU, and New Zealand remain the main 
destinations for Australian outbound FDI;  the shar e of outward FDI stock in RTA partner countries 
declined considerably, driven mo stly by Australian FDI stock reductions in the United States due to 
exchange rate movements and the imp act of the global financial crisis.  
Table I.4 
Inward stock of foreign direct investment  by partner and economic activity, 2005-09 
(A$ million and %)  
  2005 2006 2007 2008 2009 
Total inward FDI stock (A$ million) 297,641 336,865 396,852 396,515 436,059 
FDI by origin (% of total FDI)      
United States 25.4 25.7 25.3 25.2 22.7 
United Kingdom 17.6 16.6 16.2 15.5 14.5 
Japan 7.2 7.1 7.8 9.2 10.3 
Netherlands 7.2 7.3 6.4 5.2 7.7 
Switzerland 4.0 4.9 4.1 4.9 4.0 
Germany 3.3 3.1 4.4 3.4 3.8 
Singapore 1.4 1.7 3.6 2.6 3.6 
FDI from RTA partner countries (% of total FDI) 32.2 33.3 33.7 31.6 30.3 
Canada 2.0 2.3 2.8 2.4 2.5 
Chile ..a ..a ..a ..a ..a 
Malaysia 1.0 0.8 ..a ..a ..a 
New Zealand 2.3 2.8 2.0 1.4 1.4 
Papua New Guinea ..a ..a ..a ..a ..a 
Singapore 1.4 1.7 3.6 2.6 3.6 
Thailand 0.0 0.0 0.1 ..a ..a 
United States 25.4 25.7 25.3 25.2 22.7 
FDI by economic activity (% of total FDI)      
Agriculture, forestry and fishing 0.3 0.2 0.2 0.2 .. 
Mining 21.8 24.7 24.0 25.4 .. 
Manufacturing 18.7 18.1 18.4 18.8 .. 
Electricity, gas, and water 2.9 2.5 4.1 4.1 .. 
Construction 2.2 2.2 4.0 3.3 .. 
Table I.4 (cont'd) Australia WT/TPR/S/244/Rev.1 
 Page 17 
 
 
  2005 2006 2007 2008 2009 
Services 49.5 47.9 45.5 45.1 .. 
Wholesale and retail trade 16.6 15.9 14.5 14.5 .. 
Accommodation, cafes, and restaurants 0.5 0.3 0.3 0.2 .. 
Transport and communication 9.3 9.0 7.6 6.6 .. 
Finance and insurance 15.4 15.5 13.6 13.5 .. 
Property and business services 6.8 6.4 8.2 8.6 .. 
Other Services 0.8 0.8 1.4 1.6 .. 
Unallocated 4.5 4.5 3.8 3.2 .. 
.. Not available.  
a Included in totals where applicable  but not available for publication. 
Source: Australian Bureau of Statistics document 5352.0. 
Table I.5 
Outward stock of foreign direct investme nt by partner and economic activity, 2005-09 
(A$ million and %)  
 2005 2006 2007 2008 2009 
Total outward FDI stock (A$ million) 252,301 299,456 343,652 300,848 344,572 
FDI by destination (% of total FDI)      
United States 45.5 44.0 48.1 45.1 28.9 
United Kingdom 13.3 15.2 9.3 8.4 18.7 
New Zealand 15.4 14.2 13.7 11.4 12.2 
Hong Kong, China 1.8 2.2 1.9 2.0 3.3 
Germany  1.5 2.0 3.2 2.9 2.8 
Singapore 1.2 1.7 2.6 2.2 2.1 
FDI to RTA partner countri es (% of total FDI) 64.6 61.1 65.9 60.8 44.1 
Canada 1.7 ..a ..a ..a ..a 
Chile 0.0 ..a ..a 0.4 ..a 
Malaysia 0.1 0.1 0.7 0.7 0.9 
New Zealand 15.4 14.2 13.7 11.4 12.2 
Papua New Guinea 0.6 0.9 0.8 0.8 ..a 
Singapore 1.2 1.7 2.6 2.2 2.1 
Thailand ..a 0.2 0.1 0.1 0.1 
United States 45.5 44.0 48.1 45.1 28.9 
FDI by economic activity (% of total FDI)      
Agriculture, forestry, and fishing ..a ..a ..a ..a .. 
Mining 4.8 9.6 ..a 11.5 .. 
Manufacturing 41.8 40.6 45.1 44.3 .. 
Electricity, gas, and water ..a ..a 1.2 1.1 .. 
Construction 2.5 1.2 1.7 2.1 .. 
Services ..a ..a ..a ..a .. 
Wholesale and retail trade 2.4 2.2 1.9 3.0 .. 
Accommodation, cafes, and restaurants ..a ..a ..a ..a .. 
Transport and communication 5.7 2.8 2.5 3.7 .. 
Finance and insurance 37.1 36.9 34.6 27.9 .. 
Property and business services 1.9 3.0 3.3 4.1 .. 
Other Services 1.3 1.4 1.5 1.8 .. 
Unallocated ..a ..a ..a ..a .. 
.. Not available.  
a Included in totals where applicable  but not available for publication. 
Source: Australian Bureau of Statistics, document 5352.0.