Australia WT/TPR/S/104
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I. ECONOMIC ENVIRONMENT
(1) OVERVIEW
1. Since its previous Trade Policy Review in 1998, Australia has successfully weathered the
Asian financial crisis, which erupted in the middle of 1997 and led to a severe economic slowdown in
the region.  As a consequence of robust domestic demand, Australia's real GDP growth remained
strong, exceeding 4.3% annually, before dropping to 1.8% in 2000/01 mainly due to a temporarydecline in residential construction activity.  Solid growth in multi-factor productivity (MFP)
accounted for a good part of this growth in real GDP.  The unemployment rate continued to fall, to
6.4% in 2000/01, from 8% in 1997/98, and inflation remained low, at around 2%.
2. Sound macroeconomic policies (monetary and fiscal) and far-reaching structural reforms have
undoubtedly contributed to this impressive economic performance.  Disciplined monetary policy,based on inflation targeting, has helped to maintain the stability of the financial system.  Fiscal policy
has been conducted with a view to maintaining fisc al balance over the cycle, thereby resulting in
modest budget surpluses during the past four years.  Structural reforms, which began in the mid 1980s
when the economy was opened up unilaterally to foreign competition and key areas of the economy
were liberalized, have been continued.  Reform ha s involved major restructuring of the tax system,
corporatization, if not privatization, of state-owned enterprises, a review of competition policies, the
continued gradual deregulation of the labour mark et (and overhaul of the welfare system), and
measures to encourage technological excellence;  these have complemented previous structural
reforms, including unilateral tariff cuts and other trade liberalization measures implemented in
accordance with WTO Agreements.
3. A recent narrowing of the saving-investment gap is reflected in the fall in the current account
deficit, the counterpart of which is a fall in the net inflow of capital from abroad. Net foreign debt hascontinued to grow, reaching over 60% of GDP, but borrowing by the private sector has become
increasingly responsible for this trend.  The patterns of foreign trade and direct investment have been
subject to minor changes.  One of these changes involves the partly exchange-rate-related drops in
New Zealand's share of Australia's merchandise imports and exports, despite the Australia New
Zealand Closer Economic Relations  Trade Agreement (ANZCERTA).
4. The recent deterioration of the global economy has adversely affected Australia's short-run
outlook for growth and employment.
(2) R
ECENT ECONOMIC DEVELOPMENTS1
(i) Growth, productivity, incomes and employment
5. The Australian economy weathered the Asian crisis well, particularly in view of its significant
trade exposure to the region.  After growing steadily, at an average annual rate of above 4% from the
beginning of the economic recovery in 1991, real GDP growth held up at 4.5% in 1997/98 and then
accelerated to 5.3% in 1998/99, before falling back to 4.3% in 1999/00 and then slowing sharply to
1.8% in 2000/01 due to a temporary (second half of 2000) weakness of the residential construction
sector and related parts of the manufacturing sector (Table I.1).  Strong growth in multi-factorproductivity (MFP), averaging 1.2% annually during the period 1990-98, accounts for a good part of
this growth in real GDP;  the rise in labour productivity averaged 2.6% during the same period.  In
addition to a judicious mix of sound macroeconomic and structural policies, growth has been
                                                     
1 User-friendly statistical data for the preparatio n of this Trade Policy Review Report has not been
readily available from the authorities.  Access to a full set of Australian statistical data is subject to a fee.WT/TPR/S/104 Trade Policy Review
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supported by continuing strength in domestic demand2, particularly household consumption, and a
firmer labour market.3  As a consequence of the much weaker global economic environment and a
much stronger growth in domestic demand (sharp up swing in the residential construction sector), the
economy is expected to grow by around 3% in 2001/02.4
Table I.1
Economic developments, 1997-01
1997/98 1998/99 1999/00 2000/01
Average annual growth rate (%)a
Real GDP 4.5 5.3 4.3 1.8
Consumption 4.6 5.0 4.4 2.4
Gross domestic investment 9.6 5.9 7.8 -8.5
Exports of goods and services 3.7 2.0 9.3 7.0
Imports of goods and services 9.7 4.8 12.5 -1.7
Inflation (1999/2000=100) -11.4 -8.4 -1.3 -9.7
Unemployment rate (%) 8.0 7.4 6.6 6.4
Productivity growth (% change)
Total factor productivityb2.2 2.3 1.5 -1.1
Labour productivityc4.3 3.8 2.1 0.3
Monetary indicators
M1 (% change) 11.6 7.6 9.8 17.7
M3 (% change) 6.2 10.3 8.2 8.2
Interest rate (90-day bill, %) 5.3 4.9 6.2 5.0
Government bond yield (10-year, %) 5.6 6.3 6.2 6.0
Exchange rate (end of period)
US$/$A 0.6135 0.6596 0.5986 0.5075
Trade weighted indexd57.9 58.4 53.3 49.7
Nominal effective exchange rate (1995=100) 97.0 103.7 94.1 89.1
Real effective exchange rate (1995=100) 94.9 102.2 94.9 92.4
Commonwealth fiscal balancee (% of GDP)
Revenue 24.3 24.6 26.2 ..
Expendituref23.8 23.7 24.2 ..
Fiscal balance 0.5 0.9 2.0 ..
Total government debt 14.7 11.9 8.4 ..
Savings and investment (% of GDP)
Gross national saving 19.0 18.5 18.6 18.5
Gross investment 23.1 23.3 23.7 21.0
Saving-investment gap -4.1 -4.8 -5.1 -2.5
Table I.1 (cont'd)
                                                     
2 The robustness of domestic demand, at the time when the Asian crisis became apparent, is an
important factor that helped the Australian economy to ov ercome the negative impact of the contraction of many
of its major structural export markets (OECD, 2000).
3 Treasury of Australia online information.  Available at:
http://www.treasury.gov.au/default.asp?main=/publi cations/economicpublications/mid-yeareconomicfiscal
outlook/1999/domestic.htm [15 February 2001];  and OECD (2000).
4 Commonwealth Department of the Treasury (2001).Australia WT/TPR/S/104
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1997/98 1998/99 1999/00 2000/01
Average annual growth rate (%)a
Balance-of-payments (% of GDP)
Current account -4.1 -5.6 -5.3 -2.8
of which:  trade balance -0.8 -2.4 -2.3 0.2
Memorandum:
Population ('000) 18,730.4 18,937.2 19,157.0 19,386.7
GDP/capita (US$ current prices) 18,882.9 21,131.6 19,775.9 16,890.1
Non-financial public sector finances
Overall balance (US$ million) .. .. .. ..
Overall balance (% of GDP) .. .. .. ..
Public sector tax burden (% of GDP) .. .. .. ..
Public sector current expenditure (% of GDP) .. .. .. ..
Annual export volume growth rate (1995=100)g11.5 -0.2 4.6 10.6
.. Not available.
a At 1999/2000 constant prices.
b Multifactor productivity:  GDP per combined unit of labour and capital.
c GDP per hour worked.d May 1970 = 100.
e On a cash basis.
f Excludes asset sales and other one-off factors.
g Calendar year instead of fiscal year is used (eg. 1997/98 should read 1997).
Source : Australian Bureau of Statistics (2001), National Income, Expenditure and Product, Issue 5206.0  (Table 33), September,
Canberra;  Australian Bureau of Statistics (2002), Australian Economic Indicators, January, Issue 1350.0 (Tables 1.1, 1.2, 5.14,
6.1, and 6.10), Canberra;  and the Australian authorities.
6. Since 1998, there have been minor changes in the sectoral pattern of Australia's GDP and
employment, which remains dominated by services (Table I.2).  The composition of employment has
seemingly been affected (rise in services, drop in other sectors) by the conjunction of the introduction
of the new tax system (section 4(i) and Chapter III(4)(i)) and the Olympic Games.5
Table I.2
Structure of the economy, 1997-01(Per cent)
1997/98 1998/99 1999/00 2000/01
Share of main sectors in GDP (%)a100.0 100.0 100.0 100.0
Agriculture, forestry, and fishing 3.1 3.1 3.2 3.0
Mining 4.4 4.2 4.5 4.6
Manufacturing 12.1 11.9 11.7 11.6
Services 72.0 72.4 72.4 72.9
Electricity, gas, and water 2.6 2.5 2.5 2.5
Construction 5.5 5.6 5.7 4.6
Wholesale and retail trade 10.3 10.3 10.4 10.2
Accommodation, cafes, and restaurants 2.2 2.2 2.3 2.3
Transport, storage, and communication 7.8 7.7 7.9 8.1
Finance and insurance 5.8 6.2 6.1 6.3
Table I.2 (cont'd)
                                                     
5 Reserve Bank of Australia online information.  Available at:  http://www.rba.gov.au/
publ/Statement_Feb01.pdf [13 March 2001].WT/TPR/S/104 Trade Policy Review
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1997/98 1998/99 1999/00 2000/01
Property and business services 10.2 10.7 10.7 11.6
Government administration and defence 4.0 4.0 3.8 3.9
Education 4.6 4.4 4.3 4.3
Health and community services 5.7 5.5 5.4 5.5
Cultural and recreational services 1.8 1.7 1.7 1.9
Personal and other services 2.2 2.2 2.3 2.3
Ownership of dwellings 9.3 9.3 9.2 9.4
Otherb8.4 8.4 8.2 7.8
Share of sectors in total employment (%) 100.0 100.0 100.0 100.0
Agriculture, forestry, and fishing 5.1 4.9 4.9 4.7
Mining 1.0 0.9 0.9 0.9
Manufacturing 13.2 12.5 12.5 12.4
Services 80.7 81.7 81.7 82.0
Electricity, gas, and water 0.8 0.7 0.7 0.7
Construction 7.1 7.3 7.8 7.5
Whole sale trade 5.9 5.9 5.6 4.8
Retail trade 14.7 15.0 14.9 14.7
Accommodation, cafes, and restaurants 4.8 4.8 4.9 5.2
Transport, storage, and communication 6.4 6.5 6.5 6.6
Finance and insurance 3.7 3.7 3.7 3.7
Property and business services 10.6 10.9 11.1 11.9
Government administration and defence 4.0 4.0 3.9 4.0
Education 6.9 7.0 6.9 6.8
Health and community services 9.5 9.5 9.3 9.6
Cultural and recreational services 2.4 2.4 2.4 2.5
Personal and other services 4.0 3.9 4.0 3.8
a At 1999/2000 constant prices.
b Includes taxes less subsidies on products and statistical discrepancies.
Source: Australian Bureau of Statistics (2002), Australian Economic Indicators, January, Issue 1350.0 (Tables 1.3 and
6.7), Canberra.
7. As a result of sharp depreciation of the national currency (section 3(i)) and with population
growth of 1.2% a year, Australia's GDP per capita (current prices) has dropped by 20% since 1998/99(a peak year), to an estimated US$16,890 in 2000/01 (Table I.1);  measured on a Purchasing Power
Parities (PPP) basis, during the same period, GDP per capita increased by nearly 10% to an estimated
US$26,500.
8. Unemployment in Australia has continued its dow nward trend since its previous Review (to
6.4% in 2000/01) due to the lagged effects of economic growth in 1999/00 and to labour marketreforms;  nevertheless, a slight increase to 7% is expected in 2001/02 owing to the slower economic
growth in 2000/01 and to the cautiousness of bus iness investment in plant and equipment, stock
rebuilding, and hiring due to uncertainty over the domestic and world outlook.  Ongoing low levels of
inflation (section (ii)) and economic reform leading to  a step up in productivity growth is expected to
provide the opportunity to, inter alia,  push down unemployment rates.
6
                                                     
6 Commonwealth Budget 2000-01, "Budget Highlights:  Budget Overview & Economic Outlook"
[Online].  Available at:  http://www.budget.gov.au/2000-01/highlhts/default.htm [19 April 2001].Australia WT/TPR/S/104
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(ii) Prices
9. Since 1998, robust productivity growth, moderate wage increases, continuing healthy
competition and prudent monetary policy (section 3(i)), have contributed to a good inflation
performance.7  Recent increases in inflation (1999/00 and 2000/01) reflected slightly faster growth in
nominal unit labour costs, some reversal of the international deflationary forces and the one-off
impact of changes to indirect tax arrangements under the 2000 New Tax System (section (4)(i) andChapter III(4)(i)(a)).
8  Additional tax measures (introduced in 2001, 2002, and 2005), including the
removal of Financial Institutions Duties (FIDs) and Bank Account Debit (BAD) taxes and the
phasing-in of input tax credits for motor vehicles, should contribute to a reduction in inflationary
pressure from the tax package.  In 2001/02, however, inflation is expected to increase to 2¾% as a
result of higher insurance premiums, electricity prices, and domestic airfares.9
(3) MAIN MACROECONOMIC POLICY DEVELOPMENTS
(i) Monetary and exchange rate policy
10. The Reserve Bank of Australia (RBA) is independent from the political process.  It has the
primary responsibility for the conduct of monetary policy in a way that will best contribute to price
(currency) stability, the maintenance of full employment, and the economic prosperity and welfare.10  
It targets a publicly announced overnight cash (interest) rate determined by the Reserve Bank Board
to act pre-emptively against inflationary pressures.  The cash rate was raised during the latter part of
1999 through to August 2000, as it became apparent that the period of below-target inflation was
coming to a close;  during 2001, the cash rate was lowered substantially, to its lowest level in almost
30 years (4.25% as of 21 February 2002), to counter the contractionary effect of the slowdown in the
world economy.11
11. During the period under review the Government has endorsed the Reserve Bank’s low
inflation target (2%-3% over the cycle) and its independence in setting monetary policy.12  Monetary
policy credibility, together with a more competitive Australian economy, has kept inflation low
despite the significant decline in the Australian doll ar that accompanied the crisis in Asia and the one-
off inflationary effects of the introduction of the broad-based Goods and Services Tax (GST)
(section (4)(i)).13
12. Australia has maintained its floating exchange rate system.  Foreign exchange market
operations may be undertaken by the RBA when the market threatens to become excessively volatile
or when the exchange rate is clearly inconsistent with underlying economic fundamentals.14  The se
                                                     
7 APEC Secretariat online information.  Available at:  http://www.apecsec.org.sg [ 20 February 2001].
8 Treasury of Australia online information.  Available at:  http://www.treasury.gov.au/
default.asp?main=/publications/economicpublications/mid-yeareconomicfiscal outlook/ 1999/domestic.htm[15 February 2001].
9 Commonwealth Department of the Treasury (2001).
10 APEC Secretariat online information.  Available at:  http://www.apecsec.org.sg [20 February 2001].
11 Reserve Bank online information.  Available at:  http://www.rba.gov.au/MonetaryPolicy/
about_monetary_policy.html [9 April 2002].
12 APEC Secretariat online information.  Available at:  http://www.apecsec.org.sg [20 February 2001];
and Reserve Bank online information.  Available at:  http://www.rba.gov.au/MonetaryPolicy/
statement_on_the_conduct_of_monetary_policy_1996.html [9 April 2002].
13 Effective monitoring of prices by the Au stralian Consumer and Competition Council (ACCC)
following the introduction of the GST may also have reduced the impact of the tax on inflation.
14 APEC Secretariat online information.  Available at:  http://www.apecsec.org.sg [20 February 2001];
and Reserve Bank of Australia (2002).WT/TPR/S/104 Trade Policy Review
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operations are invariably aimed at stabilizing mark et conditions rather than meeting exchange rate
targets;  explanations on these interventions are set out in the RBA's Quarterly Statements on
Monetary Policy and are available online.  To prevent tax evasion and money laundering, cash
amounts of $A 10,000 or more to be taken out of Aust ralia at any one time must be reported to the
authorities.
13. The steep fall in world commodity prices, which followed the weakening of global demand
after the outbreak of the Asian crisis, put downward pressure on the Australian dollar exchange rate.15
Since 1997/98 the Australian dollar has depreciated by an overall 16.8% against the United Statesdollar (Chart I.1), partly and initially as a result of  the weakness of the former and the strength of the
latter;  recent movements do not appear to reflect underlying economic and financial developments of
the Australian economy.
16  The exchange rate depreciation improved Australia’s international price
competitiveness, allowing exports to be diverted to other regions of the world, in particular the United
States and Europe.  The depreciation also tended to support import-competing sectors, limiting the
adverse effect of the global downturn on economic activity.  Interest rate differentials and
strengthening in commodity prices have contributed to the recent climb of the Australian dollar.
                                                     
15 OECD (2000).
16 The reasons for the fall (January and November 2000) of the Australian dollar may include attract of
the U.S. high-tech market, the lack of a production base for information technology in Australia, and concernsabout the continued level of external imbalances in Australia.  Analysts have difficulties in explaining this fall.0.40.60.81.01.2
1995/96 1996/97 1997/98 1998/99 1999/00 2000/0140.060.080.0100.0120.0Chart I.1                             
Exchange rate developments, 1995-2001
Unit , end period
 Australian Bureau of Statitistics (2001), Australian Economic Indicators, October, Issue 1350.0 (Table 8.6), Canberra;  
and IMF, International Financial Statistics (various issues).Source :Real effective exchange rate (1990=100)
(right-hand scale)US$/$A
 (left-hand scale)Nominal effective exchange rate (1990=100)
(right-hand scale)
Trade weighted index (1970=100)
(right-hand scale)Unit , end periodAustralia WT/TPR/S/104
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(ii) Fiscal policy
14. During the period under review, Australia's fiscal  surpluses reached a p eak of $A 12.7 billion
(2% of GDP) in 1999/00 but dropped to $A  502 mi llion (0.1% of GDP) in 2001/02 largely reflecting
the budgetary cost of the major taxation reform package (section (4)(i)).17  In line with growth
prospects and budget balance objectives, gradually rising but modest surpluses are projected from
2002/03 to 2004/0518, thereby narrowing the gap between gross domestic saving and investment.
However, an unexpected deficit was announced recently as a result of increased defence spending for
the war on terrorism and extra measures to deter illegal immigrants.
(4) MAIN STRUCTURAL POLICY DEVELOPMENTS
15. Far-reaching structural reforms begun in the mid 1980s undoubtedly contributed to Australia's
impressive productivity performance during the 1990s.  With the tax reform well under way, theGovernment's attention has turned to additional reforms including further corporatization, if not
privatization, of state-owned enterprises, effort s to complete reform of competition policies
(Chapter III(4)(iii)(a)), the continued gradual deregulation of the labour market (and overhaul of the
welfare system), and measures to encourage tec hnological excellence/innovation ($A 3 billion five-
year investment plan in innovation).
(i) Tax reform
16. One of the main developments concerning structural policies during the review period was the
comprehensive tax reform introduced by the Commonw ealth Government.  The first major step in this
regard was "The New Tax System";  its central feature was the introduction of a broad-based goods
and services tax (GST) on 1 July 2000.
19  Levied at a single rate of 10% on value added, the GST
replaced the much more narrowly based Wholesale Sales Tax (WST), which had been levied at
various rates ranging from 0% to 45% on goods, but not services.20  By favouring services over goods,
the WST constituted a potentially important distortion to the domestic allocation of resources.
Moreover, the cascading nature of the WST tended to discourage exports of goods and favour
imports21;  no such biases arise in the case of  the new GST, however.
17. Personal income tax has also undergone substantial reform as a consequence of The New Tax
System.  Among the main changes introduced from 1 July 2000 were:  an increase in the tax-freethreshold to $A 6,000;  a reduction in the lowest marginal tax rate from 20% to 17%;  and a reduction
in the 34% and 43% marginal tax rates to 30% (as well as an increase in the range of income over
which it applies).  Insofar as high marginal tax rates constitute a disincentive both to work and save,
cuts in the top rates could lead to increased work effort and higher personal saving, thereby further
reducing the substantial saving-investment gap.
                                                     
17 Commonwealth Department of the Treasury (2001);  and APEC Secretariat online information.
Available at:   http://www.apecsec.org.sg [20 February 2001].
18 Under the Charter of Budget Honesty Act 1998, the Prime Minister and the Leader of the Opposition
may request the Secretaries to the Departments of the Treasury, and Finance and Administration to cost theirrespective election commitments.  All costings pr epared under the Charter are publicly released.
19 Notable exemptions from the GST are most food products and exports.
20 In addition to the GST, luxury cars are subject to a luxury car tax (LCT) of 25% on the value in
excess of the LCT threshold ($A 55,134 in 2000-01);  the value in excess of the threshold was previously taxed
at a rate of 45% under the WST.  The LSC falls disproportionately on imported cars whose prices in Australiaalready reflect high import tariffs (Chapter III(2)(ii)).  Data on the disaggregation of LCT revenues between
domestically produced cars and imported cars are not available from the Australian authorities.
21 See WTO (1998), p. 76.WT/TPR/S/104 Trade Policy Review
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18. The Commonwealth Government is currently in the process of implementing a two-stage
reform of business taxation in accordance with The New Business Tax System.  This involves, inter
alia, the gradual broadening of the corporate tax base together with the use of additional revenues
generated through other means to fund cuts in the corporate tax rate.  In the first stage of reform, the
statutory corporate tax rate was reduced from 36% to 34% partly financed by the elimination of
accelerated depreciation (except in the case of businesses with an annual turnover of less than$A 1 million);  the rate was cut further to 30% on 1 July 2001, thereby bringing it more into line with
rates in several neighbouring countries (notably New Zealand, Singapore, Malaysia, and Hong Kong,
China).  Other changes in business taxation scheduled to commence on 1 July 2002 include:
consolidated income tax regime for wholly ow ned groups of companies;  simplified imputation
arrangements;  a de-merger mechanism in the tax law to improve flexibility in business structures;and tax exemption on the foreign source income of temporary residents so as to attract skill-intensive
businesses to Australia.  The combination of a broader corporate tax base and lower tax rates would
tend to reduce the assistance delivered through the corporate tax system (Chapter III(4)(i)), thereby
rendering it more neutral, and thus potentially less distorting, with regard to firms' investment
decisions.
(ii) Corporatization and privatization
19. Since its previous Review, Australia has proceeded with the privatization and
"corporatization"
22 of government-owned facilities (including most Government Trading
Entities (GTEs) – Chapter III(3)(iii)), such as multimedia enterprises, electricity, natural gas,
telecommunications, airports, and freight rail23 (Chapter IV(3)(ii) and IV(5)(vi)(a)).  Until
November 2001, the Office of Asset Sales and Information Technology Outsourcing (OASITO), an
executive agency of the Australian Commonwealth Government (Finance and AdministrationPortfolio), inter alia,  implemented the sale or privatization of government owned businesses
24;  its
functions were absorbed by the Department of Fi nance and Administration.  The private sector has
been actively engaged in nationwide infrastructure creation, upgrade, and maintenance.
(iii) Labour market reforms
20. Since May 1998, labour market reform (notably the introduction of Job Network) has allowed
for full competition between private, community, and government-contracted service providers and
Employment National, a corporatized government employment services agency.25  Mutual obligation
programmes have been implemented, aimed at involving young jobseekers in a work environment and
fostering appropriate work habits.
                                                     
22 The authorities indicated that "corporatization" is:  (i) the easy creation/modification/disbanding of a
corporate form not necessarily involving the adoption of  commercial practices and limited to the shareholders
liability;  or (ii) an entity incorpor ated under the Corporations Act or its own legislation, and providing goods or
services more or less as a private sector company.
23 Details of the Government’s asset sales (sales by tender and public float) are available at:
http://www.finance.gov.au/assetsales/index.html [9 April 2002].
24 Office of Asset Sales and Information Technology Outsourcing (OASITO) online information.
Available at:  http://www.oasito.gov.au/ [26 April 2001];  and Office of Asset Sales and InformationTechnology Outsourcing (2000).
25 OECD (2000).Australia WT/TPR/S/104
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(5) BALANCE -OF-PAYMENTS DEVELOPMENTS
(i) Current and trade accounts
21. Australia's current account deficit increased until 1999/00 (5.3% of GDP) largely due to the
effects on exports of the weaker regional and global demand, a slight deterioration in the terms of
trade (after a significant fall in 1998), due to falling world commodity prices, as well as a continued
strong import growth driven by robust domestic demand.26  In 2000/01 the deficit was reduced
considerably (2.8% of GDP) reaching the lowest annu al level in 20 years;  the trade account turned to
surplus, mainly driven by exports, in part reflecting the exchange rate depreciation.  Debt service
payments on Australia's relatively high external debt are the main reason for the net income deficit
(Table I.3).  In 2001/02 the current account deficit as a share of GDP is expected to rise to 3¾% as a
result of lower net exports and terms of trade.27
Table I.3
Balance of payments, 1997-01
($A million)
1997/98 1998/99 1999/00 2000/01
Current account -22,807 -33,366 -33,479 -18,496
Goods and services -4,738 -14,428 -14,351 1,209
Exports 113,744 112,025 125,972 153,098
Imports -118,482 -126,453 -140,323 -151,889
Goods -3,546 -12,644 -12,955 182
Exports 88,538 85,783 97,655 120,302
Imports -92,084 -98,427 -110,610 -120,120
Services -1,192 -1,784 -1,396 1,027
Exports 25,206 26,242 28,317 32,796
Imports -26,398 -28,026 -29,713 -31,769
Income -18,091 -18,189 -19,346 -19,750
Exports 10,384 10,263 12,802 15,484
Imports -28,475 -28,452 -32,148 -35,234
Current transfers 22 -749 218 45
Exports 3,993 4,498 4,625 4,453
Imports -3,971 -5,247 -4,407 -4,408
Capital and financial account 25,769 30,613 34,597 18,152
Capital account 1,127 1,167 1,053 1,075
Capital transfers 1,097 1,186 1,136 1,182
Exports 2,068 2,197 2,335 2,442
Imports -971 -1,011 -1,199 -1,260
Net acquisition/disposal of non-produced, non-financial assets 30 -19 -83 -107
Table I.3 (cont'd)
                                                     
26 APEC Secretariat online information.  Available at:   http://www.apecsec.org.sg
[20 February 2001];  and OECD (2000).
27 Commonwealth Department of the Treasury (2001).WT/TPR/S/104 Trade Policy Review
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1997/98 1998/99 1999/00 2000/01
Financial account 24,642 29,446 33,544 17,077
Direct investment 2,852 9,038 9,767 -1,912
Abroad -7,435 -2,361 -1,935 -12,482
In Australia 10,287 11,399 11,702 10,570
Portfolio investment 21,164 6,527 13,832 24,010
Financial derivatives -2,828 2,748 362 -272
Other investment 2,996 11,527 12,205 4,131
Reserve assetsa458 -394 -2,622 -8,880
Net errors and omissions 2,962 2,753 -1,118 344
a Negative value means an increase in reserves.
Source: Australian Bureau of Statistics (2002), Australian Economic Indicators, June, Issue 1350.0, Canberra.
22. By April 2002, Australia's international (foreign exchange) reserves stood at $A 30.8 billion
(US$16.6 billion), a level equivalent to 2.4 months of imports of goods and (non-factor) services.28
(ii) External liabilities/debt
23. Australia's build-up in foreign debt is the result of ongoing current account deficits reflecting
a shortfall of gross national saving in relation to gross domestic investment.  Since the previous
Review, Australia's net foreign debt has risen steadily except for a one-year decline in
1998/99 (Table I.4);  its share to GDP stood at 49.5% in 2000/01.  The private sector has continued to
account for an increasingly larger share of foreign debt;  the Government does not guarantee any ofthis stock of private sector debt.  Sustained budget surpluses have reduced debt obligations from
around 20% of GDP (1996/97) to 4 .2% (2000/01);  with receipts from the full sale of Telstra,
Commonwealth (public sector) net debt is expected to be eliminated by 2003/04.
29  The net debt-
service ratio (the ratio of net income payable to export earnings) has remained at or below 10% since
1997, down from 21% in 1990.
Table I.4
Net foreign debt structure, 1997-01
($A million)
1997/98 1998/99 1999/00 2000/01
Net foreign debt 227,782 225,577 272,071 317,040
Public sector 45,392 33,889 17,022 11,055
General government 30,368 22,995 13,652 13,762
Financial corporations 9,196 6,107 -2,810 -15,254
Reserve Bank -23,950 -22,843 -27,150 -36,909
Central Borrowing Authorities 36,391 32,387 27,970 26,197
Other financial corporations -3,245 -3,437 -3,630 -4,542
Non-financial corporations 5,828 4,787 6,179 12,546
Private sector 182,390 191,688 255,049 305,986
Financial corporations 128,746 140,567 194,702 236,933
Non-financial corporation 53,644 51,121 60,347 69,052
Source: Australian Bureau of Statistics (2001), Balance-of-Payments and International Investment Position, March and
September, Issue 5302.0 (Table 35), Canberra;  and the Australian authorities.
                                                     
28 Data from the Reserve Bank of Australia as of 7 May 2002.
29 Commonwealth Budget 2000-01, "Budget highlights:  Budget Overview & Economic Outlook"
[Online].  Available at:  http://www.budget.gov.au/2000-01/highlhts/default.htm [19 April 2001].Australia WT/TPR/S/104
Page 11
(6) DEVELOPMENTS IN MERCHANDISE TRADE
24. As a result of the increased openness of the Au stralian economy to international trade, and its
integration into the world economy, the ratio of its trade (exports plus imports) in goods and non-
factor services to GDP increased from 40.5% in 1997/98 to 42.6% in 2000/01.
25. Since its previous Review, Australia has remained largely dependent on commodity exports
(food, metalliferous ores, mineral fuels) (Chart I.2);  consequently it has been subject to moreprecipitous changes of direction driven by world demand.  Despite a slowing world economy,
commodity exports continued to grow solidly s upported by a competitive exchange rate and
diversification.  Australia has continued to meet demand for resources (e.g., fuels) and manufactures
as inputs to burgeoning industries in the Asian region;  nevertheless, the emergence of major trading
partners (e.g., Japan, Korea) as knowledge-based economies with a stronger focus on services mayhave important implications for Australia’s trade and investment patterns.
30  The share of
manufactured items (machinery and transport equipm ent, petroleum) in total imports has remained
relatively unchanged (Chart I.2).
26. Despite past difficulties arising from the Asian crisis, Australia's merchandise trade with East
Asia was reinforced between 1998 and 2000 (Chart I.3).31  Notwithstanding some fluctuation in trade
shares, more than 70% of merchandise trade has continued to be conducted with trading partners from
the Asia-Pacific Economic Cooperation (APEC) and around 14% with members of the Association of
East Asian Nations (ASEAN).  Japan, the EU, and the United States have remained Australia's main
single markets.  The EU replaced the United States as Australia's main single supplier.  During the
same period, New Zealand's share in Australian foreign trade was substantially reduced partly
reflecting the relative movements in the exchange rates.
(7) TRENDS AND PATTERNS IN FOREIGN INVESTMENT
27. During the period 1997/98-1999/00, Australia's st ock of inbound foreign direct investment
(FDI) expanded by about 21% from $A 99.4 billion to $A 120 billion (Chart I.4).  The overall pattern
of the FDI stock has remained unchanged;  it is c oncentrated in manufacturing, mining, finance and
insurance, wholesale trade, and property and business services.  No statistical information on the
origin of the FDI stock was made available to the Secretariat.
28. Since 1997/98 the stock of Australian invest ment overseas has risen to $A 375 billion
(US$224 billion, 1999/00) (Chart I.5).  In 2000/01, the value of outward FDI exceeded the value of
inward FDI for the first time;  this seems to be explained,  inter alia,  by commercial factors (e.g.,
international market access) and government-related considerations (e.g., foreign and domestic
taxation regimes) influencing investors decisions.32  North America and Europe (about 70%)
remained the largest destinations for Australian outbound FDI.
                                                     
30 Australian Department of Foreign Affairs and Trade (2001).
31 Until the second half of 1999 Australian exports were re-directed mostly away from East Asian
economies and toward faster-growing economies;  this trend, however, changed as the East Asian economies
started to recover from the financial crisis (APE C Secretariat online information.  Available at:
http://www.apecsec.org.sg [20 February 2001]).
32 Productivity Commission (2002).WT/TPR/S/104 Trade Policy Review
Page 12
Chart I.2
Product composition of merchandise trade, 1998 and 2000
1998 2000
(a)    Exports
Other
6.0
Manuf.
31.3
Total:   $A 89.0 billion Total:  $A 110.5 billion
(b)    Imports
Gold  3.3
Other machinery
13.5Electrical mchnry.  
5.9Food &
 live animals
3.8
Transport
equip.
14.8Fuels  4.5
Telecom., recording & 
reproducing equip.  4.3Manufactures
85.7Chemicals
11.4
Office machinery
7.3Other manuf.
15.0Food &
live animals
3.5
Other manufactures
14.1Fuels  
8.1
Other 
machinery 
10.8Transport equip.
 15.6
Telecom., recording & 
reproducing equip.  
7.0Manufactures
84.1Chemicals
11.4
Total:   $A 96.8 billion Total:   $A 116.9 billionPer cent
Manuf.
31.7Other 
6.9 Food  & 
live animals
16.9
Fuels  
20.9Gold 
 4.5
Gold  1.4Gold 
8.6
Transport equip.
4.2
 Electrical 
machinery
5.8Other
2.8Other 
2.8Food &
live animals
17.0
Manuf. goods 
classified chiefly by 
material  11.7Fuels
16.9
Machinery  
8.0Transport equip. 
4.0Machinery
7.1Other manuf.  3.8
Office machinery
7.3Other crude materials, inedible
19.3Chemicals
4.3 Chemicals
3.8Other crude materials, inedible
20.1
Source :  Australian Bureau of Statistics (various issues),  International Merchandise Trade , 5422.0, Canberra.Note:       SITC Rev.3 classification.Other manuf.
3.8
Manuf. goods 
classified chiefly by 
material  12.3
Manuf. goods 
classified chiefly 
by material
13.5Manuf. goods 
classified 
chiefly by 
material  12.1Australia WT/TPR/S/104
Page 13
Chart I.3
Direction of merchandise trade, 1998 and 2000
1998 2000
(a)    Exports
East Asia
50.9Middle East
4.0
Korea, Rep. of
  6.9Other 
East Asia
15.4Africa 
2.5 United States    9.5
Japan
19.5
Total:   $A 89.0 billion Total:   $A 110.5 billion
(b)    Imports
Other America
2.6United States
22.3
EU15
23.9East 
Asia
40.5Other 
5.5
China
7.8
Japan
13.1New Zealand  3.8
EU15
21.7East 
Asia
43.2United States
19.8
Total:   $A 96.8 billion Total:   $A 116.9 billion
Source :  Australian Bureau of Statistics (various issues),  International Merchandise Trade , 5422.0, Canberra.Per cent
Korea, Rep. of
   8.1Other East Asia
11.8
East Asia
55.4
China  
5.4Other Europe
1.0
Chinese Taipei
5.0
Other America
3.0Africa  
2.3
EU15
11.4United States
9.9
Other 
East Asia  
16.4
Japan
13.8Other East Asia
18.2New Zealand   4.0Other Oceania  2.2
South Asia  2.6
EU15
13.9
Middle East
4.6Other America  2.6Other America
3.0Other Oceania  2.5
South Asia  3.3
Other Europe
2.5
China
6.0
Middle
East
1.7Other
5.0
Middle
East
2.9Japan
19.8
Korea, Rep. of  
4.1Korea, 
Rep. of  4.3China
4.3Chinese Taipei  4.8New Zealand  6.4 Other
1.4
Singapore
5.3New Zealand  5.9 Other
2.2WT/TPR/S/104 Trade Policy Review
Page 14
020406080100120
1997/98 1998/99 1999/00Chart I.4
Stock of foreign direct investment by sector, 1997-2000
US$ billion
Source :    Information provided by the Australian authorities.Mining Wholesale & retail trade Electricty, gas & water Manufacturing
Finance & insurance Trans port & stora ge Property & business service Other
0102030405060708090100
1997/98 1998/99 1999/00Chart I.5                                
Stock of Australia's overseas investment by destination, 1997-2000
US$ billion
a                  Other includes international capital market  and institutions, Africa and Central and South America.                    North America OtheraEurope Oceania Asia Unallocated
Source:     Australian Bureau of Statistics (1999-2000), Balance of Payments and International Investment Position ,  
                   issue 5363.0 (Table 46 ), May 2001 , Canberra