Australia Summary

As an export-dependent country, Australia has a major stake in maintaining a vigorous and open world trading system, and it favors the launch of a new round of trade negotiations focused on further liberalization of agriculture, industrial products and services. An active participant in WTO affairs, Australia was commended in its 2002 WTO Trade Policy Review for the transparency of its legal and institutional framework for trade and investment.[1] Sound macroeconomic policies and some far-reaching structural reforms have enabled the small island nation to benefit from its past undertakings in unilateral trade liberalization and achieve a decade of impressive economic performance.

Tariff Cuts

Customs tariffs account for only a small portion (2.3%) of Australia's total tax revenues, but they remain its main trade policy instrument. The average applied most-favored-nation tariff is a low 4.3%, down from 5.6% in 1997/98. Higher tariffs are maintained, however, in two industry sectors: passenger motor vehicles and textiles, clothing and footwear. The rates applicable to these goods are two to three times higher than the average for industrial products, but special reductions are scheduled to be in place by 2005. The United States has proposed that tariffs on all manufactured goods be eliminated by 2015; Australia, however, has more recently suggested an even more aggressive reduction in such tariffs, calling for industrialized countries to eliminate the duties by 2010 while allowing more time for tariff barrier adjustment by the developing world.

Quarantine Laws

While Australia has been praised for its exemplary transparency in trade policy, its low tariff rates and its strong commitment to the multilateral trading system, it has been criticized by the EU, the US, the Philippines and other developing countries for enforcing rigorous quarantine laws. Critics claim that these regulations amounts to a de facto form of protection by restricting the import of certain seeds and plants. However, Australia asserts that these laws are necessary to maintain the country's reputation as a reliable exporter of high quality agricultural commodities and agri-food products, which could be jeopardized by pests and diseases. It has continued to implement its conservative quarantine policies, believing these policies to be consistent with its obligations under the WTO's Sanitary and Phytosanitary (SPS) Agreement, which has not been opened for re-negotiation in the Doha round. In February 2004, however, Australia announced its intention to lift the ban on imported fruit from the Philippines. The government's decision was strongly protested by domestic banana growers, claiming the decision would devastate their $275 million industry. Shortly thereafter, Biosecurity Australia (the government organization that oversees risk associated with commodity imports) claimed a mistake in its risk assessment and promised reevaluation. [2]

Agriculture

As current chair of the Cairns Group of agricultural exporting countries, Australia has taken a strong stance to keep agriculture at the forefront of multilateral trade negotiations - advocating for the elimination of export subsidies, maximum possible reductions in trade-distorting domestic support, and improved market access for all agriculture and food products. Amounting to only 0.3% of GDP in 2001, Australia's total support to agriculture was the lowest proportionally among all OECD countries, and its estimated 4% overall producer support was the second lowest. Of this domestic support, most is directed towards land conservation programs having little, if any, distorting effect on production or trade.

In September 2002 Australia and Brazil formally lodged a complaint with the WTO against the European Union, blaming EU subsidies and its preferential pricing regime for the artificial depression of world sugar prices to levels below production costs. Under the EU's current sugar regime, African Caribbean Pacific (ACP) countries get special quotas and sell their sugar in EU markets at up to nearly three times the world market price. Fourteen ACP countries have sided with the EU in defense of its policies' accordance with WTO agreements, making the counter-accusation that Brazil already dominates the global sugar market. Australia's sugar industry, however depends on the world market for the purchase of 80% of its output, and thus has strong interests in seeing to increased openness in global sugar trade.

Australian Trade Minister Mark Vaile has called on the EU to reduce its overall agricultural subsidies with accelerated reform of its Common Agricultural Policy (CAP). Australia dismissed the EU's December 2002 proposal to cut farm-good tariffs by 36%, agricultural export subsidies by 45%, and trade distorting domestic farm support by 55% as "too little too late." [3] In return for any Doha-Round reduction in European barriers against agricultural imports, the EU would likely request significant concessions from Australia pertaining to its services industries, such as the lifting of restrictions on its water distribution industry and on foreign ownership of Telstra, the country's largest telecommunications company.

Services and Government Procurement

Government support to the services sector has risen since 1998, through direct financial assistance, tax expenditures and funding to public sector institutions, while several access restrictions remain in force. The main beneficiaries have been financial and insurance, cultural and recreational, transport and storage, property, business and communication services. Progress has been made, however, in the privatization of government-owned facilities in electricity, natural gas, and telecommunications. Australia continues to refuse to sign the WTO Agreement on Government Procurement, which became effective in 1996 to liberalize trade by opening opportunities for companies to supply the government purchasing markets of other countries.

Trade Agreements

On February 8th 2004, Australia and the US announced the conclusion of an agreed text for their long-pending free trade agreement (AUSFTA). Although some observers hailed the agreement as a success, critics expressed significant concerns over the agreement's failure to include all sectors and the fact that no specific environmental provisions were spelled out within it. The small, though heavily protected, US sugar industry was ultimately successful in lobbying for the exclusion of access to its market in the agreement. Some critics accuse the US administration of allowing election year politics to infiltrate its trade decision-making, pointing to the fact the sugar lobby is concentrated in Florida, a key presidential battleground. The most prominent concern to arise out of the agreement is the precedent it sets by excluding entire industries or issue areas from its negotiation, thus undermining the "single undertaking" principle central to WTO trade agreements. While the agreement has not yet been signed, as of March 2004, the text is considered final. [4]

Australia now maintains preferential trading arrangements with Canada, China, New Zealand and Thailand, as well as with a number of developing and least developed countries under the Australian System of Tariff Preferences. It is now exploring the prospects of broadening and deepening bilateral trade relations with Japan, Korea, and Singapore. It is looking regionally as well through the establishing the Closer Economic Partnership (CEP) which would link ASEAN and Australia and New Zealand (already linked through CER, Closer Economic Relations). The advantage of preferential agreements with Australia seems to have declined, however, as its applied MFN tariffs have been reduced. Australia is an active member of the Asia-Pacific Economic Cooperation (APEC) and is committed to achieving the Forum's Bogor Goals of free and open trade and investment by 2010 in developed APEC economies and 2020 in developing economies.

Conclusion

Australia took an active role in spurring progress in the Doha Round by hosting a "mini-WTO ministerial meeting" WTO in Sydney in November 2002, encouraging the 25 trade ministers invited to reconcile their positions and gain some momentum for the ministerial meeting in Cancun. Due to its relative geographic isolation, as well as its being a large producer country with a small domestic market, market access will remain a critical issue area for Australia in trade negotiations. Thus, the vitality of Australia's economy will rely upon the successful outcomes of the Doha round and future trade negotiations.

Last updated April 2004

[1] WTO Trade Policy Review - Australia 2002: http://www.wto.org/english/tratop_e/tpr_e/tp202_e.htm
[2] Biosecurity Australia: http://www.affa.gov.au/biosecurityaustralia
[3] Mitchell, Scott. "EU Draft Ag Negotiating Proposal, Too Little, Too Late." Australian Department of Foreign Affairs and Trade. 18 Dec 2002.
[4] AUSFTA Draft Text: http://www.dfat.gov.au/trade/negotiations/us_fta/text/