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Factors such as a familiar legal and corporate framework, sophisticated consumer and industrial sectors, and a straightforward, English-speaking business culture make international trade with Australia a more attractive market for U.S businesses.

U.S.-Australia International TradeARTICLE

By Karen Lynch

U.S. companies conducting international trade with Australia view the market both on its own merits and as a gateway to Asia. Australia is the world’s 13th largest economy,1 is among the fastest-growing advanced economies, and has a strengthening trade network throughout the largest, fastest growing world region.2

With a population of 24.5 million, Australia had a GDP of $1.3 trillion that grew 2.6 percent in 2016.3 Official projections set Australia’s annual GDP growth at 2.7 to 3.1 percent in the coming five years, which compares favorably to other advanced economies (which are expected to average 1.7 to 2 percent GDP growth).4 Some in the private sector, however, warn that Australia’s economic growth may be slowing.5 In the last two years, the U.S. dollar exchange rate has bought between AU$1.29, at the low end of the range, and nearly AU$1.46 at the high end.6

Among other measures of Australia as an addressable export market, the Organization for Economic Co-operation and Development (OECD) ranks Australia fifth in terms of disposable household income ($33,000).7 GDP per capita was over $48,000 in 2016.8 About 86 percent of households have internet access.9

In the business sector, Australia’s top industries include mining and energy, agribusiness and, increasingly, financial and other professional services. For example, its pool of investment fund assets, at $1.6 trillion, is the world’s sixth-largest.10 Australia also ranks 6th in overall financial development in the World Economic Forum’s (WEF’s) Global Competitiveness Index.11

U.S. government agencies have issued generally positive reviews of American trade relations with Australia. “Australia’s relative market appeal remains convincing, with few barriers to entry, a familiar legal and corporate framework, sophisticated consumer and industrial sectors, and a straightforward, English-speaking business culture,” according to the U.S. International Trade Administration.12

Under the Australia-U.S. Free Trade Agreement, in effect since 2005, more than 99 percent of U.S. consumer and industrial goods can be exported to Australia duty-free. U.S. goods exports to Australia have risen from almost $14 billion in 2004,13 before the free trade agreement, to over $24 billion in 2016.14 Top U.S. export categories include automobiles, aircraft/spacecraft and parts, telecom equipment and parts, and medical instruments.15

Australia’s global trade rankings are also relatively high, with WEF rating the country 22nd out of 138 in its Global Competitiveness Index.16 Marks are not as high in specific areas of WEF’s Global Enabling Trade Index.17 Despite an overall ranking of 26 out of 136 countries in 2016, this index gave low marks for the cost of documentation and border compliance to import into Australia and to export out to other countries, as well. “In broad terms, the country’s international competitiveness has been eroded in recent years by a union-dominated labor market in key sectors, high corporate tax rates and over-regulation that has pushed up costs – including for electricity,” according to Citi Research.18

Importing from Australia

The U.S. exports more to Australia than it imports, with an AU$25.4 billion ($18.9 billion) surplus.19 In other words, while the U.S. is Australia’s 15th largest export destination, Australia is America’s 29th largest source of imports. That said, the U.S. imported AU$13.7 billion ($10.21 billion) in Australian goods in 2016, with top imports including meat, aircraft/spacecraft and parts, and alcoholic beverages.20 It imported AU$8.2 billion ($6.1 billion) in services, such as personal travel and professional, technical and other business services.21

Importing from Australia can suffer from the customs inefficiencies mentioned above, but also from U.S. border costs, particularly since documentation requirements are not highly rated in either country in the Global Enabling Trade Index.22 However, the Index has noted that the most problematic factor in Australian international trade – whether import or export – may well be the sheer distance, high cost and delay caused by international transportation.23

Setting up for International Trade in Australia

Geography can also favor Australia, though, as U.S. companies sometimes choose to locate in Australia to serve the Asia-Pacific region. “Australia’s proximity to many of the world’s fastest-growing economies in the Asia-Pacific region, and its time-zone spanning the close of business in the United States and the opening of Europe’s trading day, make it a prime location for doing global business,” according to a report from Australian law firm Clayton Utz.24

“The flow of business activity between Australia and other nations in the Asia-Pacific region has been building for many decades,” said the law firm’s report. “Our relationships with China, Japan, Indonesia and the United States are particularly positive and strong. The Australian Government’s work to conduct bilateral trade agreements with our major trading partners has intensified in the last four years, resulting in an even stronger platform for continued growth.”25

Recent bilateral trade initiatives have included the China-Australia Free Trade Agreement,26 which came into force in December 2015, and the negotiations begun in mid-2017 on a Hong Kong-Australia Free Trade Agreement.27

Australia is also a participant in multilateral trade deals,28 engaging in the recently revived Trans-Pacific Partnership talks (among Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam)29 and negotiations for a Regional Comprehensive Economic Partnership (among the Association of Southeast Asian Nations, or ASEAN, and Australia, China, India, Japan and New Zealand).

The Australian Chamber of Commerce and Industry is pushing further. “Australia has engaged effectively in the Asia-Pacific but there remains a vast and largely untapped opportunity within our region – the Indian Ocean Rim,” it said in a recent policy paper.30 At the same time, Australia must compete with other Asian gateways, such as Singapore and Hong Kong.

While much of foreign direct investment (FDI) in Australia has a regional emphasis – for example, many international technology companies have set up Asia-Pacific headquarters in Melbourne31 – the local market is also attracting FDI. Among other attributes mentioned above, Australia has low average inflation, of about 2.1 percent in mid-2017.33 Its World Bank (WB) Ease of Doing Business ranking was 15th out of 190 countries in 2017.32 Its WEF Human Capital Index ranking was 18th out of 130 countries in 2016.34

In Australia today, one in five businesses with more than 200 employees is at least 50 percent foreign-owned.35 U.S. FDI in Australia was AU$173.5 billion ($129.2 billion) in 2015.36 Competition from domestic and international companies is growing, though, including large FDI increases from China, Singapore and Malaysia in addition to Japan, the U.K. and the U.S.37

The Takeaway

American businesses conducting international trade with Australia have both Australian and Asian region aspirations. They have encountered growing markets on both fronts, as well as proliferating regional relationships.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1.Why Australia: Benchmark Report 2017, Australian Trade Commission; https://www.austrade.gov.au/International/Invest/Resources/Benchmark-Report
2.“Real GDP Growth,” International Monetary Fund; http://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD/AUS/USA/APQ/AFQ/SMQ
3.“Key Economic Indicators, 2017,” Australian Bureau of Statistics; http://www.abs.gov.au/ausstats/abs@.nsf/mf/1345.0
4.“Real GDP Growth,” International Monetary Fund; http://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD/AUS/USA/APQ/AFQ/SMQ
5.“ANZ Thinks the Brakes Are on Australia’s Economy,”Business Insider; http://www.thehindu.com/business/Economy/RCEP-negotiations-may-miss-December-deadline/article14587100.ece
6.“ XE Currency Charts: USD to AUD,” XE.com; http://www.xe.com/currencycharts/?from=USD&to=AUD&view=2Y
7.“OECD Better Life Index: Australia,” Organization for Economic Co-operation and Development; http://www.oecdbetterlifeindex.org/countries/australia/
8.“Australia,” Organization for Economic Co-operation and Development; https://data.oecd.org/australia.htm
9.“Households with Internet Access at Home,” Australian Bureau of Statistics; http://www.abs.gov.au/ausstats/abs@.nsf/mf/8146.0
10.Why Australia: Benchmark Report 2017, Australian Trade Commission; https://www.austrade.gov.au/International/Invest/Resources/Benchmark-Report
11.The Global Competitiveness Report 2016-2017, World Economic Forum; http://www3.weforum.org/docs/GCR2016-2017/05FullReport/TheGlobalCompetitivenessReport2016-2017_FINAL.pdf
12.“Australia – Market Overview,” U.S. International Trade Administration; https://www.export.gov/article?id=Australia-market-overview
13.Ibid.
14.“United States,” Australian Department of Foreign Affairs and Trade; http://dfat.gov.au/trade/resources/Documents/usa.pdf
15.Ibid.
16.The Global Competitiveness Report 2016-2017, World Economic Forum; http://www3.weforum.org/docs/GCR2016-2017/05FullReport/TheGlobalCompetitivenessReport2016-2017_FINAL.pdf
17.The Global Enabling Trade Report 2016, World Economic Forum; http://www3.weforum.org/docs/WEF_GETR_2016_report.pdf
18.“Citi Upbeat on Australian Economy,” Investor Daily; https://www.investordaily.com.au/markets/41203-global-growth-to-support-australian-economy
19.“United States,” Australian Department of Foreign Affairs and Trade; http://dfat.gov.au/trade/resources/Documents/usa.pdf
20.Ibid.
21.Ibid.
22.The Global Enabling Trade Report 2016, World Economic Forum; http://www3.weforum.org/docs/WEF_GETR_2016_report.pdf
23.Ibid.
24.Doing Business in Australia, Clayton Utz; https://www.claytonutz.com/ArticleDocuments/178/DoingBusinessInAustralia2017.pdf.aspx?Embed=Y
25.Ibid.
26.“China-Australia Free Trade Agreement,” Australian Department of Foreign Affairs and Trade; http://dfat.gov.au/trade/agreements/chafta/pages/australia-china-fta.aspx
27.“Australia and Hong Kong Begin Free Trade Agreement Talks,” Reuters; http://www.reuters.com/article/us-hongkong-australia-fta-idUSKCN18C07F
28.“Australia Opens New Trade Horizon in Latin America,” Wall Street Journal; https://www.wsj.com/articles/australia-opens-new-trade-horizon-in-latin-america-1495533699
29.“’TPP 11’ Are Working to Save the Trade Deal, but Members Remain Far Apart,” Nikkei Asian Review, http://asia.nikkei.com/magazine/20170525/Politics-Economy/TPP-11-are-working-to-save-the-trade-deal-but-members-remain-far-apart
30.“Australia Risks its Global Influence Unless We Boost Competitiveness,” Australian Chamber of Commerce and Industry; https://www.acci.asn.au/news/australia-risks-its-global-influence-unless-we-boost-competitiveness
31.“Why Melbourne Is a Top Choice for Major Tech Companies’ Asia-Pacific Headquarters,” Forbes; https://www.forbes.com/sites/jlim/2016/12/05/why-melbourne-is-a-top-choice-for-major-tech-companies-asia-pacific-headquarters/#1d4096a87a97
32.“Inflation,” Reserve Bank of Australia; http://www.rba.gov.au/
33.Doing Business 2017, World Bank; http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Annual-Reports/English/DB17-Report.pdf
34.The Human Capital Report 2016, World Economic Forum; http://www3.weforum.org/docs/HCR2016_Main_Report.pdf
35.Why Australia: Benchmark Report 2017, Australian Trade Commission; https://www.austrade.gov.au/International/Invest/Resources/Benchmark-Report
36.“United States,” Australian Department of Foreign Affairs and Trade; http://dfat.gov.au/trade/resources/Documents/usa.pdf
37.Why Australia: Benchmark Report 2017, Australian Trade Commission; https://www.austrade.gov.au/International/Invest/Resources/Benchmark-Report

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