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1996 Country Reports On Economic Policy and Trade Practices

Department of State report submitted to the Senate Committees on Foreign Relations and on Finance and to the House Committees on Foreign Affairs and on Ways and Means, January 1997.

	1994	1995	1996	2/
Income, Production and Employment
Nominal GDP 3/	300.3	312.1	340.5
Real GDP Growth (pct)	5.5	3.5	3.4
GDP by Sector: 4/
Agriculture	11.2	10.5	12.9
Manufacturing	86.0	88.2	94.1
Services	186.7	199.3	218.9
Government	11.0	11.3	12.2
Per Capita GDP (US$)	16,700	17,300	18,900
Labor Force (000s)	8,775	9,001	9,008
Unemployment Rate (pct)	9.7	8.5	8.6
Money and Prices (annual percentage growth)
Money Supply (M3)	10.4	9.2	8.6
Consumer Price Inflation	2.5	5.1	1.6
Exchange Rate (Aust$/US$ - annual average)
Market	1.37	1.35	1.28
Balance of Payments and Trade
Total Exports FOB	47.4	52.8	59.5
Exports to U.S. 5/	3.2	3.3	3.8
Total Imports CIF	49.8	57.3	59.7
Imports from U.S. 5/	9.8	10.8	12.0
Trade Balance	-2.4	-4.4	-0.1
Balance with U.S. 5/	-6.6	­7.5	-8.3
Current Account Deficit/GDP (pct)	5.0	6.3	4.2
External Public Debt	69.5	74.6	83.5
Debt Service Payments/GDP	2.4	2.7	2.5
Fiscal Deficit/GDP (pct) 6/	2.9	2.1	1.1
Gold and Foreign Exchange Reserves	14.3	15.0	17.5
Aid from U.S.	0	0	0
Aid from Other Countries	0	0	0

1/ Exchange rate fluctuations must be considered when analyzing data. Percentage changes are calculated in Australian dollars.
2/ 1996 figures are all estimates based on available monthly and quarterly data in November 1996.
3/ GDP at factor cost.
4/ Production measure of GDP -- does not sum to income measure used for nominal GDP.
5/ Source: U.S. Department of Commerce and U.S. Census Bureau; exports FAS, imports customs basis; 1996 figures are estimates based on data available through November 1996.
6/ Fiscal deficit is for Australian Financial Year. Underlying deficit equals headline deficit minus asset sales and debt repayments.

1. General Policy Framework

Australia has a developed market economy, dominated by the services sector, which accounts for around 65 percent of GDP. The agricultural and mining sectors combined represent only 4 percent of GDP, yet account for 58 percent of the total value of goods and services exports. While occupying a continent the size of the contiguous United States, Australia has only a relatively small domestic market (population: 18.1 million).

The Australian economy is currently experiencing a cyclical downturn, with economic growth strong and inflation low, but weak employment growth. In July 1996, the Reserve Bank of Australia (RBA) decided that monetary policy could be loosened without igniting inflationary pressures, and announced the first of two cuts in official interest rates (the second came in November). The official cash rate is currently 6.5 percent.

In its AFY 1996-97 budget (Australian fiscal year ends June 30), the new coalition government announced its plan to return the federal budget to an underlying balance by AFY 1998-99. (The underlying balance removes debt repayments and asset sales from the standard headline balance, and is used by the Australian government as the standard measure of the its fiscal position). The Federal Treasurer delivered an underlying budget deficit of US$4.4 billion in AFY 1996-97 (1.1 percent of GDP), and a marginal headline budget surplus. The reduction in the underlying deficit was achieved almost entirely through cuts in government outlays; if the GOA wishes to meet its balanced budget target, it will almost certainly have to make changes to taxation and revenue arrangements.

2. Exchange Rate Policies

Australian dollar exchange rates are determined by international currency markets. There is no official policy to defend any particular exchange rate level, although the RBA does operate in currency markets. The RBA is active in what it describes as "smoothing and testing" foreign exchange rates, in order to provide a generally stable environment for fundamental economic adjustment policies.

Australia does not have any major foreign exchange controls beyond requiring RBA approval if more than A$5,000 (US$3,900) in cash is to be taken out of Australia at any one time, or A$50,000 (US$39,000) in any form in one year. The purpose of this regulation is to prevent tax evasion and money laundering; authorization is usually automatic.

3. Structural Policies

The Australian government is continuing a program of economic reform, begun in the 1980s, that includes an accelerated timetable for the reduction of import protection and microeconomic reform. Initially broad in scope, the program now focuses on industry-by-industry changes. The government is also continuing with the privatization of government assets, with the national air carrier Qantas fully privatized, the partial float of the Commonwealth Bank completed in mid-1996, and the one-third float of the government telecommunications carrier Telstra planned for 1997.

The general tariff reduction program, begun in March 1991, has reached its conclusion, with most existing tariffs now at 5 percent. However, the passenger motor vehicles and textiles, clothing and footwear industries are still protected by high tariffs (25 and 37 percent respectively). These tariffs are scheduled to decline to 15 and 25 percent respectively by 2000. Other forms of industry support (such as production subsidies and export promotion schemes) have generally been either eliminated or reduced.

There have been no major reforms in the Australian taxation system in recent years, with the only change of any note being a rise in the tax on corporate profits from 33 to 36 percent (announced in 1996).

4. Debt Management Policies

Australia's net foreign debt throughout 1995 and 1996 has averaged between usdols 140 and 150 billion, or just below 40 percent of GDP. Australia's gross external public debt in 1996 is estimated to be usdols 83 billion, or 24 percent of GDP. Public debt accounts for 45 percent of Australia's gross external debt; the remaining 55 percent is owed by the private sector. The net debt-service ratio (the ratio of net income payable to export earnings) has remained steady between 11 and 12 percent since 1994, down from 21 percent in 1990. Standard and Poor's general credit rating for Australia remained AA during 1996.

5. Significant Barriers to U.S. Exports

Australia is a member of the WTO, but is not a signatory to the WTO Agreement on Government Procurement.

Import Licenses: Import licenses are now required only for certain vehicles, textiles, clothing and footwear. Licensing applied to these products is for protection, but except for a small market among importers of used automobiles has had little impact on U.S. products.

Services barriers: The Australian services market is generally open, and many U.S. financial services, legal and travel firms are established there. The banking sector was liberalized in 1992, allowing foreign banks to be licensed as either branches or subsidiaries. Broadcast licensing rules were also liberalized in 1992, allowing up to 20 percent of the time used for paid advertisements to be filled with foreign-sourced material (far greater than the percentage of non-Australian messages actually broadcast). Local content regulations also require that 50 percent of a commercial television station's weekly broadcasts between the hours of 6:00 a.m. and midnight must be dedicated to Australian-produced programs. This ruling has little effect on sales of U.S. programming to Australian broadcasters. Regulations governing Australia's pay-TV industry require that channels carrying drama programs devote at least 10 percent of broadcast time to new, locally-produced programs. State governments restrict the development of private hospitals as a means of limiting public health expenditures (medical expenses for private hospital care are paid through government health programs).

Standards: Australia still maintains restrictive standards requirements and design rules for automobile parts, electronic and medical equipment, and some machine parts and equipment. Currently, all Australian standards are being rewritten to harmonize them where possible to international standards, with the objective of fulfilling all obligations under the WTO.

Labelling: Federal law requires that the country of origin be clearly indicated on the front label of some types of products sold in Australia. Various other federal and state labelling requirements are being reconsidered in light of compliance with WTO obligations, lack of utility and effect on trade.

Investment: The government registers (but normally raises no objections to) proposals above certain notification thresholds where the relevant total assets/investments involved fall below A$50 million (US$39 million). Notification thresholds are A$3 million for purchases of rural properties, A$5 million for acquisitions of substantial interests in other existing businesses, A$10 million for the establishment of new businesses, and A$20 million for offshore takeovers. Investment proposals for entities involving more than A$50 million in total assets are approved unless found contrary to the national interest. Special regulations apply to investments in uranium mining, the media sector, urban real estate and civil aviation.

Divestment cannot be forced without due process of law. There is no record of forced divestment outside that stemming from investments or mergers that tend to create market dominance, contravene laws on equity participation, or result from unfulfilled contractual obligations.

Government procurement: Since 1991, foreign information technology companies with annual sales to the Australian government of A$10-40 million (US$8-32 million) have been required to enter into Fixed Term Arrangements (FTAs), and those with sales greater than A$40 million into Partnerships for Development (PFDs). Under an FTA, a foreign company commits to undertake local industrial development activities worth 15 percent of its projected amount of government sales over a four year period. Under a PFD, a foreign firm agrees to invest 5 percent of its annual local turnover on research and development in Australia; export goods and services worth 50 percent of imports (for hardware companies) or 20 percent of turnover (for software companies); and achieve 70 percent local content across all exports within the seven year life of the PFD.

The Information Technology Services Common Use Contract Panel (ITSCUCP), established in 1995, is used by Australian government agencies in planning and implementing information technology (IT) purchases. The ITSCUCP comprises a broad range of private companies (unlike its Restricted Systems Integration Panel predecessor). Any information technology company may join upon demonstrating acceptable levels of Australian product development, investment in capital equipment, skills development and/or services support, local sourcing, and Australian R&D activities.

The Australian government's 1994 Employment and Industry Policy Statement requires industry impact statements to be drafted for government procurements of A$10 million (US$8 million) or more, and establishes a two-envelope system for such tenders. Bidders are required to submit detailed information regarding Australian industrial development separately (in the second envelope), and bids are judged both on price/product specifications and industrial development grounds.

Quarantines: Australia's geographic isolation has allowed it to remain relatively free of animal diseases, such as rabies and foot-and-mouth disease. Australia imposes extremely stringent animal and plant quarantine restrictions. The Australian government is still examining measures that would allow the lifting of phytosanitary barriers to the importation of U.S. salmon and cooked chicken.

Motor Vehicles: The import of used vehicles manufactured after 1973 for personal use is banned, except where the car was purchased and used overseas by the buyer for a minimum of three months. Commercial importers must apply for a "compliance plate" costing A$20,000 for each make of car imported. Left hand drive cars must be converted to right hand drive (only by licensed garages) before they may be driven in Australia.

6. Export Subsidies Policies

As a WTO member, Australia is subject to WTO rules on subsidies and has joined with the U.S. in negotiations to limit export subsidy use.

The new Coalition Government severely curtailed assistance schemes to Australian industry in its federal budget for AFY 1996-97. Under the Export Market Development Grants Scheme, the Australian government gives grants to qualifying firms of up to A$200,000 (US$160,000) to assist in offsetting marketing costs incurred when establishing new export markets. There are also schemes available for drawbacks of tariffs and sales and excise taxes paid on the imported components of exported products. Such schemes are available in the passenger motor vehicle and the textiles, clothing and footwear industries. Consultations under WTO procedures on export subsidies granted under the latter program to leather upholstery products for automobiles were resolved without resort to formal dispute proceedings after the Australian government agreed to remove the products from the scheme. Grants schemes and tariff concessions were subject to expenditure reductions in the 1996-97 federal budget. The Research and Development Tax Concession (available to firms undertaking eligible R&D) was also reduced from 150 percent to 125 percent. "Bounties" (i.e. production subsidies) were also cut heavily in the August budget. The only remaining bounty is one assisting producers of computer components, and it is due to expire on July 1, 1997.

The "Factor (f)" scheme is designed to compensate manufacturers of pharmaceutical products for the effects of the federal government's intervention (through the national health system) in the market for consumer pharmaceuticals. Under the scheme, approved producers receive payments (to raise returns received for selected pharmaceuticals) to assist domestic drug research and development.

7. Protection of U.S. Intellectual Property

Patents, trademarks, designs and copyrights of integrated circuits are protected by Australian law. Australia is a member of the World Intellectual Property Organization, the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, the Universal Copyright Convention, the Geneva Phonogram Convention, the Rome Convention for the Protection of Performers, Producers of Phonograms, and Broadcasting Organizations, and the Patent Cooperation Treaty. Australian law is broad and protects new technology, including genetic engineering.

Patents: Patents are available for inventions in all fields of technology (except for human beings and biological processes relating to artificial human reproduction). They are protected by the Patents Act, 1990, which offers coverage for 20 years, subject to renewal. Trade secrets are protected by common law, such as by contract. Design features can be protected from imitation by registration under the Designs Act for up to 16 years (upon application). In 1995, a disagreement surfaced between the United States and Australia regarding the application of a WTO requirement under the TRIPs agreement to protect test data. USTR has placed Australia on the Special 301 watch list because it does not provide adequate protection for test data submitted to regulatory authorities for marketing approval of pharmaceutical and agricultural chemicals. Discussions on this issue continue.

Trademarks: Trade names and trademarks may be protected for ten years and renewed at will by registration under the Trademark Act, 1995. Once used, trade names and trademarks may also be protected by common law without registration. Some protection also extends to parallel importing, that is, imports of legally manufactured products ordered by someone other than a person or firm having exclusive distribution rights in Australia. Parallel importation is allowed for books under strictly limited conditions, and has been proposed for sound recordings. Australia has undertaken a review of compact disc pricing with a view to eliminating its ban on parallel imports. In September 1993, the Australian Copyright Law Review Committee recommended that parallel importation of computer software be allowed under strict limitations. No action has yet been taken on that recommendation.

Copyrights: Copyrights are protected under the Copyright Act, 1968. Works do not require registration and copyright automatically subsists in original literary, artistic, musical and dramatic works, film and sound recordings. Computer programs are considered legally to be literary works. Copyright protection is for the life of the author plus 50 years. The Australian Copyright Act provides protection regarding public performances in hotels and clubs and against video piracy and unauthorized third-country imports. No complaints about unauthorized public showings of films have been received for over five years.

New technologies: Illegal infringement of technology does not appear to be a significant problem. Australia has its own software industry and accords protection to foreign and domestic production. Australia manufactures only basic integrated circuits and semiconductor chips. Australian television networks, which pay for the rights to U.S. television programs, jealously guard against infringement. The fledging Australian cable TV networks appear to be doing the same.

8. Worker Rights

a. The Right of Association: Workers in Australia fully enjoy and practice the rights to associate, to organize and to bargain collectively. In general, industrial disputes are resolved either through direct employer-union negotiations or under the auspices of the various state and federal industrial relations commissions. Australia has ratified the major international labor organization conventions regarding worker rights.

b. The Right to Organize and Bargain Collectively: Approximately 35 percent of the Australian workforce belongs to unions. The industrial relations system operates through independent federal and state tribunals; unions are currently fully integrated into that process. Legislation reducing the powers of unions to represent employees was passed by Federal Parliament in November 1996.

c. Prohibition of Forced or Compulsory Labor: Compulsory and forced labor are prohibited by ILO conventions which Australia has ratified, and are not practiced in Australia.

d. Minimum Age for Employment of Children: The minimum age for the employment of children varies in Australia according to industry apprenticeship programs, but the enforced requirement in every state that children attend school until age 15 or 16 maintains an effective floor on the age at which children may be employed full time.

e. Acceptable Conditions of Work: There is no legislatively-determined minimum wage. An administratively-determined minimum wage exists, but is now largely outmoded, although some minimum wage clauses still remain in several federal awards and some state awards. Instead, various minimum wages in individual industries are specified in industry "awards" approved by state or federal tribunals. Workers in Australian industries generally enjoy hours, conditions, wages and health and safety standards that are among the best and highest in the world.

f. Rights in Sectors with U.S. Investment: Most of Australia's industrial sectors enjoy some U.S. investment. Worker rights in all sectors are essentially identical in law and practice and do not differ between domestic and foreign ownership.

Category		Amount
Petroleum		2,643
Total Manufacturing		8,466
Food & Kindred Products	1,829
Chemicals & Allied Products	2,323
Metals, Primary & Fabricated	465
Machinery, except Electrical	745
Electric & Electronic Equipment	236
Transportation Equipment	709
Other Manufacturing	2,159
Wholesale Trade		2,250
Banking		1,949
Finance/Insurance/Real Estate		2,425
Services		1,055
Other Industries		5,914
TOTAL ALL INDUSTRIES		24,713

Source: U.S. Department of Commerce, Bureau of Economic Analysis

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