EU is Australia's top economic partner

Europe Business Review, Oct-Dec, 1999

The latest figures from the Australian Bureau of Statistics confirm the position of the EU as Australia's largest economic partner.

This is the 8th consecutive year in which this has been the case, despite moves by both sides to expand engagement with Asia. EU-Australia trade links continue to strengthen - in 1997-98, for example, by over 12 percent.

The EU represents 15 Member States and a Single Market of over 375 million consumers. This number is likely to grow by a further 100 million when countries from Central and Eastern Europe and the Mediterranean join the EU in the near future.

The current account of the balance of payments records not only trade in goods, but also recognises the growing part played by trade in services.

In addition, the data includes the important amounts of investment income receivable and also payable abroad.

When transfer payments are added, a realistic picture of the nature and size of the EU-Australia bilateral economic relationship emerges.

There has been steady economic expansion over five years, including the important lift in 1997-98 reflecting Australia's reorientation towards the EU in the wake of the regional Asian crisis.

In that year, current transactions reached A$55.7 billion, amounting to 20 percent of all Australian overseas transactions. By comparison, the US accounted for 17.4 percent of all transactions, Japan 13.6 percent and ASEAN 11 percent.

Figures on the four basic elements of the economic relationship confirm the EU as the largest merchandise trading partner with two-way trade amounting to A$32.3 billion or 18 percent of the total.

Similarly the EU remains the largest partner for Australian bilateral trade in services, now worth A$11 billion or 21 percent of the total services trade.

The EU is Australia's major partner in terms of the level of accumulated investment and the second most important location for Australian overseas investment. Investment income provides a pivotal contribution to the overall economic relationship. Amounting to A$11 billion in 1997-98, it made up 28 percent of aggregate bilateral earnings.

Fifty-eight percent of the EU-Australia relationship rests on merchandise trade compared with 80 percent for Japan and 71 percent for both ASEAN and APEC. It is therefore a more balanced partnership.

The current account balance is determined by comparing the income and outgoings of bilateral trade. Over the last five years the Australian deficit from its EU relationship has risen by 109 percent to reach A$20.2 billion in 1997-98.

The deficit with the US grew by 30 percent to A$17.2 billion and that with the APEC group rose by 310 percent to A$2.9 billion.

Australia's surplus with Japan rose by 21 percent to A$4.5 billion while the surplus with ASEAN fell by 70 percent to A$1.2 billion.

Investment Partnership

The growth of interdependence of the global economy is well beyond that of international trade alone.

In recent years world outflows of foreign direct investment have grown at three times the rate of world exports and four times as fast as world GDP. Export sales by foreign affiliates have grown faster than world exports.

The long term strength of the EU-Australia economic relationship is underpinned by a well-founded investment partnership. Not only is the EU the leading foreign investor in Australia, but the EU is also the second major destination for Australian investment abroad.

Such strong investment links achieved over many years bring the scope for a durable trading relationship, technology transfers and enhancement of employment in both domestic and export sectors. A recent survey identified about 350,000 jobs created by EU companies in Australia.

The level of the EU's accumulated investment in Australia is about A$193 billion. Over the last five years the investment has more than doubled, lifting the EU share of all foreign investment from 25 percent to 34 percent today.

The next major source for Australia, the US, lifted its share at half the growth rate of the EU to reach 25 percent over the same period.

The share taken up by Japan fell from 14 percent to 10 percent while the share of the ASEAN group rose to A$16.3 billion in 1997-98, a 2.9 percent share.

While continental EU members increased their share of EU investment up to 1995-96 when it reached 34 percent, the UK has returned to its traditional 75 percent share in Australia over the last two years.

Over the last six years the EU has transmitted over A$60 billion, or one-third of the total inflow. This makes the EU the major supplier of overseas funds for Australia's growth and export development. By comparison, the US investment flow has provided a 30 percent share, that from Japan a 1.8 percent share with a 3.9 percent share for ASEAN.

The EU is the key provider of overseas manufacturing funds, with significant investment in petroleum, coal, chemicals and manufacturing in food, beverages, tobaccos, metal products, printing, machinery and equipment.

However, 29 percent of EU investment in Australia was in the finance and insurance sector which supplied additional capital for Australian industry.