Australia: Country Report

Australia
October 2011
Country Report
Published by The PRS Group, Inc. 6320 Fly Road, Suite 102 East Syracuse, NY 13057-9358, USA Tel: +1 (315) 431-0511 Fax: +1 (315) 431-0200 e-mail: custserv@prsgroup.com www.PRSgroup.com
Political Risk Services
Australia Country Forecast

Reproduction without written permission of The PRS Group is strictly prohibited.
Papua New Guinea
Arafura Sea
SOLOMON ISLANDS
Indonesia
Timor Sea
q
Darwin
TUVALU Gulf of Carpentaria
qCairns
C o r a l
S e a
VANUATU
FIJI
Townsvilleq
q A lic e
q Mackay
Sp r i n gs
q
NEW CALEDONIA
Australia
q q Fremantle
Brisbane
Perth
Great Australian Bight
Adelaide Melbourne
q
Sydney New Zealand
Canberra
Devonport
q q
Hobart
REV2003
Page 2
Map

28-Oct-2011
Australia
Country Forecast
Highlights
MOST LIKELY REGIMES AND THEIR PROBABILITIES 18-Month: Minority ALP 45% (50%) Five-Year: LP-NP Coalition 55% (45%) FORECASTS OF RISK TO INTERNATIONAL BUSINESS Financial Direct Turmoil Transfer Investment 18-Month: Low A+ AFive-Year: Low AA
( ) Indicates change in rating.
Export Market A A-
* Indicates forecast of a new regime.
KEY ECONOMIC FORECASTS Real GDP Years Growth % 2006-2010(AVG) 2.8 2011(F) 1.8 2012-2016(F) 2.9
Inflation % 3.0 3.5 2.8
Current Account ($bn) -44.83 -35.40 -39.20
Gillard Flailing
Key Points To Watch
Prime Minister Julia Gillards minority ALP government is continuing to hang on to power with the backing of members of the Australia Greens and three independent lawmakers. However, the fragility of the governments parliamentary majority has forced Gillard to cede a substantial amount of influence over policy to her non-ALP partners, at the risk of further eroding her already sagging popular support, which has left her vulnerable to a challenge from her predecessor as party leader, Foreign Minister Kevin Rudd The government recently managed to secure approval of a controversial carbon-tax scheme that Gillard only pursued under pressure from the Greens, but passage of a bill that would impose a 40% windfall profits tax on mining companies has been blocked by one of the governments independent backers. Gillard is counting on revenue from the mining tax to fund tax breaks for businesses, increase pension benefits, and finance improvements to regional infrastructure, all of which she hopes will boost her approval rating The next election does not fall due until 2013, and the virtual certainty of a landslide victory for the Liberal-National opposition coalition in the event of a snap poll will probably ensure the survival of the government for the time being. However, policy implementation will
Highlights
28-Oct-2011 Page 3

28-Oct-2011

remain erratic, and the oppositions pledge to abolish the carbon-tax plan if returned to power can only heighten the level of uncertainty, with negative consequences for investor confidence
Government Change May Mean Policy Reversals

Just as he has pledged to repeal the Clean Energy program, Abbott has suggested that he would consider abandoning the ALPs national broadband project as a means of restoring the budget balance to surplus. Whether this is merely campaign-mode grandstanding is an open question. The already high estimated cost of establishing the network is sure to rise, but the program is popular among members of the LP and especially the NP, which represents a rural constituency Otherwise, an LP-NP government coming to power in 2013 election will encourage foreign investment and pursue privatization in order to foster economic development, despite opposition from trade unions, environmental groups, Aborigines, and, at times, the NP If the LP-NP coalition is returned to government with a comfortable majority, the administrations reform agenda will likely focus on reshaping federal-state relations. The LP will probably focus the debate on deficiencies in water and energy policy, which even defenders of states rights concede require national solutions. But the Liberals view the state governments as an impediment to badly needed reforms, and may take advantage of the High Courts expansive interpretation of the corporations power to push for a sweeping national reform program that includes the education and health systems, as well The 2011/2012 budget unveiled in May 2011 projects a deficit equivalent to about 1.5% of GDP, compared to an earlier anticipated shortfall nearly twice as big. Even more significant was the governments forecast of a surplus in 2012/2013, which is to be achieved through savings from reduced transfer payments to families and various adjustments to the tax code as it affects spousal benefits and unemployed youth However, with economic growth forecast to come in well below the budget target in 2011, the deficit is likely to be closer to 3% of GDP. The restoration of fiscal discipline cannot be put off indefinitely without risking an adverse reaction in the markets, and any government will be expected to move in that direction over the middle of the forecast period Assuming general economic conditions are sufficiently stable as to permit some easing of fiscal constraints later in the forecast period, economic growth rates should accelerate to 3%3.5, producing an average rate of growth of close to 3% per year through 2016. The central bank will tighten monetary policy as necessary, and inflation is forecast to remain close to the upper limit of the RBAs comfort zone over the entire forecast period, averaging 2.8% per year through 2016.
Economic Forecasts for the Three Alternative Regimes

LP-NP Coalition
Growth (%) Inflation (%) CACC ($bn) Growth (%)
ALP
Inflation (%) CACC ($bn)
Divided Government
Growth (%) Inflation (%) CACC ($bn)
2011 2012-2016
1.8 2.9
3.5 2.8
-35.40 -39.20
2.1 3.0
3.3 2.6
-33.90 -42.60
1.9 2.2
3.2 2.9
-32.40 -37.40
Page 4 28-Oct-2011
Highlights

1-Nov-2011

Political Fact Sheet
CAPITAL: Canberra CONSTITUTION: January 1, 1901 ADMINISTRATIVE SUBDIVISIONS: 6 states and 2 territories POPULATION: 2010: 21.51 million AREA: 7,682,300 sq. km. OFFICIAL LANGUAGE: English STATUS OF PRESS: free SECTORS OF GOVERNMENT PARTICIPATION: transportation, communications, shipping, agriculture, utilities CURRENCY EXCHANGE SYSTEM: free-floating EXCHANGE RATE: 10/24/2011 $1=0.96 Australian dollars ELECTIONS: Senate members serve six-year terms; onehalf elected every three years. House of Representative members are elected for a maximum three-year term; last, August 21, 2010; next, by August 2013.
HEAD OF STATE: Queen Elizabeth II, represented by Governor General Quentin Bryce (2008) HEAD OF GOVERNMENT: Prime Minister Julia Gillard (2010) OFFICIALS: Wayne Swan, Deputy Prime Minister, Treasurer Joseph Ludwig, Agriculture Robert McClelland, Attorney General Stephen Smith, Defense Tony Burke, Environment Penny Wong, Finance & Deregulation Kevin Rudd, Foreign Affairs Nicola Roxon, Health Chris Bowen, Immigration & Citizenship Anthony Albanese, Infrastructure & Transport Kim Carr, Innovation, Industry & Science Simon Crean, Regional Australia, Regional Development & Local Government Craig Emerson, Trade Martin Ferguson, Resources & Energy, Tourism LEGISLATURE: Bicameral Parliament; 76-member Senate and 150-member House of Representatives. Seat distribution in the Senate: Liberal and National Party Coalition (LP-NP), 36; Australian Labor Party (ALP), 32; Australian Greens, 5; other, 2; independent, 1. Seat distribution in the House: ALP, 83; LP-NP, 65; independent, 2.
Current Data
1-Nov-2011 Page 5

1-Nov-2011
Australia Databank
2001-2005 Average 2006-2010 Average
996.64 47220 2.8 3.0 280.55 28.2 231.53 23.4 235.72 23.6 -4.20 -0.2 199.61 4.7 4.9 34.52 34.54 37.30 2.48 39.78 880.25 88.2 33.68 13.8 -44.64 -4.6 -19.2 164.81 168.47 -3.67 41.78 31.65 4.73 242.97 8.32 31.46 2.4 1.217 3.3 21.07 1.1 5 19 89 0.4 94 4 22 74 28 5.71 0.27
2001
368.11 18975 2.1 4.4 80.91 22.0 94.67 25.7 91.58 24.9 3.09 0.8 86.50 4.9 6.7 8.26 16.43 17.96 0.71 18.67 251.36 68.3 10.05 10.9 -7.41 -2.0 -8.0 63.63 61.89 1.74 18.09 8.20 2.30 92.22 0.05 18.62 3.6 1.932 -12.5 19.40 1.4 5 21 90 2.5 92 5 22 73 28 5.02 0.26
2002
425.57 21658 4.2 3.0 106.80 25.1 101.89 23.9 102.47 24.1 -0.58 -0.1 81.02 5.1 6.3 16.99 18.62 20.69 0.88 21.57 293.71 69.0 10.03 10.5 -15.81 -3.7 -16.6 65.01 70.53 -5.52 19.59 8.52 2.37 95.49 0.69 20.88 3.6 1.841 4.7 19.65 1.3 5 21 90 1.3 92 5 22 73 28 5.13 0.26
2003
540.30 27151 3.1 2.8 141.52 26.2 132.69 24.6 127.91 23.7 4.78 0.9 104.37 5.6 5.9 8.02 29.97 32.19 1.07 33.26 366.17 67.8 10.54 9.8 -28.68 -5.3 -26.7 70.52 85.86 -15.34 23.75 10.49 2.74 107.50 0.68 32.58 4.6 1.542 16.2 19.90 1.3 5 21 90 1.3 92 5 22 73 28 5.13 0.26
2004
658.07 32659 3.7 2.3 174.32 26.5 160.13 24.3 154.25 23.4 5.88 0.9 124.15 3.8 5.4 36.83 33.90 35.80 1.12 36.92 479.27 72.8 12.91 9.7 -38.85 -5.9 -29.2 87.16 105.23 -18.07 28.49 14.31 3.11 133.07 0.79 36.13 4.1 1.360 11.8 20.15 1.3 5 20 91 2.4 93 5 22 73 28 5.29 0.26
2005
737.18 36136 3.1 2.7 202.53 27.5 180.14 24.4 169.78 23.0 10.36 1.4 139.51 5.5 5.1 -35.60 40.97 41.94 1.32 43.26 569.49 77.3 17.52 11.1 -41.03 -5.6 -26.0 107.01 120.38 -13.37 31.05 16.45 3.33 157.84 0.70 42.56 4.2 1.310 3.7 20.40 1.2 5 20 92 2.3 93 5 22 73 28 5.42 0.27
Domestic Economic Indicators GDP (Nominal, $bn) Per Capita GDP ($) Real GDP Growth Rate (%) Inflation Rate (%) Capital Investment ($bn) Capital Investment/GDP (%) Budget Revenues ($bn) Budget Revenues/GDP (%) Budget Expenditures ($bn) Budget Expenditures/GDP (%) Budget Balance ($bn) Budget Balance/GDP (%) Money Supply (M1, $bn) Change in Real Wages (%) Unemployment Rate (%) International Economic Indicators Foreign Direct Investment ($bn) Forex Reserves ($bn) Gross Reserves (ex gold, $bn) Gold Reserves ($bn) Gross reserves (inc gold, $bn) Total Foreign Debt ($bn) Total Foreign Debt/GDP (%) Debt Service ($bn) Debt Service/XGS (%) Current Account ($bn) Current Account/GDP (%) Current Account/XGS (%) Exports ($bn) Imports ($bn) Trade Balance ($bn) Exports of Services ($bn ) Income, credit ($bn) Transfers, credit ($bn) Exports G&S ($bn) Liabilities ($bn) Net Reserves ($bn) Liquidity (months import cover) Currency Exchange Rate Currency Change (%) Social Indicators Population (million) Population Growth (%) Infant Deaths/1000 Persons under Age 15 (%) Urban Population (%) Urban Growth (%) Literacy % pop. Agricultural Work Force (%) Industry-Commerce Work Force (%) Services Work Force (%) Unionized Work Force (%) Energy - total consumption (1015 Btu) Energy - consumption/head (109 Btu)
545.85 27316 3.2 3.0 141.22 25.5 133.90 24.6 129.20 23.8 4.71 0.8 107.11 5.0 5.9 6.90 27.98 29.72 1.02 30.74 392.00 71.0 12.21 10.4 -26.36 -4.5 -21.3 78.67 88.78 -10.11 24.19 11.59 2.77 117.22 0.58 30.15 4.0 1.597 4.8 19.90 1.3 5 21 91 2.0 92 5 22 73 28 5.20 0.26
Current Data
1-Nov-2011 ~ Page 6-7

1-Nov-2011
Australia Databank
2001-2005 Average 2006-2010 Average
996.64 47220 2.8 3.0 280.55 28.2 231.53 23.4 235.72 23.6 -4.20 -0.2 199.61 4.7 4.9 34.52 34.54 37.30 2.48 39.78 880.25 88.2 33.68 13.8 -44.64 -4.6 -19.2 164.81 168.47 -3.67 41.78 31.65 4.73 242.97 8.32 31.46 2.4 1.217 3.3 21.07 1.1 5 19 89 0.4 94 4 22 74 28 5.71 0.27
2006
783.97 38001 2.6 3.5 216.96 27.7 192.69 24.6 180.83 23.1 11.86 1.5 155.69 3.8 4.8 26.42 52.82 53.45 1.63 55.08 662.26 84.5 20.73 11.3 -41.50 -5.3 -22.6 124.91 134.51 -9.60 33.09 21.75 3.70 183.45 0.81 54.27 4.8 1.328 -1.4 20.63 1.1 5 20 92 1.1 93 4 26 70 28 5.45 0.26
2007
951.62 45641 4.6 2.3 273.24 28.7 226.36 23.8 211.98 22.3 14.38 1.5 193.58 4.6 4.4 41.08 24.24 24.77 2.14 26.91 807.03 84.8 31.24 14.2 -58.03 -6.1 -26.4 142.42 160.21 -17.79 40.50 32.66 4.40 219.98 1.09 25.82 1.9 1.195 10.0 20.85 1.1 5 19 88 -3.3 93 4 21 75 28 5.56 0.27
2008
1040.86 49400 2.6 4.4 303.38 29.2 244.59 23.5 228.06 21.9 16.53 1.6 203.51 4.1 4.3 47.28 29.87 30.69 2.23 32.92 972.48 93.4 36.44 13.2 -47.79 -4.6 -17.3 189.06 193.97 -4.91 45.24 37.32 4.43 276.05 30.45 2.47 0.2 1.192 0.3 21.07 1.1 5 19 88 1.1 93 4 21 75 28 5.75 0.27
2009
973.82 45741 1.4 1.8 272.54 28.0 225.40 23.2 246.52 25.3 -21.12 -2.2 196.31 5.9 5.6 27.25 33.00 38.95 2.79 41.74 905.22 93.0 38.08 16.6 -43.89 -4.5 -19.1 154.79 159.00 -4.21 41.59 27.92 5.07 229.37 4.58 37.16 2.8 1.282 -7.6 21.29 1.0 5 19 88 1.0 93 4 21 75 28 5.86 0.28
2010
1232.94 57319 2.7 2.8 336.65 27.3 268.59 21.8 311.23 25.2 -42.64 -3.5 248.97 4.9 5.2 30.58 32.79 38.66 3.61 42.27 1054.27 85.5 41.92 13.7 -31.99 -2.6 -10.5 212.85 194.67 18.18 48.49 38.59 6.06 305.99 4.69 37.58 2.3 1.090 15.0 21.51 1.0 5 18 89 2.1 99 4 21 75 28 5.94 0.28
Domestic Economic Indicators GDP (Nominal, $bn) Per Capita GDP ($) Real GDP Growth Rate (%) Inflation Rate (%) Capital Investment ($bn) Capital Investment/GDP (%) Budget Revenues ($bn) Budget Revenues/GDP (%) Budget Expenditures ($bn) Budget Expenditures/GDP (%) Budget Balance ($bn) Budget Balance/GDP (%) Money Supply (M1, $bn) Change in Real Wages (%) Unemployment Rate (%) International Economic Indicators Foreign Direct Investment ($bn) Forex Reserves ($bn) Gross Reserves (ex gold, $bn) Gold Reserves ($bn) Gross reserves (inc gold, $bn) Total Foreign Debt ($bn) Total Foreign Debt/GDP (%) Debt Service ($bn) Debt Service/XGS (%) Current Account ($bn) Current Account/GDP (%) Current Account/XGS (%) Exports ($bn) Imports ($bn) Trade Balance ($bn) Exports of Services ($bn ) Income, credit ($bn) Transfers, credit ($bn) Exports G&S ($bn) Liabilities ($bn) Net Reserves ($bn) Liquidity (months import cover) Currency Exchange Rate Currency Change (%) Social Indicators Population (million) Population Growth (%) Infant Deaths/1000 Persons under Age 15 (%) Urban Population (%) Urban Growth (%) Literacy % pop. Agricultural Work Force (%) Industry-Commerce Work Force (%) Services Work Force (%) Unionized Work Force (%) Energy - total consumption (1015 Btu) Energy - consumption/head (109 Btu)
545.85 27316 3.2 3.0 141.22 25.5 133.90 24.6 129.20 23.8 4.71 0.8 107.11 5.0 5.9 6.90 27.98 29.72 1.02 30.74 392.00 71.0 12.21 10.4 -26.36 -4.5 -21.3 78.67 88.78 -10.11 24.19 11.59 2.77 117.22 0.58 30.15 4.0 1.597 4.8 19.90 1.3 5 21 91 2.0 92 5 22 73 28 5.20 0.26
Current Data
1-Nov-2011 ~ Page 6-7

28-Oct-2011 Comparison: Australia
Regional Real GDP Growth (2010): East Asia/Pacific
Singapore Taiwan China Thailand Philippines Malaysia Papua New Guinea Vietnam Hong Kong South Korea Indonesia Japan Myanmar Australia New Zealand 0 2 4 6 8 (percent) 10 12 14 16
Regional Inflation Rates (2010): East Asia/Pacific

Vietnam Myanmar Papua New Guinea Indonesia Philippines China Thailand South Korea Singapore Australia Hong Kong New Zealand Malaysia Taiwan Japan -2.0 0.0 2.0 4.0 (percent) 6.0 8.0 10.0
Page 8 28-Oct-2011
Reproduction without written permission of The PRS Group is strictly prohibited
Current Data

28-Oct-2011 Comparison: Australia
Regional Current Account/GDP (2010): East Asia/Pacific
Singapore Malaysia Taiwan Papua New Guinea Hong Kong China Thailand Philippines Japan South Korea Indonesia Myanmar Australia Vietnam New Zealand -10.0 -5.0 0.0 5.0 (percent) 10.0 15.0 20.0 25.0
Economic Performance Profile Country's Ranking Relative to All Countries Covered by Political Risk Services 2006-2010
GDP Per Capita ($) Real GDP Growth (%) Inflation (%) Unemployment (%) Capital Investment (% of GDP) Budget Balance (% of GDP) Current Account (% of GDP) Debt Service Ratio Currency Change (%)
47224 2.8 3.0 4.9 28.2 -0.2 -4.6
13.8 3.3
NEXT 25%
BEST 25%
NEXT 25%
WORST 25%
Current Data
Reproduction without written permission of The PRS Group is strictly prohibited
28-Oct-2011 Page 9

1-Nov-2011

Social Indicators
Primary Energy Energy Consumption (1015 Btu): 9 Per Capita Consumption (10 Btu): 5.94 0.28
as of 2010
Population Annual Growth Infant Deaths per 1,000 Persons Under Age 15 Urban Population Urban Growth Literacy 1.0% 5 18% 89% 2.1% 99%
Work Force Distribution Agriculture Industry-Commerce Services Unions 4% 21% 75% 28%
Ethnic Groups white (92%), Asian (7%), aboriginal and other (1%) Languages English, aboriginal languages Religions Roman Catholic (26%), Anglican (21%), other Christian (21%), other (32%)
Page 10 1-Nov-2011
Current Data

28-Oct-2011
Australia
Country Forecast
Comment & Analysis
Gillard Flailing Prime Minister Julia Gillards minority Australia Labor Party (ALP) government is continuing to hang on to power with the backing of members of the Australian Greens and three independent lawmakers. However, the fragility of the governments parliamentary majority has forced Gillard to cede a substantial amount of influence over policy to her non-ALP partners, at the risk of further eroding her already sagging popular support, which has left her vulnerable to a leadership challenge from the man she replaced at the helm of the ALP, Foreign Minister Kevin Rudd. The government recently managed to secure approval of a controversial carbon-reduction scheme that Gillard only pursued under pressure from the Greens, but passage of a bill that would impose a 30% windfall profits tax on mining companies has been blocked by one of the governments independent backers. Gillard is counting on revenue from the mining tax to fund tax breaks for businesses, increase pension benefits, and finance improvements to regional infrastructure, all of which she hopes will boost her approval rating. The next election does not fall due until 2013, and the virtual certainty of a landslide victory for the Liberal-National opposition coalition in the event of a snap poll will probably ensure the survival of the government for the time being. However, policy implementation will remain erratic, and the oppositions pledge to abolish the carbon-tax plan if returned to power can only heighten the level of uncertainty, with negative consequences for investor confidence. Carbon-reduction Plan Narrowly Approved The recently approved Clean Energy Bill, one of 18 pieces of legislation comprising the governments Clean Energy Future Plan, introduces a carbon-price mechanism (CPM) that is the centerpiece of a program to reduce carbon emissions by 5% of the 2000 figure by 2020. In the initial phase of the scheme, the countrys biggest emitters will be charged $22.50 per ton from July 2012 to July 2013, and by an additional 2.5% in each of the next two years. Beginning in July 2015, a flexible rate will be introduced.
Comment & Analysis
28-Oct-2011 Page 11

28-Oct-2011

The second phase focuses on establishing a cap-and-trade system, under which permits will be issued and regulated as a financial instrument. The number of permits issued will be determined by a five-year carbon-reduction target, and will decrease at each five-year interval. The restrictions will not apply to fuels for household transportation. Industries that use considerable amounts of fuel (such as airlines) will be allowed to opt-in to the CPM, but otherwise will see a reduction in fuel tax credits and increases to in the fuel excise tax. The use of a flat rate for the CPM in the early stages is designed to allow businesses affected by the rules and their customers to anticipate the cost increases that will be passed along the chain of production and distribution. The government plans to use some of the revenue generated to offset the higher costs to households and some businesses with tax breaks. In addition, some industries, such as coal mining and electric power generation, will be offered compensation and/or loan packages. Despite this, the plan is very controversial. Lobbyists for the coal industry argue that the CPM will make it difficult for companies to attract additional investment (80% of the countrys electricity is generated from coal and the industry), and retailers have warned that higher costs will dampen consumer spending. Not surprisingly, the scheme has been assailed by the opposition coalition of the Liberal Party (LP) and the National Party (NP), and public sentiment toward the plan is generally less-than-favorable. LP leader Tony Abbott has said he would repeal the package should he become the next prime minister, ensuring that the CPM will be a central issue in the next election campaign. Gillard and the ALP can ill-afford to invite controversy, as the partys popular support has slumped badly since last years federal election, and Gillard is lagging far behind Abbott in polls of voter preferences for prime minister. Rudds failure to steer a similar scheme through the Senate contributed to the steep fall in his popularity that left him vulnerable to a challenge from Gillard. For that reason, Gillard tried to steer clear of the issue, but was forced to take action under pressure from the Greens. Assuming the legislative package wins approval in the Senate, which is scheduled to hold a vote in early November, Gillard will be able to claim a political victory. However, opponents of the plan will undoubtedly wage a media campaign against the scheme during the next election campaign, and unless Gillard somehow manages to sway public opinion on the issue, her success at securing passage of the Clean Energy Bill may very well be a factor behind her defeat.
Page 12 28-Oct-2011
Comment & Analysis

28-Oct-2011

Scandal Poses Threat to Majority Perhaps the biggest immediate threat to the survival of Gillards government is a scandal involving Craig Thomson, an ALP lawmaker and the former national secretary of the Health Services Union (HSU). Thomson is alleged to have used a union credit card to pay for prostitutes and to withdraw nearly $1,000 in cash. Thomson insists that he has done nothing wrong, but the opposition is pressing hard for an independent investigation, and has accused Fair Work Australia, the government agency responsible for monitoring industrial relations, of covering up for the former union boss. The opposition parties appear to be intent on keeping the scandal in the public mind, possibly hoping that Thomson will resign. At present, there is no indication that he intends to vacate his seat, but were he to do so, a by-election would almost certainly result in the ALPs loss of the seat, and with it the governments majority. Economic Outlook Turns Cloudy The economy contracted by 1.2% (quarter-on-quarter) in the JanuaryMarch 2011 period, but staged a recovery in the second quarter, growing by a seasonally adjusted 1.2% on the back of inventory rebuilding and stronger household consumption. Year-on-year growth accelerated to 1.4% in the second quarter, resulting in a half-year growth rate of 1.2%. It is unclear whether inventory rebuilding was motivated by expectations of future growth or simply lackluster demand, alternatives that have very different connotations for the likelihood that the phenomenon will continue. In any case, consumer confidence has been drifting lower of late, largely on fears that slowing global growth and weaker demand from China will have a negative impact on the domestic economy. The mining sector will put in a stronger performance in the second half of the year, as the disruptions caused by flooding recede. Nevertheless, annual real GDP growth is forecast to remain below 2% in 2011. Inflation crept up to an annualized rate of 3.6% in the second quarter, fueled by higher fuel prices and a weather-related increase in food costs. Inflationary pressures should ease as food production increases in those areas of the country not affected by the floods earlier this year, a factor that in combination with a gloomy external outlook may encourage the Reserve Bank of Australia to cautiously loosen monetary policy. In any case, interest rates will not be increased from the current 4.75% until clear signs of a meaningful recovery are evident, and inflation is forecast to average 3.5% this year.
Comment & Analysis
28-Oct-2011 Page 13

28-Oct-2011

The national statistics office reported that the current-account deficit narrowed to $7.2 billion in the second quarter of 2011, after recording a shortfall of $10.9 billion in the first quarter, with a larger trade surplus (despite weaker-than-expected coal exports) and a smaller primary income account deficit accounting for the improvement. Exports will receive a boost from increased mining output, although demand for coal products will remain fairly sluggish as concerns about the health of the global economy mount, but debt-servicing costs will keep the income balance in deficit and the services shortfall will remain large. On balance, the current account deficit is forecast to widen to $35.4 billion in 2011, roughly equivalent to the 2010 deficit as a percentage of GDP.
Page 14 28-Oct-2011
Comment & Analysis

28-Oct-2011
Australia
Country Forecast
Forecast Scenarios
SUMMARY OF 18-MONTH FORECAST REGIMES & PROBABILITIES Minority ALP 45% LP-NP Coalition 40% Divided Government 15%
SUMMARY OF FIVE-YEAR FORECAST LP-NP Coalition 55% ALP 35% Divided Government 10%
REGIMES & PROBABILITIES
Most Likely Regime Scenario 18-Month Forecast Period: Minority ALP (45% Probability) Five-Year Forecast Period: LP-NP Coalition (55% Probability)
LP-NP Coalition 2011 2012-2016 Growth (%) 1.8 2.9 Inflation (%) 3.5 2.8 CACC ($bn) -35.40 -39.20
A closely fought general election held in August 2010 produced Australias first hung Parliament since 1940, as both the incumbent Australian Labor Party (ALP) and the opposition coalition of the Liberal Party (LP) the National Party (NP) won a total of 72 seats, four short of a majority in the 150-member lower house. However, Julia Gillard, who replaced Kevin Rudd as ALP leader and prime minister in June 2010, obtained parliamentary confirmation of a minority government that will depend on the backing of the lone representative of the Australian Greens and three independent lawmakers on confidence and budget votes. The effectiveness of Gillards minority government, to say nothing of its ability to survive for a full three-year term, will be determined to a great degree by the actions of Tony Windsor and Rob Oakeshott, two of the independent lawmakers who have pledged their support to the ALP. Both are former members of the NP, describe themselves as economic conservatives, and represent largely rural districts in the state of New South Wales. Gillard wooed them by promising roughly $9 billion in new investment for rural schools and hospitals, as well as another $140 million of financial assistance to producers of ethanol over the next 10 years, but it was the ALPs proposal to establish a nationwide
Forecast Scenarios
28-Oct-2011 Page 15

28-Oct-2011

broadband network, which promises to bring improved and lower-cost Internet and telephone access to rural Australia, that gave Gillard the edge over LP leader Tony Abbott in the post-election courtship of the independents. The main question going forward is whether the governments bare majority is sufficient to ensure implementation of the ALPs agenda. The fragility of the governments parliamentary majority has forced Gillard to cede a substantial amount of influence over policy to her non-ALP partners. The government recently managed to secure approval of a carbon-reduction scheme that Gillard only pursued under pressure from the Greens, but given the controversy surrounding the plan, her legislative success may very well result in a further erosion of her already sagging popular support, leaving her vulnerable to a leadership challenge from Rudd, who is now the minister of foreign affairs. Gillard is counting on revenue from a proposed 30% tax on windfall mining profits to finance tax breaks for businesses, increase pension benefits, and finance improvements to regional infrastructure, all of which she hopes will boost her approval rating. However, the measure is being blocked by one of the governments independent backers. The next election does not fall due until 2013, and the virtual certainty of a landslide victory for the LP-NP opposition coalition in the event of a snap poll will probably ensure the survival of the government for the time being. However, the sizeable edge for the LPNP alliance even in head-to-head polls suggests that the ALP will go down to defeat even if a general election is held beyond the end of the 18-month forecast period. Abbott has pledged to repeal the carbon-reduction legislation if elected to government, a position that is certain to win him the strong backing of the business community, and will likely appeal to average voters who will face higher prices for a broad array of goods and services once the carbon-price mechanism goes into effect in July 2012. Change in Government Carries Risk of Policy Reversals During its tenure in government during the 1980s and the 1990s, the ALP was responsible for the implementation of important liberal reforms, and upon leading his party back into power in 2007, former Prime Minister Rudd committed his government to ensuring longterm economic health by creating an inviting climate for business. In general, any ALP government will support measures aimed at improving competitiveness and increasing productivity, including further business deregulation, public-sector cost cutting, and tax breaks for the wealthy. At least rhetorically, Prime Minister Gillard has not deviated significantly from the general policy program outlined by Rudd, who promised to practice fiscal discipline, but stated that a fair apportionment of the benefits of economic growth, quality public Page 16 28-Oct-2011 Forecast Scenarios

28-Oct-2011

services, equal opportunities in education and employment, and a strong social safety net are essential to establishing and maintaining a national consensus behind economic reforms. However, the constraints on her ability to implement that agenda have become apparent. Gillard has already passed her biggest legislative test, securing passage of bills required to introduce greater competition in the telecommunications industry, which is crucial to the minority administrations plan to establish a national broadband network (NBN) by 2021. Under a deal reached in June 2010, Telstra, the former state-owned telecommunications company that controls the countrys copper and cable infrastructure, agreed to share its network with NBN Company (NBNCo), a government-run entity that will be responsible for constructing the NBNs fiber-optic system. In addition to paying Telstra $11.7 billion to transfer its Internet customers to the new system, the ALP also agreed to remove provisions of the telecommunications law that would bar Telstra from acquiring any new mobile spectrum and would require the company to surrender its half-share in the dominant pay television provider, Foxtel. The competition law and a companion bill regarding the regulation of NBNCo were approved by both parliamentary chambers in late March 2011, but the deal still required the backing of Telstras shareholders, which did not occur until mid-October. NBNCo is to create a fiber-to-the-premises (FTTP) network that will connect 93% of homes, businesses, and state agencies, with the remaining (mostly rural) users gaining access by wireless and other technologies. Just as he has pledged to repeal the Clean Energy program, Abbott has suggested that he would consider abandoning the NBN as a means of restoring the budget balance to surplus. Whether this is merely campaign-mode grandstanding is an open question. The already high estimated cost of establishing the network is sure to rise, but the program is popular among members of the LP and especially the NP, which appeals to a rural constituency. Otherwise, an LP-NP government coming to power after the 2013 election will encourage foreign investment and pursue privatization in order to foster economic development, despite opposition from trade unions, environmental groups, Aborigines, and, at times, the NP. If the LP-NP coalition is returned to government with a comfortable majority, the administrations reform agenda will likely focus on reshaping federal-state relations. In a potentially landmark decision in November 2006, the High Court ruled that the governments assertion of its corporations power to establish a national industrial
Forecast Scenarios
28-Oct-2011 Page 17

28-Oct-2011

relations system under the WorkChoices program was constitutional. The ruling has opened the door to using the corporations power to assert federal authority in a broad range of other areas, creating the potential for the development of national policies aimed at improving the business climate and promoting economic development. The LP will avoid a frontal assault on state prerogatives, and early on will probably focus the debate on deficiencies in water and energy policy, which even defenders of states rights concede require national solutions. That said, the Liberals view the state governmentsall of which are currently controlled by the ALPas an impediment to badly needed reforms, and the Liberals may take advantage of the High Courts ruling to push for a sweeping national reform program that includes the education and health systems, as well. Sizeable current account deficits have increased the vulnerability of the currency to unsettled conditions in the global financial markets, but the stability of the Australian dollar against the US currency throughout the tumult in 20082009 underscores how limited are the risks on this score. In general, ample foreign exchange reserves make it highly unlikely that the government will confront circumstances that might encourage any tightening of restrictions on repatriation or foreign exchange controls. Cautious Approach to Trade Deals The ALP supports free trade in principle, but while in opposition, the party conditioned its backing for trade agreements on clear evidence that deals would benefit Australians generally. Like the LP-NP coalition, the ALP promotes enhanced competitiveness as preferable to the use of protective tariffs for local industry. Tariffs have been reduced to a maximum of 5% for all goods except passenger motor vehicles, textiles, clothing, and footwear. A Labor government will focus its free-trade efforts on the Asia-Pacific region, pursuing deals with Japan, China, Malaysia, and (jointly with New Zealand) the Association of Southeast Asian Nations (ASEAN). Preparations for the initiation of free-trade negotiations with South Korea, India, and Indonesia are currently under way. The government is also seeking to expand Australias trade opportunities in the Middle East, where it is negotiating a trade agreement with the six-nation Gulf Cooperation Council (GCC), and the ALP administration has joined the US, Peru Chile, and Vietnam in an effort to expand the so-called Pacific-4 grouping into a trans-Pacific free-trade area encompassing the member nations of the Asia-Pacific Economic Cooperation (APEC) bloc.
Page 18 28-Oct-2011
Forecast Scenarios

28-Oct-2011

Negotiations with China, which commenced in mid-2005, will continue to proceed slowly, with Beijings refusal to make concessions on agricultural imports posing a significant obstacle to closing a deal. The ALPs proposed tax on windfall mining profits may also be an impediment to concluding an agreement with China. Likewise, the conclusion of an FTA with Japan will likely be delayed by the Japanese governments resistance to easing protection for rural producers. The obstacles in that regard have increased following a mid-2010 government reshuffle in Tokyo that saw the appointment of a staunch protectionist as the new minister of agriculture and fisheries. In late 2010, the Productivity Commission delivered a report on a year-long investigation of the economic impact of the countrys FTAs. In unequivocal terms, the commission stated that there was no evidence to suggest that the agreements had produced substantial commercial benefits, while complex rules-of-origin create an added cost estimated at 8% of the value of each export shipment. The criticism does not appear to have dampened the ALP governments enthusiasm for pursuing new trade deals, nor is it likely to prompt a shift in the generally free-market stance of the LP. In any case, the Australian government will maintain its special trade arrangements with regional neighbors New Zealand and Papua New Guinea, and will continue to pursue a liberal trade agenda within APEC. Officials in an LP-NP government will also seek to develop new export markets and reduce exporters reliance on Asia. Potential Threats to Social Calm Although Australia faces little threat of destabilizing domestic turmoil during the forecast period, the pre-election bombing attack on the Australian Embassy in Jakarta, Indonesia in September 2004 highlighted the heightened vulnerability of the country to external sources of turmoil arising from the Howard governments enthusiastic support for the US-led war on terror and its cooperation with the US in both the war and reconstruction efforts in Iraq. While the ALP has benefited from public opposition to the war in Iraq, Labor will seek to maintain good relations with Washington. The LP-NP government responded to the threat of terrorist attacks with the creation of a special anti-terror unit within the military and the approval of anti-terror measures that increase police powers and restrict civil liberties. The ALP has acknowledged the need for tough laws to contain the threat posed by militant Islamists, but has promised to strike a better balance between security and civil rights. Rudd has proposed establishing an Office of National Security directly answerable to the prime minister and headed by the national security advisor, which will be responsible for developing an integrated national security policy that safeguards both Australian citizens and their rights, and has expressed enthusiasm for closer regional cooperation to combat terrorism. While the Forecast Scenarios 28-Oct-2011 Page 19

28-Oct-2011

ALPs approach is appealing from the standpoint of civil liberties, whether it will enhance domestic security remains an open question. Ethnic tensions represent a significant potential source of domestic unrest. In midDecember 2005, mobs of white males, totaling up to 5,000 persons, went on a rampage that lasted several days, assaulting anyone of Arab appearance on and around Sydneys southern beaches. The rioting, which came just weeks after the passage of the anti-terror laws, raised concerns within the countrys Muslim community that the climate of fear produced by the threat of terrorism will leave them vulnerable to similar campaigns in the future. The ALP accused the Howard government of exploiting public fear and racist sentiment for political gain, and has pledged never to resort to such tactics. Another potential source of unrest stems from the demands of the Aboriginal population for increased rights. In opposition, the ALP argued that true reconciliation will require a formal apology for the mistreatment of the indigenous population, together with policies aimed at helping Aborigines to overcome the handicaps resulting from discrimination and their marginalization from the Australian mainstream. Rudd made a start toward putting that philosophy into action, but the opposition has warned that the ALPs approach will not be tolerated by social conservatives, and so cannot succeed at bridging the racial divide. Moreover, it has become increasingly unclear whether the government will be capable of backing up its position with financial resources. Should the minority Labor government fail to follow through, there will be some danger of protests, and while the danger is slight, an eruption of unrest from this source may lead to attacks on foreign businesses, which are a frequent target of complaint by many Aborigines. Growth Will Accelerate over the Medium Term The economy contracted by 1.2% (quarter-on-quarter) in the JanuaryMarch 2011 period, but staged a recovery in the second quarter, growing by a seasonally adjusted 1.2% on the back of inventory rebuilding and stronger household consumption. Year-on-year growth accelerated to 1.4% in the second quarter, resulting in a half-year growth rate of 1.2%. It is unclear whether inventory rebuilding was motivated by expectations of future growth or simply lackluster demand, alternatives that have very different connotations for the likelihood that the phenomenon will continue. In any case, consumer confidence has been drifting lower of late, largely on fears that slowing global growth and weaker demand from China will have a negative impact on the domestic economy. The mining sector will put in a stronger performance in the second half of the year, as the disruptions caused by flooding earlier in the year recede. Nevertheless, annual real GDP growth is forecast to remain below 2% in 2011. Page 20 28-Oct-2011 Forecast Scenarios

28-Oct-2011

Inflation crept up to an annualized rate of 3.6% in the second quarter, fueled by higher fuel prices and a weather-related increase in food costs. Inflationary pressures should ease as food production increases in those areas of the country not affected by the floods earlier this year, a factor that in combination with a gloomy external outlook may encourage the Reserve Bank of Australia to cautiously loosen monetary policy. In any case, interest rates will not be increased from the current 4.75% until clear signs of a meaningful recovery are evident, and inflation is forecast to average 3.5% this year. The 2011/2012 budget unveiled in May 2011 projects a deficit equivalent to about 1.5% of GDP, compared to an earlier anticipated shortfall nearly twice as big. Among the factors that prompted the downward revision are expectations of stronger tax revenues from mining activities and a larger contribution to overall growth from private consumption. Even more significant was the governments forecast of a surplus in 2012/2013, which is to be achieved through savings from reduced transfer payments to families and various adjustments to the tax code as it affects spousal benefits and unemployed youth. The government also proposed holding spending increases to no more than 2% during periods of above-trend economic growth. The budget projections assume that the economy will grow by 4% in 2011/2012 and by 3.75% in 2012/2013, largely on the back of strength in the mining sector. However, with growth forecast to come in well below the target in 2011, the deficit is likely to be closer to 3% of GDP. Tellingly, the budget included few details about either the carbon tax or the proposed mining tax, the proceeds of which are the financial underpinning of a planned regional infrastructure program. The restoration of fiscal discipline cannot be put off indefinitely without risking an adverse reaction in the markets, and any government will be expected to move in that direction over the middle of the forecast period. Assuming general economic conditions are sufficiently stable as to permit some easing of fiscal constraints later in the forecast period, economic growth rates should accelerate to 3%3.5, producing an average rate of growth of close to 3% per year through 2016. The central bank will tighten monetary policy as necessary, and inflation is forecast to remain close to the upper limit of the RBAs comfort zone over the entire forecast period, averaging 2.8% per year through 2016. The national statistics office reported that the current-account deficit narrowed to $7.2 billion in the second quarter of 2011, after recording a shortfall of $10.9 billion in the first quarter, with a larger trade surplus (despite weaker-than-expected coal exports) and a smaller primary income account deficit accounting for the improvement. Exports will
Forecast Scenarios
28-Oct-2011 Page 21

28-Oct-2011

receive a boost from increased mining output, although demand for coal products will remain fairly sluggish as concerns about the health of the global economy mount, but debt-servicing costs will keep the income balance in deficit and the services shortfall will remain large. On balance, the current account deficit is forecast to widen to $35.4 billion in 2011, roughly equivalent to the 2010 deficit as a percentage of GDP. A current account deficit of that magnitude will not be cause for serious alarm, but it will generate pressure for government action to trim the foreign debt, which currently amounts to somewhat less than 90% of GDP. In any case, relatively high debt-service costs will help to sustain a fairly sizeable shortfall in the income balance that will underpin large current account deficits averaging $39.2 billion per year through 2016.
Second Most Likely Regime Scenario 18-Month Forecast Period: LP-NP Coalition (40% Probability) Five-Year Forecast Period: ALP (35% Probability)
ALP 2011 2012-2016 Growth (%) 2.1 3.0 Inflation (%) 3.3 2.6 CACC ($bn) -33.90 -42.60
The LP-NP alliance could be returned to power before the end of the 18-month forecast period, in the event of an early election. The most recent polls show the LP-NP coalition holds a 10-point lead over the ALP in the primary vote, and heavily favored in a head-tohead matchup. Although the ALPs partners in government have no real incentive to make any moves that might trigger an early election, an effort by the opposition to force the resignation of a scandal-tainted ALP lawmaker has highlighted the vulnerability of Gillards majority, regardless of what any of the participants might prefer. Alternatively, but somewhat less probable, the ALP could be returned to power at an election held in 2013, especially in the event of a change of leadership in the interim. In polls of preferences for prime minister, Abbott holds a slim lead over Gillard, and is significantly less popular than Rudd. The data suggests that voters are not particularly impressed by the LP leader, and he faces the risk of overreachingas in his suggestion that the NBN be scrappedin his zeal to inflict damage on Gillards shaky government. Less Enthusiasm for Investment Liberalization Although the controversy surrounding the Clean Energy bill and the mining profits tax has highlighted the ALPs interventionist inclinations with regard to economic policy, the party has generally promoted a relatively business-friendly agenda. In the area of fiscal policy, the ALPs positions are so similar that Rudd was castigated by his opponents
Page 22 28-Oct-2011
Forecast Scenarios

28-Oct-2011

during the 2007 campaign for practicing echo-nomics. However, the ALP criticized the LP-NP government for failing to contain the inflationary impact of its tax cuts and spending increases, and would focus its tax and spending programs on productivity and employment, with the aim of reducing the inflation risk stemming from an expansionary fiscal policy. With regard to privatization, the ALP has adopted the position that the privatization of assets, infrastructure, or services, including through the application of national competition policy, will only occur where, after a period of public consultation, such a move can be justified as demonstrably in the public interest. The ALP has drawn up a 10-point federation reform plan that calls for closer coordination between the national and state-territorial governments in the areas of infrastructure development, housing, education (including the establishment of a national curriculum), management of water resources, administration of hospitals, and provision of front-line health care and care for the aged, as well as an increased voice for local governments in policy-formulation and revenue allocation. The ALP has pledged to seek the voluntary cooperation of the state and territorial governments, but has indicated that in some areas (such as hospital administration) it is prepared to assert federal authoritywith popular assentif required. The chief goals of federal reform are the elimination of overlap and duplication between the national and state-territorial levels that by some estimates result in annual losses of up to $9 billion, as well as the harmonization of tax policies and regulations, and the integration of administrative processes, with the aim of removing impediments to business competitiveness arising from unnecessarily high compliance costs. The current ALP governments weakness has prevented Gillard from moving forward on the plan, but a majority ALP government formed later in the forecast period might be in a better position to take action. The federation reform plan is a possible portent of a long-term shift in the relative power of the national and state-territorial governments that could have significant implications for business regulation down the road, particularly with environmental issues likely to loom large on the political horizon for the foreseeable future. Steady Growth, Manageable Inflation Assuming better-than-forecast growth would be a factor contributing to the ALPs retention of power with an outright majority, the accompanying stronger inflation would limit the ability of officials at the Reserve Bank of Australia (RBA) to employ monetary tools to coax faster growth. In general, economic performance would be similar to that under an LP-NP regime, with real GDP growth averaging 3% per year through 2016 and inflation averaging 2.6% annually over the same period. A stronger currency would have Forecast Scenarios 28-Oct-2011 Page 23

28-Oct-2011

a dampening effect on exports, contributing to a somewhat larger current account deficit averaging $42.6 billion annually over the five-year forecast period. Third Most Likely Regime Scenario 18-Month Forecast Period: Divided Government (15% Probability) Five-Year Forecast Period: Divided Government (10% Probability)
Divided Government 2011 2012-2016 Growth (%) 1.9 2.2 Inflation (%) 3.2 2.9 CACC ($bn) -32.40 -37.40
It is possible that the hung Parliament resulting from the 2010 election could become a regular feature of the political landscape, with future elections (possibly including an early election held in the 18-month forecast period) failing to produce a clear victory for either the ALP or the LP-NP coalition, resulting in successive administrations incapable of securing reliable majority support in both the Senate and the lower house. Such a scenario would limit the ability of the government to take aggressive action, whether to improve the climate for business or to roll back some of the reforms implemented under the series of LP-NP governments. The result would be continuous negotiations and compromises on key issues, the possibility of three elections before the end of the fiveyear forecast period, and leadership challenges within both of the main parties. Uncertain Climate for Foreign Investment and International Trade Although restrictions on investment would remain moderate under this scenario, internal conflict and political uncertainty would deter foreign investment. The government would also experience conflict over privatization, and the failure to achieve consensus would prevent any further significant progress on structural reforms. Some Increase in Disorder The perception of an unstable leadership would embolden government critics to organize protests. However, protests would probably neither target nor have a significant negative impact on international business operations. Sluggish Economic Performance Conditions of divided government through the second half of the forecast period would create an obstacle to the recovery of business and consumer confidence. Real GDP growth would average just 2.2% annually through 2016, reflecting the impact of weaker domestic demand, which would help to hold inflation below 3% per year on average over the forecast period. Weaker demand for imports would result in narrower external deficits, which would nevertheless remain substantial, with the current account deficit averaging $37.4 billion per year through 2016.
Page 24 28-Oct-2011
Forecast Scenarios

28-Oct-2011

Forecast Summary
SUMMARY OF 18-MONTH FORECAST Minority ALP 45% Same Same SLIGHTLY MORE Same Same Same Same SLIGHTLY MORE Same SLIGHTLY LESS Same SLIGHTLY MORE LP-NP Coalition 40% Same Same Same SLIGHTLY LESS Same Same Same Same Same SLIGHTLY LESS Same SLIGHTLY MORE Divided Government 15% SLIGHTLY MORE Same Same Same Same Same Same Same Same SLIGHTLY LESS Same SLIGHTLY MORE
REGIMES & PROBABILITIES RISK FACTORS CURRENT Turmoil Investment Equity Operations Taxation Repatriation Exchange Trade Tariffs Other Barriers Payment Delays Economic Policy Expansion Labor Costs Foreign Debt Low High Moderate Low Moderate Low Moderate Moderate Low Low Low Low
SUMMARY OF FIVE-YEAR FORECAST LP-NP Coalition 55% Same SLIGHTLY LESS SLIGHTLY LESS Same SLIGHTLY LESS ALP 35% Same Same SLIGHTLY LESS Same SLIGHTLY LESS Divided Government 10% SLIGHTLY MORE Same Same SLIGHTLY MORE Same
REGIMES & PROBABILITIES RISK FACTORS BASE Turmoil Restrictions Investment Trade Economic Problems Domestic International Moderate High Low Low Low
* When present, indicates forecast of a new regime
Forecast Scenarios
28-Oct-2011 Page 25

28-Oct-2011

Australia Real GDP Growth Under Alternative Regimes

LP-NP Coalition ALP Divided Government
5.0 4.5 4.0 (percent) 3.5 3.0 2.5 2.0 1.5 1.0 2006 2007 2008 2009 2010e 2011f 20122016f
Australia Inflation Under Alternative Regimes

4.5 4.0 (percent) 3.5 3.0 2.5 2.0 1.5 2006
2007
2008
2009
2010e
2011f
20122016f
Australia Current Account Under Alternative Regimes

-30.0 -35.0 ($billions) -40.0 -45.0 -50.0 -55.0 -60.0 2006
2007
2008
2009
2010e
2011f
20122016f
Page 26 28-Oct-2011
Forecast Scenarios

28-Oct-2011
Australia
Country Forecast
Political Framework
Players To Watch
Julia Gillard: The prime minister assumed leadership control of the ALP through a party coup carried out in mid-2010, and just barely averted a defeat at the August general election that most likely would have brought a very early end to her tenure in the top post. Gillard managed to form a minority government with the backing of three independent lawmakers, but satisfying the members of her own party, her governments independent allies, and the Greens (on whom the ALP will depend for a majority in the Senate) will be a challenge, especially as opposition leader Tony Abbott has declared his intention to thwart Gillard at every step. Sustaining her majority has required her to relinquish significant influence over policy to her non-ALP partners, in some cases at the risk of further weakening her already sagging popular support. Barring a rebound in her approval rating, Gillard could be challenged by the man she replaced, Foreign Minister Kevin Rudd, ahead of the 2013 election. Anthony John Abbott: The LP leader wrested control of the party from Malcolm Turnbull in late 2009, a move prompted by Turnbulls expressions of support for the ALPs carbon-trading scheme. Abbott very nearly led the opposition coalition to victory at the August 2010 elections, and he has taken every opportunity to shake the foundations of Julia Gillards fragile minority government. He has pledged to overturn a carbon tax set to come into force in July 2012 if elected prime minister, and recent polls indicate that he has a good shot at winning the job, especially in the event of an early election. Australian Labor Party: The governing party was reinvigorated by the election of Kevin Rudd as party leader in late 2006, and exploited broad popular opposition to the LP-NP governments labor-market reforms to reclaim power at the national level for the first time in more than a decade in 2007. However, Rudds popularity slumped badly as a result of his retreat on a carbon-reduction plan, and he was replaced as party leader by Gillard in mid-2010. The ALP depends on the support of independents and the Greens for majorities in the lower chamber and the Senate, respectively, and the compromises that will be required to retain the backing of its allies could trigger factional infighting. In
Political Framework
28-Oct-2011 Page 27

28-Oct-2011

general, the government party will seek to ensure long-term economic health by pursuing policies aimed at creating an inviting climate for business. Wayne Swan: The treasurer (and now deputy prime minister) will play a key role in the ALP governments efforts to fulfill its promises to its core constituency of low- and middle-income families without undermining the confidence of the business community. Swans first budget, which combined tax relief with spending cuts was a good first step, but with the ambitious deficit target for 2011/2012 likely to be missed, the task will be more challenging going forward. Liberal Party: Widespread popular opposition to liberal economic reforms introduced by the LP government, particularly in the area of labor-market reform, contributed to the partys loss of power at the 2007 general election. The party has changed leaders three times since its defeat, but has regained its footing under Abbott, and came very close to unseating the ALP at the election held in August 2010. The Liberals and their traditional electoral ally, the National Party, hold a sizeable lead over the ALP in recent polls, and Gillard will have her work cut out for her rebuilding support for her party before an election that must be held no later than 2013. National Party: The junior partner in a coalition with the LP, the NP generally supports market reforms, but while in government used its leverage to win concessions from its partner aimed at ensuring that reforms did not impact negatively on its mainly rural constituency.
Page 28 28-Oct-2011
Political Framework

1-May-2011
Australia
Country Conditions
Climate for Investment & Trade
Overview
Openness to Foreign Investment
Australia welcomes foreign investment. The United States is the largest direct investor in Australia, while Australia is the ninth largest source of foreign direct investment (FDI) for the United States. In 2009, U.S. investment in Australia was A$514 billion while Australian investment in the United States was A$404 billion. U.S. FDI in Australia accounts for 23% of total foreign investment in the country and is concentrated largely in resources and energy, manufacturing, and the nonbank financial services sector. Inward foreign direct investment is regulated by the Foreign Acquisitions and Takeovers Act 1975 and associated regulations. The Act sets out a number of minimum thresholds under which smaller scale investment proposals do not need approval. Under the Australia-U.S. Free Trade Agreement (AUSFTA), higher (i.e., more favorable) screening thresholds apply to U.S. citizens and corporations than to other foreign entities. The Foreign Investment Review Board (FIRB), a subdivision of the Australian Treasury Department, reviews investment proposals. Based on advice from the FIRB, the Treasurer can block or impose conditions on proposals that are contrary to the national interest. The national interest test seeks to ensure that investment and sales decisions are driven by market forces rather than external strategic or noncommercial considerations. All foreign governments and their related entities are required to notify the Australian government and get prior approval before making a direct investment in Australia, regardless of the value of the investment. Foreign Investment Regulations. There is no restriction on greenfield investment in Australia and acquisitions by U.S. investors up to A$1,004 million are excluded from review by the FIRB apart from prescribed sensitive sectors, where a A$231 million threshold applies. To calculate the value of a business or corporation, investors need to consider the value of the total issued shares of a corporation or its total gross assets, whichever is higher. Thresholds in sensitive areas U.S. investors in developed commercial real estate that is valued at A$1 ,004 million or more need to notify the FIRB (compared to A$50 million for non-U.S. investors); Total foreign investment in Australian international airlines (including Qantas) is limited to 49%; The Airports Act 1996 limits foreign ownership of airports offered for sale by the Commonwealth to 49%, with a 5% airline ownership limit and cross ownership limits between Sydney airport (together with Sydney West) and Melbourne, Brisbane and Perth airports; The Shipping Registration Act 1981 requires a ship to be majority Australian-owned if it is to be registered in Australia; Aggregate foreign ownership of Telstra is limited to 35% of the privatized equity and individual foreign investors are only allowed to own up to 5%; and All investments of 5% or more in the media sector, regardless of the value of the investment, require FIRB approval.
1-May-2011 Page 1

1-May-2011
Australia Country Conditions

Foreign Investment Policies. Under Australias Foreign Investment Law, the Foreign Investment Review Board (FIRB) screens potential foreign investments in Australia above a threshold value of A$231million ($231million). The FIRB may deny approval of particular investments above that threshold on national interest grounds, although it rarely has done so. The AUSFTA, however, exempts all new U.S. greenfield investments from FIRB screening. The AUSFTA also increased the threshold at which U.S. proposals to invest in non- sensitive sectors are screened, from $A50 million to $A800 million indexed annually ($A1,004 million in 2010). Investment proposals made by foreign governments, including by the U.S. government, must be reported to the FIRB. Takeovers of domestic firms by foreign investors are rarely interfered with and are treated under the same guidelines as any other investment. Occasionally there are strong public reactions to foreign investment proposals, particularly from Chinese state companies, but these rarely involve U.S. companies. There are no prohibitions on overseas investment or capital repatriation. As addressed earlier in the Openness to Foreign Investment section, the FIRB uses a national interest test to examine foreign investment proposals. Proposals are evaluated according to their consistency with existing government policy and law, where these are taken to define important aspects of national interest (for example, competition policy and environmental laws). National security interests and economic development priorities are also considered. The Commonwealth Treasurer ultimately decides whether or not an investment is contrary to the national interest. The FIRB publishes statistics of proposals to invest in Australia. In 2008-09, 5,352 proposals received foreign investment approval. This compared with 7,841 in 2007-08, representing a decrease of 32%. In 2008-09, three proposals were rejected (all related to real estate purchases) compared with 14 proposals rejected in 200708. In the 2008- 09 FIRB annual report (the latest available), 5,352 foreign investment proposals received approval, compared with 7,841 in 2007-08, representing a decrease of 32%. The real estate sector recorded 4,827 approvals, representing a decline of 34% on the 7,357 approvals in 2007-08. There was an overall increase in approvals in other sectors in 2008-09 compared with 2007-08, from 484 approvals to 525 approvals, representing an increase of 8%. Approvals in 2008-09 involved proposed investment of A$181 .4 billion, a 5% decrease on the previous years approvals of A$191.9 billion. Approved investment in real estate was A$23.4 billion in 2008-09 (compared with A$45.5 billion in 2007-08), while approved investment in other sectors was A$158 billion, compared with A$146.4 billion in 2007-08, representing an increase of 8%. The mineral exploration and development sector was the largest destination by value, with approved investment in 2008-09 of A$90.6 billion (A$64.3 billion in 2007-08). The other major destinations were: services, with approved investment of A$31 .7 billion (A$35.7 billion in 2007-08); real estate, with approved investment of A$23.4 billion ($45.5 billion in 2007-08); and manufacturing, with approved investment of A$19.1 billion (A$31.3 billion in 2007-08). The United States was the largest source country for foreign investment in 2008-09, involving approved investment of A$39.6 billion. China (A$26.6 billion), Japan (A$22.1 billion), the United Kingdom (A$20.3 billion), and France (A$7.5 billion) were the other major source countries of approved investment in 2008-09. Sector-specific regulation Media. Foreign ownership of Australian media assets is regulated by the Foreign Acquisitions and Takeovers Act 1975 and Australias Foreign Investment Policy. All foreign persons, including U.S. investors, must notify the Australian government and get prior approval to make
Page 2 1-May-2011

1-May-2011

investments of 5% or more in the media sector, regardless of the value of the investment. The media sector includes daily newspapers, television and radio, as well as including internet sites that broadcast or represent these forms of media. Civil Aviation. The Australian Government released its National Aviation Policy Statement, or White Paper, on December 16, 2009. The White Paper retained the basic limit of 49% foreign ownership stake in Australias international airlines, originally set under the Air Navigation Act of 1920 and the Qantas Sale Act of 1992, intended to ensure Australias airlines remain majority Australian owned and controlled. However, the White Paper proposed the removal of additional restrictions on foreign ownership (i.e. 25% for foreign individual shareholdings and 35% for total foreign airlines shareholdings). The Government will consider more flexible arrangements for ownership of its airlines, other than Qantas, with governments with which Australia has negotiated Open Aviation Market agreements, [including the United States, which concluded an Open Skies Agreement with Australia in 2008]. In relation to the domestic carrier market, foreign investors can generally expect approval to acquire up to 100% of a domestic carrier (other than Qantas), or establish a new domestic aviation operation, unless this is contrary to the national interest. Airports: In relation to the airports offered for sale by the Australian Government, the Airports Act of 1996 stipulates a 49% foreign ownership limit, a 5% airline ownership limit, and cross-ownership limits between Sydney airport (including Sydney West) and Melbourne, Brisbane and Perth airports. Telecommunications. In February 2007, the Australian Government transferred its remaining 17% stake in Telstra into an independent Future Fund, reducing concerns about its conflicting roles as regulator and owner of the dominant operator. The United States remains concerned about foreign equity limits on Telstra, which are still capped at 35% total and up to 5% for individual foreign investors. In June 2010, Telstra signed a non-binding Financial Heads of Agreement with NBN Company (NBN Co) to participate in the rollout of the Commonwealth Governments National Broadband Network (NBN) initiative. The agreement provides for the decommissioning of Telstras copper network and cable broadband service and use of Telstras infrastructure. The transaction would see Telstra progressively migrate its voice and broadband traffic from its copper and cable networks to NBN Cos network, which is to be a neutral provider of broadband services. Other telecommunications companies, such as Optus, will also join the NBN. In December 2010, the Parliament passed legislation to separate Telstra's retail and wholesale arms, with the latter coming under the NBN. The United States will monitor the NBN to ensure that competitors are able to obtain reasonable access to services and customers. Audiovisual Trade Barriers. Though preexisting Australian-content requirements remained in effect under the AUSFTA, the agreement limited or prohibited their extension to other media or means of transmission. Australia maintains strict domestic content requirements on all free-to-air television programming broadcast between 6:00 a.m. and midnight. Australias Broadcasting Services Amendment Act requires subscription television channels with significant drama programming to spend 10% (with the FTA allowing flexibility, under certain circumstances, to increase this up to 20%) of their programming budgets on new Australian drama programs. The Australian Content Standard of 2005 (still in effect) requires commercial television broadcasters to produce and screen Australian content, including 55% of transmission between 6am and midnight. In addition, there are specific minimum annual sub-quotas for Australian (adult) drama, documentary, and childrens programs. In July 2010, the Australian government provided license fee rebates of 25% in FY 2010
1-May-2011 Page 3

1-May-2011

and 41.5% in FY 2011 to commercial television broadcasters in order to help them maintain Australian content production. Radio. The Australian commercial radio industry code of practice sets quotas for the broadcast of Australian music on commercial radio. The code requires that up to 25% of all music broadcast between 6:00 a.m. and midnight be music performed by Australians. In July 2010, the Australian Communications and Media Authority (ACMA) announced registration of a new code that provides temporary exemption for digital-only commercial radio stations (stations not also simulcast in analog) from the Australian music quotas. The exemption will be reviewed in 2013. Since January 2008 all licensees of regional commercial radio broadcasting licenses have been required to broadcast minimum levels of local content. Incentives for Investment. Hundreds of major foreign firms in most industry sectors invest in Australia. The Australian Commonwealth and State Governments offer incentives to multinationals to establish operations in Australia and benefit from Australia's safe and stable business environment and skilled workforce. Incentives that are available to investors include: The Commonwealth Government introduced changes to the tax treatment of research and development (R&D) from July 1, 2010. The system provides a refundable tax credit equal to 45% of expenditure on R&D to companies with an annual turnover of less than A$20 million. For companies which exceed this threshold, a tax credit equal to 40% of expenditure on R&D will be provided, but is not be refundable. The new policy involves a tightening in the definition of eligible R&D. The aim of the new system is to broaden access to the concession. Venture capital tax concessions: Capital gains tax exemptions are available for nonresident investment in Australian venture capital. The exemptions apply to investors from the U.S., the United Kingdom, Japan, Germany, France, and Canada. The Invest Australia Supported Skills (IASS) program is designed to encourage international firms to choose Australia as a location for direct investment by providing streamlined immigration arrangements for eligible employees of a company that is considering making a significant or strategic investment in Australia. The Green Car Innovation Fund (GCIF) is part of the Government's A New Car Plan for a Greener Future program and provides assistance over ten years, beginning 2009-10, to design, develop, and manufacture low-emission, fuel-efficient cars and components in Australia. The A$1 .3 billion (US$1.2 billion) fund provides assistance to Australian companies for projects that enhance the research, development, and commercialization of Australian technologies that significantly reduce fuel consumption and/or greenhouse gas emissions of passenger motor vehicles. Grants are provided at a ratio of A$1 of government funding for every A$3 of eligible expenditure contributed by the grantee. The Tradex Scheme allows an importer to gain an up-front exemption from customs duty and GST on imported goods that are intended for export or to be used as inputs to exports. The goods may be exported in the same condition as imported, subjected to a process or treatment after importation, then exported or incorporated in other goods which are exported. Export may be carried out by the importer or a third party. The goods must be exported within 12 months of importation, although approval can be sought to extend this period.
Transparency of the Regulatory System

Australia subscribes to the 1976 declaration of the Organization for Economic Cooperation and Development (OECD) concerning International Investment and Multinational Enterprises. The instruments
Page 4 1-May-2011

1-May-2011

cover national treatment and investment incentives and disincentives, and spell-out voluntary guidelines for the conduct of multinational enterprises in member countries. Australia also subscribes to two OECD codes of liberalization, one covering capital movements and the other invisible transactions. Australia ranked third in 2010 (behind Hong Kong and Singapore) on the Heritage Foundations rankings for economic freedom. According to this measure, the survey found that Australia ranks highly in the ten economic freedoms and that: Overall, the Australian economy is well equipped in terms of its structural strength. Monetary stability and openness to global commerce continue to facilitate a competitive financial and investment environment based on market principles. A strong rule of law protects property rights, and corruption is perceived as minimal. Both foreign and domestically owned businesses enjoy considerable flexibility under licensing and regulatory schemes and in their employment practices. Measures to enhance public finance and maintain long-term fiscal sustainability are focused on achieving better efficiency and effectiveness. In 2010, Australia was ranked as the second easiest place in the world to start a business, according to the World Bank. It ranked tenth in terms of 'ease of doing business' ranking, sitting in 10th place and was the sixth easiest place to obtain business credit. The Australian economy recorded 19 years of uninterrupted growth to 2010, despite two global downturns. The 2010 Institute for Management Development (IMD) World Competitiveness Yearbook rated the Australian economy the second most resilient in the world. For countries with populations greater than 20 million, Australia ranked first in 2009 and 2010, and has topped this category in eight of the previous nine years.
Foreign/Free Trade Zones/Ports

Australia does not have free trade zones.
Tariff and Non-tariff Barriers

Quarantine. The Australian Quarantine and Inspection Service (AQIS) (http://www.daff.gov.au/aqis) is the federal body responsible for enforcing Australias quarantine regulations, including issuing permits and inspecting shipments. Australia is a signatory to the WTO Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures (April 15, 1994). U.S. exporters, however, may find it difficult to comply with Australias import quarantine requirements. Aside from issues relating to the importation of food and animals, quarantine measures cover a number of other imported products such as farm, mining and construction machinery, some packaging goods, and other products that may pose a contamination risk to Australias agricultural industry or natural environment. The Australian government enforces its quarantine measures very seriously. Importers have little recourse once a shipment encounters quarantine issues. Machinery imports may require an AQIS-issued import permit. It is a condition of the permit that machinery arrives in a clean (refers to clean as new) or new state. Australian importers should contact AQIS to determine if they need an import permit. Note: The classification of machinery as 'new' and 'agricultural' is at AQIS' discretion. For quarantine purposes, new field-tested equipment is classified as used machinery, and will require an Import Permit. AQIS has the power to re-export contaminated machinery. More detailed information relating to the import of machinery can be found at: http://www.daff.gov.au/aqis/import/vehicles-machinery/regulations
1-May-2011 Page 5

1-May-2011

Packaging of imported goods presents a challenge to U.S. exporters, particularly where the packing materials include wood or other natural products. Detailed information on the compliance requirements can be found at: http://www.aqis.gov.au/icon32/asp/ex_casecontent.asp?intNodeId=8880434&intCommo dityId=1 7670 For complete information on products that need to comply with Australias quarantine regulations, U.S. exporters should check the requirements on the AQIS import condition (ICON) database at http://www.aqis.gov.au/icon. Click on ICON Search and enter the commodity name and end use and conduct a pattern match search. Chemical Import Requirements. There are several agencies that deal with importing chemicals to Australia, depending upon the proposed end-use of those chemicals or compounds. The primary agency responsible for chemical imports is the National Industrial Chemicals Notification and Assessment Scheme (NICNAS) http://www.nicnas.gov.au Other agencies involved in regulating chemical imports include: Food Standards Australia New Zealand (FSANZ) - http://www.foodstandards.gov.au Australian Pesticides & Veterinary Medicines Authority (ASPVMA) http://www.apvma.gov.au The Australian importer is responsible for notifying the relevant agency of the chemical it is importing to Australia. The Australian importer may be a local subsidiary of a U.S. firm, an agent, or an end-user. The importer usually completes the required paperwork. Given the high level of regulation, U.S. exporters should find Australian agents or importers familiar with requirements. NICNAS provides some guidance on the regulation of chemicals in the following brochure: http://www.nicnas.gov.au/Industry/Compliance/Compliance_Simple_Guide_PDF.pdf U.S. exporters may also need to ensure that products comply with the Australian Dangerous Goods Code requirements, which are based upon international standards. State-based government health and safety agencies enforce these codes. The codes differ slightly from state-to-state. The following link provides a list of these agencies: http://www.emplan.com.au/dangerous-goods/dangerous-goods.htm Non-Tariff Barriers. In addition to the elimination of tariffs, AUSFTA provides a range of other benefits such as: certain services markets are now open, intellectual property receives better protection, predictable access facilitates investments, and U.S. firms can compete in Australia for government tenders on a nondiscriminatory basis. Some of these relaxations have not yet come into effect. Until such time, existing barriers to a free flow of trade will remain. The agreement does not exclude provisions for local broadcasting content and local content in major defense contracts. The full text of the AUSFTA is available on the Department of Foreign Affairs and Trade website, http://www.dfat.gov.au/trade/negotiations/us_fta/final-text/index.html
Policies
Conversion and Transfer
The Australian dollar is a fully convertible currency. The government does not maintain currency controls or limit remittance, loan or lease payments. Such payments are processed through standard commercial channels, without governmental interference or delay.
Page 6 1-May-2011

1-May-2011

Performance Requirements
As a general rule, foreign firms establishing themselves in Australia are not subject to performance requirements and incentives.
Legal Framework
Expropriation and Compensation
The Australian legal system is firmly grounded on the principles of equal treatment before the law, procedural fairness, judicial precedent, and the independence of the judiciary. Strong safeguards exist to ensure that governments and officials do not treat people arbitrarily or unfairly. Private property can be expropriated for public purposes in accordance with established principles of international law. Due process rights are well-established and respected, and prompt, adequate, effective compensation is the norm.
Dispute Settlement
Australia has an established legal and court system for the conduct or supervision of litigation and arbitration, as well as alternate dispute processes. The traditional approach to commercial dispute resolution involves litigation, arbitration and more modern methods of alternative dispute resolution. Australia is a world leader in the development and provision of non-court dispute resolution mechanisms. It is a signatory to all the major international dispute resolution conventions and has organizations that provide international dispute resolution processes. Property and contractual rights are enforced through the Australian court system, which is based on English Common Law. There are few investment disputes involving foreign companies. Australia is a member of the International Center for the Settlement of Investment Disputes. AUSFTA establishes a dispute settlement mechanism for disputes arising under the Agreement. In the first instance disputes are to be settled through consultation between the parties. Where these consultations are not effective in resolving the dispute, the Agreement provides for an arbitral panel to consider the matter. The dispute settlement mechanism provides for compensation for breaches of the agreement, which may include requiring the breach to be corrected, trade compensation to be provided, or monetary compensation in lieu of trade compensation. The FTA does not allow private investors to directly challenge government decisions, but individual investors are able to raise concerns about their treatment by the Australian Government with the U.S. Government (or vice versa).
Right to Ownership and Establishment

The common law system which forms the basis of Australian jurisprudence guarantees the right to private ownership and the establishment of private business enterprises.
Protection of Property Rights

A strong rule of law protects property rights in Australia and operates against corruption. Both foreign and domestically-owned businesses enjoy considerable flexibility in their licensing, regulation, and employment practices.
Corruption and other Bureaucratic Obstacles

Australia maintains a thorough system of laws and regulations designed to counter corruption. In addition, the government procurement system generally is transparent and well regulated, thereby minimizing opportunities for corrupt dealings. Accordingly, corruption has not been a factor cited by U.S. businesses as a disincentive to investing in Australia, or to exporting goods and services here. Non-governmental
1-May-2011 Page 7

1-May-2011

organizations interested in monitoring the global development or anti-corruption measures, including Transparency International, operate freely in Australia. Australia is perceived internationally as having low corruption levels. Transparency Internationals Corruption Perception Index 2010 ranked Australia eighth, ahead of the United Korea, Japan and the United States in terms of nations perceived as having low levels of corruption. Australia is an active participant in international efforts to end the bribery of foreign officials. Legislation to give effect to the anti-bribery convention stemming from the OECD 1996 Ministerial Commitment to Criminalize Transnational Bribery was passed in 1999. Legislation explicitly disallowing tax deductions for bribes of foreign officials was enacted in May 2000. At the Commonwealth level, enforcement of anticorruption laws and regulations is the responsibility of the Attorney General's Department.
International Agreements
Trade Agreements. The U.S.- Australia Free Trade Agreement (AUSFTA). On January 1, 2005, Australia entered into the Free Trade Agreement with the United States (AUSFTA), providing major benefits for both countries immediately through removal of tariffs, and the phased opening of markets. More information can be found at: http://www.dfat.gov.au/trade/negotiations/us_fta/final-text/index.html (full text) and http://www.ustr.gov/Trade_Agreements/Bilateral/Australia_FTA/Section_Index.html U.S. companies interested in exporting to Australia can access the document Customs Tariff Schedule 5 U.S. Originating Goods at: http://www.customs.gov.au/site/page5663.asp#tariff684 Other Agreements. The Closer Economic Relations Trade Agreement (ANZCERTA, or CER) is the main instrument that governs economic relations between Australia and New Zealand. It is a comprehensive agreement, prescribing that all bilateral trade and services originating in the two countries is free of tariffs, quantitative restrictions, anti-dumping measures, production subsidies and like measures. Australia has free trade agreements with New Zealand, the US, Chile, Singapore, and Thailand. Australia is negotiating free trade agreements with China, Gulf Cooperative Council, Japan, Malaysia, Korea, TransPacific Partnership Agreement, and Pacific Agreement on Closer Economic Relations (PACER). It is considering free trade agreements with India and Indonesia. Australia is an active participant in the WTO, making regular submissions to trade negotiation rounds. Australia is a key member of the Asia Pacific Economic Cooperation (APEC) forum, and plays a leading role in promoting trade liberalization among the member economies. Australia exports approximately 70% of its goods and services to APEC economies. Australia is also a leading member of the Cairns Group of 17 agricultural exporting countries. Bilateral Investment Agreements. The Australian Government supports the negotiation of comprehensive Free Trade Agreements (FTAs) that are consistent with the World Trade Organization rules and guidelines and which complement and reinforce the multilateral trading system. Australia has FTAs with the United States, Thailand, Singapore, Chile, and a multilateral FTA with New Zealand and the countries of the Association of Southeast Asian States (ASEAN), all of which contain chapters on investment. Australia-United States FTA (AUSFTA). The Australia-United States FTA (AUSFTA) entered into force on January 1, 2005. AUSFTA is a comprehensive agreement that covers goods, services, investment, financial services, government procurement, standards and technical regulations, telecommunications, competitionrelated matters, electronic commerce, intellectual property rights, labor and the environment. The
Page 8 1-May-2011

1-May-2011

agreement has guaranteed U.S. access to the Australian market and the gradual expansion of this access. Under the FTA, trade in goods and services as well as foreign direct investment has continued to expand. More than 99% of U.S. exports of manufactured goods are now duty-free. The FTA will also eliminate tariffs within 10 years of entry into force on textiles. Other Bilateral Free Trade Agreements. Australia signed a free trade agreement with the Association of Southeast Asian Nations and New Zealand, which became effective in January 2010. ASEAN and New Zealand together account for 15% of Australia's total trade in goods and services, which were worth A$504 billion in 2009. The Singapore-Australia Free Trade Agreement (SAFTA), which became operational on 28 July 2003, eliminated most tariffs and increased market access for services. It also harmonized competition policy, government procurement, intellectual property, e-commerce, customs procedures, and business travel. The Thailand-Australia FTA cut tariffs to zero on virtually all goods from January 2010. The Australia-Chile FTA will result in the immediate reduction of tariffs on 97% of goods currently traded. Tariffs on all existing merchandise trade between Australia and Chile will be eliminated by 2015. Australia is currently negotiating agreements with South Korea, the Gulf Cooperation Council (GCC), Malaysia, ASEAN, China, and Japan, all of which are expected to include investment liberalization. Australia is participating in negotiations for a Trans- Pacific Partnership Agreement (TPP). The TPP will expand on the current Trans-Pacific Strategic Economic Partnership Agreement between Brunei Darussalam, Chile, New Zealand and Singapore, which entered into force in 2006. The United States, Vietnam, Malaysia and Peru have joined the TPP negotiations. In addition, Australia has completed FTA Feasibility Studies with both Indonesia and India. In August 2009, Australia began negotiations with the other members of the Pacific Forum towards a Pacific Agreement on Closer Economic Relations (PACER) Plus. In November 2010, Australia and Indonesia began to negotiate an Indonesia- Australia Comprehensive Economic Partnership Agreement (IA-CEPA). OPIC and Other Investment Insurance Programs. The Australian Government provides assistance to business for the development or expansion of export markets, and business advice on exporting and financial grants through the Export Market Development Grants scheme and the activities of Austrade, Australias export promotion agency. The Export Finance and Investment Corporation provides export financing assistance to Australian businesses and, in some cases, overseas buyers. The U.S. Overseas Private Investment Corporation (OPIC) does not extend coverage to Australia, which is not a high-risk or developing country.
Labor Conditions
Australias unemployment rate was 5.0% in December 2010, seasonally adjusted, down from 5.6% a year earlier. In the year to August 2010, annual average weekly earnings in Australia grew 4.1%, seasonally adjusted. The core inflation rate was 2.4% for the year to September 2010. Real wages have grown strongly over the last decade and the mining boom has led to skills shortages in that sector, particularly in Western Australia. The Fair Work Act provides a safety net of enforceable minimum employment terms and conditions through the National Employment Standards (NES). The NES sets out 10 minimum workplace entitlements which apply to all employers and employees in the national workplace relations system, though only certain entitlements apply to casual employees. In 2010, a new body, Fair Work Australia, took over the functions of the former Industrial Relations Commission as an arbitrator of industrial disputes and sets minimum wages for low paid workers.
1-May-2011 Page 9

1-May-2011

The number of industrial disputes is low by historical standards. In the year ended September 2010, 144 working days per thousand employees were lost due to strikes; compared to 119 during the previous year. During the year ended September 2010, 221 industrial disputes were recorded; compared to 202 during the previous year. Other Commonwealth laws set specific employment conditions. The Superannuation Guarantee (Administration) Act 1992 requires employers to contribute a minimum of 9% of each employee's base salary into that employee's superannuation (i.e., retirement pension) account. Employees may make additional contributions and are entitled to choose their superannuation fund. In 2001, the Government established the General Employees Entitlements Redundancy Scheme (GEERS), a taxpayer-funded insurance scheme, in response to growing community concerns about the loss of employee entitlements after several companies collapsed. GEER is a basic payment scheme established to assist employees who have lost their employment due to the liquidation or bankruptcy of their employer and who are owed certain employee entitlements. The scheme covers capped unpaid wages, annual and long-service leave, capped payment in lieu of notice, and capped redundancy pay. Employees currently stand ahead of unsecured creditors, but behind lenders with fixed security in the creditors' queue following a company collapse. The Australian Government is a party to all International Labor Organization (ILO) conventions. The 457 Long Stay Business visa. If an overseas business decides to establish a presence in Australia and relocate for its business operations, it may apply for the status of a Business Sponsor and sponsor personnel for a 457 visa through the Department of Immigration & Citizenship (DIAC). In 2009, the government made changes to the uncapped visa program covering employer- sponsored temporary foreign workers (457 visa program). These included introducing a market-based minimum salary for all new and existing 457 visa holders; developing minimum skills requirements that meet Australian standards; and increasing the minimum English language requirement. General Skilled Migration Program. On July 1, 2011, Australia will introduce a new points-based system for the General Skilled Migration (GSM) category, which includes several of the country's permanent residence programs that do not require employer sponsorship. GSM applicants who file applications on or after July 1 will be judged against the new points-based test, which generally focuses on selecting highlyskilled individuals to meet labor market demand. The Australian Department of Immigration and Citizenship announced the new system on November 11, 2010. Under the new system, greater weight will be placed on higher-level education qualifications from overseas-approved and recognized universities. Under the current system, only Australian education qualifications can earn points. Applicants who have completed tertiary studies in Australia will be eligible to claim additional points. Further points may be earned if the applicant's studies were completed at regional campuses. The Australian government is expected to promulgate legislation to support and implement the new points-based test by July 1, 2011.
Sources: AUSTRALIA COUNTRY COMMERCIAL GUIDE FY 2011, US & FOREIGN COMMERCIAL SERVICE AND US DEPARTMENT OF STATE; PRS Data files.
Page 10 1-May-2011

1-May-2011
Australia
Country Conditions
Background
Geography
Australia is located below the Southeast Asian archipelago, bordered on the east by the Pacific Ocean and on the west by the Indian Ocean. Most of the continent is an irregular plateau with a flat, barren, and arid center. The southeastern quarter of the country has 1.3 million square kilometers of fertile plain. Natural resources include large deposits of titanium and zircon and minerals such as bauxite, iron ore, tungsten, zinc, and coal, as well as large deposits of natural gas, uranium, gold, shale, alumina, mineral sands, lead, nickel, opals, and diamonds. Australia is the worlds leading coal exporter, and despite producing 80% of its own needs for oil, Australia projects that it will produce only 40% of its own needs by 2010 because of its heavy use of oil. Australia is the third-largest exporter of liquefied natural gas in the Asia-Pacific region. Because of its size, Australia experiences wide climate variations. Nevertheless, it is less subject to extreme weather than countries in corresponding latitudes because of its isolated location and lack of striking physical features. During January, the capital, Canberra, which is in the southeast, averages low temperatures of 13C, high temperatures of 22C and receives an average of seven days of significant precipitation. During July, Canberras temperatures range from 1C to 11C, and it receives an average of 10 days of significant precipitation.
Recent History
August 2000: Howard ordered naval forces to turn boat people away from Australian waters in order to deter a multi-million-dollar trade in people smuggling; Australia later refused permission for UN visits or information-gathering on its treatment of asylum seekers, without a compelling reason to do so. September 15-October 1, 2000: Australia hosted the Summer Olympic Games in Sydney. May 2001: Australias churches rebuked PM Howard for not apologizing to thousands of Aborigines affected by past assimilation policy, the forcible removal of Aboriginal children from their parents to live with whites, those known as the Stolen Generations. June 2001: Howard refused to stop holding illegal immigrants in outback camps that had been described by some in Parliament as squalid and appalling. August-September 2001: Australia turned away hundreds of boat people over several months, the most prominent having been rescued from a sinking ferry by the Norwegian freighter Tampa. November 2001: Howard and his LP-NP coalition secured a smaller, but still more than adequate, majority of 10 seats in the lower house, to win a third term in general elections. NovemberDecember 2001: Violence ignited at the remote Woomera detention center.
Background
1-May-2011 Page 11

1-May-2011

January-April 2002: Detainees at Woomera began a hunger strike to protest conditions; the government initially ruled out closing the camp, but later agreed to use it somewhat less and close the Curtin camp in Western Australia, retaining it only as a contingency center. October 12, 2002: A terrorist bombing in Bali, Indonesia, killed 92 Australian citizens, leading to a series of new anti-terrorism measures, including tighter visa controls, more security officers on flights, expanded intelligence gathering, and tighter security in Australian facilities abroad. December 2002: Illegal immigrants wielding iron pipes attacked their guards and set fire to several refugee centers, causing damage at an estimated $4.4 million. January 2003: Bush fires destroy more than 500 homes in the capital Canberra. May-June 2003: Governor-General Peter Hollingworth stepped down from his post following a drawn-out controversy over his failure to dismiss a pedophile priest during his 1990s tenure as Anglican Archbishop of Brisbane; Howard named Michael Jeffrey as Hollingworths replacement. November-December 2003: Simon Crean resigned as ALP leader because of internal pressure and criticism of his leadership; the ALPs shadow treasury secretary, Mark Latham was elected ALP leader by two votes. February 2004: Howard signed up to a FTA with the US. September 9, 2004: Nine people were killed in the bombing of Australian embassy in Jakarta, Indonesia, in an attack attributed to the JI, the regional Al Qaeda-linked terrorist group. October 2004: The LP-NP coalition again handed the opposition ALP a solid defeat, winning 52% of the vote to secure a fourth consecutive term in office and gaining six seats to bring its total in the lower house of Parliament to 87; the ALP lost six seats, reducing its total to 60. The LP-NP alliance also won a majority in the upper house, marking the first time any government had control over both chambers since the 1970s. August 2005: A new deputy prime minister, Mark Vaile, was appointed, since John Anderson had resigned in June for health problems; Vaile also replaced Anderson as leader of the National Party (NP). September 2005: Howard finally won approval for the sale of the states remaining stake in the Telstra telecommunications company, although a majority of the public and many in the NP opposed the sale. November 2005: The Parliament approved controversial anti-terror legislation which allows for detention without charge for up to one year, extends police shoot-to-kill powers, and expands the law on sedition. December 2005: The upper house approved revisions to the notoriously stringent labor regulations. Mobs of white males, totaling up to 5,000 persons, went on a rampage that lasted several days, assaulting anyone with an Arab appearance on and around Sydneys southern beaches. March 2006: The WorkChoices program lifted unfair dismissal restrictions on small companies. April-May 2006: Australian troops led peacekeeping missions to the Solomon Islands and East Timor following unrest in both nations. December 2006: Kevin Rudd was elected to lead the Australian Labor Party (ALP).
Page 12 1-May-2011
Background

1-May-2011

September 2007: Cabinet members called on Prime Minister Howard to step aside in favor of Treasurer Peter Costello before elections, but instead he promised to yield to Costello during his next term. November 2007: Labor won parliamentary elections and Kevin Rudd became prime minister. December 2007: Rudd ratified the Kyoto Protocol. February 13, 2008: The Australian government formally apologized to the Aboriginal people for the wrongs committed against them by many governments in the past. September 2008: The first woman to be governor-general of Australia, Quentin Bryce, was sworn in. October 14, 2008: The government announced a $6.9 billion economic stimulus package to help soften the impact as the global financial crisis began hitting Australia. February 2009: During a record-breaking heat wave, more than 25 devastating bushfires tore through the state of Victoria, becoming the deadliest in Australian history, leaving nearly 200 people dead. May 2009: Australia announced plans to modernize its military, doubling its submarine fleet and purchasing 100 Stealth fighters from the US. June 2010: Julia Gillard, leader of Australias Labor party, became Prime Minister. August 2010: Parliamentary election results did not deliver a clear winning party. Prime Minister Gillard maintained power and secured support from independents consequently forming a minority government.
Social Conditions
Ethnic and Racial Divisions. Despite many immigrants from Asia, North America, and continental Europe, most Australians trace their background to Britain or Ireland. Although Asians comprise only 7% of the population, about 40% of immigrants since the 1970s have come from Asia, producing anxiety and even some ethnic unrest. Another source of tension has been the assertiveness of Aborigines, less than 1% of the population. While the rise and fall of Pauline Hansons One Nation party during the 1990s placed a spotlight on the immigration issue, most Australians believe that immigration has benefited the country and favor a nondiscriminatory immigration policy. One Nation put mainstream parties on the defensive over programs designed to provide opportunities and social support for the Aboriginal population. At the same time, the Aborigines became more vocal in seeking a wide range of political, economic, and social objectives. They have claimed many grievances, suffering from far shorter life spans and much higher rates of illiteracy, alcoholism, unemployment, crime, and infant mortality than the rest of the population. About one-quarter of Aborigines are unemployed. Militancy among Aborigines varies, however, as many are torn between goals of integration with mainstream society and preservation of their cultural identity. Many white Australians show ambivalence over special treatment for Aborigines. Regional and Class Divisions. Despite modern communications, clear regional differences exist. The states of Western Australia and Queensland, geographically isolated and experiencing rapid economic growth, often complain about federal policies, especially the dominance of the heavily populated southeastern business and financial centers. These two states provided a substantial portion of support for Hansons One Nation. Residents of the small island state of Tasmania have at times been dissatisfied about their treatment by the federal government. While anxiety over job security can fuel tensions, such social programs as the
Background
1-May-2011 Page 13

1-May-2011

national health plan and generous unemployment benefits help relieve the difficulties of the poor. Nonetheless conflicts between urban and rural populations and between the working and middle classes are expressed through partisan politics rather than social disorder. Education. Attendance is compulsory until age 15, except in Tasmania, and both literacy and enrollment rates remain high. Over 50% of all students complete secondary school, and over 70% complete grade 11. Most students attend free government-funded schools. About 25% attend government-monitored private schools, typically run by the Roman Catholic Church. Primary and secondary education are managed and funded by the state and territorial governments; the federal government funds higher education. Health. Australians are generally healthy. Average life expectancy is over 81 years. The most significant problems are related to sun exposure, skin cancer, and AIDS. Health conditions, including the infant mortality rate and life expectancy, are among the best in the world. The government provides health care, which is managed by the states and territories. Local governments, charitable agencies, and private physicians also help provide medical services. A compulsory health insurance plan includes a combination of direct payments, voluntary insurance, and a national Medicare program. The following sections are extracts from the publication:
Background Note: Australia, November 2010 Published by Bureau of East Asian and Pacific Affairs, US Department of State
Government
The Commonwealth government is a constitutional monarchy with a Constitution patterned partly on the U.S. Constitution, although it does not include a bill of rights. Powers of the Commonwealth are specifically defined in the Constitution, and the residual powers remain with the states. Proposed changes to the Constitution must be approved by the Parliament and the people, via referendum. Australia is an independent nation within the Commonwealth. Queen Elizabeth II is the head of state and since 1973 has been officially styled Queen of Australia. The Queen is represented federally by a governor general and in each state by a governor. By convention, the governor general generally acts on the advice of the prime minister and other ministers. However the governor general has reserve powers, including the power to dismiss ministers, last exercised in 1975. The federal Parliament is bicameral, consisting of a 76-member Senate and a 150-member House of Representatives. Twelve senators from each state are elected for 6-year terms, with half elected every 3 years. Each territory has two senators who are elected for 3-year terms, concurrent with that of the House. Seats in the House of Representatives are allocated among the states and territories roughly in proportion to population. The two chambers have equal powers, except all proposals for appropriating revenue or imposing taxes must be introduced in the House of Representatives. Under the prevailing Westminster parliamentary system, the leader of the political party or coalition of parties that wins a majority of the seats in the House of Representatives becomes prime minister. The prime minister and the cabinet wield actual power and are responsible to the Parliament, of which they must be elected members. General elections are held at least once every 3 years. Each state is headed by a premier, who is the leader of the party with a majority or a working minority in the lower house of the state legislature. (Queensland is an exception, with a unicameral parliament.) Australia's two self-governing territories have political systems similar to those of the states, but with unicameral assemblies. Each territory is headed by a chief minister who is the leader of the party with a
Page 14 1-May-2011
Background

1-May-2011

majority or a working minority in the territory's legislature. More than 670 local councils assist in the delivery of services such as road maintenance, sewage treatment, and the provision of recreational facilities. At the apex of the court system is the High Court of Australia. It has general appellate jurisdiction over all other federal and state courts and possesses the power of constitutional review.
Political Conditions
Three political parties dominate the center of the Australian political spectrum. The Liberal Party (LP), nominally representing urban business interests, and its smaller coalition partner, the Nationals, nominally representing rural interests, are the more conservative parties. The Australian Labor Party nominally represents workers, trade unions, and left-of-center groups. While the Australian Labor Party, founded by labor unions, traditionally had been moderately socialist in its policies and approaches to social issues, today it is best described as a social democratic party. There is strong bipartisan sentiment on many international issues, including Australia's commitment to its alliance with the United States. Julia Gillard first assumed the office of Prime Minister in June 2010 after Kevin Rudd lost the confidence of the Australian Labor Party because of declining poll numbers and a sense of poor implementation of government programs. Gillard called for an early election after only a month as Prime Minister. The August 21, 2010, federal election resulted in a hung parliament, with neither the Labor Party, under the leadership of Gillard, nor the Liberal/National Coalition, led by Opposition Leader Tony Abbott, holding enough seats to form a government. The resurgent Coalition gained 8 seats from where it stood after the 2007 election, while the Labor Party lost 11 seats. After the election the Labor Party was able to secure the support of the Greens Party Member of Parliament (MP) and three independent MPs to gain a majority of 76 seats. The composition of the new Senate, to be seated in July 2011, is 34 seats for the coalition, 31 for the ALP, nine for the Greens, one for the Democratic Labor Party, and one independent. By gaining four seats the Greens now hold key swing votes and greater influence in the Senate. Gillard is expected to pursue her campaign promises to build a national broadband network and make progress in addressing climate change. The Australian Governments foreign policy shows strong continuity with that of its predecessors. Gillard has consistently stressed the importance of Australias relations with the U.S. and U.S. engagement in the Asia-Pacific region. Her government is committed to Australias role in Afghanistan, where it currently has about 1,550 troops.
Foreign Relations
Australia has been an active participant in international affairs since federation in 1901, and Australian forces have fought beside the United States and other Allies in every significant conflict since World War I. On January 8, 1940, the governments of the United States and Australia announced the establishment of bilateral diplomatic relations. In 1944, Australia concluded an agreement with New Zealand dealing with the security, welfare, and advancement of the people of the independent territories of the Pacific (the ANZAC pact). After World War II, Australia played a role in the Far Eastern Commission in Japan and supported Indonesian independence during that country's revolt against the Dutch. Australia was one of the founding members of the United Nations, the South Pacific Commission, and the Colombo Plan. In addition to contributing to UN forces in Korea--it was the first country to announce it would do so after the United States--Australia sent troops to assist in putting down the 1948-1960 communist revolt in Malaya and later to combat the 1963-1965 Indonesian-supported invasion of Sarawak. The United States, Australia, and New Zealand signed the ANZUS Treaty in 1951, which remains Australia's pre-eminent formal
Background
1-May-2011 Page 15

1-May-2011

security treaty alliance. Australia sent troops to assist South Vietnamese and U.S. forces in Vietnam, and joined coalition forces in the Persian Gulf conflict in 1991, in Afghanistan in 2001, and in Iraq in 2003. Australia has been active in the Australia-New Zealand-U.K. agreement and the Five-Power Defense Arrangements--successive arrangements with Britain and New Zealand to ensure the security of Singapore and Malaysia. Australia participates in a Trilateral Security Dialogue with the United States and Japan. One of the drafters of the UN Charter, Australia has given firm support to the United Nations and its specialized agencies. It was last a member of the Security Council in 1985-86, a member of the Economic and Social Council for 1986-89, and a member of the UN Human Rights Commission for 1994-96 and 2003-2005. Australia is seeking a non-permanent seat on the UN Security Council for 2013-2014. Australia takes a prominent part in many other UN activities, including peacekeeping, nonproliferation and disarmament negotiations, and narcotics control. Australia also is active in meetings of the Commonwealth Heads of Government and the Pacific Islands Forum, and has been a leader in the Cairns Group--countries pressing for agricultural trade reform in World Trade Organization (WTO) negotiations--and in founding the APEC forum. In 2002, Australia joined the International Criminal Court. Australia has devoted particular attention to relations between developed and developing nations, with emphasis on the 10 countries of the Association of Southeast Asian Nations (ASEAN) and the island states of the South Pacific. Australia is an active participant in the ASEAN Regional Forum (ARF), which promotes regional cooperation on security issues, and has been a member of the East Asia Summit since its inauguration in 2005. The Rudd government argued that the Asia-Pacific area needs a regional body that addresses both security and economic issues. In September 1999, acting under a UN Security Council mandate, Australia led an international coalition to restore order in East Timor upon Indonesia's withdrawal from that territory. In 2006, Australia participated in an international peacekeeping operation in Timor-Leste (formerly East Timor). Australia led a regional mission to restore law and order in Solomon Islands in 2003 and again in 2006. Australia is part of the Asia Pacific Partnership on Clean Development and Climate, which also includes the United States. The government is committed to increasing official development assistance to 0.5% of gross national income by 2015-2016. Australia budgeted $A4.35 billion (U.S. $3.9 billion) for FY 2010-2011 and $A3.82 billion (U.S. $3.4 billion) in FY 2009-2010. The Australian aid program is currently concentrated in Southeast Asia (Papua New Guinea and Indonesia are the largest recipients) and the Pacific Islands. Selected aid flows are allocated to Africa, South Asia, and reconstruction in Afghanistan and Iraq. Contributions to global programs and other expenses account for 39% of the foreign assistance budget. ANZUS AND DEFENSE. The Australia, New Zealand, United States (ANZUS) security treaty was concluded at San Francisco on September 1, 1951, and entered into force on April 29, 1952. The treaty bound the signatories to recognize that an armed attack in the Pacific area on any of them would endanger the peace and safety of the others. It committed them to consult in the event of a threat and, in the event of attack, to meet the common danger in accordance with their respective constitutional processes. The three nations also pledged to maintain and develop individual and collective capabilities to resist attack. In 1984, the nature of the ANZUS alliance changed after the Government of New Zealand refused access to its ports by nuclear-weapons-capable and nuclear-powered ships of the U.S. Navy. The United States suspended defense obligations to New Zealand, and annual bilateral meetings between the U.S. Secretary of State and the Australian Foreign Minister replaced annual meetings of the ANZUS Council of Foreign Ministers. The first bilateral meeting was held in Canberra in 1985. At the second, in San Francisco in 1986, the United States and Australia announced that the United States was suspending its treaty security obligations to New Zealand pending the restoration of port access. Ministerial consultations (AUSMIN)
Page 16 1-May-2011
Background

1-May-2011

alternate between Australia and the United States. The U.S.-Australia alliance under the ANZUS Treaty remains in full force. AUSMIN meetings are supplemented by consultations between the U.S. Combatant Commander, Pacific and the Australian Chief of Defence Force. There also are regular civilian and military consultations between the two governments at lower levels. ANZUS has no integrated defense structure or dedicated forces. However, in fulfillment of ANZUS obligations, Australia and the United States conduct a variety of joint activities. These include military exercises ranging from naval and landing exercises at the task-group level to battalion-level special forces training to numerous smaller-scale exercises, assigning officers to each other's armed services, and standardizing, where possible, equipment and operational doctrine. The two countries operate joint defense facilities in Australia. As a result of terrorist attacks on the United States on September 11, 2001, then-Prime Minister Howard and U.S. President George W. Bush jointly invoked the ANZUS Treaty for the first time on September 14, 2001. Australia was one of the earliest participants in Operation Enduring Freedom. The Australian Defence Force (ADF) participated in coalition military action against Iraq in Operation Iraqi Freedom. Australian combat forces began their withdrawal from Iraq in mid-2008 and forces were fully removed by July 2009. Australia has approved the deployment of approximately 1,550 troops to Afghanistan and also provides significant development and capacity building assistance to the country. The Australian Army is projected to grow from 28,811 in FY 2010-2011 to 30,098 in FY 2013-2014. This will enable the establishment of two Army battalions. The Australian Government has stated its intention to maintain its investment in future capability of the ADF. To do so, the government has committed to a 3% annual growth in real defense funding through 2018--and 2.2% annual real growth beyond--to ensure the ADF can continue to meet capability and interoperability goals. The 2010-2011 budget projects $A6.3 billion (U.S. $5.7 billion) for approximately 57,000 full-time ADF personnel, plus 6,000 new recruits. The Royal Australian Navy's (RAN) front-line fleet currently includes 12 frigates, including 4 of the Adelaide class and 8 Australian-built ANZAC class. In August 2004, Australia selected the Aegis Combat Control System for its three air warfare destroyers (AWD), which will start coming into service in 2014. In a joint venture with the U.S. Navy, Australia is upgrading its Replacement Combat System (RCS), and its associated support infrastructure, for its six Collins class submarines. The F/A-18 fighter, built in Australia under license from the U.S. manufacturer, is the principal combat aircraft of the Royal Australian Air Force, backed by the U.S.-built F-111 strike aircraft. In October 2002, Australia became a Level III partner in the U.S.-led Joint Strike Fighter (JSF) program. Additionally, the Australian Government signed the JSF Production, Sustainment and Follow-on Development memorandum of understanding in 2006. Australia is projected to buy up to 100 JSF aircraft with deliveries starting in 2014. Australias first operational JSF squadron is planned to be ready for operations in 2018. The F-111 strike aircraft are scheduled to exit service by the end of 2010 and be replaced by 24 Boeing F/A-18F Super Hornet fighters as an interim strike capability, with deliveries commencing March 2010. The Royal Australian Air Force (RAAF) took delivery of the last aircraft in its buy of 4 Boeing C-17 strategic airlift aircraft in 2008. In addition, Boeing will provide the Commonwealth of Australia's RAAF with an Airborne Early Warning and Control (AEW&C) system based on the Next-Generation 737700 aircraft as the airborne platform. Recent U.S. sales to the Australian Army include the M1A1 AIM tank, as well as Hellfire and JAVELIN munitions. Future opportunities include CH-47 helicopter replacements, navy helicopter replacements, light and medium cargo aircraft replacements, and artillery systems. In May 2009, the Australian Government released its Defence White Paper, outlining Australias long-term strategic outlook. In addition to buying the JSF aircraft, the White Paper proposes to double Australias submarine fleet to 12, replace the ANZAC class frigates, and replace the armys armored personnel carriers.
Background
1-May-2011 Page 17

1-May-2011

The U.S. and Australia signed a Defense Cooperation Treaty in Sydney in September 2007. This treaty, when implemented, will facilitate the trade of defense equipment and technology between the countries. U.S.-AUSTRALIAN RELATIONS. The World War II experience, similarities in culture and historical background, and shared democratic values have made U.S. relations with Australia exceptionally strong and close. Ties linking the two nations cover the entire spectrum of international relations--from commercial, cultural, and environmental contacts to political and defense cooperation. Two-way trade reached almost $A53 billion (U.S. $47.7 billion) in 2008-2009. Around 488,300 Americans visited Australia in the 12 months to March 2010. In September 2007, the United States and Australia signed an agreement launching a 12-month exchange student work and travel pilot program. While Australia enjoys a similar program with approximately 20 other countries, this was the first program of its kind for the United States. The pilot program will facilitate the hands-on experience of Australian and Americans working in each others' country and will deepen and enhance our bilateral relationship even further. Traditional friendship is reinforced by the wide range of common interests and similar views on most major international questions. For example, both attach high priority to controlling and eventually eliminating chemical weapons, other weapons of mass destruction, and anti-personnel landmines; and both work closely on global environmental issues such as slowing climate change and preserving coral reefs. The Australian Government and opposition share the view that Australia's security depends on firm ties with the United States, and the ANZUS Treaty enjoys broad bipartisan support. Recent Presidential visits to Australia (in 1991, 1996, 2003, and 2007), a Vice Presidential visit in February 2007, and Australian Prime Ministerial visits to the United States (in 1995, 1997, 1999, 2001, 2002, 2003, 2004, 2005, 2006, 2008, and 2009) have underscored the strength and closeness of the alliance. The bilateral Australia-U.S. Free Trade Agreement (AUSFTA) entered into force on January 1, 2005. This comprehensive agreement, only the second FTA the U.S. had negotiated with a developed nation, substantially liberalized an already vibrant trade and investment relationship. The AUSFTA also creates a range of ongoing working groups and committees designed to explore further trade reform in the bilateral context. Both countries share a commitment to liberalizing global trade. They work together very closely in the World Trade Organization (WTO), and both are active members of the Asia-Pacific Economic Cooperation (APEC) forum. A number of U.S. institutions conduct scientific activities in Australia because of its geographical position, large land mass, advanced technology, and, above all, the ready cooperation of its government and scientists. In 2005, a bilateral science and technology agreement was renewed. Under another agreement dating back to 1960 and since renewed, the U.S. National Aeronautics and Space Administration (NASA) maintains in Australia one of its largest and most important programs outside the United States, including a number of tracking facilities vital to the U.S. space program. Indicative of the broad-ranging U.S.Australian cooperation on other global issues, a Mutual Legal Assistance Treaty (MLAT) was concluded in 1997, enhancing already close bilateral cooperation on legal and counter-narcotics issues. In 2001, the U.S. and Australia signed a new tax treaty and a bilateral social security agreement. The U.S. Studies Centre was launched in 2006 at the University of Sydney with Commonwealth funding of A$25 million (U.S. $20 million). In April 2010, Australia and the U.S. signed a memorandum of understanding to strengthen emergency management cooperation including during bushfires, major storms, and other severe natural disasters.
Page 18 1-May-2011
Background
Copyright of Political Risk Yearbook: Australia Country Report is the property of PRS Group, Inc. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.

Australia: Country Report

Uploaded by

Copyright:

Available Formats

Australia: Country Report

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Australia: Country Report

Uploaded by

Copyright:

Available Formats

Australia

Political Risk Services

Australia Country Forecast

Papua New Guinea

TUVALU Gulf of Carpentaria

Great Australian Bight

Sydney New Zealand

Political Risk Services

* Indicates forecast of a new regime.

Inflation % 3.0 3.5 2.8

Current Account ($bn) -44.83 -35.40 -39.20

Political Risk Services

Australia Country Forecast

Government Change May Mean Policy Reversals

Economic Forecasts for the Three Alternative Regimes

Political Risk Services

Australia Country Forecast

Political Fact Sheet

Political Risk Services

Reproduction without written permission of The PRS Group is strictly prohibited.

1-Nov-2011 ~ Page 6-7

Political Risk Services

Reproduction without written permission of The PRS Group is strictly prohibited.

1-Nov-2011 ~ Page 6-7

Australia Country Forecast

Regional Inflation Rates (2010): East Asia/Pacific

Australia Country Forecast

47224 2.8 3.0 4.9 28.2 -0.2 -4.6

Political Risk Services

Australia Country Forecast

Political Risk Services

Comment & Analysis

Political Risk Services

Australia Country Forecast

Comment & Analysis

Political Risk Services

Australia Country Forecast

Comment & Analysis

Political Risk Services

Australia Country Forecast

Comment & Analysis

Political Risk Services

REGIMES & PROBABILITIES

Political Risk Services

Australia Country Forecast

Political Risk Services

Australia Country Forecast

Political Risk Services

Australia Country Forecast

Political Risk Services

Australia Country Forecast

Political Risk Services

Australia Country Forecast

Political Risk Services

Australia Country Forecast

Political Risk Services

Australia Country Forecast

Political Risk Services

Australia Country Forecast