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Australia's developed market economy is dominated by its services sector (70% of GDP), yet it is the agricultural and mining sectors (7% of GDP combined) that account for the bulk (57%) of Australia's goods and services exports. Australia's comparative advantage in primary products is a reflection of the natural wealth of the Australian continent and its small domestic market; 20 million people occupy a continent the size of the contiguous United States. The relative size of the manufacturing sector has been declining for several decades, and now accounts for around 11% of GDP.
Australia commenced a basic reorientation of its economy in the 1980s and has transformed itself from an inward looking, import-substitution country to an internationally competitive, export-oriented one. Key reforms include unilaterally reducing high tariffs and other protective barriers; floating the Australian dollar exchange rate; deregulating the financial services sector, including liberalizing access for foreign bank branches; making efforts to restructure the highly centralized system of industrial relations and labor bargaining; better integrating the state economies into a national federal system; improving and standardizing the national infrastructure; privatizing many government-owned services and public utilities; and fundamentally reforming the taxation system, including introducing a broad-based Goods and Services Tax (GST).
The ultimate goal is for Australia to become a competitive producer and exporter, not just of traditional farm and mineral commodities, but also of a diversified mix of high value-added manufactured products, services, and technologies. Australia was one of the OECD's fastest-growing economies throughout the 1990s, a performance that owed much to the economic reform program. Despite a transient slowdown in late 2000, it has been thirteen years since Australia experienced a recession and economic growth remains robust. Economic growth should reach at least 3% in 2004, despite the negative effect of the prolonged drought on Australian agricultural exports. The latest predictions suggest that GDP growth will exceed 3% over the next 2 years.
The United States and Australia concluded negotiations on a Free Trade Agreement (FTA) in February 2004. The FTA has been ratified by both the U.S. Congress and the Australian Parliament. As of August 2004, both governments were working to resolve final technical issues prior to entry-into-force in 2005. The AUSFTA marks the first FTA the U.S. has concluded with a developed economy since the U.S.-Canada FTA in 1988.
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