THE BOTTOM LINE: Something good going Down Under

Australia is becoming a sizeable market for Canadian exports, while being a tough competitor against Canada in third markets at the same time. Australias trade success warrants more study.

Begin with the trade relationship between Canada and Australia. Canadian exports of goods to Australia amounted to $1.9 billion in 2006, up 14% over 2005. The leading goods exports were in aerospace, telecommunications and other equipment, meat, iron ore and pharmaceuticals. Canada also exports a lot of services to Australia, on the order of $1 billion annually. Australia exported $1.6 billion in goods to Canada in 2006, down 9% from 2005, led by aluminium, wine, chemicals, meat, sugar, base metal ores and pharmaceuticals. Again, services trade is also very important, with Australia exporting on the order of $500 million in services to Canada annually.

Australia is less trade-dependent than Canada, as total trade represents about 70% of Canada’s GDP but only 43% for Australia. However, Australia does not have a huge natural trading partner next door like Canada does. Australia’s trading partners are far more diverse: Japan takes 20% of their exports, China 12%, Korea 8%, the U.S. 6%, and New Zealand, India and the U.K. 5% each. One could respond that Canada’s exports are more global than they appear, since many of our exports are intermediate goods shipped to U.S. global companies, which then export finished products world-wide. Still, the impression would remain that Australia has had more relative success in breaking into other markets. Indeed, more than half of Australia’s exports are to Asian emerging markets, which virtually guarantees continued strong export growth into the future.

As for Australias ability to compete in third markets, consider Australias relative export success in Japan, which imports food products, coal and certain base metals from both Canada and Australia. Since 1997, Australian exports to Japan have grown on average at a rate of 8.6%, while Canadian exports to Japan have grown by only 0.7% annually, a big difference.

This may be partly explained by rising prices for many of Australias key resource exports, which has boosted their export revenues more than those of Canadian exporters. As well, the BSE (mad cow) scare in North America has permitted Australia to increase its share of Japans beef market at the expense of both Canada and the U.S.

Relative exchange rate movements may also have reduced Canadas competitiveness in Japan versus Australia. After the late-1990s Asian crisis, the Australian dollar fell to a low in 2001 of US 0.51, while Canada bottomed at 0.62. Having been at parity in 1997, this represented a depreciation of Australia against Canada of nearly 20%. Parity re-emerged in late-2003, but since then the Canadian dollar has generally been the stronger of the two because of high oil prices.

The bottom line? Australias export success may be explained in part by these economic factors. But it may also be that Australia, because it has no obvious and natural trading partner, has by necessity had to work especially hard at trade development with its emerging market neighbours.

Stephen Poloz is Senior Vice-President, Corporate Affairs and Chief Economist, Export Development Canada. His column on trade-related issues appears weekly on www.ctl.ca.