School of Economics
Working Papers
ISSN 2203-6024
Trade between Australia and the EU,
1990 - 2015
Richard Pomfret
Patricia Sourdin
Working Paper No. 2016-10
September 2016
Copyright the authors
September 2016
TRADE BETWEEN AUSTRALIA AND THE EU, 1990-2015
Richard Pomfret and Patricia Sourdin
ABSTRACT:
The geographical composition of the EU has changed dramatically since 1989 as the
enlargements of 1995 (Austria, Sweden and Finland) and 2004-13 (Eastern European
countries plus Cyprus and Malta) more than doubled the number of EU member
countries. This paper reviews the level, direction and composition of Australian trade
with EU member countries from 1990 to 2015. Australia-EU trade remains dominated
by relations with the original six member countries and the UK. A striking feature has
been the rapid increase in trade between Australia and the Eastern European countries
that joined the EU in 2004. Analysis of the new EU members' trade with Australia
highlights intra-EU regional value chains as a pathway by which new EU members rapidly
became exporters of manufactured goods such as cars. Thus, the 2004 EU enlargement
benefited Australia by providing cars that fitted many Australian consumers' preferences
and budgets, and rapid economic growth in the Eastern European markets provided
markets for Australian exports. Part of the reason why EU countries have remained
attractive trade partners is that the costs of international trade between Australia and EU
countries have remained low relative to trade costs between Australia and other
countries; the level and determinants of bilateral trade costs are analyzed using
disaggregated ABS data.
The research for this paper was supported by a grant from the University of Adelaide
Institute for International Trade. We are also grateful to the University of Adelaide for
subscribing to the ABS trade data used in Section 3. Laura Márquez-Ramos gave helpful
comments on an early draft.
1
TRADE BETWEEN AUSTRALIA AND THE EU, 1990-2015
Richard Pomfret and Patricia Sourdin
Since the end of Communism in Eastern Europe in the second half of 1989, the
geographical composition of the EU has changed dramatically. Already in 1990 EU
accession was a clear goal for most of the Eastern European countries and during the
transition from central planning they quickly began to make economic reform compatible
with EU membership. Formal accessions in 1995 (Austria, Sweden and Finland) and
2004-13 (Eastern European countries plus Cyprus and Malta) more than doubled the
number of EU member countries. This paper analyzes the extent to which these changes
in Europe affected the level, direction and composition of Australian trade with EU
member countries. While Australia-EU trade remains dominated by relations with the
original six member countries and the UK, the most dramatic development over the last
decade has been the rapid growth of trade with the Eastern European countries that
joined the EU in 2004.
The paper begins by reviewing the patterns of trade between Australia and EU
member countries from 1990 to 2015. The first section describes the growth of trade in
both directions, and analyses its composition by EU country and by commodity. A
striking feature has been the rapid increase in trade between Australia and the Eastern
European countries that joined the EU in 2004. Section 2 analyses the new EU members'
trade with Australia, highlighting the role of intra-EU regional value chains as a pathway
by which the new EU members could rapidly become exporters of manufactured goods
such as cars. Thus, the 2004 EU enlargement benefited Australia by providing attractive
cars that fitted many Australian consumers' preferences and budgets, and rapid
economic growth in the Eastern European markets provided markets for Australian
exports. Part of the reason why EU countries have remained attractive trade partners
during a quarter century characterized by rapid growth in Australia's trade with East Asia
has been that the costs of international trade between Australia and EU countries have
remained low relative to trade costs between Australia and other countries, despite the
distance between Europe and Australia. The level and determinants of bilateral trade
costs are analyzed in Section 3. The final section draws conclusions.
2
1. Trade between Australia and the EU
Australia's international trade went through major changes in direction and composition
between 1950 and 1990 (Pomfret, 2015). The United Kingdom, the dominant trade
partner in 1945, was overtaken first by Japan and then by China and South Korea as the
major export markets (Anderson, 1995, 37), a pattern associated with the mining boom
in Australia and the burgeoning demand for coal, iron ore and other minerals in the
rapidly industrializing East Asian countries. British demand for Australian food exports
was negatively affected by the UK's accession to the European Union in 1973. Australian
trade became characterized by a surplus with East Asia, and a deficit with Europe and
North America.
By 2015 the EU accounted for just over 5% of Australian exports and 18% of
Australia's imports.1 The UK , Netherlands and Germany were the largest export markets,
accounting for over half of EU imports from Australia (Figure 1a). The origin of
Australian imports was more diffused, with Germany, the UK, Italy and France the main
suppliers (Figure 1b).
Table 1 provides more details of Australia's European export markets. In 2015
these were dominated by the UK ($2,727 million), and the original EU member countries:
Netherlands ($1,667m.), Germany ($1,116m.), Belgium ($819m.), France ($789m.), and
Italy ($541m.). However, growth of exports to these markets over the last quarter
century was not especially rapid, and was particularly sluggish to the three largest
continental European markets: UK 110%, Netherlands 174%, Germany 35%, Belgium
170%, France 42%, and Italy -27%. The most striking growth rates in Table 1 are for
exports to Eastern European countries. Some are from very low bases and the values
remain small (e.g. Estonia, Latvia and Lithuania), but the five larger Eastern European
countries that acceded to the EU in 2004 (the Czech Republic, Hungary, Poland, Slovakia
and Slovenia) all had rapid growth in imports from Australia, especially in the decade
after joining the EU.2
In this paper, unless otherwise stated, "EU" data include the 28 EU members as of 2015 plus
European Economic Area and EFTA members (Iceland, Liechtenstein, Norway and Switzerland)
which had free access to EU markets (see Appendix). In the first two sections, unless stated
otherwise, trade data are from UN sources and "$" values are in US dollars; Australian dollars are
shown as A$.
2 Australian exports to Poland increased by 535% in 2005-15, accelerating during the five years
after 2010 when Australian exports to the EU as a whole fell by nearly two-fifths. In 2015
Australian exports to Poland amounted to $238 million, exceeded only by original EU members,
1
3
Australian imports from EU members show similar patterns (Table 2). In 2015
these were dominated by Germany ($9,227million), the UK ($5,303m.), Italy ($4,327m.),
France ($3,267m.), Netherlands ($1,586m.) and Belgium ($1,239m.). Between 1990 and
2015 growth of exports to Australia from these countries was around 270%, apart from
the UK: Germany 267%, UK 99%, Italy 276%, France 268%, Netherlands 271% and
Belgium 270%. As with Australian exports, Australia's imports from some Eastern
European countries are from very low bases and the values remain small, but Australian
imports from the larger Eastern European countries that acceded to the EU in 2004 grew
rapidly, especially in the decade after joining the EU.3 We will return to this phenomenon
in Section 2.
The growth paths of Australia's exports to and imports from Europe since 1990
have differed. The value of Australian exports to the EU soared between 2000 and 2010,
but grew slowly in the 1990s and fell by almost 40% between 2010 and 2015 (Figure 2a).
By contrast, Australian imports from the EU grew by almost 50% between 1990 and 1995
and by over 80% between 2000 and 2005, but more slowly in 2005-10 and 1995-2000,
and fell only slightly in 2010-15. The export pattern was clearly related to the large
increase in fuel and minerals prices in the early 2000s, i.e. a massive improvement in
Australia's terms of trade (Figure 3), while imports from the EU were more stable and
also related to macroeconomic policy in Australia. Since 2000 these trends have led to a
fluctuating but widening bilateral trade deficit for Australia on EU trade (Figure 4).
The commodity composition of Australia's exports to the EU has changed over the
last quarter century. The share of fuels increased during the commodity boom of the
early 2000s before falling back, and the share of other non-food crude materials fell from
over a third in 1990 to under a fifth in 2015 (Figure 5a). The most striking feature has
been the steady increase in exports of manufactures from Australia to the EU; the share
of SITC5-8 increased from about one quarter in 1990 to two-fifths in 2015.4 Australian
the UK and Spain. Exports in 2015 to the Czech Republic ($105 million), Slovenia ($27 million),
Hungary ($19 million), and Slovakia ($3 million) were smaller, but apart from Slovakia, exhibited
patterns of above-EU-average growth in 2005-15.
3 Australian imports from Poland increased by 110% in 2005-15, and in 2015 amounted to $573
million, exceeded only by the original EU members, the UK, Ireland and Spain. Imports from the
Czech Republic ($630 million - ten-year growth 343%), Hungary ($409 million - ten-year growth
155%), and Slovakia ($344 million- ten-year growth 1,645%) grew even faster.
4 The share of SITC 5-8 declined slightly between 2000 and 2005, years of rapid growth in total
Australian exports to the EU driven disproportionately by fuels and increases in their relative
4
imports from the EU are dominated by manufactured goods, with only slight changes in
the shares of broad commodity groups (Figure 5b).
The composition of Australia-EU trade by leading commodity groups at the 2-digit
level of the Harmonized System (i.e. with one hundred categories) between 2001 and
2015 (Tables 3 and 4) shows the high degree of concentration. The impact of the
commodity boom is apparent in the increase in Australian coal exports to the EU from
$1,130 million in 2001 to a peak of $5,317 million in 2008, when coal accounted for over
a quarter of the total, before falling to $2,492 million in 2013 and $2,070 million in 2015.
Australian exports of precious metals and other minerals to the EU increased from $1,166
million in 2001 to $6,928 million 2011before dropping to $2,215 in 2015. Table 3 also
highlights the steady and dramatic increase in exports of medical equipment and
apparatus from $223 million in 2001 to $694 million in 2015. Australian imports from
the EU are less clearly defined at this aggregation level, but in 2015 over half fell into four
HS categories (84, 85, 87 and 30), all of which are manufactured goods. 5
An important reason why Europe has remained a significant market and supplier
is that the costs of trade between Europe and Australia have remained competitive
(Figure 6). Trade costs are determined not only by distance, volume and the commodity
composition of bilateral trade, but also by port efficiency, customs procedures and
regulations, and behind the border costs, all of which vary substantially from country to
country.6 EU exporters have kept their trade costs around the global average for exports
to Australia, with much lower airfreight costs than China and lower maritime freight costs
than the USA; this is despite the obvious disadvantage of distance, which is highlighted
by comparison with the trade costs of New Zealand's exporters to Australia.
2. New EU Members’ Trade with Australia
To what extent are trade flows with third countries affected by accession to a customs
union? Vinerian customs union theory suggests that, if trade with a third country is
prices. The 2010 shares are difficult to interpret due to the large "not elsewhere classified" (NEC)
category.
5 The HS categories are 84 nuclear reactors, boilers, machinery and mechanical appliances, 85
electrical machinery and equipment and parts; sound recorders and reproducers, television
image and sound recorders and reproducers, and parts and accessories, 87 vehicles other than
railway or tramway rolling-stock, and 30 pharmaceutical products.
6 Figure 6 uses the cif-fob measure of trade costs adjusted for commodity composition that is
described more fully in Section 3.
5
affected, then the impact will be negative due to trade diversion. This happened to
Australia's trade with the UK after Britain joined the European customs union in 1973
and adopted the common agricultural policy. Predictions of the 2004 EU enlargement
anticipated a negative impact on third country trade as new members adopted the
Common Agricultural Policy, although the impacts were not expected to be large
(Pelkmans and Casey, 2003; Fuller et al., 2002).
In fact, Australia's experience of trade with countries that joined the EU in 2004
has been strikingly different, especially with respect to Australian imports from the new
EU members. The four largest new members all had above-EU-average growth in exports
to Australia in 2005-15. Increased bilateral trade could be explained, at least with respect
to Australian exports, if the acceding country’s pre-union tariff was reduced by adopting
the EU common external tariff, but the acceding countries had liberalized their
international trade and joined the WTO before becoming EU members. More important
in the global economy of the last quarter century is the possibility that joining regional
value chains (RVCs) within the customs union may increase the new member’s
competitiveness in external markets.
The phenomenon of outsourcing or offshoring within the EU to reduce costs was
not new in the 1990s. In 1973-6 Ford Motors opened a greenfield facility in Valencia to
produce a new European model, the Fiesta, benefitting from the opening of the Spanish
economy and EU accession a decade later. Completion of the EU single market in 198692 stimulated outsourcing by French firms (Kramarz, 2008), and the decrease of trade
barriers in Eastern Europe after the fall of Communism in 1989 stimulated outsourcing
activities by Austrian firms (Egger and Egger, 2003).
However, aggregated input-output analysis shows that value-added in EU trade
flattened in 1985-95, and then had a larger decline in 1995-2005 (Johnson and Noguera,
2012), suggesting that the RVC phenomena really picked up in Europe in the second half
of the 1990s.7 The share of parts and components in Eastern European countries' trade
grew substantially between 2002 and 2012.8 Total trade in parts and components for
emerging Europe was exports $58 billion in 2002, $156 billion in 2007 and $195 billion
A reduction in value-added in trade is the counterpart to increased trade in parts and
components, i.e. expanding RVCs. The EU phenomenon of RVCs has been highlighted by Marin
(2006), di Mauro and Forster (2008), and Timmer et al. (2013).
8 This measure of the extent of value chain trade has also been used by Alexander Yeats, Francis
Ng and others (Yeats, 2001; Ng and Yeats, 1999; Fung et al., 2013; Athukorala, 2010 and 2014).
7
6
in 2012, and imports $67, billion in 2002, $184 billion in 2007 and $229 billion in 2012
(Pomfret and Sourdin, 2014, 32). The Czech Republic, Poland Hungary and Slovakia
were, in that order, the largest importers and exporters of parts and components in 2012.
In trying to identify the impact of EU accession on external trade flows, it must be
recognized that formal accession dates are precise. However, EU membership is not a
sudden event, but is anticipated over several years.9 In the pre-accession period
countries already had special trade relationships with the EU, of varying intensity, and
after accession it still took time to establish new economic links; in sum, we should not
expect dramatic year-on-year changes in trade flows, but rather a longer term adjustment
to a new institutional setting through the 2000s.10 Moreover, European economic
integration is a multivector process. Not all EU members use the euro, and the common
currency may be the driver of increased trade with third countries, by making eurozone
exporters more efficient and by making it easier for third country exporters to finance
trade, especially with smaller countries adopting the euro (Rose and van Wincoop, 2001).
Similarly, not all EU members are in Schengenland, whose barrier-free borders imply
deeper integration, with lower trade costs and greater likelihood of participation in RVCs.
With both the eurozone and Schengenland, different dates of adoption (see Appendix)
may affect the impact of EU membership on trade.
Nevertheless, the four largest Eastern European countries' trade with Australia
increased rapidly after joining the EU, and especially since 2010 (Figure 7). This
overwhelmingly consisted of increased exports from the Eastern European countries to
Australia. Australian exports consisted mainly of raw materials (e.g. A$168 million coal
and A$44 million copper to Poland or A$122 million wool to the Czech Republic), and
Australian investment and services exports were centred on large infrastructure projects.
The striking feature of Table 5 is Australia's deficit on merchandise trade. This
has largely emerged since 2010, as illustrated in Figure 7. Moreover, the European
Egger and Egger (2006) and Pfaffermayr et al. (2007) identify the opening up of Eastern Europe
as an exogenous stimulus to Austrian outsourcing, which is consistent with Austria being an early
mover due to geography and history but the larger process taking some years to gain momentum,
especially as EU enlargement became more likely.
10 On the EU side, several macroeconomic factors may have affected the time-path of trade flows,
e.g. the 2007-9 Atlantic financial crises and the 2010 sovereign debt crisis in southern Europe.
The impact of these shocks varied among European countries, and country-specific shocks
especially among the formerly centrally planned economies or countries involved in the Balkan
conflicts, may have affected eastern European countries' exports.
9
7
countries' exports are heavily concentrated in a single product: passenger motor vehicles.
In 2015 car exports to Australia from Poland were A$60 million, from Hungary A$179
million, from the Czech Republic A$269 million, and from Slovakia A$373 million, i.e. over
a third of all merchandise exports from the four countries to Australia and over four-fifths
of Slovak exports to Australia.
Before 1989 the centrally planned economies had different automotive industries.
Poland had a pre-1989 connection with western European car firms through its
partnership with Fiat. Czechoslovakia had the largest indigenous car production with
Skoda (taken over by Volkswagen in stages from 1991) and Tatra (factory closed in
1998). Hungary specialized in bus production, and had a large automotive components
sector but no car assembly plant.
The first high-profile move by a major western producer in the 1990s was
Volkswagen's purchase of Š koda, which continued to produce in the Czech Republic as a
separate brand.11 Opel and Suzuki invested in Hungary in 1991, and Audi in 1993.
Despite these early moves, expansion was slow. Opel abandoned car assembly in
Hungary in 1996. In Poland, Fiat expanded production primarily to serve the domestic
market that Poland protected from imports,12 while FSO in Warsaw was liquidated in
1995 and its facilities taken over by Daewoo; the parent companies of both Fiat and
Daewoo were financially troubled, and Daewoo went bankrupt in 2001. 13 Opel opened a
greenfield plant in 1998, initially with capacity of 70,000 marketed through a network of
over 100 dealerships in Poland. In the early 2000s Radosevic and Rozeik (2005, 13)
observed that "A combination of market size factors and inherited competencies in
automotive assembly coupled with strategies of foreign investors has led Poland and the
Czech Republic to be the two leading production locations" in Eastern Europe, although
On pre-2004 developments in the Eastern European car industry, see Radosevic and Rozeik
(2005), Jakubiak et al. (2008) and Blázquez et al. (2014).
12 Poland's import duties fell gradually from 35% in 1993 to 5% in 2001. An import quota
introduced in 1995 at 25,000 units increased slowly to 36,200 in 2001 (Radosevic and Rozeik,
2005, 33). The other countries' tariffs were much lower, and all applicants' duties and other
restrictions on EU imports were phased out in 2001.
13 Fiat ceased assembly at Bielsko Biala in 1999, concentrating production at the nearby Tychy
plant. Production at Tychy peaked in 2009, after which Fiat moved production lines back to Italy
in response to political pressure. Between 2008 and 2016 the Tychy plant assembled the Ford
Ka under contract.
11
8
car output in Poland had plummeted from over 600,000 units in 1999 to under 300,000
in 2002 and the domestic-market focus was a dead-end.
Accession to the EU in 2004 and to Schengenland in 2007 reduced intra-EU trade
costs for the Eastern European countries and provided a catalyst for development of
RVCs, especially in the car industry. Creation of RVCs increased the competitiveness and
export sales of EU cars, including those with final assembly in Eastern Europe that are
exported to Australia. In the decade after 2004 the automobile RVC phenomenon has
varied in intensity: weakest in Poland, essentially a one-brand show in Hungary, stronger
and more diversified in the Czech Republic and most dramatic in Slovakia.
In Hungary, Audi expanded its facilities, and in 2013 opened a new production
plant for the Audi A3 Cabriolet and Limousine and the TT Coupé and Roadster; sales in
2013 were 5.6 billion euros (Bisztray, 2016).
Magyar Suzuki has assembly lines
producing Suzuki Swift, Splash, SX4 and SX4 S-Cross, but is only a third the size of Audi's
Hungarian operation. Mercedes-Benz picked Hungary as its first plant in Eastern Europe,
opening a factory in 2013 to produce the Mercedes B and CLA models, signaling that
Hungary might become a more active assembler of cars for export, although it is still not
really producing high-volume models.
After 2000 all the greenfield investments were in the Czech Republic and Slovakia.
In the Czech Republic in February 2005 the TPCA greenfield factory started production
of small cars like the Toyota Aygo, Peugeot 107 and Citroen C1; production reached the
planned yearly capacity of 300,000 cars in 2006 as the firm became one of the biggest
exporters in the Czech Republic. Hyundai started production in November 2008, with a
capacity of 200,000 cars a year. When the TPCA and Hyundai factories in the Czech
Republic and the PSA and Kia factories in Slovakia reached capacity these two countries
had the highest per capita car output in the world.
Slovakia, the smallest of the four countries, has grown to become one of the leading
car producers in world, primarily due to the presence of three companies: Volkswagen in
Bratislava (since 1991), PSA Peugeot Citroën in Trnava (since 2003) and Kia Motors in
Žilina (since 2004). After a slow start in the 1990s, the Slovak economy turned around
after the 1998 election led to more determined preparation for EU accession. Output of
the VW factory also grew slowly, until the company undertook further investment after
the government introduced generous tax incentives in 1998.
The two greenfield
investments also received a large subsidy, PSA 160 million euros and Kia over 170 million
9
euros.14 By 2006 the three factories had a capacity of over a million cars (PSA 450,000,
VW 300,000 and Kia 300,000), the largest in Eastern Europe (Jakubiak et al., 2008), all
with state-of-the-art technology.
A contributory factor to the rapid expansion of
Slovakia's car industry may be that Slovakia has been the only one of these four countries
to adopt the euro, removing exchange rate uncertainty in RVC trade with Germany,
France and other eurozone countries.15
Although Poland's car exports to Australia lag the other three countries, the
situation may be changing in 2016. GM Gliwice has been producing Holden Astras and
Cascadas since February 2015, and, symbolically, the two millionth GM Gliwice car
produced in April 2015 was a Holden Cascada convertible for the Australian market. The
Cascada was developed at Opel's International Technical Development Center in
Rüsselsheim, Germany, assembled at GM's Polish plant in Gliwice, and marketed under
Opel, Buick and Holden marques. Fiat Chrysler revived production at Tychy with new
models of the Fiat 500 and Lancia Ypsilon in 2015, and appeared to be looking to export
markets when they announced in September 2015 a $100 billion investment in the Tychy
plant.
As the four countries became integrated in car and other RVCs, their trade within
the EU and with third countries flourished. The ability of the four East European
countries to export to Australia has been facilitated by reductions in their trade costs. In
1995, for all four countries the costs of trading with Australia were higher than the
average trade costs of imports into Australia, and substantially higher than the trade
costs of the major EU exporters. Between 2000 and 2007 these trade costs were
substantially reduced and for Hungary and Slovakia brought below Germany's trade
costs, despite both countries being landlocked. Slovakia, in particular, after a negative
start in the 1990s, achieved a dramatic improvement in trade facilitation, reducing trade
costs to an exceptionally low 3.3% of their exports' free-on-board value (Table 6).16 The
After EU accession the countries had to comply with EU rules that, with a few exceptions,
prohibit state aid for distorting competition within the single market. Thus, generous assistance
such as VW in Slovakia or Suzuki in Hungary received during the 1990s was no longer permissible
after 2004.
15 The automotive components industry in Slovakia also flourished as component makers shifted
operations to industrial parks near Bratislava, Trnava, Žilina and Martin.
16 These are the "raw" trade cost estimates, i.e. dividing the aggregate cif-fob gap by the fob value
of imports. Table 8 presents trade cost estimates adjusted for commodity composition, which is
a better basis for cross-country comparison of efficiency in trade insofar as countries with a
14
10
dramatic decline in trade costs was due to a mix of increased trade efficiency and
identification of new exports with lower trade costs. Joining an RVC in the 2000s was a
pathway to trade in commodities that could be exported at lower cost; the RVC's
organization included not only efficient production but also efficient transport to and
marketing in distant markets.
In stark contrast to Australia's experience after the 1973 EU enlargement, after
the 2004 enlargement Australia's trade with new members increased dramatically. The
principal driver has been the integration of the four largest new members into EU
regional value chains, and this process has been clearest in the car industry. Trade with
Australia has also been facilitated by a large drop in the costs of bilateral international
trade, most dramatically in the case of Slovakia. This is likely related to factors that
enhanced Slovakia's attractiveness as an RVC participant, such as improved ease of doing
business and of crossing borders, including adoption of the euro and accepting Schengen
status. We do not address the growth or other impacts of EU accession (Campos et al.,
2014), but the RVC development played a part in the Eastern European countries' above
average growth after accession.17 This growth explains the increase in Australian exports
to those countries after 2004 - as opposed to the anticipated decline in the new members'
imports from third countries and especially from agricultural-exporting countries.18
3. Trade Costs
In this section we estimate the cost of conducting international trade between EU
countries and Australia. Our preferred measure of trade costs is the gap between cif and
fob values, which we calculate from high-quality disaggregated data for Australian
comparative advantage in bulky products are likely to have high trade costs even if they are
efficient traders. The "raw" estimates are useful in the present context because they show that
the goods being exported in the 1990s involved high trade costs that were likely to impede export
growth at the intensive margin.
17 Ideally, we should situate EU-Australian trade in a global model, because what matters is the
impact of EU accession on a new member's impediments to trade with Australia relative to
Australia's competitors inside and outside the EU, and this relative impact will be sector-specific
(Carrère et al., 2010); this is akin to the case for recognizing the multilateral resistance term in a
well-specified gravity model (Anderson and van Wincoop, 2003; Head and Mayer, 2013).
18 We do not address trade in services (Egger et al., 2012). This is clearly an important component
of RVC trade, and using gross sales rather than trade in value-added underestimates the role of
the high-income EU countries in international trade.
11
imports. The Australian import data is then used to examine the determinants of crosscountry variations in freight costs.
The difference between the free on board (fob) value at the port of export and the
cost, insurance, freight (cif) value at the port of import before trade taxes are levied was
proposed as a measure of trade costs by Harrigan (1993) and popularized by Hummels
(2007).19 The cif-fob measure has been criticized on grounds of definition, misreporting,
and dependence on commodity composition (Chasomeris, 2009). No measure of trade
costs is perfect because many aspects of the domestic economy could potentially
influence the costs of international trade, but the cif-fob measure does capture the
difference between value at point of export and value at point at import We eschew
discussion of behind-the-border costs of international trade, and use the terms freight
costs, transport costs and trade costs interchangeably to describe the cif-fob gap, which
we view as a proxy for the costs of international trade over and above the costs of
production and domestic trade. Trade data are always imperfect due at a minimum to
misreporting by traders or misunderstanding of what to include in fob or cif values, but
Australia is one of the few countries that collects and reports both fob and cif values and
data collection standards are relatively high. Commodity composition affects any
measure of trade costs; we deal with disaggregated data and report estimates adjusted
for commodity composition (e.g. in Figure 6), unless the unadjusted raw data appear
informative (as in Table 6). Mode of transport is also important, and Australia's island
status means that there are only two modes (in contrast to the USA where imports arrive
by sea, air, river, road and rail); with more than one mode there can be compositional
paradoxes, e.g. a fall in airfreight costs followed by a shift of the lightest sea-freighted
goods to air could increase average trade costs for both modes.
To examine the determinants of the costs of bilateral international trade, our
baseline specification models transport costs in the following way:
ln(𝑡𝑖𝑘𝑡 ) = 𝛽0 + 𝛽1 𝑙𝑛(𝑑𝑖𝑠𝑡)𝑖 + 𝛽2 𝑙𝑛(𝑖𝑚𝑝𝑜𝑟𝑡𝑠)𝑖𝑘𝑡 + 𝛽3 𝑙𝑛 (
𝑣𝑎𝑙
)
𝑤𝑔𝑡 𝑖𝑘𝑡
+ 𝛿0 𝑠𝑒𝑎 + 𝛿1 𝐸𝑈2004 + 𝛼𝑘 + 𝑡𝑟𝑒𝑛𝑑 + 𝑢𝑖𝑘𝑡
(1)
For more details of the method and the Australian dataset, see Pomfret and Sourdin (2011) and
Sourdin and Pomfret (2012).
19
12
where i indexes partner countries, k indexes commodities imported into Australia
disaggregated at the 6-digit level of the Harmonised System, and t indexes time. The
dependent variable, ln(𝑡𝑖𝑘𝑡 ), is the log of ad valorem transport charges, measured by the
difference between the cif and fob values of the good divided by the fob value. The
baseline determinants of freight include:

𝑙𝑛(𝑖𝑚𝑝𝑜𝑟𝑡𝑠)𝑖𝑘𝑡 is the log of the value of each shipment from country i to Australia
in period t for each commodity k.20
𝑣𝑎𝑙

(𝑤𝑔𝑡 )

𝑙𝑛(𝑑𝑖𝑠𝑡)𝑖 is the log of distance between each exporting country and Australia.21

sea is a dummy variable equal to unity for goods shipped by sea and zero
𝑖𝑘𝑡
is the log of the unit value of each good shipped.
otherwise.

EU2004 is a dummy equal to unity if the exporting country acceded to the EU in
2004.

 k is a commodity specific fixed effect and 𝑢𝑖𝑘𝑡 the idiosyncratic error.
The commodity fixed effects capture any commodity-specific features which influence

freight costs and are time-invariant but are difficult to quantify and not explicitly included
in the models. For instance, these effects control for such things as the fact that bulky
goods have higher transportation costs in every period than shipping shoes. Freight costs
are expected to be positively related to distance and negatively related to the total value
of imports since there exist economies of scale in transport, but this is perhaps more
important for ocean freight.
The results from estimating equation 1 are presented in the first column in Table
7. Ad valorem transport costs are increasing in distance and decreasing in value to weight
ratio and value of the shipment. Since weight is only recorded for merchandise that can
be measured by weight, we can only estimate the impact of the value to weight ratio for
25% of the trade. The second column presents the results when value to weight ratio is
omitted. The elasticity of transport costs with respect to distance is estimated to be
Imports may be endogenous in equation (1) with 2 potential sources of endogeneity: first,
simultaneity bias may be introduced if trade volume and transport costs are jointly determined
and second, there may be omitted factors that jointly determine the volume of trade and which
also have an effect on trade costs – e.g. regulatory environment or quality of infrastructure.
21 Distance is from Centre d’Études Prospectives et d’Informations Internationales (CEPII) and is
based on bilateral distances in kilometers between the most populated cities of the two countries.
20
13
between 0.79 and 1.00 across all goods irrespective of transport mode (models 1 and 2).
When we estimate separately air- and ocean-shipped goods, ad valorem transport costs
are higher on average for air-freighted merchandise. Columns 3 and 5 present the results
of re-estimating models 1 and 2 but for air-shipped goods, while columns 4 and 6 are for
ocean-shipped goods. The negative coefficient on the time trend shows that shipping
costs were decreasing between 1990 and 2015 but the decline was more pronounced for
ocean-freighted goods than for goods shipped by air. Over the whole 1990-2015 period,
goods shipped from the 2004 EU accession countries had higher transport costs than the
rest of Europe – between approximately 7% and 10% higher depending on transport
mode.
In sum, ad valorem transport/trade costs are increasing in distance, decreasing in
volume of bilateral trade, and decreasing in value to weight ratio – higher value items for
weight incur lower ad valorem transport costs. Over the whole 1990-2015 period
EU2004 countries have higher trade costs than other EU members. Trend shows that
trade costs are decreasing over time. Sea shipped goods have lower ad valorem trade
costs than air shipped goods.
Trade costs for individual European countries' trade with Australia are presented
in Table 8. These are adjusted for commodity composition, because countries trading
heavy basic goods are likely to have higher trade costs than countries trading light
valuable products. Despite some noise (especially in estimates for smaller countries), the
overall pattern clearly shows steadily declining costs of exporting to Australia and strong
convergence in trade costs over the period 1990-2015. In 1990 the six original members
plus the countries joining the EU in 1973 and 1995 all had ad valorem trade costs between
8% and 10%, while the southern European countries that joined in the 1980s (Greece,
Portugal and Spain - or GPS) had trade costs in the range 10-13% and the trade costs of
the Eastern European countries that joined in 2004 were between 10% and 15%. In 2004
the first group of twelve higher-income countries all had trade costs of 6-7%, trade costs
of GPS were 7-8%, and for Eastern Europe 5-9% (with small Baltic countries, i.e. Estonia
on 5% and Latvia on 9%, as outliers). In 2015 all 28 EU members had trade costs within
a narrow range of 4-7%; excluding the two outliers, Malta on 4% and Greece on 7%, the
band would be an even narrower 5% or 6%.
4. Conclusions
14
Australian trade with Europe declined in importance in the second half of the twentieth
century, but the EU remains a significant trade partner. During the resource boom of the
early twenty-first century Australian exports to the EU grew rapidly, although they
subsequently declined; in 2015 the EU bought only 5% of Australian exports. The EU is
more important as a supplier of imports, accounting for almost a fifth of Australian
imports in 2015. Unsurprisingly these come primarily from the larger EU countries and
those with long-established ties; between 1990 and 2015 imports from Italy,
Netherlands, Belgium, France and Germany all grew by around 270% in current US dollar
value, while UK exports to Australia increased by around 100%. The commodity
composition is essentially that Australia exports primary products to the EU and imports
manufactured goods from the EU, although Australia also has niche manufactured
exports of which medical equipment is the largest. Australian firms are active investors
in the EU, especially in infrastructure projects.
A striking feature of the last decade has been the rapid growth of trade with
Eastern European countries that joined the EU in 2004. This is primarily explained by
the emergence of EU regional value chains with Eastern European countries as the final
assemblers of export goods such as cars. The robust growth in the leading Eastern
European economies led to strong demand in those countries for Australian commodity
exports during the resource boom.
An underlying contributor to the EU's strong export performance in Australian
markets has been the continuous reduction in the costs of bilateral trade. We do not
identify any single "silver bullet" to explain this. Econometric analysis of trade costs
reaches fairly standard conclusions about the role of distance, bulk and scale, but there is
an unexplained trend of falling commodity-adjusted bilateral trade costs, probably due
to multifaceted improvements in shipping costs. Examination of individual countries'
trade costs reveals a striking convergence pattern as the current EU members whose
trade costs were highest in 1990, i.e. the poorer southern and eastern member countries,
experienced the fastest decline in trade costs over the next quarter century. By 2015,
once allowance is made for differences in the commodity composition, the costs of
exporting to Australia were almost identical for all EU member countries.
What are the future prospects for Australia-EU trade? Australian exports centred
on primary products are likely to be volatile, although it is promising that Australia has
15
been able to develop niche manufactured exports.
Australian firms may also be
competitive in some service activities, such as management of infrastructure projects or
shopping malls. EU exports to Australia appear to be firmly based on providing a range
of manufactured goods. The success of EU companies in competing with Asian carmakers
by creating RVCs is especially striking.
Finally, there are the unknowns. Brexit could affect Australian trade with the UK,
and some British politicians talk of a tilt towards Australia. However, the evidence of the
last 25 years is that Britain's share of Australia's foreign trade continues to decline as the
UK fails to match other Western European countries' growth of exports to Australia and
offers no special attraction as a market for Australian exports.
16
References
Anderson, James, and Eric van Wincoop (2003): Gravity with Gravitas: A solution to the
border puzzle, American Economic Review 93, 170–192.
Anderson, Kym (1995): Australia's Changing Trade Patterns and Growth Performance, in
Richard Pomfret ed. Australia's Trade Policies (Oxford University Press, Melbourne), 2952.
Athukorala, Prema-chandra (2010): Production Networks and Trade Patterns in East
Asia: Regionalization or Globalization? ADB Working Paper Series on Regional Economic
Integration No.56.
Athukorala, Prema-chandra (2014): Global Production Sharing and Trade in East Asia, in
Inderjit Kaur and Nirvikar Singh, eds. The Oxford Handbook of the Economics of the Pacific
Rim (Oxford University Press, Oxford UK), 333-61.
Bisztray, Márta (2016): The Effect of FDI on Local Suppliers: Evidence from Audi in
Hungary, Discussion Paper MT-DP – 2016/22, Institute of Economics, Centre for Economic
and Regional Studies, Hungarian Academy of Sciences, Budapest.
Blázquez, Leticia, Carmen Díaz-Mora and Rosario Gandoy (2013): Production Networks
in the Enlarged European Union, Eastern European Economics 51(3), 27-49.
Campos, Nauro, Fabrizio Coricelli and Luigi Moretti (2014), Economic Growth and
Political Integration: Synthetic Counterfactuals Evidence from Europe”, mimeo
(summary posted in VoxEU, 5 April 2014 -- http://www.voxeu.org/article/how-poorernations-benefit-eu-membership).
Caporale, Guglielmo Maria, Christophe Rault, Robert Sova and Anamaria Sova (2009): On
the Bilateral Trade Effects of Free Trade Agreements between the EU-15 and the CEEC-4
countries, Review of World Economics 145(2), 189– 206.
Carrè re, Céline, Jaime de Melo and Bolormaa Tumurchudur (2010): Disentangling Market
Access Effects of Preferential Trading Arrangements with an Application for ASEAN
Members under an ASEAN– EU FTA, The World Economy 33(1), 42–59.
Chasomeris, Mihalis (2009): On the (Mis)Measurement of International Transport Costs,
South African Journal of Economics 77(1), 148-61.
Di Mauro, Filippo, and Katrin Forster (2008): Globalisation and the Competitiveness of
the Euro Area, ECB Occasional Paper No. 97, European Central Bank, Frankfurt am Main.
Egger, Hartmut, and Peter Egger (2003): Outsourcing and Skill-specific Employment in a
Small Economy: Austria after the fall of the Iron Curtain, Oxford Economic Papers 55(4),
625-43.
Egger, Hartmut, and Peter Egger (2006): International Outsourcing and the Productivity
of Low-Skilled Labor in the EU, Economic Inquiry 44(1), 98-108.
Egger, Peter, Mario Larch and Kevin Staub (2012): Trade Preferences and Bilateral Trade
in Goods and Services: A Structural Approach, CEPR Discussion Paper 9051 - available at
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9051
Fuller, Frank, John Beghin, Jacinto Fabiosa, Samarendu Mohanty, Cheng Fang and Phillip
Kaus (2002): Accession of the Czech Republic, Hungary and Poland to the European
Union: Impacts on agricultural markets, The World Economy 25(3), 407-428.
17
Fung, K.C., Hsiang-Chih Hwang, Francis Ng and Jesus Seade (2013): Production Networks
in China and India: A comparative analysis, Economic Change and Restructuring 46, 4569.
Harrigan, James (1993): OECD Imports and Trade Barriers in 1983, Journal of
International Economics 35(1/2), 81-111.
Hummels, David (2007): Transportation Costs and International Trade in the Second Era
of Globalization, Journal of Economic Perspectives 21, 131-154.
Jakubiak, Malgorzata, Peter Kolesar, Ivailo Izvorski, and Lucia Kureková (2008): The
Automotive Industry in the Slovak Republic: Recent developments and impact on growth,
The Commission on Growth and Development Working Paper No.29 (World Bank,
Washington DC).
Johnson, Robert, and Guillermo Noguera (2012): Proximity and Production
Fragmentation, American Economic Review, Papers and Proceedings 102(3), 407-11.
Kramarz, Francis (2008) Offshoring, Wages, and Employment: Evidence from data
matching imports, firms, and workers, unpublished CREST paper available at http://www.crest.fr/ckfinder/userfiles/files/pageperso/kramarz/offshoring072008.p
df
Marin, Dalia (2006): A New International Division of Labor in Europe: Outsourcing and
Offshoring in Eastern Europe, Journal of the European Economic Association 4, 612-22.
Ng, Francis, and Alexander Yeats (1999): Production Sharing in East Asia: Who does what
for whom, and why? Policy Research Working Paper 2197, Washington, DC: World Bank.
Pelkmans, Jacques, and Jean-Pierre Casey (2003): EU Enlargement: External Economic
Implications, Intereconomics 38(4), 196-208.
Pfaffermayr, Michael, Peter Egger and Andrea Weber (2007): Sectoral Adjustment of
Employment to Shifts in Outsourcing and Trade: Evidence from a dynamic fixed effects
multinomial logit model, Journal of Applied Econometrics 22(3), 559-580.
Pomfret, Richard (2015): Reorientation of Trade, Investment, and Migration, in Simon
Ville and Glenn Withers (eds.) The Cambridge Economic History of Australia (Cambridge
University Press, Port Melbourne), 397-418.
Pomfret, Richard, and Patricia Sourdin (2011): Why do Trade Costs Vary? Review of
World Economics (Weltwirtschaftliches Archiv) 146(4), 709 -30.
Pomfret, Richard, and Patricia Sourdin (2014): Global Value-Chains and Connectivity in
Developing Asia – with application to the Central and West Asian region, ADB Working
Paper Series on Regional Economic Integration No.142, Asian Development Bank, Manila
– available at http://aric.adb.org/pdf/workingpaper/WP142_Pomfret_Sourdin_GVC.pdf.
Radosevic, Slavo, and Andrew Rozeik (2005): Foreign Direct Investment and
Restructuring in the Automotive Industry in Central and East Europe, Centre for the Study
of Economic and Social Change in Europe Working Paper No.53, University College
London.
Rose, Andrew (2000): One Money, One Market: The effect of common currencies on trade,
Economic Policy 30, 9-45.
Rose, Andrew, and Eric van Wincoop (2001): National Money as a Barrier to Trade: The
real case for monetary union, American Economic Review 91(2), 386-90.
18
Sourdin, Patricia, and Richard Pomfret (2012): Trade Facilitation: Defining, measuring,
explaining and reducing the cost of international trade (Edward Elgar, Cheltenham UK).
Timmer, Marcel, Bart Los, Robert Stehrer and Gaaitzen de Vries (2013): Fragmentation,
Incomes, and Jobs: An Analysis of European Competitiveness, Economic Policy 28(76),
613-61.
Yeats, Alexander (2001): Just How Big is Global Production Sharing? in Sven Arndt and
Henryk Kierzkowski, eds., Fragmentation: New Production Pattern in the World Economy
(Oxford: Oxford University Press), 108-43.
19
Figure 1a: Destination of Australian Exports to the EU, 2005 and 2015
2005
Sweden
3%
Finland
5%
Spain
6%
Switzerland
2%
Belgium
6%
Rest of EU
5%
United Kingdom
33%
France
7%
Netherlands
14%
Italy
10%
Germany
9%
2015
Sweden
2%
Poland
2%
Spain
4%
Italy
6%
Switzerland
6%
United Kingdom
29%
France
8%
Netherlands
19%
Belgium
8%
Germany
14%
Source: ITC Trademap
Rest of EU
2%
20
Figure 1b: Origin of Imports to Australia from the EU, 2005 and 2015
2005
Spain, 3.3%
Netherlands,
3.3%
Belgium, 3.7%
Rest of EU,
10.4%
Germany, 22.8%
Switzerland, 3.7%
United Kingdom,
16.2%
Ireland, 5.0%
Sweden, 5.4%
Italy, 11.6%
France, 12.9%
2015
Belgium, 3.3%
Rest of EU,
13.6%
Sweden, 3.8%
Spain, 4.3%
Netherlands,
4.3%
Ireland, 4.3%
Switzerland, 6.5%
Source: ITC Trademap
Germany, 25.0%
United Kingdom,
14.1%
France, Italy, 12.0%
8.7%
21
Figure 2: Growth in Australian Exports to and Imports from the EU, 1990-2015
Export growth
1990-2015
2010-2015
2005-2010
2000-2005
1995-2000
1990-1995
-60.000
-40.000
-20.000
0.000
20.000
40.000
60.000
80.000
Notes: Export growth between 1990-1995 was 0.26%.
Import growth
1990-2015
2010-2015
2005-2010
2000-2005
1995-2000
1990-1995
-10
0
10
20
30
40
50
Source: UN COMTRADE and author’s calculations
60
70
80
90
22
Figure 3: Australia's Terms of Trade
US$m
Figure 4: Australia’s Merchandise Trade with Europe, 2001-15
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Exports
Source: ITC Trademap
Imports
23
Figure 5a: Commodity Composition of Australian Exports to the EU, 1990-2015
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1990
1995
2000
Food and live animals
Crude materials, inedible, except fuels
Animal and vegetable oils, fats and waxes
Manufactured goods classified chiefly by material
Misc manufactured articles
2005
2010
2015
Beverages and tobacco
Mineral fuels, lubricants and related materials
Chemicals and related products, n.e.s.
Machinery and transport equipment
Commodities and transactions NEC
Figure 5b: Commodity Composition of Australian Imports from the EU, 1990-2015
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1990
1995
2000
Food and live animals
Crude materials, inedible, except fuels
Animal and vegetable oils, fats and waxes
Manufactured goods
Misc manufactured articles
Source: COMTRADE
2005
2010
2015
Beverages and tobacco
Mineral fuels, lubricants and related materials
Chemicals and related products, n.e.s.
Machinery and transport equipment
Commodities and transactions NEC
24
Figure 6: Costs of International Trade, percentage of fob values of Australian Imports
(a) EU exporters
14
12
10
8
6
4
2
0
Ad valorem air freight
Ad valorem ocean freight
(b) All exporters.
16
14
12
10
8
6
4
2
0
Ad valorem air freight
Ad valorem ocean freight
25
(c) Exports from China
25
20
15
10
5
0
Ad valorem air freight
Ad valorem ocean freight
(d) Exports from USA
18
16
14
12
10
8
6
4
2
0
Ad valorem air freight
Ad valorem ocean freight
26
(e) Exports from New Zealand
8
7
6
5
4
3
2
1
0
Ad valorem air freight
Ad valorem ocean freight
Source: authors' calculations from ABS data; Sourdin and Pomfret (2012, 31-44)
provide more details about the data and method.
Note: Adjusted for commodity
27
Figure 7: Australia’s Merchandise Trade with Four Eastern European Countries, 2001-15
7a Australia’s Merchandise trade with Poland
800000
700000
US$'000s
600000
500000
400000
300000
200000
100000
0
Imports
Exports
7b Australia’s Merchandise trade with the Czech Republic
700000
600000
US$ '000s
500000
400000
300000
200000
100000
0
Imports
Exports
28
7c Australia’s Merchandise Trade with Hungary
450000
400000
350000
US$ '000s
300000
250000
200000
150000
100000
50000
0
Imports
Exports
7d Australia’s Merchandise Trade with the Slovak Republic
400000
350000
US$ '000s
300000
250000
200000
150000
100000
50000
0
Imports
Exports
29
Table 1: Australian Exports to EU Countries
Albania
Austria
Belgium
Bulgaria
Bosnia & Hercegovinab
Switzerland
Cyprus
Czech Republicb
Germany
Denmark
Spain
Estoniaa
Finland
France
UK
Greece
Croatiaa
Hungary
Ireland
Iceland
Italy
Lithuaniaa
Luxembourg
Latviaa
Malta
Montenegrod
Netherlands
Norway
Poland
Portugal
Romania
Serbiac
Slovak Republicb
Sloveniaa
Sweden
Aus Export
value 2015
US$m
2.01
54.20
818.73
67.06
0.46
519.37
1.41
104.65
1,115.74
89.88
388.23
3.65
26.68
788.66
2,726.53
10.31
2.65
18.93
47.98
1.53
540.79
6.87
8.91
4.34
2.47
0.06
1,666.75
40.49
237.67
12.78
40.87
1.00
2.53
27.23
205.05
Share of
EU
Exports
2015
0.000
0.010
0.150
0.012
0.000
0.095
0.000
0.019
0.204
0.016
0.071
0.001
0.005
0.144
0.498
0.002
0.000
0.003
0.009
0.000
0.099
0.001
0.002
0.001
0.000
0.000
0.305
0.007
0.043
0.002
0.007
0.000
0.000
0.005
0.037
Share of
EU
Exports
2005
0.000
0.005
0.057
0.006
0.000
0.016
0.001
0.005
0.102
0.014
0.055
0.000
0.039
0.078
0.330
0.004
0.000
0.002
0.012
0.000
0.079
0.001
0.000
0.001
0.000
0.000
0.145
0.004
0.004
0.003
0.004
0.000
0.000
0.000
0.032
Share of
EU
exports
1995
0.000
0.005
0.063
0.003
0.000
0.052
0.001
0.002
0.138
0.015
0.031
0.000
0.036
0.098
0.268
0.003
0.001
0.001
0.007
0.000
0.157
0.001
0.000
0.001
0.001
0.000
0.067
0.004
0.004
0.006
0.012
0.000
0.000
0.001
0.024
5 yr.
export
growth
20102015
42%
-11%
-12%
951%
-92%
101%
-80%
38%
-21%
-31%
-30%
144%
-77%
-23%
-63%
-49%
-93%
90%
-60%
-69%
-39%
134%
511%
-36%
-76%
-98%
-11%
-24%
1190%
-4%
262%
-12%
-25%
328%
-58%
10 yr.
export
growth
20052015
108%
16%
46%
21%
-60%
235%
-82%
110%
12%
-33%
-27%
264%
-93%
3%
-15%
-70%
18%
23%
-59%
-67%
-30%
17%
1045%
-41%
-36%
18%
-6%
535%
-61%
5%
-42%
492%
-34%
Export
growth 19902015
66957.85%
143.33%
169.95%
922.80%
299.74%
-11.60%
-22.41%
618.00%
34.69%
52.96%
191.14%
26463.20%
-12.40%
41.53%
109.94%
-69.44%
150.08%
1447.35%
328.06%
271.70%
-26.61%
3739.98%
8479.48%
2816.13%
-3.23%
-15.98%
174.10%
263.40%
706.70%
-59.65%
-55.08%
92.39%
151.25%
3965.48%
133.53%
Source: UN COMTRADE
Notes: a 1992-2015; b 1993-2015; c 2006-15; d 2009-15; Luxembourg included under
Belgium until 2003.
30
Table 2: Australian Imports from EU Countries
Albania
Austria
Belgium
Bulgaria
BIHa
Switzerland
Cyprus
Czech Republicb
Germany
Denmark
Spain
Estoniaa
Finland
France
UK
Greece
Croatiaa
Hungary
Ireland
Iceland
Italy
Lithuaniac
Luxembourg
Latviaa
Malta
Montenegrod
Netherlands
Norway
Poland
Portugal
Romania
Serbiac
Slovak Republicb
Sloveniaa
Sweden
Import
value 2015
0.70
822.57
1,239.10
40.53
6.96
2,420.13
16.67
629.63
9,226.92
844.72
1,524.93
45.56
529.01
3,267.45
5,302.60
150.16
18.88
409.32
Share of
EU
imports
2015
0.000
0.022
0.033
0.001
0.000
0.065
0.000
0.017
0.249
0.023
0.041
0.001
0.014
0.088
0.143
0.004
0.001
0.011
Share of
EU
imports
2005
0.000
0.026
0.036
0.001
0.000
0.039
0.000
0.005
0.230
0.025
0.035
0.001
0.023
0.131
0.164
0.004
0.001
0.005
Share of
EU
imports
1995
0.000
0.015
0.037
0.000
0.000
0.050
0.000
0.002
0.248
0.016
0.024
0.000
0.036
0.091
0.225
0.003
0.000
0.002
5 yr.
import
growth
20102015
94%
-5%
-16%
1%
176%
17%
90%
144%
-7%
-14%
-3%
10%
-19%
-10%
-4%
-1%
-34%
-4%
10 yr.
Import
growth
20052015
62%
8%
17%
116%
430%
107%
453%
343%
35%
12%
49%
196%
-22%
-16%
9%
30%
8%
155%
Growth 19902015
13703.19%
411.43%
269.83%
1292.43%
1001.16%
391.74%
3223.02%
1816.17%
266.85%
354.76%
860.43%
37464.65%
125.53%
267.51%
99.45%
237.20%
247.18%
1902.03%
1,561.52
16.62
4,326.69
33.79
18.44
16.03
17.07
0.44
1,586.35
269.07
572.78
142.63
100.65
13.07
344.23
76.74
1,438.18
0.042
0.000
0.117
0.001
0.000
0.000
0.000
0.000
0.043
0.007
0.015
0.004
0.003
0.000
0.009
0.002
0.039
0.051
0.000
0.113
0.000
0.000
0.000
0.000
0.000
0.034
0.007
0.009
0.004
0.001
0.000
0.001
0.002
0.053
0.023
0.000
0.105
0.000
0.000
0.000
0.000
0.000
0.033
0.006
0.002
0.004
0.001
0.000
0.000
0.001
0.075
-28%
76%
-6%
65%
-30%
276%
11%
173%
26%
-30%
88%
10%
112%
239%
134%
66%
-29%
3%
119%
29%
136%
808%
478%
81%
815%
59%
21%
110%
10%
253%
304%
1645%
56%
-9%
1082.28%
1158.90%
276.04%
50.51%
1635.82%
14039.94%
1475.11%
815.28%
270.64%
159.69%
1842.26%
231.18%
1133.95%
304.32%
26939.45%
441.37%
122.45%
Source: UN COMTRADE
Notes: a 1992-2015; b 1993-2015; c 2006-15; d 2009-15; Luxembourg included under
Belgium until 2003.
31
Table 3: Major Australian Exports to the European Union, HS 2-digit categories, 2001-2015, million US dollars
Product
code
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
TOTAL
All products
7,967
8,477
10,459
10,087
11,751
15,884
17,544
20,124
13,860
17,211
18,368
16,774
12,584
11,388
10,153
27
Coal
1,130
1,147
1,241
1,525
2,626
2,873
2,582
5,317
2,003
3,706
4,296
3,260
2,492
2,128
2,070
71
Gold, silver, diamonds
580
788
1,895
840
611
2,469
3,680
4,388
4,712
5,056
5,684
5,114
2,464
1,896
1,477
26
Zinc, lead, copper etc
586
596
661
785
981
2,052
1,789
1,551
507
1,171
1,244
1,434
894
1,167
738
90
Medical equipment & apparatus
223
267
316
451
505
497
590
661
562
589
769
685
682
750
694
12
Oil seed
110
53
34
98
37
114
25
171
353
190
1,051
1,141
1,155
714
690
22
wine
561
659
716
965
993
999
1,203
1,007
772
770
716
693
594
547
475
84
02
Machinery & parts
Meat of Beef and sheep
309
166
294
144
327
155
377
207
452
207
529
216
557
215
528
296
463
249
463
276
533
390
494
349
507
401
530
483
432
415
Source: ITC Trademap
Table 4: Major Australian Imports from the European Union, HS 2-digit categories, 2001-2015, million US dollars
HS code
Product label
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
TOTAL
All products
84
Machinery
15,376
17,869
22,280
27,068
30,211
30,336
38,047
44,202
34,528
39,226
45,055
47,024
44,076
43,144
37,024
2,672
3,066
3,811
4,664
5,478
5,851
6,979
7,813
6,848
6,821
7,868
9,706
9,001
7,961
6,391
87
30
Motor vehicles and parts
1,931
2,289
2,988
3,384
3,861
3,757
5,059
6,000
3,910
5,570
6,487
7,397
7,271
6,833
6,348
Pharmaceutical products
1,536
2,039
2,504
3,442
3,752
3,735
4,680
5,133
5,430
6,325
7,658
6,789
6,486
6,044
5,315
85
Electrical, electronic equipment
1,915
1,777
2,132
2,596
2,813
2,967
3,195
3,721
3,260
3,117
3,852
3,927
3,497
3,402
2,644
90
Medical equipment and apparatus
793
900
1,152
1,533
1,715
1,862
2,188
2,528
2,272
2,545
2,852
2,939
2,813
2,940
2,598
Source: ITC Trademap
32
Table 5: Australian Trade and Investment with Four European Countries, 2015, million
Australian dollars
Poland
Czech Republic
Hungary
Slovakia
Merchandise Trade
Services Trade
Exports
Imports Exports Imports
304
763
111
89
139
665
90
39
25
546
40
46
5
458
48
18
Foreign Investment
Outward Inward
843
0
291
42
457
25
25
0
Source: Australia Department of Foreign Affairs and Trade website
Table 6: Trade Costs on Exports to Australia, ad valorem
Czech Republic
Hungary
Poland
Slovakia
Germany
UK
All Australian
imports
1995
14.0 (9)
8.4 (8)
9.6 (13)
10.8 (8)
2000
10.0 (7)
4.6 (6)
8.7 (9)
18.5 (6)
2005
8.5 (8)
5.0 (6)
5.2 (8)
7.7 (7)
2007
8.4 (7)
3.6 (6)
6.1 (7)
3.3 (6)
5.3
5.7
6.7
5.1
3.6
5.7
4.5
3.8
5.5
4.0
2.9
4.9
Source and Notes: (cif-fob)/fob - calculated from Australian Bureau of Statistics data, as
described in Pomfret and Sourdin (2011); raw trade cost numbers appear in the
working paper version of Why do Trade Costs Vary? - available at
http://www.economics.adelaide.edu.au/research/papers/doc/wp2008-08.pdf
Figures in parentheses are adjusted for the commodity composition of trade (from
Table 8 below)
33
Table 7: Determinants of International Trade Costs, 1990-2015
ldist
ltrade
lval_wgt
sea
EU2004
trend
Constant
(1)
0.781***
(0.047)
-0.025***
(0.001)
-0.174***
(0.001)
-1.319***
(0.004)
0.102***
(0.009)
-0.013***
(0.000)
-8.362***
(0.456)
(2)
1.011***
(0.022)
-0.049***
(0.000)
-1.002***
(0.002)
0.082***
(0.003)
-0.015***
(0.000)
11.267***
(0.209)
N
274,486
1,032,196
* p<0.1, ** p<0.05, *** p<0.01
(3)
1.876***
(0.090)
-0.035***
(0.001)
-0.123***
(0.002)
(4)
0.232***
(0.049)
-0.027***
(0.001)
-0.215***
(0.002)
(5)
1.180***
(0.031)
-0.065***
(0.001)
(6)
0.784***
(0.028)
-0.031***
(0.000)
0.074***
(0.019)
-0.005***
(0.000)
0.107***
(0.009)
-0.019***
(0.000)
0.070***
(0.005)
-0.007***
(0.000)
0.100***
(0.004)
-0.023***
(0.000)
-19.282***
(0.878)
-4.124***
(0.477)
-12.984***
(0.303)
-10.038***
(0.272)
108,013
166,473
516,494
515,702
Source: calculated from Australian Bureau of Statistics data on Australian trade with EU
members and accession countries.
Notes: method as in Pomfret and Sourdin (2011). Dependent variable is log of ad valorem
transport costs ((cif-fob)/fob). EU2004 is a dummy equal to unity if member country
is a 2004 accession country, zero otherwise. HS6 digit commodity fixed effects.
34
Table 8a: Predicted International Trade Costs, European Countries' Exports to
Australia, 1990-2002
year
Albania
Austria
Belgium
Bulgaria
Bosnia
Herzegovina
Switzerland
Cyprus
Czech Republic
Germany
Denmark
Spain
Estonia
Finland
France
UK
Greece
Croatia
Hungary
Ireland
Iceland
Italy
Lithuania
Latvia
Malta
Netherlands
Norway
Poland
Portugal
Slovak Republic
Slovenia
Sweden
1990
0.06
0.08
0.09
0.08
1991
0.06
0.07
0.09
0.08
1992
0.08
0.07
0.09
0.10
1993
0.05
0.07
0.08
0.10
1994
0.02
0.07
0.08
0.10
1995
0.06
0.07
0.08
0.09
1996
0.03
0.07
0.07
0.10
1997
0.03
0.07
0.08
0.08
1998
0.03
0.07
0.08
0.08
1999
0.05
0.06
0.07
0.07
2000
0.05
0.06
0.07
0.06
2001
0.04
0.06
0.08
0.06
2002
0.05
0.06
0.07
0.08
0.07
0.14
0.11
0.09
0.08
0.11
0.06
0.10
0.11
0.09
0.08
0.10
0.06
0.09
0.08
0.14
0.10
0.06
0.06
0.10
0.10
0.08
0.08
0.09
0.24
0.08
0.08
0.09
0.10
0.13
0.10
0.08
0.06
0.08
0.44
0.38
0.08
0.08
0.07
0.12
0.09
0.02
0.08
0.09
0.08
0.07
0.06
0.14
0.10
0.08
0.08
0.09
0.14
0.07
0.07
0.09
0.11
0.12
0.08
0.08
0.06
0.09
0.40
0.18
0.05
0.09
0.08
0.13
0.08
0.12
0.09
0.07
0.07
0.06
0.10
0.10
0.08
0.07
0.10
0.07
0.07
0.07
0.09
0.11
0.09
0.08
0.08
0.08
0.08
0.11
0.23
0.07
0.08
0.08
0.11
0.09
0.11
0.09
0.08
0.06
0.12
0.09
0.07
0.08
0.10
0.08
0.07
0.07
0.09
0.10
0.08
0.08
0.08
0.05
0.08
0.16
0.19
0.06
0.08
0.08
0.13
0.09
0.09
0.08
0.08
0.07
0.07
0.09
0.09
0.07
0.08
0.09
0.10
0.08
0.08
0.08
0.10
0.09
0.08
0.08
0.07
0.08
0.12
0.17
0.06
0.08
0.08
0.10
0.08
0.11
0.07
0.07
0.08
0.06
0.07
0.10
0.08
0.07
0.10
0.09
0.08
0.07
0.08
0.10
0.09
0.08
0.08
0.07
0.08
0.12
0.21
0.05
0.09
0.08
0.10
0.08
0.07
0.08
0.08
0.09
0.06
0.10
0.09
0.07
0.07
0.09
0.11
0.07
0.08
0.08
0.10
0.08
0.07
0.08
0.06
0.08
0.09
0.20
0.06
0.08
0.08
0.10
0.08
0.08
0.08
0.07
0.04
0.06
0.08
0.07
0.07
0.06
0.08
0.05
0.07
0.06
0.08
0.08
0.05
0.06
0.07
0.07
0.07
0.07
0.13
0.08
0.07
0.07
0.08
0.07
0.06
0.06
0.06
0.08
0.06
0.08
0.07
0.07
0.06
0.09
0.05
0.07
0.07
0.07
0.09
0.06
0.06
0.07
0.06
0.07
0.06
0.12
0.06
0.07
0.08
0.09
0.07
0.07
0.06
0.07
0.08
0.06
0.09
0.08
0.07
0.07
0.09
0.08
0.07
0.07
0.07
0.09
0.05
0.07
0.08
0.04
0.07
0.09
0.09
0.06
0.08
0.08
0.09
0.08
0.07
0.07
0.07
0.08
0.06
0.09
0.08
0.07
0.07
0.08
0.07
0.07
0.07
0.07
0.09
0.06
0.07
0.07
0.05
0.07
0.08
0.10
0.05
0.07
0.08
0.08
0.08
0.08
0.07
0.07
0.08
0.08
0.10
0.13
0.08
0.08
0.09
0.12
0.09
0.08
0.07
0.09
0.09
0.09
0.06
0.09
0.06
0.09
0.09
0.15
0.10
0.09
Note: predicted ad valorem trade costs on all imports by sea or air, adjusted for
commodity composition.
35
Table 8b: Predicted International Trade Costs, European Countries' Exports to
Australia, 2003-15
Albania
Austria
Belgium
Bulgaria
Bosnia Herzegovina
Switzerland
Cyprus
Czech Repulbic
Germany
Denmark
Spain
Estonia
Finland
France
UK
Greece
Croatia
Hungary
Ireland
Iceland
Italy
Lithuania
Latvia
Malta
Netherlands
Norway
Poland
Portugal
Slovak Republic
Slovenia
Sweden
2003
0.05
0.06
0.07
0.06
0.07
0.05
0.08
0.07
0.06
0.07
0.08
0.05
0.07
0.07
0.07
0.08
0.06
0.06
0.07
0.06
0.07
0.07
0.07
0.05
0.07
0.08
0.07
0.07
0.07
0.06
0.07
2004
0.05
0.06
0.07
0.06
0.08
0.06
0.09
0.07
0.06
0.07
0.08
0.05
0.07
0.07
0.07
0.08
0.06
0.06
0.06
0.07
0.07
0.06
0.09
0.05
0.07
0.07
0.08
0.07
0.07
0.06
0.07
2005
0.05
0.06
0.08
0.07
0.08
0.06
0.09
0.08
0.07
0.07
0.08
0.06
0.07
0.07
0.07
0.09
0.06
0.06
0.07
0.07
0.07
0.07
0.08
0.07
0.08
0.06
0.08
0.07
0.07
0.07
0.07
2006
0.04
0.06
0.07
0.06
0.06
0.05
0.11
0.07
0.06
0.06
0.08
0.06
0.07
0.06
0.07
0.08
0.05
0.06
0.07
0.06
0.07
0.07
0.09
0.07
0.07
0.07
0.08
0.07
0.06
0.06
0.07
2007
0.05
0.06
0.07
0.06
0.06
0.05
0.09
0.07
0.06
0.06
0.07
0.06
0.06
0.06
0.06
0.07
0.06
0.06
0.06
0.06
0.06
0.06
0.07
0.06
0.07
0.06
0.07
0.06
0.06
0.06
0.06
2008
0.03
0.06
0.07
0.06
0.06
0.05
0.06
0.07
0.06
0.06
0.07
0.06
0.06
0.06
0.06
0.07
0.06
0.06
0.06
0.05
0.07
0.06
0.07
0.05
0.07
0.06
0.07
0.07
0.06
0.06
0.06
2009
0.04
0.05
0.06
0.05
0.06
0.05
0.05
0.06
0.06
0.05
0.06
0.08
0.05
0.05
0.06
0.07
0.06
0.05
0.06
0.05
0.06
0.06
0.08
0.05
0.06
0.05
0.06
0.06
0.06
0.06
0.06
2010
0.05
0.05
0.06
0.05
0.05
0.05
0.07
0.06
0.06
0.05
0.06
0.07
0.05
0.06
0.06
0.07
0.05
0.05
0.06
0.06
0.06
0.06
0.07
0.05
0.06
0.05
0.07
0.06
0.06
0.06
0.06
2011
0.04
0.06
0.06
0.05
0.05
0.05
0.07
0.07
0.06
0.05
0.07
0.07
0.05
0.06
0.06
0.07
0.06
0.05
0.05
0.06
0.06
0.06
0.06
0.05
0.07
0.06
0.07
0.07
0.06
0.06
0.06
2012
0.04
0.06
0.06
0.05
0.06
0.05
0.07
0.06
0.06
0.05
0.07
0.08
0.06
0.06
0.07
0.07
0.05
0.05
0.06
0.05
0.07
0.07
0.07
0.05
0.06
0.05
0.07
0.07
0.06
0.05
0.06
2013
0.04
0.06
0.06
0.05
0.05
0.05
0.06
0.06
0.06
0.05
0.07
0.08
0.06
0.06
0.06
0.07
0.05
0.05
0.05
0.06
0.06
0.06
0.07
0.05
0.06
0.05
0.07
0.06
0.06
0.06
0.06
Note: predicted ad valorem trade costs on all imports by sea or air, adjusted for
commodity composition.
2014
0.08
0.05
0.06
0.06
0.05
0.05
0.06
0.06
0.06
0.05
0.06
0.07
0.06
0.05
0.06
0.07
0.05
0.05
0.06
0.05
0.06
0.06
0.06
0.04
0.06
0.05
0.07
0.06
0.06
0.06
0.05
2015
0.06
0.05
0.06
0.05
0.05
0.04
0.06
0.06
0.06
0.05
0.06
0.07
0.06
0.05
0.06
0.07
0.05
0.05
0.06
0.05
0.06
0.06
0.07
0.04
0.06
0.05
0.06
0.06
0.06
0.06
0.06
36
APPENDIX: European Countries' Status with Respect to the EU, Schengen and the Euro
Country
Belgium
France
Germany
Italy
Luxembourg
Netherlands
Denmark
Ireland
UK
Greece
Portugal
Spain
Austria
Finland
Sweden
Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Slovakia
Slovenia
Bulgaria
Romania
Croatia
EU Schengena
1957
1995
1957
1995
1957
1995
1957
1997
1957
1995
1957
1995
1973
2001
1973
x
1973
x
1981
2000
1986
1995
1986
1995
1995
1997
1995
2001
1995
2001
2004
x
2004
2007
2004
2007
2004
2007
2004
2007
2004
2007
2004
2007
2004
2007
2004
2007
2004
2007
2007
x
2007
x
2013
x
Euro
1999
1999
1999
1999
1999
1999
x
1999
x
2001
1999
1999
1999
1999
y
2008
y
2011
y
2014
2015
2008
y
2009
2007
y
y
y
Country
Iceland
Liechtenstein
Norway
Switzerland
Albania
Bosnia & H
Kosovo
Macedonia
Montenegro
Serbia
Status
EFTA/EEA
EFTA/EEA
EFTA/EEA
EFTA
C2014
C2005
C2010
C2012
Schengena
2001
2011
2001
2008
x
x
x
x
x
x
Eurob
x
x
x
x
x
x
z
x
z
x
Notes: a Schengen is from date of implementation; b Kosovo and Montenegro (z) use the
euro but are not members of the eurozone (i.e. cannot issue euros or participate in
eurozone decision-making); x = non-participant; y = committed to introduction of the
euro; C = date when EU candidacy was accepted (Kosovo and Bosnia and Herzegovina are
considered to be "in the queue" even though the EU has not yet accepted formal
candidacies). EFTA = European Free Trade Association; EEA = European Economic Area.