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; 19.8 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 12% 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. Following a transient slowdown in late 2000, Australia is again one of the fastest growing of the developed economies. Despite the negative impact of global economic weakness and a severe Australian drought, growth should reach at least 2.5% in 2003. The latest predictions suggest that GDP growth will exceed 3.0 % over the next 2 years.

Seeking to deepen already close political and economic links, the United States and Australia began negotiations toward a Free Trade Agreement (FTA) in March 2003. Negotiators are working toward concluding an agreement by the end of 2003, with ratification expected in 2004. The aim is to conclude a comprehensive, "gold standard" FTA that will not only further liberalize bilateral trade but also set a high-quality precedent for future bilateral or multilateral trade agreements.