Trade in services has outpaced trade in merchandise over the last two decades. The services sector has
increased steadily in importance both in terms of it shares in GDP and employment over the lat 30 years
in Australia and its contribution to trade will continue to increase. The significance of services trade in
Australia arises within the broader context of persistent current account deficits. Australia accounted for
1.2 percent share of the world’s total exports of services in 2006. This share has remained fairly constant
for a considerable period of time. Australia’s ability to increase its international market share crucially
depends on developing new processes and products of commercial value. Therefore innovation has
become essential for Australian firms to compete and succeed in the international market. At the same
time the government also must provide an environment which encourages and sustains the innovative
capacity of the firms.