There have been rumours in the Oz real estate biz suggesting that Amazon is looking for a location for a warehouse operation for an Oz store. Since these rumours pre-date the announcement of Amazon's intent to create a cloud computing arm in Oz, there is a chance that Amazon were looking for a building for that purpose instead. (In Ireland, Amazon converted a former retail warehouse into a datacentre so it makes sense.)
Even without free shipping, I find Amazon.co.uk to be super competitive on price across the wide range of items that they ship internationally.
Because the majority of the shipping fees are based on the size of larger items, it's usually possible to mitigate the price of shipping by making the order reasonably substantial...
E.G. I was placing an order for one item last night; price was ?63.00 and shipping was GBP?28.63 (NZD$180...same item bought locally is close to NZD$400...). I then added 6 further smallish items from NZD$5-25,, total shipping came to GBP?31.08
Ended up spending NZD$260 all up for NZD$550+ worth of items if purchased online from NZ suppliers (not including any shipping they may charge...)