Speech
Advancing Regional Economic Integration
CEPEA Track Two Study Meeting, Sydney
29 May 2009
Good evening Ladies and Gentlemen.
On behalf of the Australian Government, I'd like to extend a warm welcome to the distinguished experts from across the region who have come to Sydney for the meeting of the Study Group into the Comprehensive Economic Partnership in East Asia.
We are honoured to host you and we wish you well in your discussions this weekend.
We are also very pleased that you also have here tonight a sample of Australia's most Asia-literate business people with whom you can engage.
This is what the "Track Two" dialogue is all about.
Now, for those of you whose first language is not "diplomat-speak", the work of the Study Group is a demonstration of Track Two, or non-government, diplomacy.
It's an approach that enables non-government experts— for instance academics and business people—to promote ideas beyond the space of current government policies.
I'm told one of their tasks is to "think big" and the Australian Government is very interested in the progress of the Study Group's report.
One of our aims in hosting this event tonight and tomorrow is to encourage the effective networking between the business community in our country and members of the Study Group.
These are important links.
Because while Governments work on regional diplomatic and economic structures, real commerce depends on people in the business, government and non-government communities building personal connections.
We shouldn't underestimate the power of personal connections.
Making these connections can be the difference between a business person picking up the phone and getting advice from a government official they know—or being left in the dark.
And it can open up channels of communication so governments are able to quickly draw on expert advice on challenges facing the region.
So I hope this evening and your discussions ahead provide fruitful opportunities to make these connections as we all push together to advance economic integration in our region.
Ladies and Gentlemen, tonight I want to make a very simple point: despite the global economic crisis, Australia draws confidence from our increasing economic integration with Asia.
This confidence explains our enthusiastic involvement in several efforts to boost regional trade and economic integration.
And it's why the Australian Government is a strong supporter of the work being done to advance the Comprehensive Economic Partnership in East Asia, or CEPEA as it's known.
Australia will continue to be a constructive and committed participant in advancing the East Asia Summit; the ten ASEAN members plus the six in the region: China, Japan, Korea, India, Australia and New Zealand.
We believe the East Asia Summit is a forum that can promote peace and prosperity in the East Asian region.
Asia's strength
Asia is vital to Australia's economic and national interests.
We share the same time zone - which gives our companies a competitive advantage against North American and European rivals.
And the flow of human capital from Asia to Australia is not only adding the region's best talent to our workforce, but enriching us culturally.
According to the Australian demographer Bernard Salt, Asian nations such as China and India are now making a greater contribution to Australia in terms of net migration than the traditional source nations such as Britain and New Zealand.
Our geography means we are destined to engage. And as Prime Minister Rudd has said, he wants Australia to make itself "the most Asia-literate country in the collective West."
But it's in the trade and economic sphere where we can measure how economically integrated we are with Asia today.
If you add North, South and South-East Asia, these regions together now account for around 68 per cent of our total merchandise exports.
The contribution of this trade to Australia's prosperity is enormous. In 2008, Australia's merchandise exports to Asia as a whole were worth more than $150 billion.
And in the services field, tens of thousands of young Asians choose to study in Australia, adding not just to our trade but to the very important people-to-people links I've just mentioned.
Most economists tell us that Asia's growth path will tend to run in parallel with the rest of the world over the next few years.
Indeed, the economic downturn in Asia as a result of the global recession has been worse than many first expected—driven by a synchronised fall in trade.
But over the long term in the 21st century, I believe the shift in global economic weight towards Asia will remain a central trend.
Because of the sheer weight of numbers and the efforts by governments in the region to promote economic development, Australia remains confident in the long term prospects for the giants of Asia—Japan, China and India, alongside the 600 million-strong population of South East Asia.
Some might say looking ahead long term isn't worth doing during a period of economic uncertainty.
But I believe some of the forecast trends made before the crisis still hold: for example, by 2020 Asia is forecast to account for around 45 per cent of global GDP.
Depending on which way you measure it, China is expected to overtake the US as the world's largest economy in purchasing power terms in 20 years.
And India may become the world's third largest economy in purchasing power terms by 2025.
Whether Asian economies hit these actual numbers or not, the trend is clear: global economic influence is tilting to the Asia-Pacific region – to our region – and Australia is in a fortunate position.
As the Prime Minister has said, "our engagement with Asia for the future will be about engaging with a region of global significance in its own right."
We have gained and continue to gain real economic benefits from Asia's growth.
And trade has been the instrument that has tapped Australia into Asia's growth.
That's why pursuing further trade integration with Asia remains vital to our national interest—just as it is important for Asia's own economic development.
It's clear that trade is a driver of economic recovery.
For example, according to the International Monetary Fund, evidence from past recessions in Asia has shown that exports have been the main engine of recoveries.
To be more precise, six out of ten recoveries in Asia have been led by exports.
And during the recovery phase, export growth has tended to rebound strongly.
However, this rebound has been accompanied growth in the United States and Europe.
Asia's recovery can be export-led. Trade reform is vital. And all the evidence shows that export-led recovery in Asia has also been accompanied by growth in developed markets.
Which is why—as G20 Leaders have called for—responsible governments around the world are injecting fiscal stimulus into their economies and committing against trade protectionism.
The Australian Government is doing our part to bolster the international community's effort to support recovery by implementing a Nation Building and Jobs plan.
And we are pushing hard against protectionism.
For example, just this week, we registered our strong opposition against US Government plans to reintroduce dairy export subsidies following on from the recent reintroduction of the European Union's dairy subsidies.
Both major powers are setting a poor example for the rest of the world and need to show better leadership.
Australia will be taking up this issue at the Cairns Group meeting in Bali next weekend.
This issue affects the direct interests of agricultural exporters in Asia and the Pacific.
And on the wider point about protectionism it is a development we must resist if we are to see economic growth return.
Positioning for Asia's growth
The IMF's latest outlook forecasts several Asian economies to continue to grow this year and next.
This reflects the Australian Government's own projections from the recent Budget.
Looking ahead at 2010, Australia forecasts key Asian economies to be among those showing positive signs of growth.
- China, growing at 8 per cent;
- Hong Kong, South Korea and Singapore [note Taiwan not part of CEPEA] growing at 2 ¾ per cent;
- Indonesia, Malaysia, the Philippines, Thailand and Vietnam growing at 2 ½ per cent; and
- India growing at 4 ¾ per cent.
Despite the current difficult climate, Australian exports to Asia have held up remarkably well.
Put simply, as Asia grows, Australia grows.
Across many areas, our trade with Asia is complementary; we produce goods and services that Asia needs for its growth and our households and businesses benefit from goods produced in the region.
Australia's top trade priority remains the successful conclusion to the multilateral round of trade negotiations in the World Trade Organization.
This is because will bring the biggest benefit to all economies, including emerging Asia.
The global economic crisis has given new momentum to the WTO's Doha negotiations, placing the issue high on the agenda of world leaders and trade ministers.
Concluding Doha is the kind of shot in the arm the world economy needs: the successful conclusion of the Round would be a great boost to international confidence and international trade in the midst of this global downturn.
But we can of course pursue multilateral and bilateral objectives at the same time, which is why we are vigorously prosecuting our bilateral and regional trade agenda.
Regionally through APEC we have continued to build on the progress made since Australia hosted APEC in 2007.
Last year we assisted Peru, which hosted APEC for the first time, and it was highly successful and helped place focus on priorities for APEC this year.
Australia has taken the initiative to meet regularly at Ministerial level with the three chairs of APEC – Singapore this year, Japan in 2010 and then the United States in 2011—injecting the essential political element to the APEC's economic cooperation program.
With our bilateral trade agenda, Australia is negotiating Free Trade Agreements with China, Japan, Malaysia and the Gulf Cooperation Council.
We held the first round of free trade agreement negotiations with South Korea just last week.
Australia will also be joining negotiations towards a Trans-Pacific Partnership Agreement, with other parties likely to be New Zealand, Chile, Singapore, Brunei, Peru, the US and Vietnam.
And of course there is the recently signed ASEAN-Australia-New Zealand FTA, which I will speak about more in a moment.
If you're wondering why Australia is so vigorous in our pursuit of these bilateral and regional trade agreements, it's because we strongly believe that they can be building blocks for multilateral trade liberalisation and regional economic integration.
FTA's can make a positive contribution to the global trading system.
How? By being comprehensive and truly trade liberalising across all sectors.
AANZFTA – free trade in action
There's no better example of our benchmark for success than the ASEAN-Australia New Zealand FTA, or AANZFTA, as it's known.
Let me briefly outline why.
This is the first FTA Australia has signed since the onset of the global financial crisis.
In the face of rising pressures to put up trade barriers, there's no better demonstration of a resolve to fight protectionism than settling a comprehensive regional free trade agreement.
The AANZFTA has put our region at the front of global efforts to fight protectionism.
For Australia, it is the largest FTA we have ever negotiated.
In 2008, our two-way merchandise trade alone with ASEAN and New Zealand was worth A$88 billion, or 20 per cent of Australia's total merchandise trade.
For ASEAN, the AANZFTA is the most comprehensive trade agreement it has ever concluded.
It covers goods, services, investment, intellectual property, electronic commerce, temporary movement of business people and economic co-operation.
It provides for very substantial commitments on tariff elimination and what's known as "WTO-plus" commitments in other areas.
For example, it binds current low tariffs and eliminates tariffs over time from the more developed ASEAN member countries and Vietnam on between 90 and 100 per cent of national tariff lines.
These tariff cuts cover 96 per cent of our current exports to the region.
In terms of the benefits for advancing regional integration, we know that one of the features of regional trade has been the incredible growth of regional supply chains.
I was actually in Singapore a fortnight ago at an APEC Symposium on connecting supply chains and made the point there about the importance of these networks for regional integration.
One of the tools available in trade agreements to help build regional supply chains are rules of origin.
So I am very encouraged that one of the things that the CEPEA study group is looking into is the question of regional rules of origin to see how regional trade agreements can better support economic integration.
That's because rules of origin act like a gateway that determines which goods qualify for tariff commitments.
If a good passes a rules of origin test then they're let through under the FTA's tariff concession for that good.
The regional rules of origin in the case of the AANZFTA should support greater integration of our economies in relation to trade in resources, intermediate goods and components, and final consumption of goods.
This process will facilitate the development of regional supply chains.
It should also support greater regional investment flows to make those supply chains happen.
One of the other features of the agreement that we're pleased about is a substantial economic cooperation component to assist countries to implement the agreement and promote regional integration.
Australia will provide up to $20 million in funding such economic cooperation.
What's clear from this agreement is that Australia and New Zealand, part of what the IMF calls "industrial Asia", was able to negotiate a comprehensive trade deal with Asian countries at various stages of development.
This points to the immense possibilities for further economic integration in the wider East Asian context.
And it's our hope that the CEPEA report provides some more ideas for how we can achieve this.
Perhaps not surprisingly, few countries find it easy to cut trade barriers at the stroke of a pen.
Opening up trade involves painstaking technical work and engagement at the political level.
But the successful conclusion of the ASEAN-Australia-New Zealand FTA shows what can be done.
It demonstrates Australia's ability to realise some of the key elements of the CEPEA agenda; for instance, economic cooperation, trade facilitation and liberalisation—as steps leading towards an East Asia Summit-wide Free Trade Agreement.
On this score, I'd like to mention that just yesterday, India and ASEAN have reportedly reached agreement for their free trade agreement. This marks another important step in East Asian regionalism because the ten members of ASEAN have now agreed to liberalise trade with all the other six countries in the East Asia Summit.
The logical next step is to create a regional agreement involving all EAS countries.
Our primary focus in the East Asia Summit, for instance, has been on greater regional financial cooperation and integration to promote financial development and stability in the region.
Because it remains our belief that financial integration and genuine trade liberalisation across the 16 members of the East Asia Summit would benefit all member countries.
Let me give you one final example about the real benefits of trade to Australia because I think they would apply across the region.
A soon to be released study by the Department of Foreign Affairs and Trade indicates that more than one in five jobs in Australia are related to trade in some way.
These figures would vary across the economies in East Asia. But it underlines again the value of trade to job creation, incomes and growth.
Ladies and Gentlemen, the Australian Government not only believes there are compelling reasons for further economic integration in our region but we are working across several areas to drive this ambition.
We draw confidence from our trade and economic integration with Asia; we are positioned well to benefit from Asia's growth and we are building the platforms to deepen regional integration.
On behalf of the Government, I'd like to once again welcome the meeting of the Study Group into the Comprehensive Economic Partnership in East Asia.
We respect your ideas and look forward to seeing progress on ways to advance regional integration in this Asia-Pacific century.
Thank you.