Address to AiG's “Trading with Asia” lunch
Speech
16 February 2010
Sydney
Introduction
I was pleased to accept the invitation to address the AiG in Sydney today on the critical topic of our trade and investment ties with Asia.
During the last two years the world has experienced one of the biggest disruptions to its trajectory of economic growth since the 1930s.
Last year, global output fell by 0.8 per cent, trade volumes plummeted by 12.3 per cent, and the advanced economies contracted by 3.2 per cent.
But what we saw in response to this crisis was something remarkably different from what happened in the 1930s.
This time around, the world joined together in a coordinated fiscal and monetary response which helped to forestall another Great Depression.
According to the latest update of the IMF's World Economic Outlook, global growth bounced back in the second half of 2009 and world output is now forecast to increase by 3.9 per cent in 2010.
Australia played an important part in this international response, particularly through its support for and participation in a newly invigorated institution, the G20 group of nations.
Of course the world is not yet out of the financial doldrums just yet, but in the context of Australia's trade and investment ties with Asia, two immediate lessons from the GFC are worth noting.
The first was the continuing growth of China and India and the importance of this for the stability of Australia's exports and investment.
Australia was the best growth performer in the OECD in 2009, recording just under one per cent growth in GDP while the rest of the advanced world contracted by 3.2 per cent.
Record low interest rates and the Australian Government's timely fiscal stimulus packages and bank guarantees had a lot to do with our performance.
According to a report from the OECD this week, the Government's stimulus package was a critical factor in helping Australia avoid a recession and will save up to 200,000 jobs this year.
But the continuing demand for Australian exports from nations like China and India also played a big part.
The second lesson of the GFC was the importance of a global commitment to an open international trade and investment system.
During the GFC, the Government advocated a strong anti-protectionist stance in global policymaking circles, such as the G20 and the World Trade Organization.
The message expressed to those circles was clear. Trade is a stimulus to growth, and is part of the solution to falling global demand. Trade is not the problem and protectionism is not the answer.
To reinforce this message, the Government also took a strong practical step in February 2009 when Australia signed an historic new Free Trade Agreement with the ASEAN nations and New Zealand.
Known as the AANZFTA, it came into effect on January 1 this year and represents the latest addition to Australia's growing list of FTAs in Asia.
Today, I'd like to talk a bit about these important lessons and also what the Government, through Austrade, is doing to help our businesses trade with the world's fastest growing region.
Asia, the Centre of World Growth
Australia finds itself on the doorstep of a dynamic economic zone in Asia that offers our exporters and investors terrific opportunities.
According to the latest research from Morgan Stanley, Asia will produce a little over 30 per cent of global GDP this year but is expected to produce 60 per cent of any growth in global GDP.
Sometime this decade China is set to become the second-largest economy in the world after the US.
Over the next two or three decades, China is also expected to overtake the US and become the world's largest economy.
India, which was Australia's fastest growing two-way trading partner in 2008–09, is also likely to become a major global economic power.
The solid economic performance of China and India relative to the Eurozone and the US during the GFC has underscored the growing significance of Asia to the global economy.
As the GFC spread to the real economy last year, the Eurozone contracted by 3.9 per cent and the United States economy went backwards by 2.5 per cent.
Yet growth in Asia outside of Japan and Korea continued strongly, albeit at a slower rate.
According to the IMF, China grew by 8.7 per cent in 2009 while India grew by 5.6 per cent. The ASEAN five of Indonesia, Malaysia, the Philippines, Thailand and Vietnam collectively grew by 1.3 per cent.
This strong growth is fundamentally important to Australia because the majority of our biggest trading partners now come from Asia.
In 2008–09, eight out of Australia's top ten exporting nations were from the Asia Pacific, as were seven out of our top ten importing nations.
One of the big challenges facing Australian policymakers is to help exporters benefit from the growing weight of Asia in the world economy.
Improving market access for exporters through the Government's support for the Doha Round of the WTO is one way to do this.
Yet, there is also a second complementary path for improving market access at the bilateral or plurilateral levels.
Australia's pursuit of this second approach to reducing trade barriers has led to six successful Free Trade Agreements, with several more under negotiation or consideration.
AANZFTA, our newest and biggest FTA
Australia has established working FTAs with the US, New Zealand, Chile, Thailand, Singapore and of course our latest, AANZFTA.
We have a further nine FTAs under negotiation or consideration, including with China, Japan and Korea and the Pacific island nations.
AANZFTA is Australia's largest FTA and it is also ASEAN's most comprehensive. It represents a major step along the road to Australia's economic integration with Asia.
It links the twelve nations of ASEAN, New Zealand and Australia into a group of 600 million people with a combined GDP of $3.1 trillion.
The ASEAN region is already a major market for Australia, with two-way trade valued at about $83 billion in 2008–09 or about 15 per cent of total trade.
AANZFTA will deepen and expand this trade growth over the next few years by binding, reducing or eliminating tariffs on a range of products.
It will immediately eliminate tariffs on a range of agricultural exports, such as cheese and grapes to Malaysia, and wheat and lamb to the Philippines.
By 2020, 96 per cent of all tariffs on current Australian exports to ASEAN are expected to be eliminated under AANZFTA.
Australian exporters of dairy, live animals and meat, horticulture, metals and automotive components are expected to benefit.
But AANZFTA is about more than reducing tariffs on our exports or imports.
Rather, what is important to note here is the breadth of AANZFTA as an agreement.
It covers goods and services, investment, intellectual property, e-commerce, business travel, competition policy and capacity building.
So AANZFTA can be expected to benefit, among others, exporters of professional services, higher education, telecommunications and financial services.
Importantly, AANZFTA provides investors with a formal dispute-resolution mechanism that will allow them to feel more confident about investing in ASEAN's markets.
This in turn will provide Australian businesses with greater incentive to build more investment platforms in ASEAN.
That will give them better access to the supply chains which sustain critical intra-regional markets in China, India and Japan.
One key feature of AANZFTA is that even if it does not deliver perfect market access right now, over time the barriers will fall for most products.
FTAs are not panaceas for exporters, but they are steps forward on the road to greater market access and require a bit of faith to work.
For example, by 2013 there will be tariff-free treatment on between 80 and 90 per cent of most tariff lines for automotive parts and components in Malaysia, Indonesia and the Philippines.
But by 2020, the remaining tariff lines in that sector will receive tariff-free treatment.
The architecture of Australia's trade and investment ties with Asia is slowly evolving, but in the long run the benefits of these arrangements will become more and more apparent.
To emphasise this point, it is worth reflecting on the Australia's very first, modern trade liberalisation agreement, the Closer Economic Relationship (CER), which was concluded with New Zealand in 1983.
Looking at it from 2010, you would not believe how difficult a process that was for both countries – especially because both economies had large agricultural sectors.
Remarkably, when it was signed, it was contemplated that we would move to duty free trade in ten years.
We reached that goal ahead of schedule, in 1990, and have built on the original agreement to conclude a world-leading services liberalisation package and are now finalising an investment protocol.
Australia's FTA with China
ASEAN and New Zealand stand at one apex of Asia's “triangle of growth”, with India to the West and China, Japan and Korea to the North.
The Government has a strategic approach to expanding our bilateral trade and investment ties with this “triangle” of growth.
So Australia is also negotiating FTAs with the big three North Asian economies and conducting a feasibility study for an FTA with India.
In the case of China, the Australian Government is keen to negotiate a high quality FTA that takes into account the unique qualities of our respective economies.
China is now Australia's largest overall trading partner, with two-way trade reaching $83 billion in 2008–09.
Despite the GFC, Australian exports to China grew by 41 per cent in 2008–09, while imports from China rose by 19 per cent.
There are deep complementarities between our two economies.
China's demand for our commodities continues to grow strongly alongside Australia's demand for China's consumer goods.
But Australia would also like to see other export sectors get a foothold in China, including agriculture, clean energy, automotive parts and components, urban design and other professional services.
Chinese investors have also taken a strong interest in Australia's resource companies, and we welcome that while at the same time recognising that investment is a two-way street.
The Government is also following a second track of commercial engagement with China, separate from the negotiations over the FTA.
To this end, the Government has been in discussions with provincial governments in China that have led to fruitful commercial framework agreements with Anhui and Hubei provinces.
The next round of talks over an Australia-China FTA will resume in Canberra this month, and talks over the Japan and Korea FTAs are expected to resume later on this year.
Conclusion: How Austrade Can Help
Austrade has an extensive network of offices scattered throughout North and South Asia, South East Asia and the Pacific.
This network of Trade Commissioners and business development managers offers strategic market advice and intelligence that can help businesses export and invest successfully.
Austrade can also help small and medium-sized businesses to fund a portion of their marketing and promotion costs through the Export Market Development Grants scheme.
The Government provided an extra $50 million for the EMDG scheme last year.
A record number of 4,105 businesses received an EMDG grant in 2008–09, for a total of A$185.9 million.
I urge Australian exporters and investors to take advantage not just of Austrade's advice and export assistance, but also to recognise the potential of the AANZFTA for their business success.
The network of FTAs that Australia is developing across Asia will pay dividends in the long run, as will our commitment to the Doha Round.
As an exporting nation, I strongly believe we are well prepared to take on the challenges and opportunities that are being created by Asia's growing economic weight.
Thank you.
ENDS