ABARE Outlook 2010 Conference Trade Policy and Agriculture
Speech
Canberra
3 March 2010
Introduction
Thank you for your kind introduction.
I am delighted to be here to address the 40th annual ABARE Outlook conference and I commend ABARE for organising an event which is so topical for Government and business.
Importance of Trade in Recovery from GFC
Ladies and gentlemen.
2010 is going to be an important year on the trade front.
The world is emerging from the worst recession in more than 75 years.
We have already seen some improved economic conditions.
Commodity prices have begun rising. World trade is starting to pick up again and we know that the multiplier effect of trade will help us get the global economy back on track.
That is why G20 leaders last year instructed trade ministers to conclude the Doha Round in 2010.
Getting Doha Done
Concluding the Doha Round would make an enormous difference.
A February 2010 report by the US-based Peterson Institute has estimated that the annual boost to world trade from a Doha outcome could be up to US$592 billion. The same study has estimated that the annual boost to world GDP from a Doha outcome could be up to US$282 billion.
We know that the Round, as it currently stands, would remove more than US$150 billion in tariffs, boosting global demand and consumption.
Not only would a successful Doha deal constrain protectionist urges, it would provide an enormous boost to global confidence.
During his visit to Canberra last month WTO Director General Pascal Lamy said that the timeframe set out by G20 is achievable. He underscored that 80 per cent of the Round has been agreed to.
Agriculture
Of course, a key sector where progress needs to be made is agriculture.
As you know, agriculture remains the most distorted sector of world trade. And, of course, it is a sector that is of tremendous importance to Australia.
Australia is a long-time champion of fairness in agricultural trade. We understand how much the removal of distortions in agricultural trade would benefit the developing world and improve their economic prospects.
The Rudd Government firmly believes that Doha offers the best opportunity to level the playing field.
So where are we at?
The package currently on the table at Doha is of real significance to farmers worldwide.
The framework for a new agricultural agreement has taken shape over the past few years.
While a handful of difficult issues remain, including the Special Safeguard Mechanism, sensitive product entitlement, Tariff Rate Quota (TRQ) creation and cotton, the vast majority of a Doha deal on agriculture has already been completed. However, the Special Safeguard Mechanism is a particularly difficult issue and could set us back.
The benefits include cuts to tariffs, expansion of tariff quotas, cuts to farm subsidies, and the elimination of export subsidies.
On the tariff cuts, Doha offers a harmonising formula that cuts higher tariffs by greater amounts.
For example, the deal at hand offers a top tier cut of up to 70 per cent on the bound tariffs of developed countries. Overall, it will deliver an average tariff cut of 54 per cent.
In some cases this will result in lower applied tariffs, in others it will minimise the amount by which tariffs can be raised unilaterally.
This is important, not only during periods of rising protectionism, but also for the future.
The Doha Round offers a significant improvement on the Uruguay Round agreement which delivered an average tariff cut of 36 per cent.
Under the deal on the table there are a limited number of exceptions to tariff cuts for so-called sensitive products.
Australia has negotiated hard to ensure that these exceptions will still create meaningful market access opportunities for Australian farmers.
In particular, we have worked to ensure that countries shielding their sensitive products from a full tariff cut will have to pay heavily by expanding tariff quotas for these products.
These expanded quotas will provide some of the most significant improvements in market access for Australian farmers.
It will allow them to get products into what are now highly protected but highly profitable markets.
For example, the large developed country consumer markets of Japan, the EU and the United States are expected to provide up to US$4 billion in new market access in products where Australia is globally competitive, including sugar, dairy and meat.
In terms of cuts to farm subsidies, the deal on the table will see a reduction of up to 80 per cent in farm subsidies commitments of the major subsidisers.
While this would still allow these countries to use sizeable amounts of domestic support, it will result in real cuts, in the order of some US$207 billion.
More importantly, it will limit spending on future subsidies and prevent a return to the dark days of the 1980s and 90s when, as you know, subsidy programs in the US and EU had a devastating impact on farmers here.
Importantly, the Doha Round, as it currently stands, would see the complete elimination of export subsidies by the end of 2013.
The reintroduction and use of dairy export subsidies by the EC and the US last year clearly demonstrates the importance of this outcome.
Only the conclusion of the Doha Round will ensure eradication of these damaging subsidies, valued at about US$11 billion.
The Government believes this is a deal worth fighting for. Therefore, getting the Doha deal done remains our number one trade policy priority.
We are working hard with our likeminded friends in the Cairns Group, which has been a vocal advocate for a successful and timely conclusion to the Doha Round.
The Cairns group, which Australia chairs, is unique in bringing together developing and developed country interests in pursuit of more liberalised international trade in agriculture.
Together we have succeeded in putting agriculture at the centre of the WTO’s agenda and keeping it there.
There were two key Cairns Group meetings over the past year (in Bali in June and in Geneva in November).
The Bali meeting, in particular, provided impetus for a renewed push to revive the Doha negotiations and led to a further meeting of Ministers in New Delhi, where a work plan was established. This has helped to re-engage members in discussion over the past several months.
Cairns Group Ministers will meet again next month in Punta del Este in Uruguay, which is where the Uruguay Round of multilateral trade negotiations was launched some 24 years ago.
The timing of the meeting is important as it follows the end of March stocktake by WTO members on progress in the Doha Round.
At the meeting Ministers will assess the best way to achieve a successful conclusion to the agriculture negotiations.
Recent Developments
While a successful conclusion to the Doha Round remains the Government’s highest trade policy priority, we are also continuing efforts in other areas.
The Government’s overarching trade policy has a cascading effect comprising multilateral, regional and bilateral agreeements.
The Government is working to improve access to foreign markets while also targeting trade promotion, trade facilitation and trade finance support. We are also working on development assistance activities that promote capacity building.
AANZFTA
Today I want to highlight some recent achievements on the market access side.
A very significant achievement is the entry into force of the ASEAN Australia New Zealand Free Trade Agreement.
This agreement is providing substantial new opportunities for Australian farmers in the South East Asian region – a region home to almost 600 million people.
From January 1, thousands of tariffs hitting Australian exports into the region were eliminated. In the case of Indonesia, upon introduction, almost one thousand tariffs formerly applied at 5 per cent will be eliminated.
As an example, dairy exports into ASEAN markets are currently worth about $800 million each year. AANZFTA offers opportunities in almost every country, including the elimination of tariffs on cheese and milk powder in Indonesia, Malaysia and the Philippines this year.
Important gains have also been won on fruit and vegetables with tariffs of up to 40 per cent being eliminated.
Meat exports, worth more than $580 million last financial year will be boosted by the elimination of tariffs on most meat lines.
The Trans-Pacific Partnership Agreement
Australia is one of eight countries that will participate in negotiations to deepen regional economic integration through the creation of another ambitious FTA – the Trans Pacific Partnership Agreement.
This represents a significant strategic opportunity to shape emerging regional economic architecture.
Participating countries all have quality FTAs themselves, and are looking to negotiate a 21st century trade agreement that will respond more effectively to the interests of business and the trading community.
Negotiations will begin in Melbourne this month with the participation of Australia, the US, New Zealand, Chile, Singapore, Brunei, Peru and Vietnam.
We are looking for new and innovative approaches in areas like services and the promotion of trade and investment, including new technologies and emerging economic sectors, such as green technology and the digital economy.
Likewise, we are continuing with early steps in the PACER-Plus negotiations. This is an important plank in our long-term strategy to improve the economic outlook for Pacific Island Forum member countries.
FTAs
Just as we have a strong multilateral and regional trade policy agenda, we are also progressing with negotiations on some important bilateral free trade agreements.
On the Australia-China FTA, last week we completed another round of negotiations in Canberra.
Agriculture remains a stumbling block but we believe these sensitivities can be addressed. It is clearly not possible for Australia to accept an FTA outcome on agriculture that is lesser than China has offered to New Zealand.
In terms of our negotiations with the Republic of Korea, we are progressing well, but there are sensitivities that will require flexibility from both sides.
The Government is well aware of the competitive challenges posed by other FTAs the ROK is concluding, including those with the United States and the European Union.
The Government also remains committed to a comprehensive high-quality FTA with Japan. Ten rounds of negotiations have been held so far, and the eleventh round will take place mid next month in Canberra.
We have made steady progress across a range of chapter texts, but market access discussions continue to be difficult, particularly on agriculture.
Benefits of Trade Liberalisation
As we continue to make progress on all fronts of our trade policy it is important to remind ourselves why it is so important.
Quite simply, trade creates jobs and it boosts incomes and living standards.
A major 2003 study by the OECD on the sources of economic growth in its member economies found that a 10 percentage point increase in trade exposure led to a rise in output per working age person of some 4 per cent in the long run.
If applied to Australia, this would suggest an increase in output per working age person of around 5 per cent as a result of Australia's greater trade exposure since the late 1980s.
A study last year by the Australian Centre for International Economics found that, since the 1980s, trade liberalisation has boosted Australia’s GDP between 2.5 and 3.5 per cent, boosting the average Australian family income by between $2700 and $3900.
The CIE study also showed that Australia’s share of world trade has almost doubled over the past 20 years, with one in five jobs related to trade, one in seven jobs export-related and one in 10 jobs import related.
This is an important point. Trade is not just about exports.
Our standard of living here in Australia has improved as we have imported more.
Buying from producers overseas has enabled Australians to take advantage of their expertise and economies of scale.
Just as imports from Australia have been critical to the dramatic economic growth of countries in our neighbourhood, such as Japan, and now China, so too Australia has benefited when purchasing industrial equipment, machinery or consumer goods that other countries specialise in.
Imports have allowed Australian companies to take advantage of cutting-edge technological innovations, to reduce their cost base and to improve their international competitiveness. They have allowed consumers to choose from a much greater range of products, many of which are not made locally, and take advantage of lower prices, effectively boosting their living standards.
Success in trade leads to investment success and investment is now a prominent element of our economic relationship with other countries.
Conclusion
Ladies and gentlemen.
The benefits of trade liberalisation are clear. Trade has underwritten Australia’s prosperity in the past. And, more recently, it has helped insulate the Australian economy from the global financial crisis.
We know there is more to be done.
We will continue, therefore, to push ahead with our trade agenda, including doing all we can to promote a successful conclusion to the Doha Round this year, despite the many difficulties.
ENDS