Remarks to the EAS Trade Finance Workshop
Speech (check against delivery)
Sydney
13 May 2010
Introduction
Thank you Paul Tighe for that introduction. It is my great pleasure to be here with you this evening.
I would like to begin by warmly welcoming you to Australia and to this East Asia Summit trade finance workshop.
In August of last year I gave an address here in Sydney at an Export Breakfast Panel on the very topic of “Financing exporting success in good times and bad”. Nearly one year on, in spite of positive signs in the East Asia region, a challenging global trading environment still exists.
As you all already know, access to finance is the lifeblood of trade for exporters and importers.
The World Trade Organization estimates that between 80 to 90 per cent of global trade is dependent, in some way, on access to finance.
The impact of the GFC on trade has been severe, with IMF’s April World Economic Outlook estimating that trade volumes fell by 10.7 per cent in 2009.
Given the gravity of what has occurred with the global financial crisis, collaboration through the East Asia Summit (EAS), and events such as this EAS workshop on trade finance, play an especially important role in helping the region better prepare for future challenges.
As an active participant in the East Asia Summit (EAS) since its inception, Australia attaches great importance to the EAS leaders’ led forum due to its considerable potential to contribute to regional integration.
Trade - A Casualty of the GFC
There can be no question that the global financial crisis had an enormous impact on trade. WTO Director-General Pascal Lamy has emphasised that international trade has been a casualty of this economic crisis and that we run the risk that this engine of growth – an especially important economic driver for many developing countries – will stall.
As the world plunged into recession there was significant pressure for a retreat back into protectionism and the imposition of new trade barriers.
As Minister Crean has highlighted, on balance we can declare that the protectionist push stemming from the global recession has been contained.
One of the key reasons for this is because of a new realisation of the importance of trade and how central is it to the global economy. Trade is an economic stimulus.
It is why the G20 has put conclusion of the Doha Development Round at the centre of its action plan for recovery. It is now recognised as a fundamental part of the stimulus measures and critical to sustained economic growth.
There were many reasons why world trade volumes had their steepest fall in 50 years. People all around the world were fearful of the impact the crisis might have on them. Fearing the loss of their jobs, workers and families delayed purchasing consumer goods. At the same time, banks stopped lending to businesses, forcing them to scale back their investment plans.
However, there were also significant supply-side dimensions to the fall in global trade. Among these was the availability and affordability of trade finance – the oil that keeps the wheels of international trade turning.
We know that trade finance differs from other types of credit in ways that make it a much greater risk during times of crisis, because of the difficulty of securing and enforcing commitments across borders in times of turmoil.
Estimates vary widely, but during the Global Financial Crisis it was thought that the trade finance “gap” was between $250-500 billion.
Such was the concern about the potential of trade finance to be a multiplier for ill that the G20 Leaders, at their April 2009 London Summit, pledged $250 billion to ensure support for trade finance.
Financial crises, by their very nature, foster a lack of confidence, uncertainty and mistrust. Actions that can allay these sentiments and restore confidence help reverse the downward spiral and set markets on the road to recovery.
As it turned out, the economies of East Asia Summit members generally weathered the storm of the Global Financial Crisis better than other parts of the world.
However, it is critical to look at what happened and to determine whether there are ways in which our region could have worked together more effectively previously and in the future, including in the area of trade finance.
East Asia Summit Trade Finance Workshop
The East Asia Summit workshop on trade finance builds on the success of the one held in Bangkok last year.
Significantly, it follows the historic first meeting of EAS Finance Ministers less than two weeks ago in the margins of the Asian Development Bank’s annual meeting in Tashkent, Uzbekistan.
Australia was represented at the meeting by my colleague Senator Nick Sherry, who informs me the meeting was particularly valuable.
I understand that there have been constructive discussions today about developments in trade finance in the region.
Your involvement in these workshops contributes to the EAS agenda in two important ways: firstly by increasing practical cooperation on economic matters in our region and, secondly, by considering trade finance initiatives that could advance our regional trade interests.
I thank you for your commitment to these objectives and look forward to receiving an account of your discussions in due course.
Role of the EAS in Regional Prosperity
Ladies and gentlemen.
Trade Finance is just part of the EAS’s ambitious agenda.
It is clear that the EAS has an important role to play as a forum for sharing our experiences during the Global Financial Crisis and helping us to better prepare for the future.
Just as ASEAN +3 is playing a crucial role in strengthening financial stability in Asia through projects such as the Chiang Mai Initiative and the Asian Bond Market Initiative, so too does the EAS have a role in looking at what can be done to help insulate our region from future crises.
The membership of the East Asia Summit captures nearly half the world’s population (over three billion people), accounts for around 30 per cent of global GDP, the equivalent to a nominal GDP of over 14 trillion US dollars, and includes some of the world’s most dynamic economies.
Its agenda has developed into a body of work that encompasses five key priorities identified by leaders, including finance.
Work over the coming years will ensure that the strong economic growth of our region in recent years will be sustained in the future.
I’m very optimistic about the prospects for future economic growth in our region in the coming decades.
One of the lessons of the Global Financial Crisis – and this is relevant to all of our countries – has been the importance of international trade to economic prosperity.
The OECD estimates that a 10 per cent increase in trade is associated with a 4 per cent rise in per capita income.
In Australia, as a result of trade liberalisation, Australia’s GDP over the past two decades as been boosted by between 2.5 and 3.5 per cent.
This translates to an extra $2,700 to $3,900 in real income each year for the average Australian family.
That is why, at a regional level, Australia has strongly supported work on the proposal for a Comprehensive Economic Partnership in East Asia, or CEPEA.
The CEPEA proposal includes economic cooperation, facilitation and liberalisation that could ultimately lead towards an East Asia Summit (EAS)-wide FTA.
According to simulations done in an initial CEPEA study, which took into account trade liberalisation and economic cooperation, GDP in East Asian countries would increase by a significant 2.11 percent under CEPEA.
Genuine trade liberalisation across the broad membership of the EAS is a long-term prospect.
But achieving that would not only benefit all member countries, it would help secure an even brighter economic future for our region.
Australia and the EAS
As I previously mentioned, Australia has been an active participant in the East Asia Summit (EAS) since its inception.
Australia participated as a founding member in the inaugural EAS held in Kuala Lumpur in December 2005.
Since that historic first meeting, the EAS has played an increasingly prominent role in advancing closer regional integration and cooperation.
The Fourth EAS in Hua Hin last year produced a number of important outcomes, including agreement to the EAS Finance Ministers Meeting which was held recently in Tashkent, progress on the CEPEA proposal and strengthened disaster response cooperation.
Australia is now keen to work closely with ASEAN to ensure that those outcomes are implemented.
And, in order to keep the momentum going, we look forward to working with Vietnam, as this year’s ASEAN Chair, to contribute to an ambitious, forward-looking agenda for the Fifth EAS in Hanoi in October.
Conclusion
Ladies and gentlemen.
I thank you again for your active participation in this workshop on trade finance.
Whilst there are ongoing challenges in world economy, there are encouraging signs, particularly in the East Asia region.
It is a sign that our region is getting ahead of the game and working through issues that will help us not only in our day-to-day trading relationships but, crucially, better address the major future economic challenges faced by the East Asia region.
In doing so we are continuing to broaden our linkages and deepen our interrelationships.
Thank you.