Trade Policy in Asia: After the Auto Agreement - an Australian Perspective

Presentation by the Minister for Trade Senator Bob McMullan at the Trade Seminar, Rand Corporation
Los Angeles, 1 August 1995

Context

Through much of the post-war period the US has played a leadership role in the international trading system through its commitment to multilateralism and non-discrimination based on unconditional MFN.

The US was the driving force behind the GATT and a cornerstone of the multilateral trading system.

More broadly, as the world's largest single economy (14 per cent of world imports, 12 per cent of world exports), US trade policy is of crucial importance both to the international trading system and to individual countries like Australia

Asia-Pacific Focus

As a global trading nation the US has benefited from this commitment just as the world has benefited from the US's approach and the openness of the US market.

The benefits for the US's from its growing links with the Asia-Pacific region are clear

The doubling in the past 20 years of the share of US GDP taken by merchandise exports is largely attributable to growth in exports to Asia

- and US trade with East Asia accounts for over two and a half million US jobs.

US exports to Asia are growing twice as fast as exports to the EU and US two-way trade with Asia now accounts for more than 36 per cent of total US trade.

Although trade with Japan, which constituted 10.3 per cent of US global trade in 1993, has declined slightly as a proportion of US global trade, that decline is more than compensated by the increase in US trade with ASEAN, China, Taiwan and Hong Kong.

The US's reliance on foreign capital also underlines the role that will be played by East Asia in the US's future - the seven leading East Asian economies now hold about 40 per cent of global bank reserves, up from 17 per cent in 1980.

No region has benefited more from US trade and security policies than the Asia-Pacific.

I mention security because the US's fundamental commitment to the region's stability - expressed through its alliances in the region and its ongoing military presence - has been the basis for the region's prosperity and spectacular growth which has outstripped any other region in the world.

Access to the US market has been central to the growth of the East Asian economies.

- with US investment and know how also playing a key part.

You should have no doubt that there is widespread acknowledgment and gratitude, in Australia and elsewhere, for the important role the US has played and will continue to play in the region - and it is against this context that critical analysis should be assessed.

But I would like to focus here on trade in the Asia-Pacific and the US-Japan trade relationship in particular.

I should say firstly that Australia shares strongly the aims of the US in seeking a more open and transparent Japanese market.

We know how frustrating breaking into that market can sometimes be and we have worked closely with the US in the past

- on beef, rice and legal services, for instance as well as pursuing independent concerns

: in the building materials and specialised shipping sectors for example.

But we don't agree that the resort to unilateralism in the trade relationship is the best way of pursuing our similar goal of market opening

- the potential costs are too great to justify the potential benefits.

That is why we were pleased that, in the end, the recent dispute over autos and auto parts was resolved within the WTO framework

- and with assurances that it will be open to all to benefit.

The auto dispute concerned us on a number of levels.

Although Australia did not take sides overall, we had significant commercial interests in the dispute

- Australian automotive exports are worth $1.5 billion and the sector employs 47,000 people.

- Japan is a major market for our automotive exports as well as coal, iron ore and other raw materials, much of which is consumed by the Japanese auto industry

- Japan and the US are Australia's largest trading partners and

- we were concerned that in seeking a solution the two countries might come to an arrangement which hurt third parties, including Australia (as the evidence suggests may have happened in the past)

We are still keen to keep a watchful eye on the agreements and I am pleased to have reached agreement with Mr Kantor and the AAMA recently on a process by which Australia can do that (as we have also reached with the Japanese government and JAMA)

But on another level, we were also concerned about the potential of the dispute to damage the US-Japan relationship

- a relationship which Australia, and I think the region as a whole, regards as the linchpin of Asia-Pacific stability.

Our wish is that Japan and the US can find measured ways to deal with bilateral trade issues that do not do anything to call into question the broader aspects of this most important strategic relationship.

From a regional perspective the reaching of agreement without resort to sanctions was important in maintaining support for a continuing and constructive role for the US in the Asia-Pacific.

We recognise that the US-Japan relationship is not an easy one for either party to manage.

- nor do we see this as an issue which by any means falls entirely to the United States.

Japan has its own domestic imperatives for economic reform and Australia, as another of Japan's important economic partners, makes this point to the Japanese Government with regularity, most recently in a very frank way by our Prime Minister, Paul Keating, a couple of months ago.

Mr Keating's remarks show Australia views the question of US-Japan relations in an objective and probably unique way. He particularly encouraged Japan to move ahead with its deregulation plans.

The point remains that from Australia's and the region's point of view, it is vital that the US and Japan find a way to manage their trade relations in such a way as to preserve the important bilateral relationship but to prevent damage to wider global interests

- including the credibility of the WTO and regional confidence.

This brings me to a third concern about the recent autos dispute, namely the threat that would have posed to the multilateral trading system should the US have acted on its threat to impose unilateral sanctions against Japan.

That multilateral trading system embodied in the World Trade Organisation is crucially important to most countries in the Asia-Pacific.

Many of the countries of the Asia-Pacific region do not wield a lot of market power internationally.

- they do not have the leverage to pry open markets unilaterally and are rarely in a strong position in bilateral negotiations with larger trading partners.

Instead, small and medium sized countries rely in very large part on fair, multilaterally agreed rules to provide improved and secure market access.

The autos dispute demonstrates that there are a number of complex challenges facing the world's trading system.

Globalisation

The globalisation of economic activity means that trade and trade policy is increasingly being affected by many different areas of government and private sector actions, including in areas traditionally regarded as being solely in the domestically-oriented policy domain.

New Trade Issues

The competition policy element of the autos dispute is a telling example of this.

Securing market access is no longer a matter of simply dismantling tariffs or even traditional non-tariff barriers.

The determinants of market access are now just as likely to be found within national borders in our competition, regulatory, investment even technology regimes.

We need a comprehensive and coherent framework for addressing these issues

- one which provides security of market access and is capable of meeting the fast evolving demands for international commerce.

Regionalism

The complexities of these requirements are such that attempts to address contemporary trade issues have tended to become somewhat fragmented, with bilateral deals emerging and a proliferation of activity on regional trade arrangements.

Many of these regional trading arrangements are playing an important role in contributing to the global liberalisation and facilitation of trade.

Regional trading arrangements have introduced another strand in to the complex multilateral and bilateral world of international trade.

They potentially offer a useful middle ground which can reinforce the multilateral trading rules by developing a greater appreciation of mutual trade interests

- but they also have the capacity to damage the non-discriminatory principles which underpin the multilateral trading system

- this is an aspect which will require greater scrutiny in the near future and is an area where research by the Rand Corporation may be of value.

NAFTA

The North American Free Trade Agreement (NAFTA) is of course, a benchmark development for regional trade groupings as well as, obviously, for its members.

NAFTA has influenced and will continue to influence the global trading environment, both through its approach to and coverage of issues, and through its extension to others.

The goal of a Free Trade Area of the Americas by 2005 highlights the significance of regional trading arrangements, with the Western Hemisphere criss-crossed by some 23 such arrangements which will have to come together in some fashion to achieve that goal.

APEC

For Australia, the Asia-Pacific Economic Co-operation or APEC forum remains the key vehicle for advancing trade liberalisation in the Asia-Pacific.

APEC has continually surprised almost everyone in the region by the pace at which it has developed.

When we in Australia hosted the first Ministerial Meeting in 1989, our expectation was that the process would take many years to develop beyond limited forms of OECD-style co-operation.

But APEC has moved well beyond this.

- it is now unquestionably the pre-eminent forum in the Pacific.

- and commands high-level political support throughout the region.

APEC is uniquely placed to build on the historic shift to policies which recognise the need to provide greater market access has been taking place in the region in recent years.

President Clinton's decision to convene an initial meeting of APEC Leaders in Seattle in 1993 has given APEC leaders a direct role in guiding the process

- and given APEC a powerful impetus for generating further change.

The results of this were apparent at the Bogor Meeting of Leaders chaired by President Soeharto in November 1994

- with the historic commitment to achieve free trade and investment in the region

And we hope that they will also be evident at the Osaka meeting which is to be convened in November this year.

The focus of APEC's agenda this year is on developing an Action Agenda which will put this historic agreement into effect.

Indeed this was a central part of my discussions on the East Coast of the United States, in Canada and in Mexico during the past week.

There are now clear signs that we may well achieve a comprehensive action plan for implementing Bogor when APEC leaders meet again in November.

We are now working on an approach in which economies will employ a mix of collective actions and individual liberalisation measures to achieve the Bogor goal.

The individual plans for liberalisation would cover, not only tariffs, but issues like quotas, subsidies, services and investment.

They will need to be developed according to some general guidelines providing for comprehensive coverage and balance among all economies.

Collective action would apply in areas like harmonising standards and customs administration where a greater measure of common agreement is required.

I must say that I was pleased that my discussions with American policy makers suggested that they now see the value of this approach

- we look forward to developing it further with them and other APEC economies in the lead-up to Osaka.

Our assessment is that the approach we are developing will add to the momentum for market opening to both trade and investment which is underway in the region.

But will do so in a way which is free of the acrimony and the dangers of Section 301

- and with the potential to achieve more enduring results. Experience should teach us that agreed solutions are more likely to endure than those which are imposed by unilateral pressure.

We would also hope that the APEC will be able to develop more co-operative relations in the region in a number of other areas.

In line with the decision reached by leaders at Bogor, APEC economies have been looking at ways to further develop economic co-operation

- including in areas like energy, infrastructure and telecommunications.

APEC has also been addressing options for resolving regional disputes.

As far as Australia is concerned, we do not have in mind a formal legalistic mechanism.

But a process akin to a mediation service which would provide APEC members with the option to raise problems and air grievances in APEC forums.

This is an approach which may commend itself to the US as it weighs alternatives to unilateral action.

The way in which this mediation service might operate needs to be looked at further as we approach Osaka.

But we are confident for our part that it has the potential to assist in resolving issues before they reach flash point

- it is not a panacea for all ills but if it can be developed it should be a useful vehicle for confidence-building and dispute-settlement in the region.

The US and the Region

It seems to us to be fundamentally in the US's interests then that it commits itself fully to the APEC process and plays an active role in the shaping of the region.

It is certainly our view that it is in the region's interest for the US to continue to play such a role.

I therefore noted with interest the decision last week (25 July) by Commerce Secretary Ron Brown to add Vietnam and five ASEAN countries to the list of 'Biggest Emerging Markets' (BEMs) for targetting for special trade promotion efforts.

This decision means that Asia-Pacific countries are now preponderant on the BEM list, reflecting the increasing importance of the region for the US.

Australia welcomes this recognition of South East Asia's development.

It is a recognition, I might say, that Australia came to some time ago and our trade relationships with ASEAN are amongst our fastest growing.

We are also very interested in the President's decision to establish a Commission on US-Pacific Trade and Investment Policy

- the Commission could make an important contribution to the development of US policy concerning its trade and investment links with the region.

Australia will be taking the opportunity of the Commission's work to convey some of the trade interests I have outlined here today.

The importance of the Asia-Pacific to the United States is generally well understood on this side of the country.

But I feel that it is sometimes not as well recognised in some of the power centres in the east. It may be more comfortable to look to the Atlantic - but for the US, as more clearly for Australia, the future lies in the Pacific.

There are a number of questions the answers to which will influence the way in which trade policy develops in our region on which I have not had the opportunity to include in these remarks.

Your views on these would be of particular interest to me:

- the political situation in Japan

- political management in Washington of US-Japan relations

- China
: WTO accession
: relations with the US
: the related question of Taiwan and Hong Kong

- the US Congress, the trade policy agenda and fast track

- the emerging significance of India as a market and as an aspirant for regional influence

- together with a series of issues which I believe arise from these few opening remarks.

I look forward to the opportunity to discuss these and other questions with you.

Context

50 years of GATT and the role of the US

Asia-Pacific Focus
Japan autos

- Pro-opening
- Co-operation
- Australian extra issues
- Disagree over methods - cost/benefit
- non-discriminatory settlement vital
- monitoring
- threat to WTO

Challenges to WTO
- NAFTA/FTAA

- APEC

: prospects for 95

: build and shape momentum

: potential for enduring results