Speech by the

Introduction

I am very pleased to have been invited to speak at this Economist Roundtable on the topic of Australia's export future - an issue which is critical to Australia's economic future.

An improved export performance for Australia is of central importance to the overall strategy of the Government. This is borne out by the fact that Australia is a medium sized, open economy where its future prosperity is in no small part dependent on its export performance.

The Government has already laid down a comprehensive set of policies to reverse the deterioration of budget finances and make Australia a more prosperous and efficient society. The Treasurer has already outlined details of our economic strategy to you.

And let me say here that this Government does attach a very high priority to establishing the right environment for investment, to clearly and consistently ensuring that policy settings attach a high priority to the needs of our businesses. I think it clear from the reform agenda this Government has put in place in the first six months of its term that this is very much the case, and I can assure you that we will continue our efforts to enhance the attractiveness of Australia as a place to invest.

Of course, a particular interest from the trade portfolio is managing the current account deficit, which remains a key priority that will require higher national savings. But it will also necessarily imply an increase in our balance of trade surplus. Achieving this through lower imports could threaten our longer term growth potential or standard of living. Therefore, export growth is vital.

Indeed, our economic policies see higher savings and greater exports as going hand in glove.

Increased net exports are important in maintaining aggregate demand through investment and therefore economic growth in a high savings environment.

At the same time, higher savings improves the flexibility of the economy to move resources into the export and import competing sectors, which will work to improve trade performance.

Australia's Export Performance

Importantly there has been considerable commentary on the outlook for Australia's exports. Indeed, Australia's declining total share of world merchandise trade has recently been highlighted in public debate on Australia's future export efforts.

As always the issue is more complex than it first appears. Australia's total market share has been declining, and as I have said in the past, is something the Government must address. But at the same time, it is clear that in various individual product markets Australia has either increased or maintained its market share.

The apparent contradiction between the decline in total market share and the increase in individual product market shares is mostly explained by trends in the composition of world trade. These trends have masked the underlying improvement in Australia's export outcomes by particular industries.

However, the critical point to make is that given the importance of exports to the economy - which account for about 20 per cent of the economy - we cannot rely on our past performance to see us through. In fact, even stronger export growth will require continuous improvement, both in government policies, and in business practices.

Of course, developments in the international economy will also be important in determining the future of Australia's exports.

The IMF's latest forecasts predict a pickup of world growth over the next two years - from 3.8 per cent in 1996 to 4.1 per cent in 1997. If achieved, this will be the strongest growth the world will have achieved since 1988. The forecast is based heavily on a fairly strong increase in Japan's growth, and a recovery in Europe from its recent weak growth, leading to a stronger outlook for OECD growth.

This augurs well for the prices of Australia's commodity exports, given the strong linkages between OECD growth and commodity prices.

The slowdown in export growth and higher current account deficits in much of Asia over the past half year are, however, cause for some concern. This is particularly so if it leads to a slowdown in Asia's imports, whether due to slower underlying demand or to government policy responses. However, over the medium term, the outlook is for Asia to continue to grow more rapidly than the rest of the world.

Direction of Australian Exports

The world growth picture is therefore one where we can predict continuing increases in demand for Australia's exports, because of the extent of our reliance on Asian markets.

As a reflection of this, Australia's market shares for individual industries are on average two to three times higher in Asia than in the rest of the world. And Australia's market shares in various individual industries in Asia are increasing.

That is not to say that other countries are less important to Australia. Australia is predominantly an exporter of intermediate goods, which are used as inputs in the production of final consumer or capital goods in Asia.

Therefore, while our primary market is Asia, we should not lose sight of the fact that the final destinations for many Australian exports to Asia are actually in North America, Japan, and the EU.

Composition of Australian Exports

One of the results of Australia's rich resource endowments is that products that require significant land and energy dominate the composition of Australia's exports.

However, the fastest growing component of Australia's merchandise trade is in manufactures. Indeed, the growth of Australia's manufactured exports has been faster than growth of world trade in manufactures. This has led to an increase in Australia's share of world manufactures trade in recent years, albeit from a low base.

Australia's services exports are also growing very rapidly, leading to an increase in Australia's share of world services trade.

A similar trend is evident at the global level - world trade in manufactures and services has grown more strongly than trade in primary products. This has been due more to the process of globalisation of production, rather than to more rapid growth in final consumption of manufactured goods.

This globalisation process provides greater opportunities for specialisation in production in niche manufacturing industries, particularly those which use a highly skilled workforce.

These industries are likely to be highly integrated with operations elsewhere in the Asian region. One successful example of this kind of operation is Australia's motor vehicle internal combustion engine industry. Exports to East Asia of engines have increased on average by 50 per cent a year over the past decade.

Increasing demand for services exports, and technological developments which allow services to be delivered internationally are also providing greater opportunities for Australian businesses to become involved in the globalisation process.

However, primary products are and will remain of great importance to Australia's export profile. Given Australia's abundant natural resources, it is hard to see how this could not be so. The inclusion of agricultural trade liberalisation on the agenda of multilateral and bilateral trade negotiations could reinforce this.

The current pattern of global trade barriers has had a significant impact on the composition of world trade, and on world prices. While global barriers to trade on many manufactured goods have been reduced over past decades, barriers to trade in agricultural products and services remain high.

Following the Uruguay Round, international disciplines have been applied to trade in agriculture for the first time. This holds out the hope of continued substantial liberalisation in these traditionally highly protected sectors, and hence faster growth in world trade.

For Australia, which has a particularly strong advantage in exporting these products, this will make a positive contribution to our future export performance. But it is unlikely that it would be sufficient to fully reverse the move towards manufactures and services.

Analysis by my Department using detailed market share data highlights differences between the performance of the various sectors. For instance, average market shares of industries in the minerals and agricultural sectors have increased little compared with energy and manufactures.

We have to be cautious in interpreting this data. For example, in agriculture, specific factors such as drought and EU export subsidies have adversely affected our market share performance. As well some industries are more efficient than others and hence are starting from a higher base.

Nevertheless, it does confirm that microeconomic reform has not been as far reaching or sustained as it could be. Indeed, microeconomic reform measures appear to have been patchy in lifting efficiency across the economy.

The Government came into office aware of the need to achieve increased efficiency and higher productivity throughout the Australian economy. We recognise the importance of bringing Australia's industrial relations system, its business regulations, and its telecommunications, transport and financial infrastructure into line with world best practice.

The increasingly integrated and competitive world economy not only challenges businesses to perform their best - it also throws out the challenge to governments to ensure their policies respond to the challenges of this world economy.

Conclusion

In conclusion, I am optimistic about our export future. The opportunities are there in the world economy - in manufactures, in services, and in primary products.

But taking advantage of those opportunities means we must work much harder than we have in recent years to provide an environment that is conducive to attracting investment and expanding exports, through our domestic macroeconomic policy and microeconomic reform agenda, and through efforts to further liberalise world trade.

This is the task that this Government has committed itself to.

Thank you.