Speech by the Deputy Prime Minister, Leader of the National Party, Minister for Trade, The Hon Tim Fischer MP

to the Launch of the East Asia Analytical Unit's Report:

The New ASEANs - Vietnam, Burma, Cambodia and Laos

Melbourne, 20 June 1997

(Check Against Delivery)

Introduction

Mr Brown, distinguished guests.

Today I take pleasure in launching another fine report from the Department of Foreign Affairs and Trade's East Asia Analytical Unit - The New ASEANs - Vietnam, Burma, Cambodia and Laos.

I am delighted with the very strong interest in this report as shown by the large attendance this morning.

Australia needs to trade and trade well in our region in order to create jobs for Australians at home. An important part of doing that is keeping abreast of trends and developments within the region.

The East Asia Analytical Unit's eighteen publications, which over the last six years have covered the length and breadth of East Asia, are therefore very valuable for business.

This morning I'd like to pass on to you some of this important report's conclusions.

First, I'd like to look at what an expanded ASEAN is likely to mean for ASEAN itself. Second, what will it mean for Australia's trading relationship. Third, I'll look very briefly at the prospects for Australian business in each of the new ASEANs.

What Does Expansion Mean for ASEAN?

This report is well timed. Burma, Cambodia and Laos become members of ASEAN next month. As Vietnam joined in 1995 ASEAN has now realised its long-held aspiration of bringing together all ten nations of South East Asia.

Politically and economically, this is an important development for the region and for Australia.

An expanded ASEAN links South East Asia's least developed but fast-growing economies with its most dynamic and wealthiest ones. This will spur economic growth and increase trade and investment within ASEAN and between ASEAN and the rest of the region, including Australia.

ASEAN will shortly be a market of almost 500 million people with a combined GDP 90% the size of China's. This expanded market will mean:

. First, there will be even more rapidly increasing trade and investment between old and new members of ASEAN.

- this will be partly because the new ASEANS bring very low cost labour into the group at a time when the original ASEANs' wage costs are rising sharply.

. Second, increased policy coordination and bureaucratic conformance, will increase ASEAN's competitiveness and its attraction as a business destination.

The report concludes that ASEAN's expansion should contribute to the economic growth of both new and old ASEAN members, enhance regional stability and provide trade and investment benefits for Australia.

Provided political stability can be sustained we believe that the next few years will see significantly increased economic integration not only within ASEAN but between ASEAN and the region.

Australia's Trading Relationship with ASEAN

The ASEAN "10" is already Australia's second largest export market after Japan. It is our 5th largest investment destination and 6th largest foreign investment source. As ASEAN economic integration advances, I am certain it will further increase trade and investment in both directions.

I am less certain about the effect of the ASEAN Free Trade Area, or AFTA, on Australia's exporters.

The New ASEANs report finds that exporters of products from Australia to ASEAN already are facing higher external AFTA tariffs, than the intra-ASEAN tariffs. It is not yet clear if this will be of serious concern.

It is possible that AFTA could become a discriminatory trading bloc. But many AFTA tariff reductions to date, particularly by the Philippines, Indonesia and Malaysia, have been on a non-discriminatory most favoured nation (MFN) basis.

This is a hopeful sign for Australian exporters and for regional free trade. Yet, MFN and AFTA rates are diverging. The disparity does not yet appear to be very wide, but I am monitoring the trend very closely.

Australian Involvement in Burma, Cambodia, Laos and Vietnam

To turn to opportunities for Australia in the new ASEANs, Burma, Cambodia, Laos and Vietnam are all in transition to market-oriented economies. All are recording strong economic growth equal to or above that of long-established ASEAN members.

Moreover, the new ASEAN economies should continue to grow strongly provided the Governments of Vietnam, Cambodia and Laos maintain the pace of reform and the Burmese Government accelerates reform.

Any Australian company doing business there will tell you, however, that these are complex and difficult commercial environments.

The report finds, however, that business conditions are gradually improving in these countries. Economic reform is proceeding. So is institution building and strengthening legal frameworks.

Integrating the new ASEAN economies with ASEAN's high performers will help. So will drawing on ASEAN's economic reform and management expertise.

The progress being made is evident as Australian companies are active as traders and investors in the region.

In the late 1980s, Australian companies led the initial surge of foreign investors into Vietnam's newly opened market. Reality has since balanced an early over-optimism but still over 100 companies are in Vietnam, with investment totalling around USD 700 million.

Successful Australian companies have developed flexible strategies to deal with Vietnam's complex business environment. One important strategy is to draw on the reservoir of cultural expertise and business savvy in Australia's Vietnamese community.

Pauline Hanson please take note, a number of Australian companies surveyed for the New ASEANs report said Vietnamese Australian staff and consultants were critical to the success of their businesses in Vietnam.

Although a small country, Laos has substantial untapped natural resources and, following bold market reforms, has lifted its economic performance to enjoy a healthy average annual growth in the 1990s of around 6.5 per cent.

Australia ranks fifth among foreign investors with USD 303 million invested. Over 20 companies are prominent and active in the capital.

Cambodia's Government is keen to encourage foreign investment but to date Australian activity there has been on a fairly small scale. Although GDP growth has averaged 6 per cent in the 1990s the report finds that Cambodia faces serious challenges to continued economic development and growth.

Current political instability and violence is setting at risk what the country has so far achieved in terms of reconstruction. Above all, at this time, Cambodia needs a stable political environment and good governance.

Burma, let me say with regret, cannot be regarded in the same way as other countries in South East Asia. ASEAN membership won't alter this.

Until there is substantial change in Burma, the Australian Government's ban on aid and defence exports to Burma, and its policy of neither encouraging nor discouraging commercial ties will remain.

Moreover, this report's objective economic analysis gives Australian companies scant encouragement to trade or invest in Burma. The very unhappy political situation casts a long shadow over Burma's economic and commercial landscape.

Conclusion

I would like to conclude by emphasising that Australia welcomes the increasing regional economic and political integration of the new ASEANs.

We may have some concerns about potentially destabilising developments in particular countries but we are hopeful that the region's steady progress towards greater wealth will not stall and ultimately, will be shared by all the new ASEANs.

I also want to congratulate the team that researched, wrote and produced this report and its consultant, Martin Smee and Associates, for the report's valuable business survey. I acknowledge the substantial and generous contribution of Australian officials here and overseas, academic experts and business practitioners to the report. I would like particularly to thank important contributors who are here with us this morning: Elizabeth Maitland from Melbourne University, Robert Stensholt from Monash University and Warren Taylor of the ANZ Bank and President of the Australia-Vietnam Business Council.

I commend the report to you..