The Regional Outlook and Australia's Trade Policy

Speech by the Australian Deputy Prime Minister and Minister for Trade, The Hon Tim Fischer to the Committee for Economic Development of Australia (CEDA), Adelaide, 29 January 1998.


Introduction

CEDA Members, Distinguished Guests, Ladies and Gentlemen.

I am very pleased to be in Adelaide, and to have the opportunity to address such a high-calibre group.

Over many years, CEDA has made a significant contribution to public debate on important policy issues in Australia.

It won't surprise you to learn that 1998 is shaping up as a challenging year for everyone in Government and business - no less so on Australia's trade policy front.

As Minister for Trade, my task is to make sure that we maximise Australia's exports. More exports means more growth which means more jobs. That is the most important economic equation, as far as I am concerned.

We do this, first, by creating an economic environment in which exporters can perform at their best; second, by achieving greater market access for Australian products abroad; and third, by helping promote Australian products overseas wherever we can.

I am pleased to say that this comprehensive approach yielded real dividends, shown by Australia's greatly improved export performance last year.

And South Australian industries played an important part in that export achievement.

The Coalition Government is maintaining a pragmatic, results-oriented approach to trade policy in 1998.

But before I talk more about trade policy, I want to speak briefly about the subject which has grabbed headlines in recent weeks - the Asian financial and economic crisis, and what it means for Australian business.

The Regional Outlook

I want to tell you very clearly that the Australian Government is committed to Asia for the long term.

I would urge exporters to take a strategic view of their business in Asia. Whilst carefully managing risk, also be aware that there are opportunities, and don't let Australia's competitors steal a march on us.

The impact of recent events is significant, but it needs to be kept in perspective.

East Asia's difficulties in the latter half of 1997 focused new attention on weaknesses in financial sectors that have held back regional economies.

Continued financial instability in the first weeks of 1998 reflected a lack of market confidence about the commitment of governments to carry forward the necessary economic reforms.

This lack of market confidence has been most evident in Korea and Indonesia, but markets are also concerned about the prospects for Malaysia and Thailand.

Clearly, significant adjustment stresses in the region are going to continue over the short to medium term.

An interim IMF assessment of the world economy, released in December 1997, forecast world output expanding by 3.5 per cent in 1998, down from an estimated 4.1 per cent in 1997.

In particular, the financial market instability in East Asia will reduce the short to medium term growth prospects of our major regional partners, especially Japan, South Korea, and the ASEAN economies.

Growth, based on a range of recent private and official forecasts, is now expected to be negative in Thailand, low to negative in Korea and Indonesia, and low (less than 4 per cent) for Malaysia and the Philippines.

I should say, these forecasts are highly speculative and subject to significant revisions as developments continue to unfold in the region.

But what is clear is that the outlook for a return to robust growth in particular countries depends on the speed with which governments implement economic reforms.

This means that `staying the course' on economic reform, deregulation and liberalisation is important if the region's economies are to emerge stronger.

The APEC meeting in Vancouver last year showed the way forward on liberalisation, and was a timely `vote of confidence' in the region.

Australia's involvement in the IMF packages for Thailand, Indonesia and Korea underlines our commitment to and confidence in the region's underlying strengths.

Above all, it shows that Australia is not merely a fair weather friend.

And we will continue to lend a helping hand to Indonesia and our other friends in the region over the long-haul.

Foreign Minister Alexander Downer has just completed a visit to Jakarta.

He was able to extend the Australian Government's support for the Indonesian Government as it implements the measures in the IMF package announced on 15 January. Implementation of these measures is an important step in restoring investor confidence and economic recovery in Indonesia.

Mr Downer also announced in Jakarta a new package of Australian assistance to help Indonesia address the impact of the financial crisis, particularly its serious impact on the country's poor.

Australia is able to offer assistance to its neighbours because we are better placed than others to weather regional financial instability.

The Australian Government has ensured that the right economic fundamentals are in place for sustained, low inflation, job-creating growth.

We are improving the competitiveness of the Australian economy through reforms to our financial sector, industrial relations, business regulation, telecommunications, and the transport and energy sectors.

Further microeconomic reform will not be easy. We all know that the reform process, while delivering net gains, also involves winners and losers. Careful thought therefore needs to be given to how we can maximise the gains while minimising the adjustment costs. The Government's June 1997 decision on assistance to the automotive industry reflected this important balance.

The outlook for economic growth in Australia in 1997-98 remains as forecast in the 97-98 budget - 3.75 percent. And growth for 1998-99 is forecast at 3.25 percent

The reduction in the 98-99 forecast is due largely to the Asian slowdown, but our domestic economy is growing strongly.

We can expect some adverse impact on Australian exports due to slower growth in the region.

We are already seeing some softening of export demand in sectors such as construction, tourism, education, live animals and horticulture. Several Australian companies are feeling the effects of cancelled or deferred business deals in South East Asia.

But the full impact on Australian exports is not expected until the latter half of 1998 due to the nature of trade and financial contracts, and as stocks are allowed to run down.

The Trade Policy Outlook for 1998

All of this means that Australia's trade policy in 1998 will need to meet the challenge of a more difficult regional trading environment.

Apart from Australia's involvement in the IMF packages, the Government has responded in an appropriate way through consideration of additional export assistance and dialogue with relevant decision-makers.

We have already taken the decision to add to the Export Finance and Insurance Corporation's capacity through the provision of short term National Interest insurance cover to maintain trade with the Republic of Korea.

Next month, I will be releasing to Parliament the annual Trade Outcomes and Objectives Statement for 1998.

The Statement will highlight priorities across a number of markets, reaffirming the renewed emphasis we have given to bilateral market access issues, in addition to ongoing efforts in regional and multilateral forums.

Our trade policy strategy will remain pragmatic and flexible, allowing us to pick up opportunities for Australian business wherever they arise across the globe.

Bilaterally, the Government will take action to secure easier and more cost-effective market access for Australian companies.

We will build on the considerable successes achieved over the past year in 25 key export markets through the Market Development Task Force. The Task Force is aimed at coordinating government activity to target realistic priority markets for access, trade promotion and trade development.

In close association with business, we will also continue to develop other innovative approaches to helping specific sectors realise their export potential.

The automotive sector is of particular interest to South Australia where the Government has sought to help maximise the industry's export success.

The Government's arrangements for the automotive industry combine to provide a comprehensive policy environment for the development of the industry - encompassing both vehicle and components manufacturers.

These measures include a new market access strategy and an extensive program for export development. The Export Facilitation Scheme, which expires in 2000, will be replaced by a WTO-consistent program. The Government will freeze tariffs in the industry for five years from 2000 to ease the transition to lower tariff levels and allow industry time to adjust.

At the regional level, The Government will be working hard to maintain APEC's momentum for trade and investment liberalisation, particularly through early liberalisation in priority sectors.

I'm pleased to say that agreement was reached at the Vancouver APEC meeting in November last year on a program of voluntary liberalisation in 15 sectors.

For nine of these sectors, intensive work will be undertaken in the first half of 1998, with a view to beginning implementation in 1999. In particular, Australia sponsored two of these proposals for freeing up trade in energy and chemicals.

For the other six of the fifteen sectors - which were not so close to finalisation - further work will be carried out for review by APEC Ministers in Kuching in mid-1998.

These include a proposal on food put forward by Australia, and one on automotive products advanced by the United States with our support. Getting agreement on food - one of the most sensitive sectors in regional trade - was a considerable achievement for us.

At the global level, the Government will be pursuing vigorously Australia's trading interests in the World Trade Organization. A key Australian priority is to secure a new round of multilateral trade negotiations - this would offer considerable scope for further gains in key sectors of interest to Australia.

We will also be looking to consolidate the gains made through the conclusion of the Information Technology Agreement and the WTO telecommunications agreement last year.

Conclusion

I want to conclude today with the thought that Australian trade policy extends from implementing the right policies at home - which enables our industries to be globally competitive - to opening market doors overseas, drawing on close consultations with the business community and making use of the best negotiating strategies available.

That is exactly what the Liberal/National Government has done since coming to office almost two years ago.

Our domestic and international policy settings have ensured that Australia is well positioned to weather regional economic instability.

But we are not resting on our laurels.

We have the trade policy strategies in place to help our exporters maximise returns from the challenging trading environment in 1998.

I look forward to a continuing dialogue with organisations such as CEDA which do so much to promote open discussion and research on the political and economic issues that matter to Australians.

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