The Trade Imperative: Challenges and Future Directions

Speech by the Australian Deputy Prime Minister and Minister for Trade, The Hon Tim Fischer to the Australia Summit

Melbourne, 16 June 1998.

Tung Chee Hwa, Chief Executive, Hong Kong Special Administrative Region; Dr Supachai, Deputy Prime Minister and Minister for Commerce, Thailand; Lee Yock Suan , Minister for Trade and Industry, Singapore; distinguished guests.

I take great pleasure in addressing this impressive gathering. In addition to the people I have just mentioned, we have here today many senior executives of major Australian and international companies.

Today, I would like to set out for you our assessment of the regional economic picture and look in more detail at its impact on Australia's exports. I want to tell you about how the Government is assisting Australian exporters. And I would like to consider the way forward, both for Australia and the region.

Prospects for the Asian Region

There is no doubt that East Asia's economic difficulties have focused the spotlight on serious underlying problems in the financial sectors of some regional economies. The development of these sectors failed to deal adequately with the spectacular inflow of capital and resources which fuelled the East Asian `miracle'.

The key to the region's recovery - short and long term - therefore lies in strengthening financial and other institutions, pushing ahead on domestic economic reform and continuing trade liberalisation. This will lead to stronger economies, as well as freer and more open markets, sparking renewed investment in the region.

This was the clear lesson from the experience of Latin America in the late 1980s and early 1990s and more recently of Mexico in 1994-95.

That is why conscientious implementation of the IMF packages in Korea, Thailand and Indonesia is so important. If this can be achieved it will help boost international market confidence in the region's prospects.

We have already seen positive international market reaction to the implementation of the IMF programs in Korea and Thailand. Indeed, the currencies of these economies have appreciated by around 25 per cent this year.

The new Indonesian administration now has the opportunity to implement the IMF's reform package. And the markets should give Indonesia a chance to do so.

We must all keep in mind that the economic strengths which made East Asia so attractive to global investors over the last two decades have not vanished. High savings rates, an increasingly skilled and educated workforce, and a dynamic business environment are still integral parts of the regional economic framework. The Government is confident that these strengths will contribute to stable growth once the current storms are behind us.

For that to happen, however, regional economies must avoid a potentially very serious trap.

Many in the region, including in Australia, have been hit hard by the very powerful economic forces unleashed by globalisation and globally footloose capital. Many will be tempted to blame globalisation for what has happened over the last twelve months.

But they would be wrong.

Globalisation and internationally mobile capital have contributed significantly to the success of Asia-Pacific economies over the last decade and a half as protectionist barriers around regional economies were gradually lowered. A resurgence in protectionist sentiment would be counterproductive.

But we should all be encouraged by the fact that even the most affected economies continue to reiterate their commitment to reform and economic liberalisation in a range of relevant forums.

The APEC meeting in Vancouver late last year was a `vote of confidence' in liberalisation at a most difficult time.

The April OECD Ministerial Council Meeting reaffirmed the commitment of all OECD countries to maintaining and further opening access to their markets.

And also heartening were President Clinton's statements at the WTO Ministerial Meeting last month where he strongly endorsed the benefits of liberalisation and called for swift action in lowering trade barriers. If the US current account deficit were to blow out, there would be a risk of protectionist forces gaining new adherents in the United States. President Clinton's commitment to open markets is therefore very welcome.

It is the Government's firm belief that East Asia can return to strong sustainable growth rates, provided regional economies can stay the course on reform and avoid erecting protectionist barriers.

Impact on Australia's Exports

The severe deterioration in trading conditions in East Asia is posing significant challenges for Australian exporters as 56 per cent of our exports currently go to East Asia.

But I am very happy to say that our exporters have demonstrated both their resilience and their ingenuity in the face of these very considerable challenges. They have succeeded in significantly increasing exports to other markets and in making the most of the opportunities remaining in East Asia.

The lower Australian dollar has already begun to assist our exporters of both goods and services to compete against North American and European suppliers. Moreover, the potential increase in demand for intermediate inputs for East Asian export production - about two thirds of our exports to the region - is cushioning the impact for some exporters.

As a result, our exports have been running at record levels. Total exports for the ten months to April grew 11.8 per cent compared to the same period in the previous financial year.

While growth in our exports to East Asia is certainly slowing, exports to markets outside the region are booming. In the 10-month period I have just referred to, exports to non-East Asian markets soared 18 per cent. And the best news of all is that so far in 1998, that growth rate has actually accelerated to over 20 per cent. In fact, looking at two of our major markets: sales to the US are up 55 per cent and to the European Union 35 per cent.

Even in East Asia, the impact of the crisis varies significantly both from market to market and from sector to sector.

Although exports to the hardest-hit economies of Indonesia, Korea and Thailand have fallen - particularly in recent months - we are still seeing good export growth to such markets as Japan, Hong Kong, Taiwan and Vietnam.

In fact, in Vietnam, exports in the first four months of 1998 grew at the phenomenal rate of 73 per cent over the same period last year. Exports to Japan expanded a steady 10 per cent over the same period, and - it being our major market by far - this went a long way towards offsetting declines in other Asian markets.

While export sectors such as tourism from Asia, live cattle and unprocessed food have suffered significant declines, others, such as minerals, have done well. Importantly, manufactured items and processed foods are fuelling export growth to markets outside East Asia. Also, a number of companies are exploring investment opportunities in the region which should yield trade benefits in the longer term.

We should, however, never lose sight of the significance of East Asian markets to Australia. Regardless of short-term growth prospects, East Asia imports around USD 1.3 trillion worth of merchandise each year. Even under the worst-case scenarios, more than half of our overseas sales will still go to Asia.

I mentioned earlier that a lower dollar is helping our exporters in Asia and elsewhere, but Australian business has nonetheless had to put in some hard yards in recent times.

In fact, I'd like to mention a few specific success stories.

Seanet Pty Ltd, a small to medium company based in Perth, became a successful exporter selling abattoirs and associated technical expertise to South East Asian markets. It has recently made some substantial sales to India, and is also pursuing opportunities in China, Pakistan, Argentina and Uruguay. But it has not abandoned its South East Asian customers; rather, it is maintaining close links with them.

This Australian SME exemplifies the spirit which is seeing Australian exports holding up well in the face of a significant downturn in imports in our traditional markets.

Our car industry is also demonstrating its flexibility and innovation and is continuing to make very substantial sales outside the region. For example, General Motors Holden recently announced that they will shortly be sending the first of its left-hand drive Commodores to the Middle East and Latin America.

In the components sector, Bishop's Steering of Sydney has just entered into a significant joint venture with Daimler-Benz to manufacture steering racks designed in Australia. These will be fitted to every Mercedes-Benz vehicle manufactured in Europe.

What the Government is Doing to Help

While these are certainly heartening examples of firms, both large and small, which have been able to adapt to the challenging times, I know that it has not been easy. And there are many firms out there for which it is very difficult to switch customers or markets quickly. These firms face very great challenges indeed.

The Government is doing all it can to assist Australian firms to get through this difficult period. To minimise the negative impact on our exporters, the Government - in close consultation with the private sector - is refining our trade strategies in Asia and beyond.

We are ensuring the availability of appropriate levels of trade credit and insurance, through short-term National Interest insurance cover for exports to Korea and Indonesia.

We are also consulting widely with business through meetings, seminars and conferences. We are providing up-to-date market intelligence through a variety of vehicles, including Austrade's Asia Crisis Centre and the internet sites of both the Department of Foreign Affairs and Trade and Austrade. And all of these are updated frequently. We shall be issuing a number of reports to the business community early in the next financial year, providing information on markets, planning and risk management, including case studies.

These activities, of course, build on our continuing efforts to achieve improved market access for Australian exporters and to promote Australian products around the world.

Although Australian companies continue to face market access barriers, overall they face fewer obstacles than ever before. Adopting an integrated strategy of coordinated bilateral, regional and multilateral action, and focusing on specific sectors in many cases, the Government has secured some impressive gains in access for Australian goods and services in markets around the world.

In particular, the Market Development Task Force - a whole-of-government strategic effort aimed at securing trade and investment outcomes in targeted markets - has been very successful in improving market access.

In its first year, the Task Force pursued 101 priority objectives, achieving positive outcomes or measurable progress in 86 cases - ranging from better access for Australian sugar, rice and citrus in Japan, to financial services licences in China and Thailand, and valuable progress on Double Taxation Agreements with Mexico, Russia and South Africa.

Targeted sectoral promotions contributed to $200 million in information technology sales to Europe, $20 million in food exports to Japan, $23 million in building materials sales to Hong Kong, and $250 million worth of passenger ferries to Italy, Argentina and Singapore.

The Government has also recently appointed dedicated sectoral trade facilitators in the Department of Foreign Affairs and Trade. These will coordinate market access and development efforts in the vital sectors of food, information technology, automotive products and textiles, clothing and footwear.

In addition to our increased effort with regard to targeted bilateral and sectoral approaches, we are also at the forefront of pushing for freer trade at the regional and global levels.

In the region, Australia's principal interest is to continue the momentum of trade and investment liberalisation and facilitation within the Asia-Pacific Economic Cooperation forum.

APEC's program for accelerated liberalisation of fifteen sectors is crucial to maintaining that momentum. These sectors, worth over USD 900 billion - or more than half - of intra-APEC trade include areas of substantial interest to Australia such as autos, food, energy, chemicals, fish, environmental products, gems and precious metals.

Last month, I attended the World Trade Organisation Ministerial Conference in Geneva. Trade Ministers agreed that preparations for new agricultural trade negotiations should start in September. It also put in place a process to lay the foundation for a WTO decision, hopefully in late 1999, to commence a new global trade negotiating round, which could start shortly thereafter.

The figures at stake are huge. Global merchandise trade in 1996 was valued at USD 5,100 billion and services trade at USD 1,260 billion - and, of course, these are constantly increasing. Global trade in agricultural products in 1996 amounted to almost USD 600 billion - that is a big market in an area where we are highly competitive. Better access will deliver massive benefits to the Australian economy.

Conclusion

I want to close by assuring you that the Australian Government remains committed to increasing our exports in order to improve the job opportunities and standard of living of all Australians. By enhancing Australia's competitiveness in an increasingly globalised economy and by improving market access for Australian goods and services exports, we can create more jobs for Australians through trade.

To ensure that trade continues to contribute significantly to our wealth generation, Australia will stay committed to both economic reform and continued trade liberalisation.

Australia's exports have grown dramatically as we have progressively opened up the economy and as our industries have become more and more efficient.

The Australian Government has turned around a huge deficit in two years, has put in place a low inflation and low interest rate regime and has begun a program of massive Government debt reduction. These reforms have built a platform which has allowed our economy to retain considerable stability during the storms which have swept Asia over the last year.

The trade imperative for the future is a simple one.

Australia and its economic partners are looking to trade to create jobs and achieve higher standards of living. We remain mutually dependent on our not flinching from the path of reform and liberalisation.

If we can commit to that path we will achieve further wealth for all.

Thank you.