Address by the Deputy Prime Minister Leader of the National Party Minister for Trade The Hon Tim Fischer MP to the The Economist Group's Foreign Investor Roundtable

Improving Market Access in a Shifting Regional and Global Trade Framework

Canberra, 31 March 1999

(Check Against Delivery)

Introduction

Ladies and Gentlemen

It is a great pleasure to be here today and I would like to thank The Economist Group for organising this roundtable conference.

I feel sure that I am not alone in declaring myself a big fan of The Economist and its network of activities and publications. For example, I would like a dollar for every time I have headed off to a meeting with the latest issue of the celebrated weekly tucked discreetly into my departmental briefing papers.

I would also like to acknowledge GE, the host of today's luncheon, and to welcome from Hong Kong Goran Malm, President of General Electric Asia-Pacific.

The Global Trading Environment: Challenging Times

The topic I will be speaking on today is a particularly timely one. We now face a more difficult, more challenging and more uncertain global trading environment. As a result, there is a real need for us, in government and business, to think seriously about how we will navigate the shoals that lie ahead.

If we look at the big three economies in the world - together accounting for two-thirds of global output - we can see that the outlook for the global economy is at best a mixed one. On the one hand, the strength of the US economy, combining very strong domestic demand, continued employment growth and low inflation, continues to shore up global economic activity. But to pick up on the metaphor coined recently by US Treasury official Larry Summers, the risks of the world economy flying on one engine are very great indeed. There is concern that growth in Europe is likely to moderate this year. And a turn-around by the Japanese economy is unlikely anytime soon with economic activity falling, prices declining, and unemployment rising.

A subdued regional outlook

Within our own region - where many of our major trading interests lie - things are still subdued. Despite encouraging signs that some of the worst afflicted East Asian economies have stabilised, the prospects for an early general recovery remain low.

There is still substantial overcapacity in many of the region's core economic sectors including manufacturing and property. Financial sector restructuring will not occur overnight, nor will it come cheap. And there continues to be a general weakness in the corporate sectors of many regional economies.

Of the three economies with IMF programs, Korea seems to be making best progress. Key indicators for industrial production since November last year suggest that economic activity may be picking up - albeit modestly. Thailand also appears to be near bottom, but a revival is not yet evident with minimal growth likely in 1999. In Indonesia, while the economy is not deteriorating as quickly as it was, it will be very difficult for Jakarta to avoid a further contraction this year.

Elsewhere in the region, the Chinese economy has also of late become a particular cause for concern. Rising unemployment, a growing proportion of non-performing loans and collapse of a number of the International Trust and Investment Corporations signals an economy under increasing stress.

Trading on Our Strengths

If I paint a slightly gloomy picture its because Australia as a trading nation must take its trading environment with a good dose of realism. Trade is simply too important not to have frank assessments of the difficulties we may face. It is only through such an approach that we can develop clear, well-focused strategies for overcoming the obstacles which may lie ahead.

Although our exports did do very well in 1997/98 - a record $114 billion, up 8.4 per cent on the previous year - we are now starting to feel the effects of the regional economic crisis. In the 8 months to February, compared with the same period in the previous financial year, exports overall have grown only marginally.

Let me just say that this is still a commendable performance by Australian exporters. The fact that our exports are still growing at all is a testimony to our exporters' ability to quickly diversify into new markets outside Asia. Indeed, in 1998 merchandise exports to markets outside East Asia grew by 20 per cent.

Assisting exporters in their efforts to diversify is a robust domestic economy - a vindication of the Coalition Government's economic strategy of fiscal discipline, financial transparency and flexible markets. With economic growth of 4.7 per cent in 1998, low inflation, and interest rates at their lowest level in 30 years, the Australian economy is up with the best in the world. But we are not complacent and I want to reinforce the message delivered by Bob Mansfield and others to this round-table - the Australian Government welcomes investment from companies such as yours that expands our connections to the global economy.

There is no getting around the fact that Australian exporters will face a tough year in 1999. This means we will have to continue to pursue vigorously market opportunities, and market access, on all fronts - bilaterally, regionally and multilaterally.

The case for a Millennium Round

Looking at the broadest level first, Australia has a big stake in securing agreement for a new Millennium Round of world trade negotiations at the World Trade Organisation Ministerial Meeting to be held in Seattle, USA at the end of the year.

We see a new round as important for a number of reasons. First, by bringing export interests to the fore, it can help to check protectionist backsliding of the sort we are witnessing among many of our trading partners. The global trading system is at a juncture not unlike that of the early 1980s. Then, faced with a weak global economy, countries walked away from new trade talks at the 1982 GATT Ministerial Meeting. Subsequently, we saw a retreat towards protection in the US and Europe, and the start of a damaging cycle of agricultural subsidies which we are still trying to unwind. We must not walk away from Seattle and repeat the mistakes of the past.

Second, a new round offers a circuit breaker from trade energies being diverted even further towards legalistic bilateral disputes at the expense of negotiating new market access. The sort of brinkmanship we are seeing between the United States and the EU in disputes over bananas and beef hormones can only erode the goodwill needed to promote new win-win, market expanding outcomes.

Third, a new round can give developing economies confidence over coming years that they can embrace outwardly-oriented growth policies and trade reform. In this context, I would like to reaffirm today that Australia's preference is that China join the WTO on commercially viable terms sooner rather than later. Not at any price, but based on a recognition that all sides will have missed a critical opportunity if China remains outside of any Millennium Round - an opportunity that may not come around again for some time. I am pleased to report that Australia and China have moved our bilateral discussions forward following meetings between officials in Geneva recently. Some significant gaps remain, but I am confident that given appropriate flexibility we can move towards a deal that secures Australia's trade interests.

More broadly, Australia is looking to play a leading role in debate over the ambition and the detail of new WTO negotiations. At my request, the Department of Foreign Affairs and Trade is preparing a major new study to analyse the economic benefits of a new round. The study will be released in May and will examine the potential benefits of a new round, not only for Australia, but for the international community as a whole. The Government has also called for public submissions to give all Australians the opportunity to have a say in refining our negotiating agenda. This recognises that while we have a big task internationally, we also need to establish clear priorities domestically.

The Regional Trade Dimension

The emphasis we are placing on a new round of negotiations does not however mean that we are ignoring other opportunities for gaining market access.

Against the backdrop of the region's worst economic crisis in 50 years, APEC has reaffirmed support for free trade in the Asia Pacific, most recently in Kuala Lumpur last November.

Could APEC have done more on trade liberalisation? Of course it could. APEC economies now have the opportunity to demonstrate that what some found too hard in an APEC context can add to momentum in the multilateral arena. With like-minded countries such as New Zealand, the chair of APEC in 1999, Australia is looking to position the APEC meetings this year to build momentum for a new round.

We are also giving particular attention to trade and business facilitation, an under-appreciated part of the APEC work agenda. APEC has already reduced customs paperwork; harmonised standards; increased mutual recognition of professional qualifications; and expanded the use of multiple entry visas and membership of the APEC Business Travel Card Scheme.

But more can be done. My department is surveying Australian business needs to identify where APEC can do more to improve market access and cut costs for business. The results will be used to guide APEC's trade facilitation agenda and develop new initiatives.

Bilaterals: Delivering Concrete Results

Finally, bilateral efforts will continue to be a key mechanism for delivering concrete market access outcomes and for diversifying our exports. Indeed we have recently worked to strengthen our bilateral trade network by creating new trade-related positions in our diplomatic and trade posts in Buenos Aires, Pretoria and Brussels, and opening new posts in Lima, Bucharest and Abu Dhabi.

The Department of Foreign Affairs and Trade's Market Development Task Force continues to register major market access successes. Since its inception in 1996, it has achieved positive outcomes and progress on 125 separate objectives - every one with real benefits for exporters. Recent wins have included:

approval for export of Fuji apples to Japan;

zero tariffs for wheat and milk exports to Malaysia; and

abolition of beef quotas (replaced by a tariff-only regime) in the Philippines.

Conclusion

Trade is too important, and the benefits of trade too great, for us to abandon attempts to level the playing field - as hard as this objective has become in recent years.

As economic conditions deteriorate, as trade deficits grow, there is naturally enough greater sentiment in favour of throwing up barriers. But this urge must be resisted at all costs.

In Australia we have done so. Last year's election victory was a victory for an outward looking Australia, for retaining an economy that is reform minded and open. From the time we came to office over three years ago we have strived above all to get the big things right. The Government's commitment to openness - in relation to both trade and investment - remains firm and a key plank of our policy framework.