Speech at the Australia-New Zealand Leadership Forum
Two Nations, One Market?
23 April 2007, Sydney
Introduction
Thank you very much James [James Strong, Forum Chair and Chairman Insurance Australia Group and Woolworths Limited]
Good afternoon, Ladies and Gentlemen. Let me say how pleased I am to speak at the fourth Australia New Zealand Leadership Forum.
I am certainly impressed that some of the sharpest minds from business, government and academia from both countries are here to share ideas about deepening our economic and trade relationship.
Today, I want to explain how trade shapes our prosperity. As you know, the Australian Government is pursuing free trade agreements as part of an all-round approach to trade policy, in which our highest priority is completing the WTO Doha Round. Put simply, we think high-quality FTAs can help to deepen economic integration and promote growth between Australia and our trading partners. We need to take a strategic approach to FTAs because many of our key trading partners are also engaged in FTA activity.
Yet our approach still attracts some critics. We got criticised about our FTA with the United States; I’m hearing some criticism about our FTA negotiations with China, and no doubt, we’ll soon hear criticism about our FTA negotiations with Japan.
Let me give you an example of some things critics said about one FTA in particular.
One headline called it an “Aussie free trade fiasco!” And early in the negotiations, one interest group was lobbying our trading partner to maintain the status quo and reject the FTA because they argued: “If you can have your cake and eat it too, why bother changing the recipe?”
The FTA I’m talking about is of course the Australia New Zealand Closer Economic Relations Agreement (ANZCERTA) of 1983.
Today, with trade between our two countries flourishing, it is easy to forget that ANZCERTA negotiations were long and difficult and you could find critics in many places. There’s a record of a conversation between then Prime Ministers Muldoon and Fraser - which is now declassified - that shows both men, who as you probably know were not famous for seeing eye to eye, had shared concerns about slow progress in the negotiations. Mr Muldoon did not want to give the impression that the talks were coming to grief. As he said, there were journalists on both sides of the Tasman who were only too willing to stir up trouble. Mr Fraser agreed they should not be seen meeting each other publicly until officials had made breakthroughs.
These tense behind-the-scenes dynamics sound very familiar to me. The negotiation of each FTA we undertake is complex work. There is always public pressure to succeed beyond what is reasonably possible. But the results of ANZCERTA prove that these efforts are worth it. With ANZCERTA, we set ourselves a free trade goal and we have achieved one of the world’s most comprehensive and successful free trade agreements.
We stuck to our resolve that freeing up trade would benefit both our countries and we were right.
Australia is New Zealand’s top export and import market. New Zealand is Australia’s sixth-ranked export market and has long been among our top 10 sources of imports. Manufactured goods feature prominently in our trade; a reflection of the maturity and capability of the manufacturing industry in both countries, and of the employment-generating role ANZCERTA has played.
Australia is the largest foreign investor in New Zealand and the second-largest destination for New Zealand investment. If you look at the value of total two-way trade in goods and services, it has grown from around two and a half billion dollars in 1982 to nearly $20 billion dollars in 2006. This translates into real income and rising prosperity for our economies and our people.
Yet some still question the value of ANZCERTA. I understand that the well-respected think-tank, the New Zealand Institute, has cast doubts on the value of CER and the Single Economic Market initiative.
Well, let me say that I’m all for debate, and the paper makes some thought-provoking points, but I believe it underestimates the value of our FTA. ANZCERTA is one of the most comprehensive FTAs ever negotiated and a framework on which we continue to build. The paper is also too pessimistic about the dynamic benefits that flow from trade and economic integration between our economies.
It is true that the main gains from CER came when we were a first-mover in Free Trade Agreements, with the abolition of across-the-board tariffs, followed by the removal of all restrictions on trade in almost all services in 1989. But over the past 24 years, the context of the ANZCERTA has altered considerably. ANZCERTA has been joined by other FTAs which each of us have negotiated, opening up new markets for our own exporters. Our trade with these emerging markets has grown quickly from a low base.
Indeed, ANZCERTA remains a living document. This year, we amended the Rules of Origin which establish which goods qualify for duty-free access. The new rules reflect modern manufacturing processes and reduce costs for businesses trading across the Tasman. We are negotiating an Investment Protocol which will further liberalise trans-Tasman investment.
At the same time, Australia and New Zealand have separate national economic and trade interests to pursue. We are, and always will be, two independent nations. Where we can cooperate we should; but there will always be times where we compete in international markets.
Both healthy competition and cooperation strengthen our economic relations and international competitiveness. We can add to what we have done so far under CER and what we are now doing under the Single Economic Market agenda.
Two nations, one market?
ANZCERTA and the wider Closer Economic Relations agenda, sets out many aspirations for our economic, commercial and strategic relationship; all of which aim to unify our markets and strengthen our regional profile in international trade and business.
So where do Australia and New Zealand fit in the eyes of world business? I would say that many corporations see us as two nations but one market. Any company doing business in Australia would be unwise if it did not have a New Zealand strategy, and vice versa.
As one market, we had a combined GDP of US$860 billion in 2006, which puts us among the leading economies in the dynamic APEC region. As one market, in per capita income terms, we are ranked among the world’s top 20 richest economies.
In government, we are doing our part to facilitate one market. Thanks to CER, we have had one market in goods, services and labour for many years. That means any good that can be legally sold in Australia can also be sold in New Zealand, and vice versa. ANZ services providers can deliver services across the Tasman or set up a commercial presence in either country to provide services.
We have one market for labour, with Australians and New Zealanders freely travelling, living and working in each country: there are around half a million Kiwis living and working in Australia and around 60,000 Aussies in New Zealand. The exchange of people across the Tasman is strong and it enriches both our economies. Anyone registered to practice an occupation in Australia can perform the same work in New Zealand, and vice versa.
In Australia, we have people like David Kirk, the former All Black captain and now Chief Executive of Fairfax. And there’s this fellow, Russell Crowe, who has made a name recently as the new owner of the South Sydney Rabbitohs.
In New Zealand, there are well-known Australians – like Jane Diplock, the Chairman of the NZ Securities Commission and, of course, the first Labour Prime Minister of New Zealand, Michael Savage, was an Australian.
To use another example, we both love pavlova as our own, no matter who thought up its recipe first!
Moving towards one market has certainly helped to make Australia’s economy more efficient. ANZCERTA has encouraged our dairy industry to meet competition from New Zealand producers and undertake reform. Dairy industry deregulation and reform has been a long-term and, at times, difficult process. Today, Australia is the world’s third-largest dairy exporter, and dairy exports added $2.4 billion to Australia’s income in 2006. New Zealand has the Fonterra Co-operative, the world’s largest exporter of dairy products.
The process of economic and trade reform brought about by ANZCERTA is by no means finished. Under the Single Economic Market agenda, we are working to bring down barriers to business behind the border. Cutting the costs of doing business is the natural next step in our economic integration.
My point is that every Australian and New Zealander has benefited from the prosperity driven by our efforts to reform trade. It is a powerful reminder of the importance of pursuing further reform of world trade.
Opportunities and threats
Governments in Australia and New Zealand share the view that global trade liberalisation is crucial. I am pleased that we continue to work together regionally and globally in the WTO.
As I mentioned earlier, negotiating FTAs is part of our all-round approach. One of them is the ASEAN-Australia-New Zealand FTA where, for the first time, Australia is participating jointly with New Zealand in negotiating an FTA with other trading partners.
I am pleased with the way Australia and New Zealand have worked together to advance our shared objectives, recognising that a comprehensive FTA can promote ASEAN economic integration and economic links between our regions. I am also glad to say that negotiations have intensified. Officials held talks in Wellington last month that really pushed things forward, especially on market access issues for goods and services. Of course, a lot of detailed work still needs to be done, and I expect to meet my ASEAN and New Zealand counterparts in August to take stock.
We are pursuing trade reform because we know it works. We also know what’s at stake if trade reform stalls and we slide into protectionism.
On the multilateral front, our two Governments share the view that an ambitious outcome to the current Doha Round of World Trade Organization talks is the top trade policy priority. Australia and New Zealand, as free trading nations, are working closely together to push for a good outcome for the Doha Round.
I have just returned from Lahore in Pakistan where I chaired a meeting of the Cairns Group of countries that support reform to international agricultural trade. We resolved that action is now needed to avoid putting the Doha Round at risk of drifting indefinitely, or even failing.
It’s crunch time. There is still a lot of work to do but nevertheless, a successful conclusion is within our reach – particularly if substantial progress is made in the weeks ahead. The Cairns Group Membership needs to find the breakthroughs that will allow the conclusion of the negotiations by the end of this year.
The failure to conclude the Doha Round would represent a major blow for development, for agricultural trade reform and for the multilateral trade system in general.
But there are worrying signs of growing protectionist sentiment globally; and real opportunities for positive agricultural reform are in danger of being missed. Take the 2007 US Farm Bill, which the US Congress will negotiate this year. There is strong support in some quarters in the United States to continue with high levels of farm subsidies despite high commodity prices and the potential for gains through multilateral agricultural reform. This will make achieving major reform very difficult, especially without progress in the Doha Round.
The European Union’s Common Agricultural Policy is another example. We have welcomed reform of the CAP that has taken place over the past few years, but remain disappointed that this reform does not adequately expose EU agriculture to international market forces.
Protectionism can also take other forms. Take the emerging campaign by some environmental and less competitive farming groups against food transported over long distances. This so-called 'food miles' campaign urges consumers to boycott certain imported foods. They argue that the environmental cost of transportation is too high and that sourcing food locally will reduce the climate impact. I know my New Zealand counterpart Phil Goff and Prime Minister Clark have been very active in debunking this issue.
It is very clear to me that the 'food miles' approach is very simplistic and fails to acknowledge the other environmental impacts and costs associated with food production and consumption. These vary from country-to-country. For example, it is more energy efficient to raise livestock that can be fed outdoors year round, as we do in Australia and New Zealand, than keeping them in heated cowsheds in the winter, as they do in Europe.
To its credit, the UK Government has acknowledged the flaws in the 'food miles' concept and highlighted in a recent study just how misleading this approach is. It found that the environmental impact of driving your car to the supermarket can be greater than that of transporting food from source to market.
Conclusion
Ladies and Gentlemen, I’d like to finish by reflecting on how ordinary Australians and New Zealanders think about relations between our two countries.
There’s perhaps still a tendency for people to reach a bit quickly for a good-natured insult. Whether it’s arguing about Russell Crowe’s origins or the Bledisloe Cup, Kiwis and Aussies love having a go. I think this reflects the comfort that we have with each other as two nations that share common ideas on many fronts. Yet, even with close relations going back more than a century, it still took more than five years to turn an idea about closer economic relations into an agreement. Comfort can easily become laziness, which is why we need to keep working together to face new challenges.
Today, we have freedom of movement of goods, services, capital, people and ideas across the Tasman. I’m confident that as each year passes our two nations will move closer towards one Trans-Tasman market which will benefit both countries even further in an increasingly competitive international trading environment.
I wish you well.
Ends