17 January 2008, Gurgaon, India

The Benefits of Freer Global Trade

Address by the Minister for Trade to the Confederation of Indian Industry Partnership Summit

Salutation

Thank you …

Mr Kamal Nath, Minister of Commerce and Industry
Ms Mari Elka Pangestu, Minister of Trade
Mr Yoshitaka Shindo, Senior Vice Minister of Economy, Trade and Industry
Mr Sunil Kant Munjal, Chairman Hero Corporate

Distinguished guests, ladies and gentlemen …

Introduction

I was delighted to receive the invitation from Minister Kamal Nath to speak to you here today at the Confederation of Indian Industry summit in Gurgaon.

India’s rapid pace of economic growth and development reflects its greater economic openness and integration with the global community. India is becoming an economic and strategic power house.Its continued economic growth and development will help shape the world and our region in the 21^st Century.So for some time now, the Labor Party has been saying that Australia needed to do more to engage India across a range of levels to strengthen the country-to-country relationship.

It is only six weeks ago that I was appointed as Trade Minister in the new Australian Government.During the election campaign, I spoke to the Australia-India Business Council on the occasion of India’s 60^th anniversary of independence.In that speech, I highlighted the priority a new Labor Government would place on raising the Australia-India relationship to a new and more strategically focused level. My visit here so early in the first term of the new Australian Government now gives me the opportunity to start that process.

I have been asked to speak today about the benefits of freer global trade.I will do so in the context of the twin pillars for sustainable economic growth. That is, the benefits of trade liberalisation will only be fully achieved if they are complemented by domestic economic reform.

Trade liberalisation at the border supported by liberalisation behind the border will maximise economic and social dividends. As the IMF reported recently, merchandise trade continues to be a driving force of the world economy. Both in volume and in dollar value terms, world merchandise trade has grown twice as fast as world output over the past four years.

While growth in world trade lost some of its strength last year it continues to grow more strongly than product growth. It is the world market that offers greater opportunities and to capture these opportunities economies must continue the process of economic reform.

Australia and India

In terms of the Australia-India relationship those benefits are apparent in the growing level of trade between our two countries in recent years.

Total trade between Australia and India has been growing by more than 30 per cent on a yearly basis. India is now Australia’s 9^th largest trading partner and Australia is India’s 10^th largest trading partner. India is Australia’s fastest growing major export market – making it our fourth largest export market.

A lot of growth has come from exports of commodities like coal, gold and copper ores and, via Antwerp, diamonds. Those products are valuable inputs that are assisting India’s strong domestic economic growth. They can also be inputs for Indian export industries creating benefits for both our trading sectors.

Australia imports a very wide range of goods from India. These imports are growing steadily, and they have the potential to grow further in Australia’s open market.

Everyone is familiar with the remarkable growth of India’s services sector. The development of this dynamic sector reflects the benefits arising from the intersection of international trade, globalisation, and the rapid developments of new technologies. It also reflects the strategic decisions India has made to develop its skills base so that it can take advantage of globalisation.

Indian IT companies are global leaders in their fields.

Australia and India’s trade in services is a thriving two-way street.

What the multilateral trade system has delivered

The rapidly growing level of trade between our two countries reflects two major factors:

• The opportunities a more liberalised international trading system developed under the GATT and WTO framework has provided to our respective countries; and
• Domestic economic reforms undertaken in recent times in both of our countries– Australia’s reform program beginning in 1983 and India’s reform program beginning in 1991.

It has been those two factors that have enabled our commercial sectors to maximise the gains from international trade.

Looking back 60 years, there was no certainty that the world would learn from the mistakes of the 1930s when high tariffs and competing trade blocs deepened the depression. The beggar-thy-neighbour approach of those times significantly constrained global economic development – causing great damage and hardship.

There was no certainty that the world would choose the free-trading system we now have. The world was undergoing a period of unprecedented political and economic change. Europe was still in ruins after World War II. There was civil war in China. India had only just gained its independence. The world was on the verge of the Cold War.

It was in this environment that the world’s major trading nations, including Australia, began the process of establishing a rules-based international trading system.

As countries transformed themselves from a war-time footing to peace-time economies, we owe a great deal to those leaders who had the vision - and importantly the political leadership and courage - to commit to a more liberal global trading system.

The rules-based framework they began to establish has, over the decades, provided greater levels of transparency and certainty in the conduct of international trade. The system has continually been tested at times when the global economy has experienced inevitable fluctuations and when there has been concerted political action and opposition to free trade – the backlash to globalisation. Fortuitously, despite the opposition, despite the challenges many of us face in building and maintaining the required constituency of support for trade liberalisation – both in developed and developing countries – we continue to enjoy the benefits of freer global trade.

In our own region, here in Asia the benefits of this hard work – and it is hard intellectually, politically and from a policy point of view to press on with the task – the gains have been enormous.

In recent decades our region has experienced unprecedented economic growth and development. Never before in history have so many people been lifted up out of poverty and given the opportunity to make a new, more prosperous life for themselves and their families. Access to clean food and water, better education and health facilities, proper housing and infrastructure, massive increases in employment levels can all be attributed in part to freer global trade.

Those countries that have engaged with globalisation – rather than shied away - have fared the best over time.

So by any measure, the world trade bodies created after the war – the General Agreement on Tariffs and Trade (GATT) and its successor the World Trade Organization (WTO) – have been a great success. They have also managed trade disputes between nations and prevented disputes from spiralling into the tit-for-tat retaliation that had been so damaging prior to their establishment.

And that is why it is so important to press on with the task of international trade liberalisation. That is why a successful conclusion to the WTO Doha round of trade negotiations is essential.

Doha Development Round

Doha is known as the Development Round. That is because for the first time agriculture, which plays such an important economic and social role in many developing economies, is on the negotiating table. For the first time we have the chance to abolish trade distorting agricultural export subsidies and make significant cuts to market access barriers and farm subsidies.

As Australia’s Trade Minister and Chair of the Cairns Group I will be doing as much as I can to ensure we get genuine agriculture reform including in key developed markets like the United States, Europe and Japan.

As a member of the G20 group, India too can play a key role in bringing the agriculture negotiations to a successful end which is essential for the overall conclusion of the Doha Round.

Australia and India are working closely together in pursuing the end of harmful trade distorting subsidies that are driving down the prices received by our more efficient farming sectors.

Further reforms to global agriculture would assist significantly with poverty alleviation efforts – given that 75 per cent of the world’s poor live in rural areas. The World Bank estimates that freeing all merchandise trade and eliminating subsidies could boost global income levels by up to $US287 billion by 2015 and almost 45 per cent of these gains would flow to developing economies.

Australia and India also have mutual interests in getting comprehensive and truly liberalising outcomes in manufactured products and services trade.

It is essential that we get a successful conclusion to Doha. I believe it is doable. It requires strong political will and courage and that is what we are elected as Governments to do.

Without a successful conclusion to the Round, global economic potential will be undermined and the opportunity to raise even more people out of poverty will be lost for some time to come. We cannot afford to miss this chance.

In addition to meeting with Minister Kamal Nath in Delhi for discussions on this matter tomorrow, I will be meeting with trade ministers from other key trading nations in Davos, Geneva and Brussels following this visit to India. I will be doing my utmost to get them to assist in finalising the Round.

Multilateral trade liberalisation is Australia’s highest trade negotiating priority. That is where the biggest gains from liberalisation can be made. However, the benefits of multilateral liberalisation can be reinforced at the regional and bilateral level.

The Australian Government is therefore committed to doing what it can to facilitate India’s membership of APEC. India’s inclusion in APEC would ensure that the forum contains all of the region’s major economic and political powers.

In terms of the bilateral framework, our two governments are about to begin a joint study on a Free Trade Agreement (FTA). Bilateral FTAs can enhance the trading relationship if they are truly liberalising across all sectors and consistent with our multilateral trading objectives. Experience has shown us that the more ambitious an FTA the greater the rewards for its members – ambition is the key.

Economic reform is essential

There is more to trade policy than international, regional and bilateral trade negotiations – as critical and time consuming as they are for opening up new trade opportunities for business.

Yesterday, I had the opportunity to address the Bombay Chamber of Commerce and Industry and the Chamber asked that I convey to you here and in New Delhi some of the comments in my speech. In that address, I outlined that a key goal of the Australian Government is to ensure that trade policy is an integral part of our broader economic policy.

All arms of economic policy must be working together to drive productivity growth. Productivity growth is central to international competitiveness and international competitiveness is key to a strong and prosperous trade performance. Despite the international commodities boom Australia’s export performance - especially growth in export volumes - has in recent years slowed considerably. To turn around that slow-down, Australia needs to lift its level of productivity growth.

Without productivity growth your economy loses international competitiveness and your export sector suffers. The key to productivity growth is continuous domestic economic reform. Economic reform is essential to freeing up resources and also essential to ensuring that you are able to lock in the benefits of trade reform. Reform measures taken behind the border maximise trade liberalisation measures taken at the border.

I was fortunate to be able to participate in Australia’s last major economic period of reform in the 1980s and 1990s from two perspectives:

As President of the Australian Council of Trade Unions from 1985 to1990, I understood that job growth and new higher paying employment opportunities required Australia to open up its economy while at the same time equipping our workforce with the skills required to compete in the global economy.

Following my election to Parliament in 1990, I then served as Minister in a number of portfolios and continued to participate in the comprehensive reform program undertaken at that time.

The strong productivity growth of the 1980s and early 1990s occurred because the Government of the day was prepared to take the tough economic reform decisions. This included floating of the Australian dollar, slashing tariffs, deregulating the financial sector, wage restraint through an Accord with the trade union movement to lock in low inflation, retirement income reform, national competition policy, significant cuts to company and personal income tax and greater independence for the Reserve Bank.

As Australia was undertaking these reform measures India too was beginning a new stage of economic reform – reforms which began the process of opening India up to international trade and the opportunities it generates.

It is the international trade opportunities arising from such reform that drive domestic economic growth and open the business sector up to a much larger market.

As the IMF reported recently, merchandise trade continues to be a driving force of the world economy. Both in volume and in dollar value terms, world merchandise trade has grown twice as fast as world output over the past four years. While growth in world trade lost some of its strength last year it continues to grow more strongly than product growth. It is the world market that offers these opportunities and to capture these opportunities both of our economies must continue the process of economic reform. In that regard the new Australian Government is committed to beginning a new area of economic reform.

And in discussions I had yesterday with the Deputy Governor of the Reserve Bank of India, Dr Rakesh Mohan, it is encouraging to learn that India too is pressing with its domestic economic reform program.

Conclusion

I wanted to finish by touching on another important issue of global significance that will challenge our capacity as policy makers.

Global warming is a challenge that confronts us all. Developed and developing countries. Governments around the world, political leaders, officials and importantly the business and commercial sector must not shy away from this challenge for it does have implications for the international trading system. It does have implications for the future growth and sustainability of our economies.

In my first week as the Trade Minister, I attended the meeting of trade ministers in Bali in the lead up to the UN Climate Change meeting. This was an excellent initiative by Minister Mari Pangestu and the Indonesian Government reflecting the importance of ensuring that trade ministers are engaged in the climate change debate. As I said in Bali, apart from the environmental imperative that drives the importance of addressing climate change – and one of the very first acts of the new Australian Government was to ratify the Kyoto Protocol – it is my long held view that there are significant economic, trade and employment opportunities arising from the global response to climate change.

Any measures to address climate change must be consistent with open trade policies. Trade policy has a key role to play in addressing and providing solutions to climate change, although it is only one of the policy tools available. The UN Framework Convention on Climate Change, the Kyoto Protocol and the WTO Agreements each recognise that trade and environment policies need to be mutually supportive in order to achieve our goal of sustainable development.

The need to constrain carbon is driving innovation in energy technology that presents important opportunities for economic growth and employment, as well as addressing the environmental imperatives of climate change. Setting a carbon price will drive investments in low emissions products and technology such as renewables and clean coal.

It is important that we develop an efficient market based trading regime that rewards energy efficiency and climate friendly technology. It is very clear that open trade policies are critical to the diffusion of new technology, in particular to developing countries.

Australia and India are working together in the Asia Pacific Partnership on Clean Development and Climate (APP). There will be enormous opportunities for our business sectors to engage on this matter, particularly in the area of emissions reduction technology and renewable energy means.

Thank you for the opportunity to speak to you today and I look forward to further discussion at this forum.

Media contact: Mr Crean's Office (02) 6277 7420 - Departmental (02) 6261 1555