Speech to the Asialink Leaders’ Program

Trade – Opening Doors in Asia

24 June 2008

Salutation

Thank you Tony [Professor Tony Milner, Professor of History at ANU and Asialink Board Member] for your introduction.

I am delighted to have the opportunity to outline the Government’s trade policy to a group of people who will be the Asia-literate leaders this country needs now and for the future.

In the eighteen years since its establishment, the Asialink Program has made a unique contribution, producing a regional network of emerging leaders from the corporate, government and not-for-profit sectors.

I congratulate the University of Melbourne, the Ian Potter Foundation, United Group Learning the University of Technology and PricewaterhouseCoopers from their support of the Asialink program.

Introduction

Ladies and gentlemen.

The 21^st century has been called the Asian Century. And the main driver of this remarkable transformation – as we see in the rise of China and India, for example – is economic growth.

By 2020 Asia is tipped to account for around 45 per cent of global GDP. Depending on which way you measure it, China is expected to overtake the US as the world’s largest economy in purchasing power terms in 20 years.

And India may become the world’s third largest economy in purchasing power terms by 2025.

As global economic influence tilts to the Asia-Pacific region – to our region - Australia is in a fortunate position. This is negotiating coin, but how well we develop our relationships with the region and diversify our exports is critical.

We have derived, and continue to derive great economic benefits from Asia’s growth. But more important than this economic growth is the trade that is associated with it.

Those benefits have come from trade.

Trade matters not just in its own right, but also because it’s the core underpinning of many of our regional relationships. It has been the springboard from which Australia has developed much-valued friendships.[1]

This Government does not take the benefits of trade for granted.

Despite the rapid economic growth in our region that has generated unprecedented demand for energy and mineral resources, Australia’s exports have underperformed in recent years. Diversification has not been our strong suit.

The growth of export volumes in the past six years has been below the historical average since the floating of the Australian dollar in 1983.

We are determined to position Australia so that it is best able to capitalise on the opportunities of the future.

Including, for example, by ensuring that we can achieve long-term sustainable growth that goes beyond the current resources boom.

We need to ensure that Australia remains competitive in the global economy.

The nature of trade is changing rapidly, and with it, the way we must frame trade policy.

We’re no longer talking solely about agricultural and industrial goods, and the need to eliminate tariff barriers.

Services account for nearly 80 per cent of Australia’s GDP but represent only 23 per cent of our exports – showing how important it is that we build in this area.

Investment is also critical, both as a source of capital for our own economic growth, and as a source of overseas income.

As at December 2007, we reached the point where direct investment abroad by Australian companies of A$318 billion rivals foreign direct investment in Australia of A$357 billion.

And because these new elements of trade are so important, we have to develop an integrated approach to trade policy.

Reform ‘behind the border’

Getting our domestic policy settings right is one component of what I call our twin pillars approach to trade policy.

That is, reforms at home, or ‘behind the border’ are the necessary complement to international trade liberalisation, or reform ‘at the border’.

Getting our own house in order is vital, because there’s no point winning concession overseas if you can’t compete, if you can’t take advantage of the opportunities.

We need, above all, a trade policy that crosses traditional portfolio barriers, and forms the basis of a genuine Whole of Government approach.

And one that acknowledges that investments and infrastructure improvements, for example, involve the States as well as Canberra.

Many behind-the-border issues – such as decisions on investment, and infrastructure improvements - require extensive consultation with State and Territory Governments.

So we’ve have decided to coordinate our efforts within the framework of the new Ministerial Council on International Trade.

This Government is committed to trade policy reform at the both the macroeconomic level – involving much needed enhancements to our national infrastructure and skills and innovation policy – as well as microeconomic settings like enhanced trade facilitation and an expanded Export Market Development Grant scheme.

In the Budget we made a downpayment on our election commitments to revitalise trade policy, by bringing Invest Australia and Global Opportunities back into Austrade.

To help us turn around Australia’s trade performance, we’ve commissioned a wide-ranging Review of Export Policies and Programs, chaired by David Mortimer.

Its scope covers domestic constraints on our exports and investment, and impediments in foreign markets. And it will look at the suitability of the Government’s programs and services to meet the contemporary economic challenges.

We look forward to the Review’s conclusions later this year.

Trade reform ‘at the border’

As I said earlier, the second pillar of our trade policy is trade liberalisation.

Our policy priority here is on achieving trade liberalisation through the World Trade Organization.

And specifically, getting a successful conclusion this year to the Doha round of trade negotiations.

Over the past fifty years, world trade has grown at three times the rate of world output growth.

But in the last five years, world trade has only grown twice as fast the rate of world growth.

Part of the reason is that we have not been able to conclude the Doha Round.

In the past, each successful round of trade liberalisation has fuelled world growth.

And in times of economic uncertainty like those we face now, a successful Doha Round would be a tremendous boost to the confidence of the world economy.

It will be difficult, but – based on recent conversations I’ve had in Peru and in Paris - I still believe we can find the collective political will to get to a successful outcome this year.

Now, as important as the WTO is, to the world and to Australia, the Doha Round is of itself unlikely to deliver a perfect outcome.

But it’s vital we achieve as comprehensive a result as possible at this multilateral level, not only because of the benefits to the global economy, but because it provides a platform upon which we can pursue regional and bilateral trade liberalisation.

Regional economic liberalisation

In our Asia-Pacific region, one of the avenues through which we’re pursuing freer regional trade is APEC, the principal high-level regional grouping.

Australia was a founding member of APEC, which has a strong record of fostering prosperity and security in our region, through focusing on

trade and investment liberalisation and facilitation, as well as economic and technical cooperation.

APEC economies represent more than half of world GDP and around half of world trade. [2]

APEC has also been a driving force in the reduction of tariffs in the region from an average of 17 per cent in 1989 to around five per cent today.

In 2007, Australia’s trade with APEC countries comprised 68 per cent of our total two-way trade.[3] Eight of our top 10 export markets are APEC economies. So APEC matters to Australia.

Australia is keen on pushing APEC’s regional economic integration agenda.

This agenda:

• stresses the importance of a successful and early conclusion to the Doha round
• looks ahead to the possibility of a Free Trade Area of the Asia- Pacific and
• includes a substantial work program aimed at addressing behind- the-border-the-border barriers that impede trade and hinder economic growth.

Structure reform behind borders is a new and extremely important area of focus in APEC, particularly as barriers at the border continue to fall.

Australia will host APEC’s first ministerial meeting on structural reform in August[4] in Melbourne to intensify this work.

We will, of course, also be talking to our regional partners about greater economic integration in the region in the context of Prime Minister Rudd’s long-term vision for a new Asia Pacific Community.

Once again, Australia is setting the regional agenda.

Looking ahead to how the region could develop by 2020.

Australia is also working with ASEAN to create a more liberal regional trade architecture.

ASEAN is a large and growing market comprising more than 550 million people. ASEAN’s combined GDP is estimated at about $US 1 trillion and it is a significant trading partner for Australia.

The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) negotiations are now in their final critical phase and there is a strong commitment to conclude negotiations in August.

As you would expect in a negotiation involving 12 countries with a broad range of interests and levels of ambition – there are difficult issues to be resolved.

Our priority is to achieve a comprehensive FTA that supports the multilateral trading system, is commercially meaningful and -which offers opportunities to strengthen our ties with ASEAN.

I think it’s important to stress in this context that we are not against FTAs and see no inconsistency between them and multilateralism.

We pursue FTAs that support the multilateral trade reform process, that are ‘WTO plus’, and we ensure that the FTAs we sign set liberalising benchmarks that serve as models for other countries.

High-quality FTAs can be seen as one more layer to our overall trade liberalisation policy.

The FTA just concluded with Chile is a case in point:

Within our own region, we are committed to negotiating comprehensive FTAs with China, Japan, and Malaysia.

We are also examining the merits of FTAs with India, Indonesia and Korea.

Conclusion

It’s worth emphasising, by way of conclusion, and in the context of our discussion of regional liberalisation, that trade reform matters and delivers benefits to our community.

Economic forecasters such as the IMF, World Bank, the Asian Development Bank and others are cautiously optimistic that Asia will likely remain a relatively high growth region that will ride out the economic slowdown and credit tightening affecting other parts of the world.

Expanding domestic demand and intra-Asian trade is expected to insulate Asia somewhat from falling export demand.

But it’s important to bear in mind that our region is not immune from the global economic shocks.

The Government’s export credit agency, EFIC, suggests in a report published this month[5] notes that the biggest risk to Asian growth is record high food and fuel prices. Countries that are subsidising food and fuel are in a particularly tight corner.

Inflation and subsidies hinder the scope of governments to cushion the blow of any export shocks, as well as creating a burden on the economy.

We know that protectionism and limiting supply is not the answer to these problems. This will only increase demand and drive up prices.

The answer is continued trade liberalisation and cutting red tape, to allow easier and more efficient trade between countries.

It’s the security of these measures that will help stabilise prices.

Again, this is why getting the Doha deal done now is crucial.

I’ve outlined for you what the Government is doing to ensure we can best capitalise on the opportunities that are arising from the Asian Century.

How we are facing up to the policy challenge represented by the changing nature of trade.

We face a particular challenge in Asia.

This is the increasing competition we will face in doing business there – and in gaining, and keeping, the attention of countries such as China and India.

We need to be prepared for this.

And, as the Prime Minister has said, we need to become more Asia-literate, and we need to have our economic house in order.

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