The Importance of Asia in the 21st Century
There is a Chinese proverb:
"If you want to open a store, you need to know how to smile"
And so, as Australia's trade and tourism Minister, I stand here before you smiling.
A trade minister's core business, by definition, is to retail their country's outputs; to connect those opportunities with the global marketplace; and to search out a framework to reduce input costs (or prices) for Australian consumers and businesses.
This task is easier among economies with growth. And the smile metaphor can be as equally applied to customer service, as it can to policy settings.
Australia is a country that wants to trade.
Australia is a country that needs to trade.
Just as our nation's prosperity over the past several decades has been driven by our engagement with the world; so to will our prosperity into the future.
Over past years, freedom of economic opportunity – including the opening of markets, and mobilising of capital – has transformed nations, and lifted billions out of poverty.
These values – and the principles of free trade - are reflected in the rules-based global trading system.
The free market leadership of America in the post war years is a big part of what makes many economies around the world strong today.
I've come here today to say that American ideas remain at the heart of what is great about a lot of the world today.
We know the power of free –market, pro-trade ideas in Australia.
Successive Australian Governments of both political persuasions have embraced them.
Following a failed period of restrictive trade, economic and labour market policies that ran from federation in 1901 to the late 1970's we slid from being among the richest countries in the world in per capita national incomes in 1901 to outside the top ten in 1975.
Opening up our economy wasn't easy – vested interests had to be tackled, policy change had to be mutually reinforcing and well sequenced, industries had to transform, and many had to retrain and find new footholds.
The adjustment took time, however, the results speak for themselves.
Tariffs on clothing have dropped from 55 per cent in 1990 to 5 per cent today. Passenger motor vehicle tariffs, which hit Australian consumers with import taxes of up to 57.5 per cent on a regular family car in 1985, are just 5 per cent today. Our preferential free trade deals are progressively winding these back to zero for key markets – for example US vehicles, which were removed altogether in 2010, or Japanese and Korean vehicles, which are being progressively removed.
Australia today is an open and prosperous economy enjoying our 26th year of continuous economic growth. And it's been shared prosperity – real median wages have gone up roughly 50 per cent over the past 20 years. To put that in context, in the same period real median wages grew by 4.4 per cent in the United States.
We are a vibrant, diverse nation - full of opportunity, using innovation to lift productivity and increasingly plugged into the value chains of Asia and beyond.
Our economy, with the market-oriented values of openness and flexibility at its core, has weathered global and regional recessions and continued creating jobs and growth. Labour and capital have been freer to move from declining sectors to new sources of growth – and as a result, we now have an economy that backs our strength as a nation.
We have been fortunate that for the most part trade liberalisation was a bipartisan endeavour. We might disagree on some of the detail, including on specific agreements, but Australian governments of both stripes have historically pursued policies that have largely supported openness – and in doing so supported competition, productivity and international engagement.
In recent years, the Australian Coalition Government has pushed forward with the conclusion of three high quality bilateral trade deals in North Asia.
The result is we are better connected today to the growth engines of North Asia – China, Japan and Korea - than any other major advanced economy.
It has positioned us well to feed the demand for services and goods to the booming economies of Asia.
For small exporters – like Flametree Wines, located in the picturesque South West of Western Australia – this means new markets, and new opportunities.
In fact, Australian wines and cheeses, two of life's great pleasures, are enjoying a boom in China – as China's consumers recognise the quality of our produce and the preferential tariffs we negotiated in our free trade agreement give us a competitive edge over our rivals – including our American competitors!
This competitive edge extends to the other key markets of Korea and Japan.
For instance, our beef exporters are now benefiting from better market access through our trade agreement with Japan. Our farmers now face a tariff on 27.5 per cent on frozen beef, whereas American ranchers face tariffs of 38.5 per cent.
And we aren't done yet.
In 2017, along progress toward the launch of free trade agreement negotiations with the EU, we are continuing to build deep trade and investment links in the region.
With Indonesia, we are working to conclude a comprehensive economic partnership agreement this year.
And with India, we are working to strengthen our trade, investment and innovation links.
We're also actively negotiating the Regional Comprehensive 7Economic Partnership, or RCEP.
The diverse set of countries involved in RCEP – bringing together 9 of our top 13 trading partners, and covering almost half of the world's population – gives it the potential to support trade and investment right across the Asia-Pacific.
For Australia, it has the potential to create jobs and drive growth across our economy, providing greater access to markets in the region and driving down barriers and costs to trade and investment.
It also presents us with an invaluable opportunity to help shape Asia's future economic landscape.
Of course, economic reform is an ongoing and iterative process – measured in decades not years.
We are constantly looking to expand and extend our agreements – just as we did with Singapore last year - to ensure they reflect contemporary circumstances and work in the best interests of both parties. All our free trade agreements are living agreements, with substantial built-in forward negotiating agendas and ongoing work programs.
In fact, even as we meet here today my trade negotiators are meeting with their Chinese counterparts to take forward the joint program of cooperation under our free trade agreement, with the aim of making our trade and investment links as seamless as possible.
From Australia's and many others point of view, the Trans Pacific Partnership or TPP, has many valuable elements, including embedding pro-growth trade rules across the Pacific in areas like intellectual property, e-commerce, competition, transparency, labour and environment that go beyond existing agreements – to create a strong dynamic favouring a more level playing field in the 21st century.
But that said, we have heard loud and clear President Trump's comments about the TPP.
Australia and the other signatories have been discussing the way forward for this trans-Pacific agreement. Many of us want to capture the gains and the efficiencies that were hard-fought and won, even without the United States, if needs be.
For Australia, we firmly believe there remains an enduring role for American values, and American leadership, in global trade.
We are committed to working with the US to tackle the problems of the global trade system. Those problems are a collective challenge. And equally, we think it is possible for national interest to be pursued in a way that is consistent with, and advances, the common interest.
Turning to the global challenges ahead - while there have been encouraging signs in many developed economies, the fact is the global economic outlook remains uncertain.
Since the 2008 crisis the US recovery has been slow, and there is a way to go.
There also continue to be serious downside risks in Europe, with ongoing debt crises and the Brexit transition.
In comparison, Asia's persistent growth looks ever more remarkable.
For much of the past decade, global growth has come entirely from emerging markets – with the lion's share coming out of Asia.
In 2017, the Asian Development Bank forecasts the region will grow at a comparatively brisk 5.7 per cent.
The IMF projects that the new rays of global growth in 2017 will almost entirely emerge from Asia, as economies mature and new markets flourish, lifting the global economy. Though we expect if the Trump program of tax cuts and infrastructure passes, the US economy will be an increasingly strong contributor.
Over the medium to long term, we will continue to look to the new markets of Asia for growth. Asia's middle class is expected to grow from 500 million to 3 billion by 2030, creating untold demand.
Clearly – the centre of gravity for global opportunity – and for new sources of competition - is moving toward Asia.
Australia has captured this opportunity with free trade agreements with our largest trading partners in the region, in addition to the agreements with China, Japan, Korea, I mentioned earlier, Australia also has bilateral agreements with Singapore, Thailand, Malaysia; and a multilateral agreement with New Zealand and the countries of ASEAN.
The truth is: staying the course on trade liberalisation – continuing to push for open markets and pro-growth economic policies in Asia – is crucial.
Trade liberalisation is profoundly an instrument for economic freedom. It's for the little guy - the small-to-medium business who needs less red tape to be able to freely trade with the economies of Asia and North America. Big business can always hire lawyers to deal with complex rules. But the SME needs the freedom cut-through of trade facilitating agreements to get a foot on the ladder of opportunity.
Simply put - we can determine the rules drawing on our values, or we can leave this to others.
Free enterprise, freedom to move capital, goods, services and ideas, and freedom for professionals to service markets in new and innovative ways are essential if we're going to catch the next wave of growth.
Now more than ever - open markets, free trade and growth is needed.
I don't subscribe to the sometimes-reported view that President Trump is anti-trade.
Just yesterday I caught a replay of the confirmation hearing of the President's nominee for Treasury Secretary, Steven Mnuchin, who said: "The President [elect] is very much interested in free and fair trade. This is not about limiting imports, this is about growing exports. President [elect] Trump absolutely believes in trade. He just wants better deals. He wants us to grow exports, and he wants better deals".
There is nothing unusual about a government wanting trade deals to be in their national interest. I want trade deals that are in Australia's national interest.
The whole point of negotiating trade agreements must be to find those points where the national interests of those two, or more, countries, comes together.
With this opportunity in mind, Australia is pressing ahead.
As we work towards concluding RCEP, Australia takes these principles into the negotiations. And we will continue to look for opportunities to collaborate with the United States – and all of our partners - in shaping our region.
Our vision is for a Free Trade Area of the Asia Pacific (FTAAP) – a goal all APEC members have agreed to pursue.
An FTAAP would underpin prosperity throughout the region for generations – it makes a lot of sense for us to come together in this common goal.
It's our sincere hope the United States will continue to work with us in this endeavour.
Australia and the United States have complementary strengths and a long history of effective collaboration across all fields – particularly in trade.
We've been trading together since 1792, over a century before we'd even unified the Australian colonies.
Our own free trade deal, the Australia-United States Free Trade Agreement or AUSFTA, brought into force in 2005, is a great example of how even close friends can benefit from a high quality trade agreement.
The United States has recently become our second-largest trading partner; and two-way trade has grown by around one-third since AUSFTA entered into force and are at their highest levels ever.
Indeed, in the last five years the average annual growth rate of our exports to the United States has accelerated to 8.4 per cent. This is a remarkable when you consider that since the 2008 crisis, world trade growth has averaged just 3.3 per cent.
Despite this impressive performance, Australia continues to run a trade deficit with the United States - currently $25.6 billion. In my view, running a trade deficit or surplus with any one country is not a measure of the success or otherwise of the trading relationship.
A trade deficit with any one country simply reflects the decisions by private businesses and the preferences of our consumers.
The fact is that the acquisition by Australia's flagship airline, QANTAS, of Boeing Dreamliners from the US in recent years will have a significant impact on our trade deficit. But let's look at the broader benefits.
An upgraded fleet will allow more Americans and Asian tourists to visit Australia - visitor numbers are up by 45 per cent in the last four years – and this growth will only increase with increased capacity. American tourists spent $3.7 billion in Australia last year.
Importing Dreamliners will not only provide a significant tourism boost to our economy but the US economy will benefit as well through bolstered demand at a time when the global aircraft industry is under pressure.
So how does Australia finance the trade deficit we have with the United States? It is financed through the significant trade surpluses with Japan, and Korea and China.
Think of the resource endowments Australia has to offer – including coal and iron-ore – which are in demand by our northern neighbours. How do we meet that demand? In part we rely on imports of heavy machinery from the likes of US giant Caterpillar to extract those resources.
Let's turn to the bilateral investment relationship. The United States is both our number 1 source and destination for investment – with the two-way stock worth $1.45 trillion at the end of 2015. The stock of US direct investment in Australia is more than double US investment in China. And we in turn have seven and a half times more direct investment in America than we do in China.
In Australia, and you will have heard similar views, we hear concerns about foreign countries 'buying up' Australia. This has been a recurring theme over the past century in response to waves of investment from countries like the United Kingdom, the United States and Japan
In 1975, partly in response to rising public concerns about US investment, Australia established the Foreign Investment Review Board.
It didn't take long for Australians to become more comfortable with US investment and indeed take it for granted.
A classic refrain in the 1970s and 1980s was "Are you a Ford or Holden (General Motors) man?". Australians didn't draw the distinction that their car of choice - made in Australia by Australians, relied on US capital.
As we opened up it became clear some industries were uncompetitive. Last year the Ford plant closed. But as one chapter in our foreign investment story draws to a close, another has begun.
Boeing, recognizing Australia's high skills base and R&D expertise, has invested $1 billion in Australia in recent years - creating 1,200 new jobs and driving technological advances in collaboration with our leading institutions.
This investment has seen Australia engineering and machining companies diversify and win new markets. Over 1000 Australian SMEs are exploiting Boeing's global supply chain.
And so it is no surprise given this history that under AUSFTA, the United States was our first trading partner to be granted our highest investment screening threshold, valued today at $1.094 billion.
There is a similar pattern when it comes to Japanese investment. In the 1980s, Japanese capital created resort infrastructure that enabled our rapid expansion as an international tourist destination - underpinning our transition to a world-class services-based economy.
At first, Australians were concerned about Japanese firms 'buying up' Australia – but these concerns receded as the benefits became clear. It's not just access to capital – it is the transformation of many of our industries, driven in no small part by technology and management skills transfers, from countries like Japan.
Just last week Australia's iconic breakfast spread, Vegemite, was purchased by Australian dairy producer Bega from US food giant, Mondelez International.
The Australian commentary focused on the news that Vegemite is once again in Australian hands.
However, few people are aware it is more than 80 years since Vegemite has been fully Australian-owned. Over that time, Vegemite has continued to be produced in Australian factories, by Australian hands, with Australian ingredients, regardless of ownership.
The fact is foreign investment comes and goes - but in the process businesses are built and expanded and jobs are created as capital is put to productive use, regardless of its source.
Finally, I would like to discuss services. As our largest investment partner and our second largest services export market it makes sense that we work together to take our partnership to the region thereby ensuring our firms can compete on a level playing field.
As our 2017 Austrade Benchmark Report – which I'm proud to be launching today – lays out, services are at the heart of our economy. In all, around 75 per cent of the Australian economy is services-oriented today.
This year's benchmark report highlights the tourism and education industries – which together, as part of the "visitor economy" had exports worth over $45 billion in 2015-16.
The report also highlights the evolution in our agribusiness industry, and the increasing role of high tech services in both our resources sector and our financial management industries.
It's a great read – brimming with opportunities for investment.
Ladies and gentlemen I want to thank you again for the opportunity to be here today.
We are immensely proud of how far we've come together in pursuit of the open market principles that our economies embody.
I look forward to our continued success in working with you to bring these strengths to the world.