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Monday, 13 May 1985
Page: 1825

Senator BUTTON (Minister for Industry, Technology and Commerce) —by leave-For the information of honourable senators I table what is described as a background paper on Australia's trade performance and prospects. With the concurrence of the Senate, I will incorporate in Hansard the text of a statement made this afternoon in the House of Representatives by the Minister for Trade (Mr Dawkins), entitled 'Australia's Trade Situation and Policies'.

Leave granted.

The statement read as follows-

Australia's trade situation and policies

Mr Speaker-I seek leave to make a statement on Australia's trade situation and policies.

The last thirty years have seen fundamental changes in the world economy and in the world trading environment which have been reflected to some extent in the structure and composition of Australia's trade. Shifts in the pattern of world comparative advantage, the emergence of newly industrialised countries, the strengthening of trade blocs and the intensification of protection pressures have all impacted on, and contributed to, the major changes that have taken place in the composition and direction of Australia's trade over the last thirty years.

In this period Australia greatly diversified its exports. In particular, we developed an efficient export-oriented minerals sector to supplement the traditional rural export industries, which for so long had provided the bulk of Australia's export income. It is often forgotten that only thirty years ago rural exports accounted for 80% of Australia's total export earnings, with wool alone providing half our total export revenue. Moreover, 40% of our exports were directed to one country, the U.K.

Australia's rural exports, accounting for some 40% of export earnings, remain very important to us. But the general situation has changed markedly. We no longer depend on the fortunes of one product, but on the fortunes of a range of primary commodities. Manufactures exports have also grown but at an insufficient rate to maintain Australia's position in world trade. In terms of seeking out and developing new markets Australia has been successful, re-orienting its trade away from Western Europe (especially the United Kingdom) and towards Japan and other countries in Asia and the Middle East.

Australia's export performance

Despite the changes that have occurred to the composition and direction of our trade, the evidence suggests that by comparison with others the adjustment has been insufficient to accommodate the rapid changes occurring in the international trading environment. Our efforts to develop the exports of products in high demand have been less than satisfactory.

As a result, Australia's trading performance has been relatively poor. A wide range of standard statistical measures demonstrate this fact. Four are especially telling:

As a world exporter, Australia's ranking has slipped from 8th to 23rd over the last 30 years.

Over the same period our share of the world export market has dropped from 2.6% to 1.2%.

The international purchasing power of our exports has shown weak growth over the last thirty years by comparison with other major trading nations and actually declined in the decade to 1983.

Australia's penetration of most major overseas markets has also declined, even in the ASEAN and Western Pacific Region as a whole.

I am taking the opportunity to table a paper, prepared by the Department of Trade, which examines these trends and gives a detailed account of Australia's export performance and prospects.

There are two principal reasons for Australia's relatively poor trade performance. Firstly, over the past three decades the world demand for primary commodities, which account for over three-quarters of our exports, has grown more slowly than demand for manufactures, and the terms of trade have moved against primary commodity exporters. Protectionism has escalated in major world commodity markets and other distortions of trade, such as the massive use of subsidies by less efficient producers, have undermined international markets for sugar and dairy products and pose a serious threat to beef and cereal markets, further undercutting our advantage as an exporter.

The second major cause of our poor trade performance has been the inward-looking nature of our manufacturing industry. Manufactured exports have been the driving force behind the growth in world trade for most of the post-war period. Given the continuing magnitude and pace of technological and other changes underway in the world economy. This situation seems set to continue. However, during most of the post-war period our manufacturing industries have been conditioned by import-replacement policies which shielded them from international competition. Added to cost-structures and discouraged innovation and adjustment. Overall, Australian manufacturing has shown itself to be ill-equipped to capture a share of the rapid growth in world manufactures trade. Similarly, Australia has been slow to move into the export of services which is expanding very strongly and will continue to increase greatly in importance in the future.

The outlook for commodities trade is mixed. Technological changes are taking place and new patterns of energy usage emerging which will further reduce the raw material requirements of manufacturing industry in overseas markets. This situation is being exacerbated by protectionist pressures and increasing government involvement in the production and marketing of raw materials.

The Government will do all it can to break down the serious barriers and distortions to world commodities trade which are so disruptive to efficient producers such as Australia. But it is likely that any progress in improving the conditions under which world commodities trade is conducted will be painful and slow.

Australia's current trade situation and outlook

Australia's external account has weakened this financial year. In the nine months to March 1985 Australia's trade account was in deficit by $1.7 billion. This compares with a small surplus in the same period last year of about $160m. The weaker than expected trade account has contributed to the depreciation of the Australian dollar experienced since the beginning of 1985. There can be no doubt that this adjustment reflects in part an assessment of Australia's poor trade performance.

Growth in export earnings has been narrowly based and held down by the continued weakness in world commodity prices.

Imports, on the other hand, have grown rapidly. Indeed most of the larger than expected increase in the trade account deficit this year has been due to the surge in imports which has accompanied the rapid expansion of domestic demand. Associated with the recovery.

As regards prospects for the world trading environment in the next year or so. Most commentators are fairly optimistic. The recovery which began in the United States broadened in 1984 and the performance of the world economy was the best for several years. According to the GATT. The volume of world trade grew by 9 per cent in 1984, compared with only 2 per cent in 1983.

The prospects for continued trade growth, for the world as a whole and Australia in particular, are however, less certain over the remainder of the decade. Intense protectionist pressures threaten the future trading environment. During the recession, and following sharp movements in exchange rate relativities, developed countries expanded restrictions on trade flows in agriculture, textiles, automobiles and steel. Developing countries have responded by intensifying their import restrictions, ostensibly to assist adjustment and domestic unemployment problems.

The rise in protectionism has been characterised by the increase of non-tariff barriers including the resort to managed trade and the widespread use of export subsidies. It will be difficult to secure broadly based improvements in Australia's trading performance unless these trends are reined in and reversed.

The recent large depreciation of the $A will help to improve Australia's trade and current account positions over time. Returns to Australian exporters will increase and, provided costs can be contained, the competitiveness of both export and import competing industries will improve as a result of the devaluation. Whilst we can expect improved returns for commodity exports, the boost to exports is potentially more powerful outside the traditional commodity trades, in services and manufacturing. It is up to the Australian business sector, supported by an effective trade policy, to capitalise on these opportunities.

Trade and structural adjustment

I want to make the point, however, that the devaluation alone will not overcome structural problems which are the legacy of thirty years of inappropriate policies. The lack of export orientation in our manufacturing industry presents fundamental problems for the Government in formulating and pursuing its trading policies. It is imperative for us to create conditions which will encourage improved export performance in the fastest growing areas of world trade-manufacturing and services.

In meeting the challenges which lie immediately ahead of us, we will be assisted by the progress which the Government has made over the past two years in improving the fundamental economic conditions in Australia. This has involved the successful operation of the prices and incomes accord resulting in the achievement of declining inflation, rapid growth and, consequently, the dramatic decline in real unit labour costs. There has also been a restoration of corporate profitability to more normal levels. The resultant stability in business and general economic conditions has been a factor in the strong recovery of investment. As well, the fact that the incidence of industrial disputation has been at its lowest level for 17 years has significantly enhanced our reputation for reliability of supply.

The Government's successful deregulation of important sectors has also provided a powerful boost to the efficiency and dynamism of the economy and has provided a major fillip to our export sector.

Getting these fundamental conditions right is of vital importance but, as we have seen, will not in itself adequately improve our export performance.

The Government has also put into place a range of structural adjustment measures designed to assist and rejuvenate Australian industry. Special plans have been negotiated between government, business and unions in the steel and motor vehicle industries. The plans offer incentives for improved efficiency and modernisation of plant. They also allow for a growing element of competition from imports, thereby imposing a discipline on domestic industries to match the performance of efficient producers in other countries.

The Government's industry policy arrangements have not been confined to the troubled sectors of our economy. We have also introduced positive measures to encourage efficient Australian manufacturing operations in industries as diverse as computers and shipbuilding. New incentives for industrial research and development have been foreshadowed along with encouragement of a venture capital market through the management investment corporations. The revamped Australian Manufacturing Council with its Industry Councils provides a tripartite framework within which policies can be developed for a range of Australian industries.

The opportunity now presents itself for Australia to take advantage of our successful domestic economic recovery and the process of effective structural adjustment already begun in our industry base and to meet the challenge of exporting. For the first time policies are being put into place to develop an environment for industries which will be competitive in Australia and on world markets. In an interdependent global economy Australia requires industries which are successful on both fronts to provide for secure employment and sustained growth in incomes.

Dynamism of the region

The growth taking place in the Western Pacific Region presents considerable opportunities to Australia. Countries in the East Asian region are estimated to have increased their share of world exports from 9 per cent in 1962 to 17 per cent in 1981 while their estimated share of world imports grew from 10 per cent to 14 per cent in the same period. The challenge to Australia in the next 25 years will be to tie itself as closely as possible into the opportunities associated with the rapid growth of Asia's newly industrialising countries. China's modernisation program also presents unique opportunities which Australia is particularly well placed to secure.

There is a good chance that by the end of the century the regional economy will be larger than that of Western Europe. We could share in this growth but one of the sharpest disappointments in recent years has been that while the level of that trade has grown sharply, our comparative performance in some of the most dynamic markets in our own region has been poor. In Japan our market share has almost halved from 9 per cent of Japanese imports in 1973 to 5 per cent in 1983 and in the ASEAN economies our penetration of the market has fallen from 3.5 per cent to 2.5 per cent.

Whilst our share of the Republic of Korea's market has almost doubled to 4 per cent and our performance in China has been generally strong, overall our share of the Western Pacific region's imports has fallen from 7 per cent in 1973 to 4 per cent in 1983. Significantly, we have lost ground in regional markets just at a time when their growth compared with the rest of the world has been most impressive.

Clearly if we are to make the most of the opportunities which exist in the dynamic Pacific economies we will need to do more than react in an ad hoc fashion to the changes occurring around us. An important measure of the success of our trade and industry policies will be the degree to which our economic structure complements and growth performance matches that of regional countries.

This should best be achieved within a multilateral system. However the benefits that have accrued to Australia from the operations of the GATT in the past have been much less than they might have been. The reasons for this can be traced to the failure of major trading countries to adhere to GATT rules or to extend the principles of the Agreement fully to those areas of world trade which concern Australia most.

Multilateral trade negotiations

There is a need to retain a credible GATT system directed at liberal trade and improved adherence to the rules which it embodies. This need underlies our decision to support a new round of multilateral trade negotiations, provided that those issues of fundamental importance to us and to other countries of the region are adequately addressed.

Broadly stated, our objectives in the negotiations, which I hope will begin early next year, will be to use all of the opportunities they offer to pursue a more liberal and predictable environment for trade and, through that, better access to markets.

We believe that the negotiations should as a matter of priority deal with the major barriers and distortions in world trade. These are agricultural trade distortions, non-tariff barriers, subsidies and safeguards. We will vigorously insist on these matters being addressed. Following the Bonn Summit there were reports of opposition to the inclusion of agricultural questions in the proposed new round. We will firmly resist this position. What we want to avoid is a new round which merely addresses the concerns of the powerful and fails to take account of the interests of smaller trading countries such as Australia and others in our region.

As part of our preparations for a new round, through the Prime Minister's regional initiative, we have been actively exploring with a number of Asian/Pacific countries the issues and actions necessary to ensure that the outcome of the new round more directly meets the interests of the majority of GATT members including those in our own region. We expect this close association with the countries of our region to carry on into the round itself and significantly to influence the character and substance of Australia's involvement with the round.

One specific possibility we may wish to consider as multilateral negotiations unfold is that regional countries explore the opportunities for trade liberalisation between each other under the umbrella of the MTNs and on a non-discriminatory basis. The fact that barriers to regional trade are highest in precisely those areas where comparative advantage is greatest provides a compelling logic for considering this option.

While an important aspect of the proposed negotiations will be the adherence of all GATT trading countries to the rules, these rules themselves do not lead directly to trade liberalisation. Negotiations about the progressive liberalisation of tariff and non-tariff measures will also be important. We will have to actively participate in these negotiations to try to achieve improved market opportunities for agricultural, manufacturing and services industries. This will in turn mean that we will be asked to liberalise our own market. The Government, for its part, is committed to the gradual reduction of Australian industry protection levels as part of its strategy to secure an efficient and competitive industry base. These policies will continue to be pursued along with arrangements to address the needs of those in the community affected by structural change.

Our industry is moving in the direction of greater international competitiveness and becoming increasingly aware of the foreign market as a way of building up its strength. We should be able to build on these changes taking place in the Australian economy in order to maximise our opportunities in markets of interest to us.

Bilateral trade developments

Progress in international negotiations is necessarily slow and difficult and results to date are far from encouraging. It is important for the continuing strength of the economy that we use every means at our disposal to expand exports.

I have already noted the increasing emphasis on special bilateral arrangements and 'managed' trade, particularly between the major trading countries. We view this trend with concern. At the same time, however, we need to ensure that we develop trade policies and practices that will allow us best to secure our own interests. A number of our most important trading partners have certainly been more successful than we have in presenting a unified face across the range of their dealings with us. I am conscious of the need for greater co-ordination of our bilateral trade efforts.

One of the objectives I have set for conduct of the trade portfolio is to give greater priority to the management of our trade relations with our major partners, particularly those in our region.

I have already visited New Zealand to pursue trade questions of mutual interest, including the further progress of our closer economic relations Agreement. The importance of our trade relationship with New Zealand and the benefits being derived by both countries from the Agreement is reflected in our trade figures. Australia's exports to New Zealand have grown from $1.036 million in 1981/82 to $1.422 million in 1983/84 which represents a growth rate of 37% compared with 27% growth in total Australian exports over the same period. Australia's imports from New Zealand grew from $726 million in 1981/82 to $922 million in 1983/84, reflecting a greater rate of growth over the period than for Australia's imports from the world as a whole. We will work towards the progressive development of the closer economic relationship with New Zealand. A Ministerial meeting to review progress is to be held in Canberra in August. The Prime Minister visited Brussels, Washington and Ottawa earlier this year and trade issues figured prominently on the agenda.

Earlier this month I visited the Republic of Korea and as a result of the visit our trade relationship with the ROK, which had suffered some minor frictions, is now on a firmer and more positive footing. This relationship is already important to us and is likely to become even more significant over time.

Next week I will visit Indonesia, Singapore and Thailand to reaffirm the priority the Government accords to its trade relations with the ASEAN countries. Visits to the other ASEAN capitals and China are planned for later in the year. We will continue to take whatever action is possible through Government to Government contact to ensure that Australia's trade opportunities are maximised.

Trade facilitation

In putting our policies into place, however, Governments must rely on the ability, business sense and imagination of all sectors of industry to play their essential part in the process. We are particularly concerned to find the most appropriate way to support the export efforts which industry is taking.

These considerations were important in the decision to establish the new Australian Trade Commission. The Commission will assume the responsibilities, functions and powers of the Trade Commissioner Service, the Export Development Grants Board, the Export Finance and Insurance Corporation, the Australian Overseas Projects Corporation and some of the promotional functions of the department. The new Commission will have a budget of some $200m and staff of some 1,000.

Its establishment marks an important step in the concerted action needed to overcome Australia's difficult trading situation. For too long Australia's export marketing efforts have been bedevilled by unco-ordinated administration within the Commonwealth Government.

If we are to obtain the best value for the trade facilitation and promotion dollar and if exporters are to be provided with the most efficient and effective service, these efforts have to be better co-ordinated.

The Commission will act as a 'one stop shop' for exporters and provide the full range of appropriate advice and support drawing on all of the Government's resources. It will also have responsibility for overseas marketing, promotion and publicity. It will be expected to operate in as commercial a fashion as possible and will be able to deploy its resources in a flexible and responsive way.

It should be emphasised, though, that all areas of Government have to be conscious of the resources they expend and the returns they achieve. In the present economic environment there is an over-riding need to restrain all Government expenditures and reduce the deficit. In the trade field, achieving a balance requires the identification and full justification of the trade development programs of Government institutions. Goals must be set and the objectives of programs clearly specified.

When the Trade Commission initiative is fully implemented, the Department of Trade will be able to concentrate its resources on matters of trade policy, broad strategic issues, multilateral negotiations and Government to Government trade relations.

The new Australian Trade Commission will be able to build on the work already done by the Department of Trade to develop a global marketing strategy for Australia. The Department is focusing on competitive export industries and our most important export markets for special efforts.

As part of this exercise, the Department is looking particularly to some manufacturing and service industries, which embody our comparative advantage and which are most likely to achieve export success quickly. The Government as part of this exercise will be addressing ways in which domestic barriers to export can be reduced, for example by removing unnecessary industry regulation. The exercise also involves the Department in assessing prospects in particular markets such as China, Japan, the Republic of Korea and North America, which are based on a careful assessment of the patterns of demand and the capacity of Australian industry and individual exporters to respond competitively. Such exercises in improving market intelligence are being developed for all our major markets.


Without a substantial improvement in our export performance, Australian living standards will almost certainly decline. For this reason, it is vital that as a Government we implement policies to ensure success. Our primary goal is to maintain the economy in a position of sustained non-inflationary growth. But the Government will be unable to realise its employment and growth goals without the right policies in relation to imports and exports. Trade policy considerations must be fully intergrated into the Government's broader economic framework.

We have taken a number of decisions in macro-economic management, including on the monetary and industry policy fronts. Future decisions in the trade area will be equally important.

I have outlined a number of fronts on which the Government is pursuing policies directed at improving our performance as a trading nation. The steps that have been taken in the past two years and the decisions taken recently to streamline and make more effective the Government's efforts in trade facilitation should enhance our capacity to face this challenge.