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Australia's trade and investment relations with Asia, the Pacific and Latin America

ACTING CHAIR —Welcome. Do you have any comments to make on the capacity in which you appear?

Mr Waller —I am appearing as a director of the Australian APEC Study Centre at RMIT University, but the comments I have provided to you in the submission are my comments and I hope they can be accepted in that light.

ACTING CHAIR —Yes, I understand, and we thank you for your written submission. Is it the wish of the committee that the submission be formally accepted as part of the public record of the hearing? There being no objection, that is so ordered.

We prefer all evidence to be given in public, but if there is any matter you wish to raise in a private session you may request to do so and we will consider it at the time. We do not require evidence to be given on oath but, as I indicated earlier, these are formal legal proceedings of the parliament and therefore the same standing orders apply. I now invite you to make some opening comments and then we will proceed to questions from members of the committee.

Mr Waller —I respect fully the standing orders and the openness of this inquiry. I think the openness of discussions of this kind is a very important part of policy formulation. I appeared before this group in an informal meeting in April last year and I made some comments then primarily directed at the role of ABAC, the APEC Business Advisory Council. I was the adviser to the Australian group in ABAC at the time. I am appearing here now, as I said, as Director of the Melbourne APEC Finance Centre at RMIT University.

My written submission is aimed at making the point, in respect of the objectives of the inquiry, that APEC is an organisational group within this region which is a very important part of Australia’s external policy framework. In many senses it helps develop the central objectives that this committee is addressing—namely, to open trade and investment opportunities in the Asia-Pacific region, and that includes, as clearly represented in the terms of reference of the committee, Asia and Latin America as well as North America. APEC has 21 member economies, with Australia as a very important driving force within APEC. One of the critical objectives listed in the terms of reference, promoting the WTO Doha Round and seeking to have that established as the next major international initiative to promote trade and investment liberalisation, is central to APEC and therefore I have argued in the paper that one avenue for Australia is to pursue efforts to promote the WTO Doha Round. I think it is a major advantage to Australia to do that. The point I have made in the paper is that one objective in the Uruguay Round and the WTO at the time that was essentially successful in many senses, opening trade and investment globally, has been to Australia’s great advantage. I think that is the field that we ought to continue to work in, even though we cannot see immediate prospects for resolution of the Doha Round at the moment, but I think it is still the major international forum we should operate in.

I suggest in the paper that APEC, whilst it pursues that, is also helping to pursue the aspects of openness, trade and investment through various committees and work in the APEC fora. They are essentially looking to examine the many regional bilateral trade agreements and subregional agreements that are occurring right now, as we are all involved in the WTO negotiations. Most APEC economies, if not all of them, are also involved in promoting bilateral agreements, including Australia. It is not just an Australian or APEC thing; this is a phenomenon that is going on globally, and for obvious reason. Economies are looking to open up trade and investment opportunities. We have been successful in Australia in promoting some agreements and we continue to do that. They are difficult at times.

What APEC can do is try to ensure that all the members of APEC that involve themselves in such agreements try to establish agreements which reflect the cardinal principles of APEC—which are multilateral openness, MFN and national treatment. These are critical matters. There is work going on in APEC trying to formulate articles that are apparent in many agreements, to try to conform to those principles. I think APEC is a very useful forum and a discipline that we should pursue. I appreciate that it is not a negotiating body. But it is a body in which more energy is now given to improving the economic policy economies can study, to exchange ideas between economies on what a good policy framework ought to be, including in investment regimes, trade regimes, and structural reform. It is to the longer term benefit of Australia that we participate—and we do it, if I may say so, in a very good way, sometimes leading the pack in APEC in these areas. I think, through these efforts, we are promoting the objectives set before this committee. Those are my major comments.

ACTING CHAIR —I will start off with one question and then we will proceed to other members of the committee. The major event that has happened since this inquiry got underway last year is the global financial crisis. I was wondering if you could comment upon how you see the impact of that with respect to the work of APEC, particularly the chances for the Doha Round to get somewhere. There was a lot of despondency a couple of years ago, as we know. The confidence or optimism seemed to pick up a little in the first half of last year. I know our current Minister for Trade, Simon Crean, has argued that we have to look for the opportunity to enhance trade liberalisation when the world comes out of the recession and the GFC. But, at the same time, we have seen signs of some of the major economies retreating back into potential protectionist policies. How do you see events unfolding now? Particularly, is there is any chance that Doha might get somewhere in the course of the next 12 months or more? Just the easy question to start with!

Mr Waller —Let me go to the central part of the question, if I may—the global financial crisis impacting on APEC and its relevance, if I could put it that way. As you will know, as a consequence of the crisis there has been some, in a sense, restructuring of the international architecture, with the G20 now becoming a critical focus. A number of APEC economies are part of G20. What is now going on in APEC to pursue some of the critical issues that have come out of the global crisis? That includes the shortage of credit for global trade—I think this a very critical point of Mr Crean’s positioning, presently—and why investment flows have fallen sharply across the globe. Those are matters that, arguably, have to be looked at in a global sense.

I think that APEC, though, is a very important opportunity to bring some of those events into an APEC-regional focus and, in particular, an Asian focus. It is my own personal view that the APEC region, and particularly the Asian part of the region, has lacked the confidence to come forward with its own views on how it should regulate its financial system and on regulatory reform and change. A lot of the work we do in the centre is to promote regulatory reform and change.

I am arguing elsewhere, in other places, that APEC and the Asian region should now become more impressive in establishing their own views on some of the causes and on how they will regulate their financial system. They do not have to move strongly away from emerging changes that are coming through in international supervision of banks, for example. But APEC ought to stand up now, in the Asian region in particular, to address what it believes are reasonable levels of leveraging by financial institutions and what it believes is the role of hedge funds and securities markets. They may differ from the views of the United States and Europe. I do not think that that is a bad thing. A lot of the causes of the things that we presently see in the crisis have come out of weaknesses in governance and regulatory systems in Europe and North America.

Interestingly, in part response to your question, the financial systems across Asia are looking more resilient. Certainly, they have improved a lot since the Asian financial crisis. I think that is because they have learned lessons and are a bit more prudent in their banking and financial practices, but there is still a long way to go.

APEC is looking very closely at this question of finance to support trade growth in the region. There is a serious shortfall in trade growth and a serious lack of credit to support trade growth. Why is that the case in this region? We need to examine it. APEC is doing some work, and I hope that the centre I work with will be doing some work for APEC on that.

One of the lessons I see in all this is that the Asian economies in particular—and I could include Latin America—are stronger financially, in a relative sense, than they have been. They are standing up quite well to this crisis. They will suffer from the crisis, as we all will, but their financial systems are looking better, partly because of the improving regulatory and supervisory framework in those economies. That does not mean that they will not suffer from a serious downturn in activity; that is already happening. But I think that we will come out of it a bit more mature—I hope we do—and with some views about what makes better regulatory sense for our economies in this region. Australia has a very good regulatory system. It has stood up very well. We have some important messages and experiences to share with the APEC economies.

Mr HAWKER —I would like to follow up with a couple of more detailed questions. When the current APEC membership embargo expires—and you talked in your presentation about the changes that the accessions of China and Vietnam to the WTO have made, which have been very positive, I would suggest—

Mr Waller —Yes.

Mr HAWKER —other countries in the region might be able to join in. Where does Taiwan’s future lie in all this?

Mr Waller —Chinese Taipei is an economy in APEC, and it is a very active supporter of APEC, one reason being that it has international recognition as a member of that forum. It is very trade dependent. Taiwan has an open financial system now, and it is suffering a serious decline in trade exports. A lot of its export base is electronics and computer type systems, and the market for its exports has fallen dramatically in Europe and North America. So it is vitally interested in the recovery—obviously, we all are. But Chinese Taipei is a very active participant in APEC, for the reason I mentioned: it gives it status. It is, clearly, strongly related to China in an economic sense, and I think that the opening economic and financial relationships between China and Chinese Taipei are critically important to Chinese Taipei. I worked in China for four years at our embassy and I see that relationship as complex but strongly improving. As the Chinese economy seems to be recovering, with domestic demand and investment beginning to pick up, I think that that will certainly bring some relief to Chinese Taipei because of its investment links and friendliness with China.

Senator FERGUSON —They have said they are now going to attend the next meeting of the World Health Organisation too. I think that is a breakthrough.

Mr Waller —Yes.

ACTING CHAIR —It has been a long campaign too!

Senator FERGUSON —A long campaign.

Mr Waller —I think it is good that Chinese Taipei gets into these things. It is a delicate matter, maintaining the relationship with China with its view of Chinese Taipei. I have got to say I think Australia is handling that extremely well. As China becomes more mature in the way it looks at the world and its positioning, certainly in the region, one hopes that it will continue to find an effective working relationship with Chinese Taipei. I think it will. The amount of investment out of Chinese Taipei in southern China, particularly Guangdong, is very strong. It is a very important investment flow.

Mr HAWKER —And are there other countries that might be considered when the opportunity arises?

Mr Waller —When we looked at this at the beginning of Australia’s hosting year, 2007, the big issue was whether India should be invited in. That proved to be a difficult point. You need a consensus of view across all the member economies to expand it, and some were not ready to invite India in. When the moratorium on membership ends next year, I think that the issue will be not only whether we should invite India in but also: should Columbia come in, or even Brazil? The arguments are finely balanced. One is that APEC is finding its feet; it takes time for institutions to grow and become really effective. I have argued that to increase its effectiveness it should support unilateral reform within APEC economies. It has taken time, so it is pushing hard to achieve that. When you broaden the membership to some new economies, will they be instantly supportive of doing all of that or will they be a bit reluctant to come along as far as APEC has now come? My sense is that, with his recent re-election in India, Prime Minister Singh will be very keen to continue opening up the Indian economy. I think that is a good sign. My personal view is that it would be good to see India in this relationship.

As for Brazil, we have some very effective members now in APEC in terms of Peru, Mexico and Chile—and of course the United States and Canada. If that group felt strongly that Brazil would make a very serious impact and a positive one then I would go with that view from Latin America. I think probably it would. But I think we should take advice from those member economies of APEC.

ACTING CHAIR —Do you see a concern arising with the other countries that might think that India and Brazil are not in the Asia-Pacific geographically? I am not suggesting that they should not consider broadening it, but you have got issues within that region where India is, and probably no other country that has anything near the economy and development that is going on in India. But in Latin America, certainly, you have Argentina and Uruguay, and they have their own regional issues. In other words, can you foresee the sorts of issues that have arisen with the EU, where in the end it gets so big that—

Mr Waller —Yes, it can. That is a very important judgment call. My sense is that the issue for Australia is: where do we see our emerging relationships with India? We could continue on the bilateral front. I think APEC is on the front foot now with some important reform initiatives that are going forward. In many ways, I think India would benefit, if I could put it that way, from being part of that group. I would judge this on those grounds—would India and Brazil sign up for what we are trying to do? You would take them on their word. Russia came on board. You see changes going on in Russia which are beginning to open up the economy, and they are positive. We have to, I think, expand our horizons a little bit.

Senator FERGUSON —On the subject of entering Brazil, if Mozambique can get into the British Commonwealth, I think anything is possible. Mr Waller, I think you are much more optimistic about the future trading arrangements of Australia than I am. Having come from a primary producer background in another life and having seen the Cairns Group and the Uruguay Round and the Doha Round, in my view there was very slow progress, if any. I am not too sure that APEC and the WTO are going to move ahead at any faster pace than they have in the past. Is it still the policy of APEC that you have frank and open dialogue but no binding agreements?

Mr Waller —Basically, yes.

Senator FERGUSON —Do you think that is a good policy?

Mr Waller —Yes. It is a question you are always debating when you are working with APEC on APEC matters. The reasoning behind my saying yes is that, in the end, the openness of the dialogue and the no commitment approach—it is all voluntary—is very useful. I think I evidenced this in this note about structural reform programs. What APEC, as an institutional group, is trying to do is promote very good advice that economies can look at and debate amongst themselves and with their own policymakers and leaders: what are the experiences of other members of APEC?; what forms did they take in wanting to go down a reform path?; what were the elements?; and what were the institutional weaknesses that they had to deal with? You cannot get these really established in a commitment. They are, essentially, about how an economy unilaterally moves—things that we have been doing for the last 20 years.

I think the idea of sharing experiences, helping them with building the institutions within APEC and in various economies to help them with those decision-making things and the frameworks they need to deliver, is very useful. I think that is a great, recent development of APEC. As for whether APEC will do something with the WTO, no, it will not. There are 21 ministers and they always say, ‘We recommend to our leaders they do sign the WTO.’

Senator FERGUSON —If I can just interrupt for one minute. The problem I see is that we would all love to have multilateral agreements. That is our first option, the first choice, of, I think, every politician in the place just about. They would much prefer multilateral agreements, but we have not been getting anywhere. So you talk about APEC having open and free discussions over these issues and no binding agreements, yet members of APEC are bilaterally signing binding agreements—

Mr Waller —Yes.

Senator FERGUSON —So there seems to be a conflict there between a body that does not want to have binding agreements and individual members that are moving towards having bilateral binding agreements.

Mr Waller —I agree with you. There is complete irony in this—yet I did say that some of the central work that APEC is doing is to look at all those agreements. Where are the major principles that we all signed up to in the WTO Uruguay Round and before that, in general agreements around tariffs and trade in the forties? We all signed up for MFN and national treatment. APEC is looking at all those agreements and making sure those things are reflected. In a way, if you have got convergence and amendments to those bilateral agreements—and that is a big hope; but let us assume you move some way towards that—you are opening up the prospect of regionalism and for an easy merging of a number of those bilateral agreements. APEC, or some parts of APEC, have proposed an FTAAP, a free trade area of the Asia Pacific, and there is work going on on that to see if that is a feasible thing.

Senator FERGUSON —But how can you do that if you are not going to have any binding agreements?

Mr Waller —In the end, it will not be agreed within APEC. If the 21 economies, or some of them—P4, P6 or whatever—come out of it and set up a binding agreement, it will be an example of APEC having done some work towards assisting in that, and then you have pressure from other members of APEC: ‘Do you want to sign it voluntarily?’ We cannot make people sign agreements. That is the reality. I also said I think Australia’s policy of pursuing rational bilateral agreements, as we are doing, is not incompatible with APEC or the WTO. We have to keep finding ways to expand our trade and investment opportunities.

Senator FERGUSON —I agree.

Mr Waller —We have to do both things: we have to work in the multilateral agreement arena and this one. I think that as a trading nation we have to keep doing that.

ACTING CHAIR —Just following on from that, do you have a comment about the recent FTA that was signed between Australia, New Zealand and the ASEAN group? That indicates at least the possibility of having free trade agreements with a group of countries. They are not all in APEC, but a number of the key economies are. The major ones—

Mr Waller —Yes; they are not all in APEC—Cambodia, for example.

ACTING CHAIR —Yes. That is another variation, if you like, but it has been around for years—the Mercosur group and so on.

Mr Waller —That is right. I was invited to a meeting in Bangkok two weeks ago by the government of Thailand with the secretariat of ASEAN and the OECD. What came out of that meeting which struck me were comments by the foreign minister of Thailand about that agreement and how the investment parts of the ASEAN agreements really are beginning to expand. What ASEAN economy offers to overseas investors outside the ASEAN group into, say, Thailand will be open to that investor right across the ASEAN region. I think that a liberalisation of thinking is happening in ASEAN: ‘We have this agreement now, we have 600 million people in this region: we ought to be doing things differently.’ I think it is a very timely opportunity for Australia and New Zealand to link into that. I see positive things coming from that.

Mr HAWKER —In your submission you talked about some of the work you are doing and some of the programs you want to implement in coming weeks, including ‘the policy framework for food security and trade in agricultural products at a time of rising food prices’ and a few other things. I thought that in your earlier meeting with the committee you also talked about commodity and the strength of commodities. Given that food commodities have risen in price, what do you see developing in that area in particular?

Mr Waller —When we framed that proposal for funding rising food prices was really a very serious international issue and causing considerable concerns in a number of developing economies. The rising food price thing has eased somewhat in agricultural products. In this course, and in addressing the issue of food security, we are trying to impart the idea that openness in markets for food products is really a very important element in ensuring food security for consumers in China and globally and that protectionist policies for agriculture have dangers. We bring in a group of policy makers from the APEC region to talk about what is essentially that matter. But how do they then reflect on this in their own economies? It is about opening investment into agriculture, it is about removing barriers to trade, it is about increasing efficiency and productivity and structural reform to allow those things to happen. These are big issues that we are attempting to discuss. Food security has been on the APEC agenda for some time and it is cast in the terms I have just mentioned. I hope we get some traction to open a much more important debate on food security within the region.

Mr HAWKER —Given the global downturn and the level of protection, particularly in Europe and the United States, do you see any changes occurring there with the meeting of those three points: prices, protection and the downturn?

Mr Waller —I really do not see that happening immediately. The American subsidy and the CAP remains. The Europeans claim to have started serious medium-term reduction of protection in food. We probably have to see this thing come through but keep pressuring for it to happen. I do not see this immediately; I think these are intensively important political differences with the major economies. I think that we have an overarching common problem; that is the global financial crisis and opening markets again, and still arguing to reduce protectionism. But those elements, like fundamental imbalances in major economies, are clearly very hard to move. I do not see any early resolution. I do not know if President Obama will make a difference—I hope he will. I do not know.

Senator FERGUSON —I just want to follow up on the line of questioning I previously had when you were talking about non-binding agreements within APEC. We have already established that Australia is making bilateral arrangements with other countries, some inside APEC, some outside of APEC and New Zealand is doing the same. We are then talking about China and India coming into the whole arrangement. How important in our global trading arrangements is the existence of APEC? If we are making bilateral arrangements, if we are signing some binding agreements which are not part of the principles of APEC and we are signing binding agreements with some countries that are in and some that are out, sometimes jointly, I just wonder when it comes to trading arrangements how important APEC is as a body purely in terms of our trading arrangements.

Mr Waller —My sense is it remains very important in the sense that the intellectual discussion of openness and liberalisation has got to go on. You have 21 leaders, 21 trade ministers, 21 finance ministers and a plethora of committees and senior officials working with those ideas in mind. They may not, in the end, when they come to actual negotiation in the WTO, effect serious change, but I think this discussion that goes on, this examination that continues within the APEC framework is a good one. I said in the notice it is a force for positive development.

Senator FERGUSON —If those same discussions are going to take place at the WTO, why do you need a separate body discussing exactly the same thing?

Mr Waller —I would argue it is not one or the other. I think we have a good grouping of 21 economies that are particularly relevant to us, and those leaders from those economies can meet and do meet. With respect to the agenda in a leaders meeting of APEC, I remember when China ran the APEC leadership, President Bush went there with concerns about 9-11 and he brought in antiterrorism and APEC very immediately focused on that and a lot of other things fell away, I have to say, but he got an effective alliance. The important element of APEC is certainly the economic social discussions, but it is more than that. It is an arena in which Australia has a very effective voice and is respected.

I know the Prime Minister has promoted the idea of an Asia-Pacific community. I think that could well be some time in evolving. I know that ASEAN plus 6 and the other forums in Asia are promoting and are being developed. APEC brings North America, China and Japan together on a series of important issues to Australia. No other forum does that.

Senator FERGUSON —I understand that. I am just not sure of its effect on our trading arrangements or on the future of our trading arrangements. I can see all the other things that APEC does, but I am not sure how effective it is in effectively enhancing our trading arrangements.

Mr Waller —I think, as I repeat myself, the focus on work to find convergence in the various trade and investment arrangements we do enter into meet certain principles and there is understanding within APEC that we should work to do this. I believe that in time that might lead somewhere useful. You may say it is a long shot and it is. A lot of this work is preparing, building steps to something better. It is not an instant result; I accept that.

ACTING CHAIR —I have a couple of other questions. Firstly, I think there was a recommendation in the Mortimer review that Australia should have a national trade facilitation body. Do you have a particular view on that? I cannot find the specific recommendation, but it has been put forward in this inquiry by other witnesses.

Mr Waller —I think that the work of Austrade, EFIC and now, indeed, the DFAT relationship around the world, are very focused on economic relationships and development. Whether something in addition to those is very important I am not really in a position to judge. I think that when we talk of trade facilitation I should have argued and made the point earlier that much of APEC is very much about what the issues are to facilitate trade. We are looking at finding reductions in transaction costs and we are looking at trying to understand what the barriers are at the border, not just tariff barriers and subsidies but handling fees through ports and these kinds of things. And behind the border, why trade is not being facilitated as effectively as it could be. This is very critical work within APEC. In a sense Australia is putting a lot of energy into that.

It would replicate or support that work with a national body focusing on those matters. I am not so sure whether that would duplicate work. We bring work from a number of agencies, including Customs, trade, Austrade and so on. You would have to look at the costs and benefits in a serious way for that.

ACTING CHAIR —In talking about APEC obviously we have been focusing particularly on Asia and Latin America. What about the Pacific? Is APEC doing much or enough promoting trade and investment and economic development in the Pacific nations? That is of immediate interest to us and increasingly so with some of the difficulties that those small island nation states are facing, whether it is economic or environmental, let alone getting into the politics.

Mr Waller —With the exception of Papua New Guinea—that is the only Pacific member economy apart from the big countries—

ACTING CHAIR —But it is part of the region and trade is—I know we have the Asia-Pacific Forum, but this is about bringing benefits to the community at large.

Mr Waller —We have established, as you mentioned, the Asia-Pacific Forum, and the Asian Development Bank and the World Bank have reasonably effective presences in the Pacific Islands.

ACTING CHAIR —So do some of the countries that we have talked about earlier!

Mr Waller —Yes! I was on the board of the ADB; I used to represent Kiribati, the Solomon Islands and Micronesia on the board of the ADB. I used to go to those islands and I found that I wanted the ADB itself to get deeper involved, and we did to a degree. There probably is not a lot that the Pacific Islands would gain in benefit from APEC that is not already being made available by Australia and New Zealand. I think that is the reality.

Mr HAWKER —Talking about the importance for continuing our involvement with APEC, I was wondering how we measure progress with this?

Mr Waller —The business community of APEC did measure progress in 2004 or 2005 and they came up with a serious assessment of trade growth, investment growth as a result of market liberalisation. Arguably, a lot of those benefits would have come through WTL or other ways. Measuring change is complex. Australia has recently established in the APEC secretariat the Policy Support Unit. We have put a very talented Australian in charge of that unit. That unit is putting out bids for work and my centre is interested in this work. One of the first pieces of work it has asked for is to measure transaction cost effectiveness. In APEC’s second trade facility program members saw a five per cent reduction in transaction costs. This is following a reduction in transaction costs under the first FTAP. It is a hard job to do. How do you measure progress on these matters? We are looking rigorously at economic measurement tools to give APEC a serious set of measures. That is on one matter.

Another matter that is coming through is how to measure change in liberalisation in investment. How are economies opening up their investment regimes to enhance investment flow? The second requirement of this PSU is that we get measures on that. Arguably, these are minor types of measures but they are critically important to see if the elements that are coming out of the various communities of APEC recommending governments to do this, this and this are in effect working. We cannot measure that; we are setting out a discipline for how to measure in these areas. We can measure effectiveness in dealing with the spread of disease. For SARS and other things we set up frameworks to effectively manage those kinds of issues within the APEC region. I do not know if measures have been taken on their effectiveness, but I imagine that if the region is successful on this swine fever you could probably point to some elements of structures that APEC voluntarily established to exchange information flow and to give effect to recommendations that have been made to APEC. It is a constant matter and I think it is a genuinely important area that we have got to keep working on. We are doing very serious work on it.

ACTING CHAIR —Thank you very much for your submission, your attendance here today and your evidence. If the secretariat needs to follow up any matters with you they will contact you. You will also receive a copy of the transcript of evidence for which you can send back any necessary corrections. Just remain for a moment so that Hansard can check a couple of details.

[2.54 pm]