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Harnessing globalisation's power - Australia in the international economy



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Annual Trade Lecture

by the

Minister for Foreign Affairs The Hon. Alexander Downer MP

to the

Melbourne Business School

UNDER EMBARGO

UNTIL 1930 25 FEB ’98

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Harnessing Globalisation’s Power - Australia in the International Economy

Melbourne, 25 February 1998

(Check Against Delivery)

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Harnessing Globalisation’s Power: Australia in the International Economy

Annual Trade Lecture by the Hon Alexander Downer, MP, Minister for Foreign Affairs, to the Melbourne Business School, Melbourne, 25 February 1998.

Introduction

Ladies and Gentlemen .

I am delighted to be at the Melbourne Business School again, and to have the opportunity to deliver the third Annual Trade Lecture at the Centre for the Practice of International Trade.

This lecture - though only two years old - is already a well established feature of the academic, business and government calendar.

It continues to receive strong support from the Melbourne business community, and I want to congratulate all those who have worked so hard to make the lecture series a success.

It is an excellent opportunity to consider the broader economic trends influencing Australia’s regional and global environment, and their wider policy implications for the future.

I think it is fair to say that the global integration of trade and investment has been gaining momentum ever since Adam Smith’s The Wealth o f the Nations struck the first telling intellectual blows against the inflexible, state-directed mercantilism of his time.

But, as we come to end of the 20th century - and look ahead to the new millennium - globalisation is transforming the world economy in completely new and remarkable ways.

Globalisation is the single most influential international trend of the last few decades.

It is encouraging governments across the globe to make their foreign and trade policies as effective and results-oriented as possible.

It is offering real advantages to those economies and societies that are genuinely open to innovation and quick to adapt for their own use more practical ways of doing things.

It is rewarding flexibility and openness in institutions and governments, and penalising those who are unwilling to sustain economic refqrm and transparency.

That is why globalisation is creating enormous challenges and opportunities for Australia and our neighbours in the Asia Pacific.

It means that many more Australian institutions and individuals - not just governments and officials, but universities and other public and private groups, including the University of Melbourne - are playing an active role in determining the quality of Australia’s engagement with the world.

Part One: Globalisation and the Australian Economy - Real Benefits for Australians

As many of you know, November 1997 marked the 50th anniversary of the creation of the General Agreement on Tariffs and Trade - more popularly known as the GATT.

While globalisation, in one form or other, has been a fact of international life for over one hundred years, the period since World War Two - following the creation of the GATT - has witnessed the most rapid and profound change in trade and investment relations between countries ever seen in history.

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It is clear that the establishment of the GATT was a watershed event that heralded a new era of cooperation between countries to achieve the fairest and most open trading system possible.

Australia’s economic development in the fifty years since the end of World War Two provides ample evidence of the influence of these global economic forces.

But Australia has not just been a ‘passive recipient’ of international trends - successive Australian governments have been able to give strong voice to our national interests and shape our engagement with the world by formulating long term goals and implementing practical policies.

Above all, we have seen a major transformation in the Australian economy and, in particular, our trading relationships with the Asia Pacific and the rest of the world.

Fifty years ago, the hackneyed phrase that Australia ‘rode on the sheep’s back’ had much more than a grain of truth to it.

In the late 1940s, nearly 50 per cent of our export earnings came from wool, and rural products generally accounted for almost 80 per cent of Australia’s export earnings.

Prospects for expanding coal exports were still ‘a gleam in the entrepreneurial eye’, and manufactures, machinery and transport good exports were insignificant.

The Menzies Government’s landmark commercial agreement with Japan was still a decade away. In fact, Australia had the export structure of a 19th century agrarian economy.

What has changed in the Australian economy since the 1940s, and why ?

Today, while agricultural and resource exports remain important products in our exports, the rapid growth in manufacturing exports has given us a diversified export portfolio.

About one third of our merchandise exports are now manufactures. Though our manufacturing exports increased in importance in the first decades after World War Two, the most rapid growth in these exports has occurred over the past ten to fifteen years.

Trade Liberalisation is the Key

It is clear that trade liberalisation - in Australia and abroad - has provided the impetus for this acceleration in manufacturing export growth.

Since 1984-85, the average effective tariff rate on manufactured goods in Australia has fallen from 22 per cent to around 6 per cent in 1996-97.

At the same time, tariffs in many of our major trading partners have come down significantly. Here are just two of the many specific examples:

. In Indonesia, between 1989-90 and 1996-97, the tariff on telecommunications equipment fell from 23.8 per cent to 12.9 per cent, and Australia’s exports of telecommunications equipment rose from $2.9 million to $35.4 million.

. In Japan, during a similar period, the tariff on parts for computer equipment fell from 4.6 per cent to zero, and Australia’s exports of computer equipment rose from $9.6 million to $68.2 million.

While both trends have been significant - tariff reductions in our trading partners and Australia’s own tariff reductions - 1 believe that Australia’s tariff reductions have been particularly important in establishing this impressive export momentum.

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Achieving lower or zero tariffs in another country achieves little net benefit if Australia’s exporting industries cannot compete in the international marketplace.

If an industry is not internationally competitive, the level of tariffs in another country is largely irrelevant to its profitability and productivity. Inefficient industries nurtured behind tariff barriers are poorly equipped to take on the region and the world.

The commitment to trade liberalisation shown by successive Australian Governments has required Australia’s industries to become more productive and competitive.

It has encouraged our enterprises to develop a more dynamic ‘export culture’ that was missing when they were protected from overseas competition.

This means that as we have reduced tariffs our manufacturers have become export-oriented and outward-looking enterprises, rather than inward-looking industries satisfied with simply ‘holding the line’ or competing with imports.

It is not true that removing tariffs has destroyed our manufacturing sector. On the contrary, as protection has fallen, the Australian manufacturing sector has continued to increase its output.

And manufactures are not the only sector to benefit from the rapid advance of globalisation. Over the past decade, liberalisation of services has accelerated throughout the world. Australia’s exports of services have grown 50 per cent faster than our imports of services.

Australia has developed a dynamic, highly diversified services sector, which is capable of providing high value added services tailored to the special needs of individual countries.

At the same time, trade liberalisation has delivered tangible benefits to Australians through increased GDP, expanded employment, better family incomes and higher living standards.

Globalisation can cause some short-term pain, but it has long term benefits for all.

The economic growth and development associated with globalisation has paid for health care improvements, better education and housing.

And our generation has unimpeded access to information and knowledge of a kind unrivalled in human history.

Part Two: A Practical Trade Policy - Maximising the Benefits

In this global economy, the strength and productivity of Australia’s economy is the single most important determinant of Australia’s future.

The Australian Government’s Foreign and Trade Policy White Paper released last year - Australia’s first ever - recognised this fundamental fact in recommending a ‘ whole-of-govemment’ approach that brings together the threads of domestic and international policy.

Clearly, Australians benefit the most when barriers to trade are low or completely removed, when genuine innovation is allowed to flourish, and when Australia’s enterprises are given free rein to compete in the regional and global market place.

That is why - over the past two years - the Government has been implementing an effective trade policy designed to maximise the benefits flowing through to Australians at three levels - bilateral, regional and global.

Effective Bilateral and Sectoral Strategies

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First, the Government pursues practical market access results through bilateral negotiations and sectoral strategies.

We have had considerable success by establishing a Market Development Task Force which is aimed at coordinating government activity to target realistic priority markets access, trade promotion and trade development.

To take just three examples - we have made market access gains in some difficult food areas in Japan by having bans removed on products such as tomatoes and shellfish; we have secured better access for Australian milk into the Malaysian market; and gained new access for our beef in the Taiwanese market. ' -

The Task Force has been one important innovation in the way we have sought to identify industry’s trade concerns and act effectively to address them. Beyond the Task Force, we have also taken positive action in several sectoral-specific matters.

As a feature of our decision last year on assistance for the automotive industry, the Government introduced a market access strategy, including the establishment of a new Automotive Trade Council, and a market development package worth $20 million over four years.

We are also devoting greater attention to the agri-food sector where enormous opportunities are opening up in fast growing markets. A senior trade negotiator has been appointed within my Department as Market Access Facilitator for Processed Food and Beverages.

The Asia Pacific - APEC’s Enduring Importance

Beyond the bilateral level, the Asia Pacific is the region of greatest importance and priority to Australia - a region that is evolving more rapidly than ever before.

It is a region facing major challenges in the short to medium term - the challenges that come with decades of unprecedented economic growth, and the renewed imperative for economic reform and greater transparency in its financial institutions.

I believe that the Asia Pacific will not lose its economic dynamism, but it will have learned valuable lessons from the current economic crisis.

East Asia’s economic problems have not come about as a result of too much trade liberalisation. Rather, the financial markets have responded to overheating in several regional economies and inadequate financial sector controls.

The response to these developments, while occurring at different rates, has generally been to embrace greater liberalisation and tighter financial standards as the only antidotes to financial market instability.

It will be important to ensure that any neo-protectionist sentiment in the region is ‘nipped in the bud’ before it has a chance to grow.

Regional cooperation is also an important part of achieving practical solutions for East Asian instability. The APEC meeting in Vancouver last year showed the way forward on liberalisation and reform. It represented a timely ‘vote of confidence’ in the region.

At Vancouver, there was a strong reaffirmation of the need to press ahead with liberalisation, and to keep firmly in view the goals of free and open trade and investment by 2010 and 2020.

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APEC Ministers agreed - and APEC Leaders endorsed - a continuing program of voluntary liberalisation of 15 trade sectors.

The decision is particularly pleasing to Australia because we took the initiative in the first half of this year to accelerate the process so that a decision could be reached in Vancouver.

In addition, we secured three of our key nominations in the 15 trade sectors for early liberalisation. These sectors were food, chemicals and energy.

Our success in this area was a credit to the ability of the APEC forum to address difficult issues and take the hard decisions. ' .

There is no doubt about the extent of the challenge involved in preparing recommendations in the complex food sector, but I believe that the benefits will be worthwhile.

Tariff liberalisation for processed food alone would bring gains to the region of $US 32 billion. Australia’s food exports to the APEC partners are worth about $3.4 billion a year.

The broader message from APEC is that the East Asian economies will not overcome their difficulties by closing their shutters on the outside world.

From the 1970s onwards, the countries of East Asia were able to lift substantially their growth rates by linking themselves to the world economy through trade, investment, capital flows and technology exchanges.

The commitment of East Asian economies - even with their current difficulties - to reform in the WTO financial services negotiations concluded in December represented an important regional response to the crisis.

The Global Level

That leads me to the importance of the global trading system, and the range of Australia’s national interests engaged in global trade liberalisation.

The multilateral forum of the GATT - and its successor the WTO - exist only because there is widespread recognition of the benefits that a world trading system based on open, fair and undistorted competition brings to all.

The recent Uruguay round was the m*st extensive to date, and involved no less than 123 countries.

It covered virtually all areas of trade policy, including the extension of multilateral agreements in agriculture, trade in services and intellectual property.

The Uruguay Round outcomes, and the establishment of the WTO, reflect strong international support for trade liberalisation worldwide.

The benefits from the Uruguay Round are plain to all. They are spread fairly among all participants, directly benefiting all the major trading economies.

A new comprehensive multilateral round of trade negotiations is needed to address the remaining market barriers; to exercise greater disciplines on subsidies, especially in agriculture; and to settle the service issues that globalisation is pushing up the agenda.

More and more countries are becoming active participants in the process, and trade policy attention is moving from tariffs to economic integration.

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That is why Australia wants to see a new global round launched by the end of this century.

The global trade policy leadership shown by the United States will be central to the success of further negotiation rounds. To provide this leadership, it is important that the Clinton administration be given a new ’fast track’ trade negotiating authority by Congress.

The Clinton administration’s failure to obtain fast-track authority from Congress towards the end of last year raised fears of the US abandoning the trade-liberalising path which has served it and the region so well.

Australia has been a strong supporter of ‘fast track’ authority because of the positive signal it sends to the world about US intentions to press ahead with an ambitious trade liberalisation agenda.

Given the pivotal role that the United States plays in global trade liberalisation, early passage of ‘fast track’ is a matter of central importance to Australia’s - and the region’s - interests.

Part Three: Looking Ahead - Embracing Our Electronic Future

Finally, I want to spend a few minutes looking at one of the key trends for the future - the continuing information revolution.

Globalisation and trade liberalisation are advanced by much more than the actions of international bodies or trade negotiators.

Innovation in telecommunications and information technology is pushing globalisation ahead at a pace that is difficult for policy makers and business people to keep up with.

That is why I believe that the key element of the 21st Century’s technological advance will be accelerated information flow.

Already, there is a substantial amount of cross-border internet trading underway, despite the lack of firm international rules on internet commerce.

My Department estimates that trade on the internet could grow from $5 billion annually at present to up to $150 billion by the turn of the century.

This extraordinarily fast growth will be the result of many factors. The most important will be the continuing worldwide surge in the number of Internet users, which is expected to grow from approximately 70 million worldwide fcurrently to 170 million by 2000.

Electronic commerce provides an efficient and cheap way to stay in close touch with clients and markets through electronic mail, remote on-line data bases, video links and the transaction of electronic business.

The web also offers significant opportunities for small and medium-sized enterprises located in rural and regional Australia to become involved in export activities.

The growth of electronic commerce is already having a radical impact on the way in which we do business with our regional trading partners and the rest of the world.

For example, our vegetable growers now receive internet orders from restaurants and hotels around Asia, after which they pick, pack and despatch the produce to reach consumers "just-in-time" that same day.

That is why the Government is working to establish an environment that anticipates the important role electronic commerce will play in international trade in the next ten years.

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Australia has already appointed the world’s first Minister for the Information Economy.

Conclusion

I want to conclude my lecture with the thought that while globalisation is an irreversible trend, it is not something that should be viewed as a juggernaut bearing down on the lives of ordinary Australians.

Globalisation is an overwhelmingly positive trend that will continue to offer real benefits for Australians, and it lies at the heart of our growing engagement with the Asia Pacific and the world.

Today, countries are separated less by ideology or geography, and more by what they do economically and politically, and how effectively they marshal national assets in the service of national interests.

More than ever, governments are measured by their ability to deliver jobs and investment, and stable political and economic systems, to their citizens.

We cannot turn our backs on globalisation - as the ‘globaphobes’ and neo-protectionists would have us do - without rejecting all the hard trade-liberalising work that has been done since the creation of GATT, including by regional bodies such as APEC which Australia helped to establish.

More than that, globalisation - carried forward by new technology - builds economic interdependence and deeper commercial links of all kinds between nations, with positive flow-on effects for wider security and strategic relationships.

That is why the challenge for the future is to maintain the momentum of trade liberalisation across the board, and foster the common interest in freer and more trade that Australia shares with its neighbours.

I can assure you that the Australian Government will continue to develop and implement the practical foreign and trade policies designed to achieve this goal, and advance our national interests in enduring ways.

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