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Australia's future in Asia: a trade perspective



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P A R L IA M E N T O F A U S T R A L IA

H O U S E O F R E P R E S E N T A T IV E S

PARLIAMENT HOUSE CANBERRA, A.C.T. 2600

TEL. (06) 277 4720, 277 4419

FAX. (06) 277 4990

HON. A N D R E W PEACOCK, M.P. MEMBER FOR KOOYONG SHADOW MINISTER FOR TRADE

LEVEL 16 90 COLLINS STREET

MELBOURNE, VIC. 3000

TEL. (03) 650 3455

FAX. (03) 650 5115

HON ANDREW PEACOCK MP SHADOW MINISTER FOR TRADE

AUSTRALIA'S FUTURE IN ASIA:

A TRADE PERSPECTIVE

ADDRESS TO

THE AUSTRALIAN CHAMBER OF COMMERCE IN HONG KONG

COMMONWEALTH

parliam entary Library MIC AH

18 September 1992

HONG KONG

INTRODUCTION

It is a pleasure to be able to address the Australian Chamber of Commerce in Hong Kong.

Since it was formed in 1987, the Chamber has been an important conduit for trade not only between Australia and Hong Kong, but also between Australia and the People's Republic of China and between Australia and other economies of the Pacific Rim. The Chamber's contribution to the promotion of Australian exports and the expansion and development of Australian business links throughout the region is welcome.

Trade is about much more than government-to-government relations. It is primarily about business. It is about markets, sales, and hard-headed marketing. Trade is about balance sheets, payrolls and jobs. Therefore, a nation's trade policy must be adequate to the needs of business, otherwise it is merely an academic exercise.

Today I would like to put before you the ways in which the

Coalition's trade policy has been developing and the strategies we intend pursuing to integrate the Australian economy with the economies of the Asia-Pacific region and thereby to increase our exports to the region and attract more business investment from

the region to Australia.

AUSTRALIA-H0N6 KONG TRADE

Before I do that I hope you will allow me to digress to discuss the bilateral trade and economic relationship which exists between Australia and Hong Kong and make some comments about the future of this important relationship.

Hong Kong recently nudged the United Kingdom to become

Australia's seventh-largest export market, accounting for 3.5 per cent of Australia's global merchandise exports. Importantly Australia has a trade surplus of 2.5 to one with Hong Kong. It is the fifth largest destination for Australian investment

abroad, accounting for a total of $AUD3.8 billion in 1990-91. At the end of 1989 Australia had the fifth largest presence in Hong Kong's manufacturing sector. Hong Kong is Australia's fourth largest source of foreign investment after the US, Japan

and the U.K. Hong Kong is an important source for tourists to Australia and Hong Kong has become an important tourist

destination for Australians. And, Hong Kong is Australia's largest source of full fee-paying overseas students while Australia is the third most popular destination for Hong Kong students heading abroad.

Without any stretch of the imagination, the trade and economic relationship between Australia and Hong Kong is very strong in the context of relations between a country of 17 million people and a territory of nearly 6 million.

We see that relationship as growing and deepening.

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Hong Kong has several features which will remain attractive to Australians seeking to export or do business in the Asia-Pacific region. Hong Kong has a free market economy, a common law legal system, it uses English at business and government levels, it has

a well developed infrastructure, a skilled and industrious labour market, competitive rates of taxation, a modern banking and financial system, and is strategically located in North East Asia with which Australia has a complementary economy and from whose

phenomenal rates of economic growth we have benefited.

The Coalition intends increasing Australia's market share in all the economies of North East Asia, as it intends throughout the region, from Japan to China, to Malaysia, Indonesia and

Singapore. Hong Kong can play a pivotal role in our trade and economic thrust in the region, particularly where the North East Asian economies are concerned.

I do not see 1997 as a threat to Hong Kong so much as an

opportunity. China is just about the only country in the world with double-digit economic growth at present. And independent economists have forecast double-digit economic growth for China in both this calendar year and the next while the Government in Beijing is bent on 10 per cent growth per annum throughout the

remainder of the decade.

Hong Kong's role as entrepot will become far more important as China progresses its modernisation agenda, which now includes the privatisation of many of the State's dinosaur factories and industries. Hong Kong has the skilled personnel, the

industriousness and the entrepreneurial ability to - dare I say it - capitalise on this situation. Indeed, Hong Kong businessmen stand to gain substantially from Deng Xiaoping's plans to open new special economic zones, including in central China, and to allow investment and joint venture projects which will allow production for the home market as well as export markets.

One concern Australia shares with Hong Kong relates to the

strained relations between Beijing and Washington. Regional trade flows and growth would be affected if the US decides to remove China's Most Favoured Nation (MEN) access to the US market to protest human rights breaches in China or because of on-going trade disputes between Beijing and Washington. Trade retaliation and trade sanctions never really benefit anyone and they often tend to hurt most the retaliating country or the country applying

sanctions because it may lose a large market or not be able to obtain products as cheaply as it otherwise would.

In this case it is particularly the economies of Hong Kong and Australia which could be severely harmed by the US and China taking trade retaliatory measures against each other. If the US restricts the access of products from China, Australia and Hong Kong will be hurt. Australia supplies the raw materials,

particularly wool, for China's textile industry and two-thirds of China's exports of manufactures to the US pass through Hong Kong. Indeed, the Hong Kong Government estimated last January that if the US applied punitive tariffs to all Chinese goods

named in a 15 page "hit list" document for possible Super-301

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retaliation, the impact on the territory would be the loss of up to 7,200 jobs and $200 million in value-added contribution to Hong Kong's GDP.

As the Chinese saying has it: "If the Castle is set on fire,

even the fish in the moat die."

Clearly, Australia and Hong Kong have an interest in working to ensure that relations between China and the US do not sour to the point that retaliatory trade action is taken by either. We can and should play a role in helping Beijing and Washington overcome

their differences without resort to trade sanctions and other measures which will harm other world economies.

REGIONAL TRADE

One forum in which we could endeavour as honest brokers between the US and China is in the Asia-Pacific Economic Cooperation (APEC) forum.

Australia has always seen the APEC process as an important

vehicle for regional trade liberalisation.

But much remains to be done and we should not be complacent with the progress already made. We are all past marvelling that such a forum could ever be created, especially with a structure to accommodate the diverse political, economic and cultural systems that comprise the region. The reality is that APEC exists with a membership of 15 and the list of countries seeking membership continues to grow. Presently Mexico, Chile and Peru in Latin America, Russia (which like America is a Pacific as well as an Atlantic economy), Vietnam, and even the non-Pacific Rim economy

of India have all either formally applied to join or expressed an interest in accession to APEC.

The reason so many economies have indicated an interest in

accession to the forum is the great potential it has to progress trade liberalisation in a GATT-consistent way and to expand both intra-regional and inter-regional trade.

These countries realise that for the remainder of this decade and probably well into the next, East Asia will be the fastest

growing region of the world. It already has 32 per cent of the global population and contributes around 25 per cent of the world's GDP. In forty years time, the Asia-Pacific market will be more than twice the size of the North American and European markets combined. No country can afford to neglect a potential market of this size.

That goes without saying especially for Australia. We are geographically and economically part of Asia. We are militarily and strategically a part of Asia as a continent lying across the Pacific and Indian Oceans. Our future is inextricably tied up with Asia and the Liberal and National Parties have set as our

strategic goal to make Australia a major economic and political player in the Asia-Pacific region by the year 2000.

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For that reason we are committed to the further development and progress of the APEC process. But we do not believe we should limit our economic integration with Asia only to what can be

achieved through this process.

Consequently the Coalition has developed its Liberal Trading Arrangements (LTA) proposal to achieve regional trade

liberalisation and economic integration on either bilateral or regional bases.

Because the economies of the Asia-Pacific region - particularly those of North East Asia - have complementary economies to

Australia, we believe they will be interested in a trading

arrangement which would guarantee them security of supply of products they cannot produce efficiently. Security of supply - by this we mean much more than the broader definition of security and include such things as quality of product and competitive pricing - would therefore enable them to re-direct scarce

resources into areas in which they have comparative advantage both regionally and globally.

Imagine a situation where Japan and South Korea can buy their steel from the most efficient steel producer in the world and therefore re-direct scarce resources from their steel industries to areas in which they have comparative advantage such as their automotive industries. Or the results of Tokyo and Seoul opening up some of their agricultural markets, such as beef and rice. Consider, for example, the present costs Tokyo faces in

protecting its rice farmers from competition. Keeping its rice farmers happy costs the Japanese taxpayer more than one trillion yen ($US6.3 billion) per annum in direct subsidies and Japanese consumers more than five trillion yen in excessive prices - that

is more than $US800 per household per year. And Japan's "rice mountain" stood at 1.5 million tons in 1990 because of the

surplus production caused by the subsidies!

The lost opportunity cost is considerable. Japanese, with a growing awareness of their affluence and economic might, who may like to see some of that money go into infrastructure

development. If Tokyo is guaranteed security of supply of rice - say from Australia - and at much cheaper prices it will be in a better position to meet the demands of its people. The same goes for all the economies of the region, including Australia.

Living in the most liberal trade environment in the world you in Hong Kong will have an appreciation of the economic merits of this argument. But living in this region and trading with the economies which protect most those areas in which they are least

efficient you will also appreciate the difficulty of the task ahead.

I assure you I am no foolish free trade visionary without an

appreciation of the difficulties involved in establishing LTAs on either a bilateral or regional basis. I have an appreciation of history and of human nature. I recall the words of Ralph

Waldo Emerson:

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"Free trade, they concede, is very well as a principle, but it is never quite time for its adoption."

That is why the Coalition has decided to work towards LTA

agreements in the interim by addressing a range of issues which presently hinder trade between the economies of the region. Our policy is to establish the foundations for free regional trade by building consensus and cooperation in attacking the real

impediments to trade in the future.

Australia will have to begin by seeking cooperation among

regional economies on the exchange of information on patterns and trends in trade and tourism to assure scarce investment is directed to the most productive projects within the region.

We will seek to negotiate on bilateral and regional bases the standardisation of customs documentation and clearance procedures. Similarly we will move towards the harmonisation of legislation and regulations affecting business and trade in the region, and particularly those affecting investment.

A more difficult achievement would be the harmonisation of the region's very different taxation policies but the harmonisation of the region's taxes offers the opportunity for the efficient distribution of investment within the region.

Steps would also have to be taken towards the harmonisation of dispute settlement. This is made possible as all the economies of the region have a vested interest in removing the

uncertainties of market access and in introducing a stable trade regime. This step holds the promise of eventual harmonisation of competition policies and the removal of anti-dumping actions from regional trade.

We will also encourage more two-way investment between Australia and the other economies of the region. At present most

Australian investment is directed to Western Europe and North America and most investment in Australia comes from the U.K. and the US. We have to encourage more intra-regional investment in order to further enmesh the Australian economy with the economies

of the region. A number of the region's economies have already established bilateral and multilateral agreements with other regional economies to protect investment. Australia also has a number of bilateral investment agreements with regional

economies, including one signed early this year with Hong Kong for the promotion and protection of investment. The Coalition will endeavour to negotiate such agreements where none presently exist, and will try to enhance existing investment agreements

between Australia and regional economies, and we will seek the extension of such agreements to eventually include all Asia- Pacific economies. Protection of investment will be an essential feature of all LTA agreements.

This agenda is not exhaustive and there are many more things which can be and should be done by Australia to achieve freer regional trade. I have merely outlined a pragmatic agenda which forms the building blocks for bilateral and regional LTA

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agreements, and which could lead to the eventual establishment of an LTA which embraces the whole Asia-Pacific region.

These building blocks must be put in place over the next couple of years if we are to successfully integrate economically with the economies of Asia by the year 2000. As the Australian

Minister for Trade I will make it my purpose to work towards these objectives in the interests of free regional trade and the economic development of the region as a whole.

ENTERPRISE FOR THE ASIA-PACIFIC INITIATIVE

Many of you would have been very excited by President Bush's announcement last week that he would work to establish bilateral free trade agreements between the United States and a number of countries in Latin America, Eastern Europe and the Pacific. Among the Pacific Rim economies he nominated ASEAN as a candidate

for such an agreement with the US. He also said a number of

other Pacific Rim economies would be interested in negotiating free trade agreements with the US, and specified South Korea and Australia as countries whose leaders had already indicated an interest in closer economic ties with the US.

Although he did not label it an "Enterprise for the Asia-Pacific Initiative" such a title could have served President Bush well.

In Australia, we in the Federal Coalition were quick to welcome the initiative. It is consistent with our own proposal for

bilateral LTAs within the region and our long-term objective to link all the economies of the Pacific Basin to the North American Free Trade Agreement (NAFTA) in order to keep NAFTA open and GATT-consistent.

An important trilateral relationship exists between the US, Asia and Australia, with East Asia exports primarily going to the North American market and Australia's exports to East Asia dependent on East Asia's continued access to North America, in particular to the predominant US market. Any proposal from the US seeking to strengthen and enhance that trilateral relationship

should be welcomed by all the economies of the region.

Because that proposal has come from the world's largest economy it represents the future direction of international trade. It also means an opportunity for free and equal access to a market of 350 million people. Therefore there is every reason to work with the US towards the implementation of this initiative where

the economies of the Asia-Pacific region are concerned.

CONCLUSION

Anand Panyarachun, as the interim Prime Minister of Thailand, commented two weeks ago that Asians have no problem seeing

Australia as part of Asia. He went on to say Australia's place in Asia is a question which is more debateable in Australia than it is throughout the region and that once we had sorted out our identity crisis, Asia would readily accept us.

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I do not think there is any real question for most Australians about our place in Asia. Where a debate exists it exists only amongst a minority who have failed to keep up not only with

recent current affairs but with developments over the last 20 to 30 years that has seen a shift in the destination of our exports, new sources of imports emerge, and changes in migration and tourism trends from Europe to Asia. We are undoubtedly a part of Asia and Asia is the region where our interests lie and will continue to lie.

Because we have indicated an interest in establishing better access to the US market, or a free trade agreement with the US, or accession to NAFTA does not make Australia any less interested in Asia. Indeed, who would suggest South Korea or Thailand are uninterested in Asia because they have signalled such interests

in their relations with the US? A region as diverse as the Asia- Pacific and as dependent on inter-regional trade as it is cannot afford to be singularly obsessed with itself as some would suggest it should be.

Australia's commitment to Asia remains uncontestable. It's right to seek trade opportunities wherever they exist - even outside the region - should also be uncontestable, as it is for every other country of the region.

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