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Speech at the New Horizons in Trade Conference, Adelaide.



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The Hon. Mark Vaile, MP MINISTER FOR TRADE, AUSTRALIA

Speech

Adelaide, 5 June 2003

New Horizons in Trade Conference

(Check Against Delivery)

Ladies and Gentlemen

It is an honour to have been invited to speak to you tonight.

I was very pleased to accept the invitation, firstly because both the Committee for the Economic Development of Australia (CEDA) and the Institute for International Business Economics and Law are highly regarded.

Secondly, however, I wanted to use this occasion to make a clear and unambiguous statement on how current international circumstances have vindicated the Government’s ambitious trade policy agenda.

There is no question that the international environment for Australian exporters and traders is a tough one.

• The drought continues to have a big impact on exports of primary products, which decreased by 4 percent in 2002 to $70 billion; • Global economic weakness contributed to a fall in exports of manufactures of 2 percent in 2002, to $37.6 billion, and a 1 percent decline in our services

exports, in the same period, to $31.4 billion; • The appreciation of the Australian dollar has also resulted in lower prices received for goods exported -the Reserve Bank’s commodity index, for example, fell 10.1 percent from April 2002 to April 2003. • Specific sectors, too, such as aviation, tourism and some food exports, have

suffered as a result of the uncertainty and lack of confidence generated by terrorism and the impact of SARS.

At the same time we have a strong rise in imports of goods and services, on a balance of payments basis, of some 7 percent in 2002, to $162.2 billion - generated by Australia’s still robust economy.

These impacts have, together, resulted in an increase in the trade balance deficit, to $3.13 billion in seasonally adjusted terms, for the April quarter.

Trade and current account deficits, of course, are not in themselves cause for concern - private sector savings and investment remain efficient, unemployment remains low,

and GDP is forecast by the OECD to grow 3.25 percent (the fastest in the developed world) in 2003-2004.

Moreover, we need to look at our trade performance in overall terms, rather than through snapshots that might present a skewed picture.

• We should remember that exports have increased an average 8 percent per annum since 1997. • We should remember that particular product sectors, such as wine, passenger motor vehicles, scientific equipment, and civil engineering and electronic

equipment have continued to perform extremely well. • We should remember that in markets where economic growth has been above global averages, such as Korea, China, New Zealand and the United Kingdom, Australian exports have continued to grow. • And we should remember that the terms of our trade -in other words, the

change in prices received for our exports, relative to prices paid for imports - have continued to improve, by 2.5 percent in 2002 alone.

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Ladies and gentlemen

The positive outlook for Australia’s trade and economic performance is built upon what constitutes the most ambitious trade policy framework in Australia’s history.

The central element of this framework is a policy strategy known as “competitive liberalisation”. It is a very straightforward concept.

• It is a strategy for maximising our trade opportunities by striking trade deals with individual countries, with regional groups of countries, and globally through the multilateral trading system.

• It is a strategy for demonstrating that what we do -bilaterally, in the region, or in the current Doha Round of global trade negotiations in the WTO -is mutually supportive and not a zero-sum game.

• And ultimately, it is a strategy to ensure, in an uncertain and difficult international environment, that our exporters achieve greater access to overseas markets as quickly, as broadly and as deeply as possible.

Two days ago in Thailand, APEC Trade Ministers explicitly acknowledged that comprehensive, WTO-consistent regional and bilateral free trade agreements can promote overall liberalisation in the Asia-Pacific region and help to ensure that the momentum of the Doha Round is maintained.

Ladies and Gentlemen

20 out of 21 APEC economies are negotiating or are looking to negotiate FTAs or RTAs.

This is a whole-hearted vindication of Australia’s ambitious competitive liberalisation policy agenda.

The WTO

A strong framework of multilateral rules governing international trade is essential for Australia -and for the cause of economic openness.

In 1999 the fragile international consensus on economic liberalisation faltered at the now infamous Seattle WTO ministerial meeting.

It took a further two years and -some would argue -a major shock in the form of the September 11 attacks on New York and Washington, before the world was ready to launch a new Round of global trade negotiations.

At Doha in 2001, we agreed to negotiate market access for agriculture, industrial products, and services, as well as rules, a multilateral register for wine and spirits geographical indications, trade and environment and trade and development.

We agreed to finish the Round in just 3 years, by 1 January 2005.

We have been working hard to lodge serious proposals in the various sectors of the Doha Round negotiations -doing all the technical work..

And we have tried to inject maximum political momentum -such as when I hosted the mini-ministerial meeting in Sydney last November.

But now we are seeing global consensus on trade and investment reform falter once again, in the face of economic slowdown, the uncertainties posed by terrorism and SARS, and continued protectionism in agriculture.

In the Doha Round, key negotiating deadlines have been missed - on agriculture, on industrial products, on intellectual property and access to medicines, and on developing country issues.

There is still no resolution in sight on the all-important agriculture negotiations -so crucial for Australia as a major developed country agricultural exporter.

I believe that resolving the access to medicines issue, which is so important to Developing Countries, remains an abiding moral imperative.

At the APEC meeting in Bangkok and G8 summit in Evian this past week, Ministers and leaders have stressed the need to make continued progress on the Doha Round.

I have welcomed UN Secretary General Kofi Annan’s call for the leading developed countries to confront distortions in trade in agricultural products.

The deadlock in the agricultural negotiations, in particular, leads me to conclude that, unless there is movement on some of the outstanding issues in Egypt later this month, there is little prospect of a major breakthrough before the Fifth WTO Ministerial Conference in Cancun.

Later this month I will travel to Sharm El Sheikh in Egypt for a further mini-ministerial meeting, following up from the meeting in Sydney I hosted last November and the Tokyo meeting held in February this year.

In particular, we will be discussing issues that are crucial to developing countries -not just the TRIPs issues affecting access to medicines, but also improved market access for agricultural and industrial products.

Preferential trade …

Ladies and gentlemen

In our region we have seen new interest in regional and bilateral arrangements that can liberalise and facilitate trade.

The AFTA-CER Closer Economic Partnership agreement between the 10 members of ASEAN and Australia and New Zealand, signed last September, is one example.

On the one hand the agreement reflects good cooperation and willingness to adopt measures that facilitate trade.

On the other hand, it falls short of a preferential trade arrangement because some members of ASEAN were reluctant to embrace market access.

We are seeing these same tensions playing out in the various proposals for trade and economic integration in our region, such as between ASEAN and China, and between Japan and ASEAN.

In the meantime, some countries have concluded that they should press ahead with initiatives to pursue greater market access.

Australia is one of those countries.

Our most important bilateral initiative is our negotiation for a Free Trade Agreement with the United States.

This FTA offers us extensive market access gains for our farmers, manufacturers and service industries, especially where there remain considerable barriers in the US market.

- In particular, we see gains for Australian beef, dairy, sugar and canned fruit products, as well as fast ferries, magnesium and electronic commerce.

This FTA offers us a potential windfall in investment terms, as the Agreement is likely to “turn heads”in the United States to the opportunities in the Australian market.

- We want the FTA to lift US barriers to investment, especially in financial services, and to ease US residency requirements in the legal, accounting and architectural professions.

This FTA also offers an opportunity for much greater business integration, as Australian and US companies realise synergies in innovation, research and development, material sourcing, product development, marketing and information technology.

- Access to the world’s biggest government procurement market through the FTA will be a huge bonus for Australian companies wishing to work with US firms in winning US government contracts.

Strategic economic interests …

An FTA with the United States offers us not just direct economic and commercial benefits, but also an enormous strategic opportunity, in both economic and trade policy terms.

We have an opportunity to negotiate deeper integration with not only the world’s largest economy, but also the world’s pre-eminent strategic power.

We have an opportunity to underpin our economic relationship with a treaty level agreement on a par with our long-standing political and security relations.

We also have an opportunity to shape US attitudes and positions, as influential as they are, in the Doha Round of multilateral trade negotiations and for the multilateral trading system itself.

- In particular, we can help forge a renewed trade negotiating partnership with the United States on the need for global agricultural policy reform, particularly in Europe and Japan.

Multilaterally, this FTA can set benchmarks and raise ambitions in the Doha Round of negotiations, and demonstrate how a comprehensive agreement can support the multilateral trading system.

Regionally, this FTA can demonstrate the benefits of a genuinely liberalising agreement to other countries contemplating similar arrangements.

- In our own region, an FTA with the United States will send a powerful message about the type of liberalisation we want to see.

Bilaterally, this FTA can create proper structures for handling policy differences, and developing the economic relationship further.

Relations in East Asia

One thing an FTA with the United States will not do, as some critics have claimed, is detract from the quality of our relationships in East Asia.

This line of thinking, firstly, assumes that our relations around the world are some sort of zero-sum game -an assumption that has never made any sense to me.

Secondly, it assumes that Australia and the United States are somehow not involved in the region, and ignores the fact that both Australia and the United States are already intimately engaged in East Asia.

We have completed a Free Trade Agreement with Singapore -the first FTA Australia has entered into since the CER with New Zealand was completed 20 years ago.

This past week I met Thai Prime Minister Thaksin, and was delighted with his strong commitment to concluding our negotiations for a Free Trade Agreement before the APEC Leaders’meeting in October.

As you know, we are pursuing bilateral trade and economic agreements with Japan and China, which of course remain very significant markets.

Thirdly, it assumes that East Asia’s own relationships, within and outside the region, are somehow static -a rather patronising view of a region where not one country isn’t undergoing quite fundamental transformation.

The logic of this argument, for example, is that we should stand idly by while other countries in the region pursue their own FTAs, or other forms of economic integration, with the United States, or China, or Japan.

One final point on this issue: in the past year or so I have visited many of our South-East Asian neighbours (Thailand, Vietnam, Singapore, Malaysia and Indonesia), as well as China, Japan and Korea.

Not once on any of these visits have my counterparts raised with me any concern that an Australia-US FTA would impact negatively on Australia’s trading relations in the region.

This comes as no surprise to me.

With signature last year of the AFTA-CER Closer Economic Partnership; an FTA with Singapore already concluded; FTA negotiations with Thailand to be concluded by October; and our pursuit of trade and economic agreements with China and Japan, it defies understanding that anyone could suggest that Australia has taken its eye off its own region.

It’s time to put this sterile debate behind us, and focus instead on the benefits Australia stands to gain from the various bilateral free trade negotiations we are conducting with trading partners in different parts of the world.

Costs and benefits

Another thing an FTA with the United States is not likely to do, as some other critics have claimed, is shrink Australia’s economy and divert our trade with East Asia.

A study by the Centre for International Economics, for example, shows that an FTA with the United States offers the prospect of a boost to Australia’s GDP of between 0.3-0.4 percent, over the next ten years.

- For the beef industry alone, removing tariff quota restrictions could be worth several hundred million dollars annually in gross beef production.

More recently, a report produced by staff members at the Productivity Commission found that 12 out of 18 preferential trade arrangements studies had diverted more trade than they created.

The report did not attempt to model the impacts of the FTA the Government has negotiated with Singapore, and the agreements we are negotiating with Thailand and the United States.

It even suggested that the 550 percent growth in our goods trade with New Zealand since 1983 had nothing to do with the Closer Economic Relations Agreement signed by the two countries the same year.

The fact is that our trade barriers are already low -so comprehensive agreements, such as those the Government is pursuing, minimise the possibility of trade diversion.

Moreover, as the report acknowledged, comprehensive agreements like those we are negotiating are likely to create additional investment, and have considerable dynamic benefits for business.

Public policy instruments …

Some Australians are concerned that the Americans will use the FTA negotiation to force changes to important public policy programs in Australia.

We have made it very clear that we will ensure that any agreement will not compromise fundamental objectives in health care, education, consumer protection and cultural identity.

- We remain committed to a Pharmaceutical Benefits Scheme that provides Australians with access to affordable, quality medicines.

- We will not enter into any arrangement that compromises the scientific integrity of Australia’s quarantine regime, nor the broader objective of protecting human, animal and plant health.

- We will ensure that our capacity to support Australian culture and national identity, including in audio-visual media, is not watered down in the negotiations.

Ladies and gentlemen

Any Australian political party not prepared to support these negotiations would be turning its back on this once in a century opportunity.

If at the federal level the ALP doesn’t get it, then at least State Labor Premiers do.

Peter Beattie has said, and I quote:

…a Free Trade Agreement with the United States would result in a significant boost to Queensland industry and to job creation …and has my support …”

Bob Carr has also contradicted his federal counterparts, saying recently:

“It is in Australia’s interests to link ourselves with the world’s most dynamic and creative economy. It’s about more than trade, it’s about more than investment, and it doesn’t rule out Australia’s growing economic relationship with East Asia”.

I think that is a very accurate summary of the coalition government’s position.

It seems that, with the exception of the Federal Labor Party, we have a consensus in this country - and throughout the Asia-Pacific - for FTAs such as the one we’re negotiating with the United States.

Conclusion

Ladies and gentlemen

It is difficult not to agree with an important article written by Jean Rene Fortou, Chairman and CEO of Vivendi International, and Chairman of the International Chamber of Commerce, last week.

In it he said:

“The world is approaching one of those cross-roads …(we) can take the road to greater liberalisation of international trade …or risk sliding into a stagnant world economy hobbled by short-sighted self interest …”

We are all going to have to show serious commitment -and negotiating flexibility -in Cancun and beyond, to achieve success from the Doha Round.

Otherwise we risk seeing a repeat of the so-called “bicycle theory”, whereby if we fail to sustain the momentum for liberalisation, than we face renewed protectionism.

Our approach of competitive liberalisation is to work hard at the main game -the Doha Round of multilateral trade negotiations - while also seeking other opportunities for quicker and deeper results.

These initiatives -such as the FTAs we are striking in the region and with the United States -serve both as a fillip to the Doha negotiations, and as insurance should the Round continue to falter.

In the end, our trade policy is about pragmatic, hard-headed decisions, free of ideological bias or pre-conceived notions; decisions that serve the interests of our primary producers, manufacturers and service providers.

In the end, these are the same interests that serve all Australians.

Thank you.