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A free trade agreement with the United States: speech to a St George Bank 'trends' luncheon, Canberra.

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to a St George Bank ‘Trends’luncheon, Canberra, Friday 23 May, 2003

A Free Trade Agreement with the United States

Ladies and gentlemen.

I am very pleased to have been invited to speak to you today.

I’d like to thank St George Bank for giving me this opportunity.

I have been trade minister for almost four years now, and during that time it has been a constant learning process.

The biggest lesson for me has been just how fragile the global, regional and domestic political consensus for free markets and liberalised trade really is.

Speaking to you today is part of our constant effort to maintain and build that consensus.

It is a campaign to persuade those who are unconvinced by the arguments for free markets and liberalised trade.

It is also a campaign to remind those who already believe in free markets that we have a big challenge in sustaining the momentum for trade and investment liberalisation.

Hopefully, this audience belongs to the second category.

Multilateral consensus -stalled …

The fragility of the international consensus for trade liberalization was graphically demonstrated to me at the WTO ministerial meeting in Seattle in 1999.

The collapse of that meeting was due in large part to the unwillingness of major players -the United States and European Union, in particular -to take account of the wishes of developing countries.

The vast majority of the WTO membership wanted to launch a new round of trade negotiations that focused on the trading needs of developing countries -principally in access for their goods into developed countries markets.

Instead, the leading players concentrated on issues such as labour and environmental linkages with trade.

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.

We saw an all-too-brief moment of hope and inspiration at the WTO Ministerial meeting in Doha, with an extensive Development Agenda adopted by Ministers, and with China’s accession to the organisation.

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

The Doha Round of multilateral trade negotiations has slowed dramatically, principally because of some WTO members in the agriculture negotiations have refused to agree to so-called ‘modalities’for reform of the sector.

Don’t get me wrong -we are not about to give up on the multilateral trading system.

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

We have been working hard to lodge serious proposals in all sectors of the Doha Round negotiations.

And we have continued to inject maximum political momentum into the process through the series of mini-ministerial meetings like the one in Sydney last November and the Tokyo meeting in February this year.

As things stand, initial services offers have been made, and we are working towards agreement on industrials or non-agricultural market access modalities.

However, there is still no resolution to the TRIPS/access to medicines issue (so important to Developing Countries) and in the all important agriculture negotiations.

The bottom line is that unless we can resolve these issues and we make significant progress on agriculture the round will fail.

Regional consensus -fractured …

In our region -and partly because of the lack of progress multilaterally -we have seen renewed interest in regional and sub-regional arrangements that can liberalise and facilitate trade.

Progress has been patchy, however, principally because the political will for reform in the wake of the East Asian financial crisis, global economic uncertainty and now the SARS virus has been -at best -uneven.

Despite these difficulties, we have seen some progress in the region -through APEC, firstly, in its continued good work on trade facilitation.

We have also seen movement toward broader and deeper integration of regional economies in other arrangements.

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

So too are tentative moves toward negotiations for a preferential trade arrangements between the countries of ASEAN and China.

A key obstacle to more comprehensive regional engagement on trade liberalisation, however, is that some major economies remain hidebound by vested domestic interests, in particular in agriculture.

The slow progress in the multilateral arena, of course, is strengthening the hand of these vested interests, making progress in either the WTO or regionally even more difficult.

Bilateral consensus -getting results …

The upshot is that many forward-looking countries, including many in our own region, have looked increasingly to whatever opportunities there are for opening overseas markets to their goods and services.

Australia is one of those countries. The lessons of Seattle and the fragility of the global consensus on trade liberalisation have not been lost on us.

Today we have the most ambitious trade agenda in Australia’s history.

At the heart of that agenda is a strategy of competitive liberalisation-a strategy maximising our trade opportunities with individual countries, in our wider region and globally.

It is a strategy that demonstrates that what we do, bilaterally and regionally, can complement and stimulate the multilateral trading system, and the current Doha Round of global trade negotiations.

And it is a strategy that ensures, in these uncertain times, that our exporters achieve greater access to overseas markets as quickly, as broadly and as deeply as possible.

Part of that strategy is to pursue bilateral opportunities.

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.

Now, we are negotiating a FTA with Thailand, and we are pursuing bilateral trade and economic agreements with Japan and China.

In the Middle East, now a major regional market for Australia, talks are under way on a possible trade agreement with the United Arab Emirates.

The FTA with the United States

The jewel in the crown, however, is our negotiation for a Free Trade Agreement with the United States.

It is - without question - the most significant bilateral trade negotiation in Australia’s history, and a singular opportunity for Australia.

It offers us extensive commercial gains -and also serves significant strategic interests.

Commercial gains …

This negotiation is an extraordinary opportunity for improved market access for our farmers and manufacturers, stimulating exports and therefore economic growth and incomes for Australians.

- We see potential commercial gains, in particular, for Australian beef, dairy, sugar and canned fruit products, as well as fast ferries, magnesium and electronic commerce.

The FTA also is an opportunity to ‘turn heads’in the United States and attract additional investment, and therefore more and better paid jobs for Australian workers.

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

Finally, we see an FTA leading to 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.

According to a study by the Centre for International Economics, 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.

Strategic interests …

An FTA with the United States offers us not just direct economic and commercial benefits,

It also is the single greatest strategic opportunity, in foreign and trade policy, presented to Australia for many decades.

Our hard work and persistence, over almost three years, has resulted in an opportunity to negotiate deeper integration with not only the world’s largest economy, but also the world’s pre-eminent strategic power.

It is 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, it is an opportunity to help forge a renewed alliance with the United States on the need for global agricultural policy reform.

Multilaterally, this FTA is a strategic opportunity to set benchmarks and raise ambitions in the Doha Round of negotiations, while demonstrating how a comprehensive and genuinely liberalising bilateral agreement can support multilateral trade negotiations.

This FTA is also a strategic opportunity to demonstrate the benefits of a genuinely liberalising agreement to other countries contemplating bilateral arrangements.

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

Bilaterally, an FTA with the United States is an opportunity to create proper structures for handling policy misunderstandings and differences, and developing the economic relationship further.

- In short, we can put our economic relations -which over the years have been marked by some high profile disputes -on the same mature footing as our political and security relations.

Arguments against an FTA …

Critics of the proposed FTA with the United States have raised a number of arguments to support their opposition.

Some of these stem from a knee-jerk anti-Americanism, which I won’t dignify by responding.

Others, however, are more considered, and do warrant a response.

Relations with 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.

I want to put paid to what really is a nonsense argument.

Firstly, it assumes that our relations around the world are some sort of zero-sum game -something which has never made any sense to me.

Secondly, it assumes that we are both outside of the region, and ignores the fact that both Australia and the United States are already intimately engaged in East Asia.

How could a closer partnership between two key regional players -welcomed by other players in the region - somehow “detract”from our other relationships in East Asia?

Thirdly, it assumes that East Asia’s own relationships, within and outside the region, are somehow static.

The logic of this argument 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.

That seems to me to be an absurd proposition.

Economic impacts …

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.

This was the basic thrust of a study by the ACIL Consulting Group earlier this year.

The logic of this analysis suggests that we would be better off increasing protection - an argument that flies in the face of the robust economic growth Australia has enjoyed in recent years.

It also flies in the face of the other studies -as I have discussed - that we have commissioned to quantify the benefits of an FTA with the United States.

Our studies suggest a measurable improvement in Australia’s GDP from an FTA with the United States.

And we can expect additional benefits from the promotion of business links and investment, greater flows of technology, and stimulus from greater competition that will arise.

Public policy instruments …

Many critics of an FTA with the United States believe that the Americans will use the negotiation to force changes to important public policy programs in Australia.

I think they over-estimate US objectives, and under-estimate Australian resolve.

We have made clear that we 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

As I speak, our negotiators are in Honolulu for the second round of negotiations.

I have spoken to our lead negotiator, Steve Deady, who reports solid progress - principally in identifying those areas for further negotiation.

The rubber will really hit the road in the third and fourth rounds, due in July and again in October.

In between these formal “rounds”there will be ongoing detailed negotiations across the range of issues under discussion to press the pace of the negotiations.

By October we shall have a much clearer idea of whether the two sides can meet the objective we share with President Bush of completing the agreement by the end of the year.

I am both optimistic and realistic about the negotiations. They will be tough, but both sides are committed to a high quality result.

Ladies and gentlemen

The opportunity we have before us is, as The Australian noted in a recent editorial, a classic case of nothing ventured, nothing gained.

As I have laid out, this is not just an opportunity for significant commercial gains for Australian firms and direct, quantifiable benefit for the Australian economy.

It is also a singular strategic opportunity that arises from deeper integration with the world’s largest economy and pre-eminent power.

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

Recently I spoke to Premier Peter Beattie after he publicly expressed concerns about the negotiations for a Free Trade Agreement, and what that would mean for Queensland beef and sugar producers.

Peter Beattie has since stated, in the Queensland Parliament, the following:

“As a result of my discussions with Mr Vaile, I am satisfied that the Queensland beef and sugar industries would benefit significantly from access to the American market”

Peter Beattie also 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 …”

Even Bob Carr has been moved to contradict directly his federal counterparts, saying last week that, and I quote:

“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 pretty neat summary of the coalition government’s position.

I hope that you will continue to support the negotiations, and I look forward to an early report card on further progress, very soon.

Thank you.