AUSTRALIA AND ASIA IN AN ERA OF LIBERALISED TRADE

Address by The Hon Alexander Downer, MP, Minister for Foreign Affairs, to the launch of the Inside Asia publication, Sydney, 18 July 1997.

The Honourable Mr Bob Carr, NSW Premier, The Honourable Mr John Olsen, Premier of South Australia, Dr David Li, Chairman and Chief Executive, Bank of East Asia, Mr David Armstrong, Editor-in-Chief, The Australian, Mr Charles Jamieson, Managing Director Austrade, Mr Ken Cowley, former Chairman of News Limited, members of the diplomatic corps and other distinguished guests.

I welcome the opportunity this evening to launch "Inside Asia", a very important initiative by The Australian. We certainly encourage a move which will promote wider awareness of the region's opportunities. The Government has said from the outset that closer engagement with the region is our top foreign and trade policy priority. It is absolutely in Australia's own interests that it look to make even stronger the bonds which tie us to the dynamic economies of the Asia Pacific.

I am pleased to see that the first edition of "Inside Asia" concurs with our own assessment that despite a few emerging constraints to the exuberant growth of the past two decades, average growth in East Asia will still easily outstrip average growth in the rest of the world for the foreseeable future. According to World Bank projections this will see four of world's ten largest economies in Asia by 2020 - Japan, China, Korea and India. Amongst the next ten largest economies will be Australia, Indonesia and Thailand.

I have stated on many occasions the essentials of our policy of closer engagement with the region. These are:

PART ONE: The Benefits of Trade Liberalisation

This audience will certainly be well aware that business is becoming increasingly globalised and that rapid technological change is a driving force behind the integration of world markets. These developments have powerful implications for the Government's trade policies. Retaining barriers to trade will only deflect global investment flows towards our regional trading partners which, more and more, are competing with us for the investment dollar.

I am very well aware that there has been considerable debate about tariffs over the last few months. It is certainly important for Government to show leadership on this issue. The benefits of lowering tariffs are not generally recognised by the broader Australian public who have tended, I would have to say mistakenly, to equate reduction of tariffs with job losses.

There is also a widespread feeling that Australia has made a lot of unreciprocated sacrifices, having lowered trade barriers without corresponding reductions by our trade partners.

You will perhaps be surprised to learn that this feeling is mirrored in all APEC member economies where they also think they are the only ones lowering barriers. Indeed, at the Montreal Trade Ministers meeting last May it was decided to promote the benefits of trade liberalisation to all APEC economies.

Because trade liberalisation has been very positive for Australia and its regional neighbours.

There is abundant evidence that trade liberalisation is driving Australia's export growth. For example, as protection has fallen, Australian manufacturers have increased productivity and have been making inroads into international markets.

The services sector is an excellent example of the benefits now flowing through to Australia. Over the past decade, liberalisation of services has accelerated throughout the world. Australia's services exports have grown 50 per cent faster than our imports of services. As a result, in 1996, Australia's balance of payments benefited from a surplus in our services trade with the rest of the world - the first time this has happened since records were first kept some forty years ago.

In practical terms, this means that Australian universities and colleges are making an increasingly important contribution to the training of young people in our region, from Korea to Indonesia. Also, our recreation and hospitality industry is reaping the benefits from a heavy flow of tourists and visitors from the region into Australia. The insurance, financial and legal service sectors are also finding exciting new opportunities for expansion across the region.

Exports of elaborately transformed manufactures - or ETMs - are also a great success story. These have risen by an average of 16 per cent per annum over the last decade as the manufacturing sector has responded vigorously to the pressure of competition.

This tremendous performance is also due to improved access for our products both globally and in the region.

In global terms, average tariffs on manufactures have fallen from 40 percent in the 1940s to around 4 percent now. Even better access is in the pipeline though. As Uruguay Round commitments are fully implemented the proportion of Australia's exports of industrial products facing zero tariffs in developed countries - currently 20 per cent - will more than double. This should add about AUD 5 billion a year to the value of Australian merchandise exports.

The greatest momentum for lower tariffs has, however, developed here in the Asia-Pacific region - where our fastest growing markets are. Over this decade, ASEAN has cut applied tariffs - on a trade-weighted basis - by two-thirds and most recently Indonesia has announced further cuts. In the same period, China cut its average tariff rate from 35 to 23 percent, and will reduce the rate to 15 percent by the year 2000.

The benefits of trade liberalisation are also enjoyed by our neighbours. Freer trade in agricultural products, for example, is starting to give the people of Japan, Korea and Taiwan access to basic and luxury foods at prices they could only have dreamed of a few years ago.

APEC encourages hope for continued liberalisation. Last year APEC economies began implementing the goal of free and open trade and investment by 2010 and 2020.

Each APEC member produced an Individual Action Plan (IAP) setting out its initial steps towards the Bogor commitments. In these Individual Action Plans, member countries have made some striking commitments to reduce further their applied rates of tariff. For example:

Tariffs on cars can still be as high as 200 per cent. Australian agricultural and food exporters continue to face tariffs and other barriers, such as monopoly or state importing arrangements. And our exports of legal and financial services are often obstructed by investment and regulatory barriers.

If our region is to continue to grow, and living standards to rise, governments must show the will to push out further the boundaries of trade liberalisation. For its part, Australia has reduced its tariff levels to 5 per cent or less for most sectors. But liberalisation will only be fully effective if all regional economies contribute.

PART TWO: The Government is Promoting Greater Awareness of These Benefits

If liberalisation is to continue there will have to be broad support for the process amongst the democracies of the Asia-Pacific. It was for this reason that APEC Trade Ministers agreed to promote the benefits of liberalisation more widely. For our part, in addition to addressing gatherings of opinion-makers such as these, the Minister for Trade and I are keen to encourage a broader understanding in Australia of these benefits.

Last month the Minister for Trade launched in Darwin the brochure, entitled "Trade Liberalisation: How Australia Gains". The brochure, which is now being widely disseminated, sets out, in simple terms, the answers to several frequently asked questions about the impact of liberalisation.

The brochure's findings were based on a major study recently undertaken by my Department of the impact on Australia of trade liberalisation both here and abroad. The study found that gains from liberalisation over the last ten years amount to around 1.5 per cent of GDP, or around AUD 1,000 per Australian family per year.

The study indicates, perhaps most importantly, that despite the increased pressures trade liberalisation has brought, many businesses are very pleased with its impact. The experience of 70 companies interviewed was generally positive. These companies cited reductions in the cost of inputs and better access to leading technology as helping them become competitive exporters.

My Department's study also found that maintaining and increasing jobs in many sectors and regions depended heavily on this liberalisation-driven export growth.

In the food processing industry, especially the dairy foods industry, export growth following restructuring contributed to strong employment growth in the Goulburn-Ovens-Murray Region in northern Victoria - unemployment fell from over 12 per cent in 1992 to less than 7 per cent this year. Export oriented information technology and telecommunications companies also generally had robust or growing employment and rising productivity.

Support for ongoing liberalisation was also evident in a series of high-level roundtables, involving senior CEOs, academics and the bureaucracy, conducted by my Department in June.

The Minister for Trade and I will be following up these initial steps with further efforts to ensure that the broader Australian public is more aware of why we have committed Australia to this path of ongoing trade liberalisation.

We want to make it clear we haven't done so because liberalisation conforms with something out of an academic textbook. We are well aware of the pain involved in the adjustment process for some firms and individuals. We've gone down this path because it has broad benefits and has provided jobs for Australians overall, at a time when technological innovation has been reducing further the labour-intensiveness of the manufacturing sector.

PART THREE: Australia as a Key Regional Centre in an Increasingly Globalised Economy

Another important finding when we talked to businesses was that exporting firms now increasingly see themselves as truly 'international' rather than simply as 'exporters'. For many firms, growth opportunities are most likely to come from growing networks, collaboration and investment in overseas markets. There is certainly no desire to return to a 'Fortress Australia' mentality.

This changing sense of identity is perhaps the most gratifying development in response to increased economic liberalisation. As I have said, industry around the world is now organised on a global basis to a much greater degree and new technologies are reshaping economies. These developments offer enormous opportunities to raise living standards.

Other countries such as New Zealand and Indonesia are now accelerating their efforts to bring down trade barriers to allow them to participate in the emerging globally integrated economy. Unless we are prepared to press on with our liberalisation efforts, we risk seeing Australia miss out on new Asia-Pacific investment opportunities - and the jobs that would come with them.

In particular, we wish to see Australia increasingly looked at as a key regional business and financial centre. 200 global companies have already set up their regional headquarters or regional management operations in Australia in the last three years alone. They are understandably attracted by Australia's low operating costs and high skill levels compared to other centres in the region.

We hope to see more and more major financial players here as Australia has a wealth of highly educated, skilled financial executives which makes us very competitive with Singapore and Hong Kong in many financial services areas.

Ongoing economic liberalisation is crucial to sustaining Australia's attraction as a regional investment destination. With a greater appreciation for the benefits we have already derived from the last decade's liberalisation we can look forward to greater acceptance of the further changes which must be implemented if we are to remain competitive.

Conclusion

To conclude, I would say that the defining characteristic of the Asia-Pacific region in recent years has been strong economic growth spurred on by an ambitious economic liberalisation agenda. Our commitment to closer engagement with the region has meant Australia has increasingly been able to participate in the Asia-Pacific dynamism.

Trade liberalisation in Australia and throughout the region has driven the increase in Australia's exports and has created jobs in a range of sectors. Our domestic economy is not enough to drive jobs growth. This is a vital reason why Australia must remain engaged with the region and remain committed to further liberalisation.

The morally reprehensible One Nation Party, in the mistaken belief that they would be preserving jobs for Australians by cutting us off from region, would, in fact, be encouraging our trading partners to go elsewhere in looking to trade and invest. A very important source of new jobs would then be denied us.

I applaud the Australian for investing in Australia's future in the region.

The publication "Inside Asia" will help Australian business compete more effectively in the world's most dynamic markets. It is outward-looking approaches such as these which will create greater opportunities for Australia.