G'Day USA US-Australian Dialogue on Cooperation in the Indo-Pacific

Michael, thank you to RandCorporation for hosting today's event along with the US Studies Centre,Sydney and the Perth US Asia Centre, andI acknowledge the many Excellencies here today including Ambassador Hockey,thank you for your very kind introduction Joe, former Ambassadors Kim Beazleyand Michael Thawley, Ambassador Bleich, our Consul General Chelsey Martin, ourformer Consul General John Olsen, the father of G'Day USA, and my former parliamentary colleague the Honorable Bruce Baird and the many friendsof Australia and friends of the United States who are here today.

I'm so pleased to be here in Los Angeles for our 15thG'Day USA showcase, but also speaking again this year at the UnitedStates-Australia Dialogue on Cooperation in the Indo-Pacific.

In fact, I always feel at home on your West Coast. The eucalyptus trees in Los Angeles. Like myhome town of Perth on our West Coast, the beautiful beaches – where the sunsets over the ocean! That's how it should be.

Now, twelve months ago, we gathered here only days after theinauguration of President Trump and at the start of the new Administration.

I said at that time that the United States is the indispensable powerfor stability, peace and prosperity in the Indian Ocean- Asia Pacific region –Indo-Pacific, the phrase that we have coined and is now, as Joe Hockey said, inthe vernacular. You see I come from Perth, we look north and west. Sydney looks north and east, it works for us.

But my point is –overthe past year, my view has not changed.

In November last year, together with Prime Minister Turnbull and TradeMinister Ciobo, I released our Foreign Policy White Paper – the firstcomprehensive foreign affairs blueprint for Australia since 2003.

The White Paper states clearly that the effectiveness and liberalcharacter of the international rules based order – that network of alliances,and partnerships, and treaties and institutions underpinned over the last 70years by international law – that has secured the past seven decades of relativepeace and prosperity – would decline from any diminution in leadership andsupport from the United States.

At times, such leadership can be immensely challenging and carriessignificant costs, not least financial and reputational.

That is particularly the case when the US and likeminded nations defendthe order from those who believe their short-term interests can be advanced byundermining the rules based order.

It is my aim today to state why Australia continues to look to theUnited States for more global economic leadership, not less.

The Trump Administration has made a number of pronouncements and policyshifts that have caused concern, and has led to a global debate and discussionabout the winners and losers under freer and more open economic systems withinand between countries.

While I'm concerned about the emergence of protectionist sentimentacross the globe, I do welcome this debate because it gives an opportunity tobuild greater understanding, particularly among younger generations of thebenefits of that rules based order that has been built since World War II, andthe consequential economic benefits that flow from trade liberalisation.

Those who have benefitted should be amongst the staunchest promoters anddefenders.

Fact. The expansion in global prosperity that has been under way since1945, has transformed lives particularly many hundreds of millions of people inour Indo-Pacific region.

The Indo-Pacific will continue to become more prosperous and be morelikely to reach its full potential if the economies of its nations become freerand more open within the rules based order.

I am convinced that we must continue on this path in what remainslargely a developing region in economic terms.

And without doubt, freer and more open economies under the existingrules based order will entrench gains and create more opportunities foradvanced economies like Australia and the United States.

The rules based order was designed to avoid the zero-sum outcomes ofpast eras.

Nations weak and strong, economies large and small, can compete as westrive for an environment where the economic tide has the potential to lift allboats.

These arguments and principles are not based on hope or ideology but onactual observations and evidence.

Much has been said about the emergence of the Indo-Pacific as the mostdynamic economic region in the world – and with good reason.

Over past decades, we have seen the rise of numerous regional economiesout of the devastation of war and poverty:

• the Northeast Asian economies of Japan, SouthKorea, Taiwan in the three decades afterthe Second World War;
• the Chinese economic miracle since its reforms beganin 1979;
• Asian 'dragons' and 'tigers' in the 1980s and 1990sincluding Hong Kong, Malaysia,Philippines, Thailand and Indonesia; and
• the emergence of countries over the past decade withlarge populations such as India and Bangladesh and Myanmar with rapidly growingeconomies.

A major pillar of the economic rise of the region has been its gradualembrace of increasing competition, freer trade and more open investmentpolicies.

Economies have gone some way down the path of liberalisation consistentwith international rules including those prescribed by the World TradeOrganisation.

These are designed to ensure international trade and investment is fairand transparent – and not based on prejudicial arrangements and favouringlarger and more powerful economies at the expense of smaller ones.

The economic rise of the Indo-Pacific has also led to regional economiesbecoming more, interdependent and entwined with advanced economies includingthe United States and Australia, and more exposed to the global economy.

It is this interaction with advanced economies that has helpeddeveloping economies throughout the Indo-Pacific achieve unprecedented growthlifting hundreds of millions of people out of poverty, and offering theircitizens the prospect of a better and more fulfilling life.

So my point is that the economic advances throughout the Indo-Pacificwould have been impossible without the capital, technology and know-how frommore economically advanced countries.

It is important to note that interactions with the region have in turncreated new and greater opportunities for the benefit of American andAustralian businesses and our citizens, and the evidence for this isoverwhelming.

For Australia, nine of our top ten export markets, nine of our top tenexport markets, are in the Indo-Pacific,with eight in Asia – which receiveabout two-thirds of all our exports.

Our coal and gas continue to fuel the region. Australian iron ore andother minerals are being used to build the infrastructure and products requiredby Indo-Pacific countries to develop.

Australian companies are taking advantage of access to growing economiesin all sectors including services, technology, niche manufacturing and more.

Let me give one example - Blackmores, a leading Australian healthsupplements firm.

A decade ago, it earned almost all of its revenues from the Australianmarket.

Blackmores identified a number of Asian markets with potential for itsfuture growth and developed an expansion strategy which included embracing theopportunities offered by the free trade and other economic agreements Australiasigned with the 10 ASEAN nations, and bilateral free trade agreements withMalaysia, Korea, Japan, China and Singapore.

Blackmores is now a leading provider of health products and vitamins inregional markets – in China, Japan, Indonesia, South Korea, Malaysia,Singapore, Taiwan, Vietnam, Cambodia, Thailand and Mongolia – and they haveplans to expand into India.

So its sales revenue has increased from around US$172 million in 2010 toalmost US$560 million by the middle of 2017, and this is largely,predominantly, as the result of this regional expansion.

Other emerging Australian companies have taken advantage of suchopportunities and they have performed spectacularly.

Zero Latency began operations in Melbourne in 2015, and is now one ofthree Australian companies in the top ten of Deloitte's 2017 Technology Fast500 Ranking in Asia.

It develops 'free-roam' virtual reality systems – a virtual experiencewhich allows users to move around in a virtual world without constraints likecables.

Achieving growth of over 3,600 per cent in 2017, Zero Latency hasoffices in key locations throughout the Indo-Pacific.

Such is the opportunity for the innovative Australian in ourregion.

There can be no doubt that the United States has also benefittedenormously from economic dynamism in our region.

Now of the top 50 most profitable companies from the Fortune Global 500list for 2017, 28 are headquartered in the United States.

Apple is ranked number one with reported profits of around US$46billion.

In the final quarter of 2017, almost US$20 billion of its sales revenuecame from Asian markets.

JPMorgan Chase, the most profitable bank in the United States, earnsabout a quarter of its annual revenues in Asian markets.

Johnson & Johnson, the world's most profitable healthcare andpharmaceutical company derives about half of its revenues from outside the US,with over one-fifth of its revenues from Asia.

The Honolulu-based East-West Centre has detailed the benefits to theUnited States of engagement with Asia in numerous reports.

Its research has found that United States exports to Asia have supportedmore than one million jobs, per year.

Every state in the United States has benefitted in terms of jobs thathave been created as a result of exports into Asia. According to research thisincludes an estimated:

• 195,000 jobs in California;
• 110,000 jobs in Texas;
• 85,000 jobs in Washington State;
• 72,000 in Illinois;
• 65,000 in New York;
• 33,000 in Iowa;
• 27,000 in Pennsylvania;
• 21,000 in Utah;
• 20,000 jobs in Florida.

The East West Centre also reported that in 2015 almost 42,000 UScompanies exported goods and services to the 10 member countries of theAssociation of South East Asian Nations (ASEAN).

This export trade to ASEAN alone supported over half a million jobs inthe United States.

Trade and investment liberalisation has been good for the United Statesand for Australia, for our experience has been similar. Continualliberalisation of our economy has been an overwhelming net gain for ourcitizens, and we're a nation of just 24 million people, the 13thlargest economy in the world and we're in our 26th year ofuninterrupted economic growth.

In the five years to June 2016, our open economic policies are creditedwith having contributed to the creation of 942,000 jobs.

The key for all advanced and higher cost economies is to create new jobswhich produce, distribute or support goods and services, meeting the demands ofour changing societies and those of our economic partners.

Asian economic development is seen in Australia as an opportunity,particularly in the high-value sectors of the economy such as health andeducation services.

For Australia, international trade is 40 per cent of our GDP.

One in every five jobs is related to trade.

In 2016, it was estimated the average Australian household was almostUS$6,800 better off per year, following three decades of trade liberalisationand investment policies.

I believe there are important lessons and principles for our twocountries to adopt arising from our economic experiences and interaction withthe Indo-Pacific in particular.

Let me list four.

First, it has become increasingly difficult for advanced and fullyindustrialised economies to become more prosperous by making and selling goodsand services only to domestic markets.

For a country like Australia with a relatively small population, it isalmost impossible. We cannot get rich selling to ourselves.

The composition of the global economy is changing dramatically.

In the first five decades after the Second World War, middle classconsumers in what we now refer to as the Group of Seven industrialisedcountries were the primary drivers of demand and therefore economic growth inthe world.

Although the G7 and the United States in particular, remain leadingcentres of final consumption in the global economy, the major sources of growthin global consumption are coming from large developing countries predominantlyin the Indo-Pacific.

Indeed, we are living through the most rapid expansion of the middleclass in human history.

It took 150 years from the Industrial Revolution onward in Europe forthe world to reach a middle class of some one billion people – achieving thismilestone in the mid-1980s.

Current estimates are that about half of the global middle class, ofsome 3 billion people, live in the Indo-Pacific region and by 2030, it isforecast that two-thirds of the global-middle class will be living in Asia.

So our priority must be to ensure that we are in the best possibleposition to take advantage of these developments for the benefit of our people.

It is for this reason we have championed and will push ahead with theComprehensive and Progressive Agreement for Trans-Pacific Partnership, theCPTPP, concluded last week.

The 11 partner nations aim to formally sign on to the agreement inMarch.

The CPTPP sets a high standard with respect to the rules and principlesguiding economic liberalisation between its partners.

It will help the member economies become more competitive and takeadvantage of opportunities that would be denied to us or otherwise not exist.It is a powerful case in point.

The agreement has an open architecture and we welcome additional membersin the future if they are willing to abide by its principles and play by itsrules.

Noting President Trump's comment in Davos that he would reconsider theTrump, sorry, the Trans-Pacific Partnership, Australia will encourage the USalong that path.

Second, our observations and experience have taught us it is vital weembrace technological progress, changes in the way economic value is created,and the reality that manufacturing, marketing and distribution has to beincreasingly global.

Companies and countries that do so, become the major beneficiaries ofchange.

Now, the iconic example of how an Apple iPhone is produced continues tobe pertinent and representative of multiple other examples of the benefit tothe US of an open economy.

A smartphone is comprised of multiple parts: the battery, the circuitboard, glass screen, casing and so on.

It is estimated that an iPhone contains about 75 natural elements – sometwo-thirds of the periodic table.

Many of the materials required are simply not commercially available inthe United States.

So Apple has suppliers in around 30 countries.

The globalisation of production and the opening of world markets totheir goods and services is how the world's best companies thrive.

The Fortune Global 500 list is dominated by American firms making avirtue out of necessity.

For example, it is estimated that Apple captures at least half of thegross profit of every iPhone sold even though the product is not predominantlymade or assembled in the United States.

The profits generated allow Apple as with other world leading firms toreinvest in American and foreign markets to fuel the next cycle of growth andjob creation, and innovation.

Indeed, the United States remains the world's leading and mostinnovative economy largely because it is one of the most open economies in theworld when it comes to the flow of capital, goods and services, and people andideas.

Third, there is much common ground between our geo-strategic objectives– articulated in Australia's Foreign Policy White Paper and the TrumpAdministration's National Security Strategy, which we welcome – and pursuingprosperity and creating opportunity for citizens in the Indo-Pacific region.

The Indo-Pacific has enjoyed the greatest and most rapid increase inprosperity in economic history.

It has occurred during the era referred to as the Long Peace – when theUnited States played the most important role in developing, supporting andprotecting that international rules based order.

The durability and justness of the international rules based order issustained by the fact that it does not provide unfair advantage nor does itprejudice any country – whether they be an ally of the United States orotherwise.

All countries rising and competing according to tried and prescribedrules and norms have benefitted enormously.

Indeed, the greatest beneficiaries over the past decade particularlyChina, as well as India, Myanmar, Bangladesh, are not traditional securityallies or partners of the United States.

It is in the interests of Australia, in the interests of the UnitedStates and the nations of our region to prolong the Long Peace, and improve andstrengthen the international rules based order that created the environment forsustained economic expansion.

Fourth and finally, I return to the indispensability of the UnitedStates and its leadership in ensuring a free and open Indo-Pacific.

The role of the power and influence of the United States in creatingincentives for countries to abide by the rules cannot be overstated.

For example, economically, the CPTPP seeks to define the rules andprinciples for further economic liberalisation.

That's why Australia and I'm sure many other members would warmlywelcome the United States into the CPTPP – but not just for the economicbenefits it would bring.

You see, this agreement brings together Australia, Japan, Canada,Mexico, New Zealand, Chile, Peru, Singapore, Malaysia, Brunei and Vietnam.

It has immense strategic value, I suggest, for the United States.Strategic value.

As the US National Security Strategy puts it, accurately and well:

"Allies and partners are a great strength of the United States. They adddirectly to US political, economic, military, intelligence and othercapabilities. Together, the United States and our allies and partners representwell over half of the global GDP. None of our adversaries have comparablecoalitions."

The United States remains in prime position to exercise economicleadership – within its global strategic role.

The fact is:

• the United States consumer market remains the largestin the world by some margin and the United States economy will remain the majorcentre for final demand into the foreseeable future;
• the United States has the largest and deepestfinancial markets in the world, the greenback remains the world's reservecurrency;
• the US economy is the most creative and innovative inthe world; US companies remain the benchmark in most important measures;
• the United States remains the largest recipient offoreign direct investment and largest source of foreign investment into othercountries – by a dominant margin in both cases.

And Australia well knows the United States is its most economic partner,our second largest two-way trading partner, but by far our largest source offoreign direct investment.

This demonstrates the attractiveness of the US economy and theimportance of US capital in the global economy.

Countries from the Indo-Pacific look to the United States for leadershipin key institutions:

• in the United Nations Security Council;
• the G20;
• the East Asia Summit;
• the World Bank and International Monetary Fund.

And let's face it, international politics abhors a vacuum.

Any absence of US and allied leadership within these and otherinstitutions risks declining relevance and influence in global affairs – andothers may fill the gap bringing with them a different set of values andprinciples, and without the necessarycommitment to preserving the best of the international rules based order.

Australia's Foreign Policy White Paper identifies the Indo-Pacific asour primary geo-strategic and geo-economic area of interest and responsibility.

The sub-title of the White Paper articulates our aim to provide'Opportunity, Security and Strength' for Australians.

Our alliance with the United States is central to that purpose.

With our allies and partners, the ever deepening US-Australiarelationship and cooperation gives us the opportunity to strengthen andpreserve that international rules based order, and the liberal characteristicsof a free and open Indo-Pacific for the benefit of us all.

I extend my very best wishes to you all on our national day – AustraliaDay.

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