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Presentation by the Ambassador of Australia to the Philippines
HE Mr Bill Tweddell
to the Trans Pacific Partnership Round Table
25 September 2012
Thank you Undersecretary (Adrian Cristobal)
Undersecretary Laura del Rosario, Department of Foreign Affairs
Other representatives of the Government of the Philippines
Dr Bernardo Villegas
His Excellency Reuben Levermore
His Excellency Roberto Mayorga Lorca
Charge D’Affaires Zakuria Nasir
Charge D’Affaires Sharul Anaz
Colleagues from other embassies, including the US Embassy
Ladies and Gentlemen
On behalf of the Australian Government, I would like to thank Secretary Domingo for hosting this round table. A discussion on economic reform, including trade and investment liberalisation, is an important and timely initiative given the current global economic environment.
Today it is my pleasure to talk to you about Australia’s Free Trade (FTA) agenda, our approach to trade liberalisation, which we believe goes hand in hand with National Competition Policy, and finally to touch on the benefits that Australian agriculture has seen from reform.
Free Trade Agreements
Eliminating barriers to trade and investment is an enduring Australian Government policy priority.
FTAs not only improve market access for our products and services, and but they also provide Australian consumers with greater choice and access to goods and services at lower prices.
Australia has completed seven Free Trade Agreements (FTAs): with ASEAN, New Zealand, Singapore, Thailand, the United States, Chile and Malaysia. These agreements cover 27 per cent of our total goods and services trade with the world.
Five more bilateral FTAs are under negotiation. These are with China, Japan, Korea, India and Indonesia and we’re involved in negotiations for the Trans-Pacific Partnership (TPP). Together these deals would cover a further 42 per cent of Australian goods and services trade.
The TPP is designed to be a high-ambition, comprehensive free trade agreement that delivers deep liberalisation of good, services and investment barriers while also addressing new issues of interest to business in the 21st century.
The elimination of traditional barriers to trade, such as tariffs and non-tariff measures as well as the removal of barriers that restrict trade in services and investment are at the core of the TPP.
TPP Leaders have all committed to this high level of ambition. We see the TPP as a gold standard agreement, it will involve going beyond the commitments found in other FTAs.
Australia has gone through a range of reforms over the years which have positioned us well to deliver on the ambition of the TPP.
Future participants will be expected to demonstrate that they can meet this level of ambition. It is not an exercise where new entrants can expect to follow a business-as-usual approach to reform.
In addition to the work, which the Australian Government is doing with respect to FTAs, we are also garnering support amongst our friends to resist any pressure to turn back the clock on trade liberalisation.
Since the onset of the Global Financial Crisis (GFC), G20 and APEC pledges and WTO rules have to some extent constrained countries from turning to protectionist trade responses. Despite these efforts, protectionism is again on the rise. We must resist this development. Resorting to protectionism would throw away decades of progress and exacerbate the current difficulties.
Australia is well-positioned to take advantage of the trade and investment opportunities that open markets and trade liberalisation provide. In a turbulent global economy, Australia is the fastest growing major advanced economy. As much of the developed world is still trying to escape recession, the Australian economy is ten per cent larger than it was at the beginning of the GFC. We finished the 2011-12 financial year with a $5.8 billion trade surplus.
Australia did not get to the strong position it is in today by accident. Several decades of economic reform were required to make Australia an open, stable, innovative economy; this, combined with utilisation of our bountiful natural resources, has allowed us to tap into the exciting opportunities in the region.
Australia’s trade reform history
Over the last 40 years, successive Governments have transformed the Australian economy to one that is outward looking. One that looks to take advantage of all the opportunities trade and investment provide.
Forty years ago, many Australia industries were over-regulated and not competitive; with a regime described quite accurately as protectionist. For a time, the problems associated with protectionism were hidden by the strong performance of our agricultural and mining industries. Eventually, however, ineffective resource allocation driven by inward-looking policies, began to have a substantial economic impact.
In response, the Australian Government implemented a wide-ranging program of structural reform which included floating the dollar, and liberalising financial markets, product markets and government business enterprises.
Tariff reform began with a major shock in 1973 when, without warning, the Government implemented a 25 per cent across-the-board tariff reduction. While this was a positive start and done with good intentions, the dramatic cut caused a major public backlash, which prevented further reforms for a decade.
However, by the early 1980s there was a revived discussion on the benefits of opening the economy up to competition through the elimination of import quotas and reductions in tariffs.
Over a 13 year period, almost all Australian tariffs were reduced to five per cent or less. These reforms were hard, particularly for industries that had been insulated from foreign competition, but they yielded significant benefits for the whole economy.
A fall in expensive, labour-intensive manufacturing activities occurred and work practices, across all sectors, improved, supported by the adoption of new technologies. There was a marked increase in business research and development, which in turn led to greater innovation and higher productivity across the industrial landscape.
Australian households have benefitted on average by A$3,900 each year from opening up the economy. These gains have come from greater income from exports and falling prices for imported and import-competing goods and services.
Interestingly, a major supporter of these economic reforms was the institution that had previously driven protectionism. The Tariff Board was created in 1922 to ensure local industry was not disadvantaged by imports.
The Tariff Board has, however, evolved into the Productivity Commission, the Australian Government’s principal research and advisory body on a range of economic, social and environmental issues. The Productivity Commission is tasked by the Government to produce independent, evidence-based policy advice. It is a well-respected, independent voice in any Australian policy debate.
The Productivity Commission is also mandated to conduct public consultations on issues it is considering. This has been a useful vehicle to encourage a public dialogue on the costs of bad policies. It also serves to promote greater understanding of the benefits of reform.
National Competition Policy is an area where the Productivity Commission has had great success. Hoping to remove the deep inefficiencies and costs of Australia’s fragmented competition policies across jurisdictions, National Competition Policy was embraced by Government in 1994, following a Productivity Commission inquiry into competitive practices.
Areas identified for reform included: coordination between the different state and territory governments and the Federal Government, competitive neutrality to prevent unfair advantages for government businesses, third party access to nationally important infrastructure, and restructuring public monopolies to increase competition.
The reforms undertaken were not revolutionary. What was new was the acceptance that wide-ranging reform was dependent on effective cooperation between the jurisdictions, and a common conviction that joint reforms of the system would benefit all. Practical measures aided this process, such as allowing flexibility in how jurisdictions met their obligations under the policy, as well as the creation of an independent body, the National Competition Council, to monitor and report on the progress of reforms.
Agricultural reform is another area where Australia has had significant success. Australian farmers and their representatives realised in the 1980s that tariffs and subsidies were actually detrimental to their prosperity. Many industries were experiencing poor export performance and high costs of production, which affected both producers and consumers.
Support for agricultural reform was bipartisan and successive governments committed to reducing tariffs and eliminating import quotas. Tariffs on agricultural products have now fallen, on average, from 15 per cent to 3 per cent since 1988.
These reforms resulted in a significant improvement in export and production performance, and there have been many success stories, including Australia’s dairy industry, where milk production almost doubled between 1980 and 2000.
Government support has focused on supporting programs which improve productivity. The Australian Government matches dollar for dollar industry research and development investment. These initiatives have gone a long way to helping farmers remain internationally competitive and have provided a higher standard of living for all Australians.
Through all of this, 95 per cent of Australian farms are still family-owned and operated, while two-thirds of Australia’s agricultural produce is exported to the world.
The increase in export and production levels was a direct result of a more efficient industry. Deregulation and trade liberalisation unleashed the competitive pressures that have driven higher agricultural productivity and underpinned Australia’s continuing international competitiveness.
The Australian Government is committed to an increasingly competitive farm sector that is supported in the short term through capacity building and innovation programs, as well as adjustment assistance during the policy reform process.
The reforms and institutions I have described can serve as an interesting case study for others looking to increase economic productivity, not just here in the Philippines, but around the world. Decreasing economic performance forced Australia to look at the real impact of trade barriers. Australian government and industry leaders concluded that reform, and a unilateral reduction in tariff barriers, was in the interest of all Australians, and they acted.
We discovered that a country does not get its primary trade benefit from expanding profits per se, but from the way in which imports can increase domestic productivity, improve resource allocation and drive consumption.
Further, the value of a body like the Productivity Commission has been its role as a useful tool to identify areas for reform, and as an instrument in selling the greater trade and investment liberalisation message to the public.
These policies can lead to great benefits for all involved. Over 80 per cent of Australia’s increase in national income in the last 40 years has come from productivity growth. As the world faces challenges such as an ageing population and climate change, productivity growth is going to have to continue to thrive over the next 40. That is why Australia will continue to encourage all countries to liberalise their trading regimes, reduce tariffs and push forward on a path of continued economic prosperity.
Trade liberalisation is also important because of the interdependence of our economies through global value chains. The expansion of global value chains has been driven by technological advances in communications, large international cost differences, and improved international logistics. The pursuit of further trade liberalisation can spur further integration of production processes across global and regional markets by reducing import barriers that can harm our export industries’ attempts to participate in these value chains.
Australia is advancing this trade liberalisation agenda through bilateral FTAs and regional grouping such as the ASEAN initiative for a Regional Comprehensive Economic Partnership and the TPP.
Australia is committed to the APEC vision of a Free Trade Area of the Asia-Pacific and sees the conclusion of the TPP as one pathway towards this common goal. A high-quality TPP outcome will also strengthen economic and trade liberalisation in the Asia Pacific region, spur multilateral trade liberalisation and enhance trade and investment opportunities in the region.
Through initiatives such as these, combined with unilateral liberalisation, all countries in the region can achieve their full economic potential and provide opportunities for all.