12 March 2008

Trade Policy Briefing: Meeting the Challenges

Address to the Australian Davos Connection

I’m delighted to be here today and to have this opportunity to address members of the Australian Davos Connection.

I know that as leaders in business, government, academia and the broader community, you all have a strong interest in Australia’s economic, trade and industry success and the policies our Government will pursue to achieve that.

So, today, I want to brief you on these priorities; expand on some of the international dynamics in the WTO Doha Round; and address the important issue emerging issue of climate change and its implications for trade policy.

And I want to invite you to engage with us on these issues. You have an important role in helping the community to understand what we must do to improve our trade performance.

Introduction – the significance of Davos

In January, as you know, I attended the World Economic Forum (WEF) in Davos.

The WEF has carved out a unique role as the flagship global leadership forum addressing the key political, economic and social challenges we face in today’s world.

It has significantly helped shape debate on international trade.  

This year’s meeting presented an excellent opportunity for me to gauge others’ views on prospects for the WTO Doha Round.

I met a number of Ministers, including from the EU, US, Brazil, Columbia and APEC Chair Peru as well as the World Bank President, Robert Zoellick.

My strong sense was that ongoing global uncertainty in world financial markets made for a different dynamic at Davos this year.

The forum recognised the critical need to push forward on multilateral trade reform.

Momentum is building  - among both developed and developing economies -  to make progress in the Doha Round negotiations before the US presidential election campaign gets underway in earnest later this year.

I am working hard to capitalise on the window of opportunity evidenced at Davos, to move the Doha Round negotiations forward.

And I welcome the role that you, as Australians active in the WEF, are making to advance this important national interest.

Our trade policy: at home and abroad

Your role as opinion leaders is particularly important now as the Government embarks on measures to turn around our national trading performance.

The Australian economy has strong foundations. But like other countries, we are not immune from global economic uncertainty.

We don’t yet know the full impact from the US sub-prime mortgage crisis on the US, Australia or our region.

We are determined to tackle inflationary pressures at home.

Our exports have underperformed, despite the fact that we have been surfing the longest resources boom in history.

And there is the challenge of addressing climate change at the global level while ensuring continuing economic growth and prosperity domestically.

The Government is acting quickly to put in place the policies, programs and infrastructure necessary to address these and other challenges facing Australia.

The economic policy directions taken in the next 12 months will be critical.

Economic growth requires a trade policy that is integrated, whole-of-government and national in scope.

The twin pillars of the Government’s trade policy are to open up new markets through international trade negotiations, and to undertake the necessary reforms to improve productivity and competitiveness behind the border.

These pillars cannot be treated separately – they must be in sync.

The benefits from opening up markets internationally will be significantly diminished if capacity constraints behind the border are not addressed, and if infrastructure, skills, and innovation are not enhanced.

 1) Trade negotiations

The WTO

Over the past decades of development of the GATT and WTO system, multilateral liberalisation has delivered dramatic benefits to the global economy.

World trade growth has consistently outstripped world economic growth as tariff rates globally have steadily reduced.

And in the Asia-Pacific region we have experienced unprecedented economic growth and development over recent decades.

Rising living standards have lifted millions out of poverty.

And access to clean food and water, better education and health facilities, proper housing and infrastructure, and massive increases in employment levels can all be attributed in part to freer global trade.

A successful conclusion of the WTO’s Doha Round would offer unequivocally the biggest potential trade and economic gains not just to Australia, but to the region and the world.

That’s why the Doha Round is the Government’s top trade negotiations priority.

Importantly, the gains from a successful Doha outcome would flow to developing as well as developed countries.

The World Bank estimates that with a successful outcome, we could expect benefits up to some $600 billion of additional income by 2015, shared by both developed and developing countries.

But if these projections have a hope of being realised, we need to move now to firm up commitments in the three key sectors of the negotiations: agriculture, industrials and services.

The release of new draft negotiating texts on these sectors in early February have added to the momentum created at Davos.

The texts aren’t perfect, and still need work. But they provide a useful indication of the shape that any final deal is likely to take.

Australia is determined to play a key role in helping move the Doha Round forward, including through ministerial involvement at the appropriate time in coming months.

Through our leadership of the Cairns Group, we will work hard to secure an ambitious outcome for Australian farmers on agriculture.

While the Cairns Group has been joined by other agriculture-focused groups in the WTO, it remains the strongest voice for ambitious reform and its technical input is unparalleled.

And because it has both developed and developing economies as members, it is increasingly playing a bridging role with other groups.

I have now met or spoken with most of my Cairns Group colleagues, and have emphasised the need to work closely together. It is possible there will be a need for us to meet at short notice in coming months.

We are also pushing for more market access for industrial products in both developed and developing country markets.

And we are actively seeking to raise the ambition of revised services offers. I have been calling for some time for a Ministerial “signalling exercise” of services liberalisation commitments amongst those countries which are able to do so.

As I have consistently said, Australia couldn’t support a Doha outcome that isn’t ambitious on services.

This makes sense, given that services are responsible for four out of five jobs in Australia and are also the fastest growing component of world growth.

In all three key sectors – agriculture, industrials and services – we are of course working closely with Australian stakeholders to ensure that a Doha outcome delivers real and measurable gains for Australian business.

Complementing the WTO: Regional and Bilateral Approaches

The Government will restore the place of multilateralism in our trade policy – not only in Geneva, but also by infusing all we do at the regional and bilateral levels with a commitment to an approach that builds on – rather than detracts from – the WTO.

The Government will seek to complement trade liberalisation gains derived from the multilateral process at the regional level via APEC and the ASEAN plus 6 – that is “WTO plus”.

APEC has high-level political buy-in as the region’s premier forum for pursuing economic integration.

It also has a strong “behind the border agenda”, which will help address many difficulties for exporters, complement liberalisation efforts, and potentially reduce any negative impacts of liberalisation.

At the bilateral level, Australia’s interests are best served by networks of FTAs, both ours and others, that deliver comprehensive, genuinely liberalising outcomes.

FTAs of this kind can provide ballast to our multilateral efforts, helping to generate broader commitment to trade reform.

It is important that all countries set their ambitions high when negotiating FTAs to ensure that they do not undermine the multilateral system.

A proliferation of low quality FTAs with substantial sectoral carve-outs, weak disciplines, limited real gains in trade and which shelter vested interests from competition, carry a real risk.

Far from bolstering multilateral efforts, these types of agreements are more likely to entrench trade restrictions, distort trade flows and diminish the political will to take action.

Comprehensive bilateral FTAs can build further on the outcomes achieved multilaterally and regionally – that is “WTO plus plus”.

2) Reforms behind the border

On the second of the Government’s trade policy pillars, this Government believes that trade policy needs to be effectively integrated with broader economic policies taking place behind our borders.

• A strong productivity performance is essential to our capacity to compete in international markets. 
• The Government is working to get our domestic macroeconomic settings right, to position ourselves for sustainable growth beyond the resources boom and into the long-term.
• We are also developing a micro-reform program that addresses the drivers of productivity – skills, infrastructure, R&D, innovation and more productive workplaces.

The key challenges at the domestic level in Australia are to resolve supply constraints and bottlenecks. To address these:

• the Government plans to boost our national investment in education and skills training, including through funding an additional 450,000 skilled training places over the next four years;
• through Infrastructure Australia, we will be undertaking an audit of Australia’s infrastructure needs to pave the way for action to address bottlenecks; a key priority will be to free up supply problems that constrain our export industries;
• and we will build a world-class broadband network to help more Australians bridge the digital divide.

We are also encouraging high value-added industries, including through support for innovation and research.  Our $200 million Enterprise Connect initiative will help connect businesses to new ideas and new technologies.

Trade Policy Review

In the past five years, world trade has grown at twice the rate of world output. That growth has been fuelled by the success of previous world trade liberalisation rounds. Trade liberalisation is the path to sustained economic growth.

Yet while world trade volumes have been growing at this pace, and while Australia has been experiencing its longest-ever commodities boom, the nation has experienced declining export growth, in terms of both value and volume. That is a surprising and disappointing outcome.

Net exports have only made a positive contribution to economic growth in Australia in just two out of the past eleven years. Net exports - the difference between exports and imports - are currently subtracting a full percentage point from Australia's economic growth. The economy is running at full capacity. We’ve hit infrastructure capacity constraints, we’ve run out of skills in key areas, we’ve run out of innovation capacity. Investment in the drivers of economic growth has been neglected.

That is the legacy of the previous government – a squandered opportunity to invest income from our record high terms of trade into capacity for stronger long-term growth.

We are determined to address those constraints, to invest in the drivers of growth.

We are also determined to support the diversification of our export base beyond agriculture and commodities.

The future Australian export economy will still have a huge role for commodities exports. But an increasing share of our exports will build on innovations around that commodities base – through knowledge-based services based on commodities industries, through expansion of commodities industries into downstream products from aquaculture to advanced aluminium alloys, and through outward foreign investment that takes Australian know-how into other economies and plugs us into global supply chains.

And we will need to drive more export activity from our dynamic services industries, from education to financial services to project management to biotechnology to fashion design – many of them industries which have evolved with the support of our traditional industries.

At a time when our terms of trade are booming, we have been confronted with the ultimate evidence of our growth constraints: rising inflation. The Reserve Bank’s interest rate rises have again highlighted what a blunt instrument monetary policy is. Therefore we need a rebalancing of growth towards exports. By taking full advantage of global markets, we can fight inflation over the long term while maintaining high levels of employment.

This is the reasoning behind the comprehensive, whole-of-government review of Australia's export policies and programs which I announced last month.

Australian business has supported this review, and we intend to take a ‘clean sheet’ approach in looking at the fundamentals.

It is a review for the future.

As part of this process, we will be looking at trade policy priorities, as well as investment development strategies.

And we will also make an assessment of the challenges and opportunities currently facing Australian exporters and international business.

An important component of the review will be research on free trade agreements. 

This research will examine the benefits of Australia’s most recent FTAs and look to strengthen our overarching commitment to multilateralism, rather than erode it.

An important message that I want to see reflected in the review is that trade liberalisation is not a one-way street. 

We are a trading nation and increased competition at home and abroad is a fact of life in the contemporary global economy.

Tariffs and other forms of trade restriction are not the answer to increased competition.

This is an important theme and one that I expect will also need to be reflected in the industry policy reviews that have been launched by my colleague the Minister for Innovation, Industry, Science and Research.

Climate change

Trade policy is linked to all the major challenges we face, including climate change.

Climate change represents not just an environmental challenge; it is also a major economic challenge. 

The scale of the issue means that the actions we need to take will have an impact on virtually every part of our economy.

The Government is committed to the implementation of an emissions trading scheme to achieve a sustained reduction in greenhouse gas emissions.

The significance of the emissions trading scheme should not be underestimated. It will constitute possibly the most significant economic reform undertaken in Australia. 

The scheme is expected to:

• promote private sector innovation;
• create a major new financial market; and
• spur progress in production techniques, capital investment, research and development.

Until there is a comprehensive global approach to climate change, it will be important that in designing the Australian emissions trading scheme, we take account of competitiveness factors.

The WTO is constantly evolving to address new issues of priority to its member governments, and has begun to tackle trade and environment issues in recent years. 

WTO rules allow member countries to pursue legitimate environmental concerns in a way that promotes trade and sustainable development and avoids trade restrictions and distortions.

Lately, there has been some discussion among our trading partners about the possibility of punitive trade measures being used to address competitive concerns arising from climate change action.

Australia’s position is that any measures to address climate change must be consistent with open trade policies.

We do not want to see climate change used as an excuse to impose new trade restrictions.  Such action would be contrary to the spirit and letter of the WTO.

It would also run counter to the goal of building a consensus for a post-2012 global climate change regime that is fair, equitable and economically effective.

We should instead draw on the significant economic, trade and employment opportunities a global response to climate change offers.

To move forward in addressing climate change it will be important to liberalise trade access in environmental goods, including technology and services.

Through our strong domestic program in addressing climate change Australia has the opportunity to become a world leader in zero and low emissions technologies. 

Conclusion

The Government takes a holistic approach to trade policy.

In our view, trade policy plays an integral part in the broader economic, industry and social policy framework.

We are very interested in new ideas and pragmatic action to boost Australia’s productivity, and to reinvigorate our international competitiveness.

The Government intends to make sure we implement the right domestic policies to promote continued and sustainable economic growth.

These policies will also help ensure Australia is well-placed to weather any international economic uncertainty.

 They will also help meet the challenges of building a productive and competitive Australia, and addressing climate change.

The removal of impediments to trade would also play a critical part in strengthening the global international economic system and boost Australia’s prosperity.

This is why we will continue to push for an ambitious Doha Round outcome in the key areas of interest - agriculture, industrials and services.

The Government has come to office at a critical stage in the Doha Round. We appreciate the difficulties in overcoming deadlocked areas, and there are no guarantees of success.

Leadership will be the key if we are to conclude the Round this year.

Key WTO members understand that 2008 is the time for action, our “window of opportunity” which we must not let pass by.

Australia will be working hard to help translate this window into the best possible conclusion to the Round.

And I invite you to work with us to ensure all Australians understand the challenge and the opportunity in trade.

Thank you.

Media contact: Mr Crean's Office (02) 6277 7420 - Departmental (02) 6261 1555