Building Prosperity through Trade: Helping Developing Countries Reap the Benefits

The Biennial Sir Alan Westerman Lecture in Australian Trade Policy

15 October 2008, Canberra

• Dean of the Diplomatic Corps, Her Excellency Mrs Martha Ortiz de Rosas, Ambassador of Mexico
• Excellencies
• Parliamentary Secretaries, John Murphy and Duncan Kerr
• Parliamentary colleagues
• Heads of Commonwealth agencies
• Members of the Westerman family
• Distinguished guests, ladies and gentlemen.

It is a great pleasure to deliver the second Sir Alan Westerman lecture in Australian trade policy this evening.

The distinguished public servant after whom this lecture series is named, and whose memory we honour tonight, made an enormous contribution to Australian public life. 

He played a seminal role in the development of Australian trade policy, helping to craft responses to the challenges and prevailing policy priorities of his time.

The 1957 Commerce Treaty between Japan and Australia, in whose negotiation Alan Westerman played so important a role, stands as his finest achievement. 

That groundbreaking treaty created an enduring economic partnership that has brought immense advantage to our respective countries.

It helped pave the way for the substantial Japanese investment that underpinned Australia’s post-war mining boom – laying the foundation for Japan to become our largest export market, which it remains to this day.

In my remarks this evening I want to make three key points.

First, strengthening the international trading system is essential, particularly at this current time of global financial turmoil, when countries may be inclined to revert to protectionist measures.

Second, trade liberalisation on its own is not enough to drive economic development – we need to help developing countries to build capacity through structural reform, to allow them to better reap the benefits of international trade.

And third, I want to outline how Australia is supporting developing countries through its aid for trade efforts to build capacity and foster prosperity.

The importance of openness today

Given the turbulence on the world’s markets, it is more important than ever that we see leadership on trade reform.
World trade has grown historically at three times the pace of world output – with each multilateral trade round there’s been an impetus to world trade growth. 

That’s why we’ve got to engage with world trade and promote trade reform through multilateral, regional and bilateral fora.

Australia’s trade policy is based on the twin pillars of improving export market access at the border and domestic structural reform behind the border to improve our international competitiveness.

Because, there's no point in winning new export market access in overseas markets if you’re not competitive and productive enough to take advantage of those new opportunities.

Trade policy is much more than trade negotiation.

Labor has long understood the importance of structural reform to the nation’s international competitiveness.  I was fortunate to participate in the major economic reform program that Australia undertook in the 1980s and early 1990s in my capacity as President of the ACTU from 1985 to 1990 and then as a Cabinet Minister from 1990 to 1996.

During that period the Hawke and Keating Governments took the tough economic decisions that laid the framework for the strength of our economy today – a strength that ensures that we are as well placed as any country in the world to withstand the current financial turbulence.  This included:

• floating the Australian dollar;
• slashing tariffs;
• deregulating the financial sector – and strengthening its prudential and regulatory oversight;
• wage restraint through an Accord with the trade union movement to lock in low inflation;
• significant cuts to personal and company income tax; and
• greater independence for the Reserve Bank of Australia.

It is that impressive record of reform that the community looked to at the last election because the previous Government failed to invest in the drivers of economic growth, they didn’t continue the reform agenda, and Australia’s productivity and international competitiveness suffered as a result.

The Rudd Government came to office with a strong commitment to economic reform, to overcome structural bottlenecks and to restore productivity growth.  The recently completed Mortimer Review confirms that one of the major challenges Australia faces is the need more closely to integrate trade policy with broader economic reforms.

We have made a good start on our work program to rebuild Australia’s international competitiveness, through:

• the establishment of Infrastructure Australia;
• investment and renewal in our universities and vocational institutions via the Education Investment Fund and our Trade Training programs;
• the reduction of the regulatory burden on Australian business through COAG to work towards a seamless national economy;
• encouraging diversification and development of Australia’s traded sectors;
• improving our taxation regime through the Henry Review.

We will approach all these issues through the prism of enhancing our international competitiveness.

Given Labor’s strong track record and this comprehensive reform agenda, the Australian Government is well placed to assist developing countries with their structural reform programs.

Whilst an open international trading system is vital to global economic growth and development, on its own it’s not enough.

But nor can we simply urge developing countries to enhance structural change without building their capacity to embrace it.

The Rudd Government is committed to creating the practical alignment, or coherence, between our trade policy – which unambiguously calls for the continued liberalisation of trade – and Australia’s development assistance, which is delivered through the Australian Agency for International Development (AusAID).

Structural reform is not easy but it is necessary – and it is achievable with the right leadership and the right policy advice.

Structural reform is core business for economic development practitioners.

It is also, in my view, core business for trade policy.

Social theorist David Held argued that social democracy at the global level:

means pursuing an economic agenda which calibrates the freeing of markets with poverty reduction programmes and the protection of the vulnerable. [1]

By working in tandem, policy coherence in trade and aid offers the greatest potential to emancipate and empower the world’s poor through sustainable economic growth.

Open trade and aid for trade efforts: mutually supportive

We should not fall into the convenient trap of asserting that trade by itself is a kind of developmental panacea.

The Director General of the WTO, Pascal Lamy, expresses the situation elegantly:

The massive global challenge of pulling people out of poverty raises issues that go far beyond a country’s trade regime.  Mounting evidence suggests that factors such as the quality of infrastructure, education, the effectiveness of technological development, the ability of domestic markets to function properly and the quality of the institutional framework are crucial for successful growth and development. [2]

In this respect, structural reform seeks to address one of the most critical impediments to the growth of an economy – and to external trade – the high transaction costs which result from inefficiency.

One example of how infrastructure can reduce transaction costs and boost economic welfare is in the area of transport – for instance, roads are often the arteries of a modern economy.

I saw first hand in Papua New Guinea earlier this year the importance of road infrastructure to a developing country’s growth prospects – and the key role that the transport infrastructure must play in unleashing the massive potential of the region’s energy and commodity exports.

Broadening our conception of trade policy requires that we broaden our conception of what constitutes trade-related capacity building.

The Rudd Government has announced a major stepping up of our development assistance effort – including our intention to raise our contribution to 0.5% of our GNI by 2015. We made a significant down payment to that goal in our first Budget earlier this year.

As part of this increased assistance, Australia’s aid for trade commitments will represent $330 million in 2008-09. 

The announcement of the Provision for the Pacific Regional Infrastructure Facility in this year’s Federal Budget will lift aid for trade commitments to $350 million in 2009-10. 

Let me give you just a few examples of how we plan to increase the focus on trade in our overall development assistance effort.

Since 2002, Australia has contributed almost $4 million to the WTO’s Global Trust Fund. In June this year, the Government announced that Australia would double its annual contribution to the fund to $1 million.

Through APEC, Australia has supported advocacy and information sharing activities through $7.5 million in contributions to the APEC Support Fund, a flexible funding mechanism to assist developing APEC members with priority trade and economic integration needs. 

In August of this year, I attended an APEC Ministerial Meeting on Structural Reform hosted by the Treasurer in Melbourne which developed a forward work program on structural reform within APEC.

Another significant regional mechanism for supporting trade and investment initiatives is the $57 million ASEAN Australia Development Cooperation Program, whose second phase is now being developed.

The ASEAN-Australia New Zealand Free Trade Agreement concluded in August also includes a chapter on economic cooperation. This is the first time we have included such a provision in a free trade agreement.  

It will be implemented through an Economic Cooperation Work Program that will cost some $20-25 million over five years, designed to fund technical assistance and capacity building for ASEAN Member States to implement the free trade agreement.

Our commitment, and that of other international donors, to providing aid for trade is consistent with our support for the Millennium Development Goals. 

A major target for the eighth Millennium Development Goal is an open rules-based predictable, non-discriminatory trade and financial system.

Clearly we have a way to achieving that goal in trade: and the first step on the path must be to conclude the Doha Round.

Coherence in Trade: the Doha Round

While we came close in July to concluding a package for the Doha Development Round, we were unable to close the deal.

As a long-time champion of fairness in world agricultural trade, Australia fully understands how much the removal of distortions in agricultural trade would benefit the developing world and improve their economic prospects.

Together with the other eighteen members of the Cairns Group coalition, most of which are from the developing world, Australia has over the years succeeded in putting agriculture at the centre of the WTO’s agenda and keeping it there.

But it is not just in agriculture where a fairer global trading system can offer a significant development dividend.

For instance, freer trade in services would help the world find technical solutions to one of the overwhelming challenges of our times - that of climate change - by boosting trade in environmental services and technologies.

This will be of significant assistance to developing countries in playing their role in tackling climate change.

Developing countries would contribute one third of the savings from tariff reform, and receive two thirds of the benefits[3] from a deal.  As a result, Doha can rightly be called a “Development Round”.

At a critical time for the global economy, we now have a stark choice before us in our work on the Round.

We can sit on the sidelines, and point to the current economic and financial turmoil as another reason why a conclusion is not possible at this time.

Or we can come together to ensure that the WTO makes a strong and timely contribution to boosting global economic confidence.

I am convinced we must choose the latter course.

The global financial crisis shows that political leadership resulting in concerted action is required to address the uncertainty and to build confidence.

We must seize the opportunity we have before us to conclude the modalities negotiations this year.

And we must see continued strong political engagement from Ministers and Leaders over the next few weeks.

Now is the time for the WTO to step up to the plate.

It must make a confidence-boosting contribution to assist the international community’s response to the global financial crisis.

I don’t underestimate the challenges involved – but I am committed to doing everything I can to promote the engagement we need to bring that about.

Coherence in our neighbourhood: PACER Plus

The Rudd Government is committed to promoting stability, growth and prosperity in our Pacific neighbourhood, in partnership with the nations of the Pacific.

In an increasingly globalised world, the Pacific cannot afford to fall behind.

And yet with respect to some important social and economic indicators, and against the benchmarks set down in the Millennium Development Goals, that’s exactly what is happening in some island states.

The importance we place on our relationship with our friends in the Pacific region was clearly illustrated in the Prime Minister’s visit in March to Papua New Guinea and the Solomon Islands, and articulated in the Port Moresby Declaration which fleshed out the Pacific Partnerships for Development initiative.

Leaders agreed at the recent Pacific Islands Forum meeting in Niue that pursuing greater economic integration is a regional priority – working towards the commencement of negotiations on what is known as PACER Plus at the next Forum Leaders meeting in 2009.

Our aim with PACER Plus is to help our neighbours to engage more deeply with the regional economy, but to do so in a way that helps them take full advantage of the opportunities of greater market access.

We fully understand the challenges involved, but the effort will be worth it.

Australia has been through its own period of restructuring, and continues to confront the challenges of open trade. Innovation, diversification and other lessons learnt in Australia could be of great benefit to our region.

The challenge of leadership is often in making difficult and unpopular decisions. Sometimes such decisions can be in opposition to presumed wisdom, substantial vested interests and political pressures. Leadership requires that decisions always be made in the long term national interest.

Committing to freer trade is not just about opening up markets, it is about deliberate decisions designed to improve the welfare of communities, in order to create higher paying and highly skilled jobs.

That is why we will work with our Pacific neighbours on initiatives to strengthen their national capacities to trade within the region and beyond and to put their economies on a more sustainable footing.

We will consult with civil society organisations in the Pacific to ensure that their views are taken into account as PACER Plus proceeds.

The Government has demonstrated since first assuming office almost a year ago, we are committed to a close, collaborative relationship with the countries and communities of our region.

This is our region, and we are determined to see it prosper and grow.

Our long term strategic and security interests lie in a thriving and stable region.

One area in which we have already taken steps to develop greater long- term sustainability in the Pacific is that of labour mobility and training.

The Australian Government recently announced a Pacific Seasonal Worker Pilot Scheme under which up to 2500 visas will be granted over three years.  Papua New Guinea and Vanuatu, along with Kiribati and Tonga, will work with us on the scheme, which will be demand-driven.

The Pilot Scheme will test whether a program of this nature can assist the development of island states by providing employment experience, earnings and training opportunities - in other words, linking the concept of labour mobility to skills formation as part of a capacity building exercise.

The Government’s Pilot Scheme is one element of a broader commitment to our region – a commitment to provide opportunities for further education and training in the Pacific. 

Australia also continues to fund the Australia-Pacific Technical College -- which is intended to provide Pacific Islanders with skills that will enable greater regional labour mobility and provides scholarships to study at Australian education institutions and the funding of Australian Pacific Training Centres.

We believe that though the practical delivery of education and training programs, Australia can make a positive contribution to building the capacity of our neighbours in the Pacific region and promoting growth.

Conclusion

The core message I want to convey tonight is that – as crucial as it is - trade liberalisation is not enough - it must be complemented by domestic reform.  It’s this parallel approach that lays the foundation to build prosperity and promote growth.

We need a coherent approach to building the capacity of developing countries to engage in international trade and to reap the benefits of that engagement, and I have sought to outline how we are going about that approach.

Trade reform and development assistance are, and must be treated as, complementary strands of our effort to promote greater and more equal global economic development.

Just as we are committed to the long-term expansion of the size of Australia’s overseas development assistance program, we are committed to making that assistance as effective as possible.

Our goal is open trade that fosters genuine development.