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Remarks at the Annual Conference
His Excellency Michael Thawley
Australia's Ambassador to the United States
2001 Annual Policy Conference
PBEC U.S. Member Committee
January 31, 2001
IN LOOKING AT THE OVERALL trade and economic scene, one would have reason to be concerned about the present international trading environment whether you look at Europe, the United States, Japan or the rest of Asia.
BRIGHT SPOTS
- Many Asian countries did well to hold the line on economic reform and market opening where they did after the 1997-98 financial crisis, especially when one considers the political pressures;
- China's entry into the WTO and ongoing reform programme; and
- The new Bush administration's commitment to a free-trade agenda - USTR-designate Zoellick's and Treasury Secretary O'Neill's testimony to Senate committees was very encouraging.
ON THE OTHER HAND
- Despite the economic boom in the US and the highest employment in memory, deep hostility in many US constituencies to further market opening;
- With a temporary downturn possible in the US economy, a revival of concerns about trade deficits could affect US approach to trade; and the
- Political balance in Congress means the administration needs to get Democrat support for measures at a time when Democrats may have particular policy concerns or be focused on 2002 elections.
IN ASIA
- Many countries held a line but there is little enthusiasm for new market opening - part of the reason why an Australian agreement with the ASEAN free trade area did not move faster is ASEAN concern about possible pressure for faster economic modernisation and opening up;
- There is scepticism about a new global trade round partly because of disillusionment with the outcome of the Uruguay Round especially on textiles and agriculture;
- Also because of cynicism about the underlying US and European agenda on labour standards and the environment: ie fear that it aims to destroy the competitiveness of their economies; and
- On top of that many are wrestling with serious problems of political stability, social and cultural change: there is not a society from the north to the south of Asia, from Korea to Indonesia, which is not wrestling with political, social or cultural transformations of a historic dimension.
SOME WORRYING DIFFERENCES BETWEEN THE OVERALL ENVIRONMENT NOW AND THE PERIOD AT THE TIME OF THE URUGUAY ROUND
- There was a greater self-confidence than now about handling economic change on the part of many of the countries in Asia - because of their rapid economic progress; financial crisis shook that a bit;
- In advanced economies there was a greater acceptance of the cost that an economy and society paid as a whole for the protection given to one part of the economy. One does not often see it said now that the biggest beneficiaries of trade liberalisation are those who do the liberalising - yet that is the economic fact. The biggest beneficiaries in terms of their overall economies from freeing up agricultural trade would be those who most protect it now: the EU, Japan and the United States. This is one war which the unilateral disarmers actually win;
- The budget deficit in the 1980s meant that the US had to pay more attention to the cost of agricultural support programmes than it does now. In his farewell report, former Secretary Glickman said that USDA had distributed a record $28 billion in direct assistance to farmers in 2000. This, he said, represented about half of total farm income. The OECD calculates that total US farm producer support was worth $54 billion - that is over 25 per cent higher than at the start of the Uruguay Round;
- Likewise consumers in Europe seemed to be a bigger political factor then: Australia used to say in the mid-1980s that we could transport a cow first class to Brussels and feed it Dom Perignon all the way to relax it for slaughter and we would still sell the beef more cheaply than EU beef. That argument doesn't seem to have the same impact now.
- There seemed to be more urgency about freeing up trade among the business community then than now. The business community mounted a stronger intellectual and political counterweight to protectionism including in their own ranks. Is it because the freeing up of capital flows and financial services allow the business community to get what it needs without the WTO? Whatever, the fact that free trade can boost economic growth and increase the pie ought to give the business community a bigger stake in this battle; and
- There was not such deep scepticism in the mid-1980s about the benefits of globalisation in parts of our community, nor such deep concern about labour and environmental standards.
ALL THAT MAKES IT DIFFICULT TO GET A NEW GLOBAL TRADE ROUND GOING, YET THAT HAS TO BE THE ULTIMATE OBJECTIVE.
Why? Because we know that a global round is most likely to bring the best results for the greatest number of countries: it provides the greatest scope for sectoral trade offs and balancing winners and losers, and it maximises the economic gains for all countries from liberalisation.
It is reassuring that the Bush administration will push for a new round and that it will seek to agree on a fast track authority with Congress.
Without that authority, the rest of the world will not think the US is serious about freeing up trade and the US's partners will be reluctant negotiators because we all know that we would in effect have to conduct a second set of negotiations with Congress.
Unless we get the show on the road fast, many countries will return to the normal default position which is to protect their vulnerable economic sectors rather than help them adjust. There are signs of this already. Also, the trend is clearly towards more bitter trade disputes.
The important thing is to ensure we maintain a momentum towards freer economies and freer trade.
The Australian Government's view has been that you need to keep pushing on all the doors that might lead to this outcome - bilateral, regional and multilateral.
Hence our strong support for APEC which played a supportive role at the time of the Uruguay Round and has reinforced a commitment in Asia to economic reform.
The APEC meeting in Shanghai in November this year is vitally important for the Bush administration if it is going to make progress towards a new round and freer trade in Asia.
The Australian view has also been that if we could get good results faster through bilateral or other sub-regional or cross regional arrangements, we should use them. Hence we have discussed a possible agreement with ASEAN, we will negotiate an agreement with Singapore and we are examining the scope for an agreement with Korea.
The possibility of a P5 agreement (US, Australia, New Zealand, Chile, Singapore) was raised by some last year.
It is vital that any bilateral or sub-regional agreement be both consistent with the WTO and a building block towards a new round.
If bilateral and regional arrangements are genuinely liberalising they need not be alternatives to the round.
That is because it is going to take time to get agreement to start a new global round, and then it could take a long time to negotiate.
It is important the United States ensure it develops a strategy that integrates bilateral and regional agreements with a new round in a mutually supportive way.
That means the United States needs to choose very carefully with whom and how it proceeds.
There has been some public discussion about the option of an agreement between Australia and the US.
STRONG ARGUMENTS FOR IT
- The ideal situation is if you can agree on an FTA with a strong and open economy where there are opportunities for business growth (Australia has grown faster than the US in the past decade; has a lower inflation record; and higher productivity growth);
- Also ideal to have a partner with strong financial and legal structures, with a clear commitment to ongoing reform (again Australia has the track record);
- Major linkages between our economies: both major investors in each other's economy (US largest investor in Australia; Australia eighth largest holder of foreign assets in the US);
- Strong compatibility between countries' political structures and values;
- No major issues relating to labour and environment;
- Therefore, maximises chances of a clean if not model FTA; and maximises the encouragement to the Europeans, Japanese and Koreans to move faster to free-trade solutions and towards a round;
- Moreover, a good FTA could even provide some benchmarking for subsequent negotiations with others and in the context of a global round;
- Agriculture obviously an important issue for Australia and a sensitive political issue for the United States;
- But we need to see it also as opportunity to set some structures and approaches for wider negotiations. Would not suggest NAFTA is a model for agriculture, but experience with NAFTA shows that you can have a win-win outcome which allows both sides to increase their agricultural exports through liberalisation.
US LEADERSHIP IS IMPORTANT IN THIS AREA
If US doesn't take the lead, a new round will not happen.
If protectionist pressures allowed to play in the US, then impact will be great and first on the US itself as trade has become a much more important part of its economy (equivalent to 26 per cent of its GDP).
Impact on Asia-Pacific could be colossal both economically and strategically: US is first or second largest market for every East Asian member of APEC.
The impact on stability of the region could be dramatic.
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