Seminar on the Pacific Alliance

Speech, E&OE, (check against delivery)

Australian National University, Canberra

24 June 2013

Acknowledgements

Acting Vice-Chancellor of the ANU, Professor Marnie Hughes-Warrington

Dr John Minns, Director of the Australian National Centre for Latin American Studies

His Excellency Mr Pedro Villagra, Argentine Ambassador and Dean of the Diplomatic Corps

Members of the Diplomatic Corps

Ladies and Gentlemen

Introduction

Arvind Subramanian of the Peterson Institute for International Economics wrote earlier this year that "multilateral trade as we have known it will progressively become history".

I think the important phrase in this sentence is "as we have known it".

Indeed, this current period for international trade will probably go down in history as an extremely difficult time for the WTO system.

But it will probably be seen equally as a period of renaissance for multilateral trade.

A period where creativity and cooperation between like-minded countries has led to some extremely innovative ways to break down barriers to trade and further trade liberalisation.

At the forefront of this innovation stands the Pacific Alliance.

Its four members – Mexico, Chile, Colombia and Peru – are some of the most economically dynamic and liberal countries in Latin America and make up a third of the region's output.

Together, they are the eighth largest economy in the world.

It's a free-trade agreement described recently by The Economist as "exciting", "inspiring" and "intriguing".

You only need to look at some of the outcomes from last month's Summit to get a sense of why the Pacific Alliance has been described in this way.

Members agreed to eliminate 90 per cent of all tariffs on merchandise trade once the agreement enters into force, with total abolition of all tariffs being the ultimate goal.

The handling of the remaining 10 per cent is due to be resolved by the end of this month.

Members also agreed to eliminate all visas between member countries for business travel and tourism.

And a further seven countries became observers, including Ecuador, France, Honduras and Portugal.

I'm sure the Ambassadors will speak to you in more detail about these and other achievements.

While it will be important for it to consolidate its work to date, the Australian government is impressed by all that has been achieved by the Alliance since it was formally established a year ago.

Australia's observer role in the Pacific Alliance

It was a privilege to be the Australian Government's representative at the Pacific Alliance Summit last month in Cali, Colombia.

It was the first summit open to observers and Australia was honoured to have been admitted as an Observer to the Alliance, which we value highly as a manifestation of increasing economic and political links between Australia and the countries of the Pacific Alliance.

The Government and people of Colombia did a fine job of hosting the event.

This Summit came against a background of Latin American trade with Asia growing strongly.

We believe Australia has a unique ability to provide a practical and commercially significant link – a connecting rod – between Latin America and the dynamic economies of Asia.

And we see this Summit as an opportunity to restate our desire to strengthen our ties with Latin America.

Australia's trade with the Pacific Alliance counties rank among the highest of our merchandise trade partners – $4.9 billion in 2011-12.

And trade in services is also important, including mining, its related services and education.

I appreciated the opportunity to meet with a number of our colleagues in the margins of the meeting.

I also congratulated Chile for its outstanding pro tempore stewardship of the Pacific Alliance during its presidency, and I congratulated Members of the Pacific Alliance on their impressive results to date on liberalising the movement of goods, services, capital and people, and the speedy and nimble nature of actions taken.

The Pacific Alliance could be very important to Australia.

Its formation comes at a time when the Australian government is stepping up its engagement with Latin American countries.

This follows a path forged by a growing number of Australian companies already doing business across the continent.

And members' focus on getting rid of barriers to trade, boosting productivity and promoting the flow of trade and capital across a common market aligns with Australia's own trade priorities.

We believe that Australia has much to offer countries of the Pacific Alliance in mining, education, water and renewable energy.

The Australia-Chile Free Trade Agreement, which is a high quality agreement, provides a strong link to the Pacific Alliance. As a consequence of the agreement we have seen trade grow by 27.5% annually since the agreement entered into force in 2009.

We share a similar geography and similar experiences.

There is already a great deal of trade and interaction between our countries but we think there can be more. We have growing links in education, there are more than 1,000 Chileans currently studying in Australia and the Government has identified cross-border education as the highest priority for Australia for APEC in 2013. In my meeting with the Chilean Mining Council we discussed the way in which the Austrade experience could be relevant for Chile in a variety of mining issues, as we have similar problems.

I also think there is great opportunity in water technology, and in energy, which is a key issue for the future of Chile. Australia is in aposition of privilege by having substantial energy reserves, like natural gas. We have also done a lot in terms of renewable energy. We have established a goal of 20 per cent renewable energy for 2020 and while doing that we have developed renewable technology, such as solar and wind power.

The areas of the Chilean economy which are potentially attractive for Australian investors are mining and related industries, like technology, equipment and skills; water; renewable energy and also financial services. At the same time, Australia is trying to attract investment in infrastructure, transport, renewable energy, agriculture, information technology and communications.

Like the members of the Pacific Alliance, Australia believes in the ability of trade to improve living standards and foster a robust economy.

We have a proven track record, having been at the cutting edge of trade liberalisation as it has progressed over several decades.

One in five jobs in Australia are believed to be linked directly to trade.

And we have experienced nearly 22 years of uninterrupted annual growth.30 years ago, Australia signed our Closer Economic Relations Trade Agreement with New Zealand. The agreement is recognised by the WTO as one of the world's most comprehensive, effective and multilaterally compatible free trade agreements.

Since 1989, most services across the Tasman have been traded free of restrictions. Since 1990, all goods meeting the Agreement's Rules of Origin criteria have been traded free of duty and quantitative import restrictions. And two-way trade between Australia and New Zealand has grown by around 7.3 per cent each year over the agreement's lifetime.

More recently, the ASEAN-Australia-New Zealand Free Trade Area that came into force in 2010 is one of Australia's most ambitious trade deals to date.

It is our largest FTA covering goods, services, intellectual property, e-commerce, temporary movement of business people, competition and economic cooperation. It spans 12 economies and represents a market of over 640 million people with a combined GDP of $4 trillion. And it will eliminate 90 per cent of tariffs on Australia's current exports to some of our key trading partners by 2020 – providing enormous opportunities for Australian businesses.

Today, Australia, like members of the Pacific Alliance, is party to some of the most innovative trade deals currently being negotiated. Along with Mexico, Chile, Peru and seven other nations, we are negotiating the Trans Pacific Partnership Agreements.Current TPP members account for nearly 40 per cent of global GDP and almost 800 million people. It will be more than a traditional trade agreement. It will address behind-the-border impediments to trade.

It will also be a living agreement, allowing flexibility to deal with emerging issues and for expanding membership. And it has the potential to become a building block for economic integration in the Asia-Pacific.

Another ambitious trade deal working towards a free trade region of the Asia-Pacific is the Regional Comprehensive Economic Partnership Agreement, launched last year. The 16 negotiating parties of RCEP, including Australia, account for almost half the world's population, almost 30 per cent of the world's GDP and a quarter of all exports.

This ASEAN-driven agreement complements TPP negotiations.

It provides competitive tension and will strengthen the ambition held by all involved to deliver outcomes that will lead to an open and integrated region. Most importantly, both the RCEP and TPP are pathways towards achieving APEC's goal of a Free Trade Area of the Asia-Pacific.

Australia as a link to Asia for Latin America

A Free Trade Area for the Asia-Pacific region would bring enormous benefits for individual countries, for the region and for the world.

Consider that in 2005, around 45 per cent of the world's output growth was from Asia.

By 2025, this is forecast to rise to 60 per cent, accounting for almost half of the world's entire economic output.

Also in 2025, four of the region's economies- China, India, Japan and Indonesia- are expected to be in the world's 10 largest.

Last October, Prime Minister Gillard released the White Paper on Australia in the Asian Century. The Government commissioned the White Paper to best position Australians to benefit from, and contribute to, Asia's rise. It outlined a big vision for Australia – an Australia that is even more integrated with Asia.

Australia is already deeply connected to the region. Almost 62 per cent of our total trade last year was with Asia. In the same year, Australia received almost 400,000 student enrolments from the region.

And over 1.7 million Australians were born in Asia.

But the White Paper process has crystallised our resolve to become even more interconnected.

Just some of the things we committed to in the White Paper include:

  • Building Asia capabilities among our young people.
  • Strengthening access for Australian investment in Asian markets.
  • And increasing the number of Australian businesses working across cross-border value chains, which have sprung up across the region.

How is this related to the Pacific Alliance?

As the Government outlined in the White Paper, Australia can act as a connecting rod between Latin America and Asia. In particular, Australia has much to share with members of the Pacific Alliance as they pursue their core objective of linking more closely with the Asia-Pacific.

The healthy growth in trade between Australia and Latin America in recent years has demonstrated the growing ties between us. Two-way trade between Australia and Latin America has grown from around $1 billion in 1990 to almost $8 billion in 2012. In fact taken together, the Pacific Alliance countries account for around $5 billion of the $8 billion. But these figures don't just tell the story of the benefits that come from liberalising trade. They tell a broader story about increasing ties between our people and the benefits of plugging into cross-border value chains.

And it is in these areas where there are several examples of Australia serving as a link with Asia for Latin America.

More than 250 Australian companies are now working in Latin America.

Of these, many Australian mining companies extract minerals and metals there and then export them to customers in Asia through new and existing supply chains. Likewise, Brazilian, Chilean and Mexican firms are investing in Australia in beef, coal, manufactured food, auto parts and beauty products, which are supplied to Asian customers.

Finally, Australian schools and universities have become a hub for interaction between young Latin Americans and Asians. Last year, 32,000 student enrolments in Australia were from Latin America, joining nearly 400,000 enrolments from Asia. These three examples show just how Australia can serve as a link between Latin America and Asia. They also provide real examples of what we envisage a more integrated Asia-Pacific region to actually look like. Where goods and services are able to be traded seamlessly across borders. And where we are able to build on our trading strengths by working together.

Australia is very privileged to now be an observer of the Pacific Alliance. We feel that observer status gives us opportunities to be involved which are relevant for us, without perhaps districting the Alliance by asking it to focus on questions of membership.

We have much to offer members. We share similar geography and similar experiences. We also have a lot to share in terms of our knowledge and experience of working closely with Asia for several decades.

Australia's strong & resilient economy

As I note the Prime Minister is pointing out vigorously this morning, Australia's economy stands as a beacon of resilience in the world. Unlike virtually every developed economy, during the Global Financial Crisis we avoided recession and saved hundreds of thousands of jobs in the face of the worst global conditions since the Great Depression.

We have low inflation, low interest rates, a triple A credit rating, low unemployment, and low public sector debt.

Australia also has low government sector outlays as a percentage of GDP, and a low tax take compared to other advanced economies. In 2012 the OECD estimated government outlays in Australia at 35 % of GDP, which is significantly lower than the OECD average which was well over 42%. Among advanced member economies only Korea and Switzerland had smaller government sectors.

The latest OECD estimates of total tax revenue as a percentage of GDP show Australia at under 26 %, well under the OECD average of over 33 per cent. Among advanced member economies only the United States and South Korea had lower tax takes.

We now have a –

  • AAA credit rating: Australia has a AAA credit rating with a stable outlook from all three ratings agencies. We are amongst only 7 nations in the world to have this.
  • Low unemployment rate (5.5%): Australia has less than half the unemployment rate seen in Europe and significantly below other advanced economies.
  • Contained inflation: with underlying inflation in the middle of the RBA's target band (2.5% through the year to September).
  • Low cash rate: Interest rates are currently sitting at 3.00% – lower than it was at any time under the previous government.

The Labor Government has been able to cut taxes, reform business taxation and assist small businesses with increased tax deductions.

In conclusion, we are excited about the future for the Australia-Latin America relationship. As we trade more. As we share more. And as we build solid and long-lasting relationships.

Thank you.

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