PRIME MINISTER
CHEC( AOAID4ST DELIVERY EMBARGOED UNTIL DELIVERY
SPEECH BY THlE PRIM MINISTER OF AUSTRALIA
TfHE HONOURABLE R. J. L. HAWKK, AC WP
KCONCEI C CLUB LUNCHEON
CHICAGO 20 JUNK 198
Seventy six years ago, a young Chicago architect etablished
a permanent link between this city and Australia.
Walter Burley Griffin was selected as the winner of an
international competition to design a now national capital
for Australia.
His design became the blueprint for the City of Canberra a
design which, ap any visitor to Canberra appreciates, is
still remarkably modern, efficient and attractive.
His insight into what Ausitralians looked for and needed in a
national capital symbolises the easy understanding that
exiats at a broader level between our two countries.
The foundo. rs of both Australia and the United States sealed
their political federation in physical form, by creating a
now city away from existing commercial and political centres.
Yet I wall understand that not all the voices of influence
within either of our countries originate from inside the
Washington beltway or in Canberra; far from it.
In Australia, we know Chicago as a world centre of learning,
of literature, of culture, a city associated with such names
as John Dewey, Enrico Ferti, Soul Bellow; the city of the Art
Institute and the Chicago Symphony, which we had the enormous
pleasure of velcoming In Australia earlier this year, as a
major part of our Bicentennial.
Chicago lieu at the boundary of what one author has described
as the North American breadbasket and the North American
foundry.
We aliso know Chicago as a focal-point of the international
economy, North Akmerica's greatest transportation hub with
links out to world trading and financial centres. I had
vivid proof of its importance this morning when I visited the
Mercantile Exchange. 7 3 24
But, ladien and gentlemen, I have not come half way around
the world morely to exchange pleasantries. Nor. I trust,
have you done me the honor of your presence just to see
whether the Prime Minister of Crocodile Dundee country has a
bi. 9 knife In his belt.
I do however come with a weapon. It is the weapon of logic,
honed by the concern of my fellow Australians at the damage
being done to them and to the prospects for global economic
security by the irrationality of the policies of the world's
major playors.
Like Nick Dundee I produce the weapon, not to hurt, but to
provido underitanding of what is enlightened self-interest.
And I want to say to you at the outset, dogmatically and
without any cloying sense of false modesty on Australia's
part, that what we are urging upon others we have practised
ourselves. I will come to that later.
And so I focus today on the threat to prosperity in
Chicago, in Australia and in the rest of the world posed by
protectionism. I believe that this audience, In this city, is well attuned
to the urgent need for the liberalisation of global trade.
Reviewing the events of the past two years I am compelled to
conclude that the progress that has been made in trade
liberalination has been welcome, but does not go nearly far
enough. Andt not ali the signs are encouraging ones.
The continuing threat to free and fair world trade comes from
three main sources the irresponsible agricultural policies
of the Ruropoan Community and America's reaction to those
policies; Japn's tardiness in opening its markets; and the
largo trade imbalances between the major economies
underpinned to a great extent by continuing United States
budget deficits.
Lot me deal with e ach of these in turn.
There should be no need to remind an audience in this city,
so closely linked to the great grain belt of the American
mid-west, of the enormous damage done to farmers including
Australian and American farmers by the Common Agricultural
Policy of the European Community.
It has distorted economic choices, depressed prices and
forced unnevssary and painful adjustment from otherwise
efficient irmerm.
The CA L hms allowed the EC, once the world's largest importer
of temporcto agricultural products, to become the world a
largent enporter. 7 325
3.
That flies in the face of any principle of comparative
advantage o~ r officiancy.
The distortions caused by-the CAP and national agricultural
supports do not end with the agricultural sector itself.
Manufacturing output, exports and employment have suffered.
Recent research for the Canberra-based Centre for
International Economics indicates that three million Jobs in
Europe could be created if the IC wer, to liberaline
agriculture, European manufacturing output would increase by
an estimated one per cent and manufacturing export. to the
rest of the w~ orld would increase by around five per cent.
Sadly, the Europeans are only now beginning to appreciate
fully the economic futility of their agricultural policies.
They can no longer ignore it. The staggering cost of
propping up inefficient agriculture is at the heart of the
European Community's budgetary crisis.
It has been argued within the United States that this dawning
realisation on the part of the Europeans about the
self-defeating nature of the CAP has been prompted in part by
the tough American decision to fight their subsidies with"
your own suboidies.
There may be an element of truth in that proposition. I
suppose the Europeans must seriously wonder whether they will
ultimately come out on top in this game of international
economic chicken.
But the reality is that in the end they will not win and
America won't either. The only winner will be economic
irrntionality, the staggering dimensions of which are
illustrated by the OECD estimate that the farm policies of
the European Community# Japan and the United States have cost
them $ 200 billion per annum over the last few years.
And it In a gross simplification to suggest that America's
farm policies have been purely retaliatory, impacting only on
tho Europennn.
Wheat Is a prime example. In the past three years during
ehich the United States Export Enhancement Program, or EEP,
has been operating, America's share of world " heat trade has
risen from 29 per cent to 43 per cent. The EC's share has
fallen only a little, from 17 per cent to 14 per cent, but
Australia's ahare has* slumped from 20 per cent to 12 per
cent.
In other worda, fair trading nations are getting caught in
the subuidies cross-fire. The effect, if not the intent# of
the trsa-Atlantic subsidies war Is thet the RC and the
United Statos are carving up world markets between then,
squeozing out efficient producers like Australia through the
application of massive subsidies.
Just a few weeks ago we were very disappointed to note that
the US Adminintration has turned up the heat a little more.
Under your tthnat support programs, the proportion of arable
wheat land to bo kept idle will be reduced from 27.5 per cent
to 10 per cont.
We k~ now Amorican grain farmers are facing a very severe
drought. But this decision will add substantially to world
wheat production excess wheat which America can only add to
world over-supply and further depress world prices.
Australian wheat farmers, who themselves know all too well
the hardship of drought, are nevertheless angry at what they
see as a now, a~ nd heavily subsidised, grab for world wheat
markets. This action sets back the gradual but real progress
Australia and other fair trading nations have made over the
past couple of years in encouraging America to wind back its
farn nuhriidy programs.
The anger of Aitrallan farmers would be exacerbated and
the Australian Govarnment. would endorse their attitude if
any decision tiers, taken by the United States to dump
REP-obalisond tihsat onto the Indonesian market. Indonesia
and thn Asin-Pacific region in general ar* relatively free of
suboidJed whant and Australia opposes any development which
would threaten the freedom of those markets.
The same attitude is engendered by America's increasingly
restrictive sugar quota arrangement. which have cut
Australiata exports to the U. S. by around 90 per cent since
1981. At a time when Australia has lifted its embargo on
sugar igportm, America is putting the shutters up on its
markot, V" find ourselves in the sad position whero
Australia le considering GATT action against the United
states~. Thooo ref.-ont American decisions have cast a shadow over the
AdminIrstration s generally strong anti-protectionist stance. 7 3 27
Now x emphao ins that it gives me nio pleasure to come here to
criticise Amierican actions. Our total relationship is in
excollent shape. It is precisely because I want to keep It
that way that I an unwilling to sweep areas of real
difficulty under the carpet.
There is r~ third major participant in the corruption of world
agricultur& d markets. Japan's market practices have been
very destructive for agriculture. Whether it be rice, where
Japan's dome~ stic price is eight times world prices; beef,
where protection is as high as 210 per cent; sugar, where
import demand Is artificially suppressed by over 50 per cent;
or almost any other agricultural commodity, Japan's policies
are simply Inconsistent with the sort of open markets it so
eagerly and so justifiably seeks for its own exports.
Thankfully we have seen signs of change in the last year or
so Japan'@ s imports are up over 20 per cent in two years. I
wholeheartedly welcome that,
Anid I. can only express my hope and expectation that Japano
the United States and Australia will soon conclude
satilsfactory arrangements for the non-discriminatory
liberaleation of the Japanese beef market.
Let no also be clear that I do not see all these issues of
protectionilsn solely in terms of agricultural trade nor,
Indeed, riolely in terms of the policies and practices of the
znajor econopiic powers.
Some oft the omaller and neover industrialised players also
haea role to play. And liberalisation of world trade in
services and more traditional manufactures needs to be
addressed seriously by everybody.
Australia has made, and will continue to make, these points
forcefully in the GATT and in other forums.
Haoving made those fairly blunt comments about protectionism,
I cannot ignore the contribution to economic uncertainty and
trade restrictions made by the budget imbalances of the
United States -and, more broadly, the lack of harmony in the
fiscal policies of the three largest economies the Us,
Japan and West Germany.
It has to bo acknowledged that in the U. S. and elsewhere
there have ' been significant steps in the right direction
recently, especially In reducing the United States fiscal
deficit. Itndeed, tharg are also signs of some progress in paring back,
gradually, the U. S. current account deficit with
spectacular growth in exports of manufactures. 7,3 2 8
Thin demonmtrates the inherent flexibility of the United
states economy. But I acknowledge that it also demonstrates
the pwver of President Reagan's policies to enhance this
f1exibility, policies which have become a major though
intangible oxport of this country.
Neverthelens the fact Is that problems remain.
Persistent and large international debtors, much as the
United States now is, must continually meet market tests of
performance. Living standards cannot be supported
indefinitoly on encessive overseas borrowings.
The longer the underlying fiscal imbalance persists, the
longer will the trade deficit remain unsustainably high, the
faster will debt pile up and the more vulnerable will the
economy become to sudden shifts in interest rates or the
exchange rate.
That is why further fiscal reform, especially in the United
States, qooe hand in hand with restoring stability to the
global trading system.
The post-war prospority of the US, as of the rest of us, has
grown in large part because of the existence of a vigorous,
vomputitivo and free trading system.
The Amerioan people were very much the authors and sponsors
of tat nysto.
It would be curious logic indeed to seek to close down
through groater protectionism, the trading system which has
worked so powerfully to build post-war prosperity. Nor would
it be nonvible to thwart that progress through inappropriate
fiacal policios.
I readily admit that I would be open to the charge of
hypocrisy end double standards if we In Australia were not
moving decisively to put our own house in order. But we are.
For five yers we have relentlessly pursued an economic
agonda designed to make our economy more stable, more
resilient and more outward looking more prepared to take on
the beast i! the world, and win.
Our major macro-economic objective during our time in office
has boon stabilising our foreign debt and balancing our
budyot. We in Australia faced the prospect in 1983 of a Federal
deficit of about 5 per cent of Gross Domestic Product just
a littlo below the comparable ratio for the United States.
For the fivecnl year just ending, we initially announced a
balancod budget, but it is now clear that we will achieve a
significant 8urplus the first in 35 years. 73 2
Last month we announced further expenditure reduction
Innuret Whieh will hring PAdAral expenditure down by
per cent in lAVU-BV in real terms. This will represent the
third consecutive yor of real decline and will underpin a
fiscal surplus in the order of I per cent of GDP.
That achievement was not easy. It involved tough decisions.
It meant taking away Government benefits and subsidies from
those who did not really need then something traditionally
regarded as political suicide. It has involved sacrifice for
all Australians and, for many, real hardship.
It aloo required the courage to crack down on tax avoidance
over the protests of those who had to start paying their full
fare for the first time.
But we recognised there was no acceptable alternative to
exercising unprecedented fiscal restraint. The only
alternative would have been for our creditors to impose their
ovn brand of adjustment on us, in a way which did not protect
the dioadvantaged, which sacrificed jobs, which wreaked
receRsion on our country.
Our approach, and its emphasis on the partnership between the
Government and the trade union movement, was praised recently
by the managing director of the International Monetary Fund,
Michel Camdessus, aa a model for other nations. In
partivclar it has allowed us to generate employment growth
over the past five years at more than twice the OECD average
rnte.
Of course fiscal adjustment is not sufficient in itself. For
the longer term we have needed to transform a highly
protected, nnd consequently weak manufacturing sector into a
world competitive one; and to ensure that our agricultural
and mining Industries, already among the most efficient in
the world, withstand the current problems in the world
trading systen.
Important steps have been floating the Australian dollar,
deregulating the Australian financial and aviation systems,
steps to reform work practices and our education and training
systems, liberalising foreign investment requirements and
relaxing export controls on a range of minerals.
Last month the Government set down a blueprint of further
steps, for the next four years in Australia which will
continue and broaden the thrust of these reforms. In
particular there will be substantial cuts in tariffs over the
noxt four years, targeted at those areas which are the most
highly protected.
These measures will see Australia's average effective tariff
ret. fall by over 30 per cent to 14 per cent in just four
yearm., 73 3
Virtually all1 of Australia's assistance to Industry is
provided through tariffs. our protection is transparent and
declIning in marked contrast to that of our trading partners:
these cuts mro real cuts in protection.
Theo reforn may appear surprising at a time when world
uuarkats are getting tougher and the game seems rougher thAn
ovs' r. But they are, in fact, the only rational and sensible
response to a tougher world trading environment. It is only
by rorogniolng and responding to market conditions, however
tough or impporently unfair, that business or nations can stay
com~ ptitivo and s~ tay prosperous.
I don't make these points to create the impression that
Atistralians are complacent about the future. We know that
the job in not yet completed * and we are determined to see
it through.
My point todiny is that others in the world economy need also
to recogniso that there in much to be done urgently.
Avid no it is to the future that I now turn.
Two sets of decisions over the next 12 months or so will
largely detormine whether the relative economic prosperity of
the Inst f( orty years can be sustained. These are the
dauldsonp to be taken on the US budget deficit by the
inv~ oming Adninistration and the nov Congress and the
doiniohn3 znftn n! t the forthcoming aid-term review of the
t1Jrtngu& y Round of Hultilatermil Trade Negotiation.
Political honeymoons are a wonderful thing. They usually
oilly com~ e around once. They are to be used, not squandered.
Wboevor wins In November will face the need to resolve the
problem~ of Aorican budgetary deficits decisively and
comiprehoel3voly. At the very time when the Big Seven leaders are meeting in
Toranto, i7 rhould stress that the task of adjustment does not
fall on kRmarican shoulders alone.
All these lenders, including in particular the Japanese and
Hnnt Cernon, have a role to play in securing greater policy
All, too, havo a role to play in maximisinig the chance of
succoss of Lho Uriuguay. Round.
Arguably tho most important event in the last two years
affocting wiorld trading prospects was the successful
Isawichirg of that Round of Multilateral Trade Negotiations in
Septemiber 1986. X say ' arguably', because there are
logAtim~ ats grounds for debate as to whether the New Round
will achiove anythIng substantial. 7331
The success of! the RoUnd Will depend greatly on the outcome
of the mid-term review of negotiations to be held in Montreal
in December.
Success in Montreal would set the scene for the remainder of
the Round and give renewed impetus to and confidence in the
negotiations. But failure to register Paeaningful progress by the and of
this year would seriously diminish the prospect. for genuine
trade liberalisation in the Uruguay Round.
Nowhere In thin truer than in agriculture, where the Cairns
Group which has proven itself a major new force in the
multilateral negotiations is pressing for agreement to the
implementation of reform measures in 1989 and 1990 as a
genuine downpayvment on the final outcome.
The group is currently finaliuing its proposals for action to
be presented to tha Montreal review.
it will be a proposal which will show our determination to
keep up the prossure on the major trading blocs so as to
create a truly f~ ree and fair trading system.
Australia also ottaches priority to several other issues,
including the Imiproved functioning of the GATT system, trade
in tropical produt and trade in services.
Your country comeos to the GATT negotiating table with an
unparalleled rocord of leadership and as the unchallenged
leader of Wastorn nations. Others at the table may appear
intransigent, but where you are prepared to lead, I believe
others will follow.
Ladies and gentlemen,
The United States has a well deserved reputation for world
leadership in oconomic and political arenas. It was American
generosity and leadership which helped war-ravaged countries
after World War 11 to begin their economic recovery and it
was access to the relatively free and open market of the
United States which allowed those and other countries to
develop. The message that I want to put firmly to you and to my other
audiences in the United States this week is that the economic
crisis which wo face today is different but no less important
than it was in that post World War 11 era and requires the
same dedication and leadership.
The United States has a pivotal role to play at-this time and
ag a close friend and ally of the United States we urge you
to exert that laoadership. ~ 3 3,2
That great post of this city, Carl. Sandburg, referred to
Chicago as the " stormy, husky, brawling, City of the Big
Shoulders". I put my case for economic adjustment confident that America
has shoulders broad enough to take up the burden of economic
adjustment and to meet again the responsibility of global
economic leadership.
Beyond any other major participant you have the record, the
vision, the philosophy, the abundance of talent. All that is
required is the political courage and there, as Australia and
the world looks to you,. I am sure that America will not be
found wanting.