CHECK AGAINST DELIVERY EMBARGOED UNTIL DELIVERY
SPEECH BY THE PRIME MINISTER
PACIFIC BASIN ECONOMIC COUNCIL
SYDNEY 25 MAY 1988
It is always a pleasure to address groups of Ajxstralians or
visitors to this country who are involved in advancing the
interests of the Pacific Basin economies.
Because for Australia it is in the Pacific Basin that our
future lies.
At the outset let me stress here as I have in many forums
that Australians are determined to meet the challenge, and
grasp the opportunities, that our involvement in this region
presents to us.
I recall speaking to the national meeting of this is Council
four years ago in Sydney. On that occasion, having just
returned from a visit to North-East and South-East Asia, I
was able to outline ways in which Australia could become
more integrated with the economies in that region.
More recently, last November, I had the honour of delivering
the 1987 Singapore lecture in which I outlined my views
about the prospects and the challenges for the Asia Pacific
region.
So I was determined even though I can only spend a very
short time with you today to accept your invitation to
address-this conference and to return to those important
themes. It is now somewhat commonplace to marvel at what one might
call the Pacific miracle or to express wonderment about the
so-called Pacific Century we are about to enter. The
reconstruction of Japan after World War II; the emergence of
the so called four tigers; the growing-* confidence of the
ASEAN countries; and the reawakening of the potential giant
of the region, China, are all powerful sources of optimism
for the future of the region.
Without doubt the past twenty years have been vibrant and
exciting ones in this region. Economic progress here has
outstripped that of the rest of the world. 0 06; 9 2
2.
To quote just one statistic: twenty years ago the region's
GDP was equivalent to one-third of US GDP. Today it s over
two thirds.. of what is of course,. a much larger *. US economy.
Performance like that has not happened by accident.
For the most successful countries, it has been the result of
deliberate, determined, outward-looking domestic policies,
extraordinary economic adaptability and a sftpathetic
trading environment.
The result has been heavy emphasis on exporting, both within
the region and to the more traditional markets of Europe.
It is no wonder, then, that the locus of world trade is
shifting from the Atlantic to the Pacific.
I have made no secret of the optimism with which I
contemplate the future of this region.
The Pacific economies have repeatedly demonsgtrated in the
past the commitment and the flexibility they needed to gain
the most from an export oriented strategy and to take
advantage of the changing opportunities for growth through
trade. For example, in the wake of the slowdown in world growth in
1985, sharp policy adjustments were necessary in a number of
Pacific economies, including Australia-
Commodity exporting countries like Australia proved
especially vulnerable as growth in world trade slowed to
3 per cent in 1985 from the rate of nine per cent in 1984.
Their export volumes fell as a consequence of falling demand
for their raw materials, and their terms of trade
deteriorated dramatically.
What has been encouraging about the response of the Pacific
nations including Australia has been their decision to
pursue growth even more vigorously and adapt their
macroeconomic, trade and industry policies to match the new
economic conditions.
By contrast, the response of some of the main European
countries to the economic slowdown and their general
reaction to the success enjoyed by developing countries had
in penetrating their markets was to turn inwards. They
resorted to a combination of increased protectionism and
inappropriate domestic policies with the result that smooth
global industrial adjustment was obstructed..
I have taken the opportunity in many forums to point out the
essential shortsightednes of those responses.
Closing down world trade would spell death to rapid economic
progress. It would not safeguard but would jeopardise
domestic industry and jobs.. 00) 6 1 9 3
And where the major etonomies have ignored the need to
realign their fiscal policies to the changing patterns of
world balance of payments imbalances they have simply
accentuated the difficulties of adjustment.
Japan, the United States and the major European economies
have particular roles to play in reversing this trend.
These are well known and I will not rehearse them here,
other than to state that their task requires nothing less
than fundamental reform of their approaches to economic
policy making and to protection policy.
What I want to stress here is that the task involves not
just the majors.
All countries particularly those in this region that have
benefited so much from open trading policies in the past
need to keep their own domestic, trade and exchange rate
policies under constant review.
The price of success is the obligation to coopet~ te fully in
the task of keeping world trade and financial flows as * open
as possible.
Although it is easy and no doubt comfortable to extrapolate
the successes of the past to the future, and to conclude
that all is right with the region, I believe it would be
shortsighted not to pause and reflect whethier this is truly
SO. For all the rhetoric about the dawning of the Pacific age we
still need to be sure that we have the conditions in place
that will allow such a vision to be realised.
As I said in my Singapore lecture last year,
" before we start counting the rewards that will flow to
us in the Pacific Century, our task must be to ensure
that the prediction actually comes true.
" The fact that things have gone so well for us in the
recent past does not mean they will continue to go
well."
remain confident that the optimistic predictions can be
achieved. But I believe we have more to do before we-can
actually participate in and reap the benefits of the Pacific
Century. Ladies and Gentlemen,
The reality is that once again we are entering a period of
fundamental changes to the countries of the region.
The Pacific Basin has already demonstrated it is well
equipped to deal with change. 0 06 ( 39 4
Now however new avenues for complementary economic
development are opening up. The challenge is to ensure
those opportunities are exploited to the full.
Before coming to the areas in which I think more needs to be
done let me first mention the hopeful signs that the task is
already being addressed.
Japan has embarked on a program of restructuring. The
sharply higher yen and the redirection of Japanese economic
policy towards the stimulation of domestic demand has
shifted the primary engine of growth away from net exports.
Indeed economic growth in Japan is now based entirely on
domestic demand, with the external sector making a negative
contribution to real growth in the order of one per cent in
1987.
As part of this restructuring process, Japan iV shifting
into higher technology products, creating anotj) Ier round of
market opportunities for newly industrialised producers of
medium technology items especially those located in the
region.
This in turn has opened new opportunities for some of the
less developed countries in the region, including some ASEAN
nations and the People's Republic of China. They have the
challenge now to move into export areas ini which the Newly
Industrialising Countries generally enjoyed a comparative
advantage previously.
Japan's accumulating wealth is also leading to increased
foreign investment.
1986 saw a 225 per cent increase in the flow of investment
funds from Japan to South Korea, a 155 per cent increase to
Taiwan and a 158 per cent increase to Thailand.
Similarly the Newly Industrialising Countries have begun to
invest abroad, reflecting their improving balance of
payments positions and shifts in the pattern of comparative
advantage. For example Taiwan has continued to expand its involvement
in the Philippines-in the garment industry and in light
manufacturing enterprises two areas in which they formerly
enjoyed a competitive edge but which have grown rapidly in
the Philippines.
The extraordinary growth path of the Chinese economy, at a
seemingly indefinite rate of 7 to 8 per cent a year,
combined with China's emphasis on open growth strategies
present the region with vast scope for increasing trade and
investment links with China.
Australia attaches a high priority to its relations with
China. Since Premier Zhao Ziyang's visit to Australia in
1983, the first by a Chinese he~ id of government, our
economic links with China have flourished.
In 1986-87 two-way trade exceeded $ 2 billion, making China
our fourth largest trading partner. Direct foreign
investment by Australian firms in China is estimated to be
$ A210 million. China's two largest foreign investment
projects are located in Australia the Mt Channar iron-ore
project and Portland aluminium smelter.
Last month Chinese and Australian officials concluded an
Investment Protection Agreement and we are also making
progress towards a Double Taxation Agreement. These will
make an important contribution to strengthening what is
already a healthy investment relationship.
Ladies and Gentlemen,
These developments inspire a degree of optimism for the
future of the region. They are developments, too, which
present challenges and opportunities for Australia.
Australia is determined to play its part in the growth of
the region and to derive the maximum possible*' 1Benefit from
the emerging opportunities.
For this purpose, I have decided to commission a major
report of prospective economic developments in East Asia and
their implications for Australia. It will be prepared by
our former Ambassador to China, Dr Ross Garnaut. I expect
that the results will be available to th6 Government in
about a year.
But more broadly, we are deeply concerned about the
restrictions that would be placed on our collective economic
prospects by an upsurge in unfair trade practices.
Australia has had cause on a number of occasions to voice
our concerns that access to markets be based on free and
fair competition.
Both within the Pacific Basin and more generally we seek
more assured access for, in particular, our beef, iron ore
and coal.
Indeed only yesterday I found it necessary to write to
Prime Minister Takeshita to express our concern about the
admission by a senior member of the Japanese ruling party
that administrative guidance has been used to treat American
beef favourably, at Australia's expense.
The beef market, like others, needs to be based on
non-discriminatory access.
We will continue to press such concerns both regionally
and in wider forums such as the GATT.
The task is urgent because the losses from delay are so
large.
Put mdst simply, we need increasingly to be sure that
investment and production decisions are based on a correct
set of market signals not ones so distorted by artificial
barriers and supports as to be meaningless.
Australia and the world has paid a high and well documented
price for the corruption of the markets for agricultural
products. The cost of administering programs of agricultural support
in the European Community, US and Japan alone was estimated
by the OECD to be $ US200 billion a year in the period
1984-86.
And that overlooks the more general economic and social
losses incurred by efficient producer countries when they
are denied adequate returns because of depressed prices and
lost markets.
Neither we nor our region can afford to repeat tihat sorry
example in other areas of trade.
However there is a prior and larger point.
A free trading system requires management policies which
reflect underlying economic fundamentals in exchange rates.
Unless this most important of prices is capable of
responding to changes in fundamentals the incentives for
producers to respond to changing patterns of comparative
advantage are muted indeed.
We must recognise it is equally unacceptable in a free
trading system to allow a long-term under-valuation of one's
currency as it is to maintain high tariffs or other trade
barriers to agricultural or manufactured goods.
At the same time, the countries of the region cannot demand
freer trade in goods without also accepting freer trade in
services. Certainly this is a relatively new area for
negotiation but it is one we must face. Those countries
with reservations in this area should reflect on the
opportunities that freer trade in goods has provided, before
they close their minds to freer trade in services.
Australia recognises that the advantages of liberalised.
trade and appropriate exchange rate management policies flow
not just to the region or the global economy as a whole, but
ultimately, to ourselves.
Accordingly we have already put in place massive reforms to
open up our economy to the energising impact of trade.
Tonight Paul Keating, John Button, and John Kerin will take
that process further.
They will be announ * cing the most far reaching decisions ever
taken to reform Australia's industry assistance policies. 69 7
Australia is taking the task of economic reconstruction
seriously. We are doing so because we recognise the value
to us of export-oriented growth and because we recognise
that to participate in that game requires greater
flexibility and adaptability. Our outdated regimes of
industry assistance were simply incapable of delivering
that. Put simply, I believe our trading partners should apply
similar remedies because the short term costs they impose
are ultimately outweighed by the benefits derived from a
more innovative, more flexible industrial structure.
That has been the experience of this dynamically growing
region in the past.
It is up to us including to the members of the Pacific
Basin Economic Council to ensure that it remains the
hallmark of our relationship in the future. 0