Australia and regional trade

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Australia and regional trade
Mark ThirlwellProgram Director, International
EconomyJanuary 2005
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Presentation themes

• Australias trade profile
• Why East Asian trade matters for Australia
• Basic features of East Asian trade
• Recent trends in regional trade
• Policy debates

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1. Australias trade profile
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Key developments in Australian trade policy
Year Event
1932 Ottawa Agreement establishing Imperial preference trading system
1938 Embargo on export of iron ore to Japan
1948 Australia becomes one of 23 founding members of the GATT
1956 Ottawa Agreement renegotiated
1957 Commercial Treaty with Japan
1960 Embargo on export of iron ore to Japan lifted
1961 UK announces will seek membership in EC
1963 Australia-Japan Treaty
1967 Japan overtakes UK as largest export market
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Continued . . .
Year Event
1973 First round of across-the-board tariff cuts UK joins EC
1974 Passenger Motor Vehicles Plan
1983 Australia-New Zealand Closer Economic Relations Agreement Floating of the A
1986 Cairns Group of agricultural exporters established
1987 Amalgamation of depts of trade and foreign affairs into DFAT
1988 Second round of across-the board tariff cuts
1989 APEC established
1991 Third round of tariff cuts
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Continued (2) . . .
Year Event
1992 Establishment of AFTA by ASEAN
1995 APEC announces Bogor Goals free trade by 2010 / 2020
1997 White Paper on Foreign and Trade Policy place for bilateralism
2003 SAFTA signed Feasibility study for Australia-China (CAFTA?) deal announced
2004 AUSFTA signed TAFTA signed Scoping study for Australia-Malaysia (MAFTA?) deal announced ASEAN-CER economic ministers call for regional negotiations

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Australias move to a more liberal trading regime
Effective rates of assistance,
Source Productivity Commission and WTO
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Australian tariff barriers in perspective
MFN applied tariff rates, simple average,
Source WTO web site. Data are for latest
available year (generally 2002-03)
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Tracking Australian international integration
Australian exports of goods and services, of GDP
Source RBA and ABS
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The changing composition of Australian trade
Composition of Australian merchandise exports,
Source RBA for 1953/4 DFAT for 1983 and 2003
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The changing direction of Australian trade
Destination of Australian merchandise exports,
Source DFAT, One hundred years of Australian
trade
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Australian exports in 2003
Direction of exports
Composition of exports
Source DFAT Trade 2004
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2. Why East Asia matters for Australia
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Major export markets for Australia
Top ten merchandise exports markets in 2003, Ab
18 of total exports
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7.5
Source DFAT web site.
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A key growth market a dynamic one
Change in market share, points
Compound growth rate, pa
Source IMF Direction of Trade Statistics CD ROM
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3. Basic features of East Asian trade
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Regional exports dominated by manufacturing
Share of total goods exports,
Source World Bank Development Indicators. Date
for 2002 where available, otherwise 2001.
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Significant role for hi tech exports
Hi tech as share of total manufacturing
exports,
Source World Bank Development Indicators. Data
for 2002 where available, otherwise 2001.
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Imports slightly more balanced
Share of total merchandise imports,
Source World Bank Development Indicators. Data
for 2002 where available, otherwise 2001.
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3. Recent trends in regional trade
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East Asia is growing its share of world trade
Share of world goods exports,
Share of world goods trade,
Source IMF Direction of Trade Statistics CD ROM
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Aggregate numbers dont tell the full story
Change in share, points
Share of world goods exports,
Source IMF Direction of Trade Statistics CD ROM
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Growing role for intra-regional trade
Intra-regional exports as share of total,
Source IMF Direction of Trade Statistics CD ROM
and Lowy Institute calculations
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China an increasingly important market . . .
Change in share of goods exports to China,
points
Source IMF Direction of Trade Statistics CD ROM
and Lowy Institute calculations
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. . . for most of region
Share of China in total goods exports,
Source IMF Direction of Trade Statistics CD ROM.
Data are for 2003.
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But extra-regional demand is still dominant
East Asia ex Japan exports 100
Rest of World 64
East Asia ex Japan 36
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Domestic demand 7
Production 29
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Source Monetary Authority of Singapore data are
for 2001.
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5. Policy debates
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China comrade or competitor?
Share of net exports,
Source DFAT Economic Analytical Unit (2003).
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The export boomerang the case of Japan
Source Tim Harcourt (2004) "Global Challenges
for the Australian Economy" .
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Surfing Asias development wave?
Source Tim Harcourt (2004) "Global Challenges
for the Australian Economy" .
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Terms of trade turnaround
Terms of trade, index 2002/03100
Source RBA
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Living in a world of preferential trade agreements
Cumulative number of PTAs, by date entered into
force
Source WTO web site.
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Asia been slow to join the PTA bandwagon . . .
Share of preferential trade in merchandise
imports,
Source WTO World Trade Report 2003.
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But is now well on the way
Selected regional PTAs, actual and proposed

• ASEAN / AFTA
• ASEAN China
• ASEAN India
• ASEAN Japan
• ASEAN - Korea
• China - Australia
• China HK
• China Macao
• China New Zealand
• Japan Indonesia
• Japan Mexico
• Japan Philippines

• Japan Korea
• Japan-Singapore
• Korea Chile
• Korea Mexico
• Malaysia-Australia?
• Singapore Australia
• Singapore Canada
• Singapore Chile
• Singapore EFTA
• Singapore Mexico
• Singapore US
• Thailand Australia
• Thailand US

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The case for joining a PTA . . .

• Trade creation outweighs trade diversion
• A response to the log-jam in the multilateral
  system . . . and a spur to it (competitive
  liberalization)
• Prospect of going faster and deeper than
  multilateral negotiations
• Insurance against policy shifts in key trading
  partners
• Insurance against being frozen out by other PTAs
  (domino regionalism)
• Lock in domestic liberalization at home (Mexico
  and NAFTA)
• Political / strategic objectives (the EU,
  AUSFTA?)

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. . . and the case against

• Trade diversion exceeds trade creation
• Diverts scarce negotiation resources from
  multilateral negotiations
• Distortions and transactions costs created by
  rules of origin required to make PTAs work,
  leading to . . .
• . . . the creation of a spaghetti bowl of
  complex arrangements that stifle, rather than
  support, trade
• Risk of creating protectionist forces (to retain
  preferential access created by PTAs)
• Serious issues (e.g. agriculture) only dealt with
  in WTO
• Trade may complicate political / strategic
  alliance