Australian Exporters - Top Performers in Tough Times

Australian Exporters - Top Performers in Tough Times

Speech by the Minister for Foreign Affairs The Hon Alexander Downer MP to the "Top Exporters" Dinner, Melbourne, 15 July 1998

Introduction

Ladies and gentlemen, I don't need to tell this audience that some Australian exporters have had to do it tough over the last few months.

But I know that in this room are some of Australia's top export performers. You are the people who have managed, even in the midst of the region's most trying economic times in a generation, to look to export markets as a way to advance your companies' interests.

In doing so you are creating greater profits for yourselves and you are generating more and better paid jobs for Australians.

I know, however, that the region's economic prospects are close to all of your hearts and tonight I would like to tell you a bit about our perspective on current developments and how they are affecting our export performance.

I also want to say a few words about the importance of open markets both internationally and here at home. There is no doubt that increasingly open markets around the world have brought Australia great benefits. We would do ourselves and all Australians a great disservice if we considered adopting discredited protectionist policies. What's more, we would be damaging exporters' prospects as we would be certain to invite retaliatory action from our trading partners.

But first, let me look at the current state of regional economies.

Prospects for the Region

There is no doubt that the region is facing its most serious economic challenge in decades.

But I think we need to guard against swinging from unbounded optimism about the region's prospects - which was generally the view only a year ago - to what seems to be equally unbridled gloom about its economic future.

The economic strengths which made East Asia highly attractive to global investors over the past two decades have not disappeared. High savings rates continue and an increasingly skilled and educated workforce will be able to capitalise on the upswing which will inevitably come in due course.

The question we are all asking ourselves is how long will we have to wait for Asian growth to return?

Given the uncertainties that continue in the region, I clearly can't pretend to have a definitive answer to that question.

What is clear is the overriding importance for all regional economies of staying on the path of economic reform. The faster such reform can be implemented the more likely it will be that we will see an early return to growth in the region.

It is now recognised that financial sectors in many regional economies failed to keep up with the cracking pace set by capital flows at the height of the East Asian "miracle". Accordingly, governments in the worst affected economies must take bold and transparent decisions to recapitalise and restructure their ailing financial sectors, currently burdened by high levels of non-performing loans.

We are seeing, however, some encouraging signs suggesting that the wild day-to-day currency swings may have passed for the most affected economies - with the exception of Indonesia. In particular, Thailand and the ROK are making good progress on their economic reform programs. This has been reflected in their currencies appreciating this year and in growing investor confidence.

But in coming months we will need to watch carefully what I regard as key indicators for the region's recovery.

First and foremost amongst these is Japan's economic health.

The weekend's Upper House election result and Prime Minister Hashimoto's subsequent resignation demonstrate the seriousness of the economic situation in Japan and the urgency with which Japan's economic problems need to be addressed.

Japanese recovery is central to the fortunes of East Asia. It is crucial that Japan takes measures to ensure its economy does not slide into deep recession, seeing further devaluation in the yen.

Markets certainly welcomed the Japanese Government's recent actions to revitalise its economic reform program. In addition to accelerating the 24 April fiscal stimulus package, Japan is to establish a "bridge bank" aimed at sorting out its difficult non-performing loans in the banking sector. We certainly look forward to an early announcement of details of the "bridge bank" plan.

We encourage Japan to continue to accelerate the process of economic reform, which will benefit both Japan and the region, at this time of widespread economic difficulty.

An important linked issue is whether China might be forced to devalue the yuan by currency depreciations in the region.

The Chinese economy has weathered the East Asian economic crisis reasonably well and growth should continue in 1998. An important element in sustaining that economic growth will be the implementation of the Government infrastructure program to offset the negative impact of downturns in foreign investment and export growth.

The decline in export growth may result in pressures mounting to see the yuan regain its competitiveness against other regional currencies. While I do not consider that this is likely in the short term it is something that will need watching, particularly if the yen were to fall further. The Chinese Government's reaffirmation during President Clinton's recent visit that they would not devalue the yuan was therefore very welcome.

On the other side of the Pacific, we need to be alert to the flow-on effects for the region were there to be a sharp correction in Wall Street possibly coupled with a resurgence of protectionism in the US.

But again there have been some positive signs.

While Wall Street's ups and downs cannot easily be forecast or prepared for, we welcome President Clinton's strong statement at the WTO Ministerial Meeting in May that the US remained committed to open markets. Nonetheless, we would certainly like to see Congress grant the President fast track authority as soon as possible.

Also, were there to be further serious instability in Indonesia, that would clearly have very difficult flow-on effects for the region and South East Asia in particular.

Having visited there last week, and having met President Habibe and senior opposition figures, I can say that the situation is clearly difficult for the Indonesian Government and people. Undertaking a once in a generation political transition and political reform process in the midst of a severe regional and national economic downturn is a daunting task. Indonesia will continue to need international financial support over the coming year and beyond to allow the Government to see through its promise of fresh parliamentary and Presidential elections. Ideally, these will, through the creation of a broadly based leadership, establish the basis for a renewal of investor confidence and economic revival in the long term.

So, in essence, we have to remain alert to the potential for a slower rate of regional recovery should any of these events in Japan, China or the US occur. I would like to stress again, however, that the medium-term outlook for the region will depend, in large part, on the speed with which governments implement necessary reforms to correct financial sector weaknesses. And there are some encouraging signs that that is taking place.

While the Government recognises that there are a number of very real challenges for the East Asian region ahead, it is important, as I have said, to ensure that the previously excessive rhetoric regarding the East Asian economic 'miracle' does not swing too far the other way and become overly pessimistic.

The Impact on Australia

Having said that we don't want to be too pessimistic, we cannot avoid facing up to the fact that the East Asian economic crisis is the most significant external economic shock Australia has experienced since the second OPEC oil crisis in 1979.

This year Australian exporters have seen exports to the most affected markets, such as Indonesia, Korea and Thailand, fall significantly from levels achieved at the same time last year. And other markets in the region have also been affected.

But all is not gloomy on the export front. Australian exporters have demonstrated their capacity to adapt to tough times by continuing to seek out opportunities both in the region and further afield. In doing so they have been helped by the fact that a lower Australian dollar has made them more competitive against US and EU products.

Consequently total exports have continued to grow. For the eleven months to May 1998, essentially the period of the East Asian crisis, merchandise exports grew at 10 per cent compared to the same period a year earlier.

And there has been good growth in exports to several key regional markets. In particular, exports to our largest market, Japan, grew 10 per cent in the first five months of this year compared to the same period in 1997.

Other key markets are also performing well. Over the same five months this year exports have improved on 1997's level by 24.7 per cent to Hong Kong and 8.2 per cent to Taiwan.

Moreover, I am pleased to say that the Government's efforts since coming to office in helping exporters to diversify their markets has paid dividends.

Exports beyond the region are booming. These have grown by nearly 17 per cent over the eleven months to May - and that growth has been particularly strong in the last few months.

Exports to the US grew by 41 per cent to reach $A7 billion and exports to the European Union increased by 22 per cent to reach $A9.1 billion.

And there has been good growth in a range of emerging markets. For example, exports to Russia have more than doubled to reach $A208 million and Mexico has increased 70 per cent to reach $A191 million.

So as you can see Australian exporters have demonstrated that they are responding energetically to the economic crisis by sustaining sales in parts of the region and developing markets further afield.

What the Government is Doing

You can be confident, too, that the Government is acting to assist Australian exporters cope with the effects of the crisis. We are ensuring the availability of appropriate levels of trade credit and insurance, through the short-term National Interest insurance cover for exports to Korea and Indonesia.

The Government is also providing information and identifying opportunities through Austrade's Asia Crisis Centre and Internet site, with alerts and advice updated weekly. My colleagues, Mr Fischer and Senator Brownhill, have held `exporter summits' with industry representatives to discuss personally the impact on Australian firms and how the Government can assist.

Perhaps most importantly, in addition to contributing to all three IMF rescue packages - and other than Japan we are the only country to do so - we have been talking regularly with regional Governments and other OECD Governments about the vital need to keep markets open. Any moves towards resurrecting protectionist barriers at this stage could make the direst of economic scenarios realisable.

The Importance of Open Markets

Australian exporters having been able to find new markets quickly owes a lot to the fact that, in the global marketplace, trade barriers have been significantly reduced in recent years.

The Government has achieved substantial market access gains over the past two years through efforts in bilateral negotiations, in regional discussions such as APEC and in multilateral negotiations in the World Trade Organisation.

Australia has also reduced tariffs and other trade barriers significantly over the last few decades. As a result we've seen Australian businesses' productivity boosted considerably, not only in response to increased competition from around the world but also because of cheaper imported inputs to our own production.

Also, by focusing on areas where Australia can compete in international markets - and this is something that those here tonight have done superbly - Australia has seen its exports grow rapidly over the last five years, particularly in sophisticated manufactures.

This success has translated into jobs. A recent study indicated that, over a ten year period, more than four hundred thousand jobs were created by Australian exports.

And my Department has calculated that the lowering of our market barriers over the last decade or so has been worth over $1,000 per year on average to Australian families - wealth that has made Australians better off and created job opportunities.

If, however, we were to adopt inward-looking trade and foreign investment policies, we might as well throw away our gains from freer trade.

Adoption of a Fortress Australia approach to trade policy would invite our trading partners to reciprocate. It would also invite potential investors to pull the plug on thousands of new Australian jobs.

Just consider what our trade with our East Asian neighbours is worth to Australia. Even under the worst case scenarios more than half of our trade will still be with the region.

In 1997 we exported around $48 billion worth of goods to East Asia - and this generated a surplus of $16.7 billion. Merchandise exports to Japan alone, representing about a third of those to East Asia, gave rise to some 345,000 Australian jobs.

My Department estimates that at least three quarters of a million Australian jobs are tied up with Australian exports to East Asia.

Let me make it perfectly clear.

Spurning our East Asian trading partners either by making them and their families unwelcome in Australia or by putting trade barriers up to prevent their exporting their goods here could potentially jeopardise thousands upon thousands of Australian jobs.

And it's a similar story on the investment side where we could be deterring significant levels of investment if we send out to the region any signals that we condone racial discrimination.

Let me give you a few examples. Australia's motor vehicle is heavily dependent on foreign investment from Japan and Melbourne certainly benefits from four and half thousand people being employed at the Toyota plant here in Melbourne. And Mitsubishi employs around three and a half thousand in my home state of South Australia.

Or just imagine if the $500 million Korea Zinc Smelter and Refinery had not gone ahead in Queensland recently. Opportunities for 6000 workers employed during construction and 350 permanent staff would have gone begging.

If we were to set ourselves up as Fortress Australia we would be undermining the efforts of enterprising Australians like those in this room who have benefited from the lowering of protectionist barriers because they have demonstrated that they can compete with the world's best.

Those who regard tariff protection as some kind of "safety net" are deluding themselves. Let's look at the facts. In the seventies and eighties high levels of protection were unable to save jobs in the industries being protected. The only reliable "safety net", if you like, is, in fact, being able to perform without one - by being truly competitive. I know that is a lesson that this audience has learnt by heart.

The Government too is practising what it preaches. We have put in place an economic environment which is truly internationally competitive and which makes Australian business able to be more competitive. The Australian Government has turned around a huge deficit in two years, has put in place a low inflation and low interest rate regime and has begun a program of massive Government debt reduction. We will be following up with tax reform and further microeconomic reform to ensure Australian business stays competitive.

Conclusion

And let me conclude by saying that these reforms have built a platform which has allowed our economy to retain considerable stability during the East Asian economic crisis.

Moreover, Australia's positive response to the crisis, both financially and politically, has drawn attention to the attributes Australia has to offer the region and has placed us in a favourable position to capitalise on opportunities that will arise as the economic situation evolves. It is certainly the case that international investors regard Australia as a valuable safehaven in the region and as a launchpad for future regional operations.

When I look around this room I am confident that we will continue to be a sought after investment destination in the region. Australia's entrepreneurial spirit is flourishing and the business acumen, the commitment and the dedication which you have brought to your export-oriented industries has stood your companies in good stead. Your hard-won reputations as reliable and competitive exporters do you credit and they do Australia credit.

You have all demonstrated that even in tough times Australian business can still produce "top exporters'.

I therefore wish you all well in your future endeavours.

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