Australia and regional trade

Mark ThirlwellProgram Director, International Economy

January 2005

Presentation themes

• Australia’s trade profile

• Why East Asian trade matters for Australia

• Basic features of East Asian trade

• Recent trends in regional trade

• Policy debates

1. Australia’s trade profile

Key developments in Australian trade policyYear 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

Continued . . . Year Event

1973 First round of across-the-board tariff cutsUK joins EC

1974 Passenger Motor Vehicles Plan

1983 Australia-New Zealand Closer Economic Relations AgreementFloating 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

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 signedFeasibility study for Australia-China (CAFTA?) deal announced

2004 AUSFTA signedTAFTA signedScoping study for Australia-Malaysia (MAFTA?) deal announcedASEAN-CER economic ministers call for regional negotiations

Australia’s move to a more liberal trading regime

Source: Productivity Commission and WTO

Effective rates of assistance, %

0

10

20

30

40

1970/71 1983/84 1990/91 1996/97 2000/01 2002/03

AgricultureManufacturing

Australian tariff barriers in perspective

Source: WTO web site. Data are for latest available year (generally 2002-03)

MFN applied tariff rates, simple average, %

0

5

10

15

20

25

30

Aus EU Chi Jap Kor US NZ Tai Sing HK India

Tracking Australian international integration

Source: RBA and ABS

Australian exports of goods and services, % of GDP

5

10

15

20

25

30

1949/50 1959/60 1969/70 1979/80 1989/90 1999/00

current pricesconstant prices

The changing composition of Australian trade

Source: RBA for 1953/4: DFAT for 1983 and 2003

Composition of Australian merchandise exports, %

0102030405060708090

Primary Products Manufactures Other

1953 1983 2003

The changing direction of Australian trade

Source: DFAT, One hundred years of Australian trade

Destination of Australian merchandise exports, %

0

10

20

30

40

50

60

Asia Western Europe North America Rest of World

1950 1980 2000

Australian exports in 2003

Source: DFAT Trade 2004

Direction of exportsComposition of exports

Services23%

Manufactures25%

Other6%

Non-monetary gold4%

Rural16%

Resources26%

Other6%

US9%

NZ8%

Other10%

India3%

EU14% SE Asia

11%

North Asia40%

Mid East5%

2. Why East Asia matters for Australia

Major export markets for Australia

Source: DFAT web site.

Top ten merchandise exports markets in 2003, A$b

18% of total exports

9%7.5%

0

5

10

15

20

Japan US China NZ Korea UK Tai Sing India HK

A key growth market & a dynamic one

Source: IMF Direction of Trade Statistics CD ROM

Change in market share, % pointsCompound growth rate, % pa

-5

0

5

10

15

20

China Japan Korea HK Indon Mal Phil Sing Thai India US EU

1980-2003 1999-2003

-8

-6

-4

-2

0

2

4

6

China Japan Korea HK Indon Mal Phil Sing Thai India US EU

1980-2003 1999-2003

3. Basic features of East Asian trade

Regional exports dominated by manufacturing

Source: World Bank Development Indicators. Date for 2002 where available, otherwise 2001.

Share of total goods exports, %

0

20

40

60

80

100

China Japan Korea HK Indon Mal Phil Sing Thai Aus India

Manufactures Primary Products

Significant role for ‘hi tech’ exports

Source: World Bank Development Indicators. Data for 2002 where available, otherwise 2001.

‘Hi tech’ as share of total manufacturing exports, %

0

10

20

30

40

50

60

70

China Japan Korea HK Indon Mal Phil Sing Thai Aus India

Imports slightly more balanced

Source: World Bank Development Indicators. Data for 2002 where available, otherwise 2001.

Share of total merchandise imports, %

0

20

40

60

80

100

China Japan Korea HK Indon Mal Phil Sing Thai Aus India

Manufactures Primary Products

3. Recent trends in regional trade

East Asia is growing its share of world trade

Source: IMF Direction of Trade Statistics CD ROM

Share of world goods exports, %Share of world goods trade, %

12

14

16

18

20

22

24

1980 1983 1986 1989 1992 1995 1998 2001

Exports Imports

0

1

2

3

4

5

6

7

China Japan Korea HK Indon Mal Phil Sing Thai Aus India

Aggregate numbers don’t tell the full story

Source: IMF Direction of Trade Statistics CD ROM

Share of world goods exports, % Change in share, % points

0

2

4

6

8

10

12

14

1980 1983 1986 1989 1992 1995 1998 2001

Japan China Other East Asia

-1

0

1

2

3

4

5

China Japan Korea HK Indon Malay Phil Sing Thai

1980-2003 1999-2003

Growing role for intra-regional trade

Source: IMF Direction of Trade Statistics CD ROM and Lowy Institute calculations

Intra-regional exports as share of total, %

25

30

35

40

45

50

1980 1985 1990 1995 2000 200320

30

40

50

60

70

China Japan Korea HK Indon Mal Phil Sing Thai

1990 2003

China an increasingly important market . . .

Source: IMF Direction of Trade Statistics CD ROM and Lowy Institute calculations

Change in share of goods exports to China, % points

0

5

10

15

20

Japan Korea HK Indon Malay Phil Sing Thai Aus India

1980-2003 1999-2003

HK 36.3

. . . for most of region

Source: IMF Direction of Trade Statistics CD ROM. Data are for 2003.

Share of China in total goods exports, %

0

5

10

15

20

25

Japan Korea HK Indon Malay Phil Sing Thai Aus India

HK 42.5%

But extra-regional demand is still dominant

East Asia ex Japan exports

100%

East Asia ex Japan

36%

Domestic demand7%

Rest of World

64%

Production29%

15%

14%

Source: Monetary Authority of Singapore: data are for 2001.

5. Policy debates

China: comrade or competitor?

Source: DFAT Economic Analytical Unit (2003).

Share of net exports, %

15

25

35

45

55

65

75

Japan Korea HK Indon Mal Phil Sing Thai Tai Aus

Competing Complementing

The export boomerang: the case of Japan

Source: Tim Harcourt (2004) "Global Challenges for the Australian Economy" .

Surfing Asia’s development wave?

Source: Tim Harcourt (2004) "Global Challenges for the Australian Economy" .

Terms of trade turnaround

Source: RBA

80

90

100

110

120

130

140

Sep-59 Sep-69 Sep-79 Sep-89 Sep-99

Terms of trade, index 2002/03=100

Living in a world of preferential trade agreements

Source: WTO web site.

Cumulative number of PTAs, by date entered into force

0

30

60

90

120

150

180

210

1948 1956 1964 1972 1980 1988 1996 2004

Asia been slow to join the PTA bandwagon . . .

Source: WTO World Trade Report 2003.

Share of preferential trade in merchandise imports, %

0

10

20

30

40

50

60

70

W.Europe

Transitionecons

NAmerica

Africa Mid East LatinAmerica

Asia World

2000 2005f

But is now well on the way

ASEAN / AFTAASEAN – ChinaASEAN – IndiaASEAN – JapanASEAN - KoreaChina - AustraliaChina – HKChina – MacaoChina – New ZealandJapan – IndonesiaJapan – MexicoJapan – Philippines

Japan – KoreaJapan-SingaporeKorea – ChileKorea – MexicoMalaysia-Australia?Singapore – Australia Singapore – CanadaSingapore – ChileSingapore – EFTASingapore – MexicoSingapore – USThailand – AustraliaThailand – US

Selected regional PTAs, actual and proposed

The case for joining a PTA . . .1. Trade creation outweighs trade diversion

2. A response to the log-jam in the multilateral system . . . and a spur to it (‘competitive liberalization’)

3. Prospect of going faster and deeper than multilateral negotiations

4. Insurance against policy shifts in key trading partners

5. Insurance against being frozen out by other PTAs (‘domino regionalism’)

6. Lock in domestic liberalization at home (Mexico and NAFTA)

7. Political / strategic objectives (the EU, AUSFTA?)

. . . and the case against

1. Trade diversion exceeds trade creation

2. Diverts scarce negotiation resources from multilateral negotiations

3. Distortions and transactions costs created by rules of origin required to make PTAs work, leading to . . .

4. . . . the creation of a ‘spaghetti bowl’ of complex arrangements that stifle, rather than support, trade

5. Risk of creating protectionist forces (to retain preferential access created by PTAs)

6. Serious issues (e.g. agriculture) only dealt with in WTO

7. Trade may complicate political / strategic alliance