7.4 Working in the region to strengthen openness

Australia has a solid record of building international coalitions for greater openness. It proposed the establishment of APEC and hosted the first meeting in 1989. Australia was a founding member of the Cairns Group, which was instrumental in achieving a breakthrough in agricultural market access barriers and subsidies at the Uruguay Round negotiations under the General Agreement on Tariffs and Trade. We were an active part of the negotiations that led to China’s accession to the World Trade Organization (WTO).

The Government remains determined to strengthen regional and global institutions and architecture to support effective regional economic and financial systems. This will be a carefully considered process, as countries are at different stages of development. We will seek to reduce tariffs and other barriers to trade imposed by countries at the border and beyond. We will constantly strive to increase access for Australian businesses and investment in Asian markets. This will complement our efforts to ensure that Australia remains open to investment from the region.

The stalling of the WTO Doha round, now in its 11th year, and the implementation by G20 economies of 124 new restrictive measures between October 2011 and April 2012 (WTO 2012) are particularly troubling. Some of Australia’s major trading partners maintain barriers to our goods, services and investments. We are working hard to reduce these barriers faced by Australian businesses.

The WTO, the G20, APEC, ASEAN and the East Asia Summit will all be important for the emergence of effective regional and bilateral agreements and institutions, and for progressing economic integration. They will drive both greater collaboration in the development of national regulatory frameworks and better understanding of each other’s arrangements.

We work pragmatically across these forums to further the opportunities for greater openness and integration as they arise.

Our efforts have a clear focus on reducing administrative, compliance and enforcement costs. To this end, we are engaging the business community and broader institutions, academics, regulators and other experts.

We will continue to work with our neighbours to break down trade and investment barriers and to build a deeper knowledge and understanding of each other’s arrangements. The risks that can emerge from greater economic and financial integration, such as greater exposure to negative events in other countries, must be carefully managed.

Effective and stable regional financial and economic systems

The Government will seek full economic and financial integration across the region, supported by the evolution of stable, efficient and well-regulated financial markets. Greater integration requires strong global and regional institutions, with an emphasis on inclusive, rules-based systems.

The G20 is the main vehicle for putting this strategy into practice. Its membership reflects the growing dynamism of the region and the global influence of emerging economies (Chapter 8). It is now the pre‑eminent forum for international economic cooperation, with a focus on rules-based and market-oriented approaches.

Australia is hosting the G20 in 2014. We will use this opportunity to promote strong, sustainable and balanced growth, working with other G20 and non-G20 countries and drawing on the interest and expertise of business leaders, academic communities and non-government organisations.

While the East Asia Summit and APEC are at different stages of development, they complement each other. They each offer avenues for nurturing regional support for reform. Efforts across these forums provide Australia with the best chance to shape outcomes that are in Australia’s and the regions’ interests.

APEC’s efforts in pursuing financial reform and regional financial integration are fundamental—the Asia Region Funds Passport initiative and the Asia–Pacific
Public–Private Partnership Mentoring Scheme are two examples of the practical changes that can be achieved.

The APEC Business Advisory Council 2012 Report to APEC Economic Leaders recommended the establishment of an Asia–Pacific Financial Forum to promote progress in financial market integration, in support of the region’s financial development goals. Australia is hosting an international symposium in 2013, which will bring together private sector leaders and regulators in the financial services industry from across the Asia–Pacific region. The focus will be to explore the Business Advisory Council’s recommendation.

APEC leaders reaffirmed their commitment this year to move more rapidly to regional economic integration, including greater exchange rate flexibility, and to intensify efforts to bolster financial sector stability. Australia will work closely with Indonesia and China—APEC hosts in 2013 and 2014—on the agenda for deepening regional integration.

The Government supports ASEAN’s plans to formally establish an economic community by 2015, and we welcome ASEAN’s proposal to link this community with its external trading partners, including Australia, through the Regional Comprehensive Economic Partnership. We will also seek appropriate opportunities to participate in work underway in the ASEAN+3 grouping and similar forums of which we are not a member. In particular, we remain interested in participating in the financial crisis management fund established by the Chiang Mai Initiative Multilateralisation to support regional financial and economic stability. Similarly, we would seek to join any Asian monetary fund or similar institution that might emerge. This would strengthen Australia’s economic, financial and political links with the region, formalise our involvement in regional crisis management and ensure that we could participate in the evolution of regional processes.

Australia is a member of the Asian Development Bank, and supports its contribution to ASEAN regional initiatives. As in the past, we would be a willing participant in resolving regional financial crises if they were to occur.

Further integration of Australia’s equity and bond markets with the emerging markets in Asia and with global bond markets is a priority. This will support the development and diversification of Australia’s local currency corporate bond market, and provide new opportunities to access the capital pools resulting from Asia’s high savings rates.

We are working with China to support the internationalisation of its currency, the renminbi (RMB). Earlier this year, the Reserve Bank of Australia and the People’s Bank of China announced a $30 billion bilateral currency swap agreement, one of the largest such swaps China has entered into.

In July 2012, we announced an annual Australia–Hong Kong RMB trade and investment dialogue, recognising Hong Kong’s role as the financial gateway between China and the rest of the world. The dialogue is led by the private sector and focuses on business opportunities arising from the internationalisation of the RMB.

The Australian dollar is currently one of nine currencies convertible with the RMB on the Chinese foreign exchange market; the others are the US dollar, the Euro, the Japanese yen, the British pound, the Hong Kong dollar, the Canadian dollar, the Malaysian ringgit and the Russian rouble.

A further priority is the establishment of direct trading between the Australian dollar and the RMB in mainland China; other currencies that are directly traded at present are the US dollar, the Japanese yen, the Malaysian ringgit and the Russian rouble. We have held preliminary discussions with the Chinese Government to explore how soon direct convertibility can be practicably achieved. We are continuing these discussions, and also exploring other opportunities to work with China to support the internationalisation of the RMB.

We are making reform of infrastructure delivery throughout the region a priority in our cooperation dialogues with regional partners. Our focus is on creating the conditions necessary for both private and public participation in regional infrastructure development. This builds on efforts being advanced through APEC, including the Asia–Pacific Infrastructure Partnership dialogues.

Trade barriers

The WTO has established a set of global trade rules, an internationally recognised system for avoiding or resolving disputes, and seeks to deliver multilateral trade negotiations. Australia has the credentials and incentive to continue to be at the forefront of initiatives for reform in the WTO and the global trading system, deploying diplomatic and non-official (Track 2) processes to secure a robust global trading system.

The WTO is the Government’s preferred vehicle for pursuing trade liberalisation. We will continue to identify new pathways for making progress in the WTO Doha Development Round, seeking early outcomes where agreement is close and developing fresh approaches to the more intractable issues.

Australia is pressing hard for the completion of negotiations on trade facilitation. By streamlining and simplifying customs procedures, an agreement on trade facilitation would reduce non-tariff barriers to trade. The trade facilitation agreement is estimated to contribute 44 per cent of the entire benefit of the Doha round, two-thirds of which would accrue to developing countries.

Australia is co-chairing, with the United States, negotiations among 46 economies for an agreement on the liberalisation of trade in services under the auspices of the WTO. This plurilateral agreement, which would cover 70 per cent of global GDP and 70 per cent of global trade in services, could be expanded over time to take in more WTO members. Australia is also participating in discussions aimed at expanding the product coverage and membership of the WTO Information Technology Agreement.

Agriculture remains a high priority for Australia in the Doha round negotiations. Australia will continue working with members of the Cairns Group and other like-minded countries to negotiate reforms to market access, agricultural export policies and farm production subsidies.

Within the Asian region, Australia is negotiating bilateral trade deals with China, India, Indonesia, Japan and South Korea. Successful conclusion of these negotiations, following the signing of a free trade agreement with Malaysia in May 2012 and the negotiation of agreements with Singapore and Thailand by the previous Government, could assist in paving the way for more complete regional economic integration.

By completing the ASEAN – Australia – New Zealand Free Trade Agreement (AANZFTA) in 2009—a high-quality, truly liberalising agreement covering countries accounting for 18 per cent of Australia’s total trade—we have contributed to the development of an important region-wide agreement.

The vision of regional integration is a free trade area that covers the Asia–Pacific. Australia will continue to work through APEC to encourage trade liberalisation by member economies, as has occurred over the past two decades. Average tariffs of APEC members have declined from 16 per cent in 1989 to around 6 per cent in 2010. The agreement of APEC members at Vladivostok in September 2012 to limit tariffs on 54 environmental goods to no more than 5 per cent constitutes further progress towards free trade.

There are different possible pathways to a free trade area of the Asia–Pacific. The Trans-Pacific Partnership Agreement negotiations involve 11 APEC members and membership is likely to continue expanding. Australia will support the November 2012 launch of, and participate in negotiations for, the Regional Comprehensive Economic Partnership involving ASEAN, Australia, China, India, Japan, New Zealand and South Korea.

Negotiations for the Trans-Pacific Partnership Agreement and the Regional Comprehensive Economic Partnership could create momentum for competitive liberalisation and put Australia on two complementary pathways to a free trade area of the Asia–Pacific. Australia welcomes and encourages these processes. We recognise that outcomes agreed in one negotiation that facilitate deeper economic integration will encourage new members to join, and also create pressure to adopt similar liberalisation in competing negotiations.

We also need to be open to other opportunities to position Australia as part of networks of regional trade agreements. For example, four Latin American countries—Chile, Peru, Colombia and Mexico—have formed the Pacific Alliance for free trade. We will make an assessment of the merits of seeking to join the Pacific Alliance, which is likely to expand to include other countries such as Costa Rica and Canada. If it joined the Pacific Alliance, Australia could form a connecting rod between open trading countries of Latin America and the markets of Asia that might facilitate an open trade agreement.

In negotiating these bilateral and regional trade agreements, Australia supports simple, liberal rules of origin to keep business compliance costs to a minimum and to enable the agreements to be expanded over time towards the ultimate goal of a free trade area of the Asia–Pacific.

Regulatory change and practical assistance

Australia will continue to provide practical advice and technical assistance directly to regional countries to build market resilience and improve access for Australian businesses.

Advocating policy changes beyond other countries’ borders in support of open and well-regulated economic and financial markets will remain a priority. We seek greater mutual understanding of national arrangements and a better interface between our regulatory frameworks and those of our neighbours.

We look to collaborate further with other countries in developing regulatory frameworks, and to provide practical capacity-building and technical assistance. Similarly, efforts to promote joint standard-setting work and advocate international standards will continue (Box 7.8).

The work Australia does with other countries through APEC and the East Asia Summit is important. APEC, with its track record of achievement in strengthening collaboration and building capacity for reform, has much to offer (Box 7.9).

The East Asia Summit (EAS) also offers scope to secure greater regional regulatory collaboration. The inaugural EAS Finance Ministers’ Meeting in 2010 discussed regional cooperation and capacity-building programs that focus on structuring and restructuring financial markets. At the July 2012 EAS Education Ministers’ Meeting, two new education cooperation projects were announced, and Australia will take part in both projects. Our efforts will be pragmatic, based on informed discussions with the business community and relevant governments. We are not interested in full harmonisation for its own sake, and recognise that our approach could be one of many possible pathways to a positive outcome.

Australia is already active on many fronts regarding regulatory reform in the region. For example, within the context of APEC’s activities, the Australian-initiated Services Trade Access Requirements database helps small businesses expand into regional markets, while the Australian-led Non-Binding Guidelines for the Regulation of Foreign Accountancy Professionals initiative provides best-practice guidance on the design of rules for the accounting profession.

A range of bilateral exchange programs and activities aimed at public sector capacity-building already exist. For example, the Australia Indonesia Partnership for Economic Governance supports partnerships between the Australian and Indonesian government departments responsible for economic governance and public sector reform by funding long-term technical adviser deployments, staff visits and secondments. In 2011, nine Australian Government officials worked in Indonesia on activities to strengthen its investment policy and regulatory environment.

The Productivity Commission is undertaking an innovative ‘twinning’ program with other APEC economies under the auspices of APEC’s New Strategy for Structural Reform. Under the program, the Productivity Commission is sharing with other countries its experience as an independent advisory body to government.

Our Government Partnerships for Development program (previously the Public Sector Linkages Program) links Australian public sector agencies and universities to their counterparts in developing countries and provides direct support for capacity-building work. For example, the Australian APEC Study Centre at RMIT University draws on the program to fund training courses and symposiums for government officials from across the region, focusing on such areas as sustainable economic growth, strengthening financial systems and food security.

Further education and training for financial regulators from Australia and the Asia–Pacific region will be delivered by the Centre for International Finance and Regulation, located at the University of New South Wales. ¹

We offer technical assistance and capacity-building work as part of our free trade agreement negotiations and implementation. AANZFTA negotiations were supported by extensive technical assistance, and the agreement includes a commitment to ongoing economic cooperation (Box 7.10).