Andrew Leigh

[The report is available from ANU Press]

AUSTRALIAN NATIONAL UNIVERSITY

MONDAY, 15 AUGUST 2016

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 Thank you for that very generous introduction. Can I of course acknowledge we’re meeting on the traditional lands of the Ngunnawal people and pay my respects to their elders past and present.

Let me start by thanking Peter Drysdale for inviting me to speak at this event.

As all of you know, Peter was recently awarded the Order of Australia which, among many other things, was for his ground-breaking work as the intellectual architect of APEC.

Peter has consistently done two things throughout his career.

The first is his tireless devotion to helping young economists find their way in the world – he must be getting close to having supervised 100 PhD students by now, many of which are now running government departments, research schools, companies, international organisations and sometimes even whole countries!

The second is his tireless devotion to promoting integration in the Asia-Pacific. The report we are launching here today is the exciting next step in this process. The fact that Peter has led this project means we should all take this report very seriously.

This is my first official speech as the shadow Minister for Trade in Services. In fact, this week I am acting shadow Minister for Trade so it’s also my first official speech in that capacity, too!

As shown in this report, trade in services, particularly with China, will become more and more important over time and I am excited to be working on such an important portfolio with Jason Claire who follows in the footsteps of Penny Wong. 

Working in this portfolio, I look forward to continuing Labor’s long and proud tradition of an open market Labor philosophy. The three most substantial decisions to reduce Australia’s trade barriers – in 1973, 1988 and 1991 – were all made by Labor Governments. Not only did Labor governments successfully pursue trade liberalisation overseas, we did it while making sure the gains from trade were fairly shared across the community – indeed we can see the breakdown in the community consensus around trade when that doesn’t happen occurring in the US and the UK at the moment. While there were many factors that drove trade liberalisation, a powerful influence which is often overlooked is the power of ideas – ideas like those presented in this report.

Given strong opposition in the 1970s, many would have predicted that Whitlam’s tariff reductions were unlikely. But against this were the strength of Whitlam’s ideas, the strength of his leadership and the good work of many economists, indeed many economists here at the ANU. Whitlam argued passionately that protectionism raised prices for consumers, caused industries to become reliant on tariffs, was economically inefficient, hid the real cost of protection from the taxpayer and hurt workers in developing countries.

In delivering further tariff cuts in 1988, John Button argued that they were necessary to restructure and revitalise the manufacturing industry, particularly its management.

Keating similarly placed great emphasis on the benefits of free trade and international competition and Hawke argued that tariff cuts were about fairness, equity, enhancing Australia’s international competitiveness and improving the state of Australian industry. Not retreating from the world, but engaging with it.

The ideas and the leadership of these individuals delivered the timetable of tariff reductions in 1991 which were described by Paul Kelly as “an historic milestone… [which] effectively terminated Australia’s century of protectionism”.

Labor has since continued this tradition through the negotiation of free trade agreements, establishing currency convertibility with China and continuing work within the WTO, APEC, ASEAN and the G20. A 2010 study by the Centre for International Economics found that the average Australian family has benefited from trade liberalisation over the last 20 years to the tune of $3,900 a year – boosting Australia’s GDP by up to 3.5 per cent. A huge benefit for families.

But fundamentally, trade liberalisation must be genuine. All too often the Coalition seems to measure success not in terms of liberalising trade but signing deals. Just as anyone can sell a car in five minutes, anyone can sign a bilateral trade deal. The question isn’t whether the Trade Minister can get the hand shake, it’s whether the agreement is in our national interest.

As this report warns, bilateral deals can lead to a ‘spaghetti bowl’ of rules. The Korean Free Trade Agreement, for example, introduced 5,200 individual origin rules. Each of these rules adds to the regulatory burden on our exporters.

This brings me to the importance of trade in services, as stressed in this report. In the 12-months to May 2016, Australia’s two way trade totalled $660 billion. $145 billion of this (or 22 per cent) was trade in services.

Australia’s most traded service is travel services, totalling $72 billion in the 12 months to March 2016. This is followed by transport services – totalling $24.5 billion – and business services (which includes management fees, engineering, R&D and legal and accounting services) which totals $22 billion.

Even though services only represents around one-fifth of Australia’s total trade, it has grown significantly over time. Trade in services has grown 16-fold since 1980, even more than the 12-fold increase in trade in goods. Trade in travel services has grown a staggering 27-fold since 1980, much of which relates to tourism and education. Trade in business services have grown 17-fold since 1980 and industries which were previously barely traded at all – like financial services, telecommunications, computer and information services – now contribute tens of billions of dollars to the Australian economy each year.

Exporting services into huge markets like China will be fundamental to our transition from mining to services. China is already Australia’s biggest export partner when it comes to services, and this will increase significantly as China continues to grow and open its economy on the financial-side. In 2015, Australia exported $10 billion worth of services to China, mostly travel. This will only get bigger.

The Economist recently reported that, in 2000, only 5 million Chinese households made between US$11,000 and US$43,000 a year in current dollars whereas, today, more than 225 million people do. As the middle class grows, so does their demand for services. And as China opens its economy, more of these people will be importing these services from overseas. The opportunities for Australia are immense.

Gross national savings in China have increased by US$5 trillion in just over 30 years. As China opens its financial system, savers will be demanding services that Australia can supply: pension services, fund management services, insurance services, legal services and accounting services, to name a few.

But it is not just about finance. Last year alone, Chinese people took 120 million trips abroad – a four-fold increase in a decade. More and more, Chinese people are choosing to holiday in Cairns instead of California and Sydney instead of staying in Shanghai. As highlighted in this report, inbound tourism from China is set to treble by 2025. Education and tourism exports to China will jump from 8 per cent of our total exports to almost 20 per cent by 2025.

But the key message I take away from this report is that securing these benefits for Australia will not be easy. Because it is not as easy to deal with the barriers to services as it was to export coal and iron ore. Services are more complex, more differentiated and face a broader range of barriers than commodities.

This report argues that a bilateral framework is required to build these foundations and to strategically position Australia. If you asked that question which comes up so often in town-hall meetings across Australia, “where will the jobs of the future come from?” my number one answer is always, “by plugging into the services supply chains of Asia.” But this report goes further. In particular, it recommends a new Comprehensive Strategic Partnership for Change which builds on ChAFTA and the current annual Leaders Meeting and parallel ministerial meetings.

But to bring all this back to earth, let me conclude with the story of SmartTrans. SmartTrans is an Australian company headquartered in Melbourne. After starting life as a goldminer, SmartTrans is now tapping into China’s more than 300 million smartphone users, distributing and providing a payment service for applications.

The story of SmartTrans is the same story you hear from all Australian service exporters into China – the opportunities are immense, the markets are huge, but the regulatory environment is challenging. But SmartTrans’ determination has paid off. It now has agreements in place with China Mobile, China Unicom, China Telecom, UnionPay and Alipay. Its revenues have increased by more than 700 per cent in just five years.

By providing a practical framework on reducing the barriers faced by Australian service exports, particularly to China, the recommendations in this report will help businesses like SmartTrans and continue Australia’s long and proud tradition of an open Australia. Congratulations to those who wrote the report, and it’s a real pleasure and an honour to be part to its launch to today.