APEC and its implication for Korean-Australian Economic Relations
Paper prepared for presentation
at the Victoria University, Merborn, Australia,
March 24, 1997.
I would like to thank Victoria University of Technology for inviting me to participate in this Conference on Australia-Korean Trade and Investment Opportunities. I am pleased to be here. I have been asked to make a few remarks on the progress of APEC and its implications for economic cooperation in trade and investments between Australia and Korea.
To begin with, it is noteworthy to remember that the two regional economic cooperative bodies in the Asia-Pacific, PECC and APEC, owe their births to Australian initiatives. The PECC, the Pacific Economic Cooperation Council, dates back to the Pacific Community Seminar held in Canberra in September 1980. That seminar was directly sponsored by the Australian government led by Prime Minister Malcolm Fraser. It was intended "to explore, in detail and through free exchanges, the Pacific Community idea." PECC, with the tripartite participation of government officials, academics, and businessmen, has been actively engaged in regional dialogue on issues such as trade, investment, energy and resources, agriculture and fisheries, transportation, telecommunications, and tourism. From its inception, however, PECC founding members envisaged the formation of an official inter-government counterpart for the obvious reason that non-official regional dialogue alone could not go very far in promoting regional economic cooperation. Thus PECC, in a sense, paved the way for the formation of APEC, and was in essence the forerunner of regional cooperation in the Asia-Pacific.
The first APEC ministerial meeting was held in Canberra in 1989 at the initiative of Prime Minister Bob Hawke. The major objectives of APEC include: (1) sustaining the growth and development of the region; (2) enhancing economic interdependence by encouraging the flow of goods, services, capital and technology; (3) fostering the open multilateral trading system; and (4) reducing barriers to trade in goods, services, and investment. APEC was instrumental in bringing about the successful conclusion of the Uruguay Round after 6 years of twists and turns, and in the establishment of the WTO in 1995.
Following the Blake Island Economic Vision announced by President Clinton of the United States in 1993, the top leaders of the member economies of APEC met in Bogor, Indonesia in 1994 and produced the Declaration of Common Resolve. Through this declaration the APEC member economies committed themselves to realizing free trade and investment in the region, with industrialized economies achieving free and open trade and investment no later than 2010 and developing economies no later 2020.
In 1995, APEC worked out a 25 year plan called the "Osaka Action Agenda" for implementing the decisions made in Bogor. This agenda led to the Manila Action Plan which was adopted in the Subic Declaration in 1996. At the Manila meeting, APEC leaders decided that overall implementation of the action plans should begin in earnest in January 1997 in order to achieve as soon as possible the goals of simplifying customs clearance procedures, effecting the implementation of intellectual property rights commitments, harmonizing customs valuation, facilitating comprehensive trade in services, and enhancing the economic environment for investments.
APEC has now become the primary regional vehicle for promoting open trade and practical economic cooperation. Its scope of activities cover almost all areas of regional concern. However, some achievements are yet to be realized. All member economies must work equally hard to make APEC a truly effective cooperative body in order to best represent what is the most dynamic, fastest growing economic region in the world. APEC's 18 current member economies had a combined GNP of over US$13 trillion in 1994, about half the world's total annual output. Together, APEC members represent about 46 percent of the world's total commodity trade. Indeed, these figures would increase if all the economies in the region would adhere to the Action Plan and continue to reduce import barriers and remove institutional obstacles in the way of trade and investment. I am proud to say that Australia and the Republic of Korea have worked together to promote the aims of APEC and are united to continue to play an important role in advancing the commitment of APEC.
Let us examine more closely the bilateral relationship between our two countries. Trade volume between Australia and Korea has been increasing rapidly since the early 1980's. The two way trade volume increased from $3.2 billion in 1989 to $6.2 billion ($4.4 billion in exports and $1.8 billion in imports) in 1995. Korea has become Australia's second largest export market and ninth largest import market, while Australia is now Korea's fifth largest import market and fifteenth largest export market.
This rapid expansion of bilateral trade, of course, reflects the complementary relationship which exists between the industrial and trade patterns of the two countries: Korea has a structural need for natural resources such as precious metals, coal, iron ore, aluminum, and also agricultural products such as wheat, wool, raw sugar, and beef. These are products in which Australia enjoys a great comparative advantage. Australia, with a limited domestic market base due to its small population, has found it economical to import from Korea such manufactured goods as motor vehicles, ships, steel products, and clothing.
I would like to make some observations with regard to maintaining the momentum of growth in bilateral trade between Australia and Korea. First, I believe it may be necessary for both countries to move in a new direction beyond the present pattern of trade largely based on the endowment of primary resources and labor. Specifically, both countries might seek to promote what is called intra-industry division of labor, with each specializing in certain lines of production within the same industry according to their respective comparative advantages. Realization of this possibility seems to be logical and necessary for Australia to expand and diversify its exports of manufactured goods, and equally necessary for Korea to upgrade, with the aid of Australian technology, its low-tech and labor intensive lines of production. Here we find a promising area for cooperation and mutual benefit. I hope this idea will be further explored in this conference.
My second observation regarding bilateral trade is that Australia will become an important supply source of agricultural products for Korea in coming years for the obvious reason that Korea largely depends on imports for food and agricultural commodities such as wheat, corn, soy beans, wool, beef, and milk products in which Australia enjoys comparative advantages not only in terms of production but also in terms of transportation and delivery to Korea. As you all know, Korea has committed under the Uruguay Round negotiation to deregulate agricultural imports gradually over time according to the schedule established in the GATT negotiation. As a result, for example, rice imports are expected to increase from 51,000 tons in 1955 to 205,000 tones by the year 2004. Beef imports are scheduled to increase from 123,000 tones in 1995 to 225,000 tones in the year 2000.
My third observation is that during most of the past decade, Korea's imports from Australia have exceeded Australia's imports from Korea by a margin of at least two to one. I do not mean to suggest that bilateral trade should always be in perfect equilibrium; indeed, given Korea's large and rapidly growing market for Australia's raw materials and farm products, it is natural that the trade balance should show a long-term bias in Australia's favor. However, a greater effort by Korean firms to participate in the Australian market for manufactured products and a further reduction of import barriers on the part of Australia would be desirable for reducing this trade imbalance.
My fourth and final observation is that it is of common opinion that two-way investment is smaller than should be expected given the rapid growth of trade between our countries. As of the end of 1995, Korean firms had invested a modest $172 million in Australia, largely in coal mining and trading businesses. Australian investments in Korea amount only to about $24 million. Yet, the potential exists for a major expansion of two-way investment in natural resources projects and a variety of industrial projects, including processed foodstuffs, aerospace, biotechnologies, and high-tech manufacturing - aimed at both domestic and third country markets. A major prerequisite to realizing that potential is the removal, or the modification, of certain institutional impediments found in both countries.
What then should be the basic strategy in our approach to closer economic cooperation along the lines suggested above? My own experience with public service has convinced me that there is really no choice but to exert constant effort, be it governmental or private, to bring the business communities of both countries together by means of person-to-person contact and wider dissemination of information about each country's respective societies and economies. In this light, I admire the effort of the organizers of this conference to increase business interactions between Australia and Korea. The opening of direct air service between Seoul and Sydney certainly helped to widen personal contacts for developing increased business and cultural opportunities. It also should be noted that Korean immigrants in Australia, who now number more than 12,000, together with the more than 2,000 Korean students studying here, can be a powerful catalyst in bringing the peoples, cultures, skills, and businesses of Australia and Korea together for wider and more fruitful cooperation.
By working with APEC, Australia and Korea have already shown how they can improve and develop their cooperative relationship. Moreover, they have come to recognize that there are ways in which they can jointly contribute to meeting regional and global economic challenges. Indeed, this is one of the principal themes that will be explored here today and tomorrow. I wish you every success in this important conference.