Korea - Australia Partnership : Toward the Pacific Era

 

Keynote address at the Korea-Australia Forum, Seoul, April 8, 1991.

 

               The agenda of this forum covers not only bilateral economic cooperation but also such vital topics as regional security, science and technology, cultural relations, and education. Being an economist by profession, I would like to focus my remarks on the economic relationship between Korea and Australia in the context of the changing environment in the Asia-Pacific region and the world.

Bilateral Trade and Investment

The most salient feature in our bilateral relationship is found in the impressive growth of trade volume since the early 1980s. With the two-way trade volume exceeding $3.5 billion in 1990, Korea has become Australia's third-largest export market and sixth-largest trading partner, while Australia is now Korea's tenth-largest export market and seventh-largest trading partner.

This rapid expansion of bilateral trade, of course, reflects the complementary relationship that exists between industrial and trade patterns of the two countries: Korea has a structural need for natural resources such as coal and iron ore as well as agricultural products such as wheat, wool, raw sugar, and beef, in which products Australia enjoys a great comparative advantage. Australia, with a relatively limited domestic market base mainly due to its small population, has found it economical to import from Korea such manufactured goods as clothing and footwear, motor vehicles, ships, and steel products, in which Korea enjoys a competitive edge on the world market.

In order to maintain the momentum of growth of bilateral trade, however, 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. More specifically, both countries may 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 manufactures, and equally necessary for Korea to upgrade, with the aid of Australian technology, its industrial structure from low-tech and laborintensive lines of production. Here we find a promising area for cooperation to our mutual benefit that could be further explored in this forum.

My second observation regarding bilateral trade 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 don't mean to suggest that bilateral trade relations should always be in perfect equilibrium. And given Korea's large and rapidly growing market for Australia's raw materials and farm products, the trade balance is likely to show a natural long-term bias in Australia's favor. But surely the current two-to-one margin must be considered excessive. What is most desirable for correcting this imbalance may be a lowering of import barriers against manufactured products on the part of Australia.

Thirdly, it is a common observation that two-way investment is smaller than could be expected given the rapid growth of trade between the two countries. As of the end of 1989, Korean firms had invested a modest $62 million in Australia, largely in coal mining and trading businesses. Australian investments in Korea amount to only about $8 million. Nevertheless, the potential exists for a major expansion of two-way investment not only in Australian natural resources projects but also in a variety of industrial projects, including processed foodstuffs, aerospace, biotechnologies, and high-tech manufacturing-aimed at third-country as well as domestic markets. A major prerequisite to realizing that potential is the removal or 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 shortcut other than 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 the respective societies and economies. In this light, I admire the effort of this forum to increase cultural, educational, and media exchanges as well as business interactions between our two countries. The opening of direct air service between Seoul and Sydney last year will certainly help widen personal contacts between the two countries 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 more than 2,000 Korean students studying there, can be a powerful catalyst in bringing peoples, culture, skills, and businesses of both countries together for wider and more fruitful cooperation.

Regional and Multilateral Cooperation

Turning to the regional and multilateral dimension of the Korea-Australia relationship, the two countries have a shared interest in continued economic prosperity in the Asia-Pacific region as a whole. From the Asia-Pacific perspective, the global trading environment does not look very favorable during the current decade. The main reasons include the chronic fiscal and trade deficits that underlie the growing protectionist tendency in the United States, the uncertain outlook of the trade policies of the EC, which may become more protectionistic after 1992, and the uncertain prospects for the Uruguay Round.

This outlook for the global trade environment implies that intraregional trade will become increasingly important for sustaining growth momentum of the Asia-Pacific economies. Fortunately, intraregional trade has been growing faster than extraregional trade, and there is no reason at present to believe that this trend will be reversed. Indeed, this trend could be further accelerated if all countries and areas in the region mutually reduce import barriers within or independent of the Uruguay Round, and remove institutional obstacles in the way of direct foreign investment.

It is gratifying to note in this regard that at least two regional cooperative mechanisms have come into being thanks to the initiative taken by the Australian government-namely PECC and APEC. PECC (Pacific Economic Cooperation Conference), in which I am involved as a member of the Standing Committee, dates back to the Pacific Community Seminar held in Canberra in September 1980. The seminar was directly sponsored by the Australian government, led by Prime Minister Malcolm Fraser, "to explore, in detail and through free exchanges, the Pacific Community idea." The PECC, with a tripartite participation of government officials, academics, and businessmen, has been actively engaged in regional dialogue on various issues including trade, investment, energy and resources, agriculture and fishery, and transportation, telecommunication, and tourism (the so-called Triple Ts).

The APEC (Asia-Pacific Economic Cooperation) ministerial meeting was held in Canberra in 1989 at the initiative of Prime Minister Bob Hawke. As Senator Gareth Evans, Australian minister for Foreign Affairs and Trade, noted in the last meeting of this forum, the APEC process was "conceived in Seoul in January and born in Canberra" in November 1989.

The two regional organizations, though different in form as they are, have been working together with the shared objective of enhancing regional cooperation. APEC, although still in a formative stage, has been an important vehicle for intergovernmental dialogue on regional issues, including the pressing issue of the future of the international trading system under GATT.

Unfortunately, the negotiations in the Uruguay Round failed to reach a successful conclusion last December in Brussels. Although trade officials in Geneva agreed recently to resume negotiations in all sectors, prospects are still dim given the wide disagreement remaining between the major players in the negotiation, particularly in agricultural trade. Moreover, the current mood of the U.S. Congress following the Gulf War makes it uncertain whether it will readily approve the "fast track extension" needed for the administration to resume the GATT negotiations.

Because our two countries have a common interest in reviving the GATT negotiations in the interest of a more liberal global trading system, it is to be hoped that the issue will be more forcefully addressed in the APEC ministerial meeting to be held in Seoul this autumn and that differences among member countries in the region will be resolved, or at least narrowed. If APEC fails in this regard, it would generate further momentum for a fragmentation of the world trading system into regional blocs. And if that trend became dominant, APEC would be hard pressed to move in a similar direction. Korea and Australia must work together to prevent this pessimistic scenario from becoming reality.

By working within APEC, Australia and Korea have already improved their overall climate of relations. 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.