Neighbourhood watch?

Australia’s closer economic ties with ASEAN is a win for several players. TIM HARCOURT

Simon Crean is a born negotiator. As a young official with the Storeman and Packers Union (now the National Union of Workers) he famously negotiated a major case in the wool stores, which was a win for some of the lowest paid blue collar workers in the country.

Later as ACTU president, alongside legendary secretary Bill Kelty, he negotiated the prices and incomes Accords with the Hawke-Keating Governments that did so much to open up the Australian economy and improve living standards and productivity.

Now as the new Trade Minister, Simon Crean has successfully negotiated a new deal that comprises several parties – Australia, New Zealand and the Association of South East Asian Nations (ASEAN).

Crean has already completed a relatively straightforward bilateral deal with Chile (see my previous article Chile peppers the globe with FTAs) but the new ASEAN Australia New Zealand Free Trade Agreement (AANZFTA) has taken a fair bit of finesse and skill to pull off.

So why is AANZFTA important? Well it’s particularly important to Australia as the ASEAN door has been shut to us and our trans-Tasman cousins in the past. A deal between the closer economic relations (CER) pact we have with the Kiwis and ASEAN would be significant as the region’s GDP itself is worth over $US1203 billion (over $1380 billion).

And wait, there’s more.

As ASEAN has already announced deals with China (to be phased in by 2010) and Japan (by 2012) there is a potential to have a regional free trade area stretching from Hokkaido in the north of Japan to Invercargill on the very southern tip of the South Island of New Zealand!

So how did ASEAN come into being? The group was formed in 1967 by Singapore, Malaysia, Thailand, Indonesia and the Philippines. The original ASEAN 5 were later joined by Brunei, Vietnam, Laos, Cambodia and Burma to make double figures.

While originally a defence pact, ASEAN has grown to become an important regional grouping on economic, trade, defence, security, and development issues. ASEAN has recognised the benefits of acting collectively and of pursuing closer economic ties with the major economies in its neighbourhood, especially as China and India have grown in size and influence.

What does Australia trade with ASEAN? We are principally exporters of crude petroleum, aluminium, copper, education, dairy products and tourism. In return, we import furniture, clothing, computer parts, electronics, refined petroleum, transport vehicles, computers and crude petroleum (which are traded both ways).

In 2007, Australia’s two-way trade of goods and services with ASEAN were worth almost $71 billion, representing 16% of our total trade. If taken as an economy on its own, ASEAN is larger than any other single market as a trading partner, ahead of China (13% of our total trade), Japan (12%) and the US (11%).

Importantly, if you look at where Australia’s 44,000 exporters sell to, ASEAN makes up five of the top 10 destinations, and nine of the top 20. In terms of individual nations, Singapore is the most important destination in terms of exporters at 6538 exporters, followed by Malaysia (on 3586), Indonesia (on 2582), and Thailand (on 2541).

As well as the ASEAN-Australia-New Zealand deal, Australia is well placed in the region with the Singapore-Australia Free Trade Agreement (SAFTA) and the Thailand-Australia Free Trade Agreement (TAFTA) already in place along with ongoing discussions with Kuala Lumpur for a pact with Malaysia. TAFTA is proving to be boon for Australian exporters, particularly in the agricultural and manufacturing sectors (for example in the food, dairy and steel industries), while SAFTA has greatly benefited professional services (such as architects, dentists, professional services and universities).

In fact, many exporters are anticipating the gains that the AANZFTA trade pact would bring. According to the latest DHL Export Barometer, 46% of exporters thought a trade pact with ASEAN would especially benefit their business, second only to possible FTAs with China and Japan.

Overall 53% of exporters thought their business in ASEAN markets would expand over the next 12 months, with only China, India and New Zealand ahead of them on the ladder of export confidence.

ASEAN is also considered a good long term bet with exporters expecting to gain greater business in the neighbourhood over the next five years. Their optimism will certainly be justified if ASEAN itself plays a more integrated role with China, India and the rest of the East Asia region.

So congratulations Australia, ASEAN and New Zealand – and it’s good to see that the good old Storeman and Packer negotiating skills have paid off for the Trade Minister and Australia in the sometimes complicated arena of trade negotiations!

*Tim Harcourt is chief economist of the Australian Trade Commission and author of The Airport Economist: www.theairporteconomist.com

Thanks to Purnima Ganapathy and Paul Molloy for their assistance.

The Airport Economist
Did you know that Australia is helping Singapore ‘be creative’ to address its imbalance of ballet dancers to engineers and that there is a Transylvanian Cricket Club full of Aussies in Romania? Or that Israeli youngsters are crazy for Tim Tams and the French are buying Billabong board shorts in Bordeaux on Bastille Day? Well if you didn’t, The Airport Economist is just for you.

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