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"Get ready for the new Australasia"

Keynote address to the 'Gateway to Australia' Trade Summit

Auckland

3 March 2005

I thank the Auckland Chamber of Commerce for the invitation to deliver this keynote address to the Gateway to Australia Forum. It is particularly pleasing to be here when even closer and more cordial relations between our two countries are being cemented by our two national sides on the cricket fields of New Zealand. I promise not to bowl any underarms if you dont throw any bottles at me.

The organisers have designated as the title for this address "Get Ready for the New Australasia" and, as you will see from your program, they have indicated a few dot points they deem relevant to that theme. I will attempt to pick up those points but I believe I will best serve your interests by putting those points, and indeed the more general theme, into a broader context.

For there seems to me little purpose in analysing the political and economic developments in, and between, our two countries unless we do that with a clear understanding of this broader international context within which we are operating. We have probably never lived together through a period of such profound change and challenge in that international environment. These changes and challenges in the fields of economics, technology and geo-politics have had, and continue to have, an enormous impact on our two countries. We are both relatively small powers with comparatively little influence on how these changes play out. But it is important that we study and understand these trends so that we shape our mutual relations in such a way that will maximise our capacity to take advantage of the opportunities created by this new environment and insulate ourselves as far as possible from the dangers posed by it.

Let me, briefly, sketch out the basic elements of these fundamental changes to which I refer. We can take as a starting point the fact that for more than 300 years after the 1648 Treaty of Westphalia the nation-state emerged and predominated as the basic unit of governance. Two fundamental principles underpinned the Westphalian system (a) sovereignty, supreme power, resided in the State (b) national governments were the central players and economic interests were harnessed, and if necessary subordinated to, national goals. As I say this system, and these principles embodied in it, characterised governance and relations between nation-states for over 300 years.

But this last half-century and particularly the latter part of it has witnessed quite fundamental changes to that matrix which had come to shape perceptions of the power and roles of governments, the relations between them and their citizens.

We can best understand this dynamic process if we imagine the nation-state being subject to a massive and inexorable pincer movement. One arm of the pincer has been the historically unparalleled technological revolution and the associated phenomenon of globalisation. The other arm has been the dramatic political transformation that has been extending the forces of the market economy to a significantly larger proportion of the worlds population.

I consider each of these arms of the pincer in turn. The revolutions occurring in the fields of computers, telecommunications and bio-technology are transforming the processes of production and the provision of services. The costs of communication, travel and transportation have been drastically lowered and remarkably facilitated. The Australian academic, Professor Geoffrey Blainey, wrote of The Tyranny of Distance an appropriate title now would be The Death of Distance.

This technological revolution has spurred the growth of the multinational corporation and the emergence of globalisation. The rise of the multi-national corporation with the capacity to evade the jurisdiction of national governments including that of the country in which they are headquartered has involved a distinct shift in emphasis from political to economic decision-making.

Corporations can jump over what they regard as objectionable regulations and pit government against government. In fact one of the major results of globalisation has been the extension of competition from the level of firms to the level of governments.

The sheer comparative size of corporations as measured by their annual sales or capitalisation as compared with government budgets demonstrates the power shift. The OECD had made the point that if the top 100 economic entities were assembled in a new OECD with both government and non-government participation, 52 of these major players would be corporations and 48, national governments.

The process of globalisation is accelerating. One of the single most important indicators is that, generally, the volume of world trade is growing twice as fast as the volume of world output which means, simply, that the international division of labour is deepening and the world economy is becoming increasingly integrated.

The other arm of the pincer is reinforcing this process and its dimension, I believe, is not so well appreciated. Consider these facts:

The collapse of the former centrally planned economies of Eastern and Central Europe

The opening up of China and its irreversible move towards a market economy

The more global orientation of India away from its previous more restrictive attitudes and tilt towards the former Soviet Union

All of this has meant that an additional 40% of the worlds population is becoming increasingly integrated into a globalised world economy.

I believe that one of the most profound implications of all that I have said to this point is that the capacity of many national governments to sustain the revenue base necessary to undertake the services expected of them by their citizens is becoming increasingly at risk. Remember that this risk occurs at the end of a century that has witnessed an enormous expansion in the scope of national governance.

At the beginning of the 20th century, Governments of European states taxed and spent somewhere between 5% and 10% of GNP. At the close of the century between one-third and one-half of the GNP of industrialised countries passed through the public exchequer. The main force behind this expansion of the public budget has been the substantial growth of publicly provided services and infrastructures, and income redistribution through the welfare state.

The indisputable fact is that the increased mobility of capital can undermine the capacity of governments to do their job of providing effective governance either by themselves, through market forces or the civil society.

Income distribution is shifting towards capital away from labour, the distribution of capital assets is more skewed and concentrated so that the income tax base is more unequally distributed nationally and globally. And the tax rates that can be applied may be lowered because of competition between governments and the capacity of those with wealth to organise their affairs to minimise tax.

As a practical matter the threat of loss or serious erosion of the tax base is as difficult as it gets in terms of providing good governance. This is not just a question of the capacity to provide services but goes to the very stability and workable cohesion of society. How to handle this problem in an equitable and efficient way will be one of the more important questions in this new century.

Two other basic elements of the fundamentally changed and more dangerous and challenging international context must be appreciated. First, the optimistic hopes of a peaceable new international order following the end of the Cold War have been shaken to their foundation by the emergence of the threat of international terrorism. In the Cold War the threat was constituted by an hegemonistic nation-State the Soviet Union. States and forces of differing political persuasions were united against a threat which was equally offensive to the Judaeo-Christian and Islamic religious traditions. The menace of Soviet communism made allies of Bin-Ladens and Bushs'. But with the dissolution of the cement of anti-Sovietism, restrained hatreds were released and violently manifested, most dramatically on September 11th 2001 in New York and, in our own region, on 12th October 2002 in Bali.

This is not the occasion to attempt to analyse all the strands that go to make up the totality of the threat of international terrorism from fundamental Islamic extremists and their supporters, but it is important to understand two basic features which distinguish this new war from the Cold War. First, in that earlier period of fraught international relations the antagonist could be identified within the boundaries of specific nation-states. That no longer has the same validity. Second, an intrinsic assumption of all strategic and tactical planning in the Cold War was that the enemy would not willingly envisage his own destruction. Hence the doctrine of Mutually Assured Destruction (MAD) which, while lacking in moral elegance, nevertheless operated to protect the planet from the possibility of nuclear devastation. Not only is this assumption not valid in the new war but the fact is that significant elements of the international terrorist movement positively welcome the prospect of their own demise.

All this means that there is no accumulated and accepted body of knowledge and experience to draw upon in planning to meet this new challenge. Deep and genuine differences have emerged between former allies and friends and those differences are permeating and affecting international relations across a broad range of issues.

The second, further element to be appreciated in the new international context is the growing consciousness of the environmental degradation mankind has already inflicted on the planet. There is an increasingly widespread but not yet uniform understanding that decisions about the utilisation of resources and the production of goods and services must be made according to environmental as well as economic criteria if we are not to damage our global habitat irretrievably.

While all the imperatives which drove us to sign the CER in Canberra, almost 22 years ago, in what could be seen as the start towards a "New Australasia" are still there, I would suggest that any sensible consideration of this new international environment which I have just adumbrated must lead to the conclusion that it is even more essential, now, to accelerate that process with the goal of fully establishing a trans-Tasman single economic market.

The experience of each of our economies since the early 1980's demonstrates the wisdom of abandoning mind-sets and practices that may have been appropriate to an earlier age but whose continuance acted as an impediment to our capacity to meet the challenges of an increasingly competitive and, to some extent, hostile world. We did not pursue identical policies, particularly in our external political orientations but essentially we have both moved along the path of creating a more internally competitive economy including by the reduction of tariffs. The indisputable fact is that our two economies are among the best performing in the developed world because of those decisions we took from that time.

Both New Zealand and Australia have been continuing this process through a series of FTA negotiations and noticeably in our case with the recently concluded agreement with the United States. The rules of origin provisions of that agreement covering exports from Australia to the United States can provide problems for New Zealand. In terms of the great benefits we have both derived from the CER and the shared commitment expressed in the joint CER Ministerial Communiqu (11th December 2004) "to develop a seamless business environment under the single economic market," it seems a pity that political imperatives and this admirable commitment could not have been more in tune. Those problems could have been avoided and the reality of the CER better reflected in a jointly negotiated agreement between our two countries and the United States.

Of course the other two most significant areas of negotiations on the horizon are with China where we have each begun the process and, following the November 2004 Laos meeting, the joint negotiations we will conduct with ASEAN. It is difficult to overstate the importance of this development, with our two countries and ten nations of ASEAN having a combined population of over 500 million and a total GDP in excess of US$700 billion covering many of the fastest growing economies in the world.

While there is obvious virtue in this process of market-widening and competition enhancement I sound this cautionary note. The creation of these negotiation contexts, and the negotiations themselves, are making a very large call on our political and bureaucratic resources. In my judgement it is imperative that this not be allowed to detract from ensuring that sufficient of those resources are available to pursue what I believe must remain the absolute top priority for our two countries and that is a successful conclusion of the Doha Round.

For the simple and unavoidable truth is that these limited FTA's cannot, by their nature, address and remedy the most glaring weakness and danger of the international trading scene the denial of access to the markets of the richest developed nations of the agricultural products of poorer countries because of the formers protectionist and subsidising policies. The European Community, the United States and Japan spend the equivalent of US$ 1 billion a day on these practices. This is not just a moral and economic obscenity. It is counter-productive to those developed nations' fight to create a world which is not receptive or accommodating to the forces of international terrorism.

It is only a Doha round negotiated to a successful conclusion through the application of principles of sound economics, morality and enlightened self-interest which can provide a resolution of this insanity which has been tolerated too long. New Zealand and Australia have a proud record particularly through our participation in the Cairns Group, in fighting for such liberalisation of trade in agriculture. We must not allow our efforts in other directions to diminish doing everything we can, together, to produce an acceptable outcome from the round. While I do not entirely approve of the way in which they have been accumulated, Australia has acquired a substantial sum of Brownie points with the Bush Administration and I believe we have a special opportunity, and obligation, to press this case assiduously with the Americans. If our US friends are truly serious about creating a safer, more decent and democratic world they have a no more practical and compelling opportunity than through a thorough-going dismantling of the massive and expensive apparatus protecting their agricultural sector.

The intersection of broad economic and political considerations evident in this subject leads me to comment on what I see as a fundamentally important aspect of optimising the relationship within what you have termed the "New Australasia". I preface these remarks by saying, particularly in terms of the organisers' reference to the recent Australian elections, that within Australia I believe there is a basic consensus across the main political spectrum about the Australia-New Zealand relationship. This is of long standing for while it was my newly elected government which signed the CER Agreement in March 1983, of course, on our side of the Tasman, it was my Conservative Liberal-National Party predecessors who had done the spade-work. And essentially the consensus represented by those facts has continued through to the present time.

Against that background, I believe we are going to optimise the relationship if we work hard on trying to achieve a shared view on the geo-political challenges facing us in our region and the wider world. As far as the region is concerned the record is good. I have already referred to the positive result which emerged from the common front presented by Prime Ministers Howard and Clark at the ASEAN Leaders' meeting in Laos in November last year. More generally a briefing note of our Department of Foreign Affairs & Trade last month made the observation that:- "New Zealand has made valuable contributions to security in areas of high priority to Australia, notably in East Timor, Bougainville and the Regional Assistance Mission to the Solomon Islands."

I have already mentioned that each of our countries is in the early stages of discussions about progressing an FTA with China. I believe it is in regard to that country particularly that it is going to be vitally important for us to try to get common ground on this issue of the intersection of broad economic and political considerations. This will be difficult intrinsically and, not least, because of what may be differing perceptions in how our respective governments see the balance in relations with China and with the United States.

Relations between the United States and China are, in most respects, in better shape than they have been for many years. This is due in large measure to China's positive response to the United States post 9/11 fight against international terrorism, including an acceptance of the stationing of US armed forces in the Central Asian republics and the acknowledgement by the US of China's crucial role in dealing with the North Korean issue.

But Taiwan remains the possible flash-point and could provide the crunch point for us. Remember that one of the least hawkish members of the first Bush Administration, Deputy Secretary of State, Richard Armitage, told us in Australia in 2001 that war was possible with China over Taiwan and, if this occurred, the US would expect Australia to be involved in "the dirty, hard and dangerous work" with them.

I believe that Australia and New Zealand together the "New Australasia" should be urging the US to adopt this position: a) to reaffirm, unequivocally, the 1972 Nixon Shanghai Communiqu that the US accepts the One China policy, b) to say that it expects this to be achieved peaceably and to say to China that if it acted unilaterally by force to achieve this objective it could not expect the US to stand aside, and c) at the same time tell Taiwan that if it acted unilaterally by any form of unilateral declaration of independence, and China reacted by force, it would be on its own.

This position is in accordance with international law, it is honourable and it is manifestly in the interests our two countries and the region. And I am sure it was at the basis of Australian Foreign Minister, Alexander Downer's, observation last year that that there should be no assumption that Australia would support the US in the event of armed conflict over Taiwan. This should be the position of the "New Australasia" and I believe that all of us within the business community should be giving priority to securing support for that position within our respective governments.

For have no doubt that should conflict between the United States and China break out on this issue all the assumptions we may have made about burgeoning trade in the region, and our share of it, would have to be totally recast. For what it is worth I am, however, an optimist in this matter. Taiwan's economy is becoming increasingly enmeshed with mainland China and I believe that forces within the Taiwanese business community will act as a deterrent to any inclination towards political adventurism.

My friends, I have attempted, as concisely as the subject allows, to put this question of the "New Australasia" within the framework of global and regional factors which we must take into account if, as I say, we are to make the most rational decisions in the interests of our mutual welfare. Against that background let me turn briefly to a more immediate local issue I have been asked to comment on and to which I have not already alluded the implications of the recent Australian election.

You may understand that, in many senses, this is not something I like to think about a great deal but I do accept its relevance for today's purposes. Of course the most important aspect of John Howard's decisive victory is that for the first time, after July 1st, he will have full control of the Senate on the assumption, which I am afraid is not unreasonable, that he will not have some recalcitrant members of the Coalition in that Chamber.

The most frequently nominated, and most likely area for legislative change I deliberately do not use the word "reform" is industrial relations. This has long been one of the Prime Minister's particular areas of interest and figures prominently in the Business Council of Australia's wish list. Certainly there will be changes but it is not possible at this stage to say how far these changes will go. Public discussion by government and business proponents can essentially be put under two headings. First the suggestion of further centralising power by using the corporations power to give exclusive jurisdiction in that area to the federal tribunal; and, second, a proposed reduction from the twenty minimum employment conditions that can currently be set out in federal awards. Uncertainty as to the first does not stem from any apparent hesitancy by the government to enact the necessary legislation but rather from the declared intention of State governments to appeal such legislation to the High Court. As to the second, the BCA has not been overly modest. In proposing cutting allowable award matters from twenty to six they would eliminate from the list ordinary hours of work, rest breaks, public holidays, long-service leave, allowances, penalty rates, redundancy pay and superannuation. It would seem that the government is not prepared to go to these lengths.

One of the most interesting pieces of speculation, including from the Treasurer, Peter Costello, has been that the law will be changed to transfer the power to fix a minimum wage from the federal tribunal to the Parliament to determine by legislation. This idea was first floated in the Constitutional Convention debates of the 1890's and in the federal Parliamentary debates in 1903-4 establishing the first Commonwealth Court of Conciliation and Arbitration. For more than a hundred years since then, fortunately, sanity has prevailed but, now, who can tell?

There is no question the Government has a mandate for change in the industrial relations area but I still hope that it will go about this in a way least likely to provoke confrontation and to create a less co-operative workplace environment. The ACTU acknowledges that there is room for change and it is prepared to sit down and talk constructively with government. It has a proven track record of doing that and I deeply believe it would be in everyone's interest, including the business community, if the government would do this.

Predictably, the BCA will again be pursuing the Prime Minister at its meeting with him this week for changes in taxation and corporate regulation. I cannot predict for you what the government will do in these areas but I do make this point briefly. It was refreshing to read in yesterday's Australian Financial Review that one leading BCA member (Terry Davis, Coca-Cola Amatil) in arguing, on anti brain-drain grounds, for bringing the top personal tax rate closer to the top corporate rate said: "I'd actually support a slightly higher corporate tax rate to bridge that gap." There must be a continuing concern for the tax base if our two nations are to meet the challenges of providing adequately for health, education, research and development, infrastructure, defence and security.

Perhaps not so predictable, but, certainly to be welcomed was the AFR's reference that "business also wants the government to do more about the environment, water resources (and infrastructure.)" There is little doubt in my mind that both within government and the business community there is increasing evidence of a preparedness to move to a more sophisticated conceptual position than the simplistic "growth or green" paradigm. Again neither I, nor anyone else, can be sure just how this will play out but I believe it was more likely than not we will see in Australia more resources being committed to these areas and a greater requirement for corporate involvement and responsibility in them.

My friends, I believe we could have no stronger basis for forging stronger Trans-Tasman business relationships than we now have both as a result of how close we have come together so far and because of the common challenges we face. Consider the bi-lateral facts:

The Trans-Tasman single economic market is a logical and desirable evolution from these facts. But let me conclude with a plea which goes beyond economics. We are at a unique point in human history. As a result of man's technological genius we have a previously unknown capacity to lift the standard and quality of life of all mankind on the one had, or, on the other, to witness the most devastating destruction ever experienced on this planet.

I said at the beginning we are both relatively small powers but we have each, separately and together, shown in the past that we can punch above our weight. Most recently for example I believe John Howard's $1 billion dollar contribution to a devastated Indonesia was a magnificent gesture and lead to the rest of the world. It is my fervent hope that as we do forge stronger business and economic relationships across the Tasman we will measure our success not merely in profits and per capita GDP growth but by a growing commitment to lift the lives of those in the region and beyond less fortunate than ourselves.