2 July 2015
As prepared for delivery
The Australia–US Free Trade Agreement:
10 Year Celebration Conference
AMCHAM & the U.S. Studies Centre at the University of Sydney
Robert B. Zoellick
July 2, 2015
Thank you for the invitation to join this celebration of the Tenth Anniversary of the Australian-U.S. Free Trade Agreement.
It is a special privilege to be here with former Prime Minister John Howard and Ambassador Michael Thawley, who, along with former Trade Minister Mark Vaile, were the strategists, advocates, and problem-solvers who made the idea of an FTA a reality. I am proud to count them as friends—and Australia has been fortunate for their public service.
There are many other Australians who worked long and hard to close this deal—and helped us to pass it through the U.S. Congress and the Australian Parliament—and I want to thank them, too. Fortunately, America’s friends in Australia were both Lib-Nats and Labor, so we enjoyed broad-based support when working through thorny topics.
As some of you may have read recently, trade politics in the U.S. Congress are not for the faint-hearted. So it is worth recalling that the Australia-U.S. FTA passed in 2004, a Presidential election year, by a vote of 80 to 16 in the Senate and 314 to 109 in the House. I would like to claim that those majorities reflected the quality of the pact we negotiated—but the reality is that the large margin of support reflected Americans’ affinity for Australia. The Australian Embassy team was also incredibly effective with the U.S. Congress; Ambassador Thawley’s assault force won votes that I never expected to see in the free trade column.
We also had a powerful resource on our side. The United States has no better ally, no better partner, and no better friend than Australia. Thank you for that, too.
The story of our FTA actually reaches back further than most of you may know.
In 1992, when President George H.W. Bush was running for reelection, I had a hand in drafting a plan called “The Agenda for American Renewal,” an economic program for a second term that was not to be.
President Bush 41 outlined the plan in a speech at the Detroit Economic Club. And one of his proposals was to negotiate a network of FTAs, including with Australia.
That idea created a stir among some Australian political leaders, who, at the start of the 1990s, preferred to link Australia to a Japan that they believed would be the next dynamic leader of the world economy. They rejected our logic that closer economic links with the United States would strengthen Australia’s ability to compete globally, including with Asian partners.
History rarely offers second opportunities. But in 2001, President George W. Bush appointed me U.S. Trade Representative. So after a hard fight with Congress to regain the President’s Trade Promotion Authority—or TPA—in 2002, we sought to negotiate and pass a flurry of FTAs. Coincidentally, the TPA we passed in 2002 was the last such grant of negotiating authority for the President until the one just enacted.
In July 2002, I gave a speech making the case for an Australia-U.S. FTA to the Australian-American Leadership Dialogue.
The audience wanted their dinner, but they were generally patient as I went on a bit long in explaining the logic for our FTA.
I thought it would be interesting, from the vantage point of 2015, to review the six reasons I presented in 2002. Then we can consider how events actually turned out.
First, there would be the straightforward economic gains from reducing barriers to trade.
In the years since the Australian-U.S. FTA came into force, our annual two-way trade has about doubled, to over US $60 billion, even in the midst of the global financial crisis and currency gyrations. The United States is Australia’s third largest trading partner, and second largest source of imports.
Australia’s largest export to America is beef, but the sales profile is pretty diversified, including optics and medical instruments, ores, wines and beer, precious stones, and vehicle and aircraft parts.
It appears that someone in the United States is even ordering Vegemite—perhaps some wayward Aussie who longs for a taste of home!
Some of my American friends complained that the FTA took ten years to phase out all U.S. tariffs on Australian wines, but these charges are now zero, so we can celebrate less expensively.
I am encouraged that small U.S. businesses have been big beneficiaries of the FTA. More than 31,000 small and medium-sized U.S. companies export to Australia. More U.S. small businesses export to Australia than to any country other than Canada and Mexico.
The second potential benefit was to boost U.S. investment in Australia.
This forecast really hit the target. The stock of U.S. foreign direct investment in Australia more than doubled to US $159 billion in 2013, accounting for almost 27% of all FDI in Australia and making the United States the top investor in Australia’s future.
The U.S. investment in Australia is widespread, too. There are over 1,800 U.S. majority-owned companies and affiliates, operating nearly 8,500 facilities and offices, across all eight Australian states and territories.
While much of the U.S. FDI was drawn to Australia’s remarkable natural resource industries, U. S. businesses have also expanded investments in Australian tech and service industries.
Australian FDI in the United States grew as well, to about U.S. $45 billion.
And if one adds portfolio investments to FDI—for example, shares in companies—total two-way Australian-American investment now exceeds an astounding US $ 1 trillion.
Third, we hoped that the FTA would assist Australian business to integrate with U.S. counterparts so Australians would gain from global innovation.
The idea was to encourage Australian companies to connect with the U.S.-led network for technologies, data mining, specialized customer service, product development, and marketing. Australia’s best would benchmark against the top global competitors.
As I survey developments in the U.S. economy today, this FTA connection may turn out to be the most important. Even with modest global growth, and the weakest U.S. recovery since World War II, the U.S. private sector has shown an incredible capacity to move beyond the technological frontier.
Just consider U.S tight oil production—which we certainly did not foresee in 2002: Innovation, entrepreneurship, and flexible financing increased U.S. oil production 80 percent over five years—that’s about 3.9 million extra barrels a day, more than the production of any OPEC country except Saudi Arabia. That’s just an example. Consider how software apps are revolutionizing business models. Big Data analytics are transforming services. Near Harvard, where I serve as a Fellow, one can visit a host of bio-engineering startups that may literally re-engineer human health. And the robotics industry will remake how we work.
It may be hard to measure the influence on Australia of U.S. network connectivity and innovation. Yet it is interesting to note that the United States is Australia’s largest partner in the two-way trade in services: those services now account for one-third of the U.S.-Australian trade. By way of comparison, only about 6 percent of Australia’s trade with China, Japan, and Korea relate to services. Over half of Australia’s services exports to the United States are business services, such as construction, finance, charges for intellectual property, and computer and information services. Growth in these sectors will support Australia’s economic diversification.
Ambassador Thawley deserves special recognition for these advances. Single-handedly, he persuaded the U.S. Congress to create a new visa category (E-3) to help Australia’s business people and professionals to capitalize on the FTA’s new opportunities. Let me illustrate why this is a big deal: Each year, people from all around the world who claim they work in specialty occupations compete for 60,000 to 65,000 H1B visas from the United States; there are 10,500 similar visas reserved for Australians alone. My colleagues were skeptical that Michael could pull this off—and he did it through sheer effort.
Fourth, we hoped our FTA would deepen our IT connectivity. The changes over the past decade have only underscored that our private sectors create possibilities that government bureaucracies cannot imagine.
There are now 23 Australian technology companies operating in the United States and an estimated 8,000 Australian entrepreneurs in Silicon Valley. 99designs, an Australian start-up founded in the United States in 2008, is now the world’s largest online graphic design marketplace. In 2003, DocuSign, a leader in secure and convenient electronic transactions, established its Asia-Pacific Headquarters in Sydney. Australians hold key executive posts in tech firms, too. This is just the start.
Fifth, the United States hoped that our FTA with Australia would support our “competitive liberalization” trade strategy—which we pursued through initiatives to open markets bilaterally, regionally, and globally.
The Australian-American FTA was one of twelve that the Bush Administration successfully launched or completed. We wanted to make FTAs a regular part of the U.S. Congress’ business—in part to lessen the risk of the opposition that has built up in recent years when the Executive Branch lost the initiative on trade.
President Obama has experienced the hard way—primarily with his own party—the difficulty of building support for free trade. The opponents of free trade in the United States are relentless. Free traders always have to be on offense.
Yet with the passage of TPA, the United States has an opportunity to reset the trade agenda. The Trans Pacific Partnership, or TPP, is first up.
The United States already has FTAs with six of its eleven TPP partners, of course including Australia. The TPP will be built on the foundation for trade that Australia and the United States laid over a decade ago.
The United States and Australia should also keep pressing for global trade liberalization, especially through the WTO. The Trade Facilitation agreement and new Information Technology accord can help global commerce. The WTO Services negotiations—especially if China is included successfully—can help developing economies make structural reforms while enhancing global trade and growth.
Sixth and finally, in 2002 we believed that deeper ties between our economies and societies, fostered by our FTA, would underpin our vital security alliance.
To speak directly, Americans know Australians will watch our back, and we are committed to watching yours, too.
Of course, the world order is in flux. Americans and Australians need to work closely together to address shifting relations among powers, radical terrorist movements, and 21st Century intelligence and security challenges, including in cyberspace.
So I will close with a few reflections on the concerns raised by some Australians about the changing order in the Asia-Pacific and the future roles of the United States and Australia.
China’s growth since the reforms of Deng Xiaoping has been incredible. Yet the internal challenges of the transformation remain tremendous, as President Xi Jinping’s new structural reforms and push to revitalize the Communist Party have highlighted.
The United States and Australia should support China’s economic reformers. The failure of the reformers would be destabilizing—or even cataclysmic, for China and the world economy. The reformers’ success would create opportunities—but challenges, too.
Just as former Premier Zhu Rongji leveraged China’s WTO accession in the late 1990’s to push his internal economic reforms, we could assist China’s reformers today through negotiations for Bilateral Investment Treaties, the WTO Service Sector negotiations, and a staged inclusion in the IMF’s Special Drawing Rights (SDRs) as China opens its capital account. The United States should be taking the initiative to adapt the international economy instead of resisting change as we tried to do with the Asian Infrastructure Investment Bank.
Yet China’s amazing growth is also altering China’s view of its external interests, regionally and globally.
Last year, President Xi stated that the security of Asia should be handled by the people of Asia. This view clashes with the modern history of the Asia-Pacific, in which the United States and Australia have played momentous and constructive roles.
At the turn of the 20th Century, when the late Qing dynasty was in its last throes, America’s Commodore George Dewey sunk a Spanish fleet in Manila Bay, and the United States began its rise as a Pacific power. We have been around for well over a century.
To paraphrase Napoleon, the borders of a nation’s interests are marked by the graves of its soldiers. Australians and Americans appreciate these interests in the Asia-Pacific—and have paid a high price to secure them. The Cold War in Europe was very hot in the Asia-Pacific.
The U.S.-led security order in the Asia-Pacific—which relied on the pillar of the Australian-U.S. Alliance—created an opportunity for the greatest surge of economic growth that the world has ever seen.
The Australian-American protection of core principles—such as freedom of navigation and flight over open seas—has served Asian, Australian, American, and global interests.
Many other countries in the wider region—Japan, South Korea, New Zealand, ASEAN partners—have appreciated the benefits of this Asia-Pacific order. India, another Asian power, is comfortable with this Asia-Pacific system, too, and is likely to deepen its interconnections in years to come.
Therefore, China faces a strategic choice. China’s development has benefited from the security stability and economic opportunity offered by the United States and Australia—in concert with allies and partners. If China pursues a new Asian security order that seeks to exclude the United States, China will face resistance and could reawaken old geopolitical rivalries. If China’s concept of world order is based on tributary relations—as Henry Kissinger suggests is China’s traditional practice—there will be tensions with the American-led security framework in the Asia-Pacific.
As one Chinese scholar told me, some Chinese feel that they cannot just accept the international architecture designed by the Americans—but the Chinese also are not confident that they know what a successor system should look like. These topics should be part of senior strategic dialogues that the United States and Australia conduct with China.
China is discovering that even first moves toward possible “Asian hegemony” will create problems that will plague the region and China.
The expanding shadow cast by a rising China has increased worries in Japan. Today’s Japan is a very different place from Imperial Nippon, although I know that past Japanese aggression has left deep wounds.
Japanese democracy has reached great heights economically and technologically. But an aging Japan is losing about 250,000 people a year. The primary aim of Prime Minister Abe’s economic reforms is to enable Japan to maintain influence in decades to come. Japan will value allies and partners who can help secure a peaceful order in the Asia-Pacific.
The new U.S.-Japan defense guidelines should be viewed in this context. To sustain America’s commitment to protect Japan—an assurance that has been a cornerstone of the post-World War II order—Japan needs to be able to help counter possible attacks on U.S. forces.
The United States’ and Australia’s aim is to deter conflict, preserve the peace, and build prosperity.
The United States must remain the insurer of security in the Asia-Pacific, in close partnership with Australia and other allies. The 21st Century security order needs a partnership of mutual defense—a threat to none, but a reassurance to all.
The United States, for its part, should work with partners to preserve the successful international architecture of the past 70 years, while adapting to economic, security, and political shifts.
Some strategists, analogizing from history, assert the United States is a status quo power that must adapt to a rising power.
This view fails to understand America’s history and nature. The United States, it is true, is now the established power in the Asia-Pacific and around the world. But America is not a status quo power. The United States is comfortable with a dynamic system. Our ethos as a country is to look ahead, to reinvent, and to seek a better world. We seek security, but we also prize liberty and value the potential of the common man to achieve uncommon dreams.
That national nature is America’s closest bond with Australia.
There is no doubt that our interests are aligned. But even when we have differences, as we will, our shared values and New World outlook draw us closely together.
So it has been my great privilege to have contributed, even in a modest way, to strengthening the ties between our great countries.
Thank you for recognizing and celebrating that effort.