Why Labor Supports Trade

Author: Penny Wong is Leader of the Opposition in the Senate and Shadow Minister for Trade

 

It’s an honour for me to speak at the opening of this Fabian Forum on progressive reform ideas for Labor’s 2015 National Conference.

The Australian Fabians have a long and proud history of promoting progressive thinking inside and outside the Labor Party.

A feature of Fabianism is its focus on promoting change through ideas – not slogans.

That’s Labor’s way, too.

And the reason Bill Shorten has described 2015 as Labor’s year of ideas.

This year Labor has challenged Australians to join us as we:

  • Embrace constitutional recognition of Indigenous Australians;
  • Confront domestic violence;
  • Promote inclusive growth;
  • Crackdown on multinationals not paying their fair share of tax in Australia;
  • Plan to build, maintain and sustain Australia’s future submarines in Australia;
  • Make the superannuation system fairer and more sustainable;
  • Protect our renewable energy sector and tackle climate change;
  • Reinvigorate the movement for an Australian republic;
  • Achieve marriage equality.

We have done that while fighting the most regressive Budget program brought down since Stanley Melbourne Bruce lost his seat trying to do over Australian workers.

Labor’s National Conference will, of course, be a contest of ideas.

Ideas about how we achieve a fair, inclusive and prosperous Australia.

Ideas that will shape the national debate all the way to the next federal election, and help shape a Shorten Labor Government too.

Today, as Shadow Minister for Trade and Investment, I want to put to you the progressive case for trade.

It can be summed up in a simple proposition: trade benefits working people.

Trade benefits working people by contributing to economic growth.

Trade benefits working people by improving productivity.

It benefits working people by creating better-paid, more rewarding and more secure jobs.

And it benefits working people by delivering lower prices and greater choice for consumers.

Labor has deep roots in Australia’s traded goods industries.

The Australian Workers Union organised the shearers in the 1880s – not to oppose international trade in Australia’s then biggest export industry, but to press for fair wages and conditions.

One of Labor’s greatest Prime Ministers, Ben Chifley, worked as an engine driver before entering Parliament.

The trains Chifley steered between Bathurst and Sydney carried goods from western New South Wales that were destined for export markets.

On the return journeys, they brought back imported goods – everything from pianos and sewing machines to Irish whiskey and corned beef.

Just as hundreds of thousands of train and truck drivers today move exports and imports around Australia.

As Prime Minister in 1948, Chifley took Australia into the new multilateral trading system negotiated as part of the Bretton Woods post-war international economic architecture.

His vision for post-war economic reconstruction was to develop manufacturing industry and new export markets – initially in America and, over the longer-term, in Asia.

The three most substantial decisions to reduce Australia’s trade barriers – in 1973, 1988 and 1991 – were all made by Labor Governments.

In 1973, the Whitlam Government cut tariffs by 25 per cent.

Gough has said that the short-term aim of the tariff cut was to reduce inflation while its longer term aim was to improve efficiency.

A more efficient economy was the primary motivation for the 1988 and 1991 tariff cuts by the Hawke-Keating Governments.

But Hawke and Keating also recognised that tariffs were pushing up the prices of clothing, whitegoods, cars and other basic consumer items.

They recognised that there was nothing progressive about a policy which meant working people struggled to afford decent school shoes for their children.

It has been estimated that the Hawke-Keating tariff cuts have put nearly $4000 a year into the pockets of the average Australian household.

They also drove the modernisation of Australian industry in the 1980s and 1990s.

This was one of the reforms which have contributed to Australia enjoying nearly a quarter of a century of uninterrupted economic growth.

Labor’s commitment to trade liberalisation was continued by the Rudd and Gillard Governments.

Under Rudd and Gillard, Labor:

  • finalised Free Trade Agreements with Chile, Malaysia, ASEAN and New Zealand;
  • launched negotiations for a global Trade in Services Agreement;
  • and contributed to the World Trade Organisation’s Trade Facilitation Agreement which was concluded in Bali in 2013.

Exports and imports account for around 40 per cent of Australia’s GDP – that means trade is inextricably tied up with Australian jobs.

Jobs producing goods and services for export markets.

And jobs producing goods and services which use imported inputs.

Industries strongly engaged in trade include agriculture, mining, oil and gas, manufacturing, transport, storage and distribution, tertiary education and wholesale and retail trade.

These industries account for more than 3.7 million jobs.

Miners, manufacturing workers, food processing workers, truck drivers, wharfies, warehousing workers, shop assistants – their jobs all depend on exports and imports.

The jobs of workers in the hospitality sector are supported by Australia’s tourism exports.

And the jobs of higher education workers are supported by our exports of education services.

Exporting doesn’t only mean more jobs – it means better jobs.

Austrade research shows that, on average, exporters pay higher wages than companies operating only in the domestic market.

It shows that exporters also:

  • provide more secure jobs;
  • are more likely to provide employees with training;
  • are more likely to negotiate wages through enterprise bargaining, and;
  • are more committed to safety in the workplace.

And exporters are twice as likely to engage in innovation as non-exporters.

As the Labor Party’s National Platform puts it: “More trade is a pathway to a high-skill, high-wage future for Australians.”

Expanding trade contributes to economic growth.

Trade is especially important for growth at the moment, when the economy faces headwinds.

Domestic demand has been weak in the last 18 months, which is one of the reasons unemployment has been rising under the Abbott Government.

Australia can never rely solely upon our domestic economy to generate the growth we need to create jobs – not today, not ever.

Trade agreements open up world markets for Australian businesses, allowing them to find new sources of demand for the goods and services that Australian workers produce.

Some in our movement hanker for the days of protectionism, imagining that tariffs on imports support local jobs.

Protectionism is a false panacea.

Tariffs push up prices for local consumers and producers.

They lead to uncompetitive industries, an inefficient economy and, ultimately, jobs that are not sustainable.

Sitting on the sidelines while other countries negotiate trade agreements is also a false panacea.

Refusing to enter trade agreements will allow our competitors to gain market share at Australia’s expense.

That will reduce export growth for our businesses, potentially leading to job losses for our workers.

Take the recent Korea-Australia Free Trade Agreement.

Korea is an important market for Australian beef exports.

In recent years, our beef producers have been losing market share to American competitors in Korea.

One reason for this is that Korea and the United States signed a free trade agreement in 2011 which cut tariffs on American beef, putting Australia at a competitive disadvantage.

Under the Korea-Australia FTA which was finalised last year, Korea agreed to extend the same tariff cuts to Australian beef.

Without these tariff cuts, Australian beef exports to Korea would have declined over the next few years as US beef gained an ever-greater competitive advantage.

With the tariff cuts, however, beef exports to Korea are projected to increase by 57 per cent in real terms by 2029.

Labor believes the Abbott Government should have secured a better agreement with Korea.

However, we recognised that KAFTA will benefit Australia’s agricultural industry and the hundreds of thousands of jobs the industry supports – including in the food processing sector of manufacturing.

That is why Labor concluded that KAFTA was in Australia’s national interest.

We need to approach the China-Australia Free Trade Agreement in the same way – assessing whether it will support jobs and whether it is in Australia’s national interest.

I have always argued that Australia’s prosperity demands deeper integration with the economies of our region.

Labor people have always sought to build a better future for our children – and it is clear that the future lies in our region.

Twenty years ago, Paul Keating said free trade in the Asia-Pacific:

“[C]an underwrite Australia’s future. It can give us sustainable growth, employment, a role in technological innovation, cultural stimulation and enrichment. It can substantially underwrite the democratic, rich and dynamic nation we want to be in the 21st century.”

Our economic welfare, our strategic opportunities, our national security and our cultural dynamism will all depend on how deeply we integrate with the fast-growing economies of Asia.

Not only in traditional goods trade, but also in investment, tourism, services, supply chains, and people to people links.

We need to continue the Labor mission of trade liberalisation to ensure Australia can take advantage of the changes that will unfold in coming years.

Changes like the growth of the Asian middle class, the emergence of global value chains and the rise of services.

Asia’s middle class now comprises around 500 million people.

It is expected to increase more than six-fold in the next 15 years.

That will be 3.2 billion middle-class consumers – or two-thirds of the world’s middle class – in Asia by 2030.

This will translate into rising demand for a range of goods and services, including those where Australia has a strong track record – like food, education, tourism, health and aged care, and financial and professional services.

There will also be opportunities for Australia in global value chains.

Manufactured goods are now increasingly “made in the world” rather than made in Australia, made in the USA or made in China.

This has seen the emergence of a new type of trade – global value chain trade – where materials and components are imported, processed, transformed, and then exported on to the next link in the chain.

Boeing passenger jets may roll off the production line in Seattle.

Yet they include flaps, ailerons and rudders made at Fishermans Bend here in Melbourne – along with components from hundreds of suppliers around the world.

An Apple iPhone includes components manufactured in the United States, Europe, Japan, Korea, Taiwan, China and several other countries.

Yet the lion’s share of the value embodied in the iPhone is captured by Apple, reflecting its role in innovation, design and marketing rather than in the physical production of the device.

In a world of global value chains, domestic trade barriers are a recipe for the demise of local industry.

Jobs for Australian manufacturing workers will increasingly depend on whether our businesses can break into global value chains.

And this will depend on the skills of our workers, the ease of moving goods across borders, the quality of our infrastructure, the ability of our businesses to innovate, and the extent to which they forge connections with partners overseas.

For Labor, global value chains must be a key focus for trade, investment, innovation and industry policy.

The shift of economic activity towards services also creates new opportunities.

In high-income OECD economies, services now account for 75 per cent of GDP.

By contrast, in East Asia’s developing economies, services account for less than half of GDP.

As these economies develop, their demand for services like education, tourism, healthcare, aged care, and financial and professional services will expand.

Gaining access for services in export markets presents challenges for trade policy.

It requires more than reducing barriers at the border.

It requires deeper economic integration and tackling behind-the-border regulations which prevent services firms from entering new markets.

Trade agreements should not undermine domestic regulations that deliver legitimate public policy goals.

But they should increase international trade in services, because this will drive economic growth just as trade in goods drives economic growth.

While globalisation brings great benefits, it can also unleash rapid, unpredictable and unsettling change.

We must ensure our citizens benefit from globalisation, rather than being left behind.

We are committed to giving people the tools they need to participate in the global economy.

Tools like a quality education, mastery of workplace skills, an understanding of technology, and the ability to adapt to change and learn new skills.

In a globalised economy, these attributes are critical to people’s ability to succeed in the workplace and to cope with economic change.

People will increasingly need to navigate changes in their occupations and careers during their working lives.

This will require investment, reinvestment and renewal of human capital, just as the economy requires constant retooling and upgrading of physical capital.

Unlike our opponents, Labor understands that trade policy must be complemented by investments in education, skills, infrastructure, innovation and research.

In a globalised economy, it would be daft to halve the ratio of schools spending to GDP by 2055; to abandon Trades Training Centres in schools; or to make it harder to for people to go to university.

And yet that’s just what the Abbott Government has proposed.

Labor does not pursue trade liberalisation out of blind adherence to abstract theories.

We pursue trade liberalisation because it delivers concrete benefits for the people we represent.

Trade raises average living standards.

Because I am a progressive, I support free trade.

But trade also places uneven pressures on our society.

So because I support free trade, I also believe we must have proper social democratic institutions and progressive policies.

That means insisting on high quality trade agreements that maximise local employment.

It means trade agreements that do not undermine public policy in healthcare, the environment or labour rights.

And it means trade agreements supported by policies which have at their heart the expansion of opportunity – investments in education, innovation and infrastructure to ensure people prosper in the globalised economy.

It does not mean pulling down the shutters.

We have already experienced the closed economy model.

As Paul Keating says, by the 1970s it had turned Australia into an industrial museum.

By contrast, the open economy model Labor embraced in the 1980s has powered us through one of the longest periods of uninterrupted growth of any advanced economy in the world.

Back in 1948, Ben Chifley could see that it was in the interests of Australian workers to foster new industries at home, to find new export markets abroad, and to engage with Asia.

As his successors, we have a responsibility to continue pursuing this vision in the 21st century.

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