Australia And The United States: Shared Interests

Speech by Alexander Downer

This is the text of a speech delivered by Alexander Downer, the Minister for Foreign Affairs, to the American Chamber of Commerce in Australia, in Melbourne:

Well, thank you very much, Christine, for your introduction; Governor Mark Schweiker of the state of Pennsylvania and his party, those travelling with him, and ladies and gentlemen. 

First, it is a great pleasure to be able to welcome Governor Schweiker here.  I think it’s particularly appropriate, Governor, that you should be in Australia at this time, you coming from the state of Pennsylvania, a state that is not only one of the homes of the American steel industry - a subject I’ll come back to in a moment - …

[Laughter]

… but there are interesting comparisons between Melbourne and at least Philadelphia. 

Philadelphia, for those of you who don’t quite recall, is not the capital of Pennsylvania, Harrisburg is.  But Philadelphia after all is in many respects the founding city of the United States of America, of the modern United States of America.  And you can make the argument, and if you come from Melbourne you certainly would make the same argument for Melbourne …

[Laughter]

… although a lot of the great ideas for federation obviously came out of Adelaide.

[Laughter]

I like Governor Schweiker, I’ll tell you that.  He stands alone, in the seventeen years I’ve been a member of parliament, as being a man who stood up and said I was brilliant.

[Laughter]

The brilliant Australian Foreign Minister.  Governor, you’re welcome back any time.

[Laughter]

Our relationship with the United States, about which I’m going to talk today, is obviously a very long and a very strong and a very deep relationship.  And I think for most Australians, if not all, certainly for most Australians they have felt a very strong sense of affection and understanding of the United States.  We are - as it’s often said - bound together by common values, by our commitment to democracy, our commitment to human rights.  We’re countries which are predominantly settler countries.  We’ve brought settlers, migrants from Europe, and increasingly in more recent years from other parts of the world, from Asia and from Africa and elsewhere.  And so in that respect we have other similarities; although the United States is somewhat larger in population than Australia, it’s a similar size in geographic area.  But it’s not just the values but it’s the evolution of our countries and the linguistic similarities we have.  I know Americans speak with a strange accent but you can usually understand it.

[Laughter]

And the fact that we do speak the same language is not an insignificant bond as a matter of fact, because it helps to bind us together culturally in ways that wouldn’t necessarily be possible if we didn’t speak the same language.

Governor, you will be familiar with the fact that Australians and Americans have fought together throughout the twentieth century in various conflicts.  In the first World War when the American troops first landed in Europe to fight against the then enemy, the United States troops fought under an Austra… not just an Australian general but under a general who came from this very city.  General Monash was the commander of those American troops who initially fought on the western front.

World War Two, we fought together through the Pacific … particularly in the Pacific war, less so in Europe, and there were tremendously close bonds built between us during that period, particularly between a lot of the Americans on R&R in Australian cities and their hosts here in Australia, much to the chagrin of course of the Australian soldiers who were serving outside the country.

[Laughter]

During the Vietnam War, a bit of the same; fought together overseas, R&R back here.  But in any case we did fight valiantly, if not successfully, together in the Vietnam War, we fought together in the Gulf, and we now have a contingent of Australian Special Forces and other forms of assistance in the war against terrorism in Afghanistan and around the Middle East. 

UNIDENTIFIED SPEAKER:

Korea.

DOWNER:

So, I think … and somebody mentioned Korea.  We certainly fought together in the Korean War, admittedly on that occasion under the United Nations banner. 

It’s worth mentioning these things because although all of you are familiar with them, it is a context which helps to bind Australia and the United States together.  And where we do have differences – and obviously we do at the moment – it is important to keep the medium and long-term view in mind and make sure you understand the context from which both of our countries operate.

And when I look at the relationship with the United States, though, as the Foreign Minister I have to say to myself, what out of this relationship is seriously in our … in Australia’s national interest?  It’s nice to remember the history, it’s nice to have the cultural and intellectual ties that we have, but out of this relationship what is there which is in our national interest?  And that, above all, is what we aggressively have to pursue. 

And I would divide that into three categories.  The first and the most important component of our relationship with the United States is the security relationship.  Is the ANZUS Treaty that we last year … the treaty that … which we last year celebrated its fiftieth anniversary at a very … I must say a very … some very hearty functions in Canberra with Colin Powell and the redoubtable Donald Rumsfeld. 

But, it is a treaty, the ANZUS Treaty; it is a security relationship which has served us extraordinarily well.  Now, some people say it’s a treaty about stopping other countries invading Australia or stopping people invading the United States, and if you look at the treaty on its face value there’s something in that argument. 

But there is, in modern times, a much more profound meaning to the ANZUS Treaty than that, and it’s that the ANZUS Treaty is one of those arrangements – and there are others with Japan and South Korea and so on – which binds the United States into the security architecture of the Asia-Pacific region, and in particular East Asia.  And I don’t think Australians should lose sight of the simple point that we have a very strong vested interest in ensuring that the United States remains active in the security architecture of East Asia.  If you took the United States out of East Asia, out of the security architecture of East Asia, then I think the consequences for regional power rivalries and conflicts would be extraordinarily severe.  There is no doubt, to take an obvious example, that there would be enormous consequences on the Korean Peninsular, and there are many others that I won’t go into now where I thi… that … now the points of tension which I think could erupt quite dangerously if the United States were to withdraw from the security of the region.

And I don’t think we should lose sight of that point.  And it’s the ANZUS Alliance as well as the United States alliance with Japan and South Korea and the security arrangements it has with the Philippines and Thailand which binds the United States into the region, and we have a vested interest in ensuring the United States remains actively engaged in the architecture of the region and is welcomed into the region.  Even if we have disagreements with them on other issues, it is a mistake to lose sight of that point.

The second point I’d make is that we have made ourselves a

contribution to the war against terrorism: we have had one of our soldiers killed.  We’ve had another one who has been maimed and had to return to Australia having lost part of his leg.  We have soldiers day by day risking their lives at the moment in Operation Anaconda, which is a difficult military operation in Afghanistan.  And some people say to me, why does Australia need to help the United States in the war against terrorism?  And I say, we don’t just help the United States because the United States is an ally, although we stick by our allies.  But we help the United States because it’s in Australia’s national interest that the war against terrorism should be successful.  It will not be in our interest if an organisation like Al Qaeda is able to repeat what they did on September the eleventh in other western countries, even in our own country.  Clearly in our own country it would be a disaster.  But it is not in our interest to have the civilisation that we belong to to be attacked in the way it was attacked on September the eleventh.  And it is entirely appropriate for countries like Australia, the United Kingdom and others to assist the United States in its war against terrorism and its struggle against Al Qaeda and other related terrorist organisations.  And so we do that because it’s in our interest to do it, not just because we have an alliance relationship with the United States.

The third aspect of our relationship with the United States is the economic relationship, and obviously it’s a very substantial economic relationship in terms of trade and in terms of investment.  Many jobs here in Australia are dependent on American investment; some jobs in the United States, quite a few jobs in the United States are dependent on Australian investment.  Australia is one of the largest foreign investors in the United States.  We do have very substantial trade, though.  Governor, the United States has a very significant trade surplus with Australia, I draw that to your attention. 

[Laughter]

We don’t try to ensure that all of our trading relationships are exactly balanced.  We have … after all, we have a trade surplus with Japan, which is quite unusual by the standards of the world, but nevertheless I just draw your attention to the fact that the United States has a big trade surplus with Australia.

The United States, in economic terms, has been since the Second World War the driving force globally of free trade.  It was the United States which above all was behind the establishment of what used to be called the General Agreement on Tariffs and Trade - the GATT - and now is known as the World Trade Organization.  It was the United States that learnt the mistakes of the Smoot-Hawley legislation, the era of protectionism in the 1930s.  The theory that somehow the world could escape from depression and achieve great prosperity through protectionist policies, through closing markets to each other, through erecting barriers.  It’s been the United States which has been critical to the success of the Tokyo round, the Uruguay round, the Kennedy round and so on of international trade negotiations through the latter part of the twentieth century.  And it’s the United States that has recognised, more than most other countries, if not all, certainly more than most other countries, the value of the liberal trading model for their country.

We ourselves, after all, were founded as a country back at the beginning of the twentieth century on Alfred Deakin’s rather protectionist model.  We started off with high levels of tariff protection.  If anyone here is from the Melbourne Age, the Syme family, the Melbourne Age, are entirely responsible for publicly advocating high levels of protection in the late part of the nineteenth century.  Victoria was the heart of protectionism; New South Wales a bit more free trade.  As a South Australian we were right on Victoria’s side, believe me.  We believed protectionism was the way to go.

And we have gradually as a country, particularly over the last twenty years, dismantled those barriers of protection.  And people thought when we began that process in the 1970s, and through the ‘80s and into the ‘90s, that it would cost a lot of jobs in Australia.  And I would just draw your attention here to a simple fact: that protection has fallen dramatically in this country over the last twenty years and we have the highest rate of economic growth of any member of the OECD, of any developed economy in the world.  And there wouldn’t be many developing economies that have a higher rate of growth than we have.  In 2001 our economy grew by over four per cent, and that during a period when the American economy slowed down very substantially, the Japanese economy was either in recession or close to recession during that period.  Our economy grew by four point one per cent.

We, as a country, have recognised that by reducing levels of artificial protection we get a better allocation of economic resources.  Investment is better directed into the areas where we have a comparative advantage, not in areas where we can’t make significant returns.  And so for the allocation of our limited resources we get a much better return than we otherwise would have got.

Trade liberalisation is enormously important for developing countries as well.  One of the challenges that countries like Australia and the United States as so-called rich countries have is to make sure that as we continue to argue for the benefits of so-called globalisation, we ensure that poor countries around the world gain opportunities from that process as well, and we don’t end up with a world which is an economic and then a social and ultimately a political dichotomy, a contest between the rich and the poor.  A conflict between the rich and the poor.  We’ve got to make the world liberal market system work for poor countries as well as for rich countries. 

Amongst developing countries, it’s fair to say that during the 1990s those that adopted the liberal market model averaged economic growth rates of about five per cent a year.  Those that didn’t had much slower rates of economic growth, if they had positive economic growth at all.  So we know that the liberal market model works for them as well.

Now, this was a very substantial part of the discussion we had last weekend in Coolum in Queensland, when the leaders of fifty-three countries came together and discussed, amongst oth… not just Zimbabwe, but discussed also the global economic situation and how countries like India, countries like Nigeria, countries like South Africa and Bangladesh and the like, should work with countries like Britain and Australia and New Zealand and Canada, obviously implicitly the United States, although the United States is not a member of the Commonwealth, but how we should all work together to build the prosperity of poorer countries.

And the message that came out of that meeting, interestingly, was that the developing countries there knew that the liberal market paradigm was the one to follow.  They weren’t arguing for closing up their markets, or for inward looking economic policies.  What those countries were saying was that the rich countries of the world have to be prepared to open their markets more to the poor countries of the world.  And that’s right.  That is a good message.  That is the right message.  Because if the rich countries of the world close their markets to the poor countries of the world, then that will create that very dangerous economic, social and political dichotomy that I talked about, and it will guarantee ultimately that globalisation won’t work, or at least it won’t work properly.

Now, we as a world have a great opportunity to promote that message as a result of the agreement that was reach in Dohar in the Middle East in the gulf at the end of last year, in December last year, when it was agreed there’d be a new round of global trade negotiations.  And the United States administration, particularly Bob Zoellick, their trade … United States trade representative, played a crucial role in ensuring that there was agreement reached in Dohar to proceed with a new round of global trade negotiations.  And it has been heartening that the House of Representatives in Washington has voted - albeit by I think one vote - to grant the administration Trade Promotion Authority.  And, Governor, anything you can do to get those naughty congressmen and women from Pennsylvania to support Trade Promotion Authority, and now the senators, you know, we’d really appreciate that.  Because it’s crucially important to the world that there aren’t obstacles put in the way of getting these negotiations going.  And that has all been good news.

What has happened recently, let … you know, I’m sorry to have to say this to the Americans here; what has happened recently in relation to the steel industry in the United States has sent very mixed, if not all the wrong messages out to the international community. 

Now, as somebody pointed out in a newspaper article this morning, steel workers in Port Kembla and steel workers in Sheffield and steel workers in Yokohama, they don’t vote in United States elections, and that’s not a very sophisticated point, but steel workers in Pennsylvania, they do.  And so the United States needs to take into consideration, the argument goes, the political realities of the United States and not worry too much about what people think outside of the United States. 

Now, I would make a contrary argument to that.  I think that if the Americans here don’t mind me saying so, I think the administration has made a very unwise decision on the issue of steel, and I think that for two or three reasons. 

Firstly, geo-politically it is not in the United States’ best interest to have antagonised such a big percentage of the world.  It sends a very negative message, not just to the United States’ friends and allies, not just to the British who have a lot of troops in Afghanistan and have been stalwart allies of the United States, or to us who likewise have been stalwart allies of the United States, or to the Germans who () at least in recent times have been, and to the Japanese, likewise who in recent times have been.  It sends a very negative message to developing countries as well.  And there we are on the one hand going to Dohar and we’re saying to developing countries, countries like India for example, you really have to open up your markets.  That’s the way to prosperity for you.  And obviously we will benefit from you doing that.  That’s implicit.  We don’t push that too hard, but that’s implicit.

[Laughter]

Clearly we will benefit - Australia, the United States - if developing countries open up their markets, and they will benefit themselves as well. 

But on the one hand the United States are saying that and on the other hand it’s closing up its markets in actually a very … internationally, a very sensitive area – the steel market – where some developing countries as well as some developed countries like ours have a comparative advantage.

I have a concern that somebody who is unashamedly pro-American – and you can tell that from my speech, how pro-American I am – that this decision will be exploited, and exploited quite effectively by critics of the United States.  Not just countries that are critics but in countries like ours where there are critics, and you can read it in the newspapers today.  It will be exploited and it is being exploited by those people. 

It will also, from the United States’ point of view, I think do substantial damage to American companies that operate internationally and want to get better access to global markets, because the sentiment is going to be an unsympathetic sentiment from many countries when the United States asks for better access for particular types of businesses.

How productive ultimately is this decision?  I remember President Bush, the elder – Bush 41 as he’s known, the forty-first president – I remember him describing one of his political opponents’ economic program as voodoo economics.  This type of protectionist measure is voodoo economics; it just doesn’t add up.  For every one job that the United States is going to save in its steel industry through these protectionist measures – and they will save some jobs in the steel industry – they will lose somewhere between five and eight jobs in the steel-using industries.  These steel companies make steel and then they … I mean, you have to think about it; it’s sort of obvious.  They make the steel, they then sell it to somebody else who makes something out of steel.  It could be knives and forks, it could be cars, it could be heavy equipment, whatever it is.  And the cost of those products is now going to go up because steel is going to be more expensive to buy.  And so jobs will be lost in those industries as they become less competitive.  So, in the end (), it might look all right for the steel workers in the United States, but it doesn’t make any sense for workers in other industries. 

Now, United States is a foreign country; far be it for me as the Foreign Minister of Australia, supposedly our number one diplomat, to be exhorting them on how to run their country.  But I believe the Americans have been right for the last sixty years to exhort countries to run their countries through open markets.  And I think, well, they’re … we’re right to say to the Americans, you were right before and you’re still right, that rhetoric’s still right and you should practice it yourselves.  Because it is going to cost you jobs and it’s going to cost you GDP to take a step like this. 

And of course it’s just going to delay what is inevitable, and we’ve found this ourselves when we were protectionist: it just delays the inevitable: the industry obviously has to be restructured.  Obviously there are parts of the steel industry which aren’t efficient and this isn’t going to make them efficient, this is just going to freeze them.  And it offers false hope to the steel workers.  It says to the steel workers, look, we’ve kept you your job.  Yeah, you kept their job this year, next year, maybe for three years, but in the end what’s going to happen?  The company isn’t profitable, the company will close.  Capital will move to areas where there is a better return.

So, you know, that’s what I mean by the economics of this not making a lot of sense.  I’ll finish on this topic by saying that we export steel basically to steel mills in California and in Washington state, the west coast of the United States.  And what we export is slab steel, and slab steel has been in effect given a waiver from the thirty per cent tariffs, but the rest of the steel is hot rolled and cold rolled steel which goes to the steel mills as input for those mills.  They don’t use steel from the east coast of the United States because it’s too expensive.  They use cheaper steel, and better quality steel I hasten to add from Australia.  And it may be that they will still continue to use steel from Australia, but they will be paying thirty per cent more for the steel they buy from Australia, which makes those steel mills less competitive than they were.

So here is a decision to protect the American steel industry which is going to make American steel mills on the west coast of the United States less efficient than they were and less competitive than they were.  Now, it has to be said that does not make a great deal of sense.

[Applause]

So we in this country, Governor, we are nice people but we are tough people.

[Laughter]

And we will be nice, but we will fight for our industry and we will certainly do everything we can first and foremost to persuade the United States administration to grant a waiver to the Australian steel exporters to the west coast of the United States who are not taking jobs away from the Pensylvanian steel workers, they are not taking jobs away from the east coast steel mills.  All this is doing is making the west coast steel mills less competitive.  And we will be … we’ve already of course been lobbying on this count, but now the decision is made, we have a period of time where we can re-argue that case with the administration and keep working to try to persuade the administration to accept the what I think is indisputable logic of what I say about letting Australian steel in duty … with a traditional level of duty, not with a thirty per cent duty.

We will go to the World Trade Organization with the Europeans and the Japanese and the Koreans and the Chinese.  We’ll do that if we have to, but we’ll see how we get on with this attempt to gain a waiver for our exports before we make a final decision on that.

Let me end up though with a very positive point, and that is this: that we are, as you can all tell, in this country very unhappy about this decision.  We are unhappy about the enormous agricultural subsidy which is at the moment before the congress, the proposal in the farm bill to provide three hundred and fifty billion dollars worth of subsidies over the next few years for American farmers.  We are unhappy about that.

We were enormously unhappy about the decision the Americans made, the Clinton administration made three or four years ago over lamb.  We took the US to the WTO and we won, and our lamb is doing very well now in the US market, as many US products are doing in our market, the fastest growing market in the developed world.

[Laughter]

You wouldn’t want to, you know, turn it off.  Not that we’re going to do that but … because we’re not hypocrites.  We just keep with our policy because we know it’s the right policy to have an open market.

But I make the point that we have got, we have had and we keep having these constant problems with the United States in the area of trade, which cause a very strong reaction in this country.  They make people deeply unhappy and they’re inimical to our economic interests.  We can resolve this.  We can resolve this by negotiating a free trade agreement with the United States, and we’ve had some progress in moving towards that already.  Mark Vaile most recently was in Washington.  Our Trade Minister was in Washington and met with Bob Zoellick, and that was a very productive and constructive meeting and we are confident that through the next year or two we will be able to negotiate a free trade agreement with the United States.

I don’t make party political points very often, but I would draw your attention to the fact that the Opposition spokesman on trade, who is a man called Stephen Martin, put out a press release yesterday saying that it was an absurd proposition for the government to keep arguing for a free trade agreement with the United States when the United States has done to Australia what it’s done on steel.  My own view is that that is a simply absurd argument.  The countries that did the best out of this decision were which countries?  Canada and Mexico.  And why did Canada and Mexico get an exemption?  Canada and Mexico got an exemption because the United States has a free trade agreement, NAFTA, with Canada and Mexico, and so they weren’t affected by this.  And what’s more, NAFTA includes provisions for free trade in agriculture, though it’s a phasing arrangement.  And I believe we can get an agreement just as good as that with the United States, and I think we need to be bold and enthusiastic working with the administration to achieve that.  And that won’t just solve our steel problems this time around, that will solve our steel problems indefinitely.  And that will be a great thing for the relationship politically, it will be a great thing for investment flows between our two countries and for the trade between our two countries.  The Centre for International Economic estimates that it will add something like four billion dollars a year to our GDP and it would add significant… not significantly, it will add somewhat to the United States GDP as well.  It would be a benefit to the United States.

I don’t think you would have any of the problems over environmental policies and labour policies in negotiating a free trade agreement with Australia that the United States would have with developing countries, including the free trade agreement with the Americas.  Australia is well regarded in the Congress by the senators.  I think we have a very good chance of achieving this.

And this decision on steel, bad as it is, should remind us of how important it is for us to keep pushing to get these negotiations not only going but concluded on a free trade agreement with the United States. 

So I hope that, as is so often the case, out of bad will come good, and out of this bad decision will come a free trade agreement, will be another very strong bond between Australia and the United States.  If we can achieve that it would be a great thing for jobs in Australia, it would be a good thing for jobs in the United States.  Governor, I’m sure it will be a good thing for jobs in Pennsylvania.  Well, it would be quite a good thing for jobs in Pennsylvania.  Aren’t some of those sheep farmers in Pennsylvania as well?  We have problems with Pennsylvania.

[Laughter]

Anyway, I had a cousin who, he’s moved now, but for many years lived in Pittsburgh.  I went and stayed with him once; an old steel town.  Not a lot of steel mills left there but a very nice city. It’s a fine city to anybody who hasn’t been there, and the Governor surely has.

So, thank you very much for having me along here today.  It’s been a great pleasure to come and talk to you.  It has been, as it turned out, somewhat timely to have this discussion with you.  And with this rather emotive issue before us I particularly appreciate, Mark, you being here, to have the Governor of Pennsylvania.  It’s not easy for him to sit there and be berated by Australians, who are very good at berating; ask the Governor-General.

[Laughter]

Very good at berating, and … we are, we can be very aggressive.  But I don’t want you to go away thinking that is the totality of ourrelationship with the United States.  But I do want you to go away and just remember the economic messages.  You know, economics; not everything is politics.  I mean, good economics in the end, in the medium term is good politics; bad economics is never going to be good medium term politics.

For us as a government, we’ve run … made some very tough decisions.  A lot of them have been very unpopular.  We introduced a ten per cent value added tax, GST as we call it.  You can imagine how popular that was.  But we managed to get re-elected.  Admittedly only just, but we did.  And we got elected on the basis of promising we’d do it as well.  So in the end, with a four per cent per year economy, that brings its own political rewards.  So good economics is good politics; it’s a good message. 

Thank you very much

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