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Australia's Foreign Economic Policy and ASEAN
 9789812309747, 9812309748, 9789812309754, 9812309756

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The Institute of Developing Economies (IDE-JETRO) is a Japanese government-related institution, founded in 1958 to conduct basic and comprehensive studies on economic, political, and social issues of developing countries and regions. The IDE-JETRO aims to make intellectual contributions to the world as a leading center of social-science research on Asia, the Middle East, Africa, Latin America, Oceania, and Eastern Europe. The Institute accumulates locally-grounded knowledge on these areas, clarify the conditions and issues they are facing, and disseminate a better understanding of these areas both domestically and abroad. These activities provide an intellectual foundation to facilitate cooperation between Japan and the international community for addressing development issues. The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional centre dedicated to the study of socio-political, security and economic trends and developments in Southeast Asia and its wider geostrategic and economic environment. The Institute’s research programmes are the Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). ISEAS Publishing, an established academic press, has issued more than 2,000 books and journals. It is the largest scholarly publisher of research about Southeast Asia from within the region. ISEAS Publishing works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world.

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First published in Singapore in 2010 by ISEAS Publishing Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] Website: http://bookshop.iseas.edu.sg All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 2010 Institute of Developing Economies, JETRO The responsibility for facts and opinions in this publication rests exclusively with the author and his interpretations do not necessarily reflect the views or the policy of IDE-JETRO, ISEAS or their supporters. ISEAS Library Cataloguing-in-Publication Data Okamoto, Jiro, 1963Australia’s foreign economic policy and ASEAN. 1. ASEAN. 2. Australia—Foreign economic relations—Southeast Asia. 3. Southeast Asia—Foreign economic relations—Australia. 4. Australia—Foreign relations—Southeast Asia. HF1626.5 A9O41 2010 ISBN 978-981-230-974-7 (hard cover) ISBN 978-981-230-975-4 (E-book PDF)

Typeset by International Typesetters Pte Ltd Printed in Singapore by Utopia Press Pte Ltd

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Contents List of Figures and Tables Abbreviations and Acronyms Acknowledgements

vii viii xii

1

Introduction Shifts in Australia’s Foreign Economic Policy Focusing on ASEAN Exploring the Domestic Policy Processes The Evolution of Australia’s ASEAN Policy in Brief Structure of the Book

1 4 5 7 9 12

2

An Analytical Framework The International System as a Constraint on Policy Behaviour The Focus of Domestic Policy Processes: State or Society? State-Society Coalitions: Bringing the Bi-directionality of State-Society Relations into Analysis

17 18

State-Society Coalitions and Australia’s Foreign Economic Policy The Protectionist Tradition Building Foundations of the Trade Liberalizers The Ascendancy of the Trade Liberalizers The Rise of the Bilateralists

34

Australia and the Formation of ASEAN Australia’s Stance towards Southeast Asia after World War II The Establishment of ASEAN and the Whitlam Government’s New Policy The Development of ASEAN Economies and Economic Disputes with Australia

96 98

3

4

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22 25

35 50 66 81

105 112

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vi

5

6

7

8

Contents

The Trade Liberalizers and Asia-Pacific Regionalist Strategies Economic Development in East Asia and the Change in Australia’s Recognition Asia-Pacific Regionalist Strategies The Cairns Group Initiative and ASEAN’s Involvement The APEC Initiative: ASEAN as the Key to Success

132

The Development of ASEAN Regionalism and the AFTA–CER Linkage Dialogue The Development of ASEAN Regional Cooperation The Enhancement of ASEAN Regionalism in the 1990s ASEAN as the Front Gate of Australia’s Engagement with East Asia The AFTA–CER Linkage Dialogue: Australia’s Response to ASEAN’s Economic Regionalism

163

The Bilateralists and their ASEAN Policy The Howard Government and Bilateralism A Series of Exogenous Shocks and the Emergence of the Bilateralists The Bilateralists Dominate and Seek “Competitive Liberalization” The Bilateralists’ Policy towards ASEAN

204 206 212

Conclusion The Rise and Fall of State-Society Coalitions and Changes in Australia’s ASEAN Policy Implications for Australia’s Foreign Economic Policy in the Future

247 247

Appendix: Foreign Economic Policy-Related Ministers in Australia since 1941 References Index About the Author

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133 141 146 149

164 172 176 181

216 231

256

266 270 298 313

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List of Figures and Tables Figures 3.1 3.2 3.3 3.4

Australia’s Terms of Trade, 1966–95 Australia’s Consumer Price Index, 1965–95 Australia’s Unemployment Rate, 1966–95 Average Effective Rates of Assistance for Manufacturing (1968/69 to 1992/93, per cent)

52 53 54 59

Tables 3.1 Average Manufacturing Tariff Rates in the Early Twentieth Century (selected economies) 3.2 Labour Productivity of the Private Sector, Selected Economies (percentage change from previous period) 4.1 Australia’s TCF Imports in the 1970s from Selected Economies 5.1 Australia’s Trade Partners, 1960–95 (US$ million) 5.2 FDI Inflows to ASEAN–4 by Origins (approval basis) 5.3 Structural Changes in ASEAN Economies, 1980–90 6.1 Australia’s Share in the Imports of East Asian Economies, 1990–95 (per cent) 6.2 The Share of Manufactures and ETMs in Australia’s Total Merchandise Exports, 1991/92–1995/96 (per cent) 6.3 1998 CEPT Package 6.4 Areas for Cooperation in the AFTA–CER Linkage Dialogue in the 1990s 7.1 Australia’s Major Trade and Investment Partners, 2000 (per cent) 7.2 Major Results of the AUSFTA Negotiations (announced in February 2004)

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38 74 116 135 142 143 182 182 186 191 217 227

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Abbreviations and Acronyms AAECP ABAC ACBC ACCI ACMA ACTU AEM AFTA AHTN AIDA AIG AIJV AIP ALP AMM ANZSIC APEC APT ARF ASA ASEAN ASEAN-CCI ASEAN-PMC ASEM ASTP ATL

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ASEAN–Australia Economic Cooperation Program APEC Business Advisory Council AFTA-CER Business Council Australian Chamber of Commerce and Industry Associated Chamber of Manufactures of Australia Australian Council of Trade Unions ASEAN Economic Ministers Meeting ASEAN Free Trade Area ASEAN Harmonized Tariff Nomenclature Australian Industries Development Association Australian Industry Group ASEAN Industrial Joint Ventures ASEAN Industrial Project Australian Labor Party ASEAN Ministerial Meeting Australia and New Zealand Standard Industrial Classification Asia-Pacific Economic Cooperation ASEAN Plus Three (ASEAN, China, Japan, and Korea) ASEAN Regional Forum Association of Southeast Asia Association of Southeast Asian Nations ASEAN Chamber of Commerce and Industry ASEAN-Post Ministerial Conference Asia-Europe Meeting Australian System of Tariff Preferences for Developing Countries accelerated tariff liberalization

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!CKNOWLEDGEMENTS /…ˆÃÊ LœœŽÊ ˆÃÊ Ì…iÊ vÀՈÌÊ œvÊ Ì…iÊ ÃÌÕ`ÞÊ Ì…>ÌÊ Ê Vœ˜`ÕVÌi`Ê ˆ˜ÌiÀ“ˆÌÌi˜ÌÞÊ œÛiÀÊ “>˜ÞÊÞi>ÀÃÊ>ÌÊ̅iʘÃ̈ÌÕÌiʜvÊ iÛiœ«ˆ˜}Ê Vœ˜œ“ˆiÃÊ­ ®]Ê«>À̈VՏ>ÀÞÊ `ÕÀˆ˜}Ê Ì…iÊ ÌÜœÊ «iÀˆœ`ÃÊ Ü…i˜Ê Ê Ü>ÃÊ «œÃÌi`Ê >LÀœ>`Ê ­ˆ˜Ê >˜LiÀÀ>Ê `ÕÀˆ˜}Ê £™™Óq™{Ê >˜`Ê ˆ˜Ê >˜LiÀÀ>Ê >˜`Ê >˜}ŽœŽÊ `ÕÀˆ˜}Ê ÓääÎqäx®Ê >ÃÊ >˜Ê œÛiÀÃi>ÃÊ ÀiÃi>ÀV…iÀ°Ê /…iÊ  Ê «ÀœÛˆ`i`Ê “iÊ ÜˆÌ…Ê «ÀiVˆœÕÃÊ Ìˆ“iÊ ÌœÊ ÀiۈÃiÊ `À>vÌÊ V…>«ÌiÀÃ]Ê >``Ê “ˆÃȘ}Ê «>ÀÌÃÊ >˜`Ê Vœ“«ˆiÊ Ì…i“Ê ˆ˜ÌœÊ >Ê LœœŽ° Ê ÀiV>Ê Liˆ˜}Ê >Ài>`ÞÊ ˆ˜ÌiÀiÃÌi`Ê ˆ˜Ê ÕÃÌÀ>ˆ>Ê ˆ˜Ê “ÞÊ i>ÀÞÊ Ìii˜ÃÊ >˜`Ê “ÞÊ ˆ˜ÌiÀiÃÌÊ ˆ˜Ê ̅ˆÃÊ º«iVՏˆ>À»Ê VœÕ˜ÌÀÞÊ >ÌÊ Ì…iÊ ÃœÕ̅i>ÃÌiÀ˜Ê i`}iÊ œvÊ È>ÊÊ …>ÃÊ œ˜ÞÊ }ÀœÜ˜Ê ȘViÊ Ì…i˜°Ê Ê ÜÀœÌiÊ “ÞÊ Õ˜`iÀ}À>`Õ>ÌiÊ >˜`Ê “>ÃÌiÀ½ÃÊ Ì…iÃiÃÊ œ˜Ê ̜«ˆVÃÊ «iÀÌ>ˆ˜ˆ˜}Ê ÌœÊ ÕÃÌÀ>ˆ>qÈ>Ê Ài>̈œ˜Ã°Ê -ˆ˜ViÊ Ì…iÊ £™™ÇÊ È>˜Ê w˜>˜Vˆ>Ê VÀˆÃˆÃ]Ê >ÃÌÊ È>˜Ê ÃÌ>ÌiÃÊ …>ÛiÊ ÃÌÀi˜}̅i˜i`Ê Ì…iˆÀÊ Ài}ˆœ˜>ˆÃÌÊ Ìi˜`i˜VˆiÃÊ >˜`Ê Ì…iÊ iVœ˜œ“ˆVÊ ˆ˜Ìi}À>̈œ˜Ê «ÀœViÃÃiÃÊ ˆ˜Ê >ÃÌÊ È>Ê >««i>ÀÊ ÌœÊ LiÊ vœÀ}ˆ˜}Ê >…i>`Ê ÜˆÌ…Ê -  Ê >ÌÊ ˆÌÃÊ VœÀi°Ê ˜Ê ÀiVi˜ÌÊ Þi>ÀÃ]Ê iÛi˜Ê ̅iÊ «ÀœÃ«iVÌÊ œvÊ >˜Ê º >ÃÌÊ È>˜Ê œ““Õ˜ˆÌÞ»Ê …>ÃÊ œvÌi˜Ê Lii˜Ê `ˆÃVÕÃÃi`°Ê œÜÊ Ã…>ÊÕÃÌÀ>ˆ>]Ê Ü…œÃiÊ «œÃˆÌˆœ˜Ê ۈÇD‡ÛˆÃÊ >ÃÌÊÈ>Ê Ài“>ˆ˜ÃÊ >“Lˆ}՜ÕÃ]Ê >ÌÌi“«ÌÊ ÌœÊ LiVœ“iÊ ˆ˜ÛœÛi`Ê ˆ˜Ê ̅iÃiÊ ˆ˜Ìi}À>̈œ˜Ê >˜`Ê Vœ““Õ˜ˆÌއLՈ`ˆ˜}Ê «ÀœViÃÃiÃ¶Ê 7ˆÌ…Ê >Ê vœVÕÃÊ œ˜Ê ̅iÃiÊ ˆÃÃÕiÃ]Ê “ÞÊ ˆ˜ÌiÀiÃÌÊ ˆ˜Ê ̅ˆÃÊ VœÕ˜ÌÀÞÊ Vœ˜Ìˆ˜ÕiÃÊ ÌœÊ }ÀœÜ° /…iÊ «ÕLˆV>̈œ˜Ê œvÊ Ì…ˆÃÊ LœœŽÊ ܜՏ`Ê ˜œÌÊ …>ÛiÊ Lii˜Ê «œÃÈLiÊ ÜˆÌ…œÕÌÊ Ì…iÊ }Ո`>˜Vi]Ê ÃÕ««œÀÌÊ >˜`Ê i˜VœÕÀ>}i“i˜ÌÊ œvÊ “>˜ÞÊ «iœ«i° ˆÀÃÌ]Ê Ê ÜœÕ`Ê ˆŽiÊ ÌœÊ iÝ«ÀiÃÃÊ “ÞÊ }À>̈ÌÕ`iÊ ÌœÊ Ì…iÊ ÃÕ«iÀۈÜÀÃÊ œvÊ “ÞÊ *…° °Ê ÃÌÕ`Þ]Ê œ˜Ê ܅ˆV…Ê ̅ˆÃÊ LœœŽÊ ˆÃÊ ÃÕLÃÌ>˜Ìˆ>ÞÊ L>Ãi`]Ê >ÌÊ Ì…iÊ ÕÃÌÀ>ˆ>˜Ê >̈œ˜>Ê1˜ˆÛiÀÈÌÞÊ­ 1®°ÊÊ>“Ê}Ài>̏Þʈ˜`iLÌi`Ê̜Ê*ÀœviÃÜÀÊ *iÌiÀÊ ÀÞÃ`>iÊ vœÀÊ …ˆÃÊ >V>`i“ˆVÊ }Ո`>˜Vi°Ê iÊ Ü>ÃÊ >Ü>ÞÃÊ «>̈i˜ÌÊ >˜`Ê i˜VœÕÀ>}ˆ˜}Ê ÜˆÌ…Ê …ˆÃÊ `ˆÃ̈˜V̈ÛiÊ …Õ“œÕÀ°Ê Ê >“Ê }À>ÌivÕÊ ÌœÊ *ÀœviÃÜÀÃÊ ˜`ÀiÜÊ >V˜ÌÞÀiÊ >˜`Ê -ÌÕ>ÀÌÊ >ÀÀˆÃÊ vœÀÊ Ì…iˆÀÊ ÃV…œ>ÀÞÊ Vœ““i˜ÌÃÊ œ˜Ê “ÞÊ `À>vÌÊ V…>«ÌiÀÃ°Ê /…iÞÊ ÀiVœ““i˜`i`Ê Ì…>ÌÊ Ê ÀiÜÀˆÌiÊ “ÞÊ «œˆ˜ÌÃÊ œvÊ >À}Փi˜ÌÊ Ü…i˜Ê ̅iÞÊ Ìi˜`i`Ê ÌœÊ `ˆÛiÀ}iÊ œÀÊ ÃV>ÌÌiÀ°Ê /…iÊ Vœ““i˜ÌÃÊ Ì…>ÌÊ Ê ÀiViˆÛi`Ê vÀœ“Ê ÃÕ«iÀۈÜÀÃÊ ÜiÀiÊ œvÌi˜Ê ÃVi«ÌˆV>Ê >˜`Ê VÀˆÌˆV>Ê LÕÌÊ

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#ONTENTS !CKNOWLEDGEMENTS

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̅iÞÊ ÜiÀiÊ Û>Õ>LiÊ ˆ˜Ê “>Žˆ˜}Ê Ì…iÊ >À}Փi˜ÌÊ œvÊ Ì…ˆÃÊ LœœŽÊ Vi>ÀiÀ°Ê ÞÊ Ã«iVˆ>Ê >««ÀiVˆ>̈œ˜Ê }œiÃÊ ÌœÊ Ì…iÊ >ÌiÊ *ÀœviÃÜÀÊ “iÀˆÌÕÃÊ iˆ˜âÊ À˜`ÌÊ Ü…œÊ Ü>ÃÊ >˜Ê >`ۈÃiÀÊ vœÀÊ “ÞÊ *…° °Ê ÃÌÕ`ÞÊ ˆ˜Ê ˆÌÃÊ i>ÀÞÊ ÃÌ>}i°Ê ÞÊ Ài}ÀiÌÊ ˆÃÊ Ì…>ÌÊ Ê Ü>ÃÊ ˜œÌÊ >LiÊ ÌœÊ ÜœÀŽÊ v>ÃÌiÀÊ >ÃÊ Ê VœÕ`Ê …>ÛiÊ Li˜iwÌi`Ê vÀœ“Ê …ˆÃÊ Vœ““i˜ÌÃ°Ê Ê …œ«iÊ …iÊ ÜœÕ`Ê …>ÛiÊ >««ÀœÛi`Ê œvÊ Ì…ˆÃÊ LœœŽ° Ê >“Ê >ÃœÊ }À>ÌivÕÊ vœÀÊ Ì…iÊ ÃÕ««œÀÌÊ Ê ÀiViˆÛi`Ê >ÌÊ Ì…iÊ ÕÃÌÀ>ˆ>q>«>˜Ê ,iÃi>ÀV…Ê i˜ÌÀiÊ ˆ˜Ê ̅iÊ  1°Ê -«iVˆ>Ê ̅>˜ŽÃÊ }œÊ ÌœÊ >À}ˆÌÌ>Ê VŽiÀÊ >˜`Ê >ÀˆÞ˜Ê *œ««Ê ܅œÊ ÜiÀiÊ >Ü>ÞÃÊ Ài>`ÞÊ ÌœÊ i˜`Ê >ÃÈÃÌ>˜Vi°Ê ˆÊ >˜˜i>ÀÊ …i«i`Ê “iÊ ÜˆÌ…Ê Ì…iÊ «Ài«>À>̈œ˜Ê œvÊ ÀiviÀi˜ViÃ°Ê Ê ÜœÕ`Ê ˆŽiÊ ÌœÊ iÝ«ÀiÃÃÊ “ÞÊ `ii«Ê >««ÀiVˆ>̈œ˜Ê ÌœÊ œ…˜Ê -…iÌœ˜Ê vœÀÊ …ˆÃÊ ˆ˜`ÕÃÌÀˆœÕÃÊ «ÀœœvÀi>`ˆ˜}Ê œvÊ “ÞÊ `À>vÌÊ V…>«ÌiÀð Ê Ü>ÃÊ vœÀÌ՘>ÌiÊ ÌœÊ …>ÛiÊ Lii˜Ê >LiÊ ÌœÊ “iiÌÊ ÜˆÌ…Ê >Ê ˜Õ“LiÀÊ œvÊ Vœi>}ÕiÃÊ >ÃÊ ÃÌÕ`i˜ÌÃÊ >ÌÊ Ì…iÊ  1°Ê Ê ÜœÕ`Ê iëiVˆ>ÞÊ ˆŽiÊ ÌœÊ “i˜Ìˆœ˜Ê œ…˜Ê ՘Ži]Ê /œ˜ÞÊ 7>ÀÀi˜]Ê …ÀˆÃ̜«…iÀÊ *œŽ>ÀˆiÀ]Ê ՎiÊ œÜiÀ]Ê œÀ`œ˜Ê `iÊ ÀœÕÜiÀ]Ê ˆ}>˜}Ê -œ˜}]Ê />Ž>ÅˆÊ /iÀ>`>Ê >˜`Ê ,ÞœÊ "V…ˆ>ˆ°Ê Ê Ü>ÃÊ œvÌi˜Ê ˆ˜Ã«ˆÀi`ÊLÞʜÕÀʏˆÛiÞÊ`ˆÃVÕÃȜ˜ÃÊ̜}i̅iÀ°ÊÊܜՏ`Ê>ÃœÊˆŽiÊ̜ʓi˜Ìˆœ˜Ê ˆV…>iÊ 7iÏiÞ]Ê >Ì…œÕ}…Ê …iÊ ˆÃÊ ˜œÌÊ >Ê }À>`Õ>ÌiÊ œvÊ Ì…iÊ  1°Ê Ê …>ÛiÊ i>À˜ÌÊ “ÕV…Ê >LœÕÌÊ ÕÃÌÀ>ˆ>½ÃÊ vœÀiˆ}˜Ê «œˆVÞÊ vÀœ“Ê …ˆ“Ê >˜`Ê …ˆÃÊ ÜœÀŽ]Ê >˜`Ê ˆÌÊ ˆÃÊ ÀiyiVÌi`Ê ˆ˜Ê ̅ˆÃÊ LœœŽ° ˜Ê >˜}ŽœŽ]Ê ÃÜVˆ>ÌiÊ *ÀœviÃÜÀÊ >Ž…>Àˆ˜Ê iŽÌÀ>ˆÀ>Ì]Ê i>˜Ê œvÊ Ì…iÊ >VՏÌÞʜvÊ*œˆÌˆV>Ê-Vˆi˜ViÊ>ÌÊ/…>““>Ã>ÌÊ1˜ˆÛiÀÈÌÞ]ʎˆ˜`ÞÊ>VVi«Ìi`ʓiÊ >ÃÊ >Ê ÛˆÃˆÌˆ˜}Ê viœÜÊ >ÌÊ Ì…iÊ >VՏÌÞ°Ê iÊ >˜`Ê ÃÜVˆ>ÌiÊ *ÀœviÃÜÀÊ -ˆÀˆ«œÀ˜Ê 7>Ü>ŽÕÊ ÜiÀiÊ …i«vÕÊ ˆ˜Ê “>˜ÞÊ Ü>ÞÃÊ >˜`Ê Ê ÜœÕ`Ê ˆŽiÊ ÌœÊ iÝÌi˜`Ê “ÞÊ >««ÀiVˆ>̈œ˜Ê ÌœÊ Ì…i“°Ê /…iÞÊ “>`iÊ “ÞÊ ÃÌ>ÞÊ ˆ˜Ê >˜}ŽœŽÊ «Àœ`ÕV̈ÛiÊ >˜`Ê i˜œÞ>Li°Ê Àœ“Ê ̈“iÊ ÌœÊ Ìˆ“i]Ê Ê …>`Ê œ««œÀÌ՘ˆÌˆiÃÊ ÌœÊ Ì>ŽÊ ÜˆÌ…Ê ÞœÕ˜}Ê ÃV…œ>ÀÃÊvÀœ“Ê̅iÊ>VՏÌÞʜvÊ*œˆÌˆV>Ê-Vˆi˜ViÊ>ÌÊ>Ê/…>ˆÊÀiÃÌ>ÕÀ>˜ÌÊLiÈ`iÊ Ì…iÊ …>œÊ *…À>Þ>Ê ,ˆÛiÀ°Ê ÌÊ Ü>ÃÊ v>ÃVˆ˜>̈˜}Ê ÌœÊ i>À˜Ê `ˆÀiV̏ÞÊ vÀœ“Ê ̅i“Ê …œÜÊ Ì…iÊ ÞœÕ˜}iÀÊ }i˜iÀ>̈œ˜Ê œvÊ /…>ˆ>˜`Ê ÛˆiÜÃÊ >ÃÌÊ È>]Ê ÕÃÌÀ>ˆ>Ê >˜`Ê >«>˜° Ê ÜœÕ`Ê ˆŽiÊ ÌœÊ Ì…>˜ŽÊ ̅iÊ “>˜ÞÊ «iœ«iÊ Ü…œÊ Vœœ«iÀ>Ìi`Ê ÜˆÌ…Ê “ÞÊ ÃÌÕ`Þ°Ê …>«ÌiÀÃÊ È]Ê ÇÊ >˜`Ê nÊ œvÊ Ì…ˆÃÊ LœœŽÊ ÀiÞÊ vœÀÊ Ì…iˆÀÊ VÀˆÌˆV>Ê «>ÀÌÃÊ œ˜Ê ˆ˜ÌiÀۈiÜÃÊ ÜˆÌ…Ê }œÛiÀ˜“i˜ÌÊ œvwVˆ>ÃÊ >˜`Ê Ì…iÊ Ài«ÀiÃi˜Ì>̈ÛiÃÊ œvÊ «ÀˆÛ>ÌiÊ LÕȘiÃÃÊ œÀ}>˜ˆâ>̈œ˜ÃÊ ˆ˜Ê >˜LiÀÀ>]Ê >˜}ŽœŽÊ >˜`Ê >Ž>ÀÌ>°Ê Ê ÜœÕ`Ê ˆŽiÊ ÌœÊ Ì…>˜ŽÊ >Ê ̅iÊ ˆ˜ÌiÀۈiÜiiÃÊ LÞÊ ˜>“iÊ vœÀÊ Ì…iˆÀÊ Û>Õ>LiÊ Vœœ«iÀ>̈œ˜Ê >˜`Ê ˆ˜«ÕÌ°Ê ˜Ê “œÃÌÊ V>ÃiÃ]Ê …œÜiÛiÀ]Ê Ê `ˆ`Ê ˜œÌÊ LiV>ÕÃiÊ “>˜ÞÊ œvÊ Ì…i“Ê «ÀiviÀÀi`Ê̜ÊÀi“>ˆ˜Ê>˜œ˜Þ“œÕðÊiÀi]ÊÊܜՏ`ʏˆŽiÊ̜ÊiÝ«ÀiÃÃʓÞÊ`ii«Ê >««ÀiVˆ>̈œ˜Ê ÌœÊ Ì…i“°

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!CKNOWLEDGEMENTS #ONTENTS

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1 Introduction

Australia’s foreign economic policy1 has experienced a great deal of change since the early 1980s. So too has its policy towards the Association of Southeast Asian Nations (ASEAN). In the 1970s, Australia continued to reject ASEAN’s demand for better access by its members for industrial exports to the Australian market. By the end of the 1980s, the Australian Government saw ASEAN as an integral part of an Asia-Pacific regional architecture, which was based on the concept of multilateral free and open trade and investment, and tried to work with ASEAN for that cause well into the 1990s. Since the start of the new century, Australia has been more inclined to give priority to bilateral relations with members rather than ASEAN as a whole, a move illustrated by the establishment of bilateral free trade agreements (FTAs) with some individual ASEAN members. This book focuses on the development of Australia’s foreign economic policy towards ASEAN and its members and tries to explain why it shifted as it did. It argues that the shifts in Australia’s ASEAN policy have not only closely reflected the changes in Australia’s overall foreign economic policy orientation since the 1980s, but that at times Australia’s ASEAN policy strongly drove the change. The development of Australia–ASEAN relations illustrates the importance of the shifts in

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Australia’s Foreign Economic Policy and ASEAN

Australia’s policy in sharp relief, as ASEAN has been a critical external actor in shaping the dynamics of Australia’s foreign economic policy. Australia’s foreign economic policy, in turn, has been an important factor in explaining the development of economic cooperation in the Asia-Pacific region since the 1980s. For instance, Australia’s regional economic cooperation initiative in the late 1980s culminated in the establishment of the Asia-Pacific Economic Cooperation (APEC) forum, which involves major countries on both sides of the Pacific. In creating APEC, Australia’s initiative towards ASEAN and ASEAN’s support for it were crucial. In recent years, while the “East Asian” economic integration has gained momentum following the 1997 Asian financial crisis (hereafter referred to the “Asian financial crisis”), Australia, whose inclusion in the regional integration process has remained ambiguous, has opted to negotiate bilateral FTAs to pursue its concrete economic interests. This bilateralist foreign economic policy, nevertheless, has not hindered Australia’s regional engagement. Rather, it has bestowed unexpected consequences such as the commencement of negotiations for the ASEAN–Australia–New Zealand FTA (2005) and Australia’s participation in the East Asia Summit (2005). An analysis on Australia’s foreign economic policy related to ASEAN and Australia–ASEAN relations provides a prominent vantage point for reviewing the prospect of “inclusive” economic integration in the East Asian region. Through a study of the development of Australia’s policy towards ASEAN, it is suggested that there are three crucial factors that define the shift in Australia’s foreign economic policy direction: • the relative shift in the perception of national interests away from the political/security issues towards greater emphasis on economic issues; • the emergence of ASEAN as an important part of the architecture for political-economic cooperation in the Asia-Pacific region, and; • the gradual development of ASEAN and East Asian regionalism and Australia’s stance on how it should relate to this development. These factors have induced changes in Australia’s foreign economic policy goals and preferences, and domestic policy institutions. Changes in Australia’s foreign economic policy towards ASEAN and its members have tended to be explained as natural consequences of the

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shifts in Australia’s overall foreign economic policy orientation. There is literature on Australia’s involvement in multilateral trade regimes such as the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO),2 and in economic development and cooperation in the Asia-Pacific region,3 which, in varying degrees, touches upon Australia’s policy towards and its relations with ASEAN and its members. While this literature helps explain one aspect of Australia’s policy towards ASEAN and its changes, it does not touch upon whether or how Australia’s ASEAN policy drove the shifts in its overall foreign economic policy orientation at key junctures. Moreover, since the late 1980s when “engagement with Asia” became a contentious issue in Australia’s foreign economic policy, attention was paid mainly to Australia’s relations with the “Northeast” Asian economies of China, Japan, South Korea (hereafter referred to as “Korea”) and Taiwan,4 but little to relations with ASEAN and its members, despite “the Australian government’s efforts for deeper engagement with East Asia in the 1990s focused mainly on ASEAN” (Cotton and Ravenhill 1997a, p. 3). The Australian Government and parliament, nevertheless, have been publishing reports from time to time on Australia’s relations with ASEAN and its members.5 These reports are essential literature for learning how the government and parliament viewed Australia’s relations with ASEAN and its members at the time of the reports’ publication. Yet they do not analyse the policy process because their prime focus was not on explaining how and why certain recognitions were developed.6 On the other hand, the Australian Institute of International Affairs has been conducting a longstanding project to review Australia’s foreign relations and policies, the results of which have been compiled and published periodically in book form (at five-year intervals since the 1990s).7 The general, region-by-region and issue-by-issue analyses on Australia’s foreign policy in these books are quite insightful. In terms of analyses on ASEAN policy and relations with ASEAN, however, they have some weaknesses which originate from the nature of the project. First, it is predetermined that the project’s report on the period covered is limited to one volume. Nevertheless, a shift in Australia’s ASEAN policy (in effect, a shift in its general foreign policy orientation as well) is the result of changes in its domestic policy process, which

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evolves relatively slowly. The period during which such policy change is planned, initiated and stabilized does not necessarily coincide with the period covered by the project’s reviews. Thus, it has been difficult for the project to explain the essence of change in ASEAN policy in one volume, and it has also been difficult for the book series to maintain a consistent viewpoint to explain Australia’s ASEAN policy. The second problem arises from the structure of the book. A separate chapter is usually allocated for the review of Australia’s relations with ASEAN and its ASEAN policy. While this enables the chapter to elaborate on ASEAN policy during the period covered in reasonable detail, it makes it difficult to decipher whether or not, and how, changes in ASEAN policy drove changes in Australia’s general foreign economic policy orientation. In this book, the author attempts to address this gap in the literature on Australia’s foreign economic policy. This chapter deals with four issues. First, it explains what is meant by “shifts” in Australia’s foreign economic policy. Second, it presents a rationale for focusing on Australia’s foreign economic policy towards ASEAN. Third, it points out that to fully understand the factors behind the shift in Australia’s foreign economic policy, it is vital to understand the domestic policy processes that influenced them. Fourth, it briefly outlines the evolution of Australia’s ASEAN policy. It concludes with an overview of the structure of the argument of the book.

I. SHIFTS IN AUSTRALIA’S FOREIGN ECONOMIC POLICY The foreign policy of any state is determined and executed in the pursuit of some conception of “national interest”. National interest at its most abstract level can be defined as the security and welfare of the state and people. Foreign economic policy is a tool for a government to promote mainly, but not exclusively, the welfare aspect of national interest. Since federation in 1901, Australia’s foreign economic policy has aimed at protecting and promoting national welfare (Castles 1988, p. 93; Kelly 1992, pp. 2–13; Commonwealth of Australia 1997a, 2003; Keating 2000), though there have been two notable shifts since the early 1980s in the perception of “how best” national welfare might be pursued. The first shift was a consequence of the decision in the 1980s to reform the domestic economic structure by minimalizing government

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intervention in the market. The Australian Government, especially under Prime Ministers Bob Hawke and Paul Keating, tried to transform the economy from one that was inward-looking, inflexible and specializing in the export of primary products to an open, market-responsive economy with a more diverse pattern of exports (Garnaut 1994a, p. 51). As part of the economic reform measures that were introduced, the government first floated the exchange rate of the Australian dollar and liberalized domestic financial markets, then substantially liberalized the trade and investment regime in the 1980s. The second shift in Australia’s foreign economic policy came at the turn of the century. It was not a return to the old protectionism since the economic reform that had already been implemented was too extensive to turn back. Rather, the second change has been a relative but distinctive shift towards more emphasis on bilateral relations on the basis of a liberalized domestic economic regime. In 1997, the government under Prime Minister John Howard came to adopt a sceptical stance towards multilateral regimes such as the WTO and laid emphasis on bilateral relations in Australia’s first ever foreign and trade policy white paper (Commonwealth of Australia 1997a, pp. 47, 53). These policy ideas were carried forward in the form of the government’s pursuit of bilateral FTAs since 2000. This was a substantive shift in Australia’s foreign economic policy because successive governments after World War II had never before sought discriminatory and exclusive trade deals in Australia’s bilateral (or regional) economic relations other than that with New Zealand in the early 1980s.8

II. FOCUSING ON ASEAN During the Pacific War, Asia’s geographical proximity delivered Australia an imperative political threat and the threats and opportunities of the region have been a central part of Australia’s foreign policy environment ever since. This is a situation from which Australia has no escape and is a unique element in Australia’s foreign relations. The focus on ASEAN, among all the other Asian countries, is germane from the following four perspectives. First, the influence of powers like the United States, Japan and China on Australia’s external political and economic environment is more stable than generally imagined, being constrained by interactions

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among them and not so clearly susceptible to developments in Australia. For example, the United States–Australia security framework has meant that relations with the United States have been relatively stable over the whole post-war period. Japan had become Australia’s largest trade partner by the end of 1960s, but this trading relationship was developed within the framework of the post-war international institutions and the U.S. security alliance. It is true that the conclusion of the Australia–Japan Commerce Agreement in 1957 was a landmark event for Australia, but the Agreement did not induce fundamental change in Australia’s foreign economic policy. China’s influence was more political than economic until the 1990s: Australia’s foreign policy towards China rested more upon political/security concerns than serious economic interests. Second, Australia–ASEAN relations are relations between relatively small states. From the end of World War II up to the 1960s, the difference in the level of political and economic influence on international affairs between Australia and the newly independent states in Southeast Asia was quite clear. By the 1990s, however, the difference had narrowed markedly as the result of ASEAN members’ rapid economic development and ASEAN’s growing international status as an effective regional organization. If small states were to have influence or have their voices heard in international political and economic affairs, they needed to align with powers or form coalitions and cooperate with other states on specific issues. However, relationships between small states are not necessarily always cooperative. Without a significant power imbalance between them, they may realize that there is some space in which to manoeuvre to promote their interests under the existing international system. A consequence is that foreign policies of small states towards other small states tend to be more assertive than those towards greater powers. These assertive policies, and the responses to them, often reflect small state governments’ genuine stances and policy goals in international affairs. Third, along with other economies such as Hong Kong, Korea and Taiwan, ASEAN economies were central players in the “East Asian miracle” until the financial crisis intervened in the late 1990s. The rapid development of, and growing confidence in, their economies led ASEAN to emerge as an important element in the architecture of economic cooperation in the Asia-Pacific region by the early 1990s. This was reflected in the growing sway of ASEAN’s behavioural norms and

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principles, such as consensual decision making, non-binding agreements and voluntary action, to the APEC forum. ASEAN has continued to be an important actor in East Asia following the financial crisis. It is attempting to play a central role in regional economic cooperation and the integration processes. Fourth, a series of events occurred in the latter half of the 1990s causing a shift in Australia’s foreign economic policy, and most of them were related to ASEAN or emanated directly or indirectly from ASEAN. Among these events, the failure of the initial attempt to set up an FTA between ASEAN and Australia (and New Zealand) caused the Australian Government to downgrade the priority of its ASEAN policy to a significant degree. The government began to seek bilateral routes to realize Australia’s foreign economic policy goals, including initiatives with those individual ASEAN members that were ready and willing to negotiate.

III. EXPLORING THE DOMESTIC POLICY PROCESSES As a medium-size state, Australia’s foreign economic policy has inevitably been constrained by the international and regional political economic environment in which it is situated, such as the advent and the end of the Cold War, the fluctuation in the international prices of commodities, the rapid growth of East Asian economies since the 1960s, the Asian financial crisis in the late 1990s and, over the last decade, the emerging tendency towards regionalism in East Asia. In general, policies of small and medium-size states are incapable of exerting significant influence on the international system. Independently, they do not have the leverage to have a major impact on what powers like the United States, the European Union (EU), China or Japan do, nor do they have, by themselves, strong bargaining power at international organizations dominated by these powers. In examining Australia’s foreign economic policy, it is important to define the environment in which the government has had to operate. The international and regional environment and its changing nature, nevertheless, do not leave governments without policy options. In fact, the foreign economic policies of smaller states have rarely been the same in substance, timing and levels of commitment. The significant difference in the nature and timing of the foreign economic policies of Australia

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and New Zealand over the last three decades is a prime example. It is more realistic to view international circumstances as setting limits on the policy options that the governments of smaller states can practically pursue. And, in deciding which policy option they should adopt, as well as how much they should commit themselves to whatever policy option is adopted, domestic policy process matters. To understand Australia’s foreign economic policy and the changes that have taken place in it fully, international-level analysis will not suffice. The evolution of domestic policy processes including policy institutions and the participation of state and society actors9 is important. State actors try to influence policy institutions, including ideas, norms and bureaucratic policy-making procedure, to realize their policy preferences based on their perceptions of national interest and how best they can be achieved. Yet policy positions cannot be sustained without support from domestic constituencies. Thus, state-society relations need to be brought into the analysis to understand what drives shifts in policy position. The book argues that relative shifts of power among domestic “state-society coalitions”, which share basic beliefs on policy ideas (i.e. concepts of causal relations between policy goals and the ways to realize them), have formed the basis for changes in Australia’s foreign economic policy. Changes in dominant coalitions represent a key factor of Australia’s foreign economic policy re-orientation: more emphasis on the economic perspective of national interest, appraisal of ASEAN as an integral part of the Asia-Pacific economic architecture and the perception on how Australia should relate to East Asia. The dominant power of a traditional state-society coalition for protection of domestic industries (the “protectionists”) began to erode in the early 1970s, but its influence remained into the early 1980s. The 1980s saw the ascendancy of another coalition that aimed for liberalization of domestic as well as international economic regimes as a dominant coalition (the “trade liberalizers”), causing the first shift in Australia’s foreign economic policy. Their concept of “open regionalism” saw the main regional focus being put on the Asia-Pacific region as a springboard to multilateral and nondiscriminatory liberalization. The trade liberalizers used a distinctive “Asia-Pacific regionalist” strategy to realize policy goals. In the latter half of the 1990s, another coalition emerged. This coalition put emphasis on achieving short term, concrete and reciprocal economic benefits through

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discriminatory trade and investment arrangements (and relatively less emphasis on multilateral, non-discriminatory liberalization) than the trade liberalizers. This coalition (the “bilateralists”) consolidated its position and came to the centre of Australia’s foreign economic policymaking by the mid-2000s.

IV. THE EVOLUTION OF AUSTRALIA’S ASEAN POLICY IN BRIEF The Formation of ASEAN and Emergence of Australia’s ASEAN Policy For the whole period since the end of World War II, Southeast Asia has been an important region for Australia. As the main theatre in the Pacific War and source of uncertainty after the War, its importance was based essentially on political/security considerations rather than economic relations until the 1970s. Because of instability in the region following post-war independence and the ensuing period of nation building, coupled with limited export and investment opportunities in the region at the time, the region was inevitably seen mainly in the Cold War framework. Successive Australian Governments saw the region essentially in security terms and as a subject of development assistance. Helping to develop Southeast Asian economies was considered as a useful policy in creating a stable region and preventing the triumph of communism. ASEAN was established in 1967, mainly to develop the regional stability — peaceful relations among members as well as the security of the region as a whole — that was thought necessary for each member’s national development. The establishment of ASEAN, however, did not have any immediate effect on changing the Australian Government’s perception of and policy towards the region. In the early 1970s, Prime Minister Gough Whitlam began to re-position Australia’s foreign policy orientation. In relations with Southeast Asia, the government disengaged from Vietnam and supported ASEAN’s “Zone of Peace, Freedom and Neutrality” (ZOPFAN) initiative. Australia became the first single Dialogue Partner of ASEAN in 1974. In the early 1970s, Australia’s ASEAN policy emerged for the first time.

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Though Australia attempted to establish closer relations with ASEAN in the 1970s, the decade, and especially the latter half of the 1970s, was marked by continuous economic disputes with ASEAN over Australia’s trade policy. Steady industrialization saw the ASEAN economies develop competitiveness in labour-intensive products such as textiles, clothing, footwear, timber and furniture by the mid-1970s. ASEAN demanded better access to the Australian market for these products. The Australian Government, led by Prime Minister Malcolm Fraser, rejected the demand and maintained tariff rates and import controls that were disadvantageous to ASEAN. Instead, it offered aid packages and a consultation mechanism to sort out problems between Australia and ASEAN. The Australian Government’s reluctance to remove protectionism was a major inconsistency in its policies towards the region. Australia had long been arguing that it was better for developing countries to develop their economies through trade and foreign direct investment (FDI), rather than depending on development assistance from overseas. But when it came to extending ASEAN’s access to the Australian market it was not forthcoming.

Australia’s Economic Reform and the Rapid Growth of ASEAN Economies After the global economic slump in the early 1980s, ASEAN economies recovered strongly effecting in the process significant structural change. Following the rapid appreciation of their currencies against the U.S. dollar,10 manufacturers in Japan, Korea and Taiwan re-located a significant part of their production and export base to ASEAN economies. By the end of the 1980s, this saw the annual growth rate of ASEAN exports as a whole surpass the world average. Trade between Australia and ASEAN also increased sharply over the same period. Importantly, to sustain economic growth propelled by FDI inflows and export expansion, ASEAN members gradually began to liberalize their trade and economic regimes as well as to promote multilateral liberalization within the framework of the GATT. Australia also needed to maintain and promote free and open international trade and investment to underpin structural reform of its domestic economy which had begun in the first half of the 1980s. The government found ASEAN and its members as partners in this cause.

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The Australian Government set a foreign economic policy objective to promote global freer trade via cooperation with the Asia-Pacific economies, as seen in its initiative to establish APEC. Participation by ASEAN in APEC became crucial not only because the ASEAN members still maintained relatively high protection, but also it was a de facto condition for Japan’s participation. Australia, along with Japan, played a central role in persuading ASEAN members to join the forum. To ease ASEAN’s concern that such a forum might erode its influence on regional affairs, Australia assured that ASEAN would remain the preeminent body in the region and accepted the “ASEAN way” of regional cooperation as a modality for the new official Asia-Pacific forum. Australia’s abandonment of its protectionist policies and ASEAN’s enmeshment in the global economy brought the two closer together. Australia’s traditional preoccupation with political/security relations with the region receded and closer economic relations became a primary focus.

ASEAN and East Asian Regionalism and Australia’s Response While Australia and ASEAN were finding common interests, ASEAN was also seeking economic cooperation frameworks in East Asia that excluded Australia. Although Malaysian Prime Minister Mahathir bin Mohamad’s proposal in 1990 for the creation of the East Asia Economic Group (EAEG, consisting of ASEAN members, China, Japan and Korea) did not make much progress in the 1990s, ASEAN embarked on the process of creating its own regional trade arrangement, the ASEAN Free Trade Area (AFTA), in 1993. This move was primarily prompted by ASEAN’s reaction to European and American moves in fortressing the EU and the North American Free Trade Agreement (NAFTA) and the trend of FDI flows away from the region to destinations such as China and Eastern Europe. In fact, the creation of AFTA might have had a negative impact on Australian exports to, and investment in, the region. Australia’s response to AFTA was to build closer economic cooperation with ASEAN through active involvement in the new consultation framework that came to be known as the “AFTA–CER linkage dialogue”. Since the inaugural Ministerial Consultation in 1995, a multi-layered structure for consultations involving ministers,

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government officials and businesses of ASEAN and CER members has gradually developed. The onset of the Asian financial crisis in 1997 and subsequent events impacted on Australia–ASEAN relations yet again. First, in the process of economic reconstruction, East Asian regionalism — the idea that East Asian states would have to cooperate more effectively to deal with regional problems — gathered strength with much wider and stronger acceptance of East Asia as a region than in the decade earlier when the EAEG was proposed. Second, in 1999, at the same time as East Asian regionalism was on the rise, ASEAN proposed to set up a task force to study the feasibility of an FTA with Australia and New Zealand by 2010. In ASEAN, the proposal was seen as an initiative to bring foreign investment back into the region after the financial crisis. A year later, despite the task force’s strong recommendation to start negotiations of an FTA immediately, the AFTA–CER Ministerial Consultation shelved the idea indefinitely because of objections mainly from Malaysia and Indonesia. The resurgence of East Asian regionalism and the failure to start talks on an AFTA–CER FTA led the Australian Government into the first steps towards a bilateral FTA strategy. Prime Minister Howard announced the agreement to commence FTA negotiations with Singapore in late 2000, and negotiations with Thailand and the United States followed soon after. The Howard Government’s bilateralist foreign economic policy effectively meant the adoption of a “divide and conquer” approach towards ASEAN, which the previous governments had been very careful to avoid because the ASEAN framework had been seen as so important to regional stability.

V. STRUCTURE OF THE BOOK This book focuses on the development of Australia’s foreign economic policy towards ASEAN mainly since the 1970s and seeks to explain why it shifted as it did. It argues that the major shifts in Australia’s foreign economic policy orientation have been the consequence of changes in dominant state-society coalitions in the policy area. It further argues that the development of Australia’s relations with ASEAN and its members and its policy towards them not only closely reflected these shifts but also drove them at some key points.

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The analysis and arguments in the book are mainly based on published primary and secondary sources, such as inter-governmental treaties, agreements, declarations and statements; reports, papers and other documents by governments and private organizations; academic books and papers; and various media articles. In order to follow up contemporary development of Australia’s policy towards and relations with ASEAN since the mid-1990s, personal interviews with Australia’s foreign economic policy actors were also conducted. These interviews were undertaken intermittently between 1997 and 2006. The interviewees included officials in the Department of Foreign Affairs and Trade who were directly involved in the AFTA–CER linkage dialogue and FTA negotiations with individual ASEAN members, and representatives and heads of trade policy sections of major private organizations such as the Australian Chamber of Commerce and Industry, the Australian Industry Group and the National Farmers’ Federation. In the end, more than seventy interviews were conducted but not all of them are referred directly in the book because of overlapping statements. The names of interviewees are not identified as most of them preferred to remain anonymous; instead, their positions and affiliations are specified. The rest of the volume is structured as follows. Chapter 2 sets out a framework for analysing the formation of foreign economic policy in small states like Australia. There are two elements underpinning the shifts in Australia’s foreign economic policy. One is the impact of changes in the international and regional environment and the other is government’s policy response to it. The international system and developments within it set the constraints within which Australian policy-makers have to operate and set a range of practical policy options. Policy choice within that range of options is embedded within the domestic policy process and shaped by the various political coalitions that affect state action. Chapter 3 looks at how the setting in which coalitions influencing Australia’s foreign economic policy-making evolved. The aim here is to provide an overview of the drivers of Australia’s foreign economic policy before examining in detail how it shaped relations with ASEAN in the following chapters. The remaining chapters examine how the policy ideas of dominant state-society coalitions were incorporated into Australia’s approach to ASEAN. Chapter 4 explores the establishment of ASEAN in the 1970s.

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The government led by Whitlam tried to create new relations with Southeast Asia as a part of a drastic change in foreign policy orientation. Despite Whitlam’s efforts, there were continuing economic disputes between Australia and ASEAN in the latter half of 1970s. ASEAN demanded freer access to the Australian market for newly competitive labour-intensive exports, but the Fraser Government that succeeded Whitlam was unable to meet ASEAN’s demands. As ASEAN members remained at an early stage of economic development in this period, Australia’s domestic interests and perceptions of ASEAN remained essentially unchanged. In other words, the traditional “protectionists” still prevailed as the dominant state-society coalition in the 1970s. Chapter 5 traces the remaking of Australia’s ASEAN policy and explores the reasons why it happened. While the terms of trade did not improve much for almost a decade after the early 1970s, the protectionist coalition finally lost its dominant influence in the early 1980s. The “trade liberalizers” came to the centre stage of foreign economic policy-making. The emphases were on the reform of domestic industrial structure and multilateral liberalization through close economic cooperation with the Asia-Pacific region. ASEAN also needed a freer international trade and investment regime to sustain and promote growth momentum. On these issues, common economic interests emerged between Australia and ASEAN. The trade liberalizers with an “Asia-Pacific regionalist” strategy led Australia into active involvement in the GATT Uruguay Round negotiations (1986–93) and the establishment of APEC (1989), taking ASEAN as an important partner in both endeavours. Chapter 6 deals with ASEAN regionalism in the 1990s and how Australia responded. First, it reviews the development of ASEAN regional cooperation as it laid the foundation for the emergence of ASEAN regionalism in the 1990s. While the Australian Government embarked on “comprehensive engagement” with Southeast Asia and managed to bring ASEAN into APEC, ASEAN began to establish its own FTA; the AFTA. Australia’s response was the promotion of the AFTA–CER linkage dialogue, which did not aim at forming an exclusive economic bloc. In this period, the trade liberalizers with the Asia-Pacific regionalist strategy were still the dominant force in Australia’s foreign economic policy-making. Chapter 7 takes up the story of the emergence of the “bilateralist” coalition and its ASEAN policy. The bilateralists gradually consolidated

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Introduction

15

their position when the multilateral and regional approaches such as the WTO, APEC and the AFTA–CER linkage dialogue apparently failed to deliver on key Australian interests in the latter half of the 1990s. In the process of reconstructing their economies after the financial crisis, ASEAN pursued the interest in economic integration with China, Japan and Korea. Under these circumstances, the Australian Government’s drive towards bilateral FTAs, including those with ASEAN members, implied that ASEAN as an entity had lost its policy priority. The “divide and conquer” approach adopted by the government towards ASEAN appeared successful in establishing “beachheads” into Southeast Asia. So far, Australia’s bilateralist approach to pursuing practical economic gains does not seem to have hindered its regional engagement. Rather, it has brought unexpected results which promote Australia’s participation in multilateral economic cooperation frameworks in East Asia. Chapter 8 brings the analysis and its insights together and offers some general conclusions. The implications for Australia’s foreign economic policy in the future are also raised.

Notes 1. “Foreign economic policy” is defined in this book to include government actions that have impact not only on the domestic economy but also on other states through the production and distribution of goods and services, and the movement of capital (including foreign direct investment [FDI]) across national borders. It includes government policies on multilateral processes such as the GATT/WTO, bilateral initiatives such as trade and investment arrangements and policies that can be decided and implemented unilaterally such as export promotion, import restriction through tariffs or quotas, tariff reduction and deregulation of foreign currency exchange, and investment policies (Destler 1980, pp. 7, 129–33). 2. For example, see Crawford (1968), Snape et al. (1998) and Capling (2001). 3. For example, see Drysdale (1988), Harris (1994), Tweedie (1994) and Terada (1999b). 4. The government assigned report by Ross Garnaut, Professor of Economics at the Australian National University, published in 1989 (Australia and the Northeast Asian Ascendancy) and the subsequent policy debate are indicative of this point. See Garnaut (1989) and Richardson (1991a). 5. See, for example, Joint Committee (1984), EAAU/DFAT (1992, 1994a, 1994b) and Joint Standing Committee (1993, 1995, 1998).

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6. Recent publications of this kind include Goldsworthy (2001) and Edwards and Goldsworthy (2003). These two volumes are comprehensive accounts of Australia–Asia relations in the twentieth century, but they do not focus solely on relations with ASEAN (or Southeast Asia). They also lack an analysis on the domestic policy process to explain how Australia’s foreign policy goals and preferences were formed. 7. Examples of the project’s publications are Boyce and Angel (1992) and Cotton and Ravenhill (1997b, 2001b, 2007b). 8. A comprehensive FTA between Australia and New Zealand, the Australia New Zealand Closer Economic Relations Trade Agreement (often referred to as the “CER”) came into force in 1983. 9. State actors are defined as policy actors who belong to the state governing structure (legislative, administrative and judiciary branches). In this book, which deals with foreign economic policy, “state actors” indicate political leaders, senior bureaucratic officials and other actors in the administrative branch of the government. “Society actors” refer to other actors who participate in the policy process and mainly refer to interest groups, nongovernmental organizations, policy-oriented academics and the media. 10. The Japanese yen appreciated 33 per cent against the U.S. dollar between 1986 and 1990. In the same period, the Korean won and the Taiwan dollar appreciated 20 per cent and 29 per cent respectively.

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2 An Analytical Framework

As the economic interdependence of countries continues to deepen and become more complex, it is widely acknowledged that it is difficult to draw a sharp line between foreign and domestic economic policies. Both international and domestic factors matter in foreign economic policymaking. Yet how domestic policy processes matter in explaining the foreign economic policies of states remain major questions in international relations theory. An important question is whether individual intention or circumstantial constraints are the primary factor in explaining states’ foreign policy behaviour. This chapter sets out a framework for analysing the formation of, and changes in, Australia’s foreign economic policy. First, the international system is seen as the environment in which a state like Australia, which alone does not normally possess the capability to have a major impact on the international system, must operate. For Australia, international environmental factors inevitably restrict foreign economic policy choice. In most cases, Australia has to react to, rather than try to exercise control over, changes in the international environment.1 Second, while the international environment does restrict the foreign policy behaviour of a smaller state, this does not necessarily mean that the environment forces a state to take one particular approach on

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particular policy issues. Rather, the international environment imparts a certain range of foreign economic policy options that a smaller state can pragmatically pursue. Within this range of policy options, a state like Australia, for example, can attempt to realize its policy goals by choosing a policy (or a set of policies) that it perceives as being in its best interest. Third, the state’s choice of foreign economic policy is influenced by how it relates to the domestic society and polity, represented mainly by a variety of societal and political interest groups. State-society relations need to be brought into consideration in the explanation of foreign economic policy formation. As a state tries to implement policies according to perceptions of contemporary and future domestic needs, it has, to a certain degree, to be receptive to policy demands of the societal and political interest groups. But the state is not a mere agent of domestic interest groups. It can play a role in forming policy preferences on how best policy goals can be achieved through certain ideas, knowledge and processes. The concept of “state-society coalitions”, which share basic beliefs in certain policy ideas, in the domestic policy process provides a useful approach to state-society relations. The formation of domestic coalitions and changes in dominant coalitions can cause changes in policy ideas, which in turn will lead to shifts in a state’s foreign economic policy.

I. THE INTERNATIONAL SYSTEM AS A CONSTRAINT ON POLICY BEHAVIOUR System-level Approaches The 1970s saw the emergence of structural theories to explain the relations between the international system and the individual state’s behaviour. “Structural realists” define the structure of an international system as being the arrangements of its parts which are determined by its principal parts, and other states are assumed to act along with these arrangements made by powers (Waltz 1979, chap. 5). Then, they assume that the fundamental principle of the international system is “self-help”, rather than the maximisation of power as suggested by traditional realists (Waltz 1979, p. 126). When “rational” states decide

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how to act externally, they do so with consideration and anticipation of how other states react and what consequences it will bring. Relativity of states’ capabilities, or distribution of capabilities, will significantly influence states’ decision making (Waltz 1979, p. 97). If distribution of capabilities changes so does states’ anticipation and expectation, therefore their foreign policy behaviour.2 The point of the structural realists’ argument is that, under the assumption of self-help, states’ behaviour can be explained by the distribution of capabilities alone, which is a system-level variable. In other words, unit-level variables such as states’ attributes and interactions do (or should) not matter when explaining their foreign policy. Cooperative behaviour from states can only be expected when there is a hegemon that is capable of, and willing to, provide and maintain “international public goods” such as security alliances and sets of rules for international economic transactions (Kindleberger 1973; Gilpin 1981, 1987; Hasenclever et al. 1997, chap. 4). “Liberal institutionalist” theories draw on a different explanation of states’ activities though they share major propositions with realist theories: the structure of an international system is seen as a primary determinant of states’ foreign policy and states act rationally to pursue their individual interests (Keohane 1984, chap. 5). The difference originates from their emphasis on the effects of the deepened interdependence among states.3 The international system consists not only of military/ political power but also economic power, which is the distribution of economic activities and wealth.4 Since the end of World War II, flows of goods, services, capital, technology and information across borders have dramatically increased due to rapid and continuous technological developments in transportation and telecommunication. These flows have significantly deepened economic interdependence among states. Economic interdependence has altered the traditional ways of pursuing national interest in international relations, as it provides states opportunities to demand policy change of others or to invoke sanctions if they continue to be uncooperative. This is possible because, under deepened interdependence, the fate of a state, as well as its economy and society, is intertwined with that of other states (Duffy and Feld 1980). Destruction of economic interdependence would be too costly for any state to contemplate. Each state cannot decide and implement its foreign economic policy and achieve its economic goals

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without taking the impacts of other states’ policies towards itself into consideration (Morse 1976). This argument about rationality in states’ cooperative actions without the existence of a hegemonic power was incorporated into liberal theories of international regimes (Krasner 1983; Keohane 1984; Hasenclever et al. 1997, chap. 3).

The Limits of System-level Analyses How relevant are these systemic approaches to explaining states’ foreign policy behaviour to explaining Australia’s foreign economic policymaking? The two assumptions that systemic approaches postulate seem to hold: national governments of sovereign territorial states act as main actors in international relations, and they act to achieve their policy goals. Although the importance of the influence of multinational enterprises and transnational coalitions of environmental, ethnic, religious or other non-governmental organizations on states’ foreign policy decision making has increased significantly since the 1990s because of economic globalization and the end of the Cold War (Huntington 1993; RisseKappen 1994, 1995; Wapner 1996; Hirst and Thompson 1996), sovereign states are still seen to be the most appropriate agents for improving the welfare of their population. Moreover, international organizations, or regimes, cannot function properly without the political legitimacy and authority given by individual states. Systemic theories seem able to explain general differences in activities between powers (for example, the United States) and other states (for example, Australia) through capability distributions, as it explains what powers can afford to do that other states cannot.5 What they do not explain is how the foreign policy behaviour of states with similar capability distribution can differ. According to both realist and liberal arguments, states with similar capability should act similarly, irrespective of their unit-level differences. Yet it seems those cases are rare in reality. The foreign policies of Australia and New Zealand over the last three decades are typical cases. While they share relatively similar historical and cultural background, geographic location, economic structure and governmental institutions, the contrast between their stances towards security policy, especially their relations with the United States under the ANZUS treaty, has been stark (Thakur 1991, pp. 247–55). There are differences in their foreign economic policies as well. Over the

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last twenty years, both governments have emphasized the importance of freer trade and investment regimes for their respective economies, but the substance, levels of commitment and timing of their policies have been very different. These behavioural differences were clearly reflected in their policies towards FTAs in recent years (Hoadley 2003; Okamoto 2003). Several causes of this insufficiency in structuralist theories can be pointed out. First, emphasis has often been placed on theoretical parsimony. Most structuralist attempts to theorise about the foreign policy behaviour of states have tried to retain, or compete with, the parsimony and scientific rigour of original structural realist models. Second, partly due to the traditional predominance of “high politics” as the subject of international relations study, the theoretical literature tended to focus on great power perspectives. Third, excessive reliance on the “rational choice” assumption, which can often be observed in game theories, resulted in incomplete explanations of smaller states’ behaviour. Trying to explain every state activity only with maximization of subjective expected utility is not sufficient since it does not provide insights into the “preferences” the state had or how those preferences have been developed. While rationality cannot be discarded when analysing states’ choices of policies, the problem is that if too much emphasis is placed on rationality, it then leads to the exclusion of flexibility (or rigidity) of states’ policy preferences from the analyses and the treatment of policy preferences as givens (Richardson 1991b, p. 31). To explain differences in smaller states’ foreign policy behaviour in a given environment, unit-level variables need to be brought into the analysis. In other words, states’ domestic policy processes matter in explaining their foreign policy activities (Moravcsik 1997). The international environment and its change have strong influences on smaller states like Australia. As Biersteker (1992, p. 113) argues “states that adapt their economic policies to respond receptively (both flexibly and favourably) to these changing global conditions will do well, or at least have a better chance of doing well, in the increasingly competitive world economy”. But the international environment does not necessarily force a state to take one particular approach towards a respective policy area as illustrated by the cases of Australia and New Zealand. Gourevitch (1978, p. 911) stated:

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However compelling external pressures may be, they are unlikely to be fully determining. The choice of response therefore requires explanation. Such an explanation necessarily entails an examination of politics: the struggle among competing responses.

It is more appropriate to see the international system as an environment in which smaller states must operate to achieve their policy goals than as the sole determinant of their foreign policy behaviour.6 Smaller states have some choices in some areas of decision making. Just how much depends on what areas of decision and under what circumstances (Gourevitch 1991, p. 228).7

II. THE FOCUS OF DOMESTIC POLICY PROCESSES: STATE OR SOCIETY? How do states choose their policies? The arguments on this question have been coloured by the controversy over whether individual volition or circumstantial constraints are the primary locus of explanation. The former takes states’ political, economic, and social attributes and policy-making processes as independent variables to explain foreign policy outcomes as a dependent variable (“inside out” approach, or second image in Waltz 1959); the latter reverses the causal relationship (“outside in” approach or second image reversed in Gourevitch 1978). These approaches presuppose that foreign policy and domestic politics are separate phenomena. But as the deepening interdependence of intricate and complex domestic and foreign policies occurs, this presumption does not readily hold. Analysis of what outcomes come about through what process in these complex interactions needs to be carefully focused. Policies are supposed to depend on numerous factors such as policy-makers’ priorities and preferences in a given policy area, domestic institutions, and the power balance among domestic constituencies. How then are these factors formed? Traditionally, the major determinant of the formation of domestic policy preferences, priorities, and institutions was seen as either the state or society. The former consists of the structure of political authority [primarily individuals and political party(-ies) in power and the state bureaucracy] and the latter consists of societal interest groups which represent the relations of the various arms of production (including industry, finance, commerce, labour, and

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agriculture) (Katzenstein 1978a, p. 19). In recent years, NGOs have also become important interest groups in various policy areas.

Society-centred Approaches Foreign economic policy can have significant consequences for the material interests of societal groups such as industry organizations and labour unions. Taking trade policy as an example, import expansion can provide both a positive and negative impact on the domestic economy. It can offset local shortages of goods and services, and provide competition to local import-competing industries. Competition with imports can provide incentives to local import-competing industries for more efficient production and marketing. At the same time, if those industries fail, competition induced by imports can displace jobs and, in the worst case, force firms to bow out of production. So they tend to group to defend their interests under threat of import competition. Societal interest groups try to influence policy-makers as much as possible to make and implement economic policies that serve their interests. In this pluralistic society-centred approach, foreign economic policy is explained as the result of ongoing competition among domestic societal and political groups (Lindblom 1977; Milner 1988; Rogowski 1989; Rogers 1993; Frieden and Rogowski 1996). State actors are viewed basically as intermediaries, or agents, creating policies according to political pressures, or sometimes threats, exerted by interest groups. Political leaders involved in the foreign economic policy process have their own bases of political and societal support such as their electoral constituencies and certain interest groups. Depending on their support bases, leaders’ roles, responsibilities, priorities and perceptions can be expected to differ. Policy outcomes would therefore depend on who (and whichever group the political leader represents) is most influential in the decision-making process. Decision making in foreign policy can be seen as a process of bargaining, persuasion and the formation of coalitions among the participants. This intra-governmental process model was applied by Neustadt (1960), Lindblom (1965) and Allison and Halperin (1972), among others. Policies must attract support from those constituencies in the society upon whose votes political leaders ultimately depend. Frieden (1988) took the U.S. inability to take leadership in the

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international political economy in the inter-war period, and explained it as being due to the unevenly distributed economic interests within the U.S. society.8 Through his two-level game approach, Putnam (1988) argued that a political leader negotiating an international agreement has to conform to the need of domestic constituencies. In other words, any international agreement must fall within a certain range of acceptable contents (“win-set”) of domestic constituencies to succeed.

State-centred Approaches In clear contrast to these lines of argument, a state-centred approach does not see the state as a mere agent of societal interest groups. State actors are the main players of the policy process and they decide foreign policy according to their policy goals and preferences, which do not necessarily coincide with domestic sectoral interests. Early realist literature emphasized that decision making and the implementation of foreign policy were conducted by leaders of states. To realize “national interest” defined as power, traditional realists like Morgenthau relied on well-trained leaders and diplomats as independent variables.9 In this approach, the rationality and human nature of policy-makers were taken as the most important factors of foreign policy-making. In contrast, Waltz (1959, pp. 80–81) looked at the state as a whole as an important determinant of foreign policy, stating: “since everything is related to human nature, to explain anything one must consider more than human nature. The events to be explained are so many and so varied that human nature cannot possibly be the single determinant”. Allison (1971) pointed out that the traditional “rational actor” model, which relies heavily on leaders to make decisions through choosing rationally among available options, is not adequate to provide a full understanding of foreign policy decisions. By introducing the “organizational process” (bureaucratic procedure) model, which deals with the political process within government, he explained different dimensions of the U.S. and the Soviet decision-making processes that could not be explored by the traditional model that relied on human nature. Katzenstein (1976, 1978b) and Krasner (1978a) argued that the state played the central role in policy processes. The main point of their argument is that the state has its own needs and goals, which cannot be reduced to specific societal interests (Krasner 1978a, p. 333).10 The

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state pursues “national interest” that is related to general societal goals, and as such has a consistent ranking of importance over time (Krasner 1978a, pp. 13, 35). Ikenberry et al. (1988, p. 10) took the state as a whole as an actor in foreign policy process in a broad sense. Political leaders, senior bureaucratic officials, policy advisers and so on are viewed as individual participants (policy-makers) within the process. Policymakers are assumed to represent the concept of “national interest” and participate in the policy-making process not so much as agents of any particular groups in the society. Rather, they tend to take actions to achieve the policy objectives that they believe are most beneficial. Lake (1988, pp. 56–57) also emphasized the relative autonomy of states in his article on U.S. trade policy-making in the late 1890s. Furthermore, state policy-makers are in the position to be able to make links between foreign economic policy of their own and other states and tie certain policy issues to a larger set of international issues. By doing so, they can bargain to realize the state’s overall interests (Ikenberry 1988, pp. 167–71). Although constrained by the international environment and the domestic societal pressures, the state has relative autonomy in pursuing policy objectives and a particular societal group cannot pursue them.

III. STATE-SOCIETY COALITIONS: BRINGING THE BI-DIRECTIONALITY OF STATE-SOCIETY RELATIONS INTO ANALYSIS It seems that an analysis that depends solely upon either a societycentred or state-centred approach is not easily able to grasp the bidirectional nature of influences between the state and society. On the one hand, state actors need to be receptive to the demands of society, in particular that of their direct constituencies; on the other hand, they are in a unique position that enables them to set policy goals, to form policy preferences for realizing these goals and to mobilize support from the society.

“Strong” State, “Weak” State One of the attempts to accommodate the bi-directionality of influences in state-society relations from the state-centred perspective is to focus on

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the “strength” of the state in asserting its policy goals and preferences over the society. Krasner (1978a, chap. 3) argued that the strength of the state in relation to its own society can be envisioned along a continuum ranging from “weak” to “strong”. Weak states’ foreign policies are dominated and restricted by societal forces such as public opinion, interest groups, and parliament and bureaucracy with members and officials who strongly support their constituencies’ demand. As a result, these states are unable to reflect their own policy preferences, even if they had them in the first place, in their foreign policies. On the other hand, strong states are independent of societal demands and pressures so that they can have autonomy in reflecting their policy preferences in their foreign policies. Actual states are supposed to fall between the two extremes of the continuum. The difference between weak and strong states is assumed to originate from their institutionalized political structure such as federalist structure, the system of checks and balances between legislative and administrative branches of government and the network of interest group representation (Müller and RisseKappen 1993, p. 34). This “weak–strong” state approach has several problems in examining foreign economic policy of a state. First, weak–strong categorization may be useful for understanding general characteristics of states for comparative purposes,11 but, as Krasner (1978a, p. 58, 1978b) admitted, the same state’s ability to assert its policy goals and preferences over the society differs from issue to issue and over time.12 In explaining shifts in foreign policy, for example, this approach may be able to indicate a strengthened (or weakened) influence of the state (or society) in certain issue areas, but does not necessarily explain why the states’ (society’s) influence strengthened (weakened). Second, this approach seems to rely too much on the institutionalized political structures of states. For this reason, it neglects the question of how particular policy goals and preferences are developed both in the state and society. Third, the approach still takes the state and society as the two factors which are potentially and directly antagonistic in foreign policy decision-making process. As mentioned earlier, a state is in a unique position that allows it to manipulate and mobilize support for its policy goals and preferences from societal interest groups, and interest groups that can expect a better chance of realizing their interests by aligning with appropriate parts of the state. Instead of focusing on

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either the state or society, “coalition building” between them should be brought into the examination to better understand state-society relations.

Advocacy Coalitions State-society relations in foreign economic policy-making are best understood in terms of certain cooperative structures between the state and society, rather than as a continuous power game between the state and society. A number of approaches from the perspective of coalition building between the state and society have been suggested and discussed in the foreign policy literature (Katzenstein 1985; Gourevitch 1986; Hagan 1987; Rogowski 1989; Solingen 1998). Sabatier and JenkinsSmith (1993) developed the concept of “advocacy coalitions”, mainly to explain U.S. and Canadian domestic public policies such as those on education, environment and airline deregulation. Kunkel (2003) showed that this basic framework was useful in explaining how the shifting U.S. trade policy towards Japan in the 1980s and 1990s was formulated. The advocacy coalitions approach has some unique features. First, it takes several coalitions, consisting of a variety of actors from public and private institutions in a particular issue area as a policy subsystem. By doing so, it avoids traditional “either-or” frameworks. In this approach, the main units that compete for the realization of preferred policies in an issue area are these coalitions, not the state and society. Second, the approach uses “belief systems”, rather than material interests, as the basis of a coalition. The set of interests and policy goals, and perceived causal relationships constitute a belief system. By focusing on shared belief systems, this approach can also bring “social constructivist” perspectives (Wendt 1992, 1994, 1995, 1999; Katzenstein 1996; Ruggie 1998, 1999) to bear on the analysis of states’ foreign policy behaviour. The identity and other beliefs formulated in cultural and historical contexts can form policy goals and preferences.13 In explaining Australia’s ASEAN policy and the change in it, Australia’s identity and the perception of how Australia should relate to the region seem to carry significant weight because of Australia’s unique history as a “rich, white country” at the southern edge of Asia.

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Third, this approach hypothesises that policy changes are the products of two interactive forces: changes in dominant “state-society coalitions” in an issue area and changes external to the coalitions. This assumption seems to suit particularly well for an analysis of smaller states’ foreign policy behaviour, inevitably constrained by the international environment as it is.

A “State-Society Coalitions” Approach In this book, a “state-society coalitions” approach, which follows the basic concept of advocacy coalitions but re-interprets and simplifies some parts of the original approach, is applied as a framework for the analysis of Australia’s foreign economic policy towards ASEAN. In the advocacy coalitions approach as explained earlier, policy actors in a coalition share a set of interests and policy goals and perceived causal relationships. Herein, members of a state-society coalition are considered to share a certain “policy idea”, which is defined as “the perception of causal relationships between policy goals and policies that are the most effective in realizing the goals”.14 This definition is intended to explicitly highlight the following aspects in the analytical framework: (1) state-society coalitions not only seek to reflect their members’ (material) interests in policy goals but can also share longerterm policy goals (national interest) related to general societal interests, and (2) coalitions share policy preferences as well as policy goals. While the advocacy coalitions approach separates the beliefs shared by the coalitions into three types (Sabatier 1993, pp. 17, 30), policy ideas herein are separated into two categories according to their resistance to change. The first category consists of the “core” policy ideas. In the context of foreign economic policy, ideas on which economic system is best for the national economy and the promotion of the living standards of the people fall into this category. Whether to choose protectionist policy or free trade policy for national welfare purposes, multilateral liberalization or bilateral, and whether to prioritize short term or long term gains all fall into this category as well. It is assumed that a certain understanding of international society, or a worldview, exists behind certain policy ideas. In other words, policy ideas reflect policy actors’ basic perceptions of how international relations operate: whether international society is seen

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from a realist perspective or a liberal one. Differences in such perceptions affect the level of confidence that the state-society coalition places in the functioning of international organizations and regimes (such as the United Nations and the GATT/WTO) and international laws. The second category consists of concrete ideas on policy measures which play a supporting role in the implementation of the core ideas of the first category. In a state-society coalition that posits protection of domestic industries as its core policy idea, decisions on appropriate protection (which industries to protect, how to protect them and to what degree to protect them) would fall into this second category. If trade and investment liberalization were the core ideas, then the concrete ideas would consist, for example, of whether to liberalize all industrial sectors across the board or to set priority sectors, and whether to liberalize quickly or gradually. Actors in state-society coalitions include not only state institutions and societal interest groups but also journalists, academics and policy analysts who are actively concerned with a policy problem and seek to influence governmental decisions (Sabatier 1993, pp. 16–17). Members of a coalition are not necessarily affiliated with the same political groups such as political parties and interest groups.15 Policy actors from the same group may join different coalitions depending on policy issues. State-society coalitions, in principle, are virtual entities and do not necessarily have a formal organization or institutions of their own such as committees or regular meetings. Based on their shared policy ideas, members of the same coalition often act in concert in seeking to manipulate the rules, budgets and personnel of governmental institutions16 in order to achieve their goals over time (Jenkins-Smith and Sabatier 1993a, p. 5; Sabatier 1993, pp. 16–18). New coalition(s) will emerge when a group of actors become dissatisfied with the neglect of a particular problem by existing coalitions. For instance in the context of foreign economic policy, when protectionist policy is prevailing, those in the state and society who are dissatisfied with the policy might form an alternative coalition that favours free trade, and when multilateralism is prevailing, a coalition that prefers bilateralist approach might be formed. Both state and society actors are able to take the initiative in forming new coalitions by promoting new policy ideas.

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Changes in Dominant Coalitions and Shifts in Foreign Economic Policy It is assumed that the core policy ideas, which are based on firm convictions about international society, are difficult to change. Once something has been accepted as a core policy idea, powerful ego-defence, peer-group and organizational forces create considerable resistance to change, even in the face of countervailing empirical evidence or internal inconsistencies (Sabatier 1993, p. 33). Thus, changes in core elements in foreign economic policy, more likely than not, need a replacement of one dominant coalition by another. This transition is hypothesized to result primarily from changes in the distribution of political resources arising from shocks exogenous to coalitions (Jenkins-Smith and Sabatier 1993b, p. 42). These exogenous shocks usually comprise changes in socioeconomic conditions. These changes can substantially affect the coalitional landscape of a state, either by undermining the causal assumptions of present policies or by significantly altering the political support of various state-society coalitions (Sabatier 1993, pp. 19–20, 22). Changes in socio-economic conditions in the context of foreign economic policy are most likely to be induced by major changes in the international economic environment. A dominant coalition at the time may or may not have a set of policies to respond to the new environment. Changes in a dominant coalition take place when its policy ideas are perceived to be no longer valid. Nevertheless, the change in dominant coalitions, thus the decisive change in foreign economic policy, is likely to take a relatively long time because the dominant coalition tries to hang on to power by accepting alterations in its secondary aspect of policy ideas to accommodate the change in the international environment.17 Compared to the core policy ideas, the secondary ideas are easier to change, especially when a policy compromise with competing coalitions is required. Suppose, for example, a situation in which the influence of a dominant coalition that posits protection of domestic industries as its core policy idea is somehow declining and another coalition with free trade as its policy core is beginning to ascend in influence. In this case, the former can allay criticism from the latter, at least temporarily, by reducing the degree of protection for certain industries in a recognizable manner (such as through tariff reductions).

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It may even be possible for the former to maintain the actual levels of protection for these industries by simultaneously introducing lessvisible non-tariff barriers (such as import quotas, import surcharges and change in tariff classification of certain imports). In contrast, in a situation where the influence of a coalition that advocates free trade is diminishing and the voices favouring industrial protection are becoming more vociferous, the coalition can choose to freeze or slow down the liberalization schedule in order to accommodate the opposition. This type of action by a dominant coalition — allowing changes in secondary ideas while retaining the core policy ideas — is called “policy-oriented learning” (Sabatier 1993, p. 19).18 The rise of a new system-wide governing coalition usually means a change of government. As the construct of state-society coalitions does not necessarily reflect the political affiliations of their members and society actors are also important members of coalitions, the change of government can be seen as one of the exogenous shocks to coalitions. It is an important shock which can significantly affect political support and resource allocation among coalitions. This is particularly so in Australia which adopts the Westminster style of parliamentary democracy as the system of government. The main state actors (Prime Minister, Treasurer, Ministers for Foreign Affairs and Trade and others) come from the party, or coalition of parties, that hold the majority of seats in the House of Representatives, and bureaucratic institutions are relatively hierarchic and for the most part have a pervasive culture of collegiality, especially among the senior officials of the various foreign policy institutions (Gyngell and Wesley 2003, p. 40). A statesociety coalition that aligns with the government can expect relatively undisturbed dominance in Australia. When a change of government occurs as a result of a general election, the dominant coalition may be swept aside because of the removal of main state actors and the change in the majority in the House of Representatives. In this circumstance, another coalition with different policy ideas does have a strong chance of emerging as a newly dominant coalition. This does not necessarily mean that policy change takes place immediately after the change of government. An alternative coalition may require time to consolidate its position and achieve sufficient dominance to be influential in initiating policy change.

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Notes 1. In fact, no state is totally free from what others do in this era of complex interdependence. The degree of influence of the international environment, therefore, is a relative phenomenon. See Keohane and Nye (1977, p. 13). 2. In fact, structural realist theories do not readily explain how the distribution of power changes. 3. Keohane and Nye (1977) defined interdependence as “mutual dependence” where there are reciprocal — though not necessarily symmetrical — costly effects of transactions. 4. Cohen (1988, p. 26) pointed out that, since the 1960s, the emergence of new influential states, such as Japan, Korea, Saudi Arabia and others, in international relations had the same characteristics of increased economic power, not military strength. 5. The United States’ aggressive unilateralism in its trade negotiations with Japan in the 1980s and 1990s and, more recently, the leading role it played in the war in Iraq without formal support from the United Nations in 2003 are good examples. It is very unlikely that states like Australia could do the same. 6. Sprout and Sprout (1957), Starr (1978) and Papadakis and Starr (1987), among others, discussed an “environmental” analysis of foreign policy. Their concept of an environment in which states operate included unit-level variables such as governmental, societal, and individual factors. 7. Thakur (1991, p. 279) argues that size-differentiating theories of state behaviour were subsets of national attribute theory, and how much choice small states could have was specific to the actor, context, issue, region and time. 8. By the end of World War I, the United States had become the world’s biggest overseas investor. However, those who had interests in international economic activities were a powerful but small part of the entire society, namely the financial sector and some industries such as mining and automobiles. Other sectors remained virtually isolated, having no international transactions, and saw the world economy primarily as a competitive threat. These two distinctively different parts of the society formed “internationalist” and “isolationist” blocs but neither was powerful enough to prevail. The result was the contradictory and volatile U.S. foreign policy during the period. 9. Morgenthau (1949) argued that only the workman-like manipulation of diplomacy in a realist way could achieve the national interest (defined as power) and the potential transformation of international politics. 10. Goldstein (1988, p. 185) also pointed out that “the state is the institution which interprets, more or less correctly, national needs”. 11. For instance, France seems to be a strong state candidate with its centralized political system and the power granted to the president, while the United States can be labelled a typical weak state because of the significantly plural

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12.

13.

14.

15.

16. 17.

18.

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nature of its political structure. The Federal Republic of Germany (West Germany) and Japan seem to fall in the category of intermediate (Müller and Risse-Kappen 1993, p. 34). Krasner (1978b) showed that it was easier for the U.S. Government to assert its policy objectives in monetary policy than in commercial (trade) policy mainly because the beneficiaries and victims of commercial policy in the society are relatively easy to detect while the impact of monetary policy tends to spread wide in the society. For instance, Berger (1996) argues that Germany and Japan today differ significantly from their pre-World War II predecessors. Anti-militarism has become an integral part of their sense of self as nations and is embedded in domestic norms and institutions. In the study of international relations, Goldstein and Keohane (1993) argued extensively on the importance of ideas for states’ foreign policy decision making. Case studies of the volume covered a wide range of states and events where ideas mattered, including the Anglo-American negotiations over the post-war international trade and financial regimes (Ikenberry 1993), the Stalinist political/economic policies in China (Halpern 1993), decolonization by the European states after the World War II (Jackson 1993) and the creation of the European Community’s internal market (Garrett and Weingast 1993). This is particularly so in countries like the United States where the “divided government” — the situation that the presidential power is held by one political party and the majority of Congress is held by another — is not uncommon, and bureaucratic and private institutions are significantly pluralistic. There is a recent example in Australia. The movement for an Australian republic in the 1990s attracted support from members of all major political parties. Governmental institutions here are not only the organizational structure but also a set of laws and rules whether written or unwritten. Sabatier (1993, p. 16) argues that understanding the process of policy change would require a time perspective of at least several years, and usually a decade or more. On the assumption that the core policy ideas of a coalition are difficult to change, this section proposes that the replacement of the dominant coalition is required to effect significant change in foreign economic policy. It is possible, however, for individual members of a dominant coalition to change their policy ideas, whether willingly or reluctantly, if the period in which they needed to perform policy-oriented learning prolonged. When many members of a dominant coalition convert or defect, the influence of the coalition declines and competing coalitions gain extra momentum.

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3 State-Society Coalitions and Australia’s Foreign Economic Policy

Since the early 1980s, Australia’s foreign economic policy has undergone two distinct shifts. The first, in the 1980s, was a consequence of the decision to reform the domestic economy. At that time, the government actively promoted multilateral trade and investment liberalization to underpin domestic reform. The second, commencing at the turn of the century, elevated bilateral relations over multilateral processes, in the context of a domestic economic regime that had already undergone significant liberalization. These shifts in Australia’s foreign economic policy imply changes in dominant state-society coalitions. This chapter provides an overall view of the rise and fall of a dominant state-society coalition in Australia and how it affected the direction of Australia’s foreign economic policy. It addresses three broad questions: What coalitions with what policy ideas dominated Australian policy-making? How were these policy ideas reflected in actual foreign economic policy? Why (and when) was one dominant coalition replaced by another? This overview will help explain the shift in Australia’s ASEAN policy, a matter which will be discussed in subsequent chapters.

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I. THE PROTECTIONIST TRADITION Origins a) The Federation and “Domestic Defence” The formation of the foundation state-society coalition in Australia’s foreign economic policy-making inevitably reflected how the state was formed: at the beginning of the twentieth century, the six colonies of the British Empire (New South Wales, Queensland, South Australia, Tasmania, Victoria and Western Australia) in a remote continent at the south-western edge of the Pacific, together became a “sovereign” country, effectively forming a customs union. With federation in 1901, the politics of “domestic defence” emerged as an exercise in nation building (Castles 1988, p. 91). Domestic defence naturally meant the maintenance and promotion of national security but it also meant the protection of domestic economic activities. Already by that time, Australia as a whole had achieved one of the highest standards of living in the world.1 “The nation was founded not in war, revolution or national assertion, but by practical men striving for income, justice, employment and security” (Kelly 1992, p. 1). It was natural then that the protection of people’s everyday lives became a government priority. According to Castles (1988, p. 93), the values institutionalized by successive governments were the protection of manufacturing industry through tariffs and other trade restrictions (and assistance for primary industry), the conciliation and arbitration of industrial disputes, the control of immigration and a residual system of income maintenance for those outside the labour market. Kelly (1992, pp. 2–13) referred to this social contract as the “Australian Settlement” characterized by White Australia, industry protection, wage arbitration, state paternalism and imperial benevolence, but what Castles and Kelly described were in fact the same phenomena. The protectionist economic policies were in large part defensive strategies, designed to preserve the high standards of living reached during the late nineteenth century (Kenwood 1995, p. 40).

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b) The Formation of the Protectionist Coalition Anderson and Garnaut (1987, pp. 28–39) pointed out that a variety of rationales existed for economic protectionism and explained how the policy ideas of Australia’s state and society actors were forged together. First, a belief in “infant” industry protection was widely accepted as a strategy to stimulate new manufacturing industry. It was argued that protection was necessary to ensure entrepreneurs would risk their investment before the industry could stand on its feet. The argument was appealing in Australia, which had competitiveness in primary industry like agriculture and mining but not initially in manufacturing. Second, a belief that protection raised real wages, or allowed a larger work force to be employed at a given real wage, played an important part in moulding public opinion in favour of protectionism. This proposition was incorporated into a major official report on the Australian tariff, set up by Prime Minister Stanley Bruce in 1927. While the Brigden Report (Brigden et al. 1929) was critical of excess protection, it also argued that protection of import competing manufacturing industry raised demand for labour and the increased demand for labour could attract immigration. Successive governments regarded an increase in population as vital for Australia not only to promote economies of scale, but also as a national security issue. Third, because protection was assumed to encourage an increased labour force at a given wage, it was considered to be an appropriate policy to address unemployment. This was especially so in Australia where real wages tended to have downward rigidity because of the institutionalized system of compulsory arbitration. Fourth, in more general terms, there was a widely shared conception that Australia should develop a “balanced” economy.2 Australia relied heavily on imports of both consumer and capital goods that it either could not produce for itself or could produce only at excessive cost. To pay for necessary imports, Australia produced a range of primary products both agricultural and mineral. Recognizing the vulnerability of this structure through the experiences of supply shortages especially during the periods of world war, governments tried to promote import competing (or substituting) industries by using protection.

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Coupled with material incentives held by protected industries and labour unions, all these beliefs, whether or not based on economic theories or empirical evidence,3 contributed to the formation of a strong protectionist coalition. The Free Trade Party, with its main support base within the state of New South Wales, existed in the early years of federal politics but, by the end of the first decade, lost a significant number of its seats in the Parliament and formed an anti-Labor Party coalition with the Protectionist Party. By 1906, the Australian Labor Party (ALP) became convinced of the advantages of a protectionist policy for wage earners and it supported protection of the manufacturing industry in general (Reitsma 1960, p. 15). Support for the Country Party, which was formed in 1920 (and became the National Country Party in 1975, then the National Party in 1982), was based on rural industries but it too joined the protection consensus. Until after World War II, because more people worked in labour-intensive agriculture — such as sugar, dairy, fruit and tobacco — mainly for domestic sale than in land-intensive production of wool and meat, the Country Party tried to represent the interests of the former more by providing financial and other assistance and protection from import competition (Anderson and Garnaut 1987, pp. 42–43, 47).4 In other words, the Country Party preferred to accept the unfavourable situation for farmers that was created by the protection of the manufacturing industries (such as higher prices for agricultural machinery and fertilizers) and to advocate “protection all round” rather than no protection at all for agriculture (Kenwood 1995, p. 70). In addition, for the society of a young country striving for domestic defence, “industrial development” became a dominant symbol. While more or less protected and assisted by government policies, most industries shared a sense of involvement in the task of nation building. In particular, manufacturers took pride in being the main providers of jobs and in strengthening Australia’s defence capability. They saw a direct link between their personal efforts and Australia’s prosperity. The general view was that importers who competed with locally made goods were barely respectable citizens (Glezer 1982, pp. 232–33).5 This nationalistic and rather emotional view was also incorporated in the protectionists’ policy idea.

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Development before World War II a) Consolidation of the “Protection All Round” Policy The first uniform federal tariff introduced in October 1901 was a compromise between the Protectionist and Free Trade Parties in the Parliament (Glezer 1982, p. 4). The result was continued protection at various levels according to the type of industry but lower on average than had been ruled in the state of Victoria where the Protectionists were dominant (Kenwood 1995, p. 69). From then on, Australia’s tariff rates on manufactured imports maintained an upward trend. World War I (1914–18) reinforced the sense of isolation and vulnerability of the Australian nation and economy, and such sentiments were embodied in the implementation of the Greene Tariff in 1921, which raised general tariff rates and strengthened dumping provisions (Reitsma 1960, p. 21; Glezer 1982, p. 8). Table 3.1 shows average manufacturing tariff rates of some industrialized and industrializing economies in the early twentieth century. Though tariff rates are not necessarily the best indicators of levels of protection because governments can employ other means

TABLE 3.1 Average Manufacturing Tariff Rates in the Early Twentieth Century (selected economies) 1902

1913

1925

Australia

6

16

27

Belgium

13

9

15

Canada

17

26

23

France

34

20

21

Germany

25

13

20

Japan

10

20

13

Netherlands

3

4

6

United States

73

44

37

Source: Anderson and Garnaut (1987, p. 7).

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such as quantitative import restrictions for protection, they more or less illustrate the trend. Table 3.1 demonstrates that, by the mid-1920s, Australia’s average tariff rate for manufactured products was already higher than others, except for the United States. The impact of the world depression in the 1930s reinforced the position of the protectionist coalition. The depression caused a sharp increase in unemployment 6 and there was growing support for higher tariffs. In addition, the depression caused Australia’s export earnings to drop sharply and the onset of a huge current account problem in the early 1930s. The government introduced the Scullin Tariff in 1930 and devalued the Australian pound in 1931 to try to secure employment and reduce the trade deficit (and by so doing, finance payments on foreign debt). The Scullin Tariff increased tariff rates massively and was also accompanied by the imposition of quantitative restrictions on imports. In 1936, tariffs were once more raised and the system of import licensing was introduced (Reitsma 1960, p. 24). In parallel with protection of manufacturing, assistance and support for rural industries also grew. On the one hand, the importance of rural products such as wool and wheat to Australia’s exports had been critical since the early stages of federation. Given the limited capacity of manufacturing industries, Australia was heavily dependent on these rural industries to provide exports necessary to pay for imports of manufactured goods. On the other hand, more people worked in the production of labour-intensive sugar, dairy, fruit, tobacco, and grain industries, which sold a higher proportion of their production in the domestic market. Governments tried to raise (and stabilize) the incomes of these farmers as well. Hence, successive Commonwealth and State Governments were always prepared to provide financial assistance and other support measures for rural industries such as the payment of various subsidies and/or bounties, import restrictions on wheat, sugar, butter and others, and income tax concessions.7 Many rural industries had become heavily dependent on government assistance but generally increasing manufacturing protection had given justification for this assistance under the argument of a geographically and sectorally “balanced” economy (Kenwood 1995, p. 44).

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b) Preferential Treatment for the United Kingdom: An Exception to Protectionist Policies One exception to the increasing level of protection all round was the provision of preferential treatment to British imports. The basic idea was mutual preference to create a secure British market for Australia’s primary exports. However, it was also felt in many quarters that close imperial ties were desirable and that economic ties would ensure political unity with the United Kingdom (Reitsma 1960, p. 48). The Commonwealth Government voluntarily granted preferential treatment to British imports in 1907 and subsequently increased the margin of preference during the course of World War I and at the outbreak of the world depression,8 without securing much reciprocal action from the United Kingdom. The United Kingdom, because of its superior capacity in manufacturing exports and its need to secure cheap imports of foodstuffs and raw material, had maintained a “free trade policy” since the mid-nineteenth century. But by the end of the 1920s, with its manufacturing exports declining as emerging economies gained competitiveness and Britain moved to protect its domestic industries through high tariffs, the argument for preferences on intra-Empire trade grew in the United Kingdom.9 The adverse impact of the depression on trade in the early 1930s pushed the UK Government to search for an imperial preference system and, at the Imperial Conference in Ottawa in 1932, a series of bilateral and reciprocal preferential trade agreements were concluded between the United Kingdom and its Dominions. The UK–Australia Agreement ensured preferential access of Australia’s exports (especially important agricultural products for Australia such as wheat, dairy, and dried and canned fruits) to the UK market, while Australia also provided much reduced tariff rates to virtually all British imports than to those from others.10 The responses to the Agreement from the private sector in Australia were somewhat mixed. For instance, the Australian Industries Protection League, which was established in 1919 to promote protection and assistance for domestic primary and manufacturing industries, did not oppose the idea of providing preferences to the “Mother Country”.11 The League, nevertheless, argued against the levels of preferential margins given to British manufacturing imports because they were likely to increase the severity of competition in the domestic market (Hume-Cook

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1938, pp. 37–39). Yet the Agreement obtained Parliamentary approval without amendment.

The Post-war International Economic Regime and Australia’s Protectionism World War II strengthened the power of the Commonwealth Government to intervene in domestic economic activities to manage the wartime emergency circumstances. This experience had provided a cogent demonstration of Keynesian theory in practice and, by the early 1940s, Keynesian economic policy was well entrenched in Australia (Capling 2001, p. 19). At the same time, World War II had worked to strengthen the policy idea of the protectionist coalition further. Domestic industries must be protected and assisted by government policies to maintain sufficient supply of various products, not only to increase the standard of living of the Australian population but also to prepare for times of emergency when essential imports might be significantly reduced (Kenwood 1995, p. 38).

a) Accession to the GATT The designing of post-war international economic regime had already started during the war. The United States played a major role in the process of setting the basic philosophy of economic reconstruction, economic development and free trade at the centre of the new regime, realized (though imperfectly) in the establishment of the IMF, the International Bank for Reconstruction and Development (the World Bank) and the GATT. The negotiations to establish the GATT revolved around the U.S. proposal to introduce two principles into the new regime, “non-discrimination” and the “unconditional MFN treatment”, in order to ensure freer trade in the world. The Australian Government had serious concerns in accepting these principles. First, Australia initially wanted to maintain the British Imperial (Commonwealth) Preference System. This was not only because of emotional ties but also for practical reasons. Under the system, the Commonwealth members, especially the United Kingdom, had become significant markets for Australia’s exports such as sugar, fruits, beef and dairy (Capling 2001, p. 16).12 Second, the government also believed

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that states should be able to keep their right to protect their domestic industries from import competition whenever they thought necessary. Third, the Australian Government was sceptical about being able to get a sufficient level of market access for its exports, which consisted mainly of primary commodities, in return for tariff and other concessions it would have to make on manufactured imports. It particularly doubted the ability of the United States, already the largest economy in the world, to open its primary commodity market to Australian exports (Capling 2001, pp. 16–17). Yet the government also recognized that the absence of international rules to control countries’ foreign economic policies was one of the main factors leading to the last world war, which had posed an unprecedented crisis to Australia (Bates 1997, p. 241). Thus, the government considered it imperative for smaller states like Australia to secure an international agreement that set rules with which all signatories complied regardless of their size and that ensured the transparency of each member’s foreign economic policy (Capling 2001, pp. 8–9). Thus, during the negotiations for the International Trade Organization (ITO) Charter and the GATT, the Australian Government insisted on the following positions. First, it strongly argued that the ITO Charter must include a provision that ensured an international collaboration to promote full employment in the major developed economies. What the government wanted, in a sense, was Keynesianism at the international level. The government strongly asserted that reducing trade barriers alone would decrease world demand by causing increased unemployment in each country (Bates 1997, p. 241). Full employment in the major economies was seen as a means of ensuring growing demand for Australian exports (Crawford 1968, p. 7). Second, the government sought the active promotion of production and productivity in relatively under-developed economies including Australia and maintained the need for industry protection (Crawford 1968, p. 56). The government also sought permission to use defensive measures, such as quantitative restrictions of imports, at the time of economic emergency. Third, the government argued that it would not eliminate or reduce already existing tariff preferences except in return for a sufficient level of compensating concessions. The result of international negotiations in the latter half of the 1940s was basically favourable to Australia. The “full employment” and

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“economic development” provisions were included in the ITO Charter. The tariff reduction negotiations in 1947, which led to the birth of the GATT, allowed the already existing preferential systems to stay, leaving the structure of the British Commonwealth Preference System largely intact (Crawford 1968, p. 36). The GATT also permitted the use of quantitative import restrictions for defending the balance of payment as an exception to its general rules. Tariff concessions offered to Australia in the negotiations covered principal products that Australia exported or could expect to export. What was significant for Australia was the U.S. concession to reduce its tariff on wool by 25 per cent, in addition to the reduction of its tariffs on beef, mutton, lamb and butter (Crawford 1968, p. 75). While Australia had to offer concessions in return in the form of certain reductions in the British Commonwealth preferences and general tariffs, the government concluded that the deal was good enough for the Australian economy as a whole to sign, and Australia became one of the original signatories of the GATT in 1947. The unexpected failure to establish the ITO, chiefly because of the U.S. Congress’ failure to ratify the Charter, meant that the “full employment” and “economic development” provisions were not transferred into the GATT fully, but the Australian Government resolved that it was beneficial for its economy to stay in the GATT.

b) Growing Frustration with the GATT Yet the good results of the GATT negotiations in 1947 were not automatically reflected in practice in following years. Some tariff concessions gained from European states and the United States in 1947, especially for Australia’s foodstuffs and raw materials, were being nullified by the operation of non-tariff barriers (Crawford 1968, p. 129). At the GATT review process in 1954–55, the Australian Government strongly criticized the lack of genuine reciprocation in the operation of the GATT articles, but it became apparent that it was not going to be practicable to treat trade in agricultural products in the same way as trade in most manufactured products. The prospects for an effective reciprocation of MFN treatment in the Australian tariff were not greatly advanced (Crawford 1968, p. 131). In this circumstance, the government opted for securing its right to protect domestic industries because reducing or maintaining low tariffs and other trade

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restrictions on manufactured products without receiving reciprocal return in agricultural commodities was totally inconsistent with the protectionist coalition’s belief system, and thus was not acceptable. At the GATT review meeting in November 1954, John McEwen, Minister for Commerce and Agriculture, said: My Government would want to be satisfied that, when necessary, action could be taken to protect Australian domestic industries, particularly those in early stages of development. Australia, as a rapidly developing country, must have sufficient freedom in this regard. (quoted in Crawford 1968, p. 150)

As a result of the GATT review process, the members that were heavily dependent upon a few primary commodities for their export income and relying on their tariff as an important aid for diversifying their economies were permitted to enter into negotiations for the adjustment of “bound” tariff rates13 on selected items (Crawford 1968, p. 160). By this amendment, combined with the original right to raise (or impose new) tariffs on “non-binding” items, Australia had effectively secured the freedom to raise any tariffs for protective purposes.14 Australia’s somewhat uncomfortable relations with the GATT continued through the 1950s and the 1960s. This was mainly because agricultural trade, on which Australia’s exporting interest was concentrated, was virtually excluded from the negotiation agenda. Although prepared to participate in meetings, McEwen was always sceptical about the merit of multilateral organizations such as the GATT and the United Nations Conference on Trade and Development (UNCTAD). He believed that the influence and interests of major powers would usually prevail over those of smaller states like Australia, and accepted this as reality (Golding 1996, p. 150).

Flexibility of the Protectionist Coalition While sceptical about the ability of multilateral liberalization processes to deliver Australia’s interests, the Liberal/Country Government pursued bilateral routes in this multilateral setting in order to promote its exports more vigorously and flexibly. A good example is the negotiation with Japan in the 1950s, which culminated in the Agreement on Commerce between Japan and Australia in 1957.

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a) The Agreement on Commerce between Japan and Australia (1957) After World War II, Australia maintained preferential tariffs on imports from the United Kingdom and other Commonwealth members and applied MFN tariff rates based on the GATT to most other countries. Aside from this, Australia continued to impose prohibitive tariffs and a licence system on imports from Japan. As a result of the San Francisco Peace Treaty in September 1951, Japan’s sovereignty was restored in April 1952. The next urgent task for Japan was to reinitiate participation in the international economy in earnest. Immediately after the restoration of its sovereignty, Japan sounded out Australia on the mutual provision of MFN treatment and subsequently continued to ask Australia for the application of MFN tariffs and the abolition of the licence system for Japanese imports. Starting in May 1953, the Australian Government responded to Japan’s requests with a gradual relaxation of the import licence system but postponed its decision on whether to begin formal bilateral negotiations with Japan. Even after Japan officially received full membership to the GATT in September 1955, Australia maintained punitive tariff rates on Japanese imports as an exception according to Article XXXV (Non-application of the Agreement between particular Contracting Parties) that allowed Australia not to assume GATT obligations towards Japan. During the 1950s, Australia’s exports to Japan steadily increased, reflecting Japan’s growing demand for commodities such as wool, foodstuffs (wheat, barley, sugar and others), and minerals during its post-war reconstruction (Rix 1986, pp. 146–56), and the trade balance was heavily in favour of Australia. On the other hand, since the end of World War II, exports to the United Kingdom, traditionally Australia’s main export market, had been decreasing. In addition, due mainly to the circumstances in and requests from the United Kingdom, there were some occasions when Australia could not export certain commodities to the UK market despite the existence of bilateral agreements, and so Australia was forced to find other markets.15 If Australia were to secure better access to the Japanese market, which was far more promising than the British market, the government needed to reduce MFN tariff rates and apply them to Japanese imports. The United States and Canada had already concluded bilateral

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commerce agreements with Japan in April 1953 and March 1954 respectively, which provided for mutual MFN treatment between the countries. The Australian Government faced two difficult problems. First, the preferential trade agreement with the United Kingdom still set the obligatory margins of preference on British imports. Thus, without a new arrangement, if Australia were to reduce MFN tariffs, it also had to further lower the preferential tariffs on British imports. By that time, the government saw the preferential arrangement with the United Kingdom unfairly favoured the United Kingdom with the result that it did not have any intention of providing further benefits to the United Kingdom. Second, domestic opposition to providing MFN treatment to Japanese imports was robust among labour-intensive import competing industries and labour unions that would face increased competition with cheaper imports from Japan (Anderson and Garnaut 1987, p. 118). Trade Minister McEwen and some senior officials from the Department of Trade, particularly John Crawford who was the Secretary of the Department,16 Alan Westerman, George Warwick-Smith and Jack Tonkin, provided strong leadership to counter these problems. After tough renegotiations with the United Kingdom, Australia was successful in 1956 in cutting the obligatory preferential margins on British imports, reducing them from levels of 17.5 per cent to levels of 10 and 7.5 per cent, and promptly reduced MFN tariff rates on hundreds of items (Capling 2001, p. 60). During the negotiation with Japan, which ran concurrently with the one with the United Kingdom, Japan demanded MFN treatment on all its exports. While Australian farmers and representatives of other export industries argued strongly for an end to all discrimination against Japanese imports (so as to obtain greater access to Japanese markets for their products in return), opposition from the manufacturing industries and labour unions was formidable, as was to be expected (Tsokhas 1984, p. 9). The Liberal/Country Government decided, after intense discussion in the cabinet and despite opposition from the ALP, to comply with Japan’s demand, and concluded an agreement in July 1957 that exchanged MFN status.17 In August 1963, the two governments signed a new protocol. As the protocol came into force in July 1964, Australia waived its right to invoke Article XXXV of the GATT against Japan and provided complete MFN treatment for Japanese imports (Rix 1986, p. 209).

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b) The Structure of Policy-oriented Learning The Agreement of Commerce with Japan ended Australia’s discriminatory practices and provided MFN treatment to Japanese imports. As this had the potential to provoke intensified import competition in the domestic market, the decision to conclude the Agreement appeared to be in conflict with the policy idea of the protectionist coalition. Behind the decision, however, was a transformation in the international economic environment in which exports to the United Kingdom, a preferential trade partner of Australia, were vanishing and Japan, with its post-war economic reconstruction efforts, was emerging as a promising export market. The government sought to expand export opportunities for Australian products, even if it meant the reduction of mutual preferential treatment with the United Kingdom, which the government had declared it would maintain during the process of establishing the GATT. Why was this policy decision by the government, which was strongly supported by the protectionist coalition, possible? As explained earlier, World War II had acted to fortify the policy idea of the protectionist coalition. Opposition against the expansion of trade relations with Japan, which had been an enemy state just over a decade ago, remained especially strong among manufacturers (such as the Associated Chamber of Manufacturers of Australia), the trade union movement (as seen in the Australian Council of Trade Unions) and the ALP. Within the government, the Department of Trade and Customs, which had jurisdiction over the domestic import system including tariffs and licences and was backed by manufacturers and trade unions, opposed the extension of MFN treatment to Japan (Rix 1986, pp. 126, 157, 162, 193, 195).18 In contrast, agricultural organizations and exporters (such as the Associated Chambers of Commerce of Australia) were positive about expanding trade with Japan through the mutual provision of MFN treatment, and their stance was shared by the Department of Commerce and Agriculture which held jurisdiction over exports and agricultural development. The Treasury, in general, was of the opinion that import restrictions on Japanese products could not be justified by reasons pertaining to the balance of payments (which was allowed in the GATT Agreement) and that, from the balance of payment

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perspective, there was no need to maintain the import licensing system for Japanese imports. In the 1950s, the Department of External Affairs repeatedly expressed the opinion that Australia should assist Japan’s post-war economic reconstruction through trade expansion in order to keep the latter in the non-communist bloc (Rix 1986, pp. 129, 132, 192, 195). As serious divisions remained among state and society actors, the decision was left to the cabinet level. McEwen, who had been the Minister for Commerce and Agriculture since October 1949, played a critical role at this time.19 McEwen, himself a farmer under the soldier settlement scheme after World War I and experienced in the hardships of surviving as a farmer before becoming a Member of Parliament (Golding 1996, pp. 41–43), was a champion of protectionism. He emphasized the interdependence of farmers and manufacturers. McEwen believed that these two sectors produced the wealth of Australia. For him, “protection all round” was the policy idea that bordered on an over-arching and idealistic belief (Glezer 1982, p. 202). Nevertheless, for McEwen who was then the deputy leader of the Country Party, development of rural industry was the top policy priority and the expansion of agricultural exports was, thus, one of the most important matters on the policy agenda.20 Ultimately, McEwen made a decision in line with the stance of the Department of Commerce and Agriculture to seek expansion of exports to Japan by abolishing discriminatory and restrictive measures on imports from Japan. McEwen persuaded the cabinet to accept his decision and finally obtained its approval.21 The precursor of this policy decision was the merger of the Department of Commerce and Agriculture and the Department of Trade and Customs in January 1956, almost a year before the commencement of formal bilateral negotiations with Japan. The new Department of Trade was charged with overseeing essentially all functions related to international trade, such as export and import policies, tariffs, trade promotion and industrial development. McEwen became the first Minister for Trade, while Crawford, from the former Department of Commerce and Agriculture, was installed as the Secretary of the new Department. Westerman, also from the former Department of Commerce and Agriculture, was appointed as Assistant Secretary and became Australia’s chief negotiator in talks on the Commerce Agreement with

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Japan. The government had recognized that the system of two trade departments was not contributing to the realization of Australia’s trade interests and so aimed for the configuration of a comprehensive trade policy through the merger of the two departments (Rix 1986, p. 203). The trade policy decision regarding Japan by McEwen and ultimately by the government in the 1950s was flexible in the sense that it actually reduced the existing level of industry protection. It should be noted, however, that the Agreement on Commerce with Japan did not abnegate the core part of the policy idea shared by the protectionist coalition. Import restriction measures on Japanese products adopted by the government after the war were exceptionally stringent compared with those for other trade partners. The government responded to the changes in the international environment (including the conclusion of the Treaty of Peace with Japan, Japan’s accession to the GATT and, above all, the decline in exports to the United Kingdom and the export expansion to Japan) with the Commerce Agreement with Japan, treating imports from Japan equally with those from other trade partners. By so doing, the government further sought to expand exports to Japan. Overall, there was no alteration in Australia’s protectionist tendency. In other words, the change in trade policy towards Japan was a practical adaptation that falls into the category of policy-oriented learning. In fact, the Agreement on Commerce with Japan did not decisively disturb the protectionists’ dominance in the 1960s. As the Japanese economy moved rapidly towards higher technology industries in the 1960s, the proportion of Australian industries that directly competed with Japanese imports decreased. For industries in which competition with Japanese imports continued, such as passenger motor vehicles and parts (PMV) and some electronics, arrangements were made with Japanese manufacturers to divide the market. In addition, the expansion of Australia’s mineral exports to Japan from the mid-1960s tilted the trade balance between them heavily in favour of Australia. In this context, Australia’s protectionist policies became less important as an issue in bilateral relations (Glezer 1982, p. 266).

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II. BUILDING FOUNDATIONS OF THE TRADE LIBERALIZERS Criticism of Protectionist Policies The opposition to protectionist policy from those disadvantaged, such as export-oriented mining and agricultural industries and manufacturing that relied heavily on imported materials, was in fact a consistent, if earlier not sufficiently strong, force to begin to shake the protectionist coalition. The criticism against protectionism also came from economists who argued that the policy was not founded on sound economic analysis and that governments were actually wasting scarce resources by holding to policies that led to their misallocation. There had been a string of people like Heinz Arndt, Max Corden, H. C. Coombs, Peter Drysdale, Ross Garnaut, Fred Gruen, Stuart Harris, Richard Snape, and others who, as academics or advisers to government, argued for liberalization and deregulation of the domestic economic regime. In 1963, the government appointed a committee to report on the general state of the economy, to identify problems and to advise on measures to respond to them. The committee, headed by James Vernon, produced a report in 1965 (Vernon et al. 1965), which dealt with protection policy in detail. The report accepted the benefits of protectionist policy, especially its effect on employment. At the same time, it recognized that the level of protection extended by the government to some industries might have been too high and recommended the government tighten the application of the existing rules of tariff making. Also, from the viewpoint of the allocation of the resources, the report argued that disparities in the levels of protection afforded to individual industries were more damaging than the high protection given to domestic industries as a whole. In the mid-1960s, the Tariff Board (later re-organized as the Industries Assistance Commission in 1974, re-organized again as the Industry Commission in 1990 and, since 1998, known as the Productivity Commission) undertook a review of Australia’s tariff structure.22 The Board intended to advise the government to reduce tariffs of excessively protected industries as the first step towards tariff reform (Glezer 1982, p. 97; Rattigan 1986). What was critical for the Board to introduce tariff

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reform successfully was to find “allies” who would strongly support its initiative (Glezer 1982, p. 94). As expected, primary industries, such as agriculture and mining, supported the Board’s initiative. The initiative also found some supporters in the Liberal Party. A new development in the 1960s was that major newspapers including the Sydney Morning Herald, the Age and the Australian Financial Review changed their orientations and became critical of protectionism (Glezer 1982, pp. 269–70; Anderson and Garnaut 1987, p. 72; Golding 1996, pp. 202, 211). This development had the effect of educating readers in the complexity of the tariffmaking process and generating a greater public interest in the state of protectionist policies (Glezer 1982, p. 271). What was more important, Glezer (1982, p. 111) argued, was that it created the perception that the Board was promoting the virtues of good government through resisting vested interests and their political and bureaucratic allies. In the latter half of the 1960s, the opposition to protectionism proclaimed by some of the society actors began to spread widely among state and society actors. These anti-protectionist forces were to become the foundation of an alternative state-society coalition that shared the policy idea of liberalization and freer trade and investment. But the Vernon Report’s moderate advocacy of the need for reducing excessively protective tariffs and the Tariff Board’s broader initiative of tariff restructuring met with opposition from protectionists such as manufacturers’ organizations, trade unions and parts of the government (especially from the Department of Trade and Industry) (Tsokhas 1984, pp. 20–24). The Associated Chamber of Manufactures of Australia (ACMA) as a whole was strongly against the reduction of protection levels. Its members in lower cost activities saw little to gain from publicly demonstrating their stance for less protection, because to do so would have caused internal conflicts within the ACMA and antagonized the Department of Trade and Industry, with no guarantee that the Tariff Board would help them in return (Glezer 1982, p. 100). Believing that a rise in unemployment would result from the reduction of protection levels, most trade unions acted as adjuncts to employers (Glezer 1982, p. 255). The government at last formally endorsed the Board’s systemic review on tariff structure in 1971, but as a long term process. In other words, the move towards tariff restructuring was effectively shelved for the time being.

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The Failure of the Whitlam Experiment The first external shock to Australia’s coalitional setting came in the early 1970s. The mineral resources boom in the early 1970s was accompanied by a sharp rise in the Australian terms of trade in 1972 and 1973 (see Figure 3.1) and the appearance of a large current account surplus in 1972/73. Pressure on the Australian dollar to appreciate grew significantly. The government always had the power to control the exchange rate, which was fixed but adjustable, but it avoided appreciation of the exchange rate to maintain “exchange rate protection” for domestic industries that produced tradable goods. The appreciation was seen to have adverse effects on both exporting agricultural and mineral industries and import competing manufacturing industries. The undervalued Australian dollar led to large capital inflows and growth in the domestic money supply, and growing inflationary pressure. The ALP won the general election in December 1972 under the leadership of Gough Whitlam after twenty-three years in opposition. FIGURE 3.1 Australia’s Terms of Trade*, 1966–95 30

20

10

0 66

68

70

72

74

76

78

80

82

84

86

88

90

92

94

–10

–20 Note: * Percentage change from previous year. Source: Reserve Bank of Australia (1996).

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The new government decided to appreciate the Australian dollar to reduce the balance of payment surplus and counter inflation, but the effects of the appreciation quickly dissipated under the impact of the resources boom through 1973 (Anderson and Garnaut 1987, p. 83). Another measure to reduce the balance of payment surplus was the promotion of imports. The committee set up by Whitlam to advise him on ways to increase imports recommended a reduction of tariffs on all imports by 25 per cent under the conditions of the fixed exchange rate system (Rattigan et al. 1973). The government promptly implemented a 25 per cent “across the board” tariff cut in July 1973. Despite these efforts to contain inflation, the government was at the same time implementing public policies that had the effect of nullifying them. It sanctioned the demand of labour unions for a large wage increase.23 It increased government spending in areas such as healthcare, education and culture (Dyster and Meredith 1990, p. 269). It also promoted expansive social programmes and welfare reforms. The net result was a sharp acceleration in the inflation rate (see Figure 3.2). FIGURE 3.2 Australia’s Consumer Price Index*, 1965–95 20

15

10

5

0

65 67

69

71

73

75

77

79

81

83

85

87

89

91

93

95

Note: * In June quarter. Percentage change from previous year. Source: Australian Bureau of Statistics website .

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The government faced more serious economic problems when its major trade partners, the United States, Japan and the EC were pushed into recession after the first oil crisis. As the terms of trade suffered a massive decline in 1974 and 1975 (see Figure 3.1), Australia’s export earnings declined sharply, while manufacturing industries lost competitiveness due to the large increase in relative costs associated with the appreciation of the Australian dollar and the rapid increase in real wages. The unemployment rate also increased rapidly and it almost hit the 5 per cent mark by 1975 (see Figure 3.3), the highest level since the depression in the 1930s. The sharp increase in imports and the rapid decline in exports, manufacturing output and employment in the mid-1970s encouraged renewed claims for demands for protection from manufacturers and trade unionists. In 1974, as a result of these pressures, the government had to introduce quantitative import restrictions through quotas on textiles, clothing, footwear, electric appliances, motor vehicle, and some other products (Glezer 1982, p. 127).

FIGURE 3.3 Australia’s Unemployment Rate*, 1966–95 12 10 8 6 4 2 0 66

68

70

72

74

76

78

80

82

84

86

88

90

92

94

Note: * Per cent at August each year. Source: Reserve Bank of Australia (1996).

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In the 1975 electoral campaign,24 the Liberal/National Country opposition chose to make the ALP’s “mismanagement” of the economy a major issue. Both Liberal and National Country Parties went into the campaign with policy platforms that contained important protectionist elements (Liberal Party of Australia 1974; National Country Party of Australia 1975). In the policy speech during the campaign, Malcolm Fraser, the leader of the opposition, argued: We will give Australian industry the protection it needs. We would sooner have jobs than dogma. Under Labor, there have been disruptive changes in exchange rates, tariffs and other protective devices. (Fraser 1975a, pp. 6, 22)

The opposition pledged in the election to provide sufficient protection to maintain employment in the textiles, clothing and footwear (TCF) industries (Anderson and Garnaut 1987, p. 93). In the end, the Liberal/ National Country won the general election in November by a large margin. Although the 25 per cent across-the-board tariff cut was introduced basically as a macroeconomic management measure to reduce the balance of payment surplus and to counter inflation, it marked one of the first major moves to reverse Australia’s protectionist policies. Whitlam was a liberal and “anti-protectionist” who had a firm statist belief that government’s policy decisions should not be influenced by pressure from interest groups (Anderson and Garnaut 1987, p. 80).25 The tariff cut decision was made as a result of advice from a policy advisory committee and key ministerial advisers (Charles and Farrell 1975, p. 95). On the one hand, the Whitlam Government was relatively free from the pressure of the protectionists. On the other hand, there was no consultation with the dominant protectionist coalition to persuade it to support the policy reversal. The anti-protectionist forces among the state and society actors, which were to form the foundation of the trade liberalizers’ coalition later in the 1980s, had just begun to build up in the latter half of the 1960s and they were still far from dominant in the early 1970s. The Whitlam Government’s liberalization had a weak and unstable support base and when the international economic environment became worse for Australia, the opposition from the protectionists resurfaced and liberalization policy could not be sustained.

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Further Policy-oriented Learning by the Protectionists The Liberal and the National Country Parties returned to government in 1975 and the protectionist coalition returned to the centre stage of foreign economic policy-making with it. The 1970s as a whole, nevertheless, was a decade of further policy-oriented learning for the protectionists.

a) The Current against the Protectionists First, Australia’s economic condition did not improve in the latter half of the 1970s because the world demand for primary commodities did not expand and, as a result, Australia’s terms of trade continued to decline throughout the decade. During this period, the Australian economy continuously suffered from a trade deficit, a high unemployment rate, which from 1975 remained around 6 per cent, and a high inflation rate that hovered around 10 per cent in the latter half of the decade (see Figures 3.1, 3.2 and 3.3). The fundamental question of whether or not traditional protectionist policies were effective in the changing international economic environment grew because of the protracted economic recession. Second, policy reform in the agricultural sector had begun even before the ALP came to office in 1973 and was pursued continuously through the 1970s. Regulations and support for agriculture had resulted in inefficiencies in the sector. However, since agricultural products still remained major sources of export earnings, fundamental restructuring of agricultural assistance was difficult to undertake. The mineral resources boom of the late 1960s and the early 1970s provided the catalyst for agricultural reform as it reduced Australia’s dependence on agriculture as a major foreign exchange earner. The government set out to improve agricultural efficiency through a programme of rural reconstruction, which aimed at rationalizing the agricultural sector so as to concentrate production in economically viable farming units. Rural adjustment schemes were initiated in 1971 when farm reconstruction became a permanent feature of Australia’s agricultural policy. In December 1973, the Whitlam Government appointed a committee to inquire into all aspects of agricultural policy. The committee’s report (Green Paper) in May the following year pointed out that

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the Commonwealth Government still maintained a great variety of intervention measures in the rural sector (Harris et al. 1974, Appendix Table A2.13), and strongly advised the government that the policy goal should be redirected to enable the sector to adjust effectively to market needs and opportunities. As a consequence of the Green Paper, a new rural adjustment scheme was introduced in 1976, consolidating most of the existing support schemes. Third, the Industries Assistance Commission (IAC) was set up in 1974, replacing the Tariff Board. The establishment of the IAC involved not merely a change of name. The Commission’s function as a research agency was significantly strengthened.26 The IAC had a much broader mandate than the Tariff Board, being able to carry out inquiries into agricultural, mining, services industries as well as manufacturing, and was not restricted to tariff matters but could examine any form of direct or indirect assistance to producers. The most significant contribution that the IAC came to make was its sophisticated measurement of the extent (and the cost) of protection provided to individual industries (Anderson and Garnaut 1987, p. 67). Effective rates of assistance were calculated for individual products, taking into account not only tariff protection but also other means of governmental assistance and support, and were made readily available to the public. These visible and objective measurements of protection played an important role in informing and educating the public, especially those in exporting industries, about how much (or less) protection their industries were getting from the government compared with others.27 Fourth, a series of reports produced by government appointed committees in the 1970s all indicated the need to restructure the manufacturing industry by reducing the level of protection. In mid-1974, in response to the rapid decline in manufacturing output, and after the 25 per cent across-the-board tariff cut, the Whitlam Government appointed a committee to advise on policies for manufacturing industries in general. The report (the Jackson Report) recommended tariff reduction for manufacturing industry in principle to strengthen its competitiveness (Jackson et al. 1975). The Fraser Government published a White Paper on the manufacturing industry in 1977 to follow-up the issues raised by the Jackson Report. While the White Paper signalled different approaches might be required for industries such as TCF, PMV and electric appliances, it generally recognized the

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need for reduced protection in the context of encouraging a more specialized, trade-oriented manufacturing sector (Commonwealth of Australia 1977). The Fraser Government set up another committee of inquiry to look into the issue of economic structural adjustment. The committee released its report (the Crawford Report) in March 1979 and it highlighted the need for a national strategy to deal with adjustment problems (Crawford et al. 1979). The report encouraged industry to become more import competitive and more export-oriented through lower protection. Furthermore, to promote an efficient, competitive and stable financial system, the Campbell Report recommended that the government minimize interventions in the financial sector in general, recommending in particular the floating of the Australian dollar and the removal of foreign exchange controls and official barriers to entry into the domestic market (Campbell et al. 1981).

b) Policy-oriented Learning by the Fraser Government Despite this milieu, the Fraser Government kept its election promise to provide “sufficient” protection for TCF and PMV industries. The TCF industries had been the most affected by the 25 per cent tariff cut in 1973 because they were enjoying the highest levels of protection. These industries also experienced the largest increase in nominal wages in the mid-1970s.28 TCF industries were the most vulnerable to imports from developing economies. The government was moved to protect labour-intensive TCF industries as their decline due to increased import competition could escalate the problem of unemployment. During the 1977 election campaign the government reaffirmed the continuation of protection of these industries, giving a further guarantee that the protection would not be reduced for a subsequent three years (until 1980). In July 1979, prior to the 1980 election, the government announced that commitment would be extended for a further year, to mid-1981. The government preferred import quotas rather than tariff increases to protect TCF and PMV in this period and, as a result, the average effective rates of assistance for these products rose sharply from the mid-1970s until the early 1980s (see Figure 3.4). In response to the growing pressure for structural reform, the Fraser Government was compelled to make policy compromises in industries other than TCF and PMV, in addition to the rural adjustment scheme

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FIGURE 3.4 Average Effective Rates of Assistance for Manufacturing (1968/69 to 1992/93, per cent) 250

200

150

100

Textiles

Motor Vehicles & Parts

Clothing & Footwear

Total Manufacturing

1992/93

1989/90

1986/87

1983/84

1980/81

1977/78

1974/75

1971/72

0

1968/69

50

Source: Industry Commission (1995, Tables A6.3 and A6.6).

that had been underway since the early 1970s. At the GATT Tokyo Round of trade negotiations (1973–79), the government decided in 1977 to bind some tariff rates to levels set by the 1973 tariff cut and to reduce a range of tariffs further on non-labour intensive manufactures. Nevertheless, Figure 3.4 shows that the average effective rate of assistance for total manufacturing decreased only slightly between the mid-1970s and early 1980s because of the sharp increase of TCF and PMV protection. Australia’s terms of trade declined sharply again in 1980 with an almost 10 per cent slide from 1979, the worst decline in five years (see Figure 3.1). In the general election in October 1980 under these economic

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circumstances, the Liberal and National Country Parties together lost its absolute majority in the Senate. They also lost a significant number of seats in the House of Representatives, reducing the margin against the Opposition by more than half from forty-seven to twenty-three. The Fraser Government retained office but it was much weakened. Massive decline in the terms of trade and the results of the election acted as exogenous shocks to the protectionist coalition. They heightened a sense of crisis and induced acrimonious debates on the government’s economic policies within the Liberal Party, resulting in the emergence of a group called the “radical liberals” or “drys” (Kelly 1992, p. 34). The “dry” movement led by Liberal Members of Parliament including John Hyde, Peter Shack, Jim Carlton and John Howard, argued strongly for small government, lower protection, industry deregulation, genuine competition and a needs-based welfare system. These policy ideas of the drys were in direct opposition to those of the traditional protectionist coalition. The dry movement, which arose from within the Liberal Party, shook the foundation of the protectionists. The Fraser Government decided to employ some of the dry policy measures to reduce the levels of protection to domestic industries. One of the measures was a seven-year programme of gradually reducing protection for Australia’s TCF industries, which was commenced in 1982. The Department of Trade and Resources described the plan as “designed to encourage a predictable and gradual change in local production of TCF products” (Joint Committee 1984, p. 164). These measures employed by the Fraser Government, in fact, were a policy compromise to relieve pressure from anti-protectionists, especially drys, and thus the change remained half-hearted. For instance, the main method used in the programme for reducing protection for Australia’s TCF industries was the gradual increase in import quotas for their products, but this programme was introduced in the context of another programme that provided other forms of assistance starting in 1982 (Department of Trade and Resources 1982, Appendix B). As a result, the upward trend in average effective rates of assistance for TCF industries observed since the mid-1970s did not change in the early 1980s. The rate for clothing and footwear even skyrocketed during this period (see Figure 3.4). These facts indicate that the measures of the Fraser Government during this period were policy adjustments to

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meet intensifying domestic and international pressure. In other words, the measures were part of the policy-oriented learning practice of the government.

Realignment of Domestic Interest Groups The 1970s saw the emergence of new or revamped interest groups that shared liberalization and deregulation of the domestic economy as their policy idea. These groups became the main actors in the coalition of trade liberalizers in the 1980s.

a) Agriculture and Mining Sectors The rural export sector had always stood to gain from less protection for domestic industries, but agricultural organizations tended to be commodity and state-based and it had been difficult to find common ground among them against protectionism. From the 1960s, only four of the rural organizations, the Australian Woolgrowers’ and Graziers’ Council, the Australian Wheatgrowers’ Federation, the Australian Wool and Meat Producers’ Federation and the National Farmers’ Union (NFU), consistently raised their voices against protectionist policies (Glezer 1982, p. 262). The rural reconstruction schemes implemented in the 1970s, together with the information from the IAC, encouraged agricultural organizations to develop a unified stance against manufacturing protection. In 1979, by replacing the NFU, the National Farmers’ Federation (NFF) was established as the national peak organization for agricultural industries and it made liberalization and deregulation a prime goal of its political lobbying and public education programmes (Connors 1996, p. 218). The NFF, since then, has sought the exposure of all industry to market forces and the creation of an internationally competitive Australian economy (Kelly 1992, pp. 43–45). The mining sector had also been severely disadvantaged by distorted resource allocation and economic incentives as a result of protectionist policies. While its national peak body, the Australian Mining Industry Council, was formed in 1969, and it basically endorsed the review of Australia’s tariff structure by the Tariff Board, the sector remained relatively quiet in the debate about protectionism in the 1970s. This was

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partly because most major mining firms also processed minerals into metal (such as steel and aluminium) and these metal manufacturers had traditionally demanded protection against imports (Tsokhas 1984).29 In 1982, however, the five largest and most influential mining firms argued for movement towards a low, uniform tariff in the context of the IAC inquiry on general reductions of protection (Anderson and Garnaut 1987, p. 74). Metal manufacturers, represented by the Metal Trades Industry Association (MTIA), which had been originally established back in 1873 and opposed the Tariff Board’s initiative on tariff restructuring in the 1960s, also became active advocates of liberalization and deregulation in the 1980s. The MTIA was re-organized as the Australian Industry Group (AIG) later in 1998 by merging with the Australian Chamber of Manufactures.30

b) Manufacturing Sector Given that the protectionist coalition’s core policy idea was resistant to change, most manufacturing industries with exporting interests customarily preferred to seek export subsidies rather than lobby for trade liberalization. In part, this was because they had been benefiting from the protected domestic market. Thus, major manufacturers’ associations, such as the ACMA and the Australian Industries Development Association (AIDA), could maintain protectionist attitudes as a whole. Nevertheless, there had always been diverse interests within them and, on the tariff issue, differences in stances had existed between their highly protected members and less protected ones (Glezer 1982, pp. 228–31). By the late 1970s, a few manufacturers did have sufficiently large exports relative to domestic sales to justify supporting trade liberalization as part of a major reform of the incentive system (Anderson and Garnaut 1987, pp. 74–75). In 1977, the ACMA, the Australian Council of Employers’ Federations and some other employers’ organizations merged to form a new national body: the Confederation of Australian Industry (CAI). The CAI, which became one of the strong advocates of closer economic relations with ASEAN (see Chapter 5), subsequently merged with the Australian Chamber of Commerce, the peak national organization of Australian importers that had almost always preferred less protection, in 1992, to form the Australian Chamber of Commerce

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and Industry (ACCI). The ACCI was to become one of the most vocal proponents of freer trade and investment regimes. The AIDA remained outside the CAI but merged with the Business Round Table in 1983 to form the Business Council of Australia (BCA). The BCA consisted of around fifty of the largest companies and their subsidiaries in Australia. The BCA also took a pro-liberalization stance because most of its members were internationally competitive. According to a report by the BCA in 1992, “exporting goods and services builds wealth, but so can importing if Australia’s scarce resources and skills are more productively applied to the products”. The BCA argued in the same report that what the government could do to help industry was “to remove obstacles and support long term competitiveness to enhance the individual initiatives” (BCA 1992, pp. 64–66). By the early 1980s, the representation of sectional interests in foreign economic policy had evolved to a point where such organizations had become more national in character, more centralized, more professional and more highly integrated in dealings with the federal government (Warhurst 1984, p. 23). An increasing number of state and society actors in foreign economic policy-making shared the policy idea of trade and investment liberalization and deregulation.

How Should Liberalization and Deregulation Proceed? Australia’s terms of trade did not improve in the latter half of the 1970s. However, the rural reconstruction schemes, launched earlier in the decade, began to have an impact on the efficiency of the agricultural sector. At the same time, the IAC was continuously making it clear to both the government and the public just how much protection and assistance were provided for domestic industries by using its sophisticated measurement techniques, and the IAC presented options for overall reduction of protection. 31 State and society actors’ criticism of the Fraser Government’s reluctance to address the need for comprehensive structural reform intensified. As a witness to an inquiry by the Senate Standing Committee on Foreign Affairs and Defence, Nancy Viviani (Professor at Griffith University and Director of the Centre for the Study of Australia–Asia Relations) observed that the public debate on the issue of protectionism had turned around significantly.

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I think even within the trade unions … that has turned around. … the argument has turned around in the Department of Trade. Before … 1977, they were the biggest load of protectionists and non-forward lookers you could ever see, … [but] I found that they had shifted around on this.32

About the public atmosphere on the issue, John Desmond Moore, First Assistant Secretary of the Treasury, also attested that: My impression is that, both in the business sector and in the union sector … there is now a much greater acceptance that restructuring will occur and will have to occur. The debate is moving much more onto … how quickly it should occur.33

What had become evident by the early 1980s was that a wider group influential in foreign economic policy-making, including government officials, industrial organizations and trade unions, shared the view that reform of domestic industries to support a high living standard of the Australian population was necessary. However, there still remained differences of opinion among them on how liberalization and deregulation should proceed. The first major difference in opinion was whether the liberalization and deregulation measures should be implemented unilaterally on the MFN basis or introduced through bilateral (or regional) arrangements. As this issue sharply reflects each policy actor’s understanding of international society (the level of confidence they give to international organizations and regimes in this case), the difference in opinion on this issue arises from the differences in the beliefs which form the core of their policy ideas. The Harries Committee, which was chaired by Prime Minister Fraser’s own foreign policy adviser and which enquired into Australia’s relations with the “Third World”, asserted that Australia’s liberalization was best conducted unilaterally. In consideration of the impact that discriminatory bilateral or regional arrangements might have on developing countries, the report of the Committee (the Harries Report) stated that “we should not make our reduction of restrictions [on imports] conditional upon concessions from Third World trading partners” (Harries et al. 1979, p. 186). The Treasury was of a similar view. Moore, First Assistant Secretary, stated at the Senate Standing Committee on Foreign Affairs and Defence that “we think … that it would be advisable to reduce

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restrictions on a multilateral basis, particularly bearing in mind our other important trading partners”.34 The Crawford Study Group raised a more suspicious view on the MFN arrangements, which formed the very basis of the GATT regime. While in the past Australia’s interests were best served by a relatively strict adherence to the internationally agreed rules of trade, other countries facing pressure for change have shown an increasing tendency to bend the rules to suit their own circumstances. Australia’s strict adherence to the … MFN arrangements should be re-evaluated. (Crawford et al. 1979, p. 37)

While still considering the MFN rules as the best for expanding export markets in countries where these rules were observed, the Group recommended that: Australia should examine the possibilities for strengthened forms of bilateral agreements with the countries of East and South-east Asia. In such agreements a commitment by Australia to liberalise gradually imports of a specified range of goods might be exchanged for a commitment to allow greater access to our exports. Australia’s interests … clearly require assured market access. (Crawford et al. 1979, p. 38)

Second, there was a difference of opinion on how quickly the structural adjustment measures should be implemented. Peter Sim, Chairman of the Senate Standing Committee on Foreign Affairs and Defence, recognized that there was urgency for policy change.35 The Harries Report also noted that “determined actions of a substantive nature should be initiated quickly … to facilitate the transition to a more outward-looking Australian industrial structure” (Harries et al. 1979, p. 186). Viviani (1979, p. 787) stated that “the longer such moves are delayed the more difficult they are to make”. Opposed to this, the approach recommended by the Crawford Study Group was much more gradualist. The Group was particularly concerned about the potentially massive costs that structural reform would impose on highly protected industries such as the TCF. The report of the Study Group mentioned that “highly protected industries employ, directly and indirectly, 500,000 Australians. Many are of particular regional significance as employers. If desirable restructuring is to proceed without disruption, it will take a number of years to achieve”

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(Crawford et al. 1979, p. 17). The report also warned that any general programme of tariff reductions should not be implemented when the unemployment rate was more than 5 per cent (Crawford et al. 1979, p. 24). Thus the Group believed that no action should be taken immediately to begin a general programme to reduce protection levels (Crawford et al. 1979, p. 40). The stance of the trade unions on this issue was similar to the Crawford Study Group’s. The Australian Council of Trade Unions’ (ACTU) view was that restructuring should depend on gradual adjustment including orderly schemes for creating new jobs and retraining for occupants of existing positions (Joint Committee 1984, pp. 170–71). In implementing structural reform policy, and thus effecting a change in foreign economic policy, the government needed to judge which approaches for both of the above issues were feasible by considering the domestic political situation.

III. THE ASCENDANCY OF THE TRADE LIBERALIZERS The general election in March 1983 saw the defeat of the Fraser Government. Following another substantial decline in the terms of trade in the early 1980s, the formation of the Hawke ALP Government acted as a decisive exogenous shock to the domestic coalitional settings. As a result, Australia’s traditional protectionist policies came to an end. With the government’s policy navigation, the newly dominant coalition, the trade liberalizers, clearly supported multilateral (MFN) liberalization and gradual structural reform. The coalition, which demanded the reduction of industry protection and structural reform, had gradually extended its influence throughout the 1970s and established its dominance in the foreign economic policy process under the Hawke Government. Yet the replacement of the protectionists by the trade liberalizers as the dominant coalition did not occur immediately or automatically after the change of government. The actual shift in Australia’s foreign economic policy awaited deliberate efforts by the government to set a favourable domestic political environment.

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The ALP and the Trade Union Movement: Mobilising Support for Structural Reform a) Generational Change within the ALP and the Acceptance of Market-oriented Policies Paradoxically it was the “Labor Party” that became a champion of Australia’s trade liberalizers. Traditionally, the ALP had the support of the “working class” and was expected to reflect the protectionist demands of labour. After World War II, Australia’s social structure changed dramatically as the Australian economy experienced a long boom period in the 1950s and 1960s. The traditional working class declined as a proportion of the total population. The ALP had remained in opposition for most of the post-war period, except when Whitlam led the party to the election victory in December 1972 and stayed in office for a short three years. The ALP needed to re-think its traditional ideology-driven policy positions and look for alternative policy goals, if it were going to find a way out of its position as the perennial opposition party and take over the reins of government. During the period between 1975 and 1983 when the ALP remained in opposition, a generational change had occurred within the party. The change saw members such as Bill Hayden, Bob Hawke, Paul Keating, John Button, John Dawkins, Ralph Willis and Peter Walsh occupying influential posts both in the party and the shadow cabinet. They also held key ministerial posts after the ALP took office in 1983. This new generation within the ALP recognized that the Keynesian economics-based state intervention had failed to continue delivering sustained prosperity in the era of increasing globalization of national economies (Kelly 1992, p. 35)36 and shared, albeit in varying degrees, policy ideas based on a belief in economic competition, a faith in market forces and a commitment to the internationalization of the Australian economy (Kelly 1992, p. 20). In particular, to generate adequate jobs and income to provide Australia’s increasing population with a rising standard of living, they thought that Australia needed policies to advance international competitiveness, not only in the traditional primary commodities sector but also in manufacturing and services, and to promote these sectors’ exports (Garnaut 1989, p. 205).

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The leaders of the ALP Government were confident of marketoriented policy approaches because other developed states had already introduced a similar set of policies with reasonable results. The major changes in Australia’s economic policy were parallel to, and closely followed important changes in, economic policy in other leading industrial economies: the United States, the United Kingdom and West Germany. Margaret Thatcher came to power in the United Kingdom in 1979, followed shortly by Ronald Reagan in the United States and Helmut Kohl in West Germany. Although there is much debate about the long-term legacy of each of these political leaders, there is little doubt that they reversed economic policy in their respective countries. New policies were supported by the ideas based on neoclassical economics that clearly gained new force worldwide in the late 1970s and early 1980s (Biersteker 1992, pp. 118–19). Ravenhill (1991, p. 219) pointed out that “the 1980s can justifiably be called the decade of deregulation. The domestic agendas that the Reagan and Thatcher administrations pursued inevitably spilled over to other economies not merely through a demonstration effect but also in some instances by compelling foreign governments to offer equivalent latitude to their domestic corporations”. The generational change within the ALP and the acceptance of neoclassical economic ideas meant a relative decline in the value which the party traditionally placed on income redistribution. Yet, this issue remained an important element in Labor thinking, especially within the minority “Left” faction of the party. The ALP Government had to find a balance between its new policy preferences and traditional values.

b) Bringing the Trade Union Movement into the Policy Process Before implementing structural reform policies, what the Hawke Government attempted to do was to establish a new basis of cooperation between the ALP and the trade union movement and to forge close links with the business and financial communities (Kelly 1992, p. 19). The government organized a National Economic Summit in April 1983, just a month after it came to power. Ninety-eight representatives and nineteen observers from state and local governments, major business organizations and large individual companies, small and medium-sized

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enterprises, the trade union movement, as well as the social welfare sector and community organizations participated in the Summit. By establishing a “common understanding of the nature and sources of Australia’s economic problems” and a “consensus on the basic framework and approach required to arrest the decline in our economy” in such a widely-represented conference,37 the government could set a general policy direction towards structural reform of the domestic industries, and have most domestic actors committed to the reform.38 The establishment of cooperative relations with trade unions was considered particularly important because employees, especially those of the small, labour-intensive industries, were thought to be the most severely affected by structural reform policies and they also formed the core of ALP support. The Hawke Government held close policy consultations with the ACTU, the powerful national peak body of the trade union movement, on the structural reform issue. This was possible because there were personal connections between some of the key ministers and ACTU heavyweights. For instance, Hawke began his career as a researcher with the ACTU in 1958, and for a decade before he was first elected to the House of Representatives in 1980, Hawke was President of the ACTU. Ralph Willis was also a researcher with the ACTU before he entered politics in 1972. For the ACTU, Simon Crean (Vice President, 1981–85; President, 1985–90),39 Bill Kelty (Assistant Secretary, 1977–83; Secretary, 1983–2000), Martin Ferguson (Vice President, 1985–90; President, 1990–96)40 and others played central roles in policy consultations with the government. In particular, the relationship of trust that developed between Treasurer Keating and Secretary Kelty over the few years starting from 1983 was critically important (Gruen and Grattan 1993, pp. 112–13).41 The previous Liberal/National (Country) Government clearly lacked this kind of close relationship with the trade union movement or the ACTU. The ALP Government successfully and consistently involved the ACTU in the policy-making process. The ACTU maintained a privileged position from which it could exert influence on decisions concerning concrete structural reform measures. The “Accord”, a social contract on wages and prices between the government and the ACTU, stands out as an example. The Accord, which was first agreed upon in February 1983 just before the ALP’s election victory and renewed seven times

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over the period between 1983 and 1996, was basically a deal between the Labor Government and trade unions to solve economic problems as much as possible to the mutual benefit of the two parties (Gruen and Grattan 1993, p. 111). In more concrete terms, it was an agreement by which the government promised to provide some forms of benefits to trade unions in return for wage restraint, or the government accepted trade unions’ demand for wage increases subject to productivity growth (Fukushima 1990, p. 111). Successive Accords included, on one hand, stringent measures for workers such as the abolition of full wage indexation to inflation, a 2-per-cent real wage cut, the introduction of a “two-tier” wage structure (in which the first-tier wage provided a flat increase for all workers and the second-tier increase was tied to improved productivity), cooperation in the improvement of restrictive labour practices (such as the consolidation of industry-based unions and the promotion of the enterprise bargaining system) and the deregulation of the labour market (such as the promotion of labour mobility across occupations). On the other hand, measures such as substantial cuts in personal income tax and improvements in the medical insurance, the pension, and other welfare systems for workers, especially low-income earners, were also introduced (Fukushima 1990, pp. 109–10; Gruen and Grattan 1993, pp. 113–14, 125–27; Matthews 1994, p. 208).42 During the period between the mid-1980s and the mid-1990s when the Accord was in place, the wage growth rate was reduced and the number of working days lost due to industrial disputation decreased. In particular, the fact that a wage explosion did not eventuate in 1988 and 1989 when the Australian economy experienced the long-awaited, but short, boom period can be seen as a significant result of the Accord (Gruen and Grattan 1993, p. 124).43 Through the Accord, the government secured the trade unions’ commitment to productivity growth. Gruen and Grattan (1993, p. 125) argue that trade unions were not interested in any beneficial effects of wage restraint per se, but they were interested in the by-products of such wage restraint. Nevertheless, the fact that the ACTU leaders shared a sense of crisis regarding the future of the Australian economy with the Hawke Government needs to be emphasized. To extricate itself from a prolonged recession, Australia’s economic structure, which relied heavily upon the production and export of primary

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commodities, needed to be reformed, and to do that, the development of internationally competitive manufacturing and services industries was urgently required. However, if trade unions demanded wage increases as usual without taking productivity growth into account, it would lead to a decline in entrepreneurs’ motivation to invest. As the result, unemployment could rise considerably (Fukushima 1990, p. 112). The sense of crisis was reflected in a report on economic reform strategy and recommendations titled Australia Reconstructed, jointly published by the ACTU and the Trade Development Council in 1987 (ACTU/TDC 1987). The report covered a wide range of matters from macroeconomic policy to wages in individual firms, and the overall direction was in line with the government’s economic reform policy. Employees in the manufacturing and service sectors had been enjoying relatively high standards of living under the protection policy, but the ACTU realized that it was also the main cause of Australia’s inability to compete in the new international economic environment. To realize full employment, low inflation and a higher standard of living, the ACTU placed emphasis on increased investment and productivity rather than protection (ACTU/TDC 1987, p. 19). The report also argued that the manufacturing sector should become internationally competitive and export-oriented (ACTU/TDC 1987, pp. 90–91). The ACTU’s strong emphasis on productivity and the development of an internationally competitive manufacturing sector was a clear departure from the traditional attitude of Australia’s labour movement. This general support for trade and investment liberalization and deregulation meant the rapid disintegration of the protectionist coalition. By the end of the 1980s, support for the old protectionism had minimal influence. The Liberal/National opposition was forced comprehensively to redirect its policy goals along the lines of the dry movement. Thus, the 1980s was characterized by a larger than usual measure of bipartisanship on foreign economic policy issues (Boyce 1992, p. 5). In fact, to demonstrate to electorates the differences in policies from the ALP in the hope of winning back government, the Liberal/National opposition often committed itself to more market-oriented economic policies and less government intervention (in other words, more dry policies) than the ALP (Emy 1993, pp. 108–28).44

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Introduction of Gradual and Unilateral Liberalization and Deregulation a) Liberalization of the Finance Sector and the Implementation of Individual Industry Policies During the campaign for the March 1983 election, the ALP, led by Hawke who, as the ACTU representative, participated in the committees that produced the Jackson and Crawford Reports in the 1970s, had declared that it would commit to structural reform of the domestic economy if it won office. After the election victory, the Hawke Government began a shift in foreign economic policy first with liberalization and deregulation of the financial sector. Following the recommendations of the Campbell Report (1981) mentioned earlier, the previous Fraser Government had already introduced measures such as the removal of interest rate ceilings on bank deposits and the elimination of guidance for the banks as to how much to lend to different sectors (Gruen and Grattan 1993, p. 138). The Hawke Government went much further. It floated the exchange rate and surrendered most official controls over exchange dealings. The government removed restrictions on foreign ownership of merchant banks in 1984, allowed fifteen foreign banks to commence operation in 1985 and removed interest rate control on trading banks in 1986. By the end of 1988, the exchange rate had depreciated by 24 per cent to the level prevailing at the beginning of the decade (Keating and Dixon 1989). Simultaneous with the relatively fast-paced implementation of liberalization and deregulation in the financial sector, the government also introduced active promotion policies for certain industries in the manufacturing sector. The series of individual industry policies was collectively referred to as the “Button Plan” after the name of the Minister for Industry and Commerce who played a central role in its development. In principle, the Button Plan was a combination of carrotand-stick measures. It provided government assistance for promotion of production efficiency, technology development and an export-oriented mentality at individual firms in target industries, and in return, firms and trade unions promised certain commitments.

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For instance, under the steel industry policy introduced in 1983, the government provided production bounties for five years and introduced anti-dumping measures against imports in order to save the then ailing steel industry. In return, the firms promised to maintain the operation of existing plants and employment and to increase investment in modern facilities. The trade unions made a commitment to wage restraint and productivity improvements. Under the car industry plan of 1984, the firms were required to reduce the number of models, standardize components and accept gradual tariff reductions in order to receive government assistance for export facilitation, research and development investment (worth A$150 million) and re-training for workers who lost their jobs. The TCF industry plan of 1986 was similar to the car plan but added support for business planning and improving management skills in the industry.45 During this period, the government also implemented new export promotion measures in addition to the existing schemes.46 The government organized a National Export Market Strategy Panel in 1985 to conduct a review of existing export promotion schemes. The Panel gave export assistance a positive role in lifting the export performance of Australia’s manufacturing and services sectors and in countering the legacy of the post-war import substitution strategy for industrial development. The government accepted most of the Panel’s recommendations, including the establishment of a new statutory body, the Australian Trade Commission (Austrade), coordination of export marketing programmes and the introduction of a High Technology Exporters Scheme (Snape et al. 1998, pp. 263–64).

b) The Decision on Tariff Reduction The currency depreciation and the introduction of industry policies were expected to result in an increase in exports and a decrease in the current account deficit and foreign debt. However, their effect was not immediate. In fact, the economic situation worsened after a brief recovery in 1984. The current account deficit rose to around 4.5 per cent of GDP in 1986 and foreign debt was also still increasing. The recession in 1986 forced the government to re-acknowledge the urgent need for structural adjustment of the domestic economy (Harris 1992,

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p. 41; Kelly 1992, p. 394). The famous “banana republic” speech by Treasurer Paul Keating was made in May that year.47 Low productivity, and thus less competitiveness against foreign products, was perceived to be the major obstacle to a comprehensive reduction of the current account deficit. Despite the government’s efforts to liberalize the financial sector, it did not have an immediate impact on improvement of productivity of the sector. In fact, productivity of the financial sector gradually decreased until 1985/86 before starting to pick up in the late 1980s. The manufacturing sector’s increase in productivity over the course of the 1980s was consistent, thanks to the Accord described above, but very slow.48 What was more alarming for the government was that the growth in productivity of the Australian economy as a whole could not keep up with the pace of productivity growth in other members of the Organization for Economic Cooperation and Development (OECD). According to Table 3.2, Australia’s annual productivity growth rate between 1978 and 1987 (1.7 per cent) was 0.1 per cent lower than that of the OECD average. In 1988, Australia’s productivity growth rate decreased by 0.9 percentage point from the 1979–87 average to 0.8 per cent, while the OECD average rose by 0.5 percentage point to 2.3 per cent. The figures for Australia were negative in 1989 and 1990. At the end of the 1980s, Australia had a national economy with one of the lowest labour productivity growth rates.

TABLE 3.2 Labour Productivity of the Private Sector, Selected Economies (percentage change from previous period) Average 1978–87

1988

1989

1990

Australia Japan Korea New Zealand United Kingdom United States

1.7 2.6 5.5 1.1 2.6 1.1

0.8 5.3 8.0 3.3 0.2 1.0

–0.3 3.5 2.0 4.5 –0.5 1.2

–0.2 3.6 6.3 –0.9 0.3 0.7

Average OECD

1.8

2.3

1.8

1.6

Source: OECD Economic Outlook 76 database.

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To increase productivity and competitiveness in manufacturing industries, the government finally decided to expose them to competition in the domestic and world markets by phasing out the protection they, and the trade unions, had long enjoyed. In October 1987, Hawke announced that all of Australia’s quantitative import restrictions would be phased out. The quota or tariff quota restrictions were eventually to be transformed into tariffs by the mid-1990s (Harris 1992, p. 43). The Economic Statement of May 1988 announced a general programme of phased reductions in protection for all manufacturing industries: tariff levels over 15 per cent were to be reduced to 15 per cent (except for the “sensitive” sectors of PMV and TCF) by 1992, and tariffs between 10 and 15 per cent were to be brought down to 10 per cent by the same year. The Industry Policy Statement of March 1991 declared the continuation of the programme stating that tariffs of most imports were to be phased down to 5 per cent by 1996, the average nominal rate of assistance was to be reduced to 3 per cent by the end of the 1990s, and the average effective rate of assistance was to be reduced to 5 per cent by the same date. The government also decided to restructure the TCF and PMV industries by exposing them to competition though with a different timetable from other industries. Import quotas for PMV and TCF were abolished by 1988 and 1993 respectively. By 2000, the tariff rates of PMV and most textile and footwear imports would be reduced to 15 per cent, and clothing products would have a flat tariff rate of 25 per cent (Stanford 1992; Corden 1995, p. 12). These measures to reduce protection for manufacturing industries are clearly revealed in the substantial falls in average effective rates of assistance after 1986/87, as shown in Figure 3.4. The decision to diminish protectionism was made unilaterally, not reciprocally with other countries, and in difficult economic situations. While it is understandable that the government announced its Economic Statement of 1988 at a time of economic recovery,49 the Industry Policy Statement to continue structural adjustment was released in 1991 when the Australian economy was in bad shape: GDP recorded negative growth for the first time since 1982, the unemployment rate rose to 9.5 per cent and the terms of trade dropped 9.6 per cent from the previous year. A turnaround on the manufacturing industry protection programmes was a tougher decision for the Hawke Government than liberalization

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in the financial sector because such a turnaround would inflict severe competition on a broader range of society, including employers and employees of small- and medium-sized firms, and exert direct impact on their everyday lives (Kelly 1992, p. 367). Thus, the implementation needed to be gradual, especially for sensitive industries such as TCF and PMV. This shift in foreign economic policy suggests that the trade liberalizers had become a dominant influence on policy by the latter half of 1980s.

Active Involvement in the GATT Uruguay Round For Australia, the distinct shift in foreign economic policy in the 1980s underlined the importance of the maintenance and promotion of the multilateral trading system, especially after the recession in the mid-1980s and subsequent embarkation on unilateral tariff reduction on manufactured products. Although the government’s liberalization and deregulation measures were introduced unilaterally, or rather because they were implemented unilaterally, it needed to underpin these domestic efforts by attention to strengthening international economic regimes, especially the GATT.50 The Hawke Government set the successful conclusion of the next multilateral trade negotiation, the Uruguay Round, as its key policy priority (DFAT 1988, p. 21; Evans 1989, p. 10).

a) “Unsuccessful” Results of the Kennedy and Tokyo Rounds Australia was a supporter of GATT multilateral trade negotiations, but it remained sceptical about the results for reasons that were readily apparent: products covered in multilateral liberalization were mainly manufactured goods, which Australia did not export in large quantity, and agricultural products in which Australia had strong comparative advantage were virtually excluded from the negotiations. In the Kennedy Round in the 1960s, Australia placed primary emphasis on opening agricultural markets abroad. The Round adopted a “package deal approach”51 for the first time but it was applied only to manufactured products, not to agricultural commodities. Australia dissociated itself from the package deal tariff reductions because it was unlikely that any real benefits would be gained for Australia’s

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agricultural exports. As a result, Australia received and gave very little by way of market access (Capling 2001, pp. 81, 90).52 Faced with the United Kingdom’s entry into the EC in 1973 that meant the termination of preferential access of Australia’s agricultural products to the UK market, the Japanese embargo on beef imports in 1974 and the dumping of subsidized EC sugar in Southeast Asian markets, the government aimed at securing a good outcome on agriculture in the Tokyo Round in the 1970s with more eagerness in participating than it had in the previous Kennedy Round (Capling 2001, p. 89). Yet, as in the previous Kennedy Round, the negotiations on agricultural trade were conducted through a traditional bilateral “request and offer”, “product-by-product” approach, and the EC and Japan did not exhibit much interest (Capling 2001, pp. 89–90). In the end, the Australian Government again declined to participate in the package deal tariff reduction on manufactured products and did not undertake any substantial commitments in the Tokyo Round (Snape et al. 1998, p. 367; Capling 2001, p. 90). At the GATT Ministerial Meeting in 1982, the Australian Government, along with others including the United States, once again argued for a new multilateral trade negotiation with an agenda including agriculture.53 The government pushed for the full integration of agriculture into the GATT rules and had developed proposals for a standstill and rollback of protectionist measures and for subsidy reduction (Capling 2001, p. 98). The Australian proposals, however, failed to attract enough support in the meeting. The meeting as a whole failed to agree on the early launch of the next Round.

b) Growing Concern over the Development of U.S. Bilateralism The failure of the 1982 GATT Ministerial Meeting caused a major shift in U.S. foreign economic policy. After the meeting, the United States Trade Representative (USTR), William Brock, announced that the United States would no longer confine itself to pursuing only multilateral trade agreements: it would pursue both multilateral and bilateral negotiations (Snape et al. 1998, p. 369). U.S. bilateralism meant that, on the one hand, it would pursue bilateral free trade agreements (FTAs) with its main trade partners. On the other hand, it meant that the United States

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would negotiate the market access issue directly with individual trade partners. In this kind of bilateral negotiation framework, the United States could use its influence directly on partners to realize its demands. Indeed, since the latter half of the 1980s, the United States did put strong pressure on its trade partners, which it identified as conducting “unfair” trade practices, to comply with U.S. demands. The enactment of the Omnibus Trade and Competitiveness Act 1988 that contained “Super 301” and “Special 301” provisions54 and the subsequent use of these provisions mainly against Japan and some Asian Newly Industrializing Economies (NIEs), with which the United States had been recording large trade deficits, characterized the “aggressive unilateralism” of the United States in this period.55 The Hawke Government saw that the U.S. pursuit of bilateralism in economic relations, particularly in the Asia-Pacific region, would seriously damage its economic interests. By the end of the 1980s, about half of Australia’s trade had already been directed to or sourced from the region and any discriminatory bilateral deals in the region that involved economic powers like the United States and Japan might result in diversion of trade and investment flow, adversely affecting Australia (Evans 1989, p. 5; Elek 1991, p. 328; Evans and Grant 1995, p. 127). As early as February 1985, Hawke stated in Brussels that: The factor which raises the greatest single doubt about the nature of this commitment [to multilateral trade liberalisation] is the increasing tendency of the majors to strike bilateral restraint and market sharing arrangements among themselves. The costs to smaller nations and, ultimately to the trading system as a whole, of such discriminatory arrangements is much greater than any short-term benefits which such ‘second-best’ approaches may yield. More fundamentally, such arrangements are contrary to the longer-term interests of the major trading nations themselves. (quoted in Snape et al. 1998, p. 417)

The government commissioned a study on the desirability of an Australia–United States FTA and the report of the study was published in 1986. The report (Snape 1986) argued that it was better for Australia to pursue trade liberalization on a broader front.56 Accordingly, the government ruled out the possibility of Australia concluding its own bilateral FTAs with its major economic partners.

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c) Seeking Multilateral Liberalization through Cooperation in the Asia-Pacific Region In September 1986, the GATT Ministerial Meeting agreed to launch the Uruguay Round. Just a month before in August, the Australian Government invited representatives from fourteen agricultural exporting countries to Cairns and led the formation of a coalition to become a “third force” in international negotiations along with the EC and the United States (Evans and Grant 1995, p. 37). The members of the new international coalition, the Cairns Group, came from various parts of the world: North America (Canada), Latin America (Argentina, Brazil, Chile, Colombia and Uruguay), Eastern Europe (Hungary), Southeast Asia (Indonesia, Malaysia, the Philippines and Thailand) and Oceania (Australia, Fiji and New Zealand). Mainly due to the pressure from the Cairns Group, the Australian Government could secure the full inclusion of agriculture in multilateral negotiations for the first time in the GATT’s history. The international trade regime, nevertheless, was fragile in the late 1980s and the early 1990s. When the Uruguay Round became deadlocked, the United States prioritized its bilateralist policies. It opted for the creation of an FTA with Canada, in effect from January 1989, and subsequently extended to Mexico as NAFTA, from January 1994. The United States suggested that other bilateral and regional arrangements could follow. The EC advanced its programme of creating a single market by 1993 through the Single European Act of 1987. The Treaty on European Union (the Maastricht Treaty) in 1992 led to the creation of the EU in the following year and advanced political and economic union issues.57 These economic groupings involving economic powers like the United States and the EU made outsiders, including Australia, very cautious. The Hawke Government first reacted to the U.S. and the EU moves by considering the need for an Asia-Pacific regional bloc. But since it realized that a preferential bloc in the Asia-Pacific region would neither be sensible nor feasible (Harris 1992, p. 40), the government set upon a foreign economic policy course to promote global free trade and investment using cooperation in the Asia-Pacific region as its springboard. Working together with Japan, the Hawke Government called for cooperation for freer trade and investment in the Asia-Pacific

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region, and this move culminated in the establishment of APEC in 1989. Australia expected APEC not only to end the deadlock in the Uruguay Round negotiations but also to ease bilateral trade tensions (especially those between Japan and the United States) in a way which did not harm interests of other states in the region (Elek 1991, p. 328). From its inception, APEC consistently argued the importance of the successful conclusion of the Uruguay Round. It was widely acknowledged that APEC’s pressure contributed to the positive conclusion of the Round.58 Moreover, APEC’s own attempt at trade and investment liberalization from which Australia could expect significant benefits given its increasing economic relations with the region began in the mid-1990s. Australia, with its increasing economic relations with the region, could expect significant benefits from regional trade and investment liberalization under the APEC framework.

d) The Merger of the Departments of Foreign Affairs and Trade To implement structural reform of the economy and pursue multilateral liberalization to underpin domestic efforts, the government also altered the policy institutions mainly through the re-organization of government departments. The merger of the Department of Foreign Affairs and the Department of Trade in 1987 is an instance of major institutional change in Australia’s foreign economic policy process. Department of Trade had strong influence over foreign economic policy issues. The Department controlled policies on exports, international trade negotiations, foreign direct investment and imports, under the sway of the (National) Country Party that was a champion of protectionism (Stockwin 1972). After the retirement of McEwen in 1971, however, the voice against traditional protectionism grew in the Department. Since active involvement in multilateral liberalization processes was an important element in its economic policy reform, the government needed better policy coordination within the Department of Trade and between the Departments of Trade and Foreign Affairs in pursuit of its policy goals. The government decided to merge the two departments in July 1987 and established the Department of Foreign Affairs and Trade (DFAT).59 This merger was expected to bring a range of benefits, including better

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coordination, reduction in overlap and duplication, greater flexibility and broader perspectives in the foreign economic policy process. An enhanced ministerial control over the foreign economic policy process was also expected (Gruen and Grattan 1993, p. 44). The establishment of DFAT was seen as an attempt to integrate Australia’s trade policy directly with its overall foreign policy orientation (Harris 1989a; Pusey 1991, p. 149).

IV. THE RISE OF THE BILATERALISTS At the general election held in March 1996, the Liberal and the National Parties regained office for the first time since 1983. The decade-long implementation of economic reform led to reform-fatigue and an ideological attack on “economic rationalism”.60

The Emergence of Bilateralist Policy Ideas a) The Howard Government’s Initiative In its early days in office, the new Howard Government announced that it would retain some major elements of the previous government’s foreign economic policy strategies, including accordance of the highest priority to the Asia-Pacific region and identification of APEC as the most significant international forum in which it participated, as well as placement of importance on the WTO. Yet, after about a year in office, indications of its more short-term and bilateralist-oriented foreign economic policy compared with the previous government began to emerge. The Howard Government published Australia’s first white paper on foreign and trade policy in August 1997 (Commonwealth of Australia 1997a). The essence of the White Paper was a declaration that the new government would pursue every possible measure, including using bilateral approaches, to advance Australia’s national interest defined as the security of the Australian nation and jobs and the standard of living of the Australian people. The White Paper recognized that the Australian economy’s ability to export and the openness of foreign markets were key to promoting Australia’s national interest and that the multilateral system’s capacity to deliver depended inevitably on the

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will of member states, which was not always uniform. Thus, the White Paper stated that “a central feature of the Government’s approach … is the importance it attaches to strengthening bilateral relationships” (Commonwealth of Australia 1997a, p. 53). On regional trade arrangements which include FTAs and can be used as concrete measures to strengthen bilateral economic relations, the White Paper argued that: Australia will keep an open mind about new approaches, including preferential free trade arrangements. The Government recognises that regional trade arrangements offer potential advantages for their participants. Compared with global negotiations, they are perceived as being able to go further faster, and are more likely to include ‘new issues’ arising from the globalisation of economic activity. (Commonwealth of Australia 1997a, p. 42)

This new stance sharply contrasted with that of the previous ALP Governments, which had given priority to multilateral liberalization over bilateral agreements. Moreover, the Howard Government’s stance on bilateralism was also different from the previous Liberal/National (Country) Government’s and the protectionists’ stances. Australia’s bilateral economic relations under successive governments after World War II sought to secure and extend mutual MFN treatment under the GATT regime. Although governments backed by the protectionist coalition were generally sceptical of multilateral liberalization, the basic direction of their policy strategy was, as illustrated by negotiations with the United Kingdom and Japan in the 1950s, to reduce “excessive” preferential treatment and extend mutual MFN status to growing trade partners. Backed by the trade liberalizers, the Hawke and Keating Governments gave clear priority to unilateral and multilateral liberalization on an MFN basis. In contrast, the bilateralist policy idea accepted by the Howard Government was to provide reciprocal preferential treatment to particular trade partners and, on the other side of the coin, to discriminate against outsiders.

b) Forming the Foundation of the Bilateralist Coalition Early indications of the Howard Government’s policy preference for bilateralism and reciprocity came at approximately the same time as

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the release of the White Paper on foreign and trade policy. In 1996, the government asked the Industry Commission to provide policy recommendations on government assistance to the PMV industry after 2000 when the tariff reduction programme introduced by the Hawke Government was due to expire. In a majority opinion, the Commission recommended that the tariff reduction should continue, bringing the rate down to 5 per cent by 2005. In June 1997, despite opposition from some key cabinet members such as Peter Costello (Treasurer) and Tim Fischer (Minister for Trade), Howard adopted the recommendation of a minority report of the Commission and decided to freeze the tariff rates of PMV products in the period between 2000 and 2005 (Australian, 6 June 1997). A similar decision was made on the TCF industries. Under the Hawke Government’s TCF industry plan, all import barriers had been converted to tariffs and progressively phased down to 25 per cent on clothing and 15 per cent on textiles and footwear in 2000. The Industry Commission recommended that tariff reductions should continue after 2000 but Howard, again, disregarded the recommendation and announced in September 1997 that TCF tariffs would be frozen for five years from 2000 (Australian, 11 September 1997). In both cases, the manufacturers and trade unions of PMV and TCF industries argued against further tariff reduction unless Australia’s trade partners reciprocated with similar market liberalization measures (Capling 2001, p. 180; Ravenhill 2001, p. 290). In addition, the ALP in opposition aligned itself with those voices against further tariff reductions. Such reactions from some of the policy actors suggest that, by 1997, discontent with or fatigue over unilateral liberalization and deregulation on an MFN basis had emerged, and certain policy actors who shared bilateralist policy ideas existed among the public.

The Ascendancy of the Bilateralists a) The Legacy of Multilateral Approaches The bilateralist policy ideas and approaches, nevertheless, were readily digested neither in the policy community nor among interest groups. There were several reasons for this.

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First, Australia’s export performance in the latter half of the 1990s had been good compared with other economies in the region. The nominal growth rates of exports in goods and services reported in 1997, 1998, 1999 and 2000 were 6.2 per cent, 8.4 per cent, minus 0.4 per cent and 25 per cent respectively (Commonwealth of Australia 1998a, 1999, 2000, 2001). Considering that most East Asian economies, which usually absorb more than half of Australia’s exports, were facing extreme economic hardship following the financial crisis in 1997 and Japan was struggling to overcome the lingering recession, these figures, other than that for 1999, were outstanding. From the trade policy point of view, the government did not have to rely on bilateral arrangements to promote the “national interest” in this difficult regional economic environment. Second, during this period of strong export growth, there were some sound reasons for policy actors to prefer multilateral approaches to reducing trade barriers. As mentioned earlier, the Hawke and Keating Governments actively involved themselves in the Uruguay Round with success, particularly in agricultural trade. After the completion of prolonged negotiations at the end of 1993, domestic industries in Australia, especially agriculture, wanted to secure the steady implementation of the Uruguay Round results by trade partners and did not want bilateral or regional FTAs to interrupt the process. At the same time, officials in DFAT who were directly involved in Uruguay Round negotiations were sensing the onset of “negotiation fatigue”.61 In addition, it was already agreed at the completion of the Uruguay Round that new negotiations on liberalization in the agricultural and services sectors were to start in 2000 as a “built-in agenda”. These legacies of the Uruguay Round did not change just because of the change of government.62 Furthermore, there was a series of multilateral and regional developments, such as the Early Voluntary Sectoral Liberalization (EVSL) initiative of APEC (1997–99) and the anticipated launch of the first round of trade negotiations under the WTO regime that was then often referred to as the “Millennium Round” (1999), from which Australian could expect significant trade benefits. In this period, most society actors including business and industry organizations clearly preferred these multilateral approaches over bilateral ones (ACCI 2000, pp. 5–10) and did not ask the government to pursue specific bilateral FTAs until 2000.63

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b) A Series of Exogenous Shocks Yet all these multilateral initiatives failed by 2000. The APEC EVSL initiative was effectively discarded. Worse still, while the APEC Leaders and Ministerial Meetings in September 1999 managed to support the launch of a new round in principle, the WTO Ministerial Conference in Seattle two months later virtually collapsed and failed to launch a new round. In 1998, as the EVSL initiative was heading towards failure, some countries in the Asia-Pacific region began to move towards bilateral FTAs. In September, New Zealand commenced formal FTA negotiations with Singapore. In December, Japan and Korea, the countries that traditionally favoured multilateralism in trade liberalization and had not been involved in any FTAs before, agreed to start a study on a bilateral FTA at the semi-governmental level. Japan also began similar studies with Mexico and Singapore early in 1999 and early in 2000 respectively. The United States’ intention to create the Free Trade Area of the Americas (FTAA) was clearly stated at the inaugural Summit of the Americas in December 1994. The U.S. drive for the FTAA intensified after the second Summit in Santiago in April 1998. Ravenhill (2001, p. 284) stated that the Howard Government’s reluctance to enter bilateral FTAs had placed it at odds with many of the other Asia-Pacific economies. The Howard Government must have felt frustrated watching its important trade partners’ drive for FTAs. The government saw these moves as “seeking to gain maximum short-term trading advantages in advance of launching a new round or to capture strategic advantages from establishing closer links between particular countries” (Commonwealth of Australia 2000). Nevertheless, the seeking of shortterm, concrete economic gains through bilateral approaches was very consistent with the direction of the policy idea that the government declared in mid-1997. These setbacks in multilateral and regional approaches and the signs of the FTA “boom” in the Asia-Pacific region impacted on the alignment of policy coalitions in Australia’s foreign economic policy process. Major domestic industries began accepting the government-initiated bilateralist approach, and the bilateralist coalition began to ascend as an alternative to the trade liberalizers. The government felt it was already late in taking part in this FTA “race” and needed to catch up.64

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c) The Implementation of Bilateralist Policies and Their Results In November 2000, Howard made a joint announcement with the Singaporean Prime Minister Goh Chok Tong that the two governments would start negotiations for a bilateral FTA. By the end of the year, the government began considering about negotiating an FTA with the incoming George W. Bush administration in the United States (Ravenhill 2001, p. 285). Growth of support for the bilateralist policy ideas by social actors became more obvious when negotiations for an FTA with the United States became a possibility in 2001. Through the FTA negotiations with Singapore and the United States, the bilateralists established themselves as a dominant coalition in Australia’s foreign economic policy process. By the end of 2005, the Howard Government had completed bilateral FTAs with Singapore, the United States and Thailand, and had commenced bilateral negotiations with Malaysia, China and the United Arab Emirates. In 2007, the government was also in FTA negotiations with Japan and conducting joint feasibility studies with Korea, Indonesia and India. In this process, it became evident that the bilateralists were moving to the more assertive stance of promoting “competitive liberalization” (getting other countries into competition in trade liberalization) through bilateral FTAs. Minister for Trade Mark Vaile emphasized in February 2003 that the concept of competitive liberalization was a departure from Australia’s traditional approach to trade negotiations (Vaile 2003). By 2004 when the FTA negotiations with the United States were concluded, major business and industry groups increasingly saw the concept of competitive liberalization as an effective trade policy approach.65 In addition, Australia’s bilateralist foreign economic policy did not seemed to have hindered its engagement with the economic integration movement in East Asia that emerged after the financial crisis. Rather, it has brought “unexpected” regional results such as the commencement of negotiations for an ASEAN–Australia–New Zealand FTA in 2005 and Australia’s participation in the East Asia Summit also in 2005.

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Notes 1. For instance, Australia’s per capita GDP in 1890 was 1,680 U.S. dollars. This figure was well above those of the United Kingdom (1,200 dollars) and the United States (1,160 dollars) in the same year. This trend continued until the end of the 1920s. See Anderson and Garnaut (1987, p. 16). 2. This is not a phenomenon peculiar to Australia: almost all other states consider that their economies should not rely on specific industrial sectors and have protected their import competing industries more or less. 3. According to the analysis of Reitsma (1960, chaps. V–IX), most of these beliefs in and arguments for protectionist policies in Australia could not be supported by economic theories or empirical data, especially in the long run. 4. For example, sugar was protected by import prohibition. High tariffs were applied to imports of agricultural products such as butter and dried fruits (Reitsma 1960, p. 23). 5. The fact that “many of the manufacturers were themselves also increasingly substantial importers was not directly relevant since their imports merely serviced the higher activity” (Glezer 1982, p. 233). 6. Australia’s unemployment rate increased to a peak of 29 per cent in 1932. This figure was one of the highest among industrialized economies in this period. For example, the unemployment rate of the United States reached its peak of 25 per cent in 1933. The figures for the United Kingdom and Canada were 16 per cent (1932) and 19 per cent (1933) respectively (Hori 2002, p. 92). 7. Stabilization of rural incomes was mainly pursued through the control of prices and output of products, rather than by acting directly on farm incomes. The principle of a higher domestic price for farm products than in overseas markets was established in the early stage of federation. To maintain high domestic prices, governments from time to time introduced production quotas and restriction on volume of inputs such as land and water. Through this “two-price” scheme, farm incomes were increased by the higher prices paid for rural products by domestic consumers (Kenwood 1995, p. 49). 8. In 1921, preferential tariff rates were applied to 90 per cent of the imports from the United Kingdom and the margin of preference was increased from 5 to 12 per cent (Reitsma 1960, p. 51). 9. In 1919, in fact, the United Kingdom began to afford preferential market access to Empire products. Starting from eighteen products including currants, dried fruits and sugar, the UK Government gradually expanded preferential treatment in the 1920s (Reitsma 1960, pp. 51–52).

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10. At the start of the preferential agreement, the Australian Government provided: at least 15 per cent less tariff rates to British imports on products that attracted less than 19 per cent tariff duties from other countries; at least 17.5 per cent less tariffs on products that were subject to 19 to less than 29 per cent; and at least 20 per cent less tariffs on products that were subject to 29 per cent or more (Cleary 1934, p. 25). 11. In fact, the League’s secondary objective was stated as “the extension and retention of a system of Tariff Preferences to Great Britain on all classes of goods and commodities” based on “patriotism and goodwill” (Hume-Cook 1938, pp. 16, 36). 12. Domestic support for the maintenance of the preferential system was not without opposition. Parts of Departments of Commerce, Agriculture and External Affairs believed that the system had not only outlived its usefulness but also had become detrimental to Australia’s trade interests, as it had made Australia overly dependent on the British and Commonwealth markets (Capling 2001, p. 16). Nevertheless, the opposition did not attract enough support to influence the government policy on this matter. 13. “Bound” tariff rates are the upper limit tariff rates for individual products that a GATT member country promises to apply to imports from other GATT members. 14. The subsequent and frequent actions by the Australian Government to unbind “bound” tariff rates were not popular because other GATT members whose interests were adversely affected were rarely satisfied with the alternative concessions that Australia offered. Crawford (1968, p. 133) warned that excessive use of this right would reduce respect for Australia’s complaints on other matters. He added that this would be more and more the case with developing economies if Australia unbound tariff rates of significance of their trade. 15. For instance, under the Commonwealth Sugar Agreement (CSA) of December 1951, most Australian sugar was committed to the UK market. However, in 1954, sugar was oversupplied in the UK market because the UK Government imported a substantial amount from Cuba without closely examining available supplies from the CSA participants. So, the UK Ministry of Food asked Australia to divert Australian sugar to other markets, making it necessary for Australia to increase its exports to Canada, Ceylon, Hong Kong, Japan, Singapore and others (Rix 1986, p. 147). There was also a 15-Year Agreement on the meat trade between Australia and the United Kingdom that took effect in 1952. This Agreement, nevertheless, was abrogated before its expiry date and, in the late 1950s, Australia began to depend on the United States as one of its major markets for its meat exports (Kagatsume 1988, p. 324).

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16. Crawford was one of the advocates who pointed out the necessity of an economic “appeasement” policy towards Japan in the late 1930s. He saw that the implementation of an isolation policy by major powers was a factor behind Japan’s expansionist activities in China, and he did not agree with the restrictions on textile imports from Japan (i.e. trade diversion policy) implemented by the entire British Empire, including Australia, in 1936. To prevent the expansion of the war in the Pacific region, Crawford argued that the construction of a collective international system was required and that a mutual guarantee of trading rights among states in the region was an essential prerequisite. Nevertheless, he also asserted that an economic appeasement policy should not be implemented unconditionally but as a reward for Japan’s cessation of aggression and return to international society. See Crawford (1938). 17. Australia’s decision to abolish all discrimination against imports from Japan in the very early stage of the bilateral negotiations was unexpected by the Japanese negotiators. The Japanese Government had anticipated much tougher negotiations, so it was initially incredulous concerning Australia’s offer (Rix 1986, pp. 204, 207; Golding 1996, p. 193). 18. In fact, not all officials at the Department of Trade and Customs opposed the relaxation of trade restrictions towards Japan. For example, Rix (1986, p. 193) pointed out that Frank Meere, the Secretary of the Department, accepted the mutual provision of MFN treatment with Japan at a relatively early stage. 19. Until his retirement from politics, McEwen continuously held trade-related ministerial posts (Commerce and Agriculture, 1949–56; Trade, 1956–63; Trade and Industry, 1963–71) and he was given almost total authority and responsibility over trade policy by Prime Minister Robert Menzies (Golding 1996, p. 179). After McEwen, the ministerial posts of the traderelated departments became reserved seats for senior leaders of the party whenever the Liberal and Country (later National) Parties were in power. See Appendix. 20. For McEwen’s strategy to broaden political support for his Country Party, see Bell (1993), especially Chapter 2. 21. There is an episode which illustrates how serious McEwen was about the Agreement on Commerce with Japan. When a member of the cabinet argued that the Australian economy could rely on its “great and powerful friends” of the United States and the United Kingdom and so did not need the agreement with Japan, McEwen jumped to his feet enraged and went through item after item of importance to Australia which neither the United States nor the United Kingdom would buy. See Kelly (2001, p. 47).

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22. The Tariff Board was established in 1921 for the purpose of advising the government on tariff policy. Although the Board was allowed to inquire into any matter relating to tariff policy on its own initiative and it was accepted as an integral and critical part of the tariff making process by the mid-1930s, the Board had largely confined itself to much narrower roles (Reitsma 1960, p. 36; Glezer 1982, pp. 19–20; Kenwood 1995, p. 70). Until the mid-1960s, the Board’s main role was to handle government requests to review the level of tariff protection afforded to specific manufacturing industries and advise government whether the protection provided was appropriate. This procedure contained a bias towards increased protection, since governments generally referred matters to the Board in response to pressures from manufacturers seeking additional assistance. 23. Average weekly wages grew at 12 per cent in 1974, while award wage rates grew at 19 per cent for males and 27 per cent for females (Anderson and Garnaut 1987, p. 83). 24. The Whitlam Government was ousted in the most unusual and controversial circumstances in the history of Australia’s federal politics. In October 1975, the opposition-controlled Senate blocked the Supply bills, which were necessary for the government to execute the national budget, and urged the government to call a general election. To counter this move, the ALPcontrolled House of Representatives passed a motion of confidence in the government. After three weeks of deadlock, on 11 November, GovernorGeneral John Kerr dismissed Whitlam and commissioned Fraser, the leader of the Liberal/National Country opposition, as caretaker Prime Minister. Fraser immediately sought a double dissolution and Kerr dissolved the Parliament on the same day. The dismissal of the Prime Minister by an unelected vice-regal representative is remembered as the major constitutional crisis in Australian federal politics. The event has been documented in various publications. For instance, see Kelly (1995). 25. Whitlam argued in 1973 that an industry should no longer consider that “its very existence entitles it to a certificate of immortality and changelessness to be guaranteed by … government subsidy and protection by way of tariffs or … permanent quantitative controls on imports” (quoted in Glezer 1982, p. 121). Glezer (1982, p. 146) pointed out that, for Whitlam, tariff restructuring was an opportunity for rational policy-making and control over vested interests. 26. New recruitment of academic economists as consultants by the Tariff Board and the IAC since the mid-1960s played an important part in improving their research activities. These younger generations of university educated economists were basically against protectionist policies (Glezer 1982, p. 273).

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27. For instance, along with the idea publicized by the Green Paper that farmers as export producers were put at a disadvantage by tariffs, the disparity in levels of assistance among industries caused discontent in rural exporting industries. Initially, this criticism sparked an argument for tariffcompensating assistance to farmers (and other exporters), but following a number of heated debates on the desirability of using tariff compensation, rural groups came to see their interests as being advanced the most by general trade liberalization (Anderson and Garnaut 1987, p. 72). 28. Between 1972–73 and 1975–76, nominal wages of TCF industries rose 91 per cent, compared with an average of 74 per cent for other manufacturing industries (Anderson and Garnaut 1987, p. 88). 29. The mining sector expanded rapidly in the 1970s, while the manufacturing sector contracted. This can be seen as another reason that the sector remained relatively quiet against protectionism in the 1970s. The mining sector judged that they would attract little public sympathy by exerting political pressure for their own interests and directly against those of the declining manufacturing industries. The large size of the enterprises in the mining sector and the high degree of foreign ownership would also have made it difficult to win public support (Anderson and Garnaut 1987, p. 74). 30. Through the merger and subsequent expansion of its membership, the AIG has come to represent broader industrial interests, including manufacturing and services, and has been playing an important role in Australia’s foreign economic policy decisions. See Chapters 6 and 7 of this book. 31. There were many publications from the IAC for this purpose. See IAC (1981) for just one example. 32. Statement as a witness to the Senate Standing Committee on Foreign Affairs and Defence, 31 October 1979 (Senate Standing Committee 1980a, p. 842). 33. Statement as a witness to the Senate Standing Committee on Foreign Affairs and Defence, 18 April 1980 (Senate Standing Committee 1980b, p. 1408). 34. As a witness to the Senate Standing Committee on Foreign Affairs and Defence, 18 April 1980, in Senate Standing Committee (1980b, p. 1408). 35. Comment to a witness, 12 September 1979, in Senate Standing Committee (1980a, p. 411). 36. Hawke later recalled “big-spending Keynesian economists were not the need of the day” (Hawke 1994, p. 153). 37. Hawke’s speech in Parliament on 3 May 1983, quoted in Kemp and Stanton (2004, p. 240). 38. Harris (1992, p. 31) pointed out that this political climate reflected a “major maturing of Australia’s economic thinking and policies” at the government and interest group levels.

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39. Crean ran for a seat in the House of Representatives on the ALP ticket in 1990 and won the election. Hawke then directly appointed him as Minister for Science and Technology. Crean successively held the ministerial posts for Primary Industries and Energy (1991–93) and Employment, Education and Training (1993–96). When the ALP returned to power in November 2007 after eleven years as the opposition, he was appointed as Minister for Trade in December 2007. 40. Ferguson also ran for a seat in the House of Representatives on the ALP ticket in 1996 and won. Since December 2007, he has been concurrently serving as Minister for Resources and Energy and as Minister for Tourism. 41. Later, Keating praised the ACTU’s strong political leadership displayed at that time and pointed out that Kelty had played a vital role (Kelly 2001, p. 89). 42. For more details of the Accord, see, for instance, Stilwell (1986) and Singleton (1990). 43. Recalling the Accord, Hawke later said that “the union movement confirmed its commitment [to structural reform]. This took the employers somewhat by surprise, for they were not quite used to the idea of trade unionists agreeing to wage restraint, let alone urging it” (Hawke 1994, p. 181). 44. For example, in 1990, the Liberal Party appointed John Hewson, who had been a professional economist and had been elected to the House of Representatives just three years previously, as the leader of the party and opposition. In the middle of another economic recession then, Hewson’s belief was that Australia’s future depended on the imposition of a radical free market agenda to replace the old framework completely, and the Liberal/National opposition must win the election through explaining this “necessity” directly to electorates (Kelly 1992, pp. 597–98). During the campaign for the March 1993 general election, Hewson pledged to accelerate the phased reductions in protection for the manufacturing industries which was announced by the government in 1991 and also to accelerate the introduction of a “goods and services tax” (GST) coupled with the abolition of sales tax and the reduction of corporate and individual income taxes. The ALP took GST as an attack on the working class and made this a major issue in its election campaign. In the end, the Hewson-led Liberal/National opposition lost another federal election. The GST was introduced later in 2000 under the Howard Liberal/National Government. 45. The government also implemented specific industry policies for shipbuilding (1984), pharmaceuticals (1987), and information technology (1988), focusing on research and development investment, new technologies and skills, and exports. 46. Australia’s first export promotion measure for non-traditional products was introduced in the mid-1950s to provide insurance to exporters against the

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47.

48.

49.

50.

51.

52.

53.

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risk of non-payment by overseas buyers. Since then, successive governments continued to provide export promotion schemes including the provision of tax incentives, direct export finance and support for developing economies to import Australian products for their infrastructure upgrading using Australia’s official development assistance (Snape et al. 1998, pp. 258–64). Keating’s remark on the economic situation on a radio programme went as follows: “I get the very clear feeling that we must let Australians know truthfully, honestly, earnestly, just what sort of international hole Australia is in. It’s the price of commodities on [the] world market but it means an internal economic adjustment. And if we don’t make it this time we never will make it. We will just end up being a third rate economy ... a banana republic” (quoted in Carew 1992, pp. 171–72). The Productivity Commission’s website (accessed 12 September 2005). GDP growth rate in 1987, 1988 and 1989 were 4.7 per cent, 4.3 per cent and 4.2 per cent respectively. The unemployment rate tended to decline over the period and the terms of trade recorded a better figure than the previous year for the first time in fifteen years in 1988. Higgott (1991, pp. 15–16) argued that the Hawke Government’s “offensive” economic diplomacy was a logical consequence of “offensive” economic policy that pursued reform of domestic industries through unilateral liberalization and deregulation. Before the Kennedy Round (1964–67), tariff reduction was negotiated bilaterally with reciprocity, then generalized on an MFN basis. Since the Kennedy Round, the package deal approach (or the formula-based approach/single undertaking), with negotiated exceptions, has been adopted to achieve wider coverage of products for tariff reduction and avoid free riding (Yanai 2004, p. 24). Either way, MFN treatment was applied to all members, thus Australia was a potential beneficiary even though it did not fully participate in rounds (Snape 1984, p. 2; Corden 1995, p. 11). Main achievements for Australia were: improved access to the Japanese market on wool, coking coal, iron and other ores and other commodities; minor concessions on sultanas, honey and others in the European markets; and the 50-per-cent duty reduction on Australian lamb in the U.S. market. On the other hand, Australia increased preferential tariff rates applied to the imports from the United Kingdom and the Commonwealth members to the MFN rates, resulting in increasing tariff protection (Capling 2001, p. 81). The proposed agenda included not just agriculture but also new areas such as services, investment, high technology products and dispute settlement (Snape et al. 1998, p. 369; Capling 2001, p. 98).

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54. Section 301 of the Trade and Tariff Act 1974 gave the President discretion to act against unfair trade practices of other states. The Omnibus Trade and Competitiveness Act 1988 amended this provision and introduced “Super 301” and “Special 301”. “Super 301” transferred the authority for action to the USTR and made action against unfair trade practices virtually mandatory if identified states did not comply with U.S.-imposed deadlines. “Special 301” applies similar provisions to intellectual property rights issues (Snape et al. 1998, p. 458, note 11). 55. Negotiations between the United States and Japan on the Semiconductor Agreement (originally signed in 1986) and those under the frameworks of “Market-Oriented, Sector Selective” (MOSS, started in 1985) and “Structural Impediments Initiative” (SII, started in 1989) were symbolic acts of the U.S. bilateralism and aggressive unilateralism. For more details on the policy process in the United States on this issue, see Kunkel (2003). 56. The report pointed out that Australia’s benefit from such an agreement would be small. The preferential tariff reductions on manufactured goods would not generate large gains for Australia as those goods were not major Australian export items and U.S. tariffs on them were already relatively low. In addition, while the reduction of non-tariff barriers on agricultural products would significantly benefit Australia, it was unlikely that the United States would provide these concessions, given the sensitivity of the issue in U.S. domestic politics (Snape 1986, pp. 91–92). Moreover, Japan and Korea, two of Australia’s most important trade partners, were traditionally opposed to FTAs and other forms of discriminatory trade arrangements so that attempts by the Australian Government to seek preferential agreements with the United States, or the EC, could undermine its other important economic relations with East Asia (Capling 2001, pp. 100–01). 57. The Maastricht Treaty established new areas of European political cooperation: foreign and security policy, and justice and home affairs. It also introduced a timetable for the introduction of a single European currency. The “Euro” began to be used in inter-bank dealing in 1999 and the Euro bills and coins were introduced in 2002. 58. Petri (1999, p. 15) pointed out that APEC played an effective “cheer leading role” encouraging and supporting the Uruguay Round negotiations. 59. This major restructuring of government departments was not confined to the merger of Departments of Trade and Foreign Affairs. The number of departments was reduced from twenty-seven to thirteen, creating so-called “mega-Departments” such as the Department of Industry, Technology and Commerce, Department of Primary Industry and Energy and Department of Employment, Education and Training.

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60. In early 1996, an opinion poll showed that 59 per cent of respondents either “strongly agreed” or “agreed” with the proposition that “Australia should use tariffs to protect its industry” (Ravenhill 2001, p. 290). 61. Interview with officials in DFAT who participated in the Uruguay Round negotiations (30 August 2002). 62. A DFAT official who was involved in the FTA negotiations with Singapore stated that, although the Howard Government officially announced that it had an open mind towards FTAs in 1997, some parts of DFAT still remained cautious on bilateral deals. Interview (28 August 2002). 63. Interview with the Director of Trade and International Affairs, ACCI (29 August 2002) and Executive Director of the AIG (5 September 2002). 64. Interview with officials of the Trade Development Division (30 August 2002) and the Economic Analytical Unit (2 September 2002) in DFAT. 65. See, for instance, ACCI (2004b) and AUSTA (2004).

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4 Australia and the Formation of ASEAN

The foreign economic policy stance of the Australian Government (and the protectionist coalition) towards Southeast Asia in the postwar period was in essence contradictory. On the one hand, Southeast Asia has always been a strategically important region for Australia because of its geographical proximity. This was etched in Australian consciousness by the Japanese invasion of Southeast Asia during the Pacific War (Waters 1997, p. 42). Its importance intensified soon after the war: the end of the war meant the gradual end of colonial rule by European powers and the foundation of independent countries in the region. Under these circumstances, political and security considerations imbued Australia’s relations with the Southeast Asian region with great significance. Australia supported the economic development of these newly independent countries. Economic development of these countries was thought to be the key to achieving stability in the region and to strengthening countervailing power against communist penetration. On the other hand, World War II had strengthened the policy idea of the

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protectionist coalition. Australia accepted the non-discrimination and MFN principles and became an original member of the GATT. Yet Australia secured the right to maintain tariffs for protective purposes in the mid-1950s. Assisting the economic development of newly independent countries in Southeast Asia and, at the same time, maintaining high levels of protection and assistance for Australia’s domestic industries were potentially mutually exclusive tasks. When these new countries developed sufficient industrial capacity to export their products (most likely to be labour-intensive manufactured products given their relative abundance in labour over other resources), it was at least to some extent inevitable that they would demand that Australia open up its markets to their exports. This contradiction in foreign policy stance did not matter much until the 1970s because the competitiveness of the Southeast Asian economies remained limited and their trade was mainly dominated by primary commodities. The fact that most of the newly independent countries in the region struggled in their nation building in the early period and had conflicts with each other did not provide favourable conditions for economic development. The establishment of ASEAN in 1967 was an attempt to build stable relations within Southeast Asia with an agreement to settle disputes peacefully through consultation and by promoting economic, social, cultural and other cooperation. In such an improved regional environment, each member could work on national political and economic development with less external interference. The establishment of ASEAN did not have an immediate effect on its members’ economic relations with Australia and Australia’s foreign economic policy towards the region did not change until the early 1970s. But it laid the foundation for a fundamental change in the relationship later in the same decade. This chapter explores how the establishment of ASEAN in 1967 and its early development through the 1970s were interpreted by the dominant protectionist coalition in Australia and how Australia’s policy towards the region was affected.

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I. AUSTRALIA’S STANCE TOWARDS SOUTHEAST ASIA AFTER WORLD WAR II Political and Military Commitments a) Showing Understanding of the Independence Movement: Liberal Foreign Policies in the Early Post-war Period In Australia, the ALP remained in power from 1941 to 1949. Prime Minister Ben Chifley and Minister for External Affairs H. V. Evatt adopted the strengthening of alliance relationships with the United Kingdom and the United States as the theme of Australia’s post-war foreign policies, but they also sought the reinforcement of multilateral frameworks (international organizations, multilateral rules, etc.). Evatt, especially, emphasized the role that could be played by the newly established United Nations (UN) and devoted himself to the expansion of the power of the UN General Assembly in order to avoid the domination of the UN by the permanent members of the Security Council (Lee 1997, pp. 51–53).1 The idea held by Evatt and others that states’ external behaviour could be controlled by securing all states’ (including major powers’) commitment to multilateral frameworks was based on the principles and beliefs of liberal institutionalism (Waters 1997, p. 40).2 For Australia to become an influential actor in international society, contribution through such multilateral frameworks was thought to be important (Oba 2004, pp. 103–04). This idea of the Chifley Government was also reflected in its stance towards Southeast Asia in the early post-war years. In the region, the Philippines was the first of colonies to became independent, from the United States in 1946. Burma followed suit in 1948, gaining its independence from the United Kingdom. Nationalist movements were also active in Indochina, Malaya, Singapore and Indonesia. The government was largely sympathetic to these moves. It was aware that these nationalist movements were not just the result of communist intrusion. Chifley stated in the Parliament in September 1948 that: The disturbances which are taking place in the world today do go a good deal deeper than just the issue of communism. It is quite true that wherever there is a fire the Communists put on their uniforms and

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go to the fire to pour oil on a blaze that is already burning. … but the great upsurge of nationalism that is occurring now … has roots that go deeper than communism. It is a rebellion … against conditions under which people have been living. (quoted in Waters 2001, p. 124)

The Australian Government saw that the principles embodied in the UN Charter, such as the right of self-determination and the responsibility of colonial powers to guide colonial peoples to political and economic independence, should also be applied in Southeast Asia (Salla 1997, p. 221; Waters 1997, p. 44). In addition, if the colonies were to attain independence in the near future as the government hoped, Australia needed to build good relations with them for the sake of its own security. Thus, it was considered important to make direct, early contact with emerging independence movements and to dispel the view that Australia would remain adjunct to a western colonial empire (Burton 1997, p. 24).3 Nevertheless, the Australian Government responded in different ways to moves towards independence. While it criticized the use of force, the government supported the continuation of French rule in Indochina and British rule in Malaya and Singapore for the time being but sought to encourage these colonial powers to implement progressive policies for independence (Waters 2001, p. 123). Yet for the nationalist movement in Indonesia, it showed determined support for the indigenous Republican Government against the Dutch. When the Netherlands began full-scale military oppression in July 1947, the Australian Government referred the dispute to the UN Security Council against the will of both the United Kingdom and the United States. Australia continued to play a significant role at the UN in securing Indonesia’s independence in 1949, even against direct and indirect UK and U.S. support for Dutch re-colonisation (Lee 1997, p. 59; 2001, pp. 152–70).4

b) Regional Engagement Based on Recognition of the Cold War Structure After 1949 when the Liberal/Country Government led by Robert Menzies returned to power, Australia’s view of the post-war difficulties faced by the former colonies in achieving independence, and in nation building

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since achieving independence, was inevitably influenced by the Cold War structure, which was also affecting Southeast Asia by then.5 As the Menzies Government’s perceptions of international society were based on the traditional realist idea of power politics, the government did not place a great deal of confidence in multilateral organizations such as the UN in matters of defence and security. Rather, its foreign policy interests were predominantly focused on the reinforcement of its alliance with the United States and the United Kingdom and on anti-communism.6 When the withdrawal from the region of the colonial powers (the United Kingdom, France and the Netherlands) gained momentum in the 1950s, the government felt impelled to encourage the growth of a U.S. military presence throughout Southeast Asia. The government also strongly sought accord between the policies of the United Kingdom (and the Commonwealth members) and those of the United States (Watt 1967, p. 110; Camilleri 1979, p. 50; Bell 1980, p. 7). The emergence in Indonesia of the nationalist Sukarno Government with strong Chinese influence and the spread of armed conflicts within Indonesia were seen as evidence of communist penetration in the region. The statement made in the Parliament in October 1954 by Richard Casey, Minister for External Affairs (April 1951–February 1960), conveyed clearly the government’s concerns. He said: It might be asked why Australia needs to concern itself with what happens in the South-East Asia. If the whole of Indo-China fell to the Communists, Thailand would be greatly exposed. If Thailand were to fall, the road would be open to Malaya and Singapore. From the Malay peninsula, the Communists could dominate the northern approaches to Australia and even cut our lifelines with Europe. These grave eventualities may seem long-range, but it is not at all impossible that they could happen within a reasonably short period of time. (Casey 1972, p. 196)

The Australian Government supported the concept of “forward defence”, relying on the U.S. and UK military presence in the region and military cooperation with friendly states in Southeast Asia (Camilleri 1979, p. 64; Iwamoto 1988, p. 54). Australia committed its own troops to the region as well. Soon after the fall of Dien Bien Phu in May 1954, the Southeast Asia Collective Defence Treaty (Southeast Asia Treaty Organization, SEATO)

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was signed in Manila in September of that year and Australia was an original signatory. The government decided to station Australian troops in Malaya in time of peace in April 1955. Along with the United Kingdom and the United States, Australia sent air squadrons to Thailand in 1962 at the invitation of the Thai Government, following the political crisis in Laos. When Indonesia’s “confrontation” and “crush Malaysia” policy under President Sukarno was at its peak and Indonesian “volunteers” made intrusions into Borneo (Kalimantan), Australia sent combat troops in February 1965 in response to the Malaysian Government’s request (Parsons 1998, p. 57). In August 1965, Prime Minister Menzies announced in the Parliament the government’s decision to commit a battalion to South Vietnam.7 The number of troops sent to Vietnam subsequently increased until the early 1970s. Following the decision of the United Kingdom to withdraw military forces from the area east of Suez, the Five Power Defence Arrangement which was agreed upon by Australia, New Zealand, the United Kingdom, Malaysia and Singapore came into existence in 1971.

Southeast Asia as a Subject of Economic Assistance At the same time as these political and military commitments were being made, the Australian Government saw the region’s need of economic development assistance (Oba 2004, p. 106). Percy Spender, Minister for External Affairs (December 1949–March 1951), stated when he was in office that: The problem in Asia lies in the poverty that exists with the region itself, no less than in the pressure from external forces. (quoted in Watt 1967, p. 115)

The Australian Government after World War II developed programmes to assist the economic development of newly independent Southeast Asian states, directly and indirectly. Among them, three initiatives illustrate this commitment. First, Australia, driven by its own experience as an agricultural exporter and newly industrializing economy under protectionist policies, strongly argued for economic development promotion being included in the post-war international trade regime and actively involved itself in negotiations for this cause. Australia identified itself as a “developing

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country”, or in the “midway” position between the developing and developed countries (Arndt 1965), because of its dependence on foreign investment and on primary commodities for the bulk of its foreign exchange. Australia worked with Brazil, Chile, India and others that had similar characteristics and inclinations — predominantly exporters of primary commodities with ambitions to develop manufacturing industries — in the multilateral negotiations held in the latter half of the 1940s. These endeavours eventually led to the establishment of the GATT. Along with its general support for decolonization, Australia’s efforts during the process of establishing the GATT helped it gain a reputation as a supporter of developing countries’ positions in international society in the early post-war period. Southeast Asian states were not directly involved in the negotiation process because most of them were still colonies at the time, but what Australia stood for was beneficial to them in their future economic development. Second, Australia actively involved itself in the creation of multilateral organizations and programmes, which provided economic assistance to Asian developing countries. It played a prominent part in the preparation of reports that led to the decision by the UN Economic and Social Council in 1947 to establish the Economic Commission for Asia and the Far East (ECAFE) (Cumpston 1995, p. 271). Australia became a foundation member of the organization along with the Republic of China (Taiwan), India, the Philippines and Thailand, as well as France, the Netherlands, the Soviet Union, the United Kingdom and the United States. Other states in the region such as Burma (also known as Myanmar), Cambodia, Ceylon (renamed as “Sri Lanka” in 1972), Indonesia, Japan, Korea, Laos, Malaysia and South Vietnam later joined the organization.8 At the Commonwealth Conference in Colombo in January 1950, Australia pressed strongly for the creation of a scheme that would provide economic assistance to developing Commonwealth members in South and Southeast Asia (Watt 1967, p. 115). As a result, “the Colombo Plan for Cooperative Economic and Social Development in Asia and the Pacific” (the Colombo Plan) was formally launched in July 1951. The Colombo Plan began as a British Commonwealth scheme, but non-Commonwealth states joined it soon after the launch both as donors and recipients.9 Under the Plan, Australia provided to Southeast Asian countries, especially Indonesia, development projects, technical assistance and scholarships for administrative and vocational

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training and study in Australia until the end of the 1960s. Besides development assistance through multilateral organizations, successive governments have concentrated Australia’s bilateral development assistance on relatively few Asian developing countries. In Southeast Asia, Indonesia, Malaysia, the Philippines and Thailand have been among them (Hogan 1975, p. 125).10 Third, Australia was the first state to introduce a unilateral preferential trade scheme for developing economies (Perkins 1971, p. 151). In 1966, Australia formulated a system of tariff preferences on a range of manufactured and semi-manufactured products, all of which had been nominated by developing states as of export interest to them. The system, called the “Australian System of Tariff Preferences for Developing Countries” (ASTP), was principally a tariff quota system under which developing economies could export their manufactured or semi-manufactured products to Australia at preferential tariff levels (generally 10 per cent lower than MFN tariff rates) until the exports reached a certain volume. To introduce the ASTP, Australia had to gain approval from the GATT because it prohibited the introduction of a new, or the extension of an existing, preferential trade system without special permission. The Australian Government had sought and obtained permission in 1966 to admit limited quantities of certain goods from developing economies at preferential rates (Department of Trade and Industry 1968, p. 1). From its introduction, the ASTP received mixed reactions. It was welcomed by developing countries, which hoped that other developed states might find it worth following. It certainly set a precedent for the introduction of the General System of Preference (GSP) in the 1970s by other developed states. Yet Arndt (1970) argued that the ASTP was exceedingly modest. Until 1981, the ASTP did not include tariff preferences for most TCF products “because of the sensitivity of local industry to import competition” (Department of Trade and Resources 1980, p. 1728).11 These labour-intensive industries were the most prospective ones in which developing economies, especially those in Southeast Asia because of their geographical proximity to Australia, could develop capacities to export. Camilleri (1979, p. 27) pointed out that after three years in operation, the ASTP had resulted in no more than a 2 per cent increase in total imports from developing economies. From the Australian Government’s viewpoint, the ASTP provided a

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means of helping developing economies without raising the political difficulties that the government might expect to face if it reduced tariffs on imports of these products from all sources, or if it gave unlimited entry to developing economies’ exports of these products (Perkins 1971, p. 151).

Economic Relations between Australia and Newly Independent Countries in Southeast Asia Australia’s protectionist policies did not become a focus in relations between Australia and Southeast Asian states until later in the 1970s, because international trade and investment between them remained small. At this time, most Southeast Asian states tended to emphasize import-substitution, rather than export-oriented development, as a strategy for industrialization in their early stages of independence. Australia and Indonesia had a bilateral trade agreement from 1950 to 1956, which promoted Indonesia’s export of tobacco, coffee, tapioca, oil seeds and other products to Australia and Australia’s exports of condensed milk, dried fruits, flour, live animals, metals, metals manufactures, leather, pharmaceuticals and industrial chemicals to Indonesia (Tweedie 1994, p. 182). But the agreement lapsed because of Indonesia’s foreign exchange shortage. For most of the post-war period until the 1960s, Indonesia took less than 0.5 per cent of Australia’s total exports and supplied less than 0.5 per cent of Australia’s total imports except for oil. Australia accounted for just above 1 per cent of Indonesia’s total imports and less than 1 per cent of total non-oil exports (Arndt 1968). Growth in bilateral trade did not materialise largely because of a lack of complementarity between the Australian and Indonesian economies. Exports of both economies were predominantly primary commodities and they could not supply each other with the products they needed (Arndt 1968). Australia’s manufactured goods failed to enter the Indonesian market since the prices exceeded those of comparable products from Japan, West Germany and the United Kingdom (Tweedie 1994, p. 183). The lack of complementarity and foreign currency shortages also played a large part in the very small trade between Australia and other Southeast Asian countries, but there were other factors as well. The Philippines Government expressed a strong interest in the

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development of trade with Australia: foodstuffs and building materials were desperately needed for its post-war reconstruction. Yet, because the trade arrangement in Sterling area was in place after the war, Australia accorded the highest priority to the imperial connection. Its commitment to the United Kingdom meat export agreement (signed in 1952) was cited as the reason for refusing the Philippines’ requests for meat exports. The agreement that allowed for fifteen years of meat sales in regular shipping backed up by British banking arrangements was difficult to ignore in favour of a problematic market in Southeast Asia (by 1950, the Philippines was running a large trade deficit). Similarly, all surpluses of butter and cheese were under contract to the United Kingdom (Tweedie 1994, pp. 190–91). In the immediate post-war period, exports of foodstuffs and clothing to Malaya and Singapore grew. As these two British colonies shared with Australia a common language, law and commercial customs, they were easier to do business with, compared with other Southeast Asian countries. However, political considerations intervened. When the UN placed trade embargoes on China in May 1951 due to its acts of aggression in the Korean War (1950–53), trading with Singapore received cautious consideration by the government because it was concerned about the end-use of Australian exports to Singapore. It was believed that Chinese Singaporeans might be sympathetic to China and, if so, Australian exports to Singapore might find their way to China. Malaya remained politically unstable and under a state of emergency from 1946 to 1960. The government wanted to avoid Australian goods falling into the hands of the communist insurgents in Malaya who were strongly Chinese influenced (Tweedie 1994, p. 187). These concerns restrained the growth of Australia’s trade with Malaya and Singapore.12

II. THE ESTABLISHMENT OF ASEAN AND THE WHITLAM GOVERNMENT’S NEW POLICY The Background of ASEAN’s Formation ASEAN was established in 1967 mainly to promote the regional political stability — peaceful relations among the members as well as

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the security of the region as a whole — thought necessary for each member’s national development. All Southeast Asian states had had hostile experiences with their neighbours,13 and the leaders of these states resolved that regional hostility should end to allow for concentration on national development. Complex political developments in Southeast Asia after World War II explain this emphasis on internal and regional security. The process of the establishment of Malaysia engendered serious conflicts with both Indonesia and the Philippines over the possession of Sabah and Sarawak, which eventually led to the “confrontation” policy of Indonesia’s President Sukarno. In the early 1960s, the conflict among these states destroyed the short-lived regional cooperation initiatives of the Association of Southeast Asia (ASA)14 and MAPHILINDO.15 A UN investigation mission was sent to Sabah and Sarawak in August 1963 to confirm the will of the residents. The result of the mission was favourable to Malaya and, in September, Malaysia was established with Sabah and Sarawak (and Singapore) as part of its sovereign territory. When newly established Malaysia was voted into the Security Council of the UN for a term beginning in January 1965, the Indonesian Government announced in December 1964 that it would withdraw from the UN (Parsons 1998, p. 58). Under its self-imposed isolation from the world, the Sukarno Government approached China and the influence of the Indonesian Communist Party (PKI) grew. The Indonesian political scene changed drastically in September 1965 when a “pro-communist” uprising occurred but was suppressed by the military. Major-General Soeharto eventually took control of national politics and, in March 1966, he made the PKI illegal. From that month, negotiations between Indonesia and Malaysia to normalise their relationship gained momentum. While the reconciliation of these states set a favourable environment for the establishment of ASEAN, individual members had their own reasons for participating in such a regional organization. After the change in leadership, Indonesia needed to end its isolation if it were to receive development assistance from developed Western states. Thailand was maintaining a close strategic/military relationship with the United States and was under heavy pressure to stand against communism. It also needed to ensure that it would receive the support of other Southeast Asian states when it faced a direct threat from

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Vietnam. After Ferdinand Marcos was elected President in 1965, the Philippines discarded the anti-U.S. policy of the previous government. Marcos also suspended the Philippines’ claim for the possession of Sabah and tried to pursue the aims of his predecessors of playing a major role in institutionalizing regional cooperation. As a small island state that had gained independence from Malaysia only in August 1965, Singapore needed to make friends in the region. It expected to be recognized as an independent and equal partner in the region by participating in ASEAN. Singapore could also avoid being viewed as an outpost of China and confirm its friendship with its neighbours. After having had conflicts with every founding member of ASEAN, Malaysia was also interested in pursuing better relations in the region, especially with Indonesia. Malaysia saw the Indonesian participation in ASEAN as the first move towards promoting a view of the region as a neutral and intervention-free zone (Sukrasep 1989, pp. 7–11; Yamakage 1991, pp. 100–11). The common understanding of members was that it was crucial for each member’s domestic political and economic development that regional stability be maintained, and that to maintain this stability some form of cooperative organization was necessary. The Bangkok Declaration of 1967 announced the basic principles of ASEAN and stated that the organization’s aim was “to accelerate economic growth, social progress and cultural development in the region through joint endeavours” (but it did not mention any specific plans or schedule for such cooperation). Members were to be united in their opposition to external interference and all foreign military bases in the region were temporary (though nothing was said about a time limit for withdrawal). This allowed non-aligned members and Western allies to stay in the same organization. It is important to note that ASEAN members’ common ground was to oppose external interference in, and influence on, their domestic affairs for the purpose of national development. Policy autonomy was crucial for all ASEAN founding members. As members of an organization established in the middle of the Vietnam War, they saw communist penetration as the most immediate threat in the region. But it was not necessarily the only threat. This was clearly manifested in ASEAN’s Zone of Peace, Freedom and Neutrality (ZOPFAN) Declaration in 1971. The Declaration stated:

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[ASEAN is] inspired by the worthy aims and objectives of the United Nations, in particular by the principles of respect for the sovereignty and territorial integrity of all states, abstention from threat of use of force, peaceful settlement of international disputes, equal rights and self-determination and non-interference in the affairs of states. [ASEAN recognizes] the right of every state, large and small, to lead its national existence free from outside interference in its internal affairs, as this interference will adversely affect its freedom, independence and integrity. (ISEAS 1991, p. 103)

Although the ultimate aim of the ZOPFAN initiative to bring peace, freedom and neutrality in Southeast Asia was hard to achieve in the near future, its core norms have been supported and followed by members as the very essence of the organization’s existence.16

The Emergence of Australia’s ASEAN Policy a) Proactive Responses to the Changes in the International Environment The late 1960s and the early 1970s saw significant changes in the international environment, especially in the Asia-Pacific region. The United Kingdom began planning the reduction of its military presence in the Middle and Far East in 1965 and announced in 1967 that it would withdraw its 60,000 troops stationed east of Suez by the mid1970s.17 The United States also announced its intention not to be involved directly in military conflicts in Asia (the “Guam Doctrine” of 1969) and to establish dialogue with China. Visits to Beijing by the U.S. Secretary of State Henry Kissinger and the U.S. President Richard Nixon soon followed. A short-lived period of “détente” commenced in 1972 when the first Strategic Arms Limitation Talks (SALT) Agreement was signed between the United States and the Soviet Union. In Australia, the ALP returned to power in December 1972 after twentythree years in opposition. The new Whitlam Government immediately implemented a wide-ranging policy reform. A range of new foreign policies was implemented in rapid succession in line with Whitlam’s “liberal” perception of international society. Whitlam explained:

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For too long, Australia accepted uncritically the Cold War mentality. We, the Australian Government, welcome as we encouraged, the fundamental changes that have occurred. The Cold War confrontation is being replaced by a more complex and variable web of international relationships. They cut across ideological barriers. They have introduced much greater flexibility into the conduct of foreign affairs. (Whitlam 1973, p. 4)

In the same month as it came to power, the government announced that the Australian Army Assistance Group in Vietnam as well as all military aid would be withdrawn, thus ending Australia’s military participation in the Vietnam War. Due to the UK military withdrawal from the area east of Suez and the Guam Doctrine of the United States, Australia had lost the precondition for its forward defence strategy (Iwamoto 1988, p. 59). As a new and alternative defence strategy, Whitlam advocated “continental defence”, which set Australia’s territories, marine resources zone and sea and air approaches as the primary areas for defence and sought security cooperation with neighbouring states, especially Indonesia (Salla 1997, p. 224). Australia recognized China and established diplomatic relations on 21 December 1972. Diplomatic relations were also established with East Germany on the next day and with North Vietnam in February 1973. Though this shift in policy by the Whitlam Government was made possible because of a prior change in the Asian policy of the United States, it was a clear departure from the foreign policy of the previous Liberal/Country Government.18

b) The Whitlam Government’s ASEAN Policy The Whitlam Government re-positioned Australia’s foreign economic policy towards ASEAN as well. It recognized ASEAN’s principal objective — to build a stable and favourable regional environment that allowed members to concentrate on national development — and emphasized economic relations to further Australia’s long term economic interests by integrating the Australian economy with that of the region (Jayasuriya 1988, p. 19). Whitlam asserted that Australia’s foreign policy in Southeast Asia would be closely related to its efforts to develop mutually advantageous economic relations, especially trade (Albinski 1977, p. 208; Bates 1997, p. 249).

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In January 1973, Whitlam stated that Australia would support the ZOPFAN initiative of ASEAN and encourage other states to do likewise. Later that year, Australia joined the Ministerial Conference for the Economic Development of Southeast Asia (MEDSEA) and, in January 1974, became an associate member of the Southeast Asian Ministers of Education Organization (SEAMEO). Furthermore, in 1974 Australia became the first Dialogue Partner of ASEAN as a single state and, in the same year, the ASEAN–Australia Economic Cooperation Program (AAECP) was created to help ASEAN members develop their economies.19 Whitlam emphasized that the shift in his government’s Southeast Asian policy was from an involvement “based mainly on ideological considerations and military alliances” to one based on “more enduring ties such as trade, aid programs, regional economic cooperation and the development of a network of cultural contacts and agreements” (Whitlam 1974a, p. 2). Whitlam even proposed the establishment of a consultative forum in the region (tentatively called the “Asia Forum”), which was to be comparable to the Organization of African Unity in Africa and the Organization of American States in the American continent but less institutionalized and less formal (Whitlam 1973, p. 6). During his extensive tour of Southeast Asia (Malaysia, Thailand, Laos, Burma, Singapore and the Philippines) early in 1974,20 Whitlam explained his ideas on the forum to invite participation, only to receive a rather lukewarm response, if not outright rejection, from the ASEAN side. The reaction from ASEAN members was generally cautious, as they feared that the creation of such a forum might increase external influence on regional and domestic affairs (Hyde 1978, p. 69). Following the significant but incomplete reform of immigration policy in 1966 by the Liberal/Country Government under Prime Minister Harold Holt, the Whitlam Government eliminated all racial discrimination from the immigration and naturalisation policies, thus effectively abolishing the White Australia policy that had been notoriously unpopular in Asia. It was true that internationally racial discrimination had become increasingly intolerable by the end of the 1960s and, consequently, the ALP formally adopted a non-discriminatory policy as part of its party platform in mid-1971. The Whitlam Government was quick to implement the reform. During 1973 and 1974, new uniform selection procedures were introduced in which race

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was not a criterion of eligibility, preference for British immigrants was terminated and identical conditions were adopted for the issue of visas for all visitors. For the government to embark on new foreign policy, especially closer relations with ASEAN and its members, complete reform of its immigration policy was a prerequisite. The government also pushed for the ratification of the International Convention on the Elimination of All Forms of Racial Discrimination, which the previous government signed in 1966. In 1973, to accommodate the Convention, the government introduced a bill to prohibit racial discrimination. This was passed as the Racial Discrimination Act 1975 (Goldsworthy et al. 2001, pp. 325–28). Further, in July 1973, the Whitlam Government cut overall tariff rates by 25 per cent. As the government had been emphasizing the importance of economic relations with Asia-Pacific economies, and of diversifying export markets for Australian products, the 25 per cent across-the-board tariff cut could have been viewed as one of the first steps towards structural reform of the domestic economy. In fact, as explained in Chapter 3, this tariff cut was more a measure to manage domestic macroeconomic problems at the time. Nonetheless, Whitlam argued that along with measures such as the revaluation of the Australian dollar in 1972 and 1973 and the expansion of the already existing ASTP in 1974 (Department of Overseas Trade 1976), the tariff cut would provide ASEAN members a greater opportunity to sell to the Australian market (Whitlam 1974b, pp. 20–21).

c) Short Lifespan of Australia’s First ASEAN Policy Soon after, the first oil crisis generated a worldwide economic downturn and the Australian economy also deteriorated. The timing of the Whitlam Government’s tariff cut, along with other policy measures such as the support for wage increases and the expansion of budget spending on social welfare, worsened the domestic economic position. Opposition to lower tariffs from the protectionists returned and the tariff reform process was suspended. The government had to restrict the quantity of TCF and PMV imports in 1974 by introducing import quotas (Tweedie 1994, p. 195; Goldsworthy et al. 2001, p. 350). The imposition of import restrictions made the ASEAN members angry as it looked as if ASEAN exporters were being singled out for more

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severe treatment than their competitors such as Hong Kong, Korea, and Taiwan (Lawe-Davies 1981, p. 4). Mainly as a result of its “mismanagement” of the domestic economy in the unfavourably fluctuating international economic environment, the Whitlam Government lost the general election in December 1975. In effect, the Whitlam Government’s attempts to re-position almost all aspects of Australia’s foreign policy, including foreign economic policy, gave rise to the emergence of a distinctive Australian ASEAN policy, which was relatively free from the traditional Cold War structure and the balance of power framework and which put more emphasis on building closer economic relations. Nevertheless, it did not last long. This was because the attempts were made without support from the protectionist coalition, which was still dominant in the 1970s. The general election in December 1975 saw the return of the Liberal/National Country Government, this time led by Malcolm Fraser. Australia’s new foreign economic policy towards ASEAN disappeared with the Whitlam Government.

III. THE DEVELOPMENT OF ASEAN ECONOMIES AND ECONOMIC DISPUTES WITH AUSTRALIA Foreign Policy Stance of the Fraser Government The period of the Fraser Government (1975–83) was marked by continuous disputes with ASEAN and its members over Australia’s foreign economic policy. Observing events such as the continuing antagonism between the United States and the Soviet Union, the spiralling arms race and the looming energy crisis, the Fraser Government placed much greater emphasis on the elements of conflict and instability in world politics than the previous government. The Fraser Government’s preoccupation with global trends, led Australia to conceive of its role in Southeast Asia in terms of the great power balance (Camilleri 1979, pp. 107–08). Fraser announced within days of the 1975 election that his government would restore the primacy of the U.S. alliance in Australian foreign policy. The government urged the United States to maintain its military commitment in the Asia-Pacific region.

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Another change in the structure of international society gradually emerged from within the developing states. Developing states had acquired political influence collectively by maintaining unity and capitalizing on numerical advantage in multilateral forums, taking the initiative as the main challengers of the status quo (Harries et al. 1979, p. 105). After World War II, many international organizations, most of them within the UN framework, were established to deal with global economic questions, particularly to the problems of poverty and economic development.21 Utilizing these international institutions and the UN General Assembly,22 developing states won global acceptance of the notion that developed states were obliged to help developing states in their economic development in some way or other. This notion culminated in the movement in the 1970s for the realization of the New International Economic Order (NIEO) by the “Group of 77” (G77), consisted of most of the developing UN members in the world at the time. It is true that the Fraser Government developed further some important aspects of the Whitlam Government’s foreign policy. For instance, it consolidated the changes in Australia’s immigration policy with a strong anti-racist stance and support for multiculturalism.23 The government also emphasized the importance of the economic development of, and closer relationships through, “shared values and goals” with Asian states (Goldsworthy et al. 2001, p. 317). Yet the policy idea of the protectionist coalition, which was characterized by a realist worldview and industry protectionism at its core, had returned as one of the dominant elements in the Australian foreign policy process.

The Focus of Economic Disputes: TCF Trade and International Civil Aviation Policy Meanwhile, as a result of their steady industrialization, most ASEAN members were developing competitiveness in labour-intensive products such as TCF, timber and furniture by the second half of the 1970s and started to export them to Australia. Their demands for better access to the Australian market for those products were one of the main items on the NIEO agenda.24 The Fraser Government, nevertheless, continued to resist the pressure to provide better market access for ASEAN members.

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a) ASEAN Members and Australia in the Multilateral Trade Regulation Framework Since developing economies tended to start their industrialization process by utilizing the relative abundance of cheap labour in the production and export of textiles and clothing, developed economies restricted the volume of these imports to protect their domestic industries.25 From the 1960s, multilateral frameworks had been set in place to control the world textiles and clothing trade. The trade in cotton products was the first to be regulated under multilateral frameworks called the Short-Term Arrangement (1961) and the Long-Term Arrangement Regarding International Trade in Cotton Textiles (1962–74). When the latter expired in 1974, the Multi-Fibre Arrangement (MFA) was introduced to regulate the international trade not only of cotton but also all of other natural and synthetic textile and clothing products. The quota system established by the MFA guaranteed individual developing economies some access to the markets of developed economies, subject to quota limitations that were negotiated in bilateral agreements, and any tariffs that applied.26 As the volume of quota given to each developing economy was based on its export performance of the previous year, the MFA effectively confirmed the dominance of the established exporters, namely Hong Kong, Korea and Taiwan. A provision was made in the MFA for allowing smaller exporters higher rates of quota growth but, in practice, limitations were placed on newcomers whenever they seriously threatened importers like the European Economic Community (EEC), the United States and Japan (Silberston 1984, pp. 22–23). ASEAN members such as Indonesia, Malaysia and Thailand were gradually expanding their textile and clothing production and exports in the 1970s but soon encountered these quota limitations. Although it participated in the MFA when it was introduced in 1974, Australia withdrew from the framework when the Arrangement was renewed in 1978 and opted to rely on its own tariffs and quotas to restrain imports of textiles and clothing. ASEAN members had already been asking the Australian Government for better market access of TCF products before 1978, but Australia’s withdrawal from the MFA gave them renewed incentive to apply more pressure on the Australian Government. Being unable to expand their quotas as much as they

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hoped under the MFA framework, the ASEAN members had turned to the Australian market, where the MFA quota system no longer applied, as a primary target of TCF export expansion.

b) Australia’s TCF Imports in the 1970s Table 4.1 shows Australia’s TCF imports from its major trade partners and their respective share in the total TCF imports in the 1970s. At the start of the decade in 1969/70, Japan was the major source of Australia’s TCF imports with A$94.4 million, occupying 28 per cent of the total. The United Kingdom with A$55 million and Hong Kong with A$30.4 million followed, occupying 16 and 9 per cent of the total respectively. These three sources supplied more than half of Australia’s total TCF imports in 1969/70. As time progressed, Asian NIEs (Hong Kong, Korea, and Taiwan) rapidly increased their TCF exports to Australia and, in 1979/80, Hong Kong became the largest source of TCF imports, at A$159.7 million with a 12 per cent share, closely followed by Japan, Taiwan and the United States. Imports from five ASEAN members were negligible in 1969/70 with a total value of just over A$1 million, less than 0.3 per cent of the total. The ASEAN members, nevertheless, gradually increased their TCF exports to Australia and, by the end of the decade, Australia’s TCF imports from ASEAN members had grown to A$73 million to occupy over 5 per cent of the total. It is notable that while ASEAN members increased the value of their TCF exports to the Australian market, their shares in Australia’s total TCF imports remained stable in the latter half of the 1970s. Between 1975/76 and 1979/80, the Philippines’ share increased only 0.4 percentage points from 0.8 to 1.2, and the growth of the same figures for other four ASEAN members did not surpass the Philippines’. This can be seen as a direct result of Australia’s import restrictions through the quota system. Table 4.1 also illustrates that most beneficiaries of Australia’s TCF imports in the 1970s were NIEs, especially Hong Kong and Taiwan (along with the United States). Import restrictions were also applied to these sources but, as they had started exporting the products to Australia earlier than ASEAN members, they could maintain relatively larger import quotas.

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28.0 6.5 16.3

94.4 21.8 55.0

30.4 0.9 8.8

0.01 0.2 0.2 0.2 0.5

337.2

Japan United States United Kingdom

Hong Kong Korea Taiwan

Indonesia Malaysia Philippines Singapore Thailand

Total

793.3

100

100

0.2 1.1 0.8 1.0 0.7

16.0 4.2 6.4

18.7 8.0 11.0

%

956.6

1.0 13.0 9.4 7.4 5.6

130.9 37.6 85.6

158.8 71.1 97.2

A$ m

100

0.1 1.4 1.0 0.8 0.6

13.7 3.9 8.9

16.6 7.4 10.2

%

1976/77

1,031.1

1.8 15.3 11.0 9.5 7.5

125.2 48.6 105.2

161.5 69.8 100.5

A$ m

1977/78

100

0.2 1.5 1.1 0.9 0.7

12.1 4.7 10.2

15.7 6.8 9.7

%

1,206.2

3.3 18.8 13.9 11.1 9.4

148.5 55.8 131.9

170.5 102.1 101.3

A$ m

1978/79

100

0.3 1.6 1.2 0.9 0.8

12.3 4.6 10.9

14.1 8.5 8.4

%

1349.8

6.4 18.6 16.3 16.2 15.5

159.7 53.5 148.7

152.7 139.7 91.8

A$ m

1979/80

100

0.5 1.4 1.2 1.2 1.1

11.8 4.0 11.0

11.3 10.3 6.8

%

Note: * The sum of the import value in product section number 65 (textile yarn, fabrics, made-up articles and related products), 84 (articles of apparel and clothing accessories) and 85 (footwear). Source: Australian Bureau of Statistics, Overseas Trade Australia Part 2: Comparative and Summary Tables, ABS Catalogue No. 5410.0, various issues.

1.2 9.1 6.4 7.6 5.5

127.2 33.5 50.7

148.7 63.6 87.6

A$ m

1975/76

0.003 0.06 0.06 0.06 0.15

9.0 0.3 2.6

%

A$ m

1969/70

TABLE 4.1 Australia’s TCF Imports* in the 1970s from Selected Economies

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c) ASEAN’s Demand for Better Market Access for TCF Products In demanding better market access for their TCF products, ASEAN members united in their stance. For the Fraser Government, raising the level of protection against imports for labour-intensive industries was one of its election pledges, and it was strongly supported in this policy approach by the protectionist coalition. Although Fraser (1975a, p. 25) once stated that “[Australia’s] restrictive trade practice legislation ought … to be looked at … from the point of view of maintaining the capacity of individuals to compete against superior size and wealth” (italics added), the government just could not accept the ASEAN demand based on “inferior” size and wealth. The contradictory stance of successive Australian Governments on this issue of foreign economic policy surfaced during this period, with deleterious effects on overall Australia–ASEAN relations. In February 1976, the Fraser Government decided to deny improved access of TCF imports by using GATT Article XIX, which permitted import restrictions in the case of emergency. This was seen as particularly unjust by ASEAN members because Australia’s overall trade balance with ASEAN at the time was in surplus, and the share of ASEAN products in the total imports was relatively small. Australia’s trade surplus with five ASEAN members in 1976/77 and 1977/78 was 27.5 per cent and 28 per cent of its total trade surplus respectively. Imports from ASEAN were less than 5 per cent of Australia’s total imports.27 While imports from ASEAN were affected by Australia’s unilateral action, the expansion of the value of imports from Hong Kong, Korea and Taiwan continued to surpass that of ASEAN members’ (Edwards 1978, p. 13; see also Table 4.1). It was perhaps understandable that ASEAN members felt they were being treated unfairly by Australia since the cause of most market “disruption” in Australia during this period was imports from Hong Kong, Korea and Taiwan (Mackie 1980, p. 119).28 In November 1976, ASEAN renewed its demand for better market access by issuing a Memorandum that outlined areas of Australian policy towards imports affecting ASEAN members’ interests. Again, the Fraser Government refused to compromise and, instead, offered a development assistance package. ASEAN members were not satisfied with Australia’s attitude on the market access issue and rejected Australia’s

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other proposal of setting up a formal committee to deal with trade related problems (Mediansky 1988, pp. 241–42). Along with other countries, Australia was invited to participate in a meeting after the second ASEAN Summit in Kuala Lumpur in August 1977. At the meeting, Fraser offered another economic development assistance package, including a further contribution of A$10 million to the AAECP, an increase of A$90 million in bilateral development assistance and Australia’s participation in the ASEAN Industrial Projects (AIP).29 The government also proposed a series of trade promotion initiatives, including a trade fair,30 an industrial cooperation conference and a joint research project in ASEAN–Australia economic relations (Joint Committee 1984, p. 12). But it did not give any substantial concession on market access. Further, the government offered to establish a system for consultation with ASEAN before changes were made in Australia’s import policy. It was initially called the “early warning system” and, after negotiations between Australia and ASEAN on how the system should operate, it was finally approved in November 1978 as the ASEAN-Australia Consultative Arrangements. Under the Arrangement, the Australian Government was to consult with ASEAN before making any protective decisions via tariffs or import quotas on products of “trade interest” to ASEAN.31 However, in August 1978 when negotiation of the Arrangement was still underway, the Australian Government imposed an additional import surcharge of 12.5 per cent on all imports subject to quota. The government explained that the imposition of this surcharge was purely a revenue raising measure,32 but ASEAN regarded it as an increase in trade barriers without notice (Lawe-Davies 1981, p. 27). The timing of this additional duty imposition could not have been worse for Australia’s relations with ASEAN. Consequently, ASEAN presented the second Memorandum in October 1978, reiterating its demand for changes in Australia’s protectionist policies in general and the substantial improvement — the widening of the product coverage, the removal of tariff quotas and the further reduction of preferential tariff rates — of the ASTP in particular. This could be seen as a clear expression of ASEAN’s discontent with Australia’s earlier responses. Faced with the increasing pressure from ASEAN, the government finally decided to respond to the demand for market access. The ASTP was expanded to include an additional sixty-six products in 1979. In

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August 1980, the government announced its decision to include most TCF products in the ASTP from January 1981 (Department of Trade and Resources 1982, p. 1). Yet the preferential tariff margin for TCF products under the ASTP was set at 5 per cent, which was much less than the margin for other products at 10 per cent. As explained in Chapter 3, the government’s action was a component of policy compromises (policyoriented learning) which effected changes in concrete policy measures in order to maintain the government’s core policy ideas. In addition, the government initiated the Trade and Investment Promotion Program, a three-year A$4 million programme, in 1981 under the AAECP to assist ASEAN exporters in achieving commercial acceptability for their products in the Australian market. The programme was extended beyond 1984 for another three years (Joint Committee 1984, pp. 168–69). However, subsequent handling of the programme was left to the next government as the Fraser Government lost the general election in March 1983.

d) The International Civil Aviation Policy Dispute Apart from the market access issue, ASEAN and Australia had other disputes over the latter’s policy in this period. Among them, Australia’s new international civil aviation policy (ICAP) was an example of how ASEAN negotiated as a unit, how effective the collective negotiation was for ASEAN and how Australia had to compromise. In mid-1978, the Fraser Government announced a new ICAP. It included a policy to promote direct Australia–Europe (especially the United Kingdom) routes to capitalize on the emergence of larger and more technologically advanced jet aircraft. For Qantas, the governmentowned national flag carrier, the UK route had always been the most profitable. By linking Australia and the United Kingdom directly, Qantas (and British Airways) could provide cheaper and more profitable fares. If the planned ICAP were introduced, stopovers were to be discouraged by surcharge to ensure high passenger load. The decreasing number of stopovers was expected to affect adversely the air carriers of ASEAN members. In fact, it was only Singapore Airlines (SIA) that would be directly and substantially affected by the introduction of the new ICAP.33 In a submission to the Senate Standing Committee on Foreign Affairs and Defence in Australia, which inquired into the relations between

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Australia and ASEAN, the SIA claimed that the loss to Singapore’s tourism industry would be around 250,000 passengers and A$45 million per year if the new ICAP were introduced (SIA 1980, p. 861). Initially, four other national flag carriers of ASEAN members responded favourably to the Australian Government’s bilateral approaches as the ICAP had no flaws in terms of Australia’s “right” to do so.34 By the end of 1978 though, ASEAN recognized the issue as a regional interest and demanded Australia negotiate the issue with ASEAN, not bilaterally with Singapore and other members. ASEAN began to see the issue in the context of “Australian protectionism” (SIA 1980, p. 862) and even argued that Australia was seeking to divide the organization by its bilateral approaches (DFA 1980, p. 345). The united front of ASEAN on the issue put sufficient pressure on the Australian Government to force it to revise the planned ICAP. By the end of January 1979, Australia agreed to meet with ASEAN as an entity for negotiation. When an agreement was reached in October, it permitted the SIA to retain its share of operations and its competitive position in the Australian market. The results of the negotiations were far more favourable to Singapore (thus, to ASEAN) than had been the case with the original policy. The issue was the first occasion on which ASEAN members confronted Australia as a unit in defence of the specific interests of one of its members (Brown 1980, p. 25).

The Causes of Economic Disputes a) The Influence of Protectionist Policy Ideas Most of the policies that the Fraser Government decided on and implemented in the context of its relations with ASEAN did not produce the expected results, although the government kept announcing its intention to develop a closer relationship with ASEAN. What ASEAN most demanded during the period was expanded access to the Australian market for labour-intensive manufactures produced by each member, but the Fraser Government repeatedly avoided the issue. One of the main factors behind the inflexible behaviour of the Fraser Government on this issue was the influence of policy ideas that were supported by the protectionists.

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As the core policy idea of the protectionists prevailed in this period, it is doubtful that the government really acknowledged the need to change Australia’s industrial and trade structure substantially to cope with the new international economic environment. The government won general elections with a promise to provide sufficient levels of protection for labour-intensive industries, especially the TCF (Fraser 1975a, pp. 6, 22–23; Anderson and Garnaut 1987, p. 93), mainly for stabilizing and promoting employment. In addition, the memory of the Whitlam Government’s economic management failure and its subsequent loss at the general election (in which Fraser himself played a major role) was still vivid. Later, Fraser admitted that, while in office, he and his key ministers, such as Doug Anthony (Minister for Overseas Trade, 1975–77; Minister for Trade and Resources, 1977–83), Andrew Peacock (Minister for Foreign Affairs, 1975–80; Minister for Industrial Relations, 1980–81; Minister for Industry and Commerce, 1981–83) and Peter Nixon (Minister for Transport, 1975–79; Minister for Primary Industry, 1979–83), did not see the wave of liberalization and deregulation that was going to sweep across Australia and the world in the 1980s and 1990s (Kelly 2001, p. 41). John Howard, who at the time led the dry movement within the Liberal Party, also pointed out that Fraser and his ministers did not understand the necessity of policy change because they had acquired their political and economic experience at a time when the “old paradigm” functioned well (Kelly 2001, p. 244). The latter half of the 1970s when the Fraser Government was in office coincided with the period when the initiative for economic cooperation in the Pacific region gained renewed momentum. The initiative culminated in the Canberra Seminar in September 1980, which became the first general meeting of the Pacific Economic Cooperation Council (see Chapter 5). To respond to the deepening economic interdependence in the region as a result of the rapid development of East Asian economies (Japan, Hong Kong, Korea, Taiwan, and ASEAN countries), the initiative aimed to build a regional framework for consultations on issues such as trade, investment and assistance promotion, and longterm economic development and reform (Drysdale 1983, p. 1295). The Fraser Government showed support for the initiative. Yet its support was rather lukewarm and the government did not involve itself actively. Thus, the central role in the Canberra Seminar was played by economists such as Crawford35 and Drysdale, not by the government

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(Oba 2004, pp. 273, 276). The fact that the Fraser Government was not very responsive to the changing economic environment in the Asia-Pacific region suggests that the protectionist policy ideas still held dominant sway. The Fraser Government was willing to avoid policies that could have caused friction with the protectionist coalition. The economic environment continued to suggest that the traditional economic structure would not work for Australia anymore, but the Fraser Government believed that the situation could be overcome, without significant economic restructuring, when Australia’s terms of trade improved (Renouf 1986, p. 167). The improvement in the terms of trade did not happen in Fraser’s term in office. In fact, Australia’s terms of trade did not record a better figure until 1988.

b) Differences in Understandings of the International Environment The realist perception of the world that underpinned protectionists’ policy ideas seems to have prevented the government from reaching a full understanding of ASEAN’s foreign policy priorities in the changing regional environment. Fraser believed that foreign policy and trade policy could and should be kept strictly apart (Fraser 1975b, p. 33), and the government’s concern about relations with ASEAN was primarily in terms of how they merged with its own view of the world (Girling 1977, p. 9; Iwamoto 1988, p. 67). Brown (1980) argued that for the Fraser Government, the end of the Vietnam War in 1975 meant the beginning of a new era of instability in Southeast Asia and the expansion of Soviet influence to the south. A series of incidents in Asia following the end of the Vietnam War, such as the establishment of communist regimes in Cambodia and Laos, the Vietnamese invasion of Cambodia in late 1978, China’s four-week “punishment” of Vietnam in February 1979 for invading Cambodia and the Soviet invasion of Afghanistan in late 1979, seemed to verify the government’s view. The United States was unwilling to commit itself deeply in the region after the Vietnam War and the United Kingdom had withdrawn most of its troops from east of Suez by the mid-1970s. Thus, the Fraser Government’s preoccupation in this period became one of how to retain the interest and presence of the United States (and the United

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Kingdom) in the region to counter the threat of Soviet expansionism. The government’s priority in its ASEAN policy was to persuade them to accept this “power balance” conception (Girling 1977, p. 9). 36 Its insistence on the importance of the economic development of the ASEAN members, and development of ASEAN as a regional institution, was based on this view, but these developments were not direct objectives of the government. The regional and world views held by the Fraser Government were not always shared by ASEAN members. For instance, ASEAN as a whole, and Singapore and Thailand in particular, denounced Vietnam for its invasion of Cambodia as the Fraser Government did.37 Yet they were ultimately united in finding a place for Vietnam and other Indochinese countries in ASEAN in the future to avoid the perpetuation of polarization of the region.38 On the other hand, the Fraser Government’s ready acceptance of China as a formidable counter-force against Vietnam and the Soviet Union in the region was not quite agreed to by all ASEAN members, all of which had sensitive historical and political relations with China after World War II (or even before the war).39 Mackie (1980, p. 118) wrote at the end of the 1970s that: The international politics of our region have become a very different kind of ball-game in the last few years, but Australia has not … recognised that the game has changed. And unless we Australians understand much better … how people in the countries to our north are now thinking about the fast-changing international politics of the region, we will have little hope of reversing the current drift towards alienation from the region and our progressive exclusion from it in the 1980s.

The differences between ASEAN and Australia in interpreting the regional environment and its implications for each other’s foreign policy intentions were clearly depicted by the latter’s withdrawal of its support for the ZOPFAN initiative in January 1976. The Fraser Government saw ZOPFAN as impractical since it did not allow ASEAN members to permit allied military bases on their territories on a permanent basis. Yet declaration for regional neutrality had symbolic meaning in ASEAN’s political cooperation. For ASEAN, as explained earlier, whether the ideal expressed by the ZOPFAN concept was achievable in the near future was not its immediate priority. Australia’s rejection of the concept was perceived by ASEAN members as unfriendly.

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c) Protectionist Policy Ideas Prevented Understanding of ASEAN’s Intention Similarly, the market access issue had political significance for ASEAN. For them, it was important to achieve better market access to Australia even if the market was relatively small, because growth in their capacity to export labour-intensive products was rapid and to maintain that momentum, and thus to sustain the economic development of each member, it was thought necessary to export as much as possible. Moreover, if ASEAN could achieve better market access by pressing the Australian Government, then it considered that it might also have been able to put pressure on other larger markets to do the same (Brown 1980, pp. 17–19). Australia was seen by ASEAN as a much less formidable opponent than other developed states because Australia’s economic transactions with ASEAN members were much smaller and the level of influence Australia had over international affairs was much lower (Parsons 1998, p. 143).40 In addition, as one of the witnesses to the Senate Standing Committee of Foreign Affairs and Defence that enquired into Australia–ASEAN relations pointed out, the policies introduced by the previous Whitlam Government (such as the 25-percent across-the-board tariff cut, exchange rate revaluations and the expansion of the product coverage of the ASTP) might have had the effect of raising ASEAN’s expectations.41 Furthermore, ASEAN effectively used the trade disputes with Australia as a negotiating tactical experiment in forming a united stance to gain more bargaining power. This tactic was well intended as one of the ASEAN regional cooperation initiatives. The Fraser Government seemed to consider that the ASEAN demand was unfounded. In July 1977, Fraser stated in a television interview that “considering that the Australian market was very small compared with others like the United States, Japan and the EEC, some ASEAN import growth rates had been very high”.42 The Fraser Government made efforts to improve relations with ASEAN, such as by setting up an inter-departmental meeting on ASEAN issues in 1977 and regularizing the dialogue between members of this meeting and diplomatic representatives for ASEAN countries in the following year (Oba 2004, p. 119). Nevertheless, it could not accommodate to any great extent the political and economic aims behind ASEAN’s

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demand for market access mainly because it was tied to the core beliefs and policy preferences of the protectionist coalition.43

d) The Exposure of the Contradictory Nature of ASEAN Policy The Fraser Government’s unwillingness to remove protectionist policies exposed Australia’s potentially contradictory stance of foreign economic policy. The action, or inaction, that the government took against ASEAN demands was discrepant as it had been arguing that it was better for developing countries to develop their economies through trade, rather than depending on development assistance from overseas (Mackie 1980, p. 135). For ASEAN and its members, the Australian Government’s criticism of the EC (and to a lesser extent, the United States) at the GATT Tokyo Round negotiations (1973–9) and the UNCTAD process for their protectionist policies against agricultural trade while rejecting ASEAN’s demands was seen as seriously inconsistent (Lim 1980, p. 711).44 In October 1979, Nancy Viviani, Director of the Centre for the Study of Australia–Asian Relations at Griffith University, as a witness at the Senate Standing Committee on Foreign Affairs and Defence stated that: Our domestic and foreign economic policy is turning away from the concerns of the ASEAN countries but our diplomatic policy is to place more emphasis on that. If you have two major arms of your foreign policies going in different directions you are bound to get into trouble and that is the general explanation for what has been happening in the [Australia–ASEAN] relationship over the past few years. (Senate Standing Committee 1980a, p. 799)

In 1980, former Prime Minister Whitlam also criticized the government, saying that: Australia is bound … to suffer the same ASEAN reaction against its protection policies as it suffered against its ICAP policies. Abroad [Minister for Foreign Affairs] Mr Peacock, and even Mr Fraser, have uttered impeccable sentiments in favour of developed countries reducing protection. At home they forbid departments to contemplate any reduction in protection. (Whitlam 1980, pp. 264–65)

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By the end of the 1970s, not only was ASEAN dismayed by the Australian Government’s stance. Domestic actors such as opposition Members of Parliament and academics were deeply dissatisfied with the government’s handling of ASEAN relations.

Notes 1. Evatt served as the chair of the UN General Assembly from 1948 to 1949. 2. Australia’s insistence regarding the introduction of the full employment and economic development provisions into the post-war international economic regime, and its subsequent acceptance of the ITO Charter and the GATT, can also be understood in the context of liberal institutionalism that emphasized the multilateral commitment of states. See Lee (1997, p. 54) and Waters (1997, p. 40). 3. John Burton, who was the Secretary of the Department of External Affairs from 1947 to 1950, thought that, in the interest of Australia’s long-term security, the more threatening a country appeared because of population, size or political ideology, the more important were the direct contacts and the exploration of harmonious relations with it (Burton 1997, p. 24). 4. The United Kingdom, which still maintained its colonies around the world at the time, did not want to create a precedent for UN intervention in colonial affairs, and the United States preferred the reconstruction of the Netherlands through re-colonisation of the untested Indonesian “Republic” whose relations with communist forces remained unclear (Lee 1997, p. 59). 5. The Liberal/Country Government attempted to ban the Communist Party in Australia twice in 1950 and 1951, but failed. 6. Woodward and Beaumont (1998) pointed out that some parts of the Liberal/Country Government in this period, such as Paul Hasluck (Minister for External Affairs, April 1964–February 1969), showed more independent thinking on Australia’s foreign policy. Nevertheless, their considerations were rarely reflected in the actual policy implementation. 7. The Menzies Government’s decision to send a battalion of troops, in fact, was not originally based on a request from the South Vietnamese or the U.S. side. To encourage a greater U.S. military presence in Southeast Asia, the government suggested the deployment of Australian troops, and both South Vietnam and the United States accepted. Then, the South Vietnamese Government made a formal request (Kuhn 1997, p. 79). The Menzies Government intended to secure the U.S. presence in Southeast Asia by making a politically significant but militarily modest war commitment (Kelly 2001, p. 236).

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8. ECAFE was re-organized in 1974 as the Economic and Social Commission for Asia and the Pacific (ESCAP). In 2004, ESCAP had fifty-three members and nine associate members from South, Southeast, Northeast and Central Asia, the Middle East and South Pacific, as well as some from North America and Western Europe. 9. By the mid-1960s, members of the Colombo Plan had expanded to include Afghanistan, Australia, Bhutan, Burma (Myanmar), Cambodia, Canada, Ceylon (Sri Lanka), India, Indonesia, Japan, Korea, Laos, Malaysia, the Maldives, Nepal, New Zealand, Pakistan, the Philippines, Thailand, the United Kingdom, the United States, and Vietnam. Brunei was not a member officially, but received some assistance. 10. Altogether, along with Singapore, these Southeast Asian states received around 9 per cent of Australia’s total bilateral assistance until the end of the 1960s. The share increased to around 13–15 per cent in the 1970s (Treasury 1980, p. 1406). 11. Since its introduction in 1966, the ASTP experienced major reviews in 1973, 1976 and 1979. As a result, product coverage was extended and quota limitations on imports at preferential tariff rates were removed for many products. On the other hand, upward adjustments of preferential tariffs were made for some products when the Australian Government saw that developing economies had become competitive (Department of Trade and Resources 1979, p. 3). For detail of changes in products included (or excluded) from the system, see Department of Trade and Industry (1968, Appendix 2), Department of Overseas Trade (1976, Appendix B) and Department of Trade and Resources (1979, Appendix B). 12. One notable development was the establishment of the Australia-Malaya Trade Agreement in 1958. The main purpose of the Agreement for Australia was to protect its flour and wheat exports to Malaya from subsidized competition from Europe, especially West Germany. Through the Agreement, Australia secured duty free entry of its flour (80,000 tonnes) and wheat (14,000 tonnes) exports to Malaya, as well as preferential tariff rates on its exports of cheese, canned fruits, tanned hides and skins and others. In return, Australia provided preferential duties on natural rubber imported from Malaya and assured that synthetic rubber would not receive more favourable import treatment than natural rubber (Crawford 1968, p. 418). 13. Besides the major disputes among Indonesia, Malaya and the Philippines over the possession of Sabah and Sarawak, Thailand and Malaysia had armed border conflicts, and Singapore’s independence in 1965 caused deterioration in the relationship with Malaysia (Yamakage 1991, chaps. 2–3). 14. ASA was created in 1961 by Malaya, the Philippines and Thailand to promote broad regional cooperation (economy, culture, education, science,

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15.

16.

17. 18.

19.

20.

Australia’s Foreign Economic Policy and ASEAN

etc.). Non-aligned states in the region like Indonesia did not join because ASA was seen as a pro-Western, anti-communist organization. Two years after its establishment, ASA came to a virtual end when conflicts between Malaya and the Philippines intensified (Yamakage 1991, pp. 35–38). In fact, MAPHILINDO itself was a product of conflicts. After Malaya set the establishment date of Malaysia on 31 August 1963, the heads of government from Indonesia, the Philippines and Malaya met in Manila and agreed to form a federation of Malay nations called MAPHILINDO. They also agreed to postpone the establishment of Malaysia and ask for UN intervention to resolve the Sabah/Sarawak problem. Despite the agreement, when Malaya went on to form Malaysia in September, MAPHILINDO naturally broke down without achieving anything (Yamakage 1991, pp. 71–76). The speech by the Prime Minister of Malaysia, Tun Haji Abdul Razak, in January 1974 at a state dinner to welcome the visit by Prime Minister Whitlam well depicted the ASEAN members’ intention. He stated: “for us … ASEAN is our hope for a future in which as developing countries we can seek our own political and economic destinies unhindered by the conflicts and interests of the external powers. It is a modest beginning, but it is an earnest and serious attempt to do things by ourselves and for ourselves” (Razak 1974, p. 10). Later in 1969, the date of withdrawal was put forward to December 1971. Bull (1975, p. 31) doubted if the Whitlam Government’s basic perception of Australia’s interests and obligations had changed. He argued that the Whitlam Government still thought of Australia’s national security in terms of the alliance with the United States, and its prosperity in terms of its links with the Western capitalist economies. Bull was right in the sense that all Australian Governments after World War II, both of the Liberal/Country (National) or the ALP, have regarded the U.S. alliance as the very basis of Australia’s external relations regardless of whether they clearly declared so or not. An important characteristic of the Whitlam Government’s foreign policy, nevertheless, was that it was free from restrictions arising from the protectionists’ “realist” worldview and policy preferences. The Whitlam Government did not rely on the protectionist coalition much for political support. The AAECP had a wide range of development projects including a protein project, food handling project, trade operation project, education project, trade promotion project, population project and joint research project. After the general meeting in Kuala Lumpur in 1982, the AAECP was dissolved and its work was incorporated into other groups. On a visit to Indonesia a year earlier, Whitlam met President Soeharto and explained his idea.

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21. These organizations included the Food and Agricultural Organization of the United Nations (FAO, established in 1945), the International Labour Organization (ILO 1946), UNCTAD (1964), the United Nations Development Programme (UNDP 1966) and the United Nations Industrial Development Organization (UNIDO 1966). 22. “In the General Assembly, the situation now has developed where a group of small states representing 10 per cent of the population of the UN membership and paying less than 5 per cent of the budget are able to provide a two-thirds majority” (Harries et al. 1979, p. 52). 23. The Fraser Government’s strong anti-racist stance was clearly demonstrated by its campaign against racism in South Africa and Rhodesia, which were members of the British Commonwealth (Renouf 1986, pp. 132–53; Goldsworthy et al. 2001, p. 329). 24. The NIEO argument included a wide range of agenda items such as trade, aid, investment, debt relief, food and agriculture, technology transfer, and multilateral institutional arrangements. Generally, ASEAN members were modest in pushing agenda matters other than trade in the 1970s, mainly because of their more favourable economic growth prospects than other developing states in Africa and Latin America (Harries et al. 1979, p. 114). 25. For instance, the volumes of cotton textile imports from Japan were restricted in forty states in the pre-war period. After the war, Japan and the United States agreed in 1957 to maintain “orderly trade” in textiles and clothing between them, and Hong Kong, India, and Pakistan “voluntarily” restrained their textile and clothing exports to the United Kingdom since 1959 (Silberston 1984, p. 1). 26. The annual growth rate of import quota imposed by developed economies was supposed to be not less than 6 per cent — though the rate came short of 6 per cent more often than not in practice — and, for actual implementation, bilateral agreements were widely used (Silberston 1984, pp. 2–4). 27. Australian Bureau of Statistics, Foreign Trade Australia, various issues. 28. Warr (1986, pp. 249–53) argued, on the contrary, that Australia’s protection against the import of labour-intensive products from ASEAN in the 1970s was lighter than against those from all less developed economies as a group, because then most of ASEAN exports were heavily concentrated in petroleum products. However, it seems that this “fact” did not have much effect on ASEAN’s perception of Australia’s protectionist policies as they were strongly intending to develop their economies through the export of labour-intensive manufactured products. 29. After the first ASEAN Summit in 1976 in Bali called for substantial regional economic cooperation and signed the Declaration for ASEAN Concord, several cooperation schemes, including AIP, were agreed. See Chapter 6.

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30. Subsequently, ASEAN Trade Fairs were held in Sydney in October 1978 and in Melbourne in August 1980. 31. For an independent state to have this kind of system with a particular partner was not common as the system might restrict its autonomous decision-making process. Moreover, if other states, or a group of states, had asked Australia for the same treatment as ASEAN, there would have been no persuasive excuses for the government not to do so. 32. In a submission to the Senate Standing Committee on Foreign Affairs and Defence, the Department of Trade and Resources reported that, in the first twelve months of the introduction, the surcharge raised A$75 million, of which imports from developing states contributed A$25 million (virtually all in clothing and footwear products). ASEAN’s contribution was “just” over A$2 million (Department of Trade and Resources 1980, p. 1731). 33. Singapore was the only ASEAN member whose civil aviation sector contributed to the national economy at some levels, occupying around 3 per cent of its GDP (Brown 1980, p. 23), and the number of tourists that air service was bringing into Singapore was higher than those of other ASEAN members. 34. Australia’s bilateral approach was based on precedent. The government and Qantas followed an internationally accepted pattern of the civil aviation negotiations set by the International Air Transport Association in 1944. 35. After leaving Department of Trade, Crawford was serving as Chancellor of the Australian National University at the time (1976–84). 36. Renouf (1986, pp. 163–66) even argued that the Fraser Government accorded the Southeast Asian region relatively less attention than did previous governments, because it saw that the region had become “stable” after the Vietnam War and the maintenance of stability depended upon the commitment of the United States, not as much upon the relations among the states in the region. 37. The Fraser Government suspended all economic assistance to Vietnam in January 1979, immediately after the formation of the Vietnamese-supported People’s Republic of Kampuchea (Frost 1997, p. 199). 38. The ASEAN members’ intention that ASEAN cover the whole of Southeast Asia was manifested in the Treaty of Amity and Cooperation in Southeast Asia (TAC) in 1976, before the Vietnamese invasion of Cambodia. See Chapter 6. 39. Statement by Nancy Viviani, Director of the Centre for the Study of Australian–Asian Relations, Griffith University, as a witness to the Senate Standing Committee on Foreign Affairs and Defence, 31 October 1979 (Senate Standing Committee 1980a, p. 827). 40. Alf Parsons, Deputy Secretary of Department of Foreign Affairs, also stated on 14 September 1979 as a witness to the Senate Standing Committee on

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41.

42. 43.

44.

131

Foreign Affairs and Defence that: “… because we are near, and because we have advocated in political terms the importance of the relationship [with ASEAN], there is an expectation that we will measure that in economic terms. … if [ASEAN members] are trying to develop worldwide markets they have to start somewhere … We are close and we are of the size to which they can relate. It is much more manageable development than, say, a larger one” (Senate Standing Committee 1980a, p. 431). Evidence by Robyn Lim, Lecturer in Politics, Department of General Studies, University of New South Wales, as a witness to the Senate Standing Committee of Foreign Affairs and Defence, 30 October 1979 (Senate Standing Committee 1980a, p. 742). Lawe-Davies (1981, p. 20) is opposed to this view stating that the data of the base year for Australia’s figure were exceptionally low. It addition, a general perception held by both sides of political and cultural differences between Australia and ASEAN members might have had effects on the Australian Government not to change its foreign economic policy towards ASEAN in the 1970s. Incidents such as the occupation of East Timor by Indonesia and Radio Australia’s critical report on Indonesia’s behaviour, and the subsequent expulsion of an Australian correspondent by the Indonesian Government, caused mass protest by the Australian public. See McCawley (1983, pp. 86–94) and Angel (1992, pp. 159–60). Lloyd (1975, pp. 52–53) pointed out that the Fraser Government’s chief trade concern was with restrictions on Australia’s competitive export items such as sugar, beef, butter, cheese and other dairy products, which were most likely to be affected by the UK accession to the EC.

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5 The Trade Liberalizers and AsiaPacific Regionalist Strategies

From the early 1970s, the international environment continued to be unfavourable for the Australian economy. The demand for Australia’s traditional exports did not improve. Changes in the international economic structure were clearly reflected in the rapid development of East Asian economies, especially the Asian NIEs and ASEAN members, as they adopted outward-looking, trade-oriented development strategies. The beginning of “globalization” of national economies, which was characterized by active movement of goods, services, capital and information across borders, was a main cause of this development. The contrast was stark between Australia’s economic conditions and those of the East Asian economies and this had a heavy impact on Australia’s foreign economic policy thinking. Some government Departments and parts of the business community argued that Australia should aim at taking full advantage of the dynamic development of East Asian economies by enmeshing the Australian economy with those in East Asia. They argued that, in order to enable the building of closer economic relations with East Asian countries where the economic structure was rapidly changing, Australia needed to have variety in

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its competitive export items and not just export traditional primary commodities. In this context, too, reform of the domestic industrial structure was required. After another massive decline in the terms of trade in the early 1980s, pressure from anti-protectionist forces both within and outside the government grew even stronger. The Fraser Government implemented some liberalization measures but in principle held on to protectionist policies. The comprehensive reorientation of Australia’s foreign economic policy had to wait until after the Hawke Government came into office in 1983. This chapter explains how the replacement of the dominant coalition, the protectionists by the trade liberalizers, in the mid-1980s affected Australia’s policy towards ASEAN. First, the chapter reviews the development of trade relations between Australia and East Asian countries starting in the 1960s and examines how interdependence deepened over the period. Second, it is explained that, to underpin its MFN-based liberalization and deregulation efforts for the reform of the domestic economy, the Hawke Government also sought multilateral trade and investment liberalization. In doing so, the government deployed “AsiaPacific regionalist” strategies which aimed at using regional cooperation as a springboard, or a catalyst, for multilateral trade and investment liberalization. Third, focusing on ASEAN policies and relations with ASEAN in the context of Australia’s multilateral economic diplomacy, the Cairns Group and APEC initiatives are examined. In leading these initiatives, Australia found ASEAN to be an important partner.

I. ECONOMIC DEVELOPMENT IN EAST ASIA AND THE CHANGE IN AUSTRALIA’S RECOGNITION Deepening Economic Interdependence with East Asia Economic interdependence among the economies in the Asia-Pacific region had developed steadily since the 1960s. Drysdale (1988) identified some of the factors behind this development. One was the impact of Japan’s economic growth. Japan was the first country in East Asia to start developing its national economy and, by the 1980s, its GDP had become one of the world’s largest. Rapid economic growth in Japan

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brought about a huge increase in its demand for minerals and foodstuffs from the Asia-Pacific region. At the same time, Japanese exports of manufactured goods, as well as the flow of capital and technology transfer, into other economies in the region experienced unprecedented growth. Another major factor was the development of other East Asian economies. Resource-rich economies such as Indonesia, Malaysia, Thailand and Australia enjoyed large growth in export earnings while others like Korea, Taiwan, Hong Kong and Singapore followed the Japanese path by adopting outward-looking, trade-oriented industrial strategies. By the late 1960s, Southeast Asian states were intent on emulating their success. Their economies developed steadily throughout the 1970s and began to grow rapidly in the latter half of the 1980s.1 Flows of capital including foreign direct investment from Japan, Korea, Taiwan, Hong Kong and Singapore to Southeast Asian economies increased sharply in the 1980s. Southeast Asian economies also started to invest overseas during this period. Table 5.1 shows the growing importance of East Asian economies as Australia’s trade partners. It confirms that Australia drastically increased its exports to East Asia, including Japan, NIEs (Hong Kong, Korea, and Taiwan) and ASEAN members. It also shows that Australia’s exports to Japan started to increase rapidly in the mid-1960s. Japan became the largest single export destination in the latter half of the 1960s. Exports to NIEs and ASEAN started to grow quickly in the mid-1970s. From 1980 to 1995, the fastest growing export destination was NIEs with a more than a fourfold increase over the period, followed by ASEAN with a more than threefold increase. Imports from East Asian economies also steadily increased from the 1970s. Imports from Japan started to grow earlier than those from other East Asian economies. The fastest growing import sources over the period from 1980 to 1995 were NIEs with an increase of more than fourfold, then New Zealand with an almost threefold increase, closely followed by ASEAN with a just under threefold increase.2 The growing importance of East Asia for Australia’s trade was reflected in the significant changes in their share in Australia’s exports and imports. In 1948, the United Kingdom accounted for about 40 per cent of Australia’s total exports and imports. In 1995, those figures had decreased to only 3 per cent and 6 per cent respectively. The U.S. share in Australia’s total exports seemed to have reached its peak in

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2,353

683 621 232 26 108 42 941 2,654

803

295 134 37 5 44 14 300

829

Total

Imports United Kingdom United States Japan NIEs* ASEAN** New Zealand Others

Total

4,647

964 1,156 577 91 102 107 1,650

5,044

545 612 1,254 144 316 257 1,916

1970

10,248

1,533 2,040 1,759 376 324 262 3,954

12,505

541 1,210 3,471 656 927 606 5,094

1975

Notes: * Hong Kong, Korea and Taiwan. ** Indonesia, Malaysia, the Philippines, Singapore and Thailand. Source: International Monetary Fund, Direction of Trade Statistics Yearbook, various issues.

463 237 396 56 112 42 1,047

221 68 120 27 28 14 325

1965

Exports United Kingdom United States Japan NIEs* ASEAN** New Zealand Others

1960

21,027

1,895 4,434 3,477 893 1,384 692 8,252

23,074

1,044 2,570 5,871 1,612 1,766 1,043 9,168

1980

TABLE 5.1 Australia’s Trade Partners, 1960–95 (US$ million)

24,455

1,653 5,249 5,430 1,626 1,206 956 8,335

23,673

778 2,344 6,295 2,135 1,588 1,062 9,471

1985

40,852

2,701 9,424 7,308 2,928 2,324 1,715 14,452

40,917

1,402 4,283 10,232 4,554 4,366 1,952 14,128

1990

60,131

3,452 12,595 8,880 4,755 5,242 2,673 22,534

56,810

1,829 3,358 12,184 8,986 8,211 3,833 18,409

1995

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the early 1970s (13 per cent in 1970) and, since then, the figure has gradually decreased. It dropped to 6 per cent in 1995. For imports, the U.S. share reached its peak in the early 1970s (25 per cent in 1970) but has been stable since then, accounting for just over 20 per cent of the total. Japan started to occupy a significant share in Australia’s trade after the 1960s. In 1948, its share in total Australian exports and imports was negligible but by 1965 it had increased to 17 per cent in exports and 9 per cent in imports.3 The figures reached almost 30 per cent in exports and 25 per cent in imports in the mid-1980s. The growth in the share of NIEs and ASEAN was also considerable. Collectively they accounted for only 3 per cent of Australia’s total exports and just a little more than 1 per cent of imports in 1948. In 1995, their shares reached 32 per cent and 17 per cent respectively due to the rapid economic growth of NIEs and ASEAN over the period. If the figures for Japan, NIEs and ASEAN are combined, they accounted for 55 per cent of Australia’s total exports and 32 per cent of imports in 1995, having been just 4 per cent and 1 per cent respectively in 1948. The economic development of East Asian economies was accompanied by an increasing volume of international economic transactions that promoted a high degree of interdependence in the region. Being an exporter of primary commodities, Australia was enmeshed in this process. The relative importance of traditional economic partners such as the United Kingdom and the United States declined, and East Asian economies emerged as Australia’s new and most rapidly growing trading partners.

The Aspiration towards Economic Opportunities in East Asia The economic development of NIEs and ASEAN members provided substance to the economic relations between them and Australia.4 The business community in Australia began to focus more on East Asia as its prospective partner. The CAI stressed that Australia’s pattern of trade and economic relations shifted substantially from North America and Western Europe to East Asia in the 1970s (CAI 1980, p. 1058). The CAI believed that ASEAN members’ industrial development would continue to be associated with the need for increased trade (both exports and imports) and investment by economies in the region, and Australia’s

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interests lay in being much more closely associated with the general development of Asia. The CAI noted that “to the extent that ASEAN includes Australia’s nearest Asian neighbours, and represents the major cohesive grouping in the region, it appears self-evident that the Australian Government should be developing policies which promote Australia’s relationships with these neighbouring nations” (CAI 1980, p. 1059). The Treasury shared the CAI’s view. It reported in its submission to the Senate Standing Committee that: ASEAN countries have economic growth rates significantly higher than those of Australia’s traditional markets. It is thus in Australia’s interest to take advantage of the opportunities provided by the further expansion of the trade relationship. ASEAN growth can provide an important export market potential for Australian minerals and agricultural products, manufactured products, technology and services, enabling Australia to concentrate on the manufacture of those products for which it has a comparative advantage. This would in turn allow for a more efficient allocation of resources within Australian industry. (Treasury 1980, pp. 1328–29)

The increasing importance of East Asian economies required a shift in Australia’s foreign policy towards the region, especially ASEAN. The report by the Harries Committee, which enquired into Australia’s relations with the Third World (see Chapter 3), paid particular attention to ASEAN and pointed out the irrelevance of Australia’s traditional policy towards ASEAN. It stated that: From the point of view of the ASEAN countries, Australia’s relevance to their sub-region will no longer be measured predominantly in terms of common security interests and the continuation of our programs for economic and military assistance, but increasingly in terms of our willingness and capacity to participate in a process of expanded economic exchange. … [but] having become used to thinking of the region primarily in terms of security, defence and aid, it has not been easy [for Australia] to recognise the significance of the changes and what they purport in terms of policy and states of mind. (Harries et al. 1979, pp. 113, 125)

The Department of Foreign Affairs also emphasized the need for a greater economic focus in Australia’s ASEAN policy. In weighing Australia’s national interests, account needs to be taken of these [economic] considerations especially in a situation which ASEAN

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tends increasingly to deal with Australia on economic issues as a group, and in which difficulties in the economic area can lead to serious effects on the wider relationship. (DFA 1980, pp. 340–41)

At the same time as there was a growing acceptance of a proliberalization direction in Australia’s foreign economic policy, the development of East Asian economies invoked a policy idea that emphasized the importance of utilizing the economic opportunities presented in East Asia to revitalize the Australian economy.

The Link between Structural Reform and East Asian Orientations If Australia were to take full advantage of growing economic opportunities in the ASEAN region, it needed to anticipate and respond to changing trends in their economic development and import demands, to identify and pursue opportunities for Australian exports and to adjust production and export capacity accordingly (Joint Committee 1984, p. 99), because “ASEAN [is] far more important to Australia than Australia is to ASEAN” both in terms of political/security and economic perspectives (Joint Committee 1984, p. 134). Nevertheless, according to the Parliamentary Joint Committee on Foreign Affairs and Defence, the Australian economy as a whole had not been up to the challenge. First, Australia’s export pattern — dominated by agricultural and mining products — had not been well matched to the changing sectors of greatest ASEAN demand. Second, Australian exports had experienced increasing price competition from foreign exporters anxious to consolidate their place in ASEAN. Third, there had been a lack of export orientation within Australia’s manufacturing industry, which had been enjoying high tariff barriers over many years (Joint Committee 1984, pp. 178–79). In fact, the increase in Australia’s exports to ASEAN during the 1970s mainly resulted from the ASEAN market expansion, not as a result of Australian products winning the competition against products from other developed countries in the ASEAN market (CAI 1980, pp. 1073, 1079). To grasp economic opportunities in East Asia and in ASEAN in particular, structural reform of domestic industries through the reduction of levels of protection and assistance was required as well

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as anticipated. The reduction of protection and assistance, especially for labour-intensive industries such as the textile, clothing and footwear (TCF) industry, was expected to improve Australia’s overall relations with ASEAN by satisfying the lingering demand for market access of the latter. For instance, the above mentioned Harries Report stated: The question is whether we can continue indefinitely to postpone decisions on serious action … to progress towards a lower and more stable tariff. Can we ignore the adverse effects on our economic position in the region of continuing to use our resources in ways that are inhibiting our longer term growth prospects? Can we overlook the adverse effects on our political and economic relations with our developing neighbours arising from the contradiction between our continuing rhetoric of regional friendship and cooperation and our failure to move to improve the access of these countries to our markets? (Harries et al. 1979, p. 131)

The anti-protectionist forces’ argument for structural reform of domestic industries had merged with the view that changes in Australia’s foreign economic policy towards ASEAN were necessary.5 This convergence had formed a basis for “Asia-Pacific regionalist” strategies which were adopted by the trade liberalizers subsequently in the latter half of the 1980s.

Views on How Australia Should Relate with East Asia and ASEAN Another important question that arose from the changes in the international and regional economic environment was how Australia should relate with East Asia and ASEAN in the era of deepening economic interdependence. This question was important for Australia not only to take advantage of its northern neighbours’ rapid economic development but also because it could lead to a redefining of Australia’s identity. It could have a strong impact on the issue of where Australia belonged, which had become complicated by Australia’s history and geographical location. The business community was quick to acknowledge that their future lay in the East Asian region and had started to do what they could to improve relations with their counterparts in ASEAN. For instance, the representatives for the Australian Chamber of Commerce

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and the CAI had talks with the ASEAN Chamber of Commerce and Industry (ASEAN-CCI) about ways of creating a private sector link between ASEAN members and Australia. The talks culminated in the establishment of the ASEAN–Australia Business Council and the first conference was held in Kuala Lumpur in June 1980. As early as 1979, the CAI stated that: our view is … that the general emphasis of the Australian Government’s foreign policy … gives inadequate emphasis to the continent with which we are more closely linked and to our near neighbours in South-East Asia. Although successive Australian Governments have given recognition to the fact that Australia is located in the Asian region, and that Australia’s future depends to a large degree on development within the region, the application of Government policies and activities seem to us not to give adequate effect to this verbal recognition. (CAI 1980, p. 1056)

The basic stance of the Harries Committee was that Australia was a “Western country”. It is important, nonetheless, to note that there was a dissenting view from one of the Committee members. As the Committee considered that it was an important issue, J. T. Smith was given a two-page space in the report to describe his view. I regard the proposition [that Australia is a Western country] as a false basis upon which to formulate Australia’s relations with the Third World. What the proposition denies … is that we are essentially Australians. A sounder and more accurate approach would be to assert that we are distinctively Australia, a country developing a multi-cultural society in the Southern Hemisphere on the very fringe of the Third World, handling our relationships with the so-called Western countries not on the footing that we are one of them but with due regard to the interests we have with them as we also have interests with countries of the Third World. (Smith 1979, pp. 191–92)

Smith’s view of Australia as a state with autonomous policy capacity that did not necessarily have to align its foreign policy with that of the “Western” world was still the minority view in the Committee. Yet this perception of Australia’s identity, which would enable the government to take new approaches towards East Asia and ASEAN, had emerged by the end of the 1970s and to a certain extent had grown in the foreign policy community.

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II. ASIA-PACIFIC REGIONALIST STRATEGIES The Accelerated Development of ASEAN Economies After the worldwide recession in the early 1980s the East Asian economies recovered strongly through further structural change. The realignment of international currencies following the Plaza Accord in September 1985 was one of the main factors driving this change. Because of the rapid appreciation of their respective currencies against the U.S. dollar, which aggravated already increasing costs of production (such as rises in wages and land prices), manufacturers in Japan and NIEs relocated much of their production and the export bases of capital-intensive industries with standardized levels of technology, such as automobiles and electric/electronics, to ASEAN members. While by the early 1980s most ASEAN members had adopted an export-oriented economic strategy in which they introduced various investment incentives for exporters,6 it was this currency realignment and subsequent relocation of production bases within the East Asian region that promoted economic globalization and the significant structural change in ASEAN economies. Table 5.2 shows the large volume of FDI that flowed into four ASEAN members in the late 1980s and the early 1990s, except for the Philippines which suffered from the effects of political instability in the latter half of the 1980s and the early 1990.7 Table 5.2 also illustrates how Japanese firms and those of NIEs (and to a lesser extent, the United States) dominated these flows. New operations from FDI, along with the earlier development of labour-intensive manufacturing industries, formed the basis for the strong increase in manufacturing production in ASEAN economies. Table 5.3 reveals significant structural change in ASEAN economies during the 1980s. In Indonesia, Malaysia, and Thailand, the traditionally dominant sectors of agriculture, fishery and mining continued to lose their share of respective GDP. In 1980, these sectors occupied about half of Indonesia’s GDP, but the share decreased to about 30 per cent in 1990. The same figure for Malaysia over the same period dropped from 33 to 25 per cent, and for Thailand from 41 to 15 per cent. In contrast, the manufacturing sector increased its share of GDP over the same period from 12 per cent to 21 per cent in Indonesia, from 20 to 29 per cent in Malaysia and from 21 to 30 per cent in Thailand. The relative

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Australia’s Foreign Economic Policy and ASEAN

TABLE 5.2 FDI Inflows to ASEAN–4 by Origins (approval basis) FDI origins

Indonesia

Malaysia

Philippines

US$ m

%

US$ m

%

1989

1,185.9

25.1

1,334.8

41.8

1990

2,599.6

29.7

3,053.7

1991

1,981.8

22.6

2,791.1

1992

2,646.2

25.7

US$ m

Thailand

%

US$ m

%

322.7

40.1

2,011.3

25.2

45.9

383.9

39.9

2,695.7

33.6

45.0

68.1

8.7

1,583.3

31.7

832.8

11.9

68.9

24.2

940.7

9.4

NIEs*

Japan 1989

778.7

16.5

993.2

31.1

157.7

19.6

3,524.0

44.4

1990

2,240.8

25.6

1,557.4

23.9

305.9

31.8

2,705.4

33.7

1991

929.3

10.6

1,461.2

23.6

210.2

26.9

1,759.7

35.3

1992

1,502.3

14.6

1,053.7

15.1

72.4

25.5

1,967.4

19.6

U.S. 1989

348.0

7.4

118.4

3.7

131.2

16.3

549.5

6.9

1990

153.7

1.8

209.7

3.2

59.5

6.2

1,090.8

13.6

1991

275.6

3.1

455.3

7.3

87.1

11.1

1,130.4

22.7

1992

922.5

9.0

1,294.7

18.6

61.5

21.6

1,233.1

12.3

1989

2,406.2

51.0

748.0

23.4

192.6

24.0

1,911.1

23.5

1990

3,756.9

42.9

1,696.6

27.0

212.0

22.1

1,547.4

19.1

1991

5,591.5

63.7

1,494.1

24.1

417.4

53.3

514.1

10.3

1992

5,228.0

50.7

3,795.4

54.4

81.4

28.7

5,880.6

58.7

1989

4,718.8

100.0

3,194.4

100.0

804.2

100.0

7,995.9

100.0

1990

8,751.0

100.0

6,517.4

100.0

961.3

100.0

8,039.3

100.0

1991

8,778.2

100.0

6,201.7

100.0

782.8

100.0

4,987.5

100.0

1992

10,299.0

100.0

6,976.6

100.0

284.2

100.0

10,021.8

100.0

Others

Total

Note: * Hong Kong, Korea, Singapore and Taiwan. Source: Kimura (1995, pp. 18–19).

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stability of industrial structures in the Philippines and Singapore had different causes. As mentioned earlier, the relative lack of investment, especially FDI, in the manufacturing sector in this period worked against adjustment of the Philippines’ economic structure and caused its GDP to fall in the late 1980s. Being a small island state, Singapore had not always had large primary industries. Instead, it had been an economy open to foreign capital and relatively large manufacturing and services sectors. The 1980s saw Singapore emerging as one of the major providers of services including finance in the region and the sector’s share increased to close to 60 per cent of GDP. The increase in ASEAN’s trade and the change in the composition of trade were also significant. From the end of the 1970s the annual growth rate of ASEAN exports surpassed the world average. In most ASEAN economies, the ratio of exports to their respective GDPs increased sharply in the latter half of the 1980s. The change in the composition of exports was evident: the share of manufactures in the total exports soared in every ASEAN economy while that of the traditional exports (such as crude materials, fuels, food, and live animals) decreased considerably. In 1985, traditional exports comprised about 60 per cent of total exports in Malaysia and Thailand and about 90 per cent in Indonesia. By 1992, these shares had dropped to less than 40 per cent and 60 per cent respectively. In Singapore, despite the fact that the share of manufactures in total exports was already high at the beginning of the 1980s, it rose close to 80 per cent by 1992 (EAAU/DFAT 1994a,

TABLE 5.3 Structural Changes in ASEAN Economies, 1980–90

Indonesia GDP (US$ million)a Agriculture/Fishery (%) Mining (%) Manufacturing (%) Services (%) GDP/capita (US$) Exports (US$ million) Exports/GDP (%)

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1980

1985

1990

72,482.3 24.8 25.7 11.6 13.8 469.4 21,680.8 29.9

84,320.3 24.1 12.1 18.5 18.2 480.2 19,465.0 23.1

126,346.8 19.2 12.6 21.0 20.6 661.0 33,966.9 26.9

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TABLE 5.3 (Cont’d) 1980

1985

1990

Malaysia GDP (US$ million)b Agriculture/Fishery (%) Mining (%) Manufacturing (%) Services* (%) GDP/capita (US$) Exports (US$ million) Exports/GDP (%)

19,435.7 22.8 10.0 20.0 20.8 1,446.1 12,248.7 63.0

25,306.5 21.0 10.3 24.4 21.3 1,932.4 21,091.6 83.3

36,498.4 16.6 8.7 28.9 23.4 2,956.5 40,649.8 111.4

Philippines GDP (US$ million)C Agriculture/Fishery (%) Mining (%) Manufacturing (%) Services*(%) GDP/capita (US$) Exports (US$ million) Exports/GDP (%)

12,344.3 25.6 2.4 25.0 34.6 257.7 5,787.8 46.9

33,673.2 22.9 1.6 25.5 32.8 560.3 7,821.0 23.2

28,046.2 22.8 1.6 25.1 32.9 436.5 9,824.0 35.0

Singapore C GDP (US$ million) Agriculture/Fishery (%) Mining (%) Manufacturing (%) Services* (%) GDP/capita (US$) Exports (US$ million) Exports/GDP (%)

5,682.5 1.3 0.4 23.9 53.0 2,367.7 23,992.9 422.2

23,991.9 0.4 0.2 28.6 59.7 9,227.7 38,038.9 158.5

39,519.0 0.3 0.1 27.7 57.5 14,013.8 61,530.7 155.7

Thailand GDP (US$ million)C Agriculture/Fishery (%) Mining (%) Manufacturing (%) Services* (%) GDP/capita (US$) Exports (US$ million) Exports/GDP (%)

14,302.2 24.9 16.3 20.7 28.6 304.3 6,505.0 45.5

61,652.3 16.2 1.7 25.8 29.8 1,116.8 15,951.0 25.9

89,390.8 12.8 1.7 29.6 30.7 1,522.8 32,466.0 36.3

b 1978 price c 1985 price Notes: a nominal price * include construction, transportation/communication and finance/insurance. Source: Institute of Developing Economies, Ajia Doko Nenpo (Asian Affairs), various issues.

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p. 61). The growth in imports was also impressive. Most of the increase came from intermediate goods and machinery for manufacturing production. The share of intermediate goods and machinery in the total imports into Malaysia rose from 55 per cent in 1980 to 71 per cent in 1992. In Thailand, Singapore, Indonesia, and the Philippines, it increased from 38 to 65 per cent, from 44 to 61 per cent, from 53 to 60 per cent and from 37 to 44 per cent, respectively in the same period (Aoki 1994, p. 84).

The Adoption of Asia-Pacific Regionalist Strategies By the end of the 1970s, as mentioned earlier, many state and society actors in Australia saw that recovery from the lingering economic slump depended on building closer relations with the economies in East Asia. Yet the government’s and private sector’s aim to promote closer economic relations with East Asia was not entirely matched by results. The total value of Australia’s exports to Japan, NIEs and ASEAN had increased rapidly over the 1980s but the share of imports from Australia out of the total imports of these economies had decreased over the same period (Drysdale and Lu 1996). At the end of the 1980s, Australia’s share in Japan’s total imports was less than 6 per cent. The figures for NIEs and ASEAN were even less impressive, at around only 2 and 3 per cent respectively. In fact, the share of imports from Australia as a percentage of total imports was declining for almost every economy in the AsiaPacific region (Okamoto 1997, pp. 73–74). Import demand in East Asian economies had been shifting from traditional primary commodities to intermediate materials and higher value-added products and services, and the Australian Government was aware of it (Hawke 1988, p. 9). To respond to the major foreign economic policy challenges — the utilization and promotion of the GATT regime and building close economic relations with East Asia, in order to underpin domestic structural reform efforts — the Hawke Government began to develop an active Asia-Pacific economic diplomacy. The approach aimed at using regional cooperation as a springboard, or a catalyst, for multilateral trade and investment liberalization. Among its efforts in the latter half of the 1980s in this context, the Cairns Group and APEC initiatives stand out (Higgott 1991, p. 7). ASEAN and its members played important roles in bringing success to these Australian initiatives.

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III. THE CAIRNS GROUP INITIATIVE AND ASEAN’S INVOLVEMENT The Creation of the Cairns Group Agriculture remained a major international trade problem in the 1980s. The EC’s Common Agricultural Policy (CAP) had stimulated excess production through a high price support scheme covering a wide range of products such as sugar, wheat, butter, poultry, cheese, beef, veal and pork. These products were disposed of in international markets with the assistance of subsidies paid directly to exporters (Evans and Grant 1995, p. 124; Capling 2001, p. 67). The United States responded with not only a build up of its agricultural protection but also with the introduction of the Export Enhancement Program (EEP), which targeted the traditional markets of other major subsidized agricultural exporters (Harris 1992, p. 36). In addition, the intention of East Asian states (Japan and Korea in particular) to protect and support domestic farmers remained strong. All these circumstances severely limited access of Australia’s agricultural exports not only to the EC, the United States and the East Asian markets, but elsewhere (Higgott and Cooper 1990, p. 604). The Fraser Government’s push for trade liberalization in agriculture failed at the 1982 GATT Ministerial Meeting. The Hawke Government had learnt that Australia needed both a more carefully prepared strategy and to cultivate support from like-minded states to realize its objective (Cooper and Higgott 1990, p. 18; Capling 2001, p. 98). The government first aimed to strengthen its bargaining power in international negotiations by reducing the levels of protection and assistance that still remained in the domestic agricultural sector (Kobayashi 1990, p. 104). In 1986, for example, the price support mechanism for dairy products was revised. Direct government subsidies for supporting the prices of butter, cheese and other dairy products had already been eliminated by the 1970s; the surcharge on raw milk producers was used as a support resource but the revision abolished this mechanism gradually (Kobayashi 1990, p. 105). The quantitative import restriction on sugar was abolished in 1989 and all other import restriction measures were converted into tariffs. Similar measures were

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introduced for dried fruit, tobacco and citrus (Gruen and Grattan 1993, p. 144). Concurrently with reducing the levels of domestic agricultural protection and assistance, the government sought to create an international coalition of states that favoured trade liberalization for agricultural products. An April 1986 meeting in Montevideo to discuss ways of handling the dumping of EC beef into the Brazilian market, in which officials from Argentina, Australia, Brazil, New Zealand, and Uruguay participated, laid the foundation for these states to discuss the agricultural trade issue closely (Capling 2001, p. 107). In August 1986 with Australia’s initiative, and support from Canada and New Zealand, fourteen states gathered in Cairns and agreed to form and develop a coalition of agricultural exporting countries to become a “third force” in international negotiations with the EC and the United States (Evans and Grant 1995, p. 37). All ASEAN members, except Singapore and Brunei that had no agricultural base in their territories, participated in the Cairns meeting. The amount of agricultural exports of the fourteen countries in 1986/87 accounted for 26 per cent of the world total, compared with 14 per cent for the United States and 31 per cent for the EC (Evans and Grant 1995, p. 125).

Australia’s Leadership and ASEAN’s Support The establishment of the Cairns Group made an immediate impact on the international trade negotiations. At the GATT Ministerial Meeting in Punta del Este in September 1986 where the launch of the Uruguay Round was agreed, the full inclusion of agriculture in multilateral negotiations was settled. The existence of the Group also changed the way in which the agricultural issue was negotiated. In the previous Rounds, a few developed states, namely the EC and the United States, dominated negotiations. In the Uruguay Round, Australia, as the representative of the Cairns Group, was invited to join the EC and the United States to negotiate the issue. This confirmed the Group’s role as the real “third force” in the agriculture negotiations (Capling 2001, p. 135). Australia continued to lead the Cairns Group through to the conclusion of the Uruguay Round negotiations. To do this, the Australian

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Government needed to concentrate Group’s attention on the agricultural trade issue in order to prevent the diffusion of members’ interests, to set sensible Group negotiation goals and to consolidate the Group’s cohesion as a strong coalition (Higgott and Cooper 1990, pp. 614–15). The government sought to position the Cairns Group between the two extremes: the United States and the EC.8 The Cairns Group proposal reflected, in part, the diverse membership of the Group. The diversity in membership meant a potential division between members along North–South lines. To avoid the emergence of division within the Group, Australia endorsed the developing members’ demand for “special and differential treatment” (SDT) (Higgott and Cooper 1990, pp. 618–19).9 New Zealand supported the SDT and Canada reluctantly accepted it (Capling 2001, p. 144). In addition, Australia provided developing members, especially ASEAN, technical assistance in analysing trade data and helped them form their policies towards the Uruguay Round, as their trade policy bureaucracies were small and lacked experience in multilateral negotiations (Capling 2001, p. 122). The role played by members from ASEAN in maintaining the Cairns Group’s solidarity during the course of the Uruguay Round negotiation was crucial. Globalization of their economies in the 1980s had ASEAN officials realize the importance of the multilateral trading system in general and, in particular, Australia and the Cairns Group members from ASEAN began to realize more fully that they shared similar interests in agricultural trade. They worked closely at both ministerial and official levels in the Cairns Group to achieve their goals (Evans and Grant 1995, pp. 202, 211; Capling 2001, p. 122). Furthermore, it is notable that ASEAN as a whole recognized the importance of the Group although not all ASEAN members participated in it, and displayed its intention to cooperate. This cooperative stance of ASEAN towards the Cairns Group was clearly demonstrated in the statements of the ASEAN Economic Ministers Meeting (AEM) released at crucial times for the Uruguay Round negotiations, such as just prior to the mid-term review Ministerial Conference in December 1988 and also just before the Director-General of the GATT proposed the final agreement documents for all sectors in December 1991 (AEM 1988a, 1991). The end results of the Uruguay Round on agriculture, however, turned out to be less than the Cairns Group had hoped for, mainly

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because of strong resistance from the EU during the final weeks of negotiations. The last minute negotiations, conducted mainly between the EU and the United States, clearly showed the limits of a thirdforce coalition’s influence in the multilateral negotiation framework (Capling 2001, p. 144). Nonetheless, the fact that the agreement that extended all the rules and disciplines of the GATT to agricultural trade had been reached for the first time in the GATT’s history was significant. Capling (2001, p. 144) argued that “[w]ithout the [Cairns] Group, there would have been no comprehensive Framework Agreement with disciplines in the three areas of domestic support, market access and export subsidies. Without the Group, there would have been no barriers to the cosy market-sharing deals traditionally favoured by the major economic powers”. For the Australian Government, the Cairns Group initiative had become one of the major achievements of its self-proclaimed “middle-power diplomacy”10 in this period.

IV. THE APEC INITIATIVE: ASEAN AS THE KEY TO SUCCESS Another major success of Australia’s middle-power diplomacy was the APEC initiative proposed by Hawke in January 1989 in Seoul. This initiative directly reflected the government’s and trade liberalizers’ foreign economic policy preferences for multilateralism and their Asia-Pacific regionalist strategies. In the process of the establishment and the early development of APEC, ASEAN’s role was crucial and it became an important partner for Australia.

Precursors of APEC (1): PAFTAD, PBEC and PECC The emergences of an idea for economic cooperation within the AsiaPacific region and the search for an institutional basis for it date back to the 1960s. Based on the rapid economic development of Japan and out of concern about exclusion from the European market by the formation of the EEC, Kiyoshi Kojima, Professor at Hitotsubashi University, called for the creation of a Pacific Free Trade Area (PAFTA) and supported the creation of an Organization for Pacific Trade and Development (OPTAD) in the mid-1960s. These proposals were rejected by policy analysts in the United States who saw that

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such regionalism would run counter to U.S. policy preferences for multilateralism and the global trade system at the time (Patrick 1997, p. 10). Kojima’s initiative, nevertheless, had created a momentum for regional economic cooperation. In 1968, the first Pacific Trade and Development (PAFTAD) conference was organized by the Japan Economic Research Center, bringing a group of economists together from five developed countries in the region: Australia, Canada, Japan, New Zealand and the United States.11 Subsequently, academics from major developing countries in the region have participated in PAFTAD conferences that have been organized every one to two years since then. In 1967, led mainly by Japanese and Australian businesses, the Pacific Basin Economic Council (PBEC) was formed as a commercial component of regional economic cooperation. In May 1968, the first formal meeting of PBEC was held in Sydney with participation of business representatives from, again, the developed countries — Australia, Canada, Japan, New Zealand and the United States. While it started as an organization of developed economies, PBEC has attracted various Asian and Latin American developing economies’ participation (Harris 1994, p. 383; Terada 2001, p. 486).12 The end of the 1970s saw another development in the institutionalization of Asia-Pacific economic cooperation. The U.S. Senate commissioned a Pacific regional trade organization feasibility study. The result of the study published in 1979 (Drysdale and Patrick 1979) engaged the policy attention of the U.S. administration on this issue (Harris 1994, p. 383; Pitty 2003a, p. 16). In the same period, Japanese and Australian Prime Ministers, Masayoshi Ohira and Malcolm Fraser, supported the idea of establishing an association for economic cooperation in the Pacific basin. In 1979, Ohira commissioned a group of Japanese bureaucrats, academics and other private citizens to study the issue and the report was published in 1980 (Study Group on Pacific Basin Cooperation 1980). These moves culminated in the joint Japan–Australia initiative for the Canberra Seminar in September 1980, which became the first meeting of the Pacific Economic Cooperation Conference (later Council, PECC) (Harris 1994, p. 383). This time, both developed and developing economies in the region participated in the first meeting of PECC, thus involving themselves in the new regional economic cooperation process.13

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Precursors of APEC (2): Diffusion of the Regional Economic Cooperation Idea through Policy Networks In several important ways, the PECC process in the 1980s built the basis for the establishment and development of APEC. First, it was agreed that PECC should stay as an informal and independent regional consultation mechanism to advance economic cooperation and marketdriven integration. PECC introduced a “tripartite” structure in which business leaders, policy-oriented academics and government officials participate (the latter in their private capacity). On the one hand, this informal character, along with its non-exclusive approach, made it possible to avoid the intrusion of “large–small” or “North–South” dimensions into its activities. Thus, smaller and/or non-aligned states, including ASEAN members, could participate without feeling much threat of domination by the powers. This also made the subsequent participation of “three Chinas” (China, Hong Kong and Taiwan) possible (Harris 1989b, pp. 18–19). On the other hand, the participation of government officials, even in their private capacity, contributed to an acknowledgement of the need for greater economic cooperation among politicians and senior bureaucrats in respective governments (Terada 1999b, p. 42). Second, along with PAFTAD and PBEC, the PECC process created strong policy networks of business leaders, academics and government officials in the region. In fact, individual participants in PAFTAD and PBEC often overlapped with those in PECC. Many of them were also involved in ASEAN regional economic cooperation activities. Direct and frequent meetings enabled them to learn each other’s problems, whereas they did not know each other well and were not familiar with each other’s economic policies in the 1960s. These understandings within personal networks created a will and a foundation for regional economic cooperation (Terada 2001, p. 487). Third, these close personal networks helped facilitate the convergence of ideas on regional economic cooperation and foster broadly based support for it (Elek 1991, p. 324; Harris 1994, p. 384). Through the PAFTAD, PBEC and PECC processes, a number of policy ideas had become increasingly shared among policy-making actors in the member states by the end of the 1980s (Ravenhill 1998, p. 280; Pitty 2003a, p. 16). They can be summarized as follows:

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• Individual states need to keep developing open and outwardlooking domestic economic regimes in order to maintain dynamism of economic development. • Regional cooperation is required to encourage and assist efforts by these states towards trade and investment liberalization. • Regional economic cooperation needs to be a gradual process towards long-term goals, based on consensus among participants, as the diversity among them is great in almost every aspect such as history, culture, political systems and levels of economic development. Furthermore, global characteristics of international economic transactions by countries in the region suggested that it was more advantageous for them to carry regional economic integration forward in a nondiscriminatory manner. In other words, any regional attempts to reduce or eliminate trade and investment barriers should be implemented on the MFN basis, thus automatically applied to extra-regional countries. This concept, which was often called “open regionalism” and became a distinctive attribute of APEC activities in the 1990s, had also been developed in the previous PAFTAD and PBEC processes and consolidated in the PECC process (Garnaut 1994b). These ideas were transported into the policy agendas of the states in the region through international and national policy networks (Higgott 1994, p. 372). But, at the same time, it was judged that formal political involvement was necessary to develop with regional consensus building on policy issues such as trade liberalization, trade facilitation and the creation of an investment code because in most cases they would require changes in domestic arrangements (Elek 1991, p. 324; Terada 1999b, p. 11; Harris 2000, p. 521).

The Development of Regional Cooperation Initiatives in the Pacific and Australia’s Intentions Even before Hawke’s APEC initiative in 1989, there had been various proposals for, and studies on, forming a formal regional institution for economic cooperation. For instance, Hawke himself made an announcement in November 1983 in Bangkok, proposing the creation of an association consisting of “Western Pacific” states to develop a

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united regional approach to multilateral trade negotiations (Terada 1999b, p. 10; Capling 2001, p. 97; Pitty 2003a, p. 17).14 This initiative culminated in the series of Western Pacific Senior Officials discussions on multilateral trade policy issues, which added significant impetus to the preparation for the Uruguay Round (Garnaut 1989, p. 151). In March 1988, former Japanese Prime Minister Yasuhiro Nakasone called for a Pacific forum for promotion of economic, cultural and general information exchange. In July 1988, U.S. Secretary for State George Shultz floated the idea of establishing a “Pacific Basin Forum” in which inter-governmental exchanges on sectoral/structural policies were expected. In December 1988, Bill Bradley, a U.S. Senator, called for a Pacific Coalition on Trade and Development for economic cooperation in areas such as agricultural trade, exchange rates stabilization and developing countries’ debt. These U.S. moves were followed up in early 1989 by Alan Cranston, a U.S. Senator, who introduced a resolution into the U.S. Congress calling for a permanent “Pacific Basin Forum”. His idea of the Forum included an annual summit meeting of leaders of the member states, and its agenda was expected to cover regional cooperation in not only economic issues but also military and security matters (Evans and Grant 1995, p. 131). Although the United States had proposed regional economic cooperation frameworks, it also had an intention to establish bilateral FTAs with Japan and other Asia-Pacific states as a part of its bilateral trade policy. Learning of the U.S. intention, Japanese Prime Minister Noboru Takeshita ordered Ministry of International Trade and Industry (MITI) in January 1988 to study the regional economic cooperation issue (Funabashi 1995, p. 59; Krauss 2000, p. 476). The report of the study, which was published in June 1988, concluded that the promotion of Asia-Pacific economic cooperation was required to prevent the U.S. bilateralism that could lead to a closed economic bloc in the region. The report pointed out the relative decline in the U.S. capacity to support the global economic order and, without sharing the economic burden of the United States, the multilateral trade regime that had helped Japan, NIEs and ASEAN members develop their economies would not be sustained. The report recommended that regional cooperation should be based on the ideas developed through the PECC process. In particular, it should be advanced gradually on a consensus basis and conducted under the principles of open regionalism (Krauss 2000, pp. 476–77).

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The Hawke Government responded enthusiastically to this report and began working closely with Japan to persuade other states of the necessity for a formal regional economic cooperation framework. It was under these circumstances that the Hawke proposal was made in January 1989. After seeing a deadlock at the Montreal mid-term review of the Uruguay Round in December 1988, Hawke stated in his speech that: I believe the time has come for us substantially to increase our efforts towards building regional cooperation. First, effective regional cooperation can greatly improve the chances of success of the Uruguay Round and could thereby give a vital boost to the liberalisation — and therefore the preservation — of the GATT-based trading system. Second, … we must investigate the scope for further dismantling of barriers to trade within the region, consistent with the GATT framework. The third area … is through identifying the broad economic interests we have in common. I must stress that my support for a more formal vehicle for regional cooperation must not be interpreted as suggesting … the creation of a Pacific trading bloc. (quoted in Snape et al. 1998, pp. 534–36)

Hawke’s aim in this initiative was to strengthen the multilateral trade regime and link the Australian economy more closely with East Asian economies through economic cooperation in the Asia-Pacific region (Harris 1989b, p. 17; 2000, p. 522; Leaver 1995, p. 181). In the short term, a new regional forum at the ministerial level could put pressure on other states at the Uruguay Round negotiation table to move more quickly towards a successful conclusion. At the same time, such a forum with an open regionalism principle was expected to ease the trade tension between Japan and the United States and resolve the bilateral problems in a way which did not harm interests of other states in the region.15 In the longer term, the activities of the forum for policy cooperation and coordination in areas such as trade, investment, industrial development, communications, financial and other service, and food and energy security would significantly increase regional interdependence, which would lead to improved economic performances of potential members of the forum including Australia. Furthermore, increased economic interdependence in the region was expected to encourage a more stable and cohesive political environment (Harris 1989b, p. 17).

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Intensive Diplomatic Efforts for the Establishment of APEC: The Woolcott Mission and ASEAN After the Hawke speech in January 1989, the Australian Government commenced intensive diplomatic efforts to realize the establishment of APEC. In February, Hawke appointed Richard Woolcott, Secretary of DFAT, the special envoy for this purpose and Woolcott “instinctively” knew that gaining the support of ASEAN members would be critical to success (Woolcott 2003, p. 233). For the APEC initiative to be successful, the potential organization needed to make sure that ASEAN members as well as major economic powers (Japan and the United States) and Asian NIEs participated. The lack of participation by any of them would significantly hinder the realization of Australia’s objectives. Among them, securing the ASEAN participation had become the most important task since it had historically been the most cautious on this kind of endeavour.16 Moreover, it was increasingly clear that Japan, the largest economy in East Asia and Australia’s most important trade partner, would not react without assessing ASEAN’s attitude, and its support for APEC was conditional on general support from ASEAN (Woolcott 2003, p. 235; Pitty 2003a, p. 25). “ASEAN was the key to, and in a sense the initial parameter-setter of, APEC” (Hawke 1992, p. 341). Between March and May 1989, the Woolcott mission visited twelve countries and one region perceived to be potential members of APEC, meeting with “seven heads of governments, some thirty foreign, trade and industry ministers, and more than one hundred officials” to explain and discuss the Australian initiative (Woolcott 2003, p. 231). All ASEAN members were included in the mission’s itinerary.17 On the ASEAN side, economic development by enmeshing with the global economy since the 1970s — in particular since the mid-1980s — had made most members confident of managing their domestic economies. This confidence was illustrated by the introduction of a series of unilateral measures to liberalize their economies on the MFN basis from the late 1980s. Brunei and Singapore, the two small city states, already had significantly liberalized domestic economic regimes, but others also announced MFN liberalization of trade and investment regimes that were to continue well into the 1990s (Evans and Grant 1995, p. 199; Soesastro 1995, pp. 492–93; Parreñas 1998, pp. 241–42).

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These moves of ASEAN members also implied their acceptance of the policy idea that had been nurtured in the PAFTAD, PBEC and PECC processes. Free movement of goods, services and capital across borders had become a policy priority of ASEAN members by the end of the 1980s. On the Australian side, because the government had begun to implement liberalization and deregulation policies for structural reform of domestic industries from the early 1980s, it was no longer vulnerable to ASEAN criticism that the Australian market was closed to its labourintensive exports (Ravenhill 1998, p. 278). Liberalization and deregulation meant the end of the contradictory character, or dilemma, that Australia’s post-war policy towards Southeast Asia and ASEAN always suffered. Dispelling the contradictory character gave the Australian Government more freedom and focus in formulating and implementing its foreign economic policy and, thus, cooperation between Australia and ASEAN had a much higher chance of success than in earlier decades. As Australia and ASEAN had found a common interest in maintaining and promoting multilateral trade and investment regimes (Ravenhill 1998, p. 278; Snape et al. 1998, p. 467), all ASEAN members indicated their general support for Hawke’s initiative for APEC when the Woolcott mission visited them in April 1989 (Woolcott 2003, pp. 236–37). Yet their support was not without reservations. In Indonesia, Foreign Minister Ali Alatas expressed reservations about the role of China and Russia and Trade Minister Arifin Siregar argued that ASEAN should be the “core” of the regional cooperation process (Funabashi 1995, p. 56). In Malaysia, Prime Minister Mahathir bin Mohamad and Minister for Trade and Industry Rafidah Aziz were not in favour of including the United States, Canada (and China) at least in the initial meeting of APEC (Funabashi 1995, p. 57; Woolcott 2003, p. 237). In the Philippines, Jesus Estanislao, Minister of the National Economic Development Agency, appealed to Australia not to be over hasty if it wanted all ASEAN members to come on board (Funabashi 1995, p. 57). Most ASEAN members opposed the creation of a new or a large and costly secretariat similar to the OECD (Woolcott 2003, pp. 238–39). What ASEAN members feared most was the marginalization of its own organization by joining a broader international organization. They were especially cautious about the possibility of increasing influences

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from powers like the United States, Japan or China on their domestic and regional affairs. ASEAN’s view was that decisions on the cooperation agenda and the way in which measures were to be implemented should be led by ASEAN. In other words, ASEAN and its members strove to be at the centre of wider regional economic cooperation.18 To secure ASEAN members’ participation, Australia accommodated these concerns. Woolcott argued when his mission visited ASEAN members that “ASEAN’s influence would not be eroded or marginalized by the establishment of APEC. ASEAN and APEC should be seen not as rivals but as complementary institutions” (Woolcott 2003, p. 237). In May 1989, Minister for Foreign Affairs Evans affirmed that ASEAN was to remain the pre-eminent body in the region and suggested that a broader group would enhance the capacity of ASEAN to project their economic interests regionally and globally (Pitty 2003a, p. 26). Moreover, Australia persuaded other potential members to accept ASEAN assertions. For instance, when he visited the United States in June, Woolcott urged his counterparts to accept that excessive U.S. enthusiasm for APEC and any attempts to add a political or security dimension to the forum would prejudice its prospects. By July 1989, James Baker, U.S. Secretary of State, accepted the arguments and supported the Australian concept of APEC (Evans and Grant 1995, p. 131; Woolcott 2003, p. 241).

ASEAN’s “Conditional” Participation in APEC Australia’s lobbying activities, along with the efforts of Japan (Terada 1999b, p. 23), proved to be effective. At the ASEAN-Post Ministerial Conference (ASEAN-PMC) in July 1989, ASEAN as a whole formally announced that its members would participate in a ministerial meeting of Asia-Pacific economies that was to be held later in the year, provided that economic cooperation in the Asia-Pacific region should: • be based on independence, mutual respect and equality; • complement ASEAN’s activities and role in the region; • contribute to the promotion and maintenance of multilateral mechanisms for cooperation, especially GATT, and not lead to the creation of an economic bloc or an exclusive trading arrangement;

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• be developed in a gradual fashion and be properly planned; • be to increase the welfare of the people and to reduce the gaps between the developed and the developing states in the region; and • contribute to the creation and maintenance of a regional environment which was conducive to the promotion of mutual interests. (Ravenhill 1998, p. 281; Terada 1999b, pp. 36–37)

The inaugural APEC Ministerial Meeting was held in Canberra in November 1989, with ministers from twelve regional economies participating: all six ASEAN members and Australia, Canada, Japan, Korea, New Zealand and the United States. The Meeting agreed on the general principles of APEC and its cooperation activities that included all points that ASEAN raised as conditions for its members’ participation. Moreover, the Ministers agreed to add the following points also as general principles of APEC: • cooperation should recognize the diversity of the region, including differing social and economic systems and current levels of development; • cooperation should involve a commitment to open dialogue and consensus; • cooperation should be based on non-formal consultative exchanges of views among Asia-Pacific economies; and • cooperation should aim to strengthen the gains from interdependence, both for the region and the world economy, including by encouraging the flow of goods, services, capital and technology. (APEC Ministerial Meeting 1989, italics added)

For ASEAN, the first three principles confirmed that any politically and/or economically powerful members would not dominate APEC and its cooperation activities. Thus, in the end, all initial concerns of ASEAN were cleared. These general principles agreed at the first Ministerial Meeting established the unique characteristics of APEC as an organization committed to “gradual consensus-building”, “voluntary but concerted actions by members” and “open regionalism”. But it seems that ASEAN members still did not feel fully secure. In February 1990, three months after the first APEC Ministerial Meeting, ASEAN held

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a special meeting of Foreign and Economic Ministers in Kuching and reaffirmed the general principles of APEC as the conditions for their participation (Elek 1991, p. 325; Soesastro 1995, pp. 483–84).19 For the Hawke Government, the agreement on general principles confirmed that APEC could be used for the realization of its policy aspiration — multilateral trade and investment liberalization through the Asia-Pacific approach — as it originally expected from such a forum. After the first meeting in 1989, the annual APEC Ministerial Meeting continued to announce its support for a timely and successful conclusion of the Uruguay Round and the commitment of its members’ to this cause (Soesastro 1995, p. 480). APEC’s continuous pressure on the Uruguay Round negotiation contributed an important, if not the main, factor leading to the successful completion of the negotiation at the end of 1993 (Snape et al. 1998, p. 374; Petri 1999, p. 15; Yanai 2004, p. 27). Along with the Cairns Group activities, the APEC initiative reflected a significant shift in Australia’s foreign economic policy in the 1980s and the increasing importance of its relations with ASEAN in realizing its policy objectives.

Notes 1. For instance, in 1988, 1989 and 1990, Thailand’s real GDP grew at a rate of 13.2 per cent, 12.2 per cent and 11.6 per cent respectively. Malaysia’s and Indonesia’s real GDP also grew rapidly in the same period: at a rate of 8.9 per cent, 9.2 per cent and 9.7 per cent in the case of Malaysia and 5.8 per cent, 7.5 per cent and 7.2 per cent in the case of Indonesia. The International Monetary Fund, International Financial Statistics, various issues. 2. It is interesting to note that, among the economies in Table 5.1, Australia accounted trade deficits with the United Kingdom and the United States for almost the whole period, while it recorded trade surpluses with the East Asian economies. Since the 1970s, the trade surplus with East Asia almost offset the deficits with the United Kingdom and the United States, with an exception in the mid-1980s. 3. The conclusion of the Agreement on Commerce in 1957 that guaranteed reciprocal provision of the MFN status and the abolition of import licensing can be seen as the basis of the subsequent development of trade relations between Australia and Japan. See Chapter 3. 4. Australia’s exports to ASEAN grew at an average annual rate of 15 per cent from 1978/79 to 1983/84, faster than the growth rate of its total exports at

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5.

6.

7.

8.

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12 per cent, while imports from ASEAN during the same period grew at an annual average rate of 14 per cent. By 1984, total trade between Australia and ASEAN reached A$3,430 million, compared with A$487 million a decade earlier (Joint Committee 1984, p. 133). The Department of Trade (and Resources) tried to defend the Australian Government’s stance on ASEAN’s demands for market access. The Department pointed out that, in 1980, ASEAN members could export their products duty free for about 80 per cent of Australia’s 2,740 tariff lines. The remaining 20 per cent of Australia’s tariff lines did not have any form of preferences for imports from developing states, including ASEAN, and this 20 per cent covered most TCF products. As a result, the Department explained, 92 per cent of imports from ASEAN entered Australia duty free and only 3.5 per cent of imports from ASEAN were subject to import restrictions (Department of Trade and Resources 1980, p. 1725). The Department showed that the value of ASEAN’s TCF exports to Australia had grown from A$6 million in 1971/72 to A$56 million in 1978/79 (Department of Trade and Resources 1980, p. 1726). These assertions by the Department of Trade had to be true in terms of figures they presented, but they did not change the general policy direction towards structural reform. First, the assertions did not prove in any way that structural reform of domestic industries was not necessary under the changing regional and global environment. Second, they could not disprove ASEAN’s argument that they could export more if remaining protectionist measures were removed. These incentives included exemptions from corporate tax for several years after starting operations, and customs duties exemptions on raw materials and intermediate goods provided that the final products were to be exported. Political instability in the Philippines after the assassination of the opposition leader, Benigno Aquino in 1983 eventually led to the fall of President Marcos in 1986. To make matters worse, this unstable political situation was followed by a serious natural disaster (the huge eruption of Mt. Pinatubo) in 1991. The original proposal of the United States included the tariffication of all import barriers on agricultural products, the elimination of all export subsidies over five years and the “traffic light” approach to deal with domestic support, which was to categorize various domestic support measures by trade-distorting levels in view of elimination and reduction. In contrast, the EC proposal was defensive in tone, less specific and ambitious (Capling 2001, p. 134). The Cairns Group’s original proposal was more realistic than the United States’. It envisaged a three-phase approach. The first phase would involve an early freeze on and reduction in farm support levels and access barriers; the second phase would involve elaboration of reform

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10.

11. 12.

13.

14.

15.

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measures to address the most serious distortions in agricultural trade; and the final phase was the elaboration of a long-term framework along the lines proposed by the United States (Capling 2001, p. 127). The WTO agreements contain provisions that allow developing members to apply for more favourable treatments than developed members. These provisions are referred to as “S&D treatment” provisions and include measures such as longer periods for implementing agreed commitments and increasing trading opportunities for developing members. In understanding that small- and medium-sized states’ voices cannot be heard in multilateral forums if they act alone, the Australian Government led by the ALP consciously pursued “middle-power diplomacy” (Evans and Grant 1995, p. 125). The characteristics of middle-power diplomacy were described in several points: coalition building with like-minded countries; targeting and concentrating resources in “niche” areas where best able to generate returns worth having and decisive interventions by major powers are absent, and; acting as a source of intellectual and entrepreneurial leadership (Higgott 1991, pp. 10–11). Other diplomatic initiatives made by the Australian Government in this period include its activities on issues such as Antarctica, chemical weapons, Cambodia and apartheid. For detailed discussion on the formation of PAFTAD, see Patrick (1997, pp. 1–14) and Terada (1999a). PBEC currently consists of business representatives from twenty countries: Australia, Canada, Chile, China, Colombia, Ecuador, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Peru, the Philippines, Russia, Singapore, Taiwan, Thailand and the United States. The first PECC meeting was participated in by five developed economies (Australia, Canada, Japan, New Zealand and the United States), six developing economies (five ASEAN members [Indonesia, Malaysia, the Philippines, Singapore and Thailand] and Korea), as well as delegations representing the South Pacific Island states (Papua New Guinea, Fiji and Tonga), the Asian Development Bank, PBEC and PAFTAD. In this proposal, Hawke’s concept of “Western Pacific” states covered “Australia, the ASEAN countries, New Zealand and the market economies of North-East Asia”, but the United States and Canada should also be encouraged in this direction (speech by Prime Minister Hawke on 22 November 1983 in Bangkok, quoted in Snape et al. 1998, pp. 414–15). While the 1988 MITI report assumed the United States as an integral part of a new regional economic forum and the Japanese Government kept the United States informed of its own initiative, Australia’s attitude towards the U.S. participation was somewhat ambiguous in the early stage. Hawke’s speech in January 1989 did not explicitly mention the United States as a

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18.

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potential member of his proposed framework. The Australian Government, nevertheless, recognized by the end of April 1989 that most potential members saw that U.S. participation was vital for the success of such a forum (Woolcott 2003, p. 237), and set its stance on the issue to invite U.S. participation. For a detailed discussion of the Japanese, Australian and U.S. contribution to the APEC formation, see Funabashi (1995), Terada (1999b), Krauss (2000) and Harris (2000). A similar but less concrete initiative by Whitlam in the early 1970s was rejected by ASEAN. See Chapter 4. Other than the ASEAN members of Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand, the Woolcott mission visited Canada, China, Hong Kong, Japan, Korea, New Zealand and the United States. In fact, there had been some ASEAN initiatives to foster Asia-Pacific regional cooperation earlier in the decade. In 1984, for example, ASEAN proposed a cooperation scheme with its five dialogue partners (Australia, Canada, Japan, New Zealand and the United States) on human resource development. Even Mahathir, who had been the most vocal advocate of the fear of great power domination of ASEAN, was supportive of this scheme (Joint Committee 1984, pp. 130–31). Thus, in general, ASEAN was ready for a wider regional economic cooperation framework by the mid-1980s if it could play a leading role. This reaffirmation is known as the “Kuching Consensus”.

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6 The Development of ASEAN Regionalism and the AFTA–CER Linkage Dialogue

The previous chapter examined how Australia–ASEAN relations deepened through multilateral cooperation frameworks such as the Cairns Group and APEC, against the backdrop of the Australian Government’s deployment of Asia-Pacific regionalist strategies since the mid1980s. This chapter focuses on the bilateral relations between Australia and ASEAN after the reorientation in Australia’s foreign economic policy. It explains why in the 1990s ASEAN strengthened and extended its own regional cooperation efforts in dealing with international and regional issues and how the Australian Government responded to this. The chapter first reviews the development of ASEAN regional political and economic cooperation in the 1990s. It explains that the relatively successful management of the organization and the rapid economic development of its members helped ASEAN build confidence, and this confidence led ASEAN to adopt regional strategies in coping with the political and economic challenges that emerged in the 1990s.

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The Australian Government declared “comprehensive engagement” with Southeast Asia in the late 1980s and viewed relations with ASEAN and its members as the basis of Australia’s East Asian policy. Among ASEAN’s regionalist strategies, its initiative to create AFTA had a potential to shake the basis of Australia’s foreign economic policy. Through the maintenance of a continuous dialogue process, the government attempted to make AFTA as open as possible. While the development of this dialogue was Australia’s response to ASEAN regionalism in the 1990s, the dialogue process did not, however, yield the concrete results that Australia hoped for. The unsatisfactory progress of the dialogue with ASEAN was to become one of the main factors behind a second major shift in Australia’s foreign economic policy at the turn of the century.

I. THE DEVELOPMENT OF ASEAN REGIONAL COOPERATION The main objectives of the establishment of ASEAN in 1967 were to preserve independence and autonomy as far as possible and to stabilize the region for individual member states’ political and economic development. Since then, ASEAN has been gradually institutionalizing its organization and developing political and economic cooperation schemes. In particular, the inaugural Summit meeting held in Bali in 1976 marked a watershed in the development of ASEAN regional cooperation.

Political Cooperation a) The Treaty of Amity and Cooperation and the ASEAN Concord ASEAN needed to call the first Summit in 1976 to respond to the dramatically changed regional environment: the end of the Vietnam War, the military withdrawal of the United States from mainland Southeast Asia and the subsequent communist takeover of the Indochinese states. The Bali Summit resolved that ASEAN needed to move towards establishing a more robust political community; the culmination was the

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signing of the Treaty of Amity and Cooperation in Southeast Asia (TAC) and the Declaration of ASEAN Concord.1 In TAC, ASEAN finally acquired an international treaty that laid the foundation for the organization, but a decade after its establishment. Members were now legally bound to the behavioural norms — or the rules of conduct — in the region which were specified in Article II as: (a) mutual respect for the independence, sovereignty, equality, territorial integrity and national identity of all nations; (b) the right of every state to lead its national existence free from external interference, subversion or coercion; (c) non-interference in the internal affairs of one another; (d) settlement of differences or disputes by peaceful means; (e) renunciation of the threat or use of force. What was more important was that members had recognized the need to expand the geographical area where these norms were genuinely observed. ASEAN members realized that the organization should eventually cover the whole Southeast Asian region to achieve their goal of national political and economic development without intervention from outside influences. Article 18 of TAC stated that the treaty “shall be open for accession by other States in Southeast Asia”. This had effectively opened the door for non-member states in the region to accede to the membership of ASEAN.2 The Declaration of ASEAN Concord stated that the organization would expand regional cooperation in economic, social, cultural and political fields in the pursuit of political stability of individual members and ASEAN. In terms of political cooperation, it specified several actions to be taken, including holding Meetings of the Heads of Governments (Summits) according to need and improving the ASEAN machinery by setting up a permanent secretariat.3 As a whole, the Concord emphasized the necessity of developing a regional “identity” and “solidarity” and creating a resilient ASEAN community.4 The fact that the member states have not experienced major military confrontations with each other since the establishment of ASEAN should be seen as one of the main achievements of the organization. This is especially noteworthy considering that all Southeast Asian states had varying degrees of instability in their political relations

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with neighbours even in the years just before 1967 (see Chapter 4). In addition to the success of intra-regional political cooperation which allowed ASEAN member governments to concentrate on their own national political and economic development, cooperation on interregional issues that directly challenged members’ security has also been relatively successful. Though they often have had differences in policy preferences in this area, ASEAN members managed to maintain a common policy when it was absolutely necessary. ASEAN’s policy cooperation and coordination on the “Cambodian problem” provides a good example.

b) The Formation and Maintenance of a Unified Stance towards the Cambodian Problem For ASEAN and its members, the period from the mid-1970s to the early 1990s, sandwiched between the end of the Vietnam War and the end of the Cold War, was quite challenging in terms of maintaining the organization’s political solidarity. When Vietnam invaded the Pol Pot-led “Democratic Kampuchea” (DK) in December 1978, taking over Phnom Penh, helping Heng Samrin oust Pol Pot and form a new government (People’s Republic of Kampuchea, PRK) in January 1979, the Thai Government denounced the Vietnamese act. Thailand expected a strong and unified backing from ASEAN as it faced the frontline of military confrontation in Indochina. While Singapore reacted sympathetically to the Thai move, Malaysia and Indonesia initially showed mixed responses. The dividing line was the differences in the threat perception regarding China. Malaysia and Indonesia saw Vietnam as a regional counterweight to China and remained anxious about strongly condemning Vietnam (Snitwongse 1998, p. 187). Thus, the statement delivered by the Indonesian Foreign Minister (as the chair of the ASEAN Standing Committee on the issue) immediately after the fall of Phnom Penh was unanimous but somewhat reserved in tone and did not mention Vietnam as the direct cause of instability in Indochina (ASEAN Standing Committee 1979). The Chinese invasion of Vietnam in February 1979 to “give a lesson” to the latter further divided ASEAN members as it reinforced the Malaysian and the Indonesian perception of China as the real threat.

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ASEAN, nevertheless, took a much stronger stance against Vietnam when the Vietnamese forces intruded into Thai territory in June 1980. The direct incursion of a non-member state into the territory of a member state led ASEAN to adopt a hardline position as the event directly threatened the core norms of the organization. The tone of the joint statement of ASEAN Foreign Ministers announced on 25 June was quite at odds with the one delivered 18 months earlier, strongly condemning the Vietnamese act (ASEAN Foreign Ministers 1980). Although the concerns of Malaysia and Indonesia over China’s growing influence in Indochina remained (Snitwongse 1998, p. 187), the Vietnamese incursion into Thailand saw ASEAN members adopt a position of strong solidarity. With a unified stance towards the Cambodian problem, ASEAN actively involved itself in putting pressure on Vietnam (and the PRK) at various multinational forums. For instance, at the UN General Assembly in November 1979, ASEAN played a central role in sponsoring a UN resolution that urged “all states” to refrain from interference in the internal affairs of Cambodia and “all foreign forces” to withdraw from there (UN 1979). Throughout the period of Vietnamese military presence in the Cambodian territory, ASEAN maintained its sponsorship of similar resolutions with other states at the annual sessions of the UN General Assembly and these resolutions were always approved. While Vietnam continued to insist that there was no such thing as the Cambodian problem, ASEAN was also successful in March 1983 in getting the Non-Aligned Movement, which consisted of the majority of developing states in the world, to “recognize” the problem and support ASEAN’s hard stance on the withdrawal of the Vietnamese forces. Thus, in addition to having successfully managed intra-regional political/security issues, ASEAN consolidated its status as an important actor in international relations in the region by maintaining a united, strong stance on the Cambodian issue until the resolution of the problem in the early 1990s. 5 How successive Australian Governments saw the development of ASEAN regional cooperation on political issues varied.6 Nevertheless, they shared the perception that ASEAN was an important actor in maintaining stability in the region.

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Economic Cooperation a) Unsuccessful Regional Economic Cooperation Schemes It was not until the mid-1970s that any concrete move towards regional economic cooperation was made. The first significant moves were made partly in response to recommendations of several international organizations7 but mainly out of the political necessity to consolidate ASEAN to deal with the significantly changed international environment. As it did for political cooperation, the ASEAN Concord in 1976 provided several action programmes for regional cooperation in the economic field, including cooperation in the production of basic commodities particularly food and energy, industrial cooperation to meet regional requirements for essential intermediate and final goods and the creation of Annual meetings of Economic Ministers to formulate recommendations on economic cooperation and to review the implementation of cooperation programmes.8 The Concord showed a willingness on the part of ASEAN leaders to move towards regional economic cooperation, but economic cooperation within ASEAN had not become extensive until the early 1990s. While official agreements on several cooperation schemes were signed by the mid-1980s, these agreements and actual practices diverged. The limited product coverage and the limited tariff and non-tariff barrier reductions agreed in the preferential trade agreement (PTA) in 1977 resulted in discord among members. By the mid-1980s, although more than 18,000 items were listed as attracting tariff reduction of at least 20 per cent, most of these items were little traded among ASEAN members. Moreover, as the revised scheme in 1980 allowed, members unilaterally excluded “sensitive items” from the tariff reduction list so as to eliminate most potentially traded items (Joint Committee 1984, p. 116). Subsequent attempts were made to improve the scheme, such as adding textiles, chemicals, rubber, cement, food, beverages and some other products to the tariff reduction list, but the PTA continued to have only a marginal effect on intra-regional trade, covering an estimated 2 per cent and 5 per cent of intra-ASEAN trade in 1980 and 1986 respectively (Pangestu et al. 1992, p. 335).

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The implementation of the ASEAN Industrial Projects (AIP) scheme was also troubled. A total of five projects was proposed to be located in each member but most of them had feasibility problems including infrastructure and marketing.9 The most serious problem, however, was that members pursued their own national interests rather than regional interests. 10 Generally, when one ASEAN member ’s AIP products competed with the domestic products of another member, the latter was reluctant to give preferential trade treatment to the product, despite it being essential for the successful implementation of the AIPs. Learning from the unsatisfactory results of the previous cooperation schemes, ASEAN created the ASEAN Industrial Joint Ventures (AIJV) scheme in 1983. The AIJV scheme had several new characteristics. First, a project under the scheme could proceed with at least two private sector partners, provided that the ASEAN component was more than 51 per cent (later reduced to 40 per cent). Second, the investors could choose the location of the project in any of the participating ASEAN members. Third, as an investment incentive, participating ASEAN members were to grant a 90 per cent tariff reduction for four years on goods produced by the AIJVs. In the ten years after the establishment of the scheme, twenty-six products including automobile parts, chemicals and food products were granted AIJV status, but the scheme had had a negligible impact on intra-ASEAN trade and investment. In reality, a number of AIJV products encountered difficulties in obtaining the 90 per cent margin of tariff preference from some participating members because of their requests for reciprocal treatment for one of their products not necessarily under the AIJV scheme (EAAU/DFAT 1994a, p. 30). Suriyamongkol (1988, p. 37) pointed out that regional economic cooperation depended totally on the extent to which each member government saw it as a solution to national economic development. In this period, however, most of them protected their strategic domestic industries through high tariffs, quantitative import restrictions, subsidies and other special treatments. Economic nationalism tended to prevail. As a result, ASEAN’s regional economic cooperation initiatives in the 1970s and the 1980s were not very successful.11

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b) Success of “Extra-regional” Economic Cooperation While intra-regional economic cooperation schemes did not yield notable results in this period, members’ efforts for ASEAN cooperation on issues involving extra-regional actors paid off. ASEAN had already shown unity since the 1970s when it dealt with external economic relations. As explained in Chapter 4, ASEAN’s continuous demand for better access of its members’ TCF products to the Australian market and its demand for a revision of Australia’s new ICAP in this period provide good examples of the effectiveness of ASEAN cooperation on inter-regional economic issues. ASEAN also undertook an initiative to build a framework for formal dialogue with extra-regional actors and started regular meetings with the EC (1972), Australia (1974), New Zealand (1975), United Nations Development Programme (1976), Canada, Japan, and the United States (1977) as formal Dialogue Partners to facilitate economic cooperation. Since then, Korea (1989), India (1995), China and Russia (1996) have been awarded full Dialogue Partner status. Areas specified for cooperation with Dialogue Partners are very wide, including trade, industry, agriculture, fishery, forestry, communication, air transportation, shipping, and so on.12 The ASEAN-Post Ministerial Conference (ASEAN-PMC) was created in 1979, bringing all Dialogue Partners together at the same table. Since its inauguration, the ASEAN-PMC has been held back-to-back with the annual ASEAN Ministerial Meeting (AMM) to discuss not only economic issues but also political issues in the region. As it provided the only opportunity until the end of the 1980s for foreign ministers of major governments in the Asia-Pacific region to gather regularly,13 the ASEAN-PMC served to promote ASEAN’s international status. For Australia, the development of the ASEAN regional cooperation symbolized the rise of developing countries’ political influence. The Joint Parliamentary Committee of Foreign Affairs and Defence clearly recognized that “ASEAN solidarity” was regarded as important by all ASEAN members and had been central to improving the region’s cohesion (Joint Committee 1984, p. xxi). The Department of Foreign Affairs also recognized that ASEAN constituted a fundamental force for stability in the region and stated that “it is important for Australia to have as full an understanding as possible of the ASEAN countries,

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both individually and in association” (submission by the Department of Foreign Affairs, Joint Committee 1984, p. 1).

Developing the “ASEAN Way” of Regional Cooperation During the first twenty years of its inception, ASEAN gradually developed a distinct political process for regional cooperation, often called the “ASEAN way”. Along with the rules of conduct and the organizational mechanism that had been developed, the ASEAN way has been working to produce ASEAN’s achievements such as political and economic conflict management and community building (Snitwongse 1989, p. 185). The ASEAN way is based on the habit of consultation and accommodation among members. Mutual consultation and accommodation on regional cooperation in political, economic, social, cultural and other issues are ensured through frequent interaction between members’ officials, ministers and heads of governments. Snitwongse (1998, p. 184) also suggested that keys to the success of the ASEAN way of regional cooperation process included informality, the rule of consensus and a non-biding approach that allowed members flexibility in actual implementation of cooperation activities. In practice, the ASEAN way of policy coordination is typically carried out in two phases: first, framework (or basic) agreements based on consensus are set out, leaving detailed designs of cooperation schemes for later discussion and decisions; detailed protocols under the framework agreements are then defined through consultations among “technocrats” from individual members for ministers’ (or heads of governments’) approval (Yamakage 1997, pp. 83–84). The first phase usually produces treaties, agreements or declarations for regional cooperation. The second phase emphasizes a voluntary approach by members. It does not involve negotiation when unity cannot be achieved. In other words, the stance of the most vulnerable or negative member(s) is accepted by others and the activities for particular cooperation are set at that level. Moreover, the set protocols usually allow some discretion in implementation to cover not only the most vulnerable or negative member(s) but also all others. In this way, ASEAN has maintained informality, flexibility and the rule of consensus in its regional cooperation activities.14

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The ASEAN way of regional cooperation has been developed from necessity because of the nature of the organization. Maintaining cohesion and displaying solidarity — or at least not explicitly showing internal disunity — in the process of implementing regional cooperation was essential to building ASEAN’s credibility and confidence in the fragile political and economic environment in the region.15

II. THE ENHANCEMENT OF ASEAN REGIONALISM IN THE 1990s What helped ASEAN members further build their confidence in asserting their way of managing their domestic economies and regional cohesion was their rapid economic development from the mid-1980s.16 Against the backdrop of this growing confidence, ASEAN opted for basing its intra- and inter-regional policies on its own “regionalist” approach when the international political and economic environment continued to evolve into the 1990s.

Opportunities and Challenges after the Cold War For ASEAN members, the end of the Cold War provided both opportunities and challenges. On the one hand, it gave ASEAN a valuable opportunity to resolve the protracted problem of the communist threat to its members, one of the main factors leading to the foundation of the organization. More specifically, the Cambodian problem gained a much better chance of being resolved when Vietnam withdrew its troops from Cambodia in 1989 after more than a decade of military presence there. On the other hand, there was concern in ASEAN that the significant reduction in the direct and imminent threat might weaken ASEAN’s cohesiveness. In other words, the end of the Cold War in Southeast Asia posed ASEAN members a question of how they could maintain the relevance of the organization in a new global and regional environment. The end of the Cold War also saw acceleration in the transition of former centrally planned economies into market economies and their participation in global and regional economic activities. In East Asia, since the end of the 1970s China had already undertaken its “reform and opening-up” policy under the strong leadership of Deng Xiaoping.

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Vietnam had also started implementing its “renovation” policy in 1986 when economic (and military) assistance from the Soviet Union was significantly reduced. As a result, by the early 1990s China and Vietnam, as well as some other East European economies, emerged as attractive new FDI destinations for Japan, the United States, the EC (EU) and the Asian NIEs. For each ASEAN member whose rapid economic development was heavily reliant on FDI inflows and subsequent increase of manufactured exports, the entry of Chinese, Vietnamese and East European economies into the global economy meant the beginning of more severe competition in attracting FDI. Together with the emergence of new competitors for the limited resources of FDI, there were growing inward-looking tendencies in the two major economic regions of North America and Europe from the late 1980s through the early 1990s. As most of ASEAN members relied on the U.S. and European markets for a relatively large share of their exports,17 the U.S. and European moves towards regional economic integration made ASEAN members and for that matter, other states outside North America and Europe as well, concerned about unfavourable diversion of trade and further redirection of FDI flows away from them.

Substantiation of ASEAN Regionalist Strategies In seizing these opportunities and responding to these challenges, ASEAN advanced its regionalist approach, which was namely to utilize the invigoration of ASEAN as a strategic device for achievement of its members’ political and economic interests through the enlargement of membership and widening and deepening of the scope of its cooperation schemes. In this regard, the Fourth ASEAN Summit held in Singapore in January 1992 can be defined as a watershed event. The Summit produced the Singapore Declaration that clearly indicated ASEAN’s intention by stating that ASEAN shall: • move towards a higher plane of political and economic cooperation to secure regional peace and prosperity; • seek to safeguard its collective interests in response to the formation of large and powerful economic groupings among the developed countries;

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• seek avenues to engage member states in new areas of cooperation in security matters, and; • forge a closer relationship … with Indochinese countries. (ASEAN Summit 1992)

Among matters agreed at the Summit, the following three points clearly illustrate ASEAN’s revitalized regionalist approach towards intra- and inter-regional cooperation. First, ASEAN reiterated that it would welcome accession by all Southeast Asian states to TAC. Considering that Brunei, the newest member of ASEAN at the time, first became an observer of ASEAN by acceding to TAC then was granted full membership in 1984, this indicated that ASEAN saw that the time had come to admit all Indochinese states (and Myanmar) to the organization. By bringing in Indochinese states, ASEAN members expected that these states would (or should) align with the behavioural norms of the organization. Eventually, Vietnam (1995), Laos and Myanmar (1997) and Cambodia (1999) all joined the organization. The “ASEANisation” of Southeast Asia, an ultimate objective set when TAC was introduced in 1976, was finally realized at the end of the 1990s, at least in form. Second, ASEAN declared itself willing to play a more active role in inter-regional political and security issues. To act as a unit on this issue was perceived to be necessary as the challenge of the post-Cold War era “will be to keep ASEAN relevant and sought after in a situation where the great powers no longer need to compete for ASEAN’s support”.18 The 1992 Summit decided to use the ASEAN-PMC process, in which powers such as the EU, the United States and Japan already participated, to cover security issues. This move eventually led to the establishment of the ASEAN Regional Forum (ARF) in 1994, expanding the membership of, therefore the geographical areas covered by, the security dialogue.19 Third, to counter the move in North America and Europe to form preferential trade areas and, at the same time, to enhance its attractiveness as an FDI location and a market (Soesastro 1995, p. 477), ASEAN decided to aim for the creation of its own free trade area: AFTA. In addition to these factors, Parreñas (1998, p. 236) pointed out that ASEAN leaders felt intensified pressures from the increasing globalization of business operations and they resolved that, through freer intra-regional trade

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and investment, private firms in ASEAN must acquire international competitiveness both in regional and foreign markets. Furthermore, there was a concern felt by some member governments that if ASEAN did not form AFTA quickly, members might join other trade arrangements with non-ASEAN states, which would weaken ASEAN unity.20 The Singapore Summit declared that AFTA, under which ultimately effective intra-regional tariff rates would range from zero to 5 per cent, would be established within the time frame of fifteen years starting from January 1993. Considering the unimpressive history of ASEAN’s regional economic cooperation, AFTA was a bold initiative. It represented a clear departure from previous economic cooperation schemes: not only did it aim for more comprehensive trade liberalization both in the degree of tariff reductions and the range of products covered but also in the way in which ASEAN intended to realize it.21 Although the Common Effective Preferential Tariff (CEPT) scheme, the main mechanism for intra-regional tariff reduction, allowed members some discretion in selecting products that would not be covered by the scheme and in setting schedules for tariff reductions, the room for such flexibility was much less than in any other previous cooperation scheme (the outline of AFTA is reviewed later in this chapter). The AFTA initiative was also an important turning point for ASEAN economic cooperation because it openly aimed for regional economic integration. Since its establishment in 1967, ASEAN had made it clear that regional “integration”, be it economic or political, was not the objective of the organization and, in practice, the term had carefully been avoided as a goal of previous regional cooperation schemes (Blomqvist 1993, p. 57). Political or economic integration was regarded as being too close to European experience and therefore alien to Southeast Asia where most of the states had recently achieved independence after long years of colonial rule (Dosch and Mols 1998, p. 175). The AFTA initiative, nevertheless, showed the changes in approach and attitude of ASEAN leaders. They began to realize that in the era of economic globalization, it was critical for small states to join forces to enhance their collective position and increase the gains they could get from regional integration, rather than individual states discretely pursuing their interests (Soesastro 1995, p. 477; Dosch and Mols 1998, p. 176). The change in ASEAN members’ approach and attitude did not necessarily

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mean that they would always prioritize regional interests over national ones, but the idea that a regional approach provided a basis for national development seemed to be widely shared. Hence, for ASEAN and its members, the 1990s became a decade of promoting “ASEAN regionalism” both on political and security as well as economic issues. How then did Australia respond to this development?

III. ASEAN AS THE FRONT GATE OF AUSTRALIA’S ENGAGEMENT WITH EAST ASIA Foreign policies based on the trade liberalizers’ policy ideas were gradually introduced in the 1980s under the Hawke Government and more decisively in the first half of the 1990s under the Keating Government. In this process, ASEAN became a focus of Australia’s foreign policy reorientation. Richard Woolcott, a former Secretary of DFAT (1988–92), stated in 1995 that “every regional initiative Australia has taken in recent years has depended for its success or failure on ASEAN’s reaction” (quoted in Ravenhill 1998, p. 268).

Initial Stumbling over the Cambodian Problem Yet Australia’s relations with ASEAN in the 1980s did not develop as smoothly as Australia would have liked. One of the major problems was a difficult policy decision that the government made on the Cambodian problem which, in terms of results, did not weigh the sensitivity of ASEAN principles. The Hawke Government came to power in 1983 with a policy commitment to improve relations with Vietnam. Its stance on the Cambodian problem was to promote contacts and dialogue among concerned parties such as the Cambodian factions, Vietnam and ASEAN members but also China, the Soviet Union and the United States (Hayden 1996, p. 379). To promote dialogue, the government sought productive conversations with Vietnam. Concretely, in 1983, the government for the first time since 1979 decided not to co-sponsor the annual UN General Assembly resolution on Cambodia on the ground that it was unbalanced in criticising Vietnam but not the DK (Ravenhill 1998, p. 279).22 In the same year, Bill Hayden, the new Minister for Foreign Affairs, visited Vietnam and had discussions

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with Vietnamese leaders.23 Hayden visited Vietnam again in March 1985 and held direct talks with Hun Sen, Foreign Minister (and later Prime Minister) of the PRK, during his visit (Frost 1997, p. 204). Even though the government tried to explain what it was doing, and why, at forums such as the ASEAN-PMC, ASEAN as a whole was highly critical of Australia’s behaviour, seeing it as detrimental to ASEAN’s united stance on the issue and insensitive to its principles. It was only in 1988 that ASEAN finally accepted that Australia was not attempting to erode its stance on the problem when Australia again decided to co-sponsor the UN resolution on Cambodia with ASEAN (Ravenhill 1998, p. 280).

Comprehensive Engagement with Southeast Asia After the Cambodian experience and with continuing East Asian economic development, the government announced in the late 1980s a renewed priority for Asia-Pacific regional economic diplomacy. The government emphasized the need to consolidate multifaceted relations with ASEAN and its members as a basis of its foreign policy towards East Asia. Gareth Evans, who succeeded Hayden as Minister for Foreign Affairs in September 1988, made a statement on “comprehensive engagement” with Southeast Asia in 1989 that read: •

building a more diverse and substantive array of linkages with the countries of Southeast Asia, so that they have an important national interest in the maintenance of a positive relationship with Australia;



continuing to support the major existing regional association, ASEAN, and working with the countries of the region to shape additional regional organizations or arrangements, … which can contribute to the social and economic evolution of the region;



participating actively in the gradual development of a regional security community based on a sense of shared security interests. (Evans and Grant 1995, pp. 195–96)

This comprehensive engagement policy was based on the Hawke Government’s perception of Asia in general and Southeast Asia in particular and how Australia should relate to the region, which was different from that of previous Liberal/National Governments. Evans stated in 1989 that:

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Australia and Australians should see the region not as something external … but as a common neighbourhood of extraordinary diversity and significant economic potential. It is where we must find a place and role if we are to develop our full potential as a nation. So it is an area … on which we need to concentrate our resources of diplomacy and defence, political management and economic energy. (Evans 1989, p. 9, italics added)

Evans went further by arguing that Australia had “no choice” other than to recognize that its future lay in becoming more and more closely integrated with the region, and the faster any lingering nostalgia for the “European outpost” was dropped the better (Goldsworthy 2003, p. 10). After succeeding Hawke as Prime Minister at the end of 1991, Keating articulated a strong personal commitment to this conception of Australia’s interests and drove the argument forward. He later reasserted his view on Australia’s relations with Asia in these terms: My … conviction was that Asia was where Australia’s future substantially lay and that we needed to engage with it at a level and with an intensity we had never come close to doing in the past. … all our national interests — political, economic, strategic and cultural — coalesced so strongly in the one place as they did now. (Keating 2000, p. 17)

While strongly pushing this policy idea of the Asian engagement, Keating in fact did not consider Australia as an Asian country. He stated in December 1993 that: Australia is not, and can never be, an ‘Asian nation’ any more than we can — or want to be — European or North American or African. We can only be Australian and can only relate to our friends and neighbours as Australian. (Keating 2000, p. 21)

This statement is somewhat similar to the view of J. T. Smith, recorded in the report of the Harries Committee (see Chapter 5). Smith’s point was that to regard Australia as a “Western” country was a false basis on which to formulate Australia’s relations with the “Third World” and, rather, Australia should regard itself as a country with autonomous policy will and capacity. While the end of the Cold War in the early 1990s invalidated the conventional “East-West” categorization of states,

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Smith’s view that Australia should relate to Asia as an autonomous actor, which was a minority perception then, seems to have much in common with Keating’s and Evans’ views. Furthermore, Evans’ and Keating’s Asian engagement, in fact, demanded a change in national identity as well. Keating reasserted his view by stating that “we can and should aim to be a country which is deeply integrated into the region around us” and this integration would be achieved by Australia having a national culture that “is shaped by, and helps to shape, the cultures around us” (Kelly 2006, p. 26). For Keating, engagement with Asia was not just a policy for closer economic relations but also one of the measures to renovate Australia politically and socially, along with his inclination towards the Australian republic (Kelly 2006, p. 24).

Searching for a More Independent Southeast Asian Policy The government’s inclination towards a more independent foreign policy was manifested in its several initiatives in the Southeast Asian region, both in political/security and economic areas. First, at the end of 1989, the government renewed efforts to resolve the Cambodian problem by proposing a peace plan that emphasized the comprehensive involvement of the UN in a transitional authority. By bringing the UN directly into the peace process and having the Cambodian seat of the UN vacant, the proposal avoided the risk of offending ASEAN’s position on Cambodia. A detailed Australian proposal was released as a “Red Book” in February 1990 and widely circulated among the concerned parties (Evans and Grant 1995, pp. 225–27). Along with some others such as Indonesia, Japan and the United States, Australia’s diplomatic efforts leading to the Agreement on the Comprehensive Political Settlement of the Cambodian Conflict signed in October 1991 and its role played in the United Nations Transitional Authority in Cambodia between 1992 and 1993 were critical for the eventual settlement of the external aspect of the Cambodian problem. Second, as Evans’ comprehensive engagement statement in 1989 foreshadowed, the Australian Government sought to create a new regional security community. At the ASEAN-PMC in July 1990, Evans suggested the establishment of a security dialogue forum, which could gradually develop into something like the Conference

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(since 1995, Organization) on Security and Co-operation in Europe, a regional security organization that has brought most European states, the United States and Canada together. Evans’ proposal initially met with sceptical responses from ASEAN and the United States. ASEAN members were feeling the need for a similar initiative of their own to keep their organization relevant in the post-Cold War era, while the United States at first did not believe such a forum would be useful if it did not focus on the maintenance of traditional Western alliance discipline (Evans and Grant 1995, pp. 116–17). The ASEAN Summit in 1992 first decided to use its PMC process to cover the security issues. Subsequently, ASEAN initiated the creation of the ARF in 1994. The United States under the new Clinton administration also agreed to participate. The Australian Government considered ASEAN participation to be an absolute necessity, so after its initial proposal, Australia, in a sense, let ASEAN play a central role in designing the forum so that its members could feel comfortable. Third, in December 1995, the government was successful in signing a bilateral security agreement with Indonesia in the form of the Australia–Indonesia Agreement on Maintaining Security. This agreement was in large part a product of the close relationship developed between Keating and the Indonesian President Soeharto. It was the first bilateral security arrangement between Australia and an Asian state and the first Indonesia had negotiated with any state (Pitty 2003b, p. 76). While the Agreement was essentially about the confirmation of constant dialogue and cooperation activities in the security field between the two parties, Keating argued that it would complement Australia’s other regional security relationships, namely the Five Power Defence Arrangement, the Australia–New Zealand–United States Security Treaty and the Joint Declaration of Principles with Papua New Guinea (Keating 2000, p. 139). Along with the proposal on regional security dialogue forum, the government’s intention to seek “security in Asia, not security from Asia” (Keating 2000, p. 41) was also evident in this initiative. Fourth, from the early 1990s, Australia’s efforts to engage with the East Asian economies were focused on ASEAN (Cotton and Ravenhill 1997a, p. 3). At the same time, the Australian Government had become sensitized to ASEAN concerns on regional economic issues from its experience in the 1970s and 1980s and increasingly realized that it would be necessary to work on a cautious and gradual basis through a

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process of consensus (Ravenhill 1998, p. 280). In other words, regional economic issues should be handled in the “ASEAN way” that differed in many ways from the Australian approach to policy formation and implementation (DFA 1980, p. 331). Australia faced a new challenge from ASEAN as the latter opted for responding to the changing international and regional economic environment with an increasingly regionalist approach, symbolized by the AFTA initiative. As AFTA aimed for liberalization of intra-regional trade, it could diversify trade flows away from Australia. The government attempted to overcome this challenge through an economic cooperation dialogue process with ASEAN both at government and private business levels. How the dialogue developed in the latter half of the 1990s is discussed in the next section.

IV. THE AFTA–CER LINKAGE DIALOGUE: AUSTRALIA’S RESPONSE TO ASEAN’S ECONOMIC REGIONALISM Increasing Importance of the ASEAN Market and the Need for a New Economic Cooperation Framework Table 6.1 shows the trend of Australia’s share in the imports of East Asian economies between 1990 and 1995. While all these East Asian economies were expanding their trade both in exports and imports and Australia’s exports to them in absolute value almost doubled in the first half of the 1990s (see Table 5.1), Table 6.1 demonstrates that Australia’s share in imports of all of them did not increase significantly in the period. The trend was rather static at best and, in the case of some markets such as Japan, Taiwan and Singapore, Australian products were gradually but consistently losing their share. In the first half of the 1990s, the Australian Government’s intention to take advantage of rapidly growing East Asian economies for its own economic development was yet to be fully realized. Yet the government’s attempt to diversify Australia’s exports and to foster competitive manufacturing industries began to yield early results. Table 6.2 shows the trend in the share of manufactured products in Australia’s merchandise exports in the period between 1991/92 and

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TABLE 6.1 Australia’s Share in the Imports of East Asian Economies, 1990–95 (per cent)

Japan China Hong Kong Korea Taiwan Brunei Indonesia Malaysia Philippines Singapore Thailand

1990

1991

1992

1993

1994

1995

5.3 2.5 0.9 3.7 3.0 2.6 5.5 3.4 3.1 2.0 1.7

5.5 2.4 0.9 3.7 3.2 2.2 5.3 3.2 3.2 1.9 1.7

5.3 2.0 0.9 3.8 2.9 1.2 5.2 2.7 2.8 1.7 2.2

5.1 1.9 0.9 4.1 2.7 1.7 4.9 2.8 2.7 1.7 2.1

5.0 2.1 0.9 3.7 2.6 1.3 5.3 3.0 2.8 1.5 2.0

4.3 2.0 0.9 3.6 2.5 1.5 5.1 2.7 2.9 1.4 1.9

Source: DFAT, The APEC Region Trade and Investment, Australian Supplement, November 1997.

TABLE 6.2 The Share of Manufactures and ETMs in Australia’s Total Merchandise Exports, 1991/92–1995/96 (per cent) 1991/92

1992/93

1993/94

1994/95

1995/96

Manu. ETMs Manu. ETMs Manu. ETMs Manu. ETMs Manu. ETMs United States Japan China Hong Kong Korea Taiwan NIEs* Brunei Indonesia Malaysia Philippines Singapore Thailand ASEAN** World

34 13 15 36 23 33 30 45 39 37 49 25 53 35 28

28 5 8 24 9 10 13 43 25 24 23 20 26 23 18

41 12 21 43 22 39 33 59 42 41 45 27 48 37 29

33 5 13 28 9 13 15 56 26 25 28 23 24 24 20

43 12 22 44 25 39 34 77 45 38 45 35 53 41 31

34 5 15 30 10 15 17 73 27 25 31 30 28 28 21

44 14 17 56 26 40 37 67 45 41 46 35 57 43 34

34 5 12 38 11 14 18 65 28 26 32 30 32 29 23

46 14 18 59 21 35 34 70 40 43 41 43 53 44 34

37 5 11 44 10 14 19 64 25 29 30 38 26 31 23

Notes: * Hong Kong, Korea and Taiwan. ** Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand. Source: DFAT, The APEC Region Trade and Investment, Australian Supplement, November 1997.

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1995/96. Manufactures occupied 28 per cent of Australia’s total exports (World) in 1991/92 and the figure steadily rose to 34 per cent in 1995/96. Among the export destinations in Table 6.2, ASEAN and the United States were the markets where the share of manufactured products in Australia’s total exports consistently increased. The figure for ASEAN grew from 35 per cent in 1991/92 to 44 per cent in 1995/96 and for the United States, the figure rose from 34 per cent to 46 per cent over the same period. Considering that the value of total exports to the United States actually decreased in this period (see Table 5.1), ASEAN as a whole emerged as a major prospective market for Australia’s manufactured exports. Moreover, the ASEAN market was prospective also in terms of its tendency to absorb more valued-added Australian manufactured products. One of the main objectives of the structural reform of Australia’s domestic economy since the mid-1980s had been to foster competitive manufacturing industries in general and those that produce and export more value-added products in particular. In other words, the government expected the production and export growth of elaborately transformed manufactures (ETMs) to outstrip the export growth of simple primary product manufactures (SPPMs), simply transformed manufactures (STMs) and moderately transformed manufactures (MTMs).24 Table 6.2 also presents the share of ETMs in Australia’s total merchandise exports in the first half of the 1990s. The share of ETMs in Australia’s total exports in this period showed a trend towards gradual increase: ETMs occupied 18 per cent of total exports in 1991/92 and the figure rose to 23 per cent in 1995/96. A constant rise in ETMs’ share in total exports over the period occurred in trade with the United States, ASEAN and NIEs. The share of ETMs in total exports to the United States grew from 28 per cent in 1991/92 to 37 per cent in 1995/96. The same figure for ASEAN rose from 23 per cent to 31 per cent, and for NIEs, from 13 per cent to 19 per cent. While Australia was not able to take full advantage of the rapid economic growth of the neighbouring East Asian countries, the ASEAN markets, along with those of the NIEs, had become important for Australia by the mid-1990s in terms of the composition of exports as well as the value and the ratio to the total. Accordingly, a DFAT report stated in 1992 that “No industrialised nation has more at stake in South-East Asia’s economic development than Australia. Arguably,

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too, our interests are more closely aligned to those of South-East Asia than any other OECD nations” (EAAU/DFAT 1992, p. xxxviii). The emergence of the AFTA process in 1993 caused concern in Australia as it might have disadvantaged Australia’s exports to the ASEAN market which were showing good prospects. The government was quick to study potential effects of AFTA on Australia’s trade and investment and published a report in 1994. The report concluded that the negative effects of AFTA on Australian industries via a trade diversion effect would be minimal but argued that the Australian Government should encourage ASEAN to regard AFTA as a “building block” that should contribute to increased liberalization of trade in the region (EAAU/DFAT 1994a, pp. 101–13). The idea of building some sort of economic cooperation framework between Australia and ASEAN to encourage the latter to adopt an open and non-discriminatory approach to liberalization had attracted much interest in the Australian Government, particularly in DFAT. In addition, it was thought that closer economic relations between Australia and ASEAN would provide a more solid basis for already emerged coalitional activities in the pursuit of common concerns within the WTO and APEC (Capling 2001, pp. 185–86). The idea culminated in the creation of a continuous dialogue process between ASEAN members and the CER members (Australia and New Zealand) in 1995, which was often called the “AFTA–CER linkage dialogue”. Before discussing the dialogue process, AFTA and the CER arrangements are briefly reviewed.

A Brief Review of AFTA The AFTA initiative was launched in January 1992 and introduced intra-ASEAN tariff reduction from January 1993.25 AFTA was aiming at becoming a free trade area for the products that satisfy the 40-percent ASEAN content requirement. By realizing AFTA, ASEAN members intended to facilitate intra-regional trade and thereby to promote investment, including FDI, in the region. The AEM in September 1994 decided to accelerate the pace of tariff reduction and to broaden the coverage of products in the CEPT scheme, which was the concrete mechanism to realize AFTA. The objective of the acceleration was to gain the full advantages of intra-ASEAN liberalization before the tariff margins between the CEPT and MFN rates reduced as a result of the

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GATT Uruguay Round or liberalization under the AEPC framework in the future.26 In addition, the establishment of cross-border, sub-regional growth areas within ASEAN at the time had also generated increased support for the acceleration of regional integration.27 Under these circumstances, the 1994 AEM set the new target year for realizing AFTA as 2003, trimming five years from the original fifteen-year programme. Under the CEPT scheme, ASEAN members set out timetables for the reduction of intra-ASEAN tariffs. Fifteen product groups28 were placed on the “fast track” timetable and tariff rates for these products were to be reduced to the range between zero and 5 per cent by January 2000 if the tariffs as of 1 January 1993 exceeded 20 per cent, and by January 1998 if they were 20 per cent or below. For the “normal track” products, all tariffs above 20 per cent as of 1 January 1993 had to be brought down to at least 20 per cent by January 1998 and to the range between zero and 5 per cent by January 2003. Normal track tariffs of 20 per cent or below were to be reduced to the range between zero and 5 per cent by January 2000 (Ariff 1997, pp. 68–71). ASEAN members were permitted to exclude certain products by putting them into their individual Temporary Exclusion Lists (TELs) under the original scheme.29 The 1994 AEM resolved to include all products in the TEL in the scheme by transferring 20 per cent of them to the Inclusion Lists (ILs) each year, starting in January 1996. Thus, by 2000, all products in the original TELs were transferred to the ILs. The 1994 AEM also decided to include in a phased manner unprocessed agricultural products in the CEPT scheme, something that had not been originally planned.30 The new members that joined ASEAN after the Singapore Summit in 1992 also committed to the CEPT scheme but with different timetables from the original members. Vietnam, which joined ASEAN in 1995, began intra-ASEAN tariff reduction in January 1996 to end at zero to 5 per cent regional tariffs in 2006. Laos and Myanmar, which joined the organization in 1997, began implementation of their commitments in January 1998 to complete in 2008. Cambodia joined ASEAN in 1999 and is to complete the same requirement by 2010.31 Table 6.3 shows the 1998 CEPT package submitted by the original members of the CEPT scheme. The number of tariff lines included in each category and their percentage ratio to each member’s total are indicated. Even at this stage, all original members included more than

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TABLE 6.3 1998 CEPT Package

Inclusion

Temporary Exclusion

Sensitive

General Exceptions

(%)

(%)

(%)

(%) Brunei Indonesia Malaysia Philippines Singapore Thailand Total

Total tariff lines (%)

6,060 6,597 8,690 5,099 5,738 9,033

92.8 90.9 93.5 88.3 98.0 98.8

220 593 406 589 0 74

3.4 8.2 4.4 10.2 0.0 0.8

14 23 137 58 0 7

0.2 0.3 1.5 1.0 0.0 0.1

236 45 60 28 120 26

3.6 0.6 0.6 0.5 2.0 0.3

6,530 7,258 9,293 5,774 5,858 9,140

100.0 100.0 100.0 100.0 100.0 100.0

41,217

94.0

1,882

4.3

239

0.5

515

1.2

43,853

100.0

Source: AFTA Council (1997, ANNEX 4).

90 per cent of their total tariff lines in the ILs, except for the Philippines which recorded 88 per cent. The ratio of tariff lines put into the TELs varied from nil by Singapore to 10 per cent by the Philippines. As mentioned, these tariff lines were in the process of phasing into the ILs. The number of tariff lines in the General Exceptions, which were not to be included in the CEPT scheme, were relatively small compared with those in the ILs and the TELs. They accounted from 0.3 per cent to 3.6 per cent among the original members. The financial crisis that severely hit ASEAN members in the late 1990s introduced a renewed incentive to accelerate the CEPT process. By doing so, ASEAN members tried to attract foreign capital back into the region. At the AFTA Council meeting in October 1998, all members committed to the acceleration of tariff reduction mainly by transferring products from their protective lists to inclusive ones.32 In December, when they met in Hanoi for the sixth ASEAN Summit, the leaders of ASEAN member states confirmed their intention of faster regional liberalization. They resolved to maximise the number of tariff lines whose CEPT rates would fall to the range between zero and 5 per cent by 2000, as well as to maximise the number of products with zero tariffs by 2003 (ASEAN Summit 1998). From an early stage, the grand design of AFTA included more than intra-regional tariff reduction. Since the mid-1990s, several measures for

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freer trade in services, non-tariff barriers (NTBs) reduction and other trade facilitation have been introduced. For instance, the ASEAN Framework Agreement of Services was signed in 1995. Under the Agreement, ASEAN members committed to the negotiation of preferential arrangements in seven priority services: financial, maritime and air transport, telecommunications, tourism, construction and business (Parreñas 1998, pp. 237–38). In the customs harmonization area, an attempt to align tariff classification systems among members was called for in 1995 and the move culminated in the ASEAN Agreement on Customs in 1997, adopting a common ASEAN Harmonized Tariff Nomenclature (AHTN) in the region.33 In the standards harmonization area, twenty product groups, most of them electric appliances (such as television sets, air conditioners and refrigerators) and their parts, have been aligned with international standards. To remove technical barriers to trade, the ASEAN Framework Agreement on Mutual Recognition Arrangements (MRAs) was signed in 1998 for mutual recognition of cross border product test results. In the same year, sectoral MRAs on telecommunication and cosmetics were realized (AFTA Council 1997, 1998; ASEAN Summit 1998).

A Brief Review of the CER As a result of a series of preferential trade arrangements between Australia and New Zealand, tariffs and quantitative restrictions on the 80 per cent of the total trade between the two economies had already been removed by the early 1980s (DFAT 1997a, p. 1). Yet, because those preceding agreements had adopted a “positive list” approach,34 it was rather difficult to expand the product coverage so as to make the bilateral agreement more comprehensive (BIE 1995, p. 16).35 By the end of the 1970s, the Australian and New Zealand Governments had agreed that the existing framework was not well equipped to serve the interests of the two economies. After negotiations between the two governments, the CER took effect in January 1983.36 The CER aimed at establishing by 1988 comprehensive free trade between the two economies in goods that satisfied the specified rules of origin37 except for a small number of products listed in Annexes (adopting a “negative list” approach) mainly for security and crime/disorder prevention purposes. Further, the aim was to progressively liberalize and eliminate quantitative restrictions by 1995 and eliminate all export

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subsidies and incentives. From its inception, the CER was arranged so that reviews could take place and improvements made regularly (DFAT 1997a, pp. 2–3). Formal reviews of CER were conducted in 1988, 1992 and 1995. In 1995, both governments agreed that subsequent reviews of the CER would take place annually as part of the Australia–New Zealand Trade Ministers’ Meeting. The review process has produced some significant improvements in the CER.38 First, in the area of trade in goods, the 1988 Protocol on the Acceleration of Free Trade in Goods agreed that virtually all tariffs and quantitative restrictions would be eliminated by July 1990, five years earlier than the original schedule. The Protocol also declared that anti-dumping measures would be replaced with a competition law from July 1990. The Agreed Minute on Industry Assistance in 1988 announced that both governments would try to avoid the adoption of industry specific measures (bounties, subsidies and other financial support) that had adverse effects on competition from January 1989 and neither would pay subsidies or like measures on goods which were exported to the other from July 1990. Second, the Protocol on Trade in Services in 1988 resolved to include trade in services in the CER. The Protocol provided for free trade in all services except for those listed in the Annex from January 1989. Under the Protocol, any person or corporate entity in Australia or New Zealand was assured of national and MFN treatment in the other country. Third, arrangements were also implemented in the area of trade facilitation. The Protocol on Harmonisation of Quarantine Administrative Procedures was signed in 1988 and declared, among others, that the two governments would endeavour to achieve common administrative procedures in relation to quarantine by July 1990. For standards harmonization, the Memorandum of Understanding on Technical Barriers to Trade was exchanged in 1988 and the Agreement on Standards, Accreditation and Quality was introduced in October 1990 to reinforce the commitment of both governments to standard harmonization and acceptance of certification and accreditation. The Trans-Tasman Mutual Recognition Arrangement (TTMRA) was signed in 1996 and came into effect in May 1998. Under the TTMRA, a good that may be sold legally in either country may be sold in the other and a person registered to practice an occupation in either is entitled to practice an equivalent occupation in the other (Commonwealth of Australia 1998b, p. 10).39

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Further liberalization and facilitation measures and arrangements between Australia and New Zealand under the CER framework include areas such as foods standards harmonization, customs harmonization, government procurement, business law harmonization and taxation. In short, since its establishment, the CER has evolved into a comprehensive FTA, covering free trade in goods and services, removal of a wide range of NTBs and harmonization of the business environment.

The Origin of the Dialogue At the annual trade fair in Melbourne in December 1993, Supachai Panitchpakdi, Deputy Prime Minister and Minister for Commerce of Thailand, floated the idea of building closer economic linkages between ASEAN and the CER.40 Prime Minister Keating responded very positively to the idea, seeing Supachai’s suggestion as an ideal opportunity to start building a formal linkage between ASEAN and the CER members. Keating visited Bangkok in April and Jakarta in June 1994 and talked further about the issue with his counterparts, the Thai Prime Minister Chuan Leekpai and the Indonesian President Soeharto (Smith 1998, p. 242). By June, favourable responses from Indonesia, the Philippines, Singapore, Thailand and New Zealand were received. The AEM in September 1994 agreed to examine possible linkages between AFTA and the CER. A working group of senior officials from ASEAN and CER members met in April 1995 to consider possible cooperation measures. Finally in May 1995, ASEAN decided to invite Australian and New Zealand representatives to the annual AEM in September for consultations focused on the AFTA–CER linkage issue (Chee and Teh 1996, p. 193). During the process of preparation by senior officials for the inaugural meeting of AEM and CER Ministers, the objective for the AFTA–CER linkage was confirmed as finding practical ways of assisting businesses and expanding inter-regional trade and investment, rather than seeking to merge the two FTAs in any formal way (Lloyd 1995, p. 10). AFTA was in the early stage of becoming an FTA while the CER had already achieved virtual free trade between Australia and New Zealand. At the time, it was therefore seen as impractical to consider merging AFTA with the CER. In addition, it was confirmed

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during the first Ministerial Consultations that the AFTA–CER linkage measures would be implemented by reflecting the “open regionalism” concept (AFTA–CER Ministerial Consultations 1995). In other words, it was agreed that any trade facilitation measures implemented for the AFTA–CER linkages would be applied to third countries on the MFN basis. Further, as ASEAN as an entity was one of the participants in the dialogue, it was necessary that the dialogue move at a pace with which it was comfortable (Smith 1998, p. 248).

The Modality of the Dialogue The Informal Ministerial Consultation, consisting of trade related Ministers of ASEAN and the CER members, was set up at the highest dialogue process level. The inaugural meeting was held in September 1995, back to back with the AEM in Brunei. Subsequent annual Consultations have been held in the same manner.41 Participation of the private business sector in the dialogue has been encouraged. The inaugural Business Leaders’ Dialogue meeting among representatives from ASEAN and the CER members was held in September 1996 in Jakarta. By holding the Dialogue meetings just before the annual Ministerial Consultations, it was expected that business perspectives would be contributed to the latter.42 In 2001, ASEAN and the CER Ministers agreed to establish an “AFTA–CER Business Council” (ACBC) to enhance business sector participation in the dialogue process.43 The first annual meeting of the ACBC was held in Kuala Lumpur in July 2002. Meetings between Director-level senior officials have been held once or twice a year since April 1995. Actual participants vary according to topics discussed at meetings but coordinators of the AFTA–CER cooperation from each government have always been present. The substance of the cooperation between ASEAN and the CER has been set at this level as have the agendas for the Ministerial Consultations. The meetings have been held back to back with the ASEAN Senior Economic Officials Meeting (SEOM), just as the Ministerial Consultations were held after the AEM. The agenda for each meeting was presented by the AFTA Bureau in the ASEAN Secretariat.44 A liaison office for AFTA–CER policy coordination was formed in each participating government. In Australia, the AFTA–CER Unit was established in the Trade Negotiations and Organization Division in

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DFAT.45 The capacity to form a national AFTA–CER policy was shared by many Divisions within DFAT and in other Departments according to their jurisdictions, as the cooperation agenda between ASEAN and the CER included a wide range of issues such as human resource development, product standards, customs procedures and quarantine processes. The private sector of each ASEAN and CER member also formed a liaison office to garner suggestions and opinions and to provide information and data required for the Business Leaders’ Dialogue (or ACBC). In Australia, the Metal Trades Industry Association worked as a liaison office during the initial stages of business involvement in the dialogue. The MTIA already had an affiliate office in Jakarta which had close communications with the ASEAN Secretariat and the ASEAN-CCI. In August 1998, the MTIA merged with the Australian Chamber of Manufactures to form the Australian Industry Group (AIG).46 The role of the MTIA as a liaison office was inherited by the AIG.

What Did Dialogue Achieve in the 1990s? Table 6.4 shows the areas for cooperation identified in the 1990s by the successive Ministerial Consultations and the year that each cooperation measure was first referred to in the Joint Press Statement of the Consultations. As Table 6.4 shows, cooperation areas were widened and measures were added every year. Nevertheless, reaching agreements

TABLE 6.4 Areas for Cooperation in the AFTA–CER Linkage Dialogue in the 1990s 1. Customs Creation of a Customs Compendium for ASEAN and the CER (1995). Technical assistance on the Implementation of the GATT Valuation Agreement (1996). Facilitation of cargo clearance (1996). Electric Commerce (1996). Quarantine Messaging (1996). Publication of Handbook on Customs Procedure (1997). New Zealand provided training on the GATT Customs Valuation Agreement to the new members of ASEAN (1999).

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TABLE 6.4 (Cont’d) 2. Standards and Conformance Exchanging of information and collaborative work on ISO 14000 environmental certification systems (1995). Featuring developments in CER standards and conformance in the ASEAN Standards and Quality Bulletin (1995). Ministers signed the Memorandum of Understanding concerning Cooperation on Standards and Conformance between ASEAN and CER countries (1996). Promotion of alignment to international standards such as ISO and IEC (1996). Cooperation on the development of testing and accreditation systems (1996). Achieving mutual recognition of testing results and certification programmes (1996). Information promotion through mutual publications (1996). Information exchange and human resource development in the area of the accreditation of quality system certification bodies (1996). 3. Human Resource Development Exchange programme involving young entrepreneurs from small and medium enterprises (1997). 4. Services Cooperation on professional services, building/construction, transport and tourism (1997). Progress in the creation of a Transport Information Directory (AFTA–CER Transport Information website) (1999). Discussion to conduct a transport corridor study to examine freight movements in the Mekong region (1999). 5. Investment Promotion Private business sectors plan to establish an investment matching system via internet (1998). The AIG launched a website to promote investment opportunities in ASEAN and the CER (1999). 6. Sanitary and Phytosanitary A CER proposal for a pilot programme on electric quarantine certification, an ASEAN–CER Directory of Food Standards Authorities and assistance on SPS Risk Analysis (1999). 7. Others Linkage of trade and investment database between ASEAN and the CER (1995). Business Leaders’ Dialogue produced the list of trade impediments in ASEAN and the CER (1997). Encouraging joint studies by researchers and think-tanks on the future development of the AFTA–CER linkage (1997). Source: AFTA–CER Ministerial Consultations (1995, 1996a, 1997, 1999).

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on cooperation did not necessarily mean prompt progress in actual implementation of cooperation activities. In the customs area, a visible outcome was the publication of the Handbook on Customs Procedure. Most other measures, such as technical assistance on the GATT Valuation Agreement implementation, needed to be provided continuously to be effective and, by nature, producing quick results was rather difficult. Cooperation in quarantine messaging was agreed and the CER Governments proposed electric quarantine certification and other measures, but this area remained sensitive as the Australian (and New Zealand) Government had adopted a strict quarantine regime to protect its unique ecosystem.47 ASEAN members were opposed to the Australian quarantine regime, especially for processed and unprocessed food, and insisted that the Australian Government alter the system to accommodate more imports from ASEAN.48 In the standards and conformance area, the most distinct achievement in the 1990s was the signing of the Memorandum of Understanding (MOU) (AFTA–CER Ministerial Consultations 1996b) which was to establish the foundation for collaboration in ongoing and future programmes. However, the MOU remained “a legally non-binding document under international law or the domestic laws of participants” (Article 1 of the MOU), reflecting the informal characteristic of the whole AFTA–CER dialogue. The MOU was to be reviewed for further trade facilitation when necessary (Article 9) but the reviewing process had not taken place in the period.49 In 1996, Ministers asked the ASEAN and CER business sectors to produce NTBs lists for their counterpart region. The compilation of the lists prepared by each member (ASEAN members’ lists were integrated by the ASEAN-CCI) was tabled at the 1997 Ministerial Consultation (ASEAN-CCI 1997). The NTBs listed in the compilation were to be reduced by bilateral consultations between members of ASEAN and the CER (AFTA–CER Ministerial Consultations 1997), but the consultations did not take place in the period. A comprehensive review of the listing of NTBs by government officials and the business sectors of dialogue participants was planned but, again, this was not carried out in the 1990s.50 Other business sector involvement in the AFTA–CER dialogue process included human resource development. A programme to exchange young entrepreneurs between small and medium enterprises

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in ASEAN and the CER was agreed in 1997 but this programme was not initiated in the 1990s. Ministers encouraged study on the future of the AFTA–CER dialogue and four research institutions, namely the Asia 2000 Foundation (New Zealand), Melbourne Business School (Australia), Institute of Policy Studies (Singapore) and Institute of Southeast Asian Studies (Singapore), jointly organized a conference titled “The AFTA–CER Linkage: The Way Forward” in September 1997. The conference brought together academics, business and government officials (in private capacity) from ASEAN and the CER members who submitted a report to the 1997 Ministerial Consultation. The report contained recommendations for the improvement of the AFTA–CER dialogue process: the Ministerial Consultation mechanism needed to be more formalized; the Ministerial Consultation should be separated from the AEM schedule; and interregional trade and investment liberalization should be included in the scope of the dialogue (Gibson et al. 1997). The report indicated that, in general, conference participants were not satisfied with the modality and the pace of the dialogue process and wanted to see the process bring about early and concrete results.

Why Was the Dialogue Slow to Realize Economic Benefits? The AFTA–CER linkage dialogue in the 1990s did not yield major results.51 Some achievements were made but they remained as “first steps” towards further cooperation between ASEAN and the CER. At the end of the decade, five years after the inauguration of the Ministerial Consultations, the AFTA–CER dialogue process was still described as being in a “formative” or “exploratory” stage. Several factors can be identified to explain why the dialogue did not proceed as fast as Australia expected. First, it can be seen that there existed a difference in perceptions regarding the importance of the dialogue between ASEAN and the CER members. Considering the clear aims that Australia had for the AFTA–CER dialogue, it was not surprising that both the Australian Government and business sector were enthusiastic in pursuing the dialogue. They pointed out that ASEAN members stood to gain from the AFTA–CER linkages as well from assistance received in the trade facilitation area and from learning from CER experience.52 On the other

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hand, the ASEAN Governments and business sectors in general did not consider the CER market to be as important as those of Japan, the United States or the EU and they believed that the AFTA–CER trade facilitation would favour the CER side, especially Australia. They argued that, to develop AFTA–CER linkages, the CER side should make concessions first in areas such as quarantine procedures.53 Even if closer linkages between ASEAN and the CER had brought benefits to every participant, the gains that they could have received might not in fact have been equal. On the one hand, as Australia and New Zealand had already achieved virtual free trade bilaterally and significantly liberalized their economic regimes on the MFN basis, their costs of trade facilitation (or liberalization) under the AFTA–CER framework would have been minimal. On the other hand, the adjustment costs for ASEAN members, which were still in the process of realizing regional “free trade”, would have been significantly higher than those for Australia or New Zealand. The perception by ASEAN members of an imbalance in relative gains resulted in their claims for concessions from the CER side. The CER side, however, did not accept non-reciprocal concessions. Second, although there was no other option for Australia and New Zealand, the adoption of the “ASEAN way” of cooperation in the AFTA–CER dialogue did not help the process produce quick results. Agreeing on the “first steps” for the AFTA–CER linkages was relatively easy, but the dialogue process encountered difficulties when it moved to the “second phase” of making protocols concrete. As some of its members were doubtful of the benefits they could gain from the AFTA–CER dialogue, it became very difficult for ASEAN as a whole to implement substantial cooperative measures quickly. In addition, accession of new members (Vietnam, Myanmar, Laos and Cambodia) to ASEAN in this period complicated the situation. They had just begun the intra-regional liberalization process and were not familiar with inter-regional economic cooperation. Third, the financial crisis that most ASEAN members faced in the late 1990s did not help the AFTA–CER linkage dialogue either. Suddenly, the highest priority for ASEAN members was to stabilize their economies. They tended to question how the AFTA–CER linkage could assist their ailing economies in the short term. As the AFTA–CER dialogue had already “stalled”, immediate positive effects on ASEAN’s

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economic situation could not be expected. It was not surprising that ASEAN members downgraded the priority of the AFTA–CER linkage issue among other regional cooperation agendas. ASEAN accelerated the AFTA process for the purpose of promoting FDI inflows from outside the region. Yet, at the same time, some ASEAN members introduced protective measures for their domestic industries against imports from outside the region.54 These protective measures were supposed to be temporary to shelter domestic industries from the destructive impact of the crisis, but the general climate within ASEAN did not encourage talk about inter-regional trade and investment facilitation or liberalization. By the end of the 1990s, there emerged both among ASEAN and CER members the view that economic cooperation among them could be better achieved through bilateral talks.55 In Australia, the Keating Government that led Australia’s engagement with Asia was replaced in 1996 by the Liberal/National Government led by John Howard. The Howard Government inherited the AFTA–CER dialogue process as Australia’s important foreign economic policy initiative. Howard, nevertheless, held more “realist” perceptions on international cooperation and was sceptical about such cooperation delivering benefits for Australia. The new government did not believe that it should implement trade and investment facilitation measures unilaterally or set local standards which would be applied only to ASEAN members. While the dialogue process had not produced visible results early, this government idea gradually came to be shared by the private business sector.56

Notes 1. Both documents can be downloaded from the ASEAN Secretariat website for TAC and for the ASEAN Concord (accessed 26 December 2007). 2. Brunei joined ASEAN in 1984 as the first non-original member. The amendment of Article 18 of TAC in December 1987 opened the treaty for accession by extra-regional states. In 1989, Papua New Guinea signed up to the treaty but still remains as an observer of ASEAN. After the end of the Cold War, Vietnam, Laos, Myanmar and Cambodia acceded to TAC and eventually became full members of the organization. In recent years, China and India signed up to the treaty in 2003 and Korea, Pakistan, New Zealand, Japan, Australia and the United States followed. 3. See the Declaration of ASEAN Concord, A. POLITICAL.

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4. The words and concepts such as “regional identity”, “ASEAN solidarity” and “resilient community” have been reiterated in subsequent ASEAN documents and declarations. 5. ASEAN has become what Deutsch (1967) called a “pluralistic security community”. A pluralistic security community is defined as a regional community with established intention and schemes for security cooperation without aiming at the integration of its members’ political institutions. 6. The different treatments of the ZOPFAN initiative by the Whitlam and Fraser Governments were illustrative. See Chapter 4. 7. The UN Study Team, the Asian Development Bank and the Asian Industrial Development Council conducted research on possible economic cooperation within ASEAN in the early 1970s. Of these, the UN Team’s report became the basis of future ASEAN economic cooperation (Suriyamongkol 1988, pp. 56–67). 8. See the Declaration of ASEAN Concord, B. ECONOMIC. 9. The industrial projects proposed were: urea/nitrogenous fertilizer for Indonesia and Malaysia; rock salt and soda ash for Thailand; phosphoric fertilizer for the Philippines; and diesel engines for Singapore. 10. Singapore’s AIP was a typical case. Other ASEAN members, especially Indonesia, opposed the production of low-horsepower diesel engines (mainly for agricultural use) under the scheme. After prolonged negotiations, Singapore decided to withdraw from the project in 1978, and to fund other members’ AIP at a nominal 1 per cent of equity share. Japan agreed to offer 70 per cent of each AIP’s funds as official development assistance. ASEAN was responsible for the remaining 30 per cent, 60 per cent of which was to be paid by the host member and 10 per cent by other members. After Singapore’s withdrawal from the project, the allocation of funds for non-host members changed to 1 per cent for Singapore and 11 per cent in total for other members (Suriyamongkol 1988, pp. 203–07). 11. Langhammer (1991, pp. 140–42) argued that the AIP and the AIJV were more or less inconsistent with each ASEAN member’s policy of decentralised and private sector-based market economies. Shimizu (1998, pp. 86–89) argued that “collective and import substitutive heavy chemical industrialisation strategies”, which were adopted in ASEAN intra-regional economic cooperation in this period, were incompatible with the changing international economic environment as illustrated by the restructuring of the international division of labour through foreign direct investment of multinational firms. 12. For more details, see ISEAS (1991, pp. 63–76). 13. Since 1989, the APEC framework has been providing foreign, economic and other ministers in the region another opportunity to gather on a regular basis.

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14. Thus, this ASEAN way of regional cooperation process is often called the “lowest denominator” approach. It is also sometimes referred to as a distinctively “Asian” approach. For instance, Soesastro (1995, p. 486) states: “‘Asian’ approach is to agree on principles first, then let things evolve and grow gradually. This is in contrast to the ‘American’ approach which is viewed by many in Asia as too legalistic and too institutional”. 15. While the ASEAN way has had its merits in enabling wider participation in cooperation schemes without worrying about any members dropping out, it did not necessarily assure the implementation of cooperation measures by members even if it was agreed at the ministerial level. The stagnation of intra-regional economic cooperation schemes mentioned earlier is a prime example. 16. It should be noted, nevertheless, that ASEAN members’ economic development in this period in fact did not owe much to ASEAN economic cooperation schemes. 17. In 1992, the share of exports to the U.S. and EU markets in the respective total exports of ASEAN members were: Brunei 10.4 per cent, Indonesia 27.5 per cent, Malaysia 33.6 per cent, the Philippines 57.9 per cent, Singapore 35.5 per cent and Thailand 42.1 per cent. The International Monetary Fund, Direction of Trade Statistics Yearbook, 1993. 18. A remark by Singapore former Prime Minister Goh Chok Tong in 1992 (quoted in Snitwongse 1998, p. 188). 19. In 2006, the membership of the ARF comprises ten ASEAN members, Australia, Canada, China, East Timor, the EU, India, Japan, Korea, Mongolia, New Zealand, North Korea, Pakistan, Papua New Guinea, Russia and the United States. 20. Arifin Siregar, Trade Minister of Indonesia, expressed this concern in December 1991 (quoted in Antolik 1992, p. 145). 21. Shimizu (1998, chaps. 4, 5) sees the Manila Declaration (ASEAN Summit 1987) adopted by the third ASEAN Summit in 1987 as the turning point of intra-regional economic cooperation. He argues that, in the Declaration, a shift in the basic strategies of ASEAN intra-regional cooperation, from “collective and import substitutive heavy chemical industrialisation” to “collective and foreign capital dependent export-oriented industrialisation”, can be detected. The shift was reflected in the signing of the Memorandum of Understanding on the Brand-to-Brand Complementation (BBC) Scheme (AEM 1988b) in October 1988. 22. After its military takeover of the government in April 1975, the DK (Khmer Rouge) introduced extreme communist policies. It deprived capitalists, engineers, intellectuals and other city dwellers of all their assets and positions and forced them to migrate to rural villages. The DK closed

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23.

24.

25.

26.

27.

28.

schools, hospitals, factories and banks, abolished the currency, prohibited religions and seized all private properties. While all forced migrants were made to work in collective farms, most “intellectuals” and leaders of villages were killed because they might plan rebellions. The political chaos ravaged the economy and brought on a famine. The number of direct and indirect deaths of Cambodians during the DK rule is estimated at more than a million. The Fraser Government had withdrawn its recognition of the DK as a legitimate government in Cambodia in February 1981, and the ALP in the opposition welcomed the decision (Frost 1997, p. 200). It is interesting to note that Hayden himself considered that Australia’s commercial interests in Vietnam were in part reason for its actions at the time. He stated: “We had to get into the Vietnamese market early to get a good commercial toehold. Once the ‘big players’, the USA and Japan, normalise their relationship fully with Vietnam, conditions will change dramatically” (Hayden 1996, p. 381). This categorization of manufactures according to their level of processing is based on the Australia and New Zealand Standard Industrial Classification (ANZSIC), 1993. Each category includes the following items, among others. SPPMs: wheat flour, cheese, butter, pasteurized milk, red meat, tanned skin and hide, beer, refined sugar, pulp, pig iron; STMs: iron sheet, coils, cement, caustic soda, bricks, paper; MTMs: steel wire, metallic pipes and tubes, simple glass, soap and detergent, woven fabric, tissue paper; ETMs: automobiles and parts, machineries, prefabricated buildings, glass products, ceramics, pharmaceuticals. For the original AFTA plan, see the Singapore Declaration and the Agreement on the Common Effective Preferential Tariff Scheme , signed at the ASEAN Summit in Singapore in 1992 (accessed 4 February 2006). For example, the Uruguay Round negotiation was already concluded in December 1993 and the final agreement had a wider scope than AFTA at the time, especially in trade in services, trade-related investment measures and agricultural products. The Singapore–Johor–Riau (SIJORI) Growth Triangle, the Indonesia–Malaysia– Thailand Growth Triangle (IMT-GT) and other similar attempts served to link adjacent regions and create political constituencies for faster regional economic integration (Parreñas 1998, p. 237). The fifteen product groups in the fast track were: vegetable oils, cement, chemicals, pharmaceuticals, fertilizer, plastics, rubber products, leather products, pulp, textiles, ceramic and glass products, gems and jewellery, copper cathodes, electronics and wooden and rattan furniture.

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29. Apart from the temporary exclusion, members were allowed to exclude certain products permanently if they thought it necessary for the protection of: national security; public morals; human, animal or plant life and health; and articles of artistic, historic and archaeological value (Article 9, the Agreement of the CEPT). These products were placed in the General Exceptions Lists. 30. Unprocessed agricultural products had been categorized into four lists: Immediate Inclusion, Temporary Exclusion, Sensitive and Highly Sensitive. Tariff rates for products in the Immediate Inclusion had already reduced to the range between zero and 5 per cent by 2003. All products originally placed in the Temporary Exclusion had already been phased into the CEPT scheme by 2003. Sensitive unprocessed agricultural products will also be phased into the scheme by 2010. It is agreed by ASEAN members that the intra-ASEAN tariff rates of unprocessed agricultural products must be more preferential than the commitments made by individual members under the WTO Agreement on Agriculture (ASEAN Secretariat 1996, pp. 27–28). 31. Unprocessed agricultural products of new members have also received similar extensions of tariff reduction deadlines. 32. For details of each member’s CEPT acceleration, see Annex I of AFTA Council (1998). 33. The AHTN is based on the Harmonized Commodity Description and Coding System (HS) in its eight-digit level. 34. In a positive list approach, the agreed measures are applied to the products which are specifically listed in an agreement. In a negative list approach, in contrast, the agreed measures are applied to all products other than those that are listed in an agreement. In both cases, the level of comprehensiveness of an agreement depends on the number of products listed, but in general, the latter tends to be more comprehensive than the former. 35. Hoadley (1995, p. 27) pointed out some other “shortcomings” of the earlier New Zealand-Australia Free Trade Agreement of 1966. The products listed for tariff-free trade already had low tariff rates; many of the products listed were still subject to both states’ trade restrictions via licensing and export subsidies; and there was strong pressure to delay the tariff reduction for certain products from domestic industries of both states. 36. For details of the negotiations to conclude the CER agreement, see Hoadley (1995, pp. 34–55). 37. Requirements for goods to be identified as CER origin have been as follows: raw materials of member states; goods that are wholly manufactured in member states, or; goods that are partly manufactured in member states with the last process performed by member states AND 50 per cent or

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38. 39.

40.

41.

42.

43. 44.

more total costs are made up from expenditure on any of the following: materials originating in member states; labour and factory overheads incurred in member states; and inner containers originating in member states (DFAT 1997b, pp. 12–13, 163–77). The last requirement, often called the “factory cost method”, has been rather complex. In February 2006, the Australian and New Zealand Governments agreed to adopt a new method based on the tariff classification system. Under the new rules that were expected to be introduced from January 2007, a product would generally be covered by the CER if the manufacturing process in either state involved a specified change in that product’s tariff classification (Vaile 2006a). For documents produced in the review process, see DFAT (1997b). The TTMRA has overridden domestic laws regulating the manufacture and sale of goods such as product standards, packaging and labelling, while not affecting laws regulating the manner of sale of goods like contractual arrangements and registration of sellers. For occupations, the TTMRA covered all occupations for which some form of legislation based registration, certification, licensing or any other authorization is required to practise. For details, see Commonwealth of Australia (1998b). According to the author’s interview with officials from the Australian, New Zealand and Thai Governments and a staff member from the ASEAN Secretariat in November 1998, it seemed that Supachai had virtually no consultation with his ASEAN counterparts or with any CER leaders, ministers or officials prior to his initial suggestion. It also seemed that he had not even had discussion with his colleagues in the Thai Government on the issue. The AFTA-CER linkage proposal, it appeared, was a brainchild of Supachai’s strong belief in multilateral free trade and investment. He later served as the Director-General of the WTO from 2002 to 2005. The 1998 Meeting was to be held in October but the Australian Government requested a postponement owing to a general election scheduled in the same month. The 1998 Meeting was subsequently cancelled. The idea of bringing business perspectives into inter-governmental consultations seems to have come from the APEC process. In the APEC process, the APEC Business Advisory Council (ABAC) was established in November 1995 to provide advice on specific business sector priorities and the business perspective on specific areas of cooperation and to respond when the various APEC forums request information about business-related issues. The members of the ACBC are appointed by the respective economic ministers from ASEAN and the CER members. In the early stage, at least, the AFTA Bureau seemed to have only limited time to prepare for the dialogue because of the manner in which the

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45.

46.

47.

48.

49. 50. 51.

52.

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AFTA–CER senior officials meetings were held. Time allocated for the meeting was normally two to four hours and could not be extended since ASEAN officials usually had similar meetings with their counterparts from other dialogue partners in the same day. One of the Australian officials who participated in the meeting in 1998 stated that the time allocated for their meeting was hardly enough to go through all the agenda. Interview with an official from DFAT (10 November 1997). The New Zealand Government appointed the South/South East Asian Division in the Ministry of Foreign Affairs and Trade as its liaison office for the AFTA–CER cooperation. Among ASEAN members, the offices in charge of AFTA and regional cooperation processes in trade related ministries played the role of AFTA–CER policy coordinators. It is interesting to note that only Australia had a governmental liaison office with the words “AFTA–CER” in its name. This may represent the Australian Government’s enthusiasm on the issue in the 1990s. With the amalgamation, the AIG membership had come to cover a broader range of domestic industries including automobiles, chemicals, energy, food and beverages, TCF, transport and distribution (AIG 1998). The Australian Government argued that its quarantine regime was scientifically based and its assertion was accepted later as legitimate by the WTO (Commonwealth of Australia 2001, p. 12). The government saw no need to alter it for the sake of the AFTA–CER cooperation, or in that sense, for any other bilateral, regional or multilateral arrangements. On the strict nature of the Australia’s quarantine regime, there was an anecdote widely told even by Australian officials: “For ASEAN chicken meat products to clear the Australian quarantine, they have to be boiled for several hours before being exported. However, if you boil chicken meat for such a long time, it becomes chicken bone and soup. That means it is virtually impossible to export chicken meat to Australia.” Interview with government officials in Australia, New Zealand and Thailand (November 1998). Interview with government officials and business persons in Australia, New Zealand and Thailand (November 1998). The business sectors of both ASEAN and the CER attested that they were yet to feel positive and concrete influence of the dialogue on their inter-regional economic activities in this period. Interview with senior staff members of the AIG, the ASEAN–New Zealand Combined Business Council and the Thai Chamber of Commerce (November 1998). The CER Governments often argued that if ASEAN members could comply with the CER customs procedures and standards harmonization, they would be aligned to the global standard. This type of argument was also referred

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53.

54.

55. 56.

to by earlier papers on the AFTA–CER linkage issue. See, for instance, Smith (1998, p. 246). Interview with Indonesian and Thai government officials and a business person who participated in the AFTA–CER dialogue process (November 1998). For instance, the Thai Government decided to freeze the plan to abolish the local content rule for passenger automobiles at 51 per cent in July 1998. It also raised the tariff rates for steel sheets in the same month. The Philippines Government raised tariffs for products from twenty-two sectors including textiles, plastic and paper products in January 1999 (Nihon Keizai Shimbun, 23 July 1998 and 19 January 1999). Interview with government officials and a business person in Indonesia and Thailand who participated in the AFTA–CER dialogue (November 1998). Interview with staff members of the AFTA–CER Unit, DFAT and the AIG (November 1997 and November 1998).

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7 The Bilateralists and their ASEAN Policy

During the campaign for the March 1996 general election, Australia’s relations with East Asia became one of the most debated issues. The Keating Government boasted about its diplomatic channels that were developed through the Cairns Group and APEC activities and criticized the Liberal and National Parties’ inexperience in this area (Takeda and Mori 1998, p. 178). The Liberals and Nationals in the opposition accepted that engagement with Asia should continue, yet they attacked the government for attaching too much importance to Asia and pressed the public to change the national identity. The Liberals and Nationals asserted that Australia’s traditional values should be maintained (or restored) (Takeda et al. 2007, p. 96). By the mid-1990s, in fact, public disquiet about the “Asianisation of Australia” (Cotton and Ravenhill 1997a, pp. 12–13; Milner 1997, pp. 35–36) had grown to a level where it could no longer be ignored politically (Cotton and Ravenhill 2001a, pp. 6–7; Milner 2001, p. 35). On top of the decade-long implementation of economic reforms which had led to reform-fatigue particularly among the low and middle income earners in rural areas, there was growing public uneasiness that the

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Keating Government’s “big picture” vision of Australia’s engagement with East Asia had gone too far. This formed part of the background to the demise of the Keating Government and the rise of the Liberal/ National opposition under the leadership of John Howard in the 1996 general election (Wesley 2004, p. 153; 2007a, p. 140). The new Howard Government initiated a review of the foreign economic policy of previous governments. This came to provide the platform for a major shift in Australia’s foreign economic policy. The policy shift preferred by the new government led by Howard, who had been one of the leaders of the “dry” movement in the Liberal Party since the early 1980s, did not involve a wholesale return to the old protectionism. Rather, the pace of reform slowed initially and there was an appeal to reciprocity in international economic dealings and the pursuit of trade liberalization. The government was inclined to promote Australia’s “national interest” through bilateral means, including free trade agreements that sought reciprocal liberalization and short-term, concrete economic benefits, rather than through multilateral negotiations. This chapter examines how the second shift in Australia’s foreign economic policy under the Howard Government affected Australia’s ASEAN policy. First, the chapter explains that the Howard Government had quite different understandings of international society and the East Asian region from the previous government. These different understandings provided the basis for different policy ideas. It argues that the Howard Government, during its early years in office, had resolved to pursue an “integrated” foreign economic policy that encompassed bilateral, regional and multilateral efforts to secure market access for Australia’s exports. As Australia had not sought exclusive or discriminatory bilateral (or regional) trade deals other than with the CER in the early 1980s, bilateral efforts were elevated as a priority in this strategy. Second, it is pointed out that, after a series of exogenous shocks to Australia’s politics and economy in the late 1990s, the government’s bilateralist policy idea was increasingly accepted by social actors such as business and industry organizations. Third, with the FTA negotiations with Singapore and the United States successfully underway, the “bilateralist” coalition became the dominant force in Australia’s foreign economic policy process.

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Fourth, how the shift in Australia’s foreign economic policy orientation affected its policy towards ASEAN is examined.

I. THE HOWARD GOVERNMENT AND BILATERALISM “Rebalancing” Foreign Economic Policy Interests a) Foreign Economic Policy Review and the Affirmation of FTAs The Asia-Pacific regionalist strategies since the mid-1980s had been based on the ALP Governments’ “liberal” understanding of international society. In contrast, the Liberal/National Government came to power with a more “realist” worldview and foreign policy ideas. The Howard Government’s foreign policy ideas, which can be seen as antithesis of those of the ALP Government which lasted thirteen years, attached paramount importance to individual states as actors in international society. The ideas placed higher priority on bilateral relations between states than on international organizations and multilateral cooperation (Cotton and Ravenhill 2007a, p. 7; Wesley 2007a, p. 42). The government saw that Australia’s national interest would be best served by establishing and maintaining pragmatic bilateral relations with states that shared interests and mutual respect with Australia, not by middle-power diplomacy à la Hawke, Keating and Evans, which worked through multilateral cooperation (Kelly 2006, p. 20; Wesley 2007a, p. 41). For the government, “shared interests” meant practical and concrete interests in political and economic relations, and what should be respected mutually were traditions, values, beliefs and identity that naturally varied between states (Kelly 2006, p. 3; Wesley 2007a, pp. 42, 52–55). Against the backdrop of these ideas and recognitions, the government set about reviewing all policies, including foreign economic policy, implemented by the previous governments. Yet the government’s first Trade Outcomes and Objectives Statement (TOOS)1 released in February 1997 did not reveal signs of a significant change in foreign economic

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policy from that of the previous government. The government remained rather cautious about promoting bilateral and regional trade agreements. In the 1997 TOOS it stated that: … discriminatory regional arrangements may enable faster liberalisation because they will usually involve fewer countries. But they can also distort trade and investment flows and often confront business with competing rules. They can also take time to negotiate. All such [regional trade] arrangements [RTAs] discriminate against nonmembers. RTAs can lead to friction in the trading system, its progressive fragmentation, and they may also lead to a costly misallocation of resources. (Commonwealth of Australia 1997b, pp. 38, 55)

The Howard Government’s stance on FTAs at this point was far from clear. The government remained ambivalent about FTA proposals. When there was an initiative from Canada and Chile in 1996 to form an FTA among the five Pacific economies (Australia, Canada, Chile, New Zealand and the United States), Australia declined to enter into discussions. It maintained the view that preferential trade agreements distracted from the “main game” of negotiating improved multilateral arrangements (Ravenhill 2001, p. 284). It was also conscious that joining agreements that discriminated against Australia’s important trade partners in Asia such as Japan, China and Korea would be an open invitation for them to retaliate by forming trade blocs that excluded Australia (Capling 2001, p. 184). The government rebuffed bilateral FTA proposals from Canada and the United States in 1997 as the Canadian offer specifically excluded agriculture and it could not be expected that the U.S. Congress would agree to open the U.S. market to highly competitive Australian exports of sugar, dairy, beef and other agricultural commodities (Capling 2001, p. 185).2 But a clear sign of the shift towards bilateralism came later in 1997. With the completion of its review of foreign policy in the middle of the year and, in August, the government published Australia’s first ever white paper on foreign and trade policy (Commonwealth of Australia 1997a). At the core of the White Paper was a declaration by the government that it would pursue every possible measure, including using bilateral approaches, to advance Australia’s national interest defined as “the security of the Australian nation and jobs and

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standard of living of the Australian people”. Based on the recognition that the keys to promoting Australia’s national interest lie in the Australian economy’s ability to export and the openness of foreign markets and the recognition that the multilateral system’s capacity to deliver depended on the will of other member states, the White Paper stated that the government was ready to conclude bilateral and regional arrangements that would provide mutual preferential treatment (thus, discriminate against third countries). The previous ALP Governments also sought trade and investment liberalization and facilitation through regional means such as APEC and the AFTA–CER dialogue, but these efforts were carried forward under the principle of “open regionalism” in which bilateral and regional arrangements would be automatically extended to third countries. Considering its earlier rejection of the FTA proposals by Canada, Chile and the United States and the 1997 TOOS’s scepticism about FTAs six months previously, this stance marked a major policy turnaround. Howard and Alexander Downer, Minister for Foreign Affairs, often explained this shift as a “rebalancing” of Australia’s foreign economic policy interests. They argued that the previous governments, especially that of Keating, tended to over-emphasize the importance of “multilateralism” and “Asia” in Australia’s foreign relations and lose policy balance. They asserted the need to pursue both multilateral and bilateral interests and “get away from an Asia-only focus to an Asia-first focus” (Downer 2002).

b) Establishing the Principles for FTA Negotiations The 1998 TOOS released in February confirmed the government’s stance on bilateralism and FTAs (Commonwealth of Australia 1998a, p. 140). The government, nevertheless, did not argue that it should establish FTAs with any particular partners any time soon. At the same time, indicating the possibility of negotiating its own FTAs, the government set guidelines, or principles, for doing so: Australia would need to consider if the arrangement would bring benefits that we could not obtain otherwise, or if it might be a way to obtain benefits more quickly. Pressure to resolve trade-related issues by entering an RTA decline if problems are resolvable bilaterally, regionally through APEC, or multilaterally.

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RTAs offer the greatest benefits when significant trading partners are involved. Accordingly, Australia would take into account whether a major market or export interest is involved. [RTAs] should cover primary products, manufactures and services. Clearly, Australia would find limited benefit in a restrictive arrangement. (Commonwealth of Australia 1998a, p. 140. italics added)

The government declared that Australia would pursue bilateral FTAs if it resolved that the significant and particular benefits could not be achieved either quickly or at all by any other means. Also, Australia’s FTAs must be comprehensive. This point was emphasized mainly because the government decided that it should avoid the tendency of existing FTAs to accord special treatments, such as exemptions and extended phase-in agreements, to agricultural trade (Commonwealth of Australia 1998a, p. 149).

The Continuation of Multilateral Approaches Although the government declared that Australia was open to negotiate FTAs in 1997, it took more than three years, until the end of 2000, to inaugurate a concrete negotiation with Singapore. As discussed in Chapter 3, the government’s reluctance was due to the strong export performance during this period and the legacy of the Uruguay Round negotiations. In addition, in the context of the Asia-Pacific region, the existence of a trade and investment liberalization initiative within the APEC framework and the AFTA–CER linkage dialogue process were important. Despite its close association with Hawke and Keating, the APEC initiative was supported by the Howard Government, consistent with its objective of promoting trade and investment liberalization in the Asia-Pacific region (Ravenhill 2001, p. 289). Trade and investment liberalization in the region was listed as one of the main objectives of APEC since its establishment. In the early stages, nevertheless, it did not have any concrete measures or goals. Rather, APEC members’ will for regional trade liberalization was used as a lever to encourage the promotion of the Uruguay Round. It was around the same period as the completion of the Uruguay Round negotiations that APEC turned more substantively to regional trade liberalization and the Keating Government devoted efforts to this move.

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Keating’s assertion of a vigorous and institutionally robust APEC was motivated by his political as well as economic intentions. He argued that “Australia wanted the United States to remain strongly engaged in the Asia-Pacific region so that the liberal democratic views and support for open economies … would be reflected in the region’s key institutions” (Keating 2000, p. 30) and “we … needed to find a multilateral framework that would enable us to expand our dialogue with our neighbours. And we needed to find ways of encouraging communications and contact across the Pacific, encouraging an outwardlooking United States with … healthy triangular relations between China, Japan and the United States” (Keating 2000, p. 80). He saw APEC as an ideal vehicle for this purpose and, within a month of becoming Prime Minister, he proposed the idea of “changing APEC to a more political and powerful organization represented at the head-of-government level” when he met with the U.S. President George H. W. Bush in Canberra in January 1992 (Keating 2000, p. 81). The idea was eventually realized in November 1993 when Bill Clinton, the successor of Bush, hosted the inaugural APEC Leaders Meeting at Blake Island. The APEC Leaders Meeting in 1993 produced the “Economic Vision Statement” that contained, among other objectives, a vision of creating a “community” of Asia-Pacific economies whose dynamic economic growth contributed to an expanding world economy and supported an open international trading system where trade and investment barriers continued to be reduced (APEC Leaders Meeting 1993). Following the 1993 Leaders Meeting, Keating stated: By February 1994 … I thought we had to fast-track the trade liberalisation agenda in APEC. The only answer for Australia was not to slow down but keep pressing for even larger, more concrete, outcomes from the next leaders’ meeting in the following November; for a policy explosion. (Keating 2000, p. 99, italics added)

The second Leaders Meeting was set to be held in Indonesia, hosted by President Soeharto. Using his close personal relationship with Soeharto that had already been built, Keating enthusiastically pushed a regional trade liberalization agenda before the Meeting (Keating 2000, pp. 98–115). Along with recommendations from the Eminent Persons Group (EPG),3 Keating’s and Soeharto’s efforts were instrumental in the adoption of the “Bogor Declaration” by Leaders in November 1994, which set the

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goal of APEC liberalization as “free and open trade and investment in the region by 2010 for developed members and by 2020 for developing members”. Subsequently, the modality for the APEC liberalization process was established in 1995 in the Osaka Action Agenda. In 1996, the first Individual Action Plans (IAPs) — voluntary trade liberalization and facilitation plans by each member — were presented by all members and, with the Collective Action Plan, compiled as the “Manila Action Plan for APEC”. Already in the early 1990s, there were cautions about hasty attempts to formalize APEC institutions and processes and to try to transform the organization from a consultative, consensus-building forum to a negotiation body in which agreements were forced on members. These views were mainly expressed by those who had been involved in regional cooperation processes prior to APEC (Elek 1991, p. 331; Harris 1994, pp. 392–93; Leaver 1995, p. 185). Nonetheless, regional liberalization under APEC, whose members covered approximately 70 per cent of Australia’s total trade, and which was not supposed to become discriminatory under the principle of open regionalism, looked to be going well at the time. It was expected to fill the gap of multilateral liberalization negotiations in the “inter-Round” period. The Howard Government also supported and inherited the AFTA– CER linkage dialogue process. It accepted the importance of the ASEAN markets in terms of the composition of exports as well as the value and the ratio to Australia’s total exports. It also agreed to the previous Keating Governments’ idea that, at the same time as the ASEAN intraregional tariff reduction process proceeded to form AFTA, some sort of economic cooperation framework between Australia and ASEAN should be built to encourage ASEAN members to adopt an open and non-discriminatory approach to liberalization. During this period of strong export performance, there were good reasons for the government to prefer multilateral approaches in its foreign economic policy. Under these circumstances, influential actors such as large business and industry organizations did not lobby the government for any exclusive bilateral or regional deals. In other words, while the government had announced its bilateralist policy ideas and they were accepted by part of the society actors, they did not mobilize enough support to become influential in Australia’s foreign economic policy community.

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II. A SERIES OF EXOGENOUS SHOCKS AND THE EMERGENCE OF THE BILATERALISTS If bilateralist policy ideas were to gain strong influence in the foreign economic policy process, there needed to be an exogenous shock that would cause a change in the international environment and which would eventually bring the trade liberalizers’ policy ideas into question. The exogenous shocks came not once but several times in quick succession in the late 1990s.

The Failure of APEC Early Voluntary Sectoral Liberalization and the Launch of a New WTO Round The first exogenous shock came as the failure of the APEC liberalization process. Although trade liberalization under the APEC framework looked to be going well in the mid-1990s, the first IAPs submitted in 1996 to the Manila Ministerial Meeting were, in fact, not much more than the members had already committed to in the Uruguay Round (Okamoto 2004a, p. 1). The Howard Government also limited Australia’s IAP commitments to announced policies for the most part and stated that it would not go further without clear evidence that other IAPs addressed Australia’s interests (Snape et al. 1998, p. 469; Ravenhill 2001, p. 290). The Early Voluntary Sectoral Liberalization (EVSL) initiative of APEC (1997–99) was an ambitious attempt to stimulate APEC liberalization as a whole by opening up selected sectors earlier than others. Sensing tangible and reciprocal economic benefits from the EVSL, the Howard Government enthusiastically involved itself in the initiative and was successful in putting food and energy, two of its most important export sectors, into the targets for early liberalization (Wesley 2004, pp. 140–41).4 The forecast of the economic effects of the EVSL calculated by DFAT showed that Australia stood to make substantial net gains if liberalization of the selected fifteen-sector package, including food and energy, was implemented. As a result, the Howard Government resolved to support the EVSL process with more enthusiasm and to sell it to the public as an example of the effectiveness of the government internationally (Wesley 2004, p. 142). The government faced no serious objections on

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the issue either from the Parliamentary Opposition or from society actors. The ALP regarded the creation and promotion of APEC as one of the major achievements of its government between 1983 and 1996 and its criticisms of the government’s policy on APEC were couched in terms of asserting that more should be done on APEC in general (Wesley 2004, p. 142). Yet the results of EVSL, which had become clear by November 1998, were much less than the government expected. Although liberalization schedules for some sectors were consolidated, participants in the EVSL consultations could not agree on tariff reductions under the APEC framework because of their different understandings of the concept of “voluntary liberalization”. The Ministerial Meeting in November 1998 decided to leave liberalization of EVSL sectors in the hands of the WTO as the “Accelerated Tariff Liberalization” (ATL) initiative (Okamoto 2004b, pp. 50–51). The Australian Government, along with New Zealand, tried to promote the ATL as a serious agenda item in a new WTO Round expected to be launched in 1999, but could not gain uniform support from other APEC members. Worse still, the WTO Ministerial Conference in Seattle in December virtually collapsed and failed to launch a new round. The failure of the APEC EVSL and the launch of a new WTO Round acted as exogenous shocks on the established coalitional setting in Australia’s foreign economic policy process. These events damaged the credibility of the trade liberalizers’ policy ideas and the validity of Asia-Pacific regionalist strategies.

The Setback of the AFTA–CER FTA Initiative a) The AFTA–CER FTA Study Proposal from ASEAN What appeared at this very time was an ASEAN proposal to study the feasibility of an FTA between ASEAN and CER members. At the AFTA–CER Ministerial Consultations in Singapore in October 1999, ASEAN proposed to set up a task force to study the feasibility of establishing an AFTA–CER FTA by 2010. Considering that both sides agreed at the initial stage of the AFTA–CER linkage dialogue that they would not aim for merging AFTA and the CER or establishing another

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FTA between them, and the fact that this agreement was strongly insisted on by the ASEAN side, the proposal was quite a turnaround.5 The Howard Government welcomed the ASEAN proposal as it considered this FTA would help maintain momentum for trade liberalization in the Asia-Pacific region after the failure of EVSL (Commonwealth of Australia 2000). Moreover, the AFTA–CER FTA, if created, was useful for Australia for other reasons as well. First, the negotiations for the AFTA–CER FTA could be expected to lift the linkage dialogue process, which was not progressing at a pace that Australia had hoped for, to a much higher level and, as a result, bring about much closer relationships with ASEAN members. Second, there would be no need to study and negotiate FTAs with individual ASEAN members whose number had grown to ten by 1999. This was important not only because Australia could minimize negotiation costs but also because Australia could avoid discrimination, which FTAs inevitability bring, within ASEAN. In other words, Australia did not have to worry about disrupting ASEAN and its members through discrete FTAs in which it was involved, and this sent an important political message. The “High-Level Task Force” established shortly after the 1999 Ministerial Consultations was chaired by the former Prime Minister of the Philippines, Cesar Virata. Its members were appointed by each government and they included former trade ministers, senior officials and economists who were close to their governments. The Howard Government appointed Tim Fischer, the former Minister for Trade, for the job. As the Task Force consisted of high profile members, it was natural, at least for Australia, to expect the result of the study and its recommendations to have a strong influence on the ministerial decision. The Task Force met three times during 2000 and produced a report named The Angkor Agenda (High-Level Task Force 2000). The report started with an analysis of the global and regional economic environment. Then, it went on to describe the economic and political costs and benefits of the AFTA–CER FTA and the desirable framework and modalities of the FTA in detail. It also included comprehensive product coverage and stated the necessity of flexibility in applying tariff reductions for the least developed members of ASEAN and the provision of economic and technical cooperation measures from the CER to ASEAN. Ultimately, the report resolved that:

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Establishing a free trade area between AFTA and CER is not only feasible but also advisable. [The Task Force members] strongly suggest … undertak[ing] the necessary steps toward the establishment of the proposed AFTA–CER FTA at the earliest possible time. ASEAN and CER must take this decisive step. They must seize this unique opportunity to move forward. (High-Level Task Force 2000, italics added)

b) Indefinite Postponement of the Initiative Despite the Task Force’s strong recommendation to start negotiations for the FTA immediately, the Ministerial Consultations in Chiang Mai in October 2000 were indecisive. They merely agreed to continue the analysis of the Task Force study at working-level and submit the results to the next Ministerial Consultations in 2001. Singapore and Thailand were in favour of the AFTA–CER FTA, but opposition was raised mainly by Indonesia and Malaysia. ASEAN could not reach consensus on this issue.6 The working-level analysis was set to focus on a “Closer Economic Partnership” (CEP) between ASEAN and the CER. The concept of the CEP was unclear. The Joint Press Statement after the Consultations stated that analysis would be of “relevant recommendations of the [Task Force] Report and other issues relevant to the closer economic integration of AFTA–CER countries” (AFTA-CER Ministerial Consultations 2000), but failed to specify what were the relevant recommendations in the Task Force report. The Australian Government was “very disappointed” with the indecision.7 It still hoped that that the CEP process would involve an FTA but the Malaysian Minister for International Trade and Industry, Rafidah Aziz, explained at the press conference just after the Ministerial Consultations that the CEP would not include tariff reduction (Weekend Australian, 7–8 October 2000). An official from the Indonesian Department of Industry and Trade also said that the CEP was a concept for conducting trade facilitation and economic and technical cooperation measures, not for liberalization.8 In reality, the Ministerial Consultations in 2000 effectively shelved the AFTA–CER FTA indefinitely. The setback of the AFTA–CER FTA delivered the final blow to the government’s multilateral and regional efforts. At this stage, the government decided to take the first serious step towards bilateral FTAs.

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III. THE BILATERALISTS DOMINATE AND SEEK “COMPETITIVE LIBERALIZATION” The analysis of the circumstances in which Australia began to pursue bilateral FTAs suggests that the Howard Government’s implementation of bilateralist approaches was in fact a defensive response to changes in the international and regional environment. Australia’s main trade partners in East Asia began to provide through FTAs preferential access to their markets to other economies whose exports competed with Australia’s. After the failure of multilateral and regional attempts, the government seems to have decided that the creation of its own FTAs with major trade partners was the only option left at the time to protect and promote Australia’s national interest defined as better jobs and living standards, which was considered to be achievable mainly through export growth. At this time, the emphasis of Australia’s FTAs was placed more on equal treatment — or the creation of a level playing field — for its exporters with other economies in its major markets, than seeking better preferential treatment over their competitors.9 This originally defensive nature of Australia’s bilateral FTAs was to change as the bilateralists consolidated their domination in Australia’s foreign economic policy process through negotiation of FTAs. During the process, the principles that the government set on FTA negotiations in 1998, namely significant and particular benefits, fast conclusion and comprehensive coverage, were also to be compromised to suit the bilateralists’ policy preferences.

The FTA with Singapore: Aiming for a “Benchmark” FTA a) Why Was Singapore Chosen as an FTA Partner? The FTA negotiation with Singapore started in February 2001. Table 7.1 shows Australia’s top ten trade and investment partners in 2000. It reveals that, along with China/Hong Kong, Japan, New Zealand, the United Kingdom and the United States, Singapore, which appears in every column, was one of Australia’s important economic partners. From this simple observation, it seems reasonable for Australia to have chosen Singapore as its second FTA partner after New Zealand. The

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Goods Imports

Services Exports

Services Imports

Investment Abroad*

Inward Investment*

20.3 USA 18.3 USA 20.3 USA 41.7 USA 30.0 Japan 21.0 USA USA 10.6 Japan 13.4 Japan 11.4 UK 12.2 UK 17.3 UK 24.8 Korea 8.6 China 8.0 UK 10.7 Singapore 6.7 Japan 6.1 Japan 6.9 New Zealand 6.3 UK 6.0 New Zealand 7.0 Japan 6.5 New Zealand 5.3 Hong Kong 3.4 China 5.8 Germany 5.2 Singapore 5.7 New Zealand 5.3 Singapore 2.6 Singapore 2.8 Singapore 5.7 Korea 4.2 Hong Kong 3.4 Hong Kong 4.3 Hong Kong 2.2 Netherlands 2.2 Taiwan 5.3 New Zealand 3.9 Indonesia 2.8 Germany 3.4 Germany 2.0 Germany 1.8 UK 3.6 Malaysia 3.7 Malaysia 2.7 Malaysia 2.7 France 1.6 New Zealand 1.8 Hong Kong 3.4 Singapore 3.3 Germany 2.7 Switzerland 2.5 Netherlands 1.2 Belgium/ 1.3 Luxemburg Indonesia 2.8 Taiwan 3.1 China 2.2 China 2.3 Canada 1.0 France 1.2

Goods Exports

Note: * Stock as of 30 June 2000. Source: Commonwealth of Australia (2001, 2002a).

10

1 2 3 4 5 6 7 8 9

Rank

TABLE 7.1 Australia’s Major Trade and Investment Partners, 2000 (per cent)

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decisive reason why Singapore was chosen was even simpler: there was no other candidate ready to join negotiations at the time. The possibility of starting AFTA–CER FTA negotiations, in fact, became remote even in the short period between the release of the Task Force report and the AFTA–CER Ministerial Consultations in October 2000. Thus, the Howard Government had become serious in searching for FTA partners before the Ministerial Consultations formally shelved the AFTA–CER FTA plan. At this time, Singapore informally proposed a bilateral FTA with Australia. No other ASEAN member did so. As the government and the private sector accepted that Australia should start FTA negotiations with one of the ASEAN members,10 Singapore’s proposal provided a very convenient opportunity.11 In addition, Singapore was thought to be the easiest state with which to negotiate an FTA because its trade barriers were negligible and it already had experience in FTA negotiations, having just completed one with New Zealand.12

b) Progress and Results of the Negotiations The Howard Government was willing to make the FTA with Singapore a “benchmark” for its subsequent bilateral FTAs by adhering to all principles set in 1998. Yet it soon became evident that the negotiation was not as easy as anticipated. If Australia were to gain “significant and particular” benefits from the FTA with Singapore, it had to achieve them from areas other than trade in goods, such as trade in services and investment, because Singapore had already realized virtual free trade in goods on the MFN basis. As the negotiations proceeded, these areas turned out to be the most difficult on which to reach agreement. Australia aimed for more comprehensive and deeper commitments to trade in services than those of the General Agreement on Trade in Services (GATS). Singapore was generally hesitant to offer more commitments than it had at the WTO. It was also reluctant to accept Australia’s proposal to adopt the negative list approach13 in this area. For the Howard Government, Singapore’s unenthusiastic response in services and investment was unacceptable if the FTA was to achieve benchmark status. It took more than a year after the start of the negotiations before Singapore finally accepted Australia’s argument for negative listing in April 2002.

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The negotiation proceeded at a faster pace after that. Nevertheless, several “hard issues” still remained. Although it accepted the negative list approach, Singapore was still cautious about liberalizing trade in services such as financial, telecommunication, education and professional services like legal, accountancy and architecture. Other hard issues included competition policy, intellectual property rights, government procurement and rules of origin (ROO) in trade in goods.14 After ten rounds of negotiations, both governments announced the conclusion of the negotiations in November 2002. The agreement (now called the Singapore–Australia Free Trade Agreement, SAFTA) was signed in February 2003 and came into effect in July. According to the summary of SAFTA released by the government in February 2003, Australia would gain benefits from the following measures, among others, when the Agreement came into force: • Elimination of all tariffs;15 • Restrictions on the number of wholesale banking licenses to be eased over time; • More certain, and enhanced operating environments for financial services suppliers; • Conditions eased on the establishment of joint ventures involving Australian law firms; • Removing/easing residency requirements for Australian professionals; • Mutual recognition agreements between architects and engineers under way; • National treatment and market access commitments for Australian education providers; • Transparency of investment restrictions on Singapore’s governmentlinked companies; • Telecom interconnection provided on non-discriminatory, timely, cost-oriented terms; • Australian firms get national treatment in procurement by fortyseven Singapore agencies; • Short-term entry for Australian business people extended from one month to three months; • Long-term business residents in Singapore granted a total stay of up to at least fourteen years;

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• Cooperation on eliminating trade in goods infringing intellectual property rights; • Measures to prevent the export of goods infringing copyright or trade marks, and; • Promotion of confidence in bilateral e-commerce, e.g. in electronic signatures. (DFAT 2003a)

In addition, the 50-per-cent value-added ROO was adopted for most trade in goods as the Australian Government requested. Singapore’s demand for lower ROO was agreed for a limited number of electrical and electronic items at 30 per cent.

c) Hoping for the “Demonstration Effect” of SAFTA On the one hand, it seems that the Howard Government secured what it wanted from SAFTA in terms of content. In this regard, the government’s purpose of making SAFTA the benchmark for Australia’s FTAs was realized reasonably well. On the other hand, although both governments were willing to conclude the negotiation by the end of 2001 (Commonwealth of Australia 2001, p. 29), it took almost twice as long in reality (twenty-two months). On this point, SAFTA contrasts with other FTAs that Singapore negotiated around the same time; with New Zealand, only twelve months was required from the formal start of the negotiations to the signing of the agreement, and with Japan, where farmers opposed an FTA even with Singapore, it took thirteen months. Even considering that the negotiations between Australia and Singapore had to be interrupted for a while in late 2001 because of general elections held in both countries, they took a relatively long time. Once the negotiations began, the Howard Government prioritized the “significant and particular benefits” principle over the “fast conclusion” principle. The government’s attitude was supported by the private sector.16 In other words, spending two years in negotiations with Singapore was acceptable for the emerging bilateralists, provided that the negotiations achieved what they wanted. During the negotiation process, the government had developed a further purpose (or hope) for SAFTA: to get other ASEAN members to maintain the liberalization momentum stimulated by SAFTA.17 It was

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expected that, if SAFTA could demonstrate notable benefits to Singapore by increased access to the Australian market, other ASEAN members would want to follow Singapore and negotiate FTAs with Australia.18 The expectation of this “demonstration effect” seemed to be widely shared by the private sector as well.19

The FTA with the United States: The Decisive Moment of the Bilateralists’ Domination a) The Government-led Initiative and the Private Sector’s Response In Australia, anticipation of negotiating an FTA with the United States had been around during the negotiations with Singapore. Contrary to its earlier stance in 1996 and 1997, the Howard Government’s interest in an FTA with the United States, the largest economy in the world, one of Australia’s biggest economic partners (see Table 7.1) and the most important political and security ally for Australia, was strong this time. The government commissioned domestic research consultants to undertake two separate studies on issues, impacts and implications of the FTA. The reports, which were released in June and August 2001, were generally supportive of the FTA (CIE 2001; Australian APEC Study Centre 2001). The private sector’s interest was also strong. The formation of a single-issue lobbying group called the “Australia United States Free Trade Agreement Business Group” (AUSTA) in September 2001 illustrated the mood. Major industry groups from various sectors, such as the Australian Food and Grocery Council, the ACCI, the AIG, the Australian Meat Council, the BCA and the Minerals Council of Australia, as well as some of the largest companies in Australia, such as Alcoa, BHP Steel, Commonwealth Bank, IBM, Kelloggs, News Limited, Telstra and Western Mining, participated in AUSTA. Until mid-2002, however, the commencement of negotiations was unrealistic because the U.S. administration had not been granted the Trade Promotion Authority (TPA)20 by Congress. The Howard Government, nevertheless, pressed the case with the U.S. administration, Congress and the private sector. In September 2001, Howard and George W.

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Bush agreed that an FTA would benefit the bilateral economic and trade relationship. Minister for Trade Mark Vaile discussed the issue with his counterpart, the U.S. Trade Representative Robert Zoellick, in January 2002 (Commonwealth of Australia 2002a, pp. 36–37). Howard visited the United States again in June 2002 and met with Bush, Zoellick, Secretary of State Colin Powell and influential Congresspersons, as well as some private sector representatives, to promote the idea (Australian, 14 June 2002; Weekend Australian, 15–16 June 2002). After the U.S. administration finally gained the TPA from Congress in August 2002, the two governments agreed in November to commence FTA negotiations in early 2003 and conclude within eighteen months (Australian, 15 November 2002). The first round of negotiations was held in Canberra in March 2003.

b) The Government’s Perception of the Benefits of an FTA with the United States As shown in Table 7.1, the United States was clearly a more important trade and investment partner for Australia than Singapore. In addition, since the United States was the world’s dominant economic, political and military power, the broader effects of the FTA could be expected to be much greater than those of most other FTAs. Thus, public debate on the FTA with the United States grew intense even before the commencement of the formal negotiations, especially regarding its effects on agriculture, investment, Australia’s public health scheme and national security policy. The government’s stance on the issue was already stated in Downer’s speech at a conference on an Australia–United States FTA in August 2002. He argued that the benefits for Australia from the FTA should be looked at in the long term as well as in the short term, and in strategic as well as in economic terms. He pointed out the merits of the FTA as follows: •

There would be straightforward economic gains. … a possible $4 billion net gain per annum to Australia’s GDP.21



There would be a very significant ‘head turning’ effect … in attracting investment, with subsequent gains in employment and productivity.

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[The] FTA would result in greater business integration, as Australian and U.S. companies realise synergies in innovation, research and development, material sourcing, product development marketing and … information technology.



[The] FTA could be an important factor in … ‘competitive liberalisation’, whereby what we do bilaterally has an important ‘demonstration effect’, ratcheting up other trade negotiations, in particular at the WTO, but also regionally.



[The] FTA would help engender a broader appreciation … of the bilateral security alliance and the manner in which ANZUS [Australia–New Zealand–United States Security Treaty] … helps to underpin the stability and prosperity of East Asia and the Pacific. (Downer 2002)

c) Focuses of the National Debate (1): Agriculture First, how to deal with agriculture was a major concern for this FTA. For a long time, U.S. protectionism and export subsidies on agriculture were perceived to be a major obstacle to Australia’s exports not only to the U.S. market but elsewhere. On the other hand, the United States saw Australia’s strict quarantine regime as a non-tariff barrier to its exports and the virtual export monopoly (“single-desk” arrangements) of wheat, sugar, rice and some other commodities as unfair trade practices. The National Farmers’ Federation (NFF), the most influential domestic interest group in the agricultural sector, was initially against an FTA with the United States because the NFF saw it as unlikely that the United States would lift protection completely on its domestic agriculture, in particular tariff quotas on products like beef, sugar, dairy and grains, through an FTA with one of its main competitors.22 In addition, the NFF believed that issues like domestic subsidies could not be tackled effectively through bilateral negotiations. Ben Fargher, Senior Policy Manager of the NFF, argued in July 2002 that: The NFF Council believes there is only one way we are going to meaningfully overcome these problems [protection and export subsidies for agricultural products] and that’s by getting results at the World Trade Organization. People talk about Free Trade Agreements and bilateral

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deals, but if you do a deal in the WTO you effectively sign 140 FTAs at once. The WTO is where the real action is: the WTO is where you get more bang for your buck! (Fargher 2002)

The NFF, nonetheless, changed its stance on bilateral FTAs in mid2002: it would not oppose the government’s starting negotiations any more. In August 2002, Peter Corish, President of the NFF, stated that if the government were to negotiate an FTA with the United States, the NFF would actively involve itself in the process because Australian farmers would benefit greatly from the FTA if agriculture were fully included (Corish 2002). He also argued that agriculture must be “at the heart of negotiations” and the NFF would never compromise on this point. In other words, the NFF would not accept differential treatment of agriculture from other sectors.23 On the other hand, the NFF, like the government, did not consider quarantine as a trade issue on which to negotiate (Australian, 15 November 2002). The NFF’s determined stance seems to have been influenced by its international activities as well. Since 1998, the NFF has been playing a leading role in a transnational organization called the “Cairns Group Farm Leaders”. The organization consists of agricultural groups from the Cairns Group members and it organizes an annual conference and provides policy recommendations for the Cairns Group. The ultimate purpose of the Cairns Group Farmer Leaders is to achieve complete multilateral free trade in agricultural products, so its main activities are directed towards the WTO through the Cairns Group. Thus, even if a new liberalization framework — bilateral FTAs — were to be created, the NFF was not expected to accept provisions that were contradictory to its commitments to the Cairns Group Farmer Leaders.24 Most of the estimated “$4 billion” net gains a year for Australia were expected to come from increased access of agricultural exports to the U.S. market (Garnaut 2002, pp. 133–34). Thus, it was generally believed that, as the NFF asserted, if there was no substantial liberalization in agriculture, the FTA would not satisfy the government’s principle of “significant and particular” economic benefits. Yet the Labor opposition remained sceptical about whether agriculture could be fully included in the negotiations. Craig Emerson, Shadow Minister for Trade, pointed out that, despite the TPA, the U.S. administration was still required

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to consult Congressional committees on tariff reduction on “sensitive agricultural products” such as sugar, beef and dairy under the Trade Act 2002 (Emerson 2002).

d) Focuses of the National Debate (2): Investment, PBS and Security Policy Australia maintained some restrictions on foreign investment. The government could block foreign investment if it resolved that it would be against the “national interest” and, with certain conditions, FDI proposals had to be reviewed by the Foreign Investment Review Board.25 In relation to the FTA with the United States, which has a very competitive services sector and related investment, deregulation of Australia’s media, civil aviation, telecommunications and some mining industries could become an issue. Because the justification of this partly restrictive investment regime relied not so much on the control of competition but on “nationalism” including the promotion of cultural identity,26 it was not easy for Australia to negotiate an FTA with the United States without committing to amending its current investment regime. For more than fifty years, the Australian Government has been maintaining a scheme called the “Pharmaceutical Benefit Scheme” (PBS) to provide subsidized medical drugs to the general public. The PBS has long been a key component of Australia’s health system. By 2002, it covered more than 600 prescription drug substances — or more than 2,500 brand names — for provision at relatively low cost to Australians. The U.S. pharmaceutical industries have complained about the PBS for many years, claiming that the scheme prevents them from earning a proper return on their research and development. As the Pharmaceutical Research and Manufacturers of America have strong influence in Washington, it was expected that the U.S. administration would demand amendments to the PBS which would result in lifting general drug prices in Australia (Garnaut 2002, p. 131; Capling 2005, p. 61). Because it was an FTA with the United States, the security aspect added another divisive factor to the public debate. What pushed this aspect to the forefront was Bush’s statement in September 2002, a year after the September 11 terrorist attacks in the United States, setting U.S.

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FTA policy in the context of a global security strategy (U.S. President 2002). Zoellick’s speech in November confirmed that the United States considered the FTA to be a tool to strengthen the security alliance (Australian, 15 November 2002). The Howard Government argued that economic integration with the United States through an FTA would strengthen the already established security ties between Australia and United States. Conversely, some Australian academics argued that the security objective should be separated from the economic relationship and the proposed FTA. They warned that the Australian economy would lose significantly through an FTA if security was prioritized over other important issues like agriculture.27 Even some who supported the FTA recognized that an FTA should not be pursued for non-economic purposes and it was naïve to believe that Australia could “buy” an FTA with the United States through its stance on international issues, or that it could influence U.S. security policy through the FTA (Wood 2002).

e) The Results of the Negotiations The negotiations were finalized in February 2004, seven months earlier than the original target, and the draft text of the AUSFTA was released in March. Table 7.2 shows major results of the negotiations as explained by the government. The Howard Government argued that the results would significantly benefit the Australian economy as a whole by further integrating it with the largest and most dynamic economy in the world (Vaile 2004). The government particularly emphasized the economic gains expected to result from arrangements in non-agricultural and services trade, investment and government procurement. The government also claimed that it had basically secured the foreign investment screening process, local content regulations for the media and the PBS to protect Australia’s national interests. But the results in agriculture were less than the government had promised to Australian farmers. In particular, deals on beef, dairy and sugar, the three agricultural exports of the government’s negotiating priority (DFAT 2003c), disappointed Australia’s agricultural sector. While the annual quota was to increase for beef exports, it was (just) 18.5 per cent more than that of 2004 over the long period of eighteen years. All tariffs on quota restricted beef exports were to be eliminated,

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TABLE 7.2 Major Results of the AUSFTA Negotiations (announced in February 2004) Areas

Results

Non-Agricultural Trade

• More than 97 per cent of U.S. tariff lines on Australia’s exports to be eliminated immediately. Remaining tariffs to be phased out by 2015. • All U.S. tariffs on Australia’s PMV exports to be eliminated immediately. Australian tariffs on U.S. PMV imports to be eliminated by 2010. • Australia to allow 2 per cent tariff preference for U.S. TCF imports. The United States to match Australia’s tariffs where the U.S. rates are higher and provide a one-tenth preference where the U.S. rates are lower.

Agricultural Trade

• Two-thirds of U.S. tariffs on Australia’s agricultural exports to be eliminated immediately. A further 9 per cent of U.S. tariffs to be eliminated within four years. • Annual quota for beef to increase by 20,000 tonnes in three years, reaching 70,000 additional tonnes in eighteen years. In-quota tariff to be eliminated and over-quota tariff to be phased out over eighteen years. • Most lamb and sheep meat exports to the U.S. market to be duty free. • Duty free access for quota-restricted Australian dairy exports to grow by 27,350 tonnes in the first year. In-quota tariffs to be eliminated immediately. Tariffs on non-quota dairy exports to be eliminated over eighteen years. New access for some dairy products such as cheese, butter, milk and cream. • Australia’s sugar access to the U.S. market to remain unchanged (87,000 tonnes per annum). • U.S. tariffs for Australia’s horticultural exports (such as oranges, mangoes, mandarins, strawberries, tomatoes, cut flowers and fresh macadamias) to be eliminated. Access for avocados and peanuts to be allowed for the first time. • U.S. tariffs on Australia’s wine exports to be eliminated over eleven years. • U.S. tariffs on Australia’s seafood exports to be eliminated immediately. • Australia’s quarantine system protected. • Australia’s “single-desk” arrangements for marketing commodities such as wheat, sugar, rice and barley to be maintained.

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TABLE 7.2 (Cont’d) Areas

Results

Services Trade and Investment

• Reciprocal provision of national treatment to Australian and U.S. services providers in respective markets. • Establishment of “Professional Services Working Group” to investigate ways to promote mutual recognition of professional qualifications and other issues. • Australia to retain the existing local content regulation including the 55 per cent transmission quota for Australian content on free-to-air television. Australia to reserve rights to intervene on interactive media platforms if Australian content is not readily available. • Australia to retain the ability to screen foreign investments with some changes to the screening process: U.S. investment in urban land and the media to be screened regardless of value; U.S. investment in telecommunications, transport and defence to be screened if above A$50 million, and; all other U.S. investment to be screened if above A$800 million. • Existing foreign investment limits to the media, Telstra, CSL, Qantas and federal leased airports and shipping to be preserved.

PBS

• Australia to establish an independent body to deal with pharmaceutical companies’ requests to review decisions by the Pharmaceutical Benefits Advisory Committee not to list new drugs.

Government Procurement

• Australia to have access to the U.S. Federal Government procurement market for the first time. • Australia to have waiver from the 6 per cent penalty imposed under the Buy America Act as a “designated country”.

Source: “The AUSFTA: Facts at a Glance”, downloaded from the DFAT website on 31 May 2006 and Vaile (2004).

but this is to be implemented over eighteen years and safeguard measures were still to be maintained. New access was allowed for some major dairy exports but these exports are still restricted by quota.28 Worse still, there was no agreement on the improvement of Australia’s sugar access to the U.S. market. Thus the government had to compromise its FTA principles of “significant and particular benefits” and “comprehensiveness” in the AUSFTA.

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f) Policy Actors’ Behaviour over the “Ratification” of the AUSFTA After the signing of the AUSFTA, there remained in Australia intense debate over whether it would provide significant net overall economic benefits.29 Some critics doubted the government’s assurance that national interests regarding investment, services and the PBS were protected.30 Yet most major industry and business groups decided to support the FTA from as early as April 2004. Individual submissions by AUSTA, the ACCI, the AIG and the BCA to the Parliament’s Joint Standing Committee on Treaties (JSCOT) all endorsed the AUSFTA by accepting the government’s assertions that the FTA would bring significant benefits to the Australian economy as a whole, no sector would be worse off and it was a “once-in-a-generation” opportunity (AUSTA 2004; ACCI 2004a; AIG 2004; BCA 2004). What was significant in terms of prospects for the AUSFTA was that the NFF also endorsed it in April. The NFF’s submission to JSCOT read: NFF supported the negotiation of a US FTA, conditional of agriculture being at the heart of the negotiations and the final agreement. NFF is disappointed with the negotiated outcome in a number of areas. NFF was pushing for an outcome that delivered free trade in agriculture. NFF was led to believe, by the Australian and US Governments, that this was achievable. NFF sold the negotiations to its members on this basis. This was clearly not achieved. The fact that the US FTA is not comprehensive in nature, that is, does not cover all agricultural products, was one of the most disappointing aspects of the negotiated outcome. NFF’s expectations were clearly not met in a range of areas, especially in regard to the outcome on sugar and beef. However, on balance, … NFF supports the US FTA. (NFF 2004)

The NFF’s reluctant support of the AUSFTA, on top of more proactive endorsement by major industry and business groups, effectively meant that the bilateralists’ policy ideas were supported by the majority of major actors. It was a decisive moment for the bilateralists and their dominance of Australia’s coalition in foreign economic policy-making. At the end of April 2004, the government decided to provide an assistance package worth A$444.4 million to domestic cane farmers and sugar manufacturers, which was believed to be a compensation

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for being excluded from the FTA (Australian, 30 April 2004). In May, Vaile and Zoellick signed the AUSFTA in Washington. In Australia, enabling legislation is required for implementation of any FTAs if their contents conflict with existing laws. As the Labor opposition held majority in the Senate, its stance on the AUSFTA was critical. The ALP delayed declaring whether or not to back the AUSFTA as it was split on the issue, especially on the FTA’s impact on the PBS and the media. Not only was there a split between its internal factions but also within them (Australian, 21–23, 25 June 2004). But it became very difficult for the ALP not to support the FTA when the U.S. Congress ratified it in mid-July with overwhelming margins (314–109 in the House of Representatives and 80–16 in the Senate). In early August, almost at the same time as Bush signed off on the legislation on the U.S. part, the ALP decided to support the AUSFTA with two provisos: amendments of the FTA to further ensure the protection of the PBS and local content in the media.31 The Howard Government reluctantly accepted the ALP’s demand and the U.S. Free Trade Agreement Implementation Act 2004 passed the Senate in the same month. The AUSFTA came into effect in January 2005.

g) The Dominant Bilateralists Seek “Competitive Liberalization” The “ratification” of the AUSFTA, the FTA with less than expected substance but with the most powerful political and economic partner, was the bilateralists’ triumph over the trade liberalizers including academics, the NFF and part of the ALP that led Australia’s foreign economic policy in the 1980s and the first half of the 1990s. The bilateralists consolidated their domination through the AUSFTA process. It became more evident that the bilateralists were moving to the more assertive stance of promoting “competitive liberalization” through bilateral FTAs. Before the commencement of negotiations, Downer confirmed that one of the objectives of the AUSFTA was to induce competitive liberalization: drawing on other economies to compete in trade liberalization (Downer 2002). The government had hoped that the FTA with Singapore would be a demonstration to other ASEAN members. Since then, the government advanced this stance and expected its FTAs to put “pressure” on other states to liberalize their domestic economic

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regimes. By 2004 when the AUSFTA negotiations were concluded, major business and industry groups increasingly saw the concept of competitive liberalization as an effective trade policy approach. These moves indicate the changing nature of the bilateralists’ FTA policy motives: from the defensive response to its major trade partners entering into FTAs with Australia’s competitors, to the proactive pursuit of FTAs in trying to induce others to liberalize.

IV. THE BILATERALISTS’ POLICY TOWARDS ASEAN Engagement with Asia Based on Bilateralist Policy Ideas The Howard Government’s foreign policy ideas were based on the pursuit of national interests through bilateral relations of states which shared pragmatic interests and mutual respect. It also sought to “rebalance” Australia’s foreign policy through “Asia-first but not Asiaonly” approaches. This meant, in practice, that the government placed more emphasis than its predecessor on building relations outside Asia, especially with the United States, in dealing with both economic and political/security issues (Pitty 2003a, p. 41; 2003b, p. 76). These policy ideas and approaches had gradually been accepted by social actors and became dominant in policy processes by 2004. The bilateralist policy ideas were increasingly reflected in the Howard Government’s basic stance for its East Asian policy, especially that towards ASEAN. It contrasted with the stance of the KeatingEvans era, which demanded the alteration of national identity from the public. Howard stated: I think one of the mistakes we made for a while in our relationship with Asia was to fret too much about where we stood. Whether we were Asian, or part of Asia, enmeshed with Asia, or in Asia — forget that. We should really be as we are, and that is Australia, not denying for a moment our past associations or seeking to adjust them in order to please. (quoted in Kelly 2001, p. 250)

On the surface, the Howard Government’s recognition that “Australia is not an Asian country and Australians are not Asians” represented no change from the Keating Government. The Howard Government,

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however, intended to maintain Australia’s traditional values, culture and identity, which were dominantly “Western”. Thus, bilateral reconciliation of interests in a pragmatic way on the premise of “differences” between Australia and Asian countries became the central feature of the Howard Government’s Asian engagement (Kelly 2006, p. 27). Howard summed up his stance, saying, “what matters most for our regional engagement is the substance of relations between countries, more so than the formal architecture of any diplomatic exchange” (Howard’s speech at the Asia Society in New York, September 2005, quoted in Cotton and Ravenhill 2007a, p. 7). How did the government’s foreign policy ideas affect Australia’s ASEAN policy? Subsequently, how was the bilateralists’ domination of the foreign economic policy process reflected in Australia’s ASEAN policy?

Mixed Results from Early Policies Having embarked on foreign policy “rebalancing”, the Howard Government regarded the previous government as having made excessive responses in its tendencies to compare Australia’s economic achievements unfavourably against those of Asia and to be subservient to a construction of Asian sensitivities, which was illustrated by how the previous government dealt with the ASEAN way of diplomacy and business (Wesley 2007a, p. 49). Therefore, the Howard Government’s policy towards East Asia in general and ASEAN in particular became more assertive than the previous government’s, but it engendered mixed results. The Asian financial crisis occurred first as a disastrous currency depreciation in Thailand in July 1997 and consequently plunged many East Asian economies into economic turmoil (and in some cases political confusion). From the beginning of the crisis, the Howard Government involved itself in IMF rescue packages for Indonesia, Thailand and Korea. Australia became one of only two states (along with Japan) to contribute to all three packages. When the negotiations between Indonesia and the IMF on loan conditions intensified in early 1998, the government was sympathetic to Indonesia and tried to play a mediating role (Australian, 21 and 28 February 1998). Australia’s contribution to the IMF packages and other activities were appreciated by the recipients. Downer claimed

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that by “proving we are a partner and a neighbour for the long haul”, Australia’s image in the region had changed decisively “from something close to regional mendicant to a regional mate” (quoted in Pitty 2003a, p. 42). Yet these activities did not culminate in acceptance from the Asian side of Australia’s membership in the Asia–Europe Meeting (ASEM) process (Wesley 2001, p. 317).32 The Howard Government’s active involvement in East Timor’s independence process in 1999, particularly the central role it played in the UN peacekeeping operation, was praised domestically and by the UN, but it provoked resentment in Indonesia. Amid the political confusion and violent conflict in East Timor, the four-year-old Australia–Indonesia Agreement on Maintaining Security was abrogated by the Indonesian Government on 16 September 1999. A journal interview with Howard appeared on 28 September on the so-called “Howard Doctrine”. Featuring the catch phrase of Australia playing the role of “deputy sheriff” to the United States in the region, it increased Asian anger further not only in Southeast Asia but also in Japan and Korea (Milner 2001, pp. 41–45). Since the September 11 terrorist attacks in the United States in 2001, the Howard Government worked closely with ASEAN members in an effort to contain terrorism in the region (Commonwealth of Australia 2003, pp. 38–40; DFAT 2004, pp. 15–16). However, after the Bali bombings on 12 October 2002, which killed or injured more than 200 people including 88 Australians, Howard’s statement about the possibility that Australia could launch “pre-emptive military strikes” against terrorists operating in neighbouring countries caused yet another wave of resentment in the region (Wesley 2007a, pp. 131–32).33 Partly as a result, ASEAN effectively rejected Australia’s proposal to hold an annual ASEAN–Australia Summit (Australian, 2 and 6 December 2002).

Responding to East Asian Regionalism a) The Rise of East Asian Regionalism after the Financial Crisis After the outbreak of the Asian financial crisis, East Asian states found renewed motives for building their own economic cooperation framework.

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Of the emergency loan package for Thailand worth US$17 billion, for instance, the IMF provided less than 25 per cent but enforced strict “conditionalities”. The United States and EU members did not participate in the package. These circumstances led East Asian states, especially Japan, to realize that a future currency crisis in any East Asian economy, which would be highly transmissible to others, had to be dealt with primarily within the region.34 Sharing this view, the heads of governments of ASEAN members, China, Japan and Korea held a meeting in November 1997 to discuss regional financial and economic cooperation. After the inaugural Summit, this East Asian regional cooperation (often called the “ASEAN Plus Three” [APT]) process began to evolve. At the second Summit in December 1998, Japan announced a plan worth US$500 million aimed at boosting human resource development (HRD) in East Asia. The third Summit in December 1999 identified eight broad areas for APT cooperation which included economy, currency and finance, HRD and other development cooperation, as well as political and security (APT Summit 1999). In 2000, the APT process saw agreement on the “Chiang Mai Initiative” that was a network of bilateral currency swap agreements between East Asian states, and the establishment of a working group to study the feasibility of an East Asian FTA. To accommodate these increasing activities, the APT institution has been expanded. By 2003, in addition to the annual Summit, the frameworks for Economic, Foreign, Labour, Health, Tourism and Agricultural Ministers Meetings had been established. The development of the APT process could be seen as the realization of the East Asia Economic Group (EAEG) proposal by Malaysian Prime Minister Mahathir in 1990, but within a significantly changed regional economic environment. The original EAEG proposal was primarily a reaction to the moves in North America and Europe to form or deepen regional economic blocs. It assumed as potential members only East Asian states, which are identical to the participants in the APT process. The United States vocally opposed the EAEG concept and petitioned Japan and Korea to reject the proposal. ASEAN members were, at least, uneasy about the proposal as they had not been consulted before Mahathir launched the plan (Funabashi 1995, p. 68). Thus, they opted for the AFTA initiative instead.

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Australia was as outspoken as the United States in opposing the proposal. The Hawke Government had already shifted Australia’s foreign policy orientation towards the Asia-Pacific regionalist strategy. The shift was illustrated by its APEC initiative and the announcement of comprehensive engagement with Southeast Asia, both in 1989. For the Hawke Government, the EAEG concept appeared to mean the negation of Australian efforts to engage more closely with the region (Ravenhill 1998, p. 281). Unable to attract strong backing from any state in the region, the EAEG concept was subsequently modified into a consultative “caucus” (thus, renamed as the East Asia Economic Caucus [EAEC]) within the APEC framework.

b) Growing Confidence of the Howard Government The Howard Government, in contrast, did not respond to the development of the APT process — a resurgence of East Asian regionalism — as its predecessor did to the EAEG proposal. The government rather calmly on the surface observed that the APT development had arisen from a desire to establish a stronger international identity and profile for East Asia, a desire by the ASEAN members to compensate for their relative economic weakness by associating more closely with the bigger economies of North Asia, and the aspiration of Japan and China to establish stronger claims for regional leadership (Commonwealth of Australia 2003, pp. 84–85). While the government registered its interest in joining East Asian regional groupings if they were eventually to emerge, it has not overtly opposed the APT process. This stance of the government can be explained in terms of its growing confidence in domestic political and economic institutions and strengthened recognition of the effectiveness of its Asian engagement, a recognition which was brought by the “success” of its bilateralist foreign economic policy towards ASEAN. From the Asian financial crisis experience, the government had gained confidence in Australia’s economic management — during the crisis, the Australian economy was virtually unaffected and grew strongly — and a self-image that Australia could be a good example of economic reforms to crisis-hit economies (Wesley 2001,

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pp. 310–11). In addition, the East Timor experience and active participation in the war against terrorism worked to strengthen the government’s belief in Australian values, identity and institutions. This confidence was manifested in the second foreign and trade policy White Paper published in 2003, which in part sounded so triumphant: •

Australia is a Western country located in the Asia-Pacific region with close ties and affinities with North America and Europe and a history of active engagement throughout Asia (viii, 3).



Australia’s identity is strong. We have developed our own distinctive culture and sense of confidence (viii).



Australia has successfully embraced … economic and political freedoms. In so doing we have strengthened our place in the world (viii).



Our economic underpinnings are strong and dynamic. We have responded well to the challenges of deeper integration into the global economy, including by successful management of the economy during the East Asian financial crisis (128).



Our security capabilities are sound as we showed by our contribution to East Timor’s transition to independence and our participation in the war against terrorism. Our diplomacy has been effective. We have a proud humanitarian record. We are well educated. Few countries of Australia’s size can point to such a record of contemporary accomplishment (129). (Commonwealth of Australia 2003)

The Howard Government considered that Australia was “well placed to make a distinctive contribution” to other states’ efforts to improve their political and economic governance (Commonwealth of Australia 2003, pp. 114–15). Thus, while recognizing that close engagement with East Asian states was still a priority in Australia foreign and trade policy and the outcome of the development of the APT process might have important implications (Commonwealth of Australia 2003, pp. 3, 33), the government asserted that Australia should go out to the region “not as a supplicant but as a partner” seeking to work with neighbours for mutual benefit (Commonwealth of Australia 2003, p. 85).

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c) Success of the “Divide and Conquer” Approach towards ASEAN The government’s bilateralist foreign economic policy towards ASEAN had begun to yield some results. While the AFTA–CER CEP, which emerged as a substitute for the aborted AFTA–CER FTA initiative in 2000, showed some progress in the early 2000s,35 at the same time the government sought bilateral FTAs with ASEAN members. Seeking competitive liberalization through FTAs with individual ASEAN members meant the adoption of a “divide and conquer” approach. While the FTA negotiations were still going on with Singapore, the government proposed to Thailand, which was supportive of the AFTA–CER FTA idea, that they should start their own negotiations. After the completion of the joint “scoping study” (Commonwealth of Australia 2002b), Howard and his counterpart Thaksin Shinawatra announced in May 2002 that the two governments agreed to commence FTA negotiations. The negotiations between Australia and Thailand were conducted concurrently with the AUSFTA negotiations and concluded in October 2003. The Thailand–Australia Free Trade Agreement (TAFTA), which was Australia’s first FTA with a developing economy, came into effect in January 2005. Through TAFTA, Australia achieved the elimination of all tariffs that Thailand imposed on its exports, though it would take a long time for certain tariffs to be abolished (for instance, in the case of dairy products, tariffs are being gradually reduced and will be eliminated by 2025). On the other hand, Australia’s wishes were not met in the area of trade in services and the positive list approach was adopted.36 As a whole, the government was not completely satisfied with the content of TAFTA, and whether to sign it or not was a political decision. Ultimately, the government decided to conclude negotiations and sign the agreement.37 Within ASEAN, in fact, differences in trade and investment liberalization policies emerged among members after the financial crisis. In general, ASEAN members agreed to the acceleration of regional economic integration mainly by promoting the AFTA process in order to bring back foreign investment to the region and to prop up their domestic economies. Yet, as the deadline for the intra-regional tariff reduction neared, some members asked for an extension of the schedule for certain products. Malaysia, for example, requested extension of the

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tariff reduction schedule for automobiles and related products. The AFTA Council accepted and the ASEAN Summit endorsed the request in 2000.38 Indonesia shared similar circumstances. Members of the Board of Directors of the Indonesian Chamber of Commerce and Industry argued that the government’s priority should be on re-establishing the domestic political and economic order, not on trade liberalization. They further stated that Indonesia had no choice but to implement the AFTA tariff reduction to which its government had already committed, but that it should not commit to any other liberalization for some time.39 Domestic opposition to trade liberalization in Malaysia and Indonesia was in contrast to the stance of the Singaporean and Thai Governments. As the AFTA process looked to be slowing down in practice, Singapore and Thailand inclined to “run faster” in trade and investment liberalization than other ASEAN members by concluding bilateral FTAs with extra-regional states. Although an official from the Indonesian Department of Industry and Trade said that “every country has the right to decide what to do, so the Indonesian Government does not care if any members of ASEAN negotiate or sign FTAs with any other countries”,40 President Abdurrahman Wahid expressed his displeasure at Singapore’s attitude (Straits Times, 23 November 2000; Jakarta Post, 23 November 2000). Malaysia was also annoyed by these moves, urging the need to maintain ASEAN solidarity in difficult times. It asserted that, if the majority of ASEAN members began to favour bilateral FTAs, the meaning of AFTA would be significantly decreased.41 In a sense, the Howard Government’s bilateralist foreign economic policy towards ASEAN, namely the negotiations for SAFTA and TAFTA, capitalized on, and exacerbated, this division among ASEAN members. By the end of 2002, Malaysia changed its stance on bilateral FTAs and, along with the Philippines and Thailand, decided to enter into negotiations with Japan in December.42 In 2004, Malaysia proposed to Australia that they conduct joint scoping studies on an FTA between the two economies. After the release of the report of the study (DFAT 2005), the two governments agreed to commence FTA negotiations in April 2005 and the first round of negations took place in May. Considering that Australia’s relationship with Malaysia under the leadership of Mahathir had often been uncomfortable and it was Malaysia that strongly opposed Australia’s membership in the EAEG concept in the early 1990s and rejected the AFTA–CER FTA in 2000,

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Malaysia’s willingness to negotiate an FTA with Australia marked a major achievement in the Howard Government’s divide and conquer approach to ASEAN.43

d) “Unexpected” Results of Bilateralist Foreign Economic Policy It should be noted that the Howard Government achieved not only bilateral FTAs with ASEAN members but also achieved progress in multilateral economic relations in East Asia through the promotion of its bilateralist foreign economic policy. The AEM in April 2004 decided to invite Howard and New Zealand Prime Minister Helen Clarke to attend the ASEAN Summit later in the year and revive the AFTA–CER FTA initiative (Australian, 23 April 2004). The Summit held in November declared that ASEAN members, Australia and New Zealand would start negotiations for an FTA in early 2005, to be completed in two years (ASEAN–Australia–New Zealand Summit 2004a). At the Summit, the “guiding principles” for the FTA negotiations were also agreed upon and endorsed as an annex to the joint declaration (ASEAN–Australia–New Zealand Summit 2004b). The Australian Government understood that the annexed document would ensure the commitment of ASEAN to the FTA negotiations, after the experience four years previously.44 The first round of negotiations was held in February 2005. When the Howard Government decided to negotiate an FTA with the United States, some academics and ALP members were alarmed that the FTA would enhance perceptions in Asia that Australia saw its interests mainly outside the region and that would disadvantage Australia in its engagement with Asia.45 This concern has not been realized in practice. On top of SAFTA, TAFTA and FTA negotiations with Malaysia and ASEAN as a whole, the government was able to launch yet another bilateral FTA negotiation in May 2005, this time with China. While the APT process has further evolved to aim explicitly for the establishment of an East Asian FTA and an East Asian community (APT Summit 2005a), Howard, along with his Indian and New Zealand counterparts, was invited to attend the inaugural East Asia Summit to discuss the development of regional cooperation with APT leaders in December 2005.

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Howard stated that he saw the East Asia Summit as an expression of a reality in the region from which Australia, a modern, sophisticated western country with an economy that was performing well, could not, should not and would not be excluded. But, at the same time, he did not see the East Asia Summit as supplanting the importance of bilateral relations in the region (Howard 2006). As it had already established the beachheads of engagement in East Asia through SAFTA and TAFTA, with more of them to come in the form of FTAs with Malaysia, China and ASEAN as a whole in the near future, the government seemed confident in responding to the further development of East Asian regionalism.46 These developments appeared to indicate the effectiveness of the Howard Government’s bilateralist policy in general and its divide and conquer approach towards ASEAN in particular. Yet an important question remains: Was the government’s bilateralist foreign economic policy the main factor in the realization of Australia’s bilateral and regional FTAs in East Asia? The logic of competitive liberalization has often been used by the U.S. administration to justify its FTA policy. FTAs by economic and political powers like the United States may cause an effect on others of wanting to be included in its FTA network out of fear of trade diversion effects, or to build an FTA network of their own to counter, or to speed up the multilateral liberalization process in order to minimize adverse effects they may face. But FTAs of smaller states like Australia may not have such a strong impact. There would appear to be some other important factors driving relations among East Asian states including ASEAN members. This question is discussed in the concluding chapter.

Notes 1. The Howard Government decided to publish the TOOS (renamed Trade since 2003) at the start of every year from 1997 to explain to the Parliament and general public what had been achieved in the previous year and what would be the policy targets of the year. Since the TOOS has clearly described the government’s trade policy intentions in each issue, it has become an adequate first reference to note the changes (and/or consistency) in Australia’s trade policy directions. 2. While bilateral initiatives did not take the form of FTAs in the early years of the Howard Government, the government was willing to explore other

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3.

4.

5.

6.

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means of trade promotion and market development. An inter-departmental Market Development Task Force was created under the jurisdiction of the Secretary of DFAT to focus these efforts and to link market access and promotional efforts more closely across the government (Commonwealth of Australia 1997a, p. 19). With help from market facilitation teams within DFAT and the private sector, the Task Force aimed at concentrating government’s efforts on specific sectors in a targeted country to initiate or increase Australia’s exports. For instance, the massive and long-term export deal of liquefied natural gas (LNG) to China agreed in August 2002 was one initiative under this programme (Australian, 9 August 2002). The EPG was an ad hoc consultative body comprising members including economists, former politicians and high ranking government officials. Each APEC member government nominated one member to the Group. During its operation from 1993 to 1995, the EPG, chaired by an American economist C. Fred Bergsten, was active in promoting the regional liberalization agenda and its three reports (APEC EPG 1993, 1994, 1995) presented to the annual Ministerial Meetings were instrumental in setting the goals, schedule and modality of the APEC liberalization process. It is not hard to imagine that the government had expectations of the EVSL derived from memories of the successful sectoral liberalization initiative of the Information Technology Agreement (ITA). The ITA was initially proposed by the United States in 1995 for the elimination of trade barriers on computer hardware and software, semiconductors, telecommunication equipment and other information and communication related products and services. At the inaugural Ministerial Conference of the WTO held in Singapore in 1996, the ITA was successful in collecting enough signatories to form a critical mass and the Agreement came into force in July 1997. For more details, see Okamoto (2004b, pp. 33–38). The proposal was made by ASEAN as a whole on the record but the actual circumstances within ASEAN were not so simple. As the chair of the AEM, the agenda setting for the AFTA–CER dialogue in 1999 was conducted mainly by Singapore. Singapore was very actively in favour of the task force and the feasibility study. Members like Indonesia did not oppose the study itself but were not necessarily supportive of such a move (interview with an official of the Department of Industry and Trade, Indonesia, November 2000). The ASEAN “consensus” on this issue was fragile even before the task force was formed. The reasons for rejection by Indonesia and Malaysia were said to be more political than economic. The relationship between Australia and Indonesia had soured in this period. Australia’s policy change towards East Timor’s

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7. 8. 9.

10.

11.

12.

13. 14.

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independence in 1999 and its active involvement and commanding role played in the UN peacekeeping operation in East Timor appeared to have caused an “anti-Australia” sentiment in Indonesia. The Malaysian Prime Minister’s assertion of “Asian values” and “Asian way” of doing things was well known and, for more than a decade, Australia had been a target of his criticism. Indonesia and Malaysia were, at least at that time, not prepared to take part in any FTAs that included Australia (Okamoto 2001). Interview with a DFAT official (13 November 2000). Interview (20 November 2000). The Executive Director of the AIG supported this point by stating that what Australian businesses were seeking from FTAs was increased market access, not necessarily a preferential treatment. This statement sounds somewhat contradictory, but his emphasis was placed on the point that Australian businesses were ready to compete with other economies in overseas markets under equal conditions. Interview (5 September 2002). It seems that it was a shared view in the government (especially in DFAT) then that the first FTA negotiation partner would come from ASEAN (interview with a DFAT official who was a member of Singapore FTA negotiation team, 28 August 2002). Business organizations, especially the AIG that had been deeply involved in the AFTA–CER dialogue process as the representative from the private sector, began lobbying for bilateral FTAs with ASEAN members when it became likely that the Ministerial Consultations would not endorse the AFTA–CER FTA (interview with Senior Policy Adviser of the AIG, 9 November 2000). How the government hurried to start negotiations with Singapore then may be seen by examining the procedures adopted. Before the formal agreement to start FTA negotiations, governments usually conduct a feasibility study (cost and benefit analysis) first to show the public how much net benefit they could gain from the FTA in question. In the case of the FTA with Singapore, however, a government commissioned study by a private research institution was completed in September 2001 (Access Economics 2001), six months after the first round of negotiations took place. However, the government followed the normal path in subsequent cases such as with Thailand and the United States. Interview with officials of the Trade Development Division, DFAT (30 August 2002) and Director of Trade and International Affairs, ACCI (29 August 2002). See Chapter 6, note 34. Australia demanded the 50-per-cent value-added ROO to be applied for all products to prevent the flood of imports, especially TCF, from Singapore by using cheap materials from other ASEAN economies. Singapore preferred

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15. 16.

17. 18. 19.

20.

21.

22.

23.

24.

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the 40-per-cent rules in some products that included TCF. Interview with a DFAT official who was a member of the Singapore FTA negotiation team (28 August 2002). Under SAFTA, Singapore abolished remaining tariffs on two products imported from Australia: beer and stout. The Director of Trade and International Affairs at the ACCI stated that, while he wanted to see the negotiations quickly concluded, there was no point in giving up important issues for the Australian business just for the sake of preserving the principle. Interview (29 August 2002). Interview with a DFAT official who was a member of the Singapore FTA negotiation team (28 August 2002). Interview with the Executive Director of the Economic Analytical Unit, DFAT (2 September 2002). Interview with the Director of Trade and International Affairs, ACCI (29 August 2002) and the Executive Director of the AIG (5 September 2002). The TPA, formerly called the “fast track”, is a negotiation right on trade issues of the U.S. administration granted by the U.S. Congress for a limited time. Under certain conditions, the administration with a TPA is able to negotiate and sign multilateral, regional and bilateral trade agreements, and Congress must approve or disapprove these agreements as a whole without seeking modifications. The “$4 billion net gain per annum” was estimated by the study conducted by the Centre for International Economics (CIE 2001). Since the release of the report of the study, this figure was often quoted in arguments for the FTA with the United States. It had been reported many times in Australia that the U.S. farm lobbies were arguing that they would not accept significant opening up of the domestic agricultural market by an FTA with Australia. See, for instance, Weekend Australian, 3–4 August 2002 and Australian, 9 September, 1 October and 27 December 2002. Considering that the U.S. administration had to endorse the Farm Bill in 2002, which promised to provide a vast amount of subsidies to domestic farmers in exchange for acquiring the TPA from Congress, it was not hard to imagine that the negotiation on agriculture would be tough. For instance, Corish mentioned that NAFTA treated agricultural products differently from others, using different schedules for tariff reduction and tariff quotas for many products (Corish 2002). Interview with Policy Manager for Trade of the NFF (30 August 2002). In fact, the Australian Government was to face similar circumstances as well. If the government signed an FTA with the United States that was short

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25.

26.

27. 28.

29. 30. 31.

32.

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of what it asserted through the Cairns Group, its credibility as the leader of the Group would be seriously undermined. Even if it could conclude an FTA that was completely in line with the Group’s objectives, other members of the Group, especially those with which the United States did not intend to negotiate FTAs in the near future, might well feel betrayed. In this case, too, Australia’s leadership role would be weakened and so would the coherence of the Group. For instance, in 2002, the government did not allow foreign firms to acquire majority of equity in Woodside Petroleum, Telstra (former Australian Telecom) and Qantas (Australian, 14 August 2002). It also restricted foreign ownership of North West Shelf that operated LNG mining. The government reserved these restrictions in SAFTA as well. See DFAT (2003b, Annex 4-I [A], 4-II [A]). For instance, the Screen Producers Association of Australia argued that, without current protection and promotion, Australia’s film industry would be severely damaged by the flood of U.S. movies and that would cause harm to part of Australia’s culture. Australian, 27 December 2002. Interview with professors in economics at the Australian National University (2 and 5 September 2002). Regarding the deals on beef and dairy, Zoellick was reported to have explained in the U.S. Senate that: “we have an 18-year phase-out period that Prime Minister Howard personally was pushing to get lowered, which we didn’t lower. And it actually should work well with our industry … because we only increased the quota for manufactured beef”; “… frankly, in terms of dairy, I think we’ve increased our quota [but] didn’t touch the tariffs one bit, the … amount of about maybe $30 or $40 million a year”. Australian, 11 March 2004. See, for instance, Dee (2005). See, for instance, Weiss et al. (2004) and Capling (2005). Some political commentators saw this conditional support of the AUSFTA as ALP’s political ploy to enhance its chance of winning back the government in the next general election, which was expected to be held later in 2004. See for instance, “Latham scores some points on the FTA”, editorial, Weekend Australian, 7–8 August 2004. The ASEM process started in 1996 when the heads of governments of ten Asian states (ASEAN members, China, Japan and Korea) and fifteen EU members as well as the President of the European Commission gathered in Bangkok. The main aim of the process was to foster closer linkages between Asia and Europe, which were seen as less developed compared with trans-Atlantic and trans-Pacific relations. Since the inauguration, ministeriallevel frameworks in areas such as foreign affairs, finance, economy and

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33.

34.

35.

36.

37. 38. 39. 40. 41.

42.

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environment have been established. The Australian Government has been registering their interests in participating in the process. Howard’s “pre-emptive military strikes” statement was, in fact, made in the context of the U.S. counter-terrorism strategies. Nevertheless, as the statement was released just after the Bali bombings, Southeast Asian countries with Muslim populations reacted as if they were potential targets of Australia’s military actions (Wesley 2007b, pp. 58–59). For the purpose of preventing currency crises in the region, Japan proposed the establishment of the Asian Monetary Fund shortly after the outbreak of the crisis, only to be turned down by the IMF, the United States, China and others. The next response from Japan was the “New Miyazawa Plan” in October 1998, whose feature was bilateral financial cooperation, not aiming for the creation of a regional institution. Since the Ministerial Consultations shelved the AFTA–CER FTA initiative in 2000, the linkage dialogue itself carried on. The Ministerial Consultations in September 2001 endorsed a framework for the CEP; a year later, they set a target of doubling trade and investment by 2010 (AFTA–CER Ministerial Consultations 2002a) and they signed a Ministerial Declaration that included the initial work programmes for trade and investment facilitation (AFTA–CER Ministerial Consultations 2002b). After the reactivation of the ASEAN–Australia–New Zealand FTA initiative in 2004, the central agenda of the annual ministerial consultations became the progress of the FTA negotiations (interview with the Director of the Asia Trade Task Force, DFAT [Chief Negotiator for the ASEAN–Australia–New Zealand FTA], 9 November 2007). In recent years, the dialogue process is referred to as the “AEM–CER consultations” and the terminology “AFTA–CER linkage dialogue” is not often used. The full text of TAFTA is downloadable at the DFAT website (accessed 29 December 2007). Interview with the Director of the Asia Trade Task Force, DFAT (9 December 2007). The Informal ASEAN Summit authorized the request by signing a protocol. See ASEAN Summit (2000). Interview (21 November 2000). Interview (20 November 2000). Florence Chong, “Disharmony Mars ASEAN Meeting”, Australian, 29 November 2000. Malaysia’s assertion of the importance of ASEAN solidarity to the AFTA process, of course, contradicted its request to postpone the intra-regional tariff reduction schedule for automobiles. Indonesia followed suit in June 2005.

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43. In Australia, Mahathir’s retirement from the prime ministership in October 2003 was believed to be a major factor in the change of Malaysia’s attitude towards Australia. Interview with Director, Trade and Investment Liberalisation Section, Trade Development Division, DFAT (7 February 2005) and Executive Director, the ACCI (9 February 2005). 44. Interview with the Director of the Asia Trade Task Force, DFAT (9 December 2007). 45. See, for instance, Garnaut (2002, p. 135). 46. Interview with Director, Trade and Investment Liberalisation Section, Trade Development Division, DFAT (7 February 2005).

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8 Conclusion

Australia’s foreign economic policy towards ASEAN has changed considerably over the past thirty to forty years. The change has not only closely reflected the shifts in Australia’s overall foreign economic policy orientation but at times it also strongly drove those shifts. This chapter reviews the findings and insights of previous chapters. The implications for Australia’s foreign economic policy in the future are also raised. The chapter concludes with a remark that the bilateralist approach as the dominant strategy for Australia’s foreign economic policy is likely to continue for some time.

I. THE RISE AND FALL OF STATE-SOCIETY COALITIONS AND CHANGES IN AUSTRALIA’S ASEAN POLICY To explain the changes in Australia’s foreign economic policy towards ASEAN, the book focused on the evolution of state-society relations. By positing virtual coalitions among state and society actors with shared beliefs on policy ideas (perceptions of causal relationships between policy goals and the most effective policies for realizing those goals) as the

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core competitors in the policy process, this book’s approach facilitates a layered analysis of factors affecting Australia’s foreign economic policy and its ASEAN policy decisions.

Changes in the International Environment and Shifts in Australia’s Foreign Economic Policy An analysis of the foreign economic policy of a smaller state like Australia needs to begin by defining the international structure, or environment, within which the state has to operate. The core policy ideas of state-society coalitions are difficult to change. Yet changes in the international environment may induce replacement of a dominant coalition with another coalition, because such changes in the international environment can act as exogenous shocks that shake the perception of the validity of the dominant coalition’s policy ideas. The protectionists’ domination began to erode in the 1970s when the international economic structure changed drastically after the first oil crisis. The beginning of globalization of national economies was associated with a slide in Australia’s terms of trade from the mid1970s well into the 1980s. During this period, there was continued questioning of the effectiveness of Australia’s traditional economic policy strategy, which was characterized by “protection all round” and the institutionalized wage arbitration system that led to inflationary pressure and low productivity growth (thus, lower competitiveness) particularly in manufacturing. This growing realization of the nature of Australia’s problems led to the emergence of the trade liberalizers as an alternative policy coalition. Another substantial deterioration in Australia’s terms of trade in the early 1980s was the final blow to the dominance of the protectionists. The trade liberalizers replaced them as the dominant coalition in Australia’s foreign economic policy-making and, from the mid-1980s, gradually introduced unilateral liberalization and deregulation of the domestic economy and actively promoted the process of multilateral trade and investment liberalization. The stagnation of multilateral and regional liberalization initiatives in the latter half of the 1990s undermined the belief in the effectiveness of unilateral and multilateral liberalization policies that formed the core of the trade liberalizers’ policy ideas. In these circumstances, some of Australia’s economic partners, such as Singapore and New Zealand, as

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well as Japan and Korea, who had previously avoided discriminatory trade arrangements, began to adopt bilateral FTAs as their trade strategy. Yet an initiative to establish an FTA among ASEAN members, Australia and New Zealand was shelved in 2000. These developments impacted on Australia’s coalitional setting and allowed the rise of the bilateralists, who preferred short-term, concrete and reciprocal economic gains from Australia’s foreign economic policy.

Changes in ASEAN Policy These changes in the international environment help in some measure to explain the shifts in Australia’s foreign economic policy in general terms. But they are not sufficient to explain the nature, timing and extent of the shifts. Changes in the international environment do not force states to adopt any particular policy at any particular time. Rather, they create opportunities for changes in dominant coalitions. Detailed examination of the core policy ideas of state-society coalitions and the evolution of the settings in which they came to have influence are needed to explain fully how and when changes in international circumstances mattered, especially in relation to Australia’s policy towards ASEAN.

a) The Protectionists’ ASEAN Policy Protectionist dominance of foreign economic policy led to Australia’s maintaining a contradictory stance towards the Southeast Asian region after World War II. On the one hand, Australia needed stability in the region for its own security so it assisted the newly independent states politically, militarily and economically. On the other hand, Australia was also determined to maintain its “protection all round” policy. When the countries in Southeast Asia became economically prosperous and the region stable as Australia wished for, it would become difficult for Australia to maintain its protectionist policies because those states were likely to have demanded of Australia better market access for their exports. Yet this potential “dilemma” did not emerge as a serious problem until the 1970s because economic transactions between Australia and Southeast Asian economies remained small before that time. The emergence of economic globalization in the 1970s saw rapid growth of the ASEAN economies, along with Asian NIEs, following

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in the footsteps of Japan. The ASEAN economies began to grow by adopting more trade-oriented policies, whereas in earlier periods they tended to employ import-substitution as their national development strategies. The development of the ASEAN economies during this period expanded the economic dimension in Australia’s relations with Southeast Asia. ASEAN economies continued to grow rapidly in the 1980s, driven by the major realignment of exchange rates of individual East Asian currencies in the middle of the decade. The flow of FDI from Japan and NIEs into ASEAN members gained momentum. The FDI inflows boosted ASEAN growth and brought significant changes in their economic and trade structures. Based on members’ confidence in the management of the organization and national economies, ASEAN as a whole demanded better market access of Australia for its members’ newly competitive labour-intensive exports. Yet the Fraser Government (1975–83) did not and could not accept ASEAN’s demands. The government also did not share ASEAN interpretation of the implications of regional events such as the end of the Vietnam War and the subsequent communist takeover in the Indochinese states, and ASEAN intentions to accommodate all Southeast Asian states within the organization in the future. The Australian Government’s perception of global and regional events was informed principally by the protectionists’ understanding of international society and their policy ideas, which were still dominant at the time. The latter half of the 1970s was, therefore, a period of continuous economic disputes between Australia and ASEAN. In this period, the contradictory nature of Australia’s ASEAN policy was fully exposed.

b) The Trade Liberalizers’ ASEAN Policy By the end of the 1970s, the argument that the Australian economy needed to take advantage of its rapidly growing northern neighbours in order to pull itself out of lingering recession gained strength. To do that, the economy needed reform of its industrial structure to make it receptive to the changing demands of East Asian economies. The advocates of this view were not satisfied with the Fraser Government’s handling of Australia’s economic relations with ASEAN. Their view was incorporated into that of the anti-protectionist forces who demanded the structural reform of the domestic economy through liberalization

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and deregulation. During the 1980s, the Hawke Government (1983–91), backed by the now dominant trade liberalizers, decisively shifted Australia’s foreign economic policy from traditional protectionism to liberalization and deregulation. This shift effectively resolved the dilemma in Australia’s ASEAN policy. To underpin its efforts at reform, the Hawke Government sought multilateral trade and investment liberalization. It set the successful conclusion of the Uruguay Round as its key foreign economic policy priority. ASEAN members, who had also started the gradual implementation of unilateral trade and investment liberalization measures from the latter half of the 1980s, found the maintenance and promotion of the GATT regime imperative for their trade-oriented economic development objectives as well. Common interests in international economic relations emerged between Australia and ASEAN. The Hawke Government pursued closer economic relations with East Asian economies through regional cooperation in the Asia Pacific and aimed to utilize regional cooperation as a catalyst for multilateral trade and investment liberalization. In other words, the government adopted “Asia-Pacific regionalist strategies”. Based on their emerging common interests and the fact that ASEAN had developed into a prominent regional organization, the government saw ASEAN and its members as crucial partners in economic diplomacy. The Cairns Group and APEC initiatives were two major success stories of the government’s “middle-power” economic diplomacy and it was notable that ASEAN and its members played vital roles in both cases. The middle-power diplomacy employed by the ALP Government in this period was based on a much more liberal understanding of international society than that of the previous Fraser Government. Keating, who succeeded Hawke as Prime Minister in 1991, observed that: “the drag out/knock down approach to trade negotiations has surely reached the end of its useful life in an environment where almost every country in the world, rather than just a handful of industrialised countries, has a stake in global trade” (Keating 1996, pp. 19–20). These recognitions were in contrast with the protectionists’ realist worldview, which was generally sceptical and pessimistic about the possibility of realization, and the effectiveness, of multilateral cooperation. Cooperation with ASEAN through middle-power diplomacy was possible also because there had been a change in the perception of

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how Australia should relate to ASEAN and its members. The Hawke Government and the Keating Government (1991–96), backed by the trade liberalizers, saw that Australia’s national interests — political, strategic, economic and cultural — coalesce strongly in East Asia in general and ASEAN in particular. Thus, Australia had to find a place and role there. By declaring its “comprehensive engagement with Southeast Asia” in 1989, the government set ASEAN as the “front gate” of its foreign policy towards East Asia. In the early 1990s, ASEAN responded to new economic challenges, the emergence of China, Vietnam and some other East European economies as rivals in FDI destinations and the growing inward-looking tendencies of European and North American economies, with its own regionalist strategy manifested in the commencement of the AFTA process in 1993. For the Keating Government and the private sector, ASEAN’s intention to create AFTA was of particular concern. The government sought some kind of economic cooperation framework that would encourage ASEAN to reinforce an open and non-discriminatory approach to liberalization. These efforts culminated in the establishment of a continuous dialogue process: the “AFTA–CER linkage dialogue”.

c) The Bilateralists’ ASEAN Policy By the mid-1990s, public uneasiness about the trade liberalizers’ conviction of the “inseparability” of Australia’s and East Asia’s future prosperity and, thus, the “inevitability” of Australia’s political and economic engagement with the region was growing. Against this backdrop, the election of the Liberal/National Government in 1996 saw the beginning of another shift in Australia’s foreign economic policy and its ASEAN policy. From its early period in power, the Howard Government sought to “rebalance” Australia’s foreign economic policy and stress the importance of bilateral relations especially those with traditional “Western” allies such as the United States and the United Kingdom. The stagnation of the Japanese economy throughout the “lost decade” of the 1990s and the Asian financial crisis that deeply affected most ASEAN economies and Korea in the late 1990s made the “East Asian miracle” obsolete and eroded trust in the perceptions of East Asia and ASEAN associated with the trade liberalizers. The fact that the Australian economy was

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virtually unaffected by the financial crisis and grew strongly in the late 1990s, along with Australia’s commitments to the process of East Timor’s independence and the war against terrorism in the region, provided the Howard Government with strong confidence in Australia’s political and economic institutions. By the late 1990s, the government recognized that the AFTA–CER linkage dialogue was unable to produce timely and concrete results, and the initiative to create an AFTA–CER FTA was shelved in 2000. These led the government to develop a bilateralist foreign economic policy towards ASEAN. The government placed less emphasis on relations with ASEAN as a whole and more on bilateral relations with individual members that were ready and willing to establish closer links with Australia. Seeking “competitive liberalization” through bilateral FTAs meant the adoption of the “divide and conquer” approach. As ASEAN members were indeed divided in their stances towards extra-regional trade and investment liberalization after the financial crisis, the Howard Government could effectively capitalize on the circumstances.

A Shift in Foreign Economic Policy Requires a Relatively Long Time Analysis of the evolution of the landscape of Australia’s policy coalitions also enables the explanation of the timing of policy shifts. The book explained how the changes in dominant coalitions did not immediately or automatically follow changes in governments. The changes in governments were important exogenous shocks to power relations between coalitions, but this alone did not necessarily induce a change in foreign economic policy. Rather, replacement of one coalition with another took a relatively long time though changes in the international circumstances suggested that the realignment of policy coalitions and shifts in Australia’s foreign economic policy were necessary. New governments with new sets of policy ideas needed to mobilize enough support from society actors such as business and industry organizations and trade unions in order to realize newly preferred policies. At times, they also relied on other external developments (exogenous shocks) to validate their policy ideas (or to invalidate traditional policy ideas). The Whitlam Government (1972–75) had hastily attempted to redirect Australia’s overall foreign policy orientation in the early

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1970s. The changes it initiated were an effort to adapt to changes in the international environment, illustrated by a significant reduction in the UK and U.S. military presence in the Southeast Asian region and improved U.S.–China relations. The government argued for the need to reject the traditional Cold War mentality and to place more emphasis on economic relations than on political and security issues in Australia’s general foreign relations. In the ASEAN context, the Whitlam Government actively involved itself and participated in consultation arrangements with ASEAN, abolished the White Australia policy which was a lingering obstacle to better relations with ASEAN members and expanded the product coverage of the ASTP, Australia’s preferential trade scheme for developing economies, in order to promote imports. Although introduced essentially as counter measures to inflationary pressure, the devaluation of the Australian dollar and the 25-per-cent across the board tariff reduction may be interpreted as first attempts to alter Australia’s traditional protectionism. Yet, mainly as a result of the world recession after the first oil crisis that considerably worsened Australia’s terms of trade, inflation and unemployment, the Whitlam Governments’ efforts to redirect Australia’s foreign policy in general and ASEAN policy in particular turned out to be short-lived. The government’s rather “statist” approach did not mobilize enough support from the still dominant protectionists. Although policy actors who opposed protectionist policies already existed then, their influence on the foreign economic policy process remained relatively weak. As economic conditions continued to deteriorate in the 1970s, major society actors such as business and industry organizations increasingly recognized the need for structural reform of the domestic economy. Nevertheless, they lacked critical allies in, and effective channels to, the primarily protectionist Fraser Government. Since around 1980, the dry movement that urged the introduction of market-oriented economic policies had emerged even within the Liberal Party. Under pressure, the government introduced minor adjustments to its protectionist policies but it did not adopt a foreign economic policy that denied the core elements of the protectionists’ policy ideas. The Hawke Government’s ascendancy to power in 1983 came at the same time as there was a massive decline of Australia’s terms of

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trade in the early 1980s, on top of the almost a decade-long slump of the Australian economy. Thus, from the outset, the Hawke Government enjoyed the “favourable” environment of a crisis in which to implement pro-market policies. Yet the Hawke Government needed to establish a national consensus on reform of the domestic economic policies. The government secured the ACTU’s support mainly through the Accord. It organized a National Economic Summit to mobilize support from various state and society actors. It took these intensive efforts for the trade liberalizers to establish themselves firmly as the dominant policy coalition. The original deterioration of Australia’s terms of trade occurred in the mid-1970s. It indicated the end of the commodities boom and heralded the subsequent change in the international economic environment. After that, Australia’s terms of trade did not improve for more than ten years. The fact that it took more than ten years to implement a decisive shift in foreign economic policy suggests the tenacious nature of the protectionists’ policy ideas. The shift in foreign economic policy required a change in the dominant coalitions and it took quite a while for the trade liberalizers to replace the protectionists. The Liberal and National Parties’ victory in the 1996 general election was partly backed by public disquiet and uneasiness about the policy strategy of the Hawke and Keating Governments. The more than decade-long implementation of economic reform led to reform-fatigue. Public disquiet about the “Asianisation of Australia” had grown. In the hope of taking advantage of this public atmosphere, the Howard Government announced in 1997 that it would embark on a new bilateralist foreign economic policy with emphasis on relationships with states outside East Asia. Although some policy actors responded favourably, others did not accept the credibility of the Howard Government’s policy ideas initially. The legacy of multilateral and regional approaches on an MFN basis by the Hawke and Keating Governments, such as through the Uruguay Round and APEC, had been positive and the Howard Government chose to inherit it for the time being. It was only after external circumstances began to impact more deeply on the alignment of policy coalitions in the late 1990s that the government’s bilateralist policy preferences began to be shared by major policy actors.

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II. IMPLICATIONS FOR AUSTRALIA’S FOREIGN ECONOMIC POLICY IN THE FUTURE What are the implications of this analysis for Australia’s foreign economic policy and its ASEAN policy in the future?

The Strengthening Foundation of the Bilateralists The bilateralists’ policy ideas are based on a sceptical view of the ability of multilateral and regional organizations to deliver Australia’s interests. This view was strengthened by the turn of the century through the failure of APEC to carry its EVSL initiative forward and the failure of the WTO Ministerial Conference in 1999 to launch a new round of trade negotiations. The bilateralist policy was also based on the government’s and the private sector’s confidence in “strong and dynamic” domestic economic institutions (Commonwealth of Australia 2003, p. 128). Are there likely to be any significant international developments or developments within Australia that would shake the bilateralists’ beliefs in its policy ideas? While the Doha Round (the Doha Development Agenda) was launched through the WTO in November 2001, Australia, the EU, Japan and the United States have been unable to find agreement on the agricultural trade issue. The emergence of developing members, such as Brazil, China and India, as influential actors has added another difficult aspect to the progress of the negotiations. They have demanded the application of “special and differential treatment” for developing economies in almost every area of negotiations, but their demands have not necessarily been acceptable to developed members. After two years since the launch of the Round, the WTO Ministerial Conference in Cancún in September 2003 could not confirm substantial progress of the negotiation. By mid-2006, the Doha Round was “hanging by a thread” (Vaile 2006b) and the negotiations were suspended between July 2006 and February 2007. While many of the disputed issues appeared to have been resolved once the negotiations resumed, several issues were left unsolved, including the level of reduction of U.S. domestic agricultural subsidies and the developing members’ conditions for the implementation of safeguard measures. The Ministerial Conference in July 2008 could not reach agreement on a liberalization framework. It

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now appears difficult to anticipate results of the Doha Round, if any, that will satisfy Australia’s original expectations. Meanwhile, most East Asian economies have continued to recover from the Asian financial crisis. In the process, they have also continued to promote East Asian economic integration in the form of the ASEAN Plus Three (APT) process that excluded Australia. In these circumstances, the bilateralists’ foreign economic policy towards the region has had the effect of institutionally engaging the Australian economy with the region. Australia has established the “beachheads” through bilateral FTAs with Singapore and Thailand. In 2007, FTA negotiations were underway with Malaysia, China, ASEAN as a whole and Japan, and joint studies were being conducted with Korea and Indonesia. The Howard Government and the private sector saw that economic opportunities in East Asia were fully covered by these FTAs and so thought there was little cause for concern even if Australia were still excluded from the East Asian economic integration process (in the form of an East Asian FTA).1 Since the Howard Government began to pursue its bilateralist foreign economic policy, the Australian economy has generally been performing strongly. Since 2000, Australia’s annual GDP in real terms grew at the pace between 2.5 per cent and 4 per cent. The value of Australia’s total exports suffered negative growth in 2002 and 2003 partly because of factors such as the worst drought in the eastern part of Australia in a hundred years, weak world demand for tourism and fresh food exports due to the spread of Severe Acute Respiratory Syndrome (SARS) and the appreciation of the Australian dollar, but they picked up strongly in 2004 and 2005, recording 8 per cent and 18 per cent growth respectively (Commonwealth of Australia 2004, 2005, 2006). Simple observation of trade data shows that Australia’s good export performance in recent years did not result from its FTAs.2 As mentioned above, the total value of Australia’s merchandise exports grew by 18 per cent in 2005 over the previous year. While, in the same year, its exports to Singapore and Thailand, two of its FTA partners, grew by 22 per cent and 35 per cent respectively, exports to the United States, the other FTA partner, decreased by 3 per cent. In 2006, Australia’s total exports grew by 17.6 per cent but the growth rates of exports to these FTA partners could not keep up with the pace of growth in total exports: exports to Singapore grew by 15.2 per cent, to Thailand

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by 3.6 per cent and to the United States by 8.7 per cent. As a result, the share of these FTA partners in Australia’s total exports dropped from 12.5 per cent (Singapore 2.8 per cent, Thailand 3 per cent and the United States 6.7 per cent) in 2005 to 11.6 per cent (Singapore 2.8 per cent, Thailand 2.6 per cent and the United States 6.2 per cent) in 2006. Rather, other explanations are more persuasive, such as the energy and minerals boom triggered by growing demand from developing economies, in particular China and India with which Australia was yet to sign FTAs,. The growth rate of Australia’s exports to China was 46.4 per cent in 2005 and 26.3 per cent in 2006. The same figure for India was 28.5 per cent in 2005 and 26.4 per cent in 2006. The value of exports to these two economies occupied 16.6 per cent of Australia’s total exports in 2005 and it increased to 17.9 per cent in 2006. The coincidence of the two events — good performance of the Australian economy, particularly its exports, in the mid-2000s, and the implementation of bilateralist foreign economic policy, — nonetheless, have reinforced the bilateralists’ argument about the validity of their policy ideas.3 The NFF, which represents the domestic agricultural sector, is one of the actors that might be expected to oppose the bilateralists as it did not get what it expected from the FTA with the United States (AUSFTA). It also rediscovered the fact that trade distorting problems in agriculture such as domestic support and export subsidies cannot be solved by bilateral deals. In fact, the NFF has been asserting that it still sees the WTO as the “main game”.4 Yet, since the AUSFTA, it basically endorsed FTAs as a trade policy option and does not oppose the government entering into FTA negotiations. The NFF’s main concern has shifted to the volume of government resource allocation to the Doha Round. When the negotiations of the AUSFTA were going on, the Labor opposition was concerned that it would send a signal to East Asian states that Australia was now seeking closer economic relations outside the region and argued that Australia should negotiate FTAs with East Asian countries, especially China. But entering into FTA negotiation with China was exactly what the Howard Government did after the AUSFTA. Having endorsed all bilateral FTAs, including AUSFTA, that the Howard Government negotiated, it appears difficult for the ALP at this time to oppose the basic policy ideas of the bilateralists.

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Uncertainty of the International Environment and the Persistent Nature of Policy Ideas Under these circumstances, uncertain factors, such as how the real benefits of FTAs will be recognized by state and society actors and how the East Asian economic integration process and multilateral liberalization negotiations develop henceforth, may disturb the bilateralists and their policy ideas over the longer term.

a) Recognition of the Real Benefits of FTAs It is not at all clear whether bilateral FTAs will actually produce the economic gains that the Howard Government insisted they would and that the private sector expected. The Howard Government boasted that growth of exports to some FTA partners contributed to the growth of total exports. For instance, as shown earlier, merchandise exports to Thailand grew by 35 per cent in 2005 and those to Singapore grew by 22 per cent in the same year, thanks mainly to the increase in commodity prices. Yet merchandise exports to the United States, the partner from which the bilateralists expected most economic benefits, decreased by 3 per cent in 2005. This figure was at odds with the prediction made in an official study on the effect of the AUSFTA, which predicted it would lift Australia’s exports to the United States in the first year by around 10 per cent (Age, 20 August 2005). U.S. foreign investment into Australia also fell in 2005 by 10 per cent over previous year. On top of Trade Minister Vaile’s admission immediately after the conclusion of the negotiations that the AUSFTA had been “oversold” (Age, 12 February 2004), there was a growing recognition in the public that FTAs in general are more about national security and politics than they are about trade policy (Age, 7 January 2006).

b) Australia’s Leadership in Multilateral Economic Diplomacy Australia appears to have lost its relative “middle-power” leadership strength in multilateral trade diplomacy. The reason for its declining international leverage cannot be attributed to Australia’s activities alone, but its “successful” bilateralist policy seems to be one of the factors.

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At the Uruguay Round, Australia led the Cairns Group by concentrating members’ policy interests on agricultural trade, by setting sensible goals in negotiations between the EU and the U.S. extremes, and by maintaining the cohesion of the Group that included accommodation of developing members’ demands. However, Australia’s pursuit of bilateral deals, especially the conclusion of the AUSFTA, seems to have undermined its credibility as the leader of the Cairns Group. In the AUSFTA, the government (and effectively the agricultural sector) conceded that agriculture should be treated differently from manufacturing (Capling 2005, p. 82). The Howard Government claimed that it was putting no less effort into the Doha Round than its predecessor did into the Uruguay Round (Commonwealth of Australia 2003, p. 53). Yet the emergence of the Group of 20 (G20)5 clearly overshadowed the Cairns Group at, and after, the WTO Ministerial Conference held in Cancún in September 2003 (Ravenhill 2007, p. 209). The fact that all G20 members are developing economies and more than half of them, such as Argentina, Brazil, Chile, Indonesia, Pakistan, the Philippines, South Africa and Thailand, are also members of the Cairns Group indicate that these states were to some extent dissatisfied with the Cairns Group’s reluctance to accommodate their “southern” stance in trade negotiations (Motta Veiga 2005, p. 110). Indeed, Brazil, one of the initiators of the G20, saw that the Cairns Group had run out of steam (Motta Veiga 2005, p. 114). If Australia is to address trade distortions in agriculture such as domestic support and export subsidies which cannot be effectively dealt with through bilateral FTAs, it needs to find some way to reactivate multilateral trade negotiations in the short term and needs to seek to rebuild the WTO regime in the longer term.

c) The International Environmental Factors behind the Success of Australia’s Bilateralist Policy Australia’s “successful” bilateralist policy in East Asia should be seen not only from the perspective of its active pursuit of competitive liberalization through bilateral FTAs but also from the perspective of the delicate and sometimes unstable relations among East Asian states. The Asian financial crisis was exacerbated as the market perception spread instantly around the region and the world that financial systems

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in Thailand, Indonesia, Korea and other countries were extremely vulnerable. The lesson learnt by the East Asian Governments which experienced severe capital flight was that, to realize stable management of the national economy, it is crucial to restore and maintain market confidence regarding the quality of economic governance (Wesley 2007b, p. 63). In addition, the Southeast Asian region has increasingly been seen as one of the main areas for international terrorists’ operations since the September 11 attacks in the United States, and this factor has propelled the governments of ASEAN members to recognize the urgent need to enhance their political and economic governance capabilities and demonstrate them to the world (Wesley 2007a, pp. 101–12). The governments of ASEAN members sought every opportunity to rebuild their reputations for stable governance and secure investment conditions. After the signing of the FTA with Singapore in 2000, Thailand and Malaysia agreed to negotiate bilateral FTAs with Australia. Each of the five original ASEAN members signed a Memorandum of Understanding on Counter-Terrorism with Australia between 2001 and 2005. Furthermore, Indonesia revived a bilateral security agreement with Australia which it had unilaterally abandoned in the midst of the East Timor independence process, and thus the Agreement between the Republic of Indonesia and Australia on the Framework for Security Cooperation was signed in November 2006. This bilateral security treaty now covers cooperation in non-traditional security issues, such as smuggling and trafficking in persons, money laundering, counter-terrorism, corruption and cyber-crimes. The shared feature of all these developments is that ASEAN members have used cooperation with Australia to help improve their overall political and economic governance. Also, Howard was invited to the inaugural East Asia Summit not exclusively because Australia and its economy are important for the region. Since the realization of an East Asian “community” appeared on the APT agenda in 2001 as a long-term goal, China, Malaysia, Myanmar and some others who wanted to avert external influences on the community-building process argued that membership should be limited to the participants in the APT process (ASEAN members, China, Japan and Korea). Japan, on the other hand, maintained that East Asian cooperation should be expanded to include Australia and New Zealand which had been Dialogue Partners of ASEAN since the

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mid-1970s and had substantial political and economic relations with East Asian countries. Japan did this partly because it wished to allay the impression of an exclusive community, taking into account the U.S. response to its formation.6 More importantly, though, it was also because Japan was concerned with the possible domination of the community-building process by China with which it did not share basic values such as democracy, rule of law, human rights and market economy.7 As Japan saw such values, along with “openness” and “inclusiveness”, as the principles for community building in East Asia (MOFA 2006, p. 61), it wished Australia and New Zealand, who shared these values more than other East Asian states, to be involved in the regional community-building process. In varying degrees, Indonesia, Singapore, Vietnam and some others shared the Japanese concern about Chinese influence. The end result of extending invitations to Australia, New Zealand and India, but not to Russia and the United States, to the East Asia Summit was a compromise between these two groups. Similarly, ASEAN’s decision to negotiate an FTA with Australia and New Zealand needs to be interpreted not only from the bilateralists’ perspectives but also from the perspective of ASEAN’s intention to maintain its relevance as the core element in the architecture of East Asia. As it was in the APEC process, ASEAN as a whole is concerned about the marginalization of the organization in the process of East Asian cooperation, integration and community building. While it was reiterated at the APT and East Asia Summits in 2005 that “ASEAN integration and the ASEAN Community” were the important basis of an East Asian community (APT Summit 2005b; East Asia Summit 2005), ASEAN has been trying to balance the influence of powers in the region, namely China and Japan, in the APT process. This has been expressed in its efforts not only to establish FTAs with China, Japan and Korea concurrently but also to negotiate FTAs with extra-regional states such as India, Australia and New Zealand and the EU. ASEAN has also expressed its intention to negotiate FTAs with the United States in the near future (Nihon Keizai Shimbun, 18 November 2005 and 9 September 2006). Further, the development of the APT process will not necessarily guarantee Australia’s place in an East Asian community. The 2005 APT Summit declared that “ASEAN Plus Three process will continue to

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be the main vehicle in achieving that goal [of realizing an East Asian community]” (APT Summit 2005b, italics added), while the Declaration of the East Asia Summit simply stated that the East Asia Summit “could play a significant role in community building in this region” (East Asia Summit 2005, italics added).

The Prospects for Australia’s Foreign Economic Policy after the Change in Government The above uncertainties may require that Australia adjust its foreign economic policy again. Yet, as suggested before, the stagnation of multilateral trade and investment liberalization is likely to reinforce the bilateralists’ sceptical view of the ability of multilateral organizations to deliver. The bilateralists see the realization of East Asian economic integration, let alone an East Asian community, as a long-term project with many hurdles to be cleared in the process.8 And they do not see the East Asia Summit as a substitute for important bilateral relations in the region or the APEC framework. The book explained that, in Australia, replacement of a dominant coalition with another and subsequent shifts in foreign economic policy took a relatively long time and they did not follow a change in government immediately or automatically. Thus, the analysis in the book suggests that it is also likely to require a relatively long time if Australia is to change the bilateralist approach in its foreign economic policy it has developed over the last ten years or so. In the general election held in November 2007, the Howard Government lost by a large margin and the ALP, led by Kevin Rudd, came to power for the first time in eleven years. As has happened in the past, this change in government may act as a shock to the landscape of Australia’s policy coalitions. Since taking office in December 2007, Minister for Trade Simon Crean has often stressed that the Rudd Government’s foreign economic policy is centred on multilateral approaches and has emphasized that the government’s first priority is the early conclusion of the Doha Round (Crean 2007, 2008a). In addition, the Rudd Government formed a committee to review the previous government’s export policies comprehensively and make policy recommendations in February 2008 (Crean 2008b). Furthermore, in June 2008, Prime Minister Rudd himself raised an “Asia-Pacific Community”

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proposal and has adopted a stance that emphasizes the importance of multilateral cooperation in the region (Rudd 2008). On the other hand, nevertheless, there has been no change from the previous government in the attitude towards seeking bilateral FTAs with China, Japan, ASEAN, Korea and India (Crean 2008c, 2008d, 2008e, 2008f ). The Rudd Government concluded bilateral FTA negotiations with Chile in May 2008 and signed the agreement in July. If the Rudd Government is to shift Australia’s foreign economic policy significantly, it will require further exogenous shocks to policy coalitions that shake the perception of the effectiveness and the validity of the bilateralists’ policy ideas. Yet, even if uncertainties about the economic benefits of FTAs, the development of multilateral negotiations and East Asian economic integration, or adverse developments in the Australian economy reach the point where they strongly suggest that a shift in Australia’s foreign economic policy is necessary, there would likely be a considerable lag in the adjustment of the policy position.

Notes 1. Interview with the Director of the Trade and Investment Liberalisation Section, APEC Task Force 2007, DFAT (7 November 2007); the Director of the China FTA Task Force, DFAT (Chief Negotiator for the China FTA) (9 November 2007); and the Executive Director, the ACCI (7 November 2007). 2. Trade data used in this paragraph were obtained from the Australian Bureau of Statistics website (accessed 30 March 2007). 3. Interview with the Director of the Trade and Investment Liberalisation Section, APEC Task Force 2007, DFAT (7 November 2007). One of the Executive Directors of the ACCI stated that the ACCI was fully satisfied with the Howard Government’s FTA policy and it actively supported the government on this issue. He also indicated that, considering that more than 350,000 companies from various industrial sectors covering all states were members of the ACCI, it could be seen that Australian business as a whole was generally satisfied with the Howard Government’s foreign economic policy (interview, 7 November 2007).

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4. Interview with Trade Advisor, the NFF (16 February 2005). See also Annual Reviews of the NFF in recent years, downloadable from the NFF website . 5. In mid-2006, G20 comprised twenty-one members: five from Africa (Egypt, Nigeria, South Africa, Tanzania and Zimbabwe), six from Asia (China, India, Indonesia, Pakistan, the Philippines and Thailand) and ten from Latin America (Argentina, Bolivia, Brazil, Chile, Cuba, Guatemala, Mexico, Paraguay, Uruguay and Venezuela). 6. In May 2005, Japan suggested that the United States should be invited to the East Asia Summit as an observer. Nihon Keizai Shimbun, 8 December 2005. 7. In a document released in October 2002 (MOFA 2002), Japan’s Ministry of Foreign Affairs had already stated: “There is no question for Japan as well as for the stable development of the region as to the importance of building an economic system in East Asia led by Japan’s initiative” (italics added). 8. Interview with officials of the Trade Development Division, DFAT (7 and 11 February 2005) and the Director, Trade and International Affairs, the ACCI (15 February 2005).

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Appendix: Foreign Economic Policy-Related Ministers in Australia since 1941 Prime Minister

Minister for External/ Foreign Affairs

Minister for Commerce and Agriculture

Minister for Trade and Customs

Treasurer

ALP

J. Curtin (Oct. 1941–Jul. 1945) F. M. Forde (Jul. 1945) J. B. Chifley (Jul. 1945–Dec. 1949)

H. V. Evatt (Oct. 1941–Dec. 1949)

W. J. Scully (Oct. 1941–Nov. 1946) R. T. Pollard (Nov. 1946–Dec. 1949)

R. V. Keane (Oct. 1941–Jun. 1946) J. M. Fraser (Jun.–Nov. 1946) B. Courtice (Nov. 1946–Dec. 1949)

J. B. Chifley (Oct. 1941–Dec. 1949)

Liberal/ Country

R. G. Menzies (L) (Dec. 1949–Jan. 1966) H. E. Holt (L) (Jan. 1966–Dec. 1967) J. McEwen (C) (Dec. 1967–Jan. 1968) J. G. Gorton (L) (Jan. 1968–Mar. 1971) W. McMahon (L) (Mar. 1971–Dec. 1972)

P. C. Spender (L) (Dec. 1949–Apr. 1951) R. G. Casey (L) (Apr. 1951–Feb. 1960) R. G. Menzies (L) (Feb. 1960–Dec. 1961) G. E. J. Barwick (L) (Dec. 1961–Apr. 1964) P. M. C. Hasluck (L) (Apr. 1964–Feb. 1969) G. Freeth (L) (Feb. 1969–Nov. 1969) W. McMahon (L) (Nov. 1969–Mar. 1971)

J. McEwen (C) (Dec. 1949–Jan. 1956)

M. N. O’Sullivan (L) (Dec. 1949–Jan. 1956)

A. W. Fadden (C) (Dec. 1949–Dec. 1958) H. E. Holt (L) (Dec. 1958–Jan. 1966) W. McMahon (L) (Jan. 1966–Nov. 1969) L. H. E. Bury (L) (Nov. 1969–Mar. 1971) B. M. Snedden (L) (Mar. 1971–Dec. 1972)

Minister for Trade J. McEwen (C) (Jan. 1956–Dec. 1963) Minister for Trade and Industry J. McEwen (C) (Dec. 1963–Feb. 1971) J. D. Anthony (C) (Feb. 1971–Dec. 1972)

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L. H. E. Bury (L) (Mar. 1971–Aug. 1971) N. H. Bowen (L) (Aug. 1971–Dec. 1972) ALP

Liberal/ National Country

E. G. Whitlam (Dec. 1972–Nov. 1975)

J. M. Fraser (L) (Nov. 1975–Mar. 1983)

E. G. Whitlam (Dec. 1972–Nov. 1973) D. R. Willesee (Nov. 1973–Nov. 1975)

A. S. Peacock (L) (Nov. 1975–Nov. 1980) A. A. Street (L) (Nov. 1980–Mar. 1983)

Minister for Overseas Trade J. F. Cairns (Dec. 1972–Dec. 1974) F. Crean (Dec. 1974–Nov. 1975)

J. D. Anthony (NC) (Nov. 1975–Dec. 1977) Minister for Trade and Resources J. D. Anthony (NC) (Dec. 1977–Mar. 1983)

E. G. Whitlam (Dec. 1972) F. Crean (Dec. 1972–Dec. 1974) J. F. Cairns (Dec. 1974–Jan. 1975) W. G. Hayden (Jan.–Nov. 1975) P. R. Lynch (L) (Nov. 1975–Nov. 1977) J. W. Howard (L) (Nov. 1977–Mar. 1983)

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Prime Minister ALP

R. J. L. Hawke (Mar. 1983–Dec. 1991) P. J. Keating (Dec. 1991–Mar. 1996)

Minister for Foreign Affairs W. G. Hayden (Mar. 1983–Jul. 1987)

Minister for Trade L. F. Bowen (Mar. 1983–Dec. 1984) J. S. Dawkins (Dec. 1984–Jul 1987)

Minister for Foreign Affairs and Trade W. G. Hayden (Jul. 1987–Sep. 1988) G. J. Evans (Sep. 1988–Mar. 1993)

Minister for Trade Negotiations M. J. Duffy (Jul. 1987–Apr. 1990) N. Blewett (Apr. 1990–Feb. 1991) Minister for Trade and Overseas Development N. Blewett (Feb.–Dec. 1991) J. C. Kerin (Dec. 1991–Mar. 1993)

Minister for Foreign Affairs G. J. Evans (Mar. 1993–Mar. 1996)

Minister for Trade

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P. F. S. Cook (Mar. 1993–Jan. 1994) R. F. McMullan (Jan. 1994–Mar. 1996)

Treasurer P. J. Keating (Mar. 1983–Jun. 1991) J. C. Kerin (Jun.–Dec. 1991) R. Willis (Dec. 1991) J. S. Dawkins (Dec. 1991–Dec. 1993) R. Willis (Dec. 1993–Mar. 1996)

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Liberal/ National

J. W. Howard (L) (Mar. 1996–Dec. 2007)

A. J. G. Downer (L) (Mar. 1996–Dec. 2007)

T. A. Fischer (N) (Mar. 1996–Jul. 1999) M. A. J. Vaile (N) (Jul. 1999–Aug. 2006) W. E. Truss (N) (Aug. 2006–Dec. 2007)

P. H. Costello (L) (Mar. 1996–Dec. 2007)

ALP

K. M. Rudd (Dec. 2007–)

S. F. Smith (Dec. 2007–)

S. F. Crean (Dec. 2007–)

W. M. Swan (Dec. 2007–)

Notes:

(L) denotes a member of the Liberal Party. The Country Party (C) was renamed the National Country Party (NC) in 1975, then became the National Party (N) in 1982. Source: Websites of various departments of the Australian Government and the National Library of Australia.

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Index

A AAECP, 128 Abdul Razak, Tun Haji, 128 Abdurrahman Wahid, 238 Accord, 92 social contract on wages and prices, 69, 70 advocacy coalitions, 27, 28 AFTA-CER, 11 AFTA-CER Business Council (ACBC), 190 AFTA-CER CEP, progress in 2000s, 237 AFTA-CER FTA postponement of initiative, 215 study proposal from ASEAN, 213, 214 AFTA-CER linkage dialogue, 181–96, 184 modality, 190 origin of dialogue, 189 reasons for slow realization of economic benefits, 194–96 recommendations for improvements, 194 AFTA-CER Ministerial Consultations, 12, 193, 245

11 AFEP&Aindex.indd 298

Agreement on Commerce with Japan, 45, 89, 159 Agreement between the Republic of Indonesia and Australia on the Framework for Security Cooperation, 261 agricultural base ASEAN members, 147 agricultural exporter, 101 agricultural products, unprocessed, 200 agricultural sector policy reform in, 56 realignment of, 61 agriculture FTA with United States, 223 Ali Alatas, 156 Angkor Agenda, 214 Anthony, Doug, 121 anti-protectionist forces, pressure from, 133 ANZUS treaty, 20 APEC Ministerial Meeting (1989), Canberra, 158 Aquino, Benigno assassination of, 160 Arndt, Heinz, 50

1/8/10 12:08:43 PM

Index

ASEAN Chamber of Commerce and Industry (ASEAN-CCI), 140 ASEAN Concord, 164–66 action programmes for regional cooperation, 168 ASEAN Economic Ministers Meeting (AEM), 148 ASEAN Framework Agreement on Mutual Recognition Arrangements (MRAs), 187 ASEAN Free Trade Area (AFTA), 11, 174 aim for regional economic integration, 175 review of, 184–87 Singapore Summit declaration, 175 ASEAN Harmonized Tariff Nomenclature (AHTN), 187 ASEAN Industrial Joint Ventures (AIJV), 169 ASEAN Industrial Projects (AIP), 118, 169 ASEAN Ministerial Meeting (AMM), 170 ASEAN Plus Three (APT), process, 257 ASEAN policy bilateralists, 252, 253 changes, 249–53 protectionists, 249, 250 trade liberalizers, 250–52 ASEAN Regional Forum (ARF), 174 ASEAN Senior Economic Officials Meeting (SEOM), 190 ASEAN Summit (1976), Bali, 129 ASEAN Summit (1992), Singapore, 173 ASEAN Summit, Kuala Lumpur, 118 ASEAN Trade Fairs, 130

11 AFEP&Aindex.indd 299

299

ASEAN Way, 11 handling of regional economic issues, 181 regional cooperation, 171–72 lowest denominator approach, 198 ASEAN-Australia Business Council, 140 ASEAN-Australia Consultative Arrangements, 118 ASEAN-Australia-New Zealand FTA, 2 ASEAN-Post Ministerial Conference (ASEAN-PMC), 157, 170 Asia 2000 Foundation, 194 Asia Forum, 110 Asia-Europe Meeting (ASEM), 233 Asia-Pacific Economic Cooperation (APEC), 2 ASEAN’s conditional participation, 157–59 Early Voluntary Sectoral Liberalization (EVSL), failure, 212 establishment of, 155–57 open regionalism, 152 precursors, 149–52 Asia-Pacific region cooperation in, 6 multilateral liberalization, 79 Asia-Pacific regionalist strategy, 8, 133 Asian Development Bank, 197 Asian financial crisis, 2 Australia’s involvement in rescue package, 232 effect on AFTA-CER linkage dialogue, 195 effect on East Asian regionalism, 233–35 Asian Industrial Development Council, 197

1/8/10 12:08:44 PM

300

Asian Monetary Fund Japan’s proposal, 245 Associated Chamber of Manufactures of Australia (ACMA), 47, 51 Association of Southeast Asia (ASA), 106 Association of Southeast Asian Nations (ASEAN), 1 accelerated development, 141–45 Australia as dialogue partner, 110 background of formation, 105–08 common policy when necessary, 166 cross-border growth areas, 185 demand for better market access, 117–19 development of regional cooperation, 164–72 Dialogue Partners, 170 focus on, 5 foreign direct investment flows, 141, 142 foreign economic policy shift towards, 2 formation of, 96–131 increasing importance of market, 181–84 initiatives to foster Asia-Pacific regional cooperation, 162 integration with East Asia, 15 liberalization of trade, 10 members signing Memorandum of Understanding on Counter-Terrorism with Australia, 261 members with agricultural base, 147 objective, 97 pluralistic security community, 197

11 AFEP&Aindex.indd 300

Index

regionalism development of, 163 enhancement (1990s), 172–76 promotion of, 176 regionalist strategies, substantiation of, 173–76 reports on relations, 3 role in Australia’s engagement with East Asia, 176–81 solidarity, 170 structural changes in economies, 143 views on Australian relations with, 139–40 Australia ASEAN Policy, 108–12 lifespan, 111–12 bilateral trade agreement with Indonesia, 104 comprehensive engagement with ASEAN, 14 consumer price index (1965 to 1995), 53 Dialogue Partner of ASEAN, 9, 110 engagement with East Asia, role of ASEAN, 176–81 exports to ASEAN, growth, 159 exports to Japan, 45 foreign policies, last two decades, 20 gross domestic product, 87 imports of East Asian economies, 182 international civil aviation policy (ICAP), 119 merchandise exports, shares of manufactures and ETMs, 182 Metal Trades Industry Association, 191 TCF imports (1970s), 115 selected economies, 116

1/8/10 12:08:44 PM

Index

terms of trade, 52 trade and investment partners, 217 trade partners, 135 unemployment rate (1966 to 1995), 54 Australia and New Zealand Standard Industrial Classification (ANZSIC), 199 Australia New Zealand Closer Economic Relations Trade Agreement (CER), 16 aimed at establishing comprehensive free trade, 187 Australia Reconstructed, 71 Australia-ASEAN relations, 6 Australia-Indonesia Agreement on Maintaining Security, 180, 233 Australia-Japan Commerce Agreement, 6 Australia-Malaya Trade Agreement (1958), 127 Australia-New Zealand-United States Security Treaty, 180 Australia-United States Free Trade Agreement (AUSFTA) finalization, 226–28 ratification, 229–30 Australian Chamber of Commerce, 13, 139 Australian Chamber of Commerce and Industry (ACCI), 63 Australian Chamber of Manufactures, 62 Australian Council of Employers’ Federation, 62 Australian Council of Trade Unions (ACTU), 47, 66 emphasis on productivity, 71 policy consultations with, 69

11 AFEP&Aindex.indd 301

301

Australian Financial Review, 51 Australian Industrial Development Association (AIDA), 62, 63 Australian Industries Protection League, 40 Australian Industry Group (AIG), 13, 62, 191 Australian Institute of International Affairs, review of foreign relations and policies, 3 Australian Labor Party (ALP), 37 acceptance of market-oriented policies, 67–68 acceptance of neoclassical economic ideas, 68 Australian Mining Industry Council, 61 Australian Settlement social contract, 35 Australian System of Tariff Preferences for Developing Countries (ASTP), 103 Australian Trade Commission (Austrade), 73 Australian Wheatgrowers’ Federation, 61 Australian Wool and Meat Producers’ Federation, 61 Australian Woolgrowers’ and Graziers’ Council, 61 B Baker, James, 157 balanced economy, development of, 36 Bali bombings, 233 Bali Summit, 164 Bangkok Declaration, 107 bilateral FTAs pursuit of, 5 with Japan, 153

1/8/10 12:08:44 PM

302

bilateralist approach, 29 bilateralist coalition, 205 foundation of, 82–83 bilateralist foreign economic policy unexpected results, 239–40 bilateralist policy ASEAN, 231–40 Australia’s engagement with Asia, 231, 232 Howard Government’s initiative, 81–82 reason for success, 260 bilateralists, 9 ASEAN policy, 204–46, 252, 253 Bogor Declaration, 210 Bradley, Bill, 153 Brigden Report, 36 British Imperial (Commonwealth) Preference System, 41 Brock, William, 77 Bruce, Stanley, 36 Brunei, liberalized economic regime, 155 Burma, independence, 98 Burton, John, 126 Bush, George H.W., 210 Bush, George W., 86 Business Council of Australia (BCA), 63 Button, John, 67 Button Plan, 72 C Cairns Group, 79 Australian leadership, 147–49 creation of, 146–47 Cairns Group Farm Leaders, 224 Cambodian problem, 176–77 ASEAN, unified stance, 166–67 Campbell Report, 58, 72 Canberra Seminar, 121

11 AFEP&Aindex.indd 302

Index

Carlton, Jim, 60 Casey, Richard, 100 Centre for the Study of AustraliaAsian Relations, Griffith University, 125 Chifley, Ben, 98 China ASEAN, integration with, 15 bargaining power, 7 influence of, 5 Chuan Leekpai, 189 Clarke, Helen, 239 Clinton, Bill, 210 Closer Economic Partnership (CEP), 215 Cold War end of, 7 opportunities and challenges, 172–73 framework, 9 Cold War structure, 112 recognition of, 99–101 Colombo Plan, 102, 127 Common Effective Preferential Tariff (CEPT) scheme, 175 ASEAN members, timetables, 185 package (1998), 186 Commonwealth Sugar Agreement (CSA), 88 Communist Party attempts to ban in Australia, 126 competitive liberalization, 86, 216, 230 Confederation of Australian Industry (CAI), 62 Coombs, H.C., 50 cooperative behaviour, states, 19 Corden, Max, 50 core policy ideas, change in, 30 Corish, Peter, 224 Costello, Peter, 83 Country Party, 37

1/8/10 12:08:44 PM

Index

Cranston, Alan, 153 Crawford, John, 46, 48, 89 Crawford Report, 58 Crawford Study Group, 65 Crean, Simon, 69, 92, 263 D Dawkins, John, 67 definition, national interest, 24 demonstration effect Singapore-Australia Free Trade Agreement, 221 Department of Commerce and Agriculture, 47, 48 Department of External Affairs, 48 Department of Foreign Affairs, 137 Department of Foreign Affairs and Trade (DFAT), 80 Department of Trade, 46 Department of Trade and Customs, 47, 48 Department of Trade and Industry, 51 Department of Trade and Resources, 60, 160 deregulation, progress of, 63–66 Dien Bien Phu, fall of, 100 diplomacy, manipulation of, 32 Doha Round, 256 domestic defence, 35 domestic industries, 8 domestic interest groups, realignment of, 61–63 domestic policy major determinant, 22 processes, 7, 22–25 society-centred approaches, 23, 24 state-centred approaches, 24, 25 dominant coalitions, 30, 248 changes, 30–31

11 AFEP&Aindex.indd 303

303

Downer, Alexander, 208 Drysdale, Peter, 50 E Early Voluntary Sectoral Liberalization (EVSL), 84 failure, 85 East Asia Australia’s engagement with, 205 Australian exports to, 182 deepening economic interdependence, 133 economic integration, 2 economic opportunities in, 136 import demand changes, 145 regionalism, Australia’s response, 233–40 views on Australian relations with, 139–40 East Asia Summit (2005), 2, 86 invitation for Australia to attend, 239 East Asian community APT agenda, 261 East Asian Economic Group (EAEG), membership, 11 East Asian miracle, 6 East Asian regionalism, 12 East Germany, 109 East Timor, occupation by Indonesia, 131 Economic and Social Commission for Asia and the Pacific (ESCAP), 127 Economic Commission for Asia and the Far East (ECAFE), 102 economic cooperation need for new framework, 181–84 regional economic cooperation schemes, unsuccessful, 168–69

1/8/10 12:08:44 PM

304

economic disputes, 113–20 causes, 120–26 protectionist policy ideas, 120–22 economic interdependence, 19 deepening of, 17 economic reform, 10–11 Economic Statement (May 1988), 75 Economic Vision Statement, 210 elaborately transformed manufactures (ETMs), growth of, 183 Emerson, Craig, 224 Eminent Persons Group (EPG), 210 Estanislao, Jesus, 156 European Community Common Agricultural Policy (CAP), 146 dumping of beef into Brazil, 147 European Economic Community (EEC), 114 European Union bargaining power, 7 creation of, 79 Evan, Gareth, 177 Evatt, H.V., 98, 126 exports ensuring growing demand for, 42 extra-regional economic cooperation, success of, 170 F factory cost method, 201 Fargher, Ben, 223 Ferguson, Martin, 69, 92 Fischer, Tim, 83, 214 Five Power Defence Arrangement, 101, 180 Food and Agricultural Organization of the United Nations (FAO), 129

11 AFEP&Aindex.indd 304

Index

foreign direct investment, 10 flows into ASEAN, 141, 142 foreign economic policy definition, 15 factors that define shift in, 2 goals, 7 objective, 4 options, 18 second shift, 5 shifts, 4–5, 30–31, 248–49 during latter half of 1990s, 7 long duration taken, 253–55 Foreign Investment Review Board, 225 foreign policy behaviour, non-restriction of, 17 decision making, 23 Fraser Government, 112–13 shifts in, 26 forward defence, concept of, 100 Fraser Government efforts to improve relations with ASEAN, 124 foreign policy stance, 112–13 refusal to remove protectionist policies, 125 responsiveness to changes in Asia Pacific, 122 suspension of assistance to Vietnam, 130 White Paper on manufacturing industry, 57 Fraser, Malcolm, 10, 55, 112, 150 free trade agreements (FTAs) individual ASEAN members, 1 policies towards, 21 principles for negotiations, 208 recognition of benefits, 259 with Singapore, 216 free trade policy, 28

1/8/10 12:08:45 PM

Index

G Garnaut, Ross, 50 GATT Ministerial Meeting (1982), 77, 146 GATT Uruguay Round negotiations, 14 General Agreement on Tariffs and Trade (GATT), 3, 10, 41 frustration with, 43, 44 Kennedy Round (1960s), 75 Tokyo Round, 59, 77 Uruguay Round, 76 General Agreement on Trade in Services (GATS), 218 General Exceptions Lists, 200 General System of Preference (GSP), 103 Goh Chok Tong, 86, 198 governing coalition system wide, 31 government spending increase in, 53 Green Paper, 91 Greene Tariff, 38 Gruen, Fred, 50 Guam Doctrine, 108 H Harmonized Commodity Description and Coding System (HS), 200 Harries Committee, 137 report, 64, 139, 178 Harris, Stuart, 50 Hasluck, Paul, 126 Hawke, Bob, 5, 67 concern over U.S. bilateralism in Asia-Pacific region, 78 proposal to strengthen multilateral trade regime, 154

11 AFEP&Aindex.indd 305

305

Hawke Government concept of Western Pacific states, 161 National Economic Summit, 255 use of APEC for realization of policy, 159 Hayden, Bill, 67, 176 High-Level Task Force, 214 High Technology Exporters Scheme, 73 Holt, Harold, 110 Hong Kong, 6, 112 Howard Government bilateralism, 206–11 bilateralist foreign economic policy, 12 East Asian policy, 231 growing confidence in relations with East Asia, 235, 236 publication of TOOS, 240 rebalancing foreign economic policy interests, 206–08 support of APEC, 209 Howard, John, 5, 60, 121 views on East Asia Summit, 240 Hun Sen, 177 Hyde, John, 60 I import restrictions quota system, 115 import substitution strategy, countering, 73 imports, competition with, 23 Indochina, nationalist movements, 98 Indonesia anti-Australian sentiment, 242 domestic opposition to trade liberalization, 238 foreign exchange shortage, 104 nationalist movement, 98

1/8/10 12:08:45 PM

306

Indonesia-Malaysia-Thailand Growth Triangle, 199 Indonesian Chamber of Commerce and Industry, 238 Indonesian Communist Party (PKI), 106 industrial development, dominant symbol, 37 Industries Assistance Commission (IAC), 50, 57 industry policies, implementation of, 72–73 Industry Policy Statement (March 1991), 75 inflation rate, acceleration, 53 Information Technology Agreement (ITA), 241 Institute of Policy Studies, 194 Institute of Southeast Asian Studies, 194 interdependency among states, effect of, 19 interest groups, domestic, 18 International Air Transport Association, 130 definition, 32 economic, see economic interdependence International Bank for Reconstruction and Development, 41 international environment effect on Australia’s foreign economic policy, 248, 249 International Labour Organization (ILO), 129 International Monetary Fund (IMF), 159 international organizations, political legitimacy, 20

11 AFEP&Aindex.indd 306

Index

international system, 17 constraint on policy behaviour, 18–22 system-level approaches, 18 International Trade Organization (ITO), 42 charter, 43 intra-ASEAN tariff reduction, 185 J Jackson Report, 57 Japan abolishment of discrimination of imports from, 89 ASEAN, integration with, 15 bargaining power, 7 concern on community-building process, 262 influence of, 5 major source of Australia’s TCF imports, 115 negotiations with (1950s), 44 trade policy decision regarding, 49 trade with Australia, 135 Japanese yen, exchange rate, 16 Joint Declaration of Principles with Papua New Guinea, 180 K Keating, Paul Asian engagement, 178 “banana republic” speech, 74 Kennedy Round, tariff reduction negotiation, 93 Keynesian theory, 41, 42 Kissinger, Henry, 108 Korea, 6, 112 ASEAN, integration with, 15 Korean War, 105 Kuching Consensus, 162

1/8/10 12:08:45 PM

Index

L labour-intensive products, 10 labour productivity, private sector, 74 liberal foreign policies, early postwar period, towards SEA, 98 liberal institutionalists, 19 Liberal Party, 55, 60 victory in general elections (1996), 255 liberalist institutionalist theories, 19 liberalization finance sector, 72–73 multilateral, 14, 79 progress of, 63–66 Lim, Robyn, 131 Long-Term Arrangement Regarding International Trade in Cotton Textiles, 114 lowest denominator approach, 198 M Maastricht Treaty, 79, 94 Mahathir Mohamad, 11, 156 Malaya, nationalist movement, 98 Malaysia domestic opposition to trade liberalization, 238 Manila Action Plan, APEC, 211 Manila Declaration, 198 manufacturing effective rates of assistance, 59 tariff rates, early twentieth century, 38 Marcos, Ferdinand, 107 Market Development Task Force, 241 McEwan, John, 44, 48, 89 Melbourne Business School, 194 Memorandum of Understanding on Technical Barriers to Trade, 188

11 AFEP&Aindex.indd 307

307

Menzies, Robert, 99 Metal Trades Industry Association (MTIA), 62, 191 MFN tariffs, 46 middle-power diplomacy, 149, 161 Millenium Round, 84 mining sector, realignment, 61 Ministerial Conference for the Economic Development of Southeast Asia (MEDSEA), 110 Ministerial Consultations, 190 Moore, John Desmond, 64 Most Favoured Nation (MFN) treatment, 43 Multi-Fibre Arrangement (MFA), 114 multilateral approaches continuation of, 209 legacy, 83–84 multilateral economic diplomacy Australia’s leadership, 259 multilateral liberalization, 14 multilateral trade regulation framework, 114 multinational enterprises, influence of, 20 mutual dependence, 32 Myanmar admittance into ASEAN, 174 N Nakasone, Yasuhiro, 153 National Economic Summit April (1983), 68 National Export Market Strategy Plan, 73 National Farmers’ Federation (NFF), 13, 61, 223 concern in resource allocation to Doha Round, 258 reluctant support of AUSFTA, 229 National Farmers’ Union (NFU), 61

1/8/10 12:08:45 PM

308

national interest definition, 24 general societal goals, 25 National Party, 37 victory in general elections (1996), 255 national welfare, foreign economic policy objective, 4 nationalist movements, 98 negative list approach, 187 FTA with Singapore, 218 New International Economic Order (NIEO), 113 New Zealand, 5 foreign policies, last two decades, 20 trade with Australia, 135 New Zealand-Australia Free Trade Agreement, 200 Newly Industrializing Economies (NIEs), 78 relations with Australia, 104 Nixon, Peter, 121 Nixon, Richard, 108 Non-Aligned Movement, 167 non-tariff barriers (NTBs) compilation by member of ASEAN and CER business sectors, 193 less visible, 31 reduction, 187 North American Free Trade Agreement (NAFTA), 11, 79 North Vietnam, 109 O Ohira, Masayoshi, 150 oil crisis, 111 open regionalism, 152, 208, 211 Organization for Economic Cooperation and Development (OECD), 74

11 AFEP&Aindex.indd 308

Index

Organization for Pacific Trade and Development (OPTAD), 149 organizational process, 24 Osaka Action Agenda, 211 P Pacific Basin Economic Council (PBEC), 150 Pacific Basin Forum, 153 Pacific Economic Cooperation Conference (PECC), 150 creation of policy networks, 151 first meeting, 161 introduction of tripartite structure, 151 Pacific Economic Cooperation Council, 121 Pacific Free Trade Area (PAFTA), 149 Pacific Trade and Development (PAFTAD) conference, 150 parliamentary democracy, 31 Parliamentary Joint Committee on Foreign Affairs and Defence, 138 Parsons, Alf, 130 passenger motor vehicles and parts (PMV) from Japan, 49 industries, 58 Pharmaceutical Benefit Scheme (PBS), 225 Pharmaceutical Research and Manufacturers of America, 225 Philippines independence, 98 political instability after Benigno’s assassination, 160 rise in tariffs, 203 Plaza Accord, 141 policy ideas, 8 core, 28

1/8/10 12:08:45 PM

Index

policy measures concrete ideas on, 29 policy preferences, 21 policy-makers representing concept of national interest, 25 policy-oriented learning, 49 protectionists, by, 56 structure, 47–49 political cooperation ASEAN Concord, 164–66 Treaty of Amity and Cooperation, 164–66 political leaders, political and societal support, 23 positive list approach, 187 post-World War II, international economic regime, 41 Preferential Tariff Agreement (PTA), 168 preferential tariff rates imports from United Kingdom, 87 preferential treatment, United Kingdom, 40 Productivity Commission, 50, 93 Protection All Round policy, consolidation of, 38, 39 protectionism, 8 erosion in 1970s, 248 not a return to, 5 protectionist coalition belief system, 44 formation of, 36 protectionist policy, 28, 37 criticism of, 50–55 protectionist policy ideas influence of, 120–22 prevention of understanding of ASEAN’s intention, 124–25 realist perception of world, 122

11 AFEP&Aindex.indd 309

309

protectionist tradition, 35–49 origins, 35–37 Protocol on the Acceleration of Free Trade in Goods, 188 Protocol on Harmonisation of Quarantine Procedures, 188 Q Qantas, 119 quantitative import restrictions, 39, 54 quota system, 115 R Racial Discrimination Act (1975), 111 Rafidah Aziz, 156, 215 rational actor model, 24 rational choice assumption, 21 Red Book, 179 regional cooperation ASEAN Way, 171 development of initiatives, 152 regionalist strategies adoption of, 145 Asia Pacific, 141–46 rural incomes, stabilization, 87 rural industries, government assistance, 39 S San Francisco Peace Treaty, 45 Screen Producers Association of Australia, 244 Scullin Tariff, 39 secondary ideas, changes to, 30 Senate Standing Committee on Foreign Affairs and Defence, 63, 125, 130 Shack, Peter, 60 Short-Term Arrangement, 114 Shultz, George, 153

1/8/10 12:08:46 PM

310

Sim, Peter, 65 simple primary product manufactures (SPPMs), 183 simply transformed manufactures, 183 Singapore cautious of exports to, 105 choice as FTA partner, 216–18 negotiations, 218–20 FTA negotiations with, 12 liberalized economic regime, 155 nationalist movement, 98 Singapore Airlines (SIA), 119 Singapore Declaration, 173 Singapore-Australia Free Trade Agreement (SAFTA), 219 demonstration effect, 220–21 Singapore-Johor-Riau (SIJORI) Growth Triangle, 199 Siregar, Arifin, 156, 198 smaller states, achievement of policy goals, 22 Smith, J.T., 140, 178 Snape, Richard, 50 social constructivist, perspective, 27 societal interest groups, influence on policy-makers, 23 society-centred approaches, 23–24 Soeharto, 106, 189, 210 South Korea, 3 Southeast Asia ASEANisation, 174 Australia’s stance after World War II, 98–105 comprehensive engagement with, 177 Southeast Asia Collective Defence Treaty, 100 Southeast Asia Treaty Organization (SEATO), 100

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Index

Southeast Asian Ministers of Education Organization (SEAMEO), 110 Southeast Asian policy, search for a more independent, 179–81 special and differential treatment, 148 Spender, Percy, 101 state strong, see strong state weak, see weak state state-centred approaches, 24, 25 state-society coalitions, 8, 18, 25–31 actors, 29 advocacy coalitions, 27–28 approaches, 28–29 Australia, foreign economic policy, 34–86 dominant, 34 rise and fall, 247–55 state-society relations, 18 bi-directionality of influences, 25 states cooperative behaviour, 19 interdependency, 19 strong state, 25, 26 structural realists definition of structure of international system, 18 structural reforms East Asian orientations, 138 structuralist theories, insufficiency, 21 Sukarno, 100 Supachai Panitchpakdi, 189 Sydney Morning Herald, 51 system-level analyses, limits of, 20–22 systemic theories differences in activities between powers and other states, 20

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Index

T Taiwan, 3, 6, 112 Takeshita, Noboru, 153 Tariff Board, 50, 90 employment of academic economists, 90 tariff reduction, 73–76 intra-ASEAN, 185 Temporary Exclusion Lists (TELs), 185 Thailand FTA negotiations with, 12 rise in tariffs, 203 Thailand-Australia Free Trade Agreement (TAFTA), 237 Thaksin Shinawatra, 237 Tonkin, Jack, 46 Trade and Investment Promotion Program, 119 Trade and Tariff Act (1974), 94 Trade Development Council, 71 trade liberalization ASEAN members, 10 trade liberalizers, 8, 133 ascendancy of, 66–81 Trade Outcomes and Objectives Statement, 206 trade union movement involvement in policy process, 68–71 trade-oriented industrial strategies, 134 Trans-Tasman Mutual Recognition Arrangement (TTMRA), 188 Treaty of Amity and Cooperation in Southeast Asia, 130, 164–66 Tun Haji Abdul Razak, 128 U UK-Australia Agreement, 40 unemployment rate, 87

11 AFEP&Aindex.indd 311

311

United Kingdom Australia’s commitment to, 105 political unity with, 40 preferential tariff rate, 88 trade with Australia, 135 United Nations, 98 Charter, 99 Economic and Social Council, 102 General Assembly, 126 resolution withdrawal of foreign forces from Cambodia, 167 Security Council, 99 Study Team, 197 Transitional Authority in Cambodia, 179 United Nations Conference on Trade and Development (UNCTAD), 44 United Nations Development Programme, 129 United Nations Industrial Development Organization (UNIDO), 129 United States aggressive unilateralism, 32 bargaining power, 7 bilateralism, growing concern, 77–78 divided government, 33 Export Enhancement Program (EEP), 146 free trade agreement with, 221–31 agriculture, 223–25 government-led initiative, 221–22 government’s perception of benefits, 222–23 results of negotiations, 226, 227 influence of, 5

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312

intention to create Free Trade Area of the Americas (FTAA), 85 Trade Promotion Authority (TPA), 221 trade with Australia, 135 unevenly distributed economic interests, 24 unwilling to commit to region after Vietnam War, 122 United States dollar, exchange rate, 16 Uruguay Round effect, 84 participation of Cairn’s Group, 147 review of, 154 V Vaile, Mark, 86, 222 Vernon, James, 50 Vernon Reports, 51 Vietnam, suspension of assistance by Fraser Government, 130 Vietnam War, 107 Viviani, Nancy, 63, 125, 130 W wages, average weekly, 90 Walsh, Peter, 67 Warwick-Smith, George, 46 weak state, 25, 26 weak/strong state approach, 26 Westerman, Alan, 46 White Australia policy, 110

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Index

White Paper foreign and trade policy, 81, 236 manufacturing industry, 57 Whitlam Experiment, failure, 52–55 Whitlam, Gough, 9, 52, 111 continental defence, 109 liberal, 55 Whitlam Government, 90 ASEAN policy, 109 criticism against, 125 early 1970s, 253, 254 Willis, Ralph, 67 Woolcott Mission, 155, 156 World Bank, 41 World Trade Organization (WTO), 3 Accelerated Tariff Liberalization (ATL), 213 agreements, favourable treatment of developing members, 161 Ministerial Conference, Cancun, 256 new Round, 212, 213 World War II development before, 38–41 end of, 6, 9 increased flow of goods and services, 19 Z Zoellick, Robert, 222 Zone of Peace, Freedom and Neutrality (ZOPFAN) Declaration, 9, 107 withdrawal of support by Fraser Government, 123

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About the Author

JIRO OKAMOTO is a former Senior Research Fellow at the Institute of Developing Economies (IDE-JETRO) in Japan. His research focus has been on international political economy of East Asia and the Asia Pacific, economic cooperation/integration processes in the region and the role of international institutions in regional integration processes. He has edited several books in Japanese and English, including Whither Free Trade Agreements?: Proliferation, Evaluation and Multilateralization (IDE-JETRO 2003) and Trade Liberalization and APEC (Routledge 2004). He received his Ph.D. in Political Science and International Relations from the Australian National University.

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