4 September 2015

Building a modern Silk Road, Address to the B20 plenary session: Navigating through the global low growth and low interest rate environment, Ankara, Turkey


Check against delivery

I want to begin by thanking Turkey for the opportunity to talk today with the B20 about the global challenges we face.

Forums like these give businesses the opportunity to provide valuable input to the G20. As I have said before, the business community must hold our feet to the fire on our promised reforms.

You are powerful advocates and champions of reform. The B20 will keep the G20 focused on the private sector's important role as the main driver of growth and job creation.

I also want to praise Turkey for making implementation a key focus of its G20 Presidency.

Seven years after the collapse of Lehmann brothers, growth is still subdued and uneven, and falling commodity prices are hitting commodity-based economies hard.

The only way to strengthen growth is through diversification and reform.

It is therefore crucial that G20 members implement each of our individual growth strategies to lift global growth by an additional 2 per cent over the next 4 years.

Our priority continues to be undertaking reforms to boost growth and create new jobs for a more prosperous global economy.

But, to deliver strong economic growth and jobs, we need to use the full tool kit available to us.

Trade reform is one such tool and it has been a key area of focus for the G20 and B20 since their inception.

The importance of trade to global growth

We all know that the wealth of nations is founded on their ability to trade.

This has been the case since the first caravans, over 2000 years ago, made their way from China to the crossroads of Europe at Byzantium on the Bosphorus.

They brought countless goods to and from the Orient. From silks and spices, to tea, paper, ceramics and glass.

This was the creation of the Silk Road.

Linking China to Turkey.

Asia to Europe.

East to the West.

And this beautiful city of Ankara was an integral part of this story.

The Silk Road not only facilitated trade in goods, but also the exchange of ideas and culture.

Turkey was a key beneficiary of this era of international trade.

Today, we see technology connecting the world. Technology that allows the rapid exchange of ideas, seamless exchange of goods and services across borders and highly interconnected capital markets. It delivers more choices at a lower cost.

It brings great economic benefits. But it can also bring risks.

Technology and transmission across interconnected markets present challenges for governments and regulators as markets move swiftly and sometimes unexpectedly.

We saw that most starkly in the lead-up to the global financial crisis, when financial innovation outpaced regulatory frameworks and created a web of interconnected risks that were highly complex and not well understood. The ensuing sub-prime crisis and global financial crisis resulted in nearly 11 trillion dollars of lost household wealth in the United States alone.

Unemployment more than doubled in two years in the United States and 15 million people were out of work. In the euro area, unemployment rose to double digits. Young people were most affected, leaving schools to join unemployment queues. A generation of productive workers was almost lost.

Governments responded with massive stimulus packages and dramatically slashed interest rates.

But the limits of macroeconomic policy soon became apparent.

Trillions of dollars in fiscal stimulus and unconventional monetary policies did not prevent massive job losses across the globe.

In response to the growing lines of unemployed, there was a clear risk that governments would be drawn towards protectionist measures.

The risks were real and evident.

The G20 and all of the private sector representatives of the B20 have consistently recognised that governments should pursue free and open trade, as well as resist protectionism in all forms.

It is well understood that protectionism destroys growth and that it creates greater unemployment.

The global financial crisis serves as a reminder that we cannot take free trade for granted. We need to facilitate a new Silk Road to promote regional economic integration and infrastructure development.

Building the modern Silk Road

Chinese President Xi Jinping recognises the importance of trade and has made the "One Belt, One Road" initiative a centrepiece of his government's policy.

The belt and road run through the continents of Asia, Europe and Africa. It connects the vibrant East Asian economic circle at one end, and the developed European circle at the other. And it encompasses countries with huge potential for economic development.

Just like the Silk Road over 2000 years ago, opening trade routes should facilitate the generation of wealth and prosperity across the globe. For Australia, the principles of transparency, open markets and competition are essential for its success.

To take advantage of these potential benefits, we need to undertake essential investment in infrastructure to overcome the bottlenecks that limit free movement of goods and services.

The Asian Development Bank has estimated the infrastructure financing gap in Asia at US$8 trillion over the current decade.

The Asian Infrastructure Investment Bank, of which Australia is a founding member, is an important new institution that will play a key role in meeting Asia's infrastructure needs and thereby enabling the benefits of trade across the Asian region.

And, just as Europe recognised the value of the caravan traders and silk centuries ago, it now recognises the importance of the modern equivalent today. Of the 57 prospective founding members of the AIIB, 16 are European countries, including the UK, Germany, France and Italy.

Investing in productivity-enhancing infrastructure and making the most of the existing infrastructure stock is obviously important to countries around the world, not just countries in the Asian region like Australia.

New or improved infrastructure, such as ports and railways, means that exports will be able to reach new markets or expand existing ones.

This will provide trade and economic opportunities for Australian, Asian and international firms, benefitting consumers across the globe.

The B20 recognises the crucial role of infrastructure in lifting growth.

Under our G20 Presidency, we took recommendations by the B20 to take practical steps towards more investment in infrastructure very seriously.

We delivered on a key recommendation of the B20 to establish a Global Infrastructure Hub to lower barriers to investment, increase the availability of investment ready projects, help match potential investors with projects, and improve policy delivery.

Establishing the Hub is a significant, practical initiative by the G20 to drive progress on its infrastructure agenda, and move engagement with the private sector beyond business as usual.

By working with governments, the private sector and development banks, the B20 estimated that Hub could unlock an additional $2 trillion of infrastructure capacity by the year 2030 – a staggering illustration of what we can achieve through collaboration.

Australia's Free Trade Agreements

But, while investment in quality infrastructure is a necessary precondition for growth, it must also be accompanied by the removal of barriers to trade in goods and, more importantly in the modern world, by trade in services.

Free trade, in other words.

In Australia, we are staunch advocates of such trade and, in the last year, the Australian Government concluded comprehensive free trade agreements with Japan, Korea and, most recently, China.

We've done this because we know that free trade agreements don't just reduce or eliminate tariffs – they enhance competitiveness, strengthen economic links, and generate both wealth and prosperity.

These agreements represent a total customer base of 1.5 billion people.

As we enter our 25th consecutive year of economic growth, we know that a key pillar of Australia's remarkable growth story has been the opening up of our economy and, with it, taking advantage of our position in the Asian region.

China–Australia Free Trade Agreement

Take, for example, the China-Australia Free Trade Agreement.

This agreement will provide opportunities for Australian businesses currently hindered by high tariffs and other trade barriers to expansion.

Lower import prices for consumer goods and business inputs will also increase Australians' purchasing power.

The agreement will eliminate tariffs for key Australian exports, such as beef, wine and dairy, which will all enter China duty free within a few years.

Turkey has embraced small business in the G20, as has Australia. The advantages of lower tariffs through free trade agreements will flow to a multitude of Australian industries, including small businesses.

One example of this is RØDE Microphones. This business exports more than 90 per cent of what it makes, with China among its biggest customers.

As a part of our free trade agreement, China will lower the tariffs on microphones from 10 per cent to zero, enabling RØDE to further increase its exports to this important market.

The China FTA will also provide a boon for Australia's all-important services industry, following the best services trade outcomes China has provided to any foreign country.

The agreement will provide significantly improved market access for, among others, Australian banks, insurers, law firms, education services exporters, and health and aged care providers.

The services sector is already the largest contributor to China's GDP and will drive economic growth in coming years. For its part, China is already Australia's largest services market, and the commitments made in our free trade agreement ensure the Australian services sector will be at the forefront of this growth opportunity.

Taken together, the free trade agreement will boost prosperity and employment in both our countries.


Those that stand in the way of free trade are standing in the way of higher growth and job creation.

It is up to the B20 to hold us to account. I urge you all not to shrink away from continuing to promote the benefits of our trade links in the face of the loud but narrow self-interest of detractors.

Free trade is critical to setting the global economy on the path of recovery, boosting economic growth, and creating quality jobs. That is why reforms to facilitate free trade are a key part of our growth strategies to lift growth by two per cent.

The original Silk Road improved the lives of millions from China to Europe. By encompassing the principles of 21st century globalisation and open markets, the modern era Silk Road has the potential to improve the lives of billions, creating economic links that can benefit all countries and regions.

If we are to realise this potential, we need to get on with the job of trade reform.