Address to the Australia-Indonesia Business Council

Trade between Australia and Indonesia

Brisbane, 3 April 2008

Introduction

Thank you David Harland, Treasurer of the Australia - Indonesia Business Council and Ray Wilson, Executive General Manager Thiess Pty Ltd; ladies and gentlemen.

I’m very pleased that the Australia Indonesia Business Council has invited me to speak today.

It's great to have the chance to talk about trade and investment links with Indonesia.  The AIBC and its members have contributed strongly to these links.  The Australian and Indonesian governments and the business communities of our two countries have the opportunity to work together to strengthen these links.

I want to tell you today why I believe the future is bright and I also want to tell you how Australia’s trade policy will contribute to better trade and investment outcomes.

Our bilateral trade and investment relationship

There are several key factors which will contribute to strong trade and investment between our two countries in the years to come.

First and foremost is that trade is already strong.

• Two-way merchandise trade between Australia and Indonesia was $A8.75 billion in 2007, ranking Indonesia as Australia’s 13th largest trading partner
• Australia’s major merchandise exports are wheat, crude petroleum, live animals, aluminium and cotton
• Over the past five years, Australia’s merchandise exports to Indonesia have grown an average of 8 per cent every year.

Second, the bilateral investment relationship is also substantial:

• Australian investment in Indonesia was worth an estimated $3.1 billion in 2006
• more than 400 Australian companies are operating in Indonesia in sectors including mining, construction, finance, food and beverage and transport.

Third, the prospects for growth in trade and investment are improving.

• President Yudhoyono and his economic team are building a positive macro-economic environment based on sound fiscal and monetary policy
• Forecasts predict 6-7 per cent GDP growth for Indonesia over the next two to three years, accompanied by steady, if modest, improvement in inflation
• and growth will be even stronger following further micro-economic and structural reform
• Australia is keen to support the process of economic restructuring and reform that is underway and to encourage growth and development throughout Indonesia.
• Australia is committed to a long-term development partnership with Indonesia, the largest recipient of our bilateral development assistance in 2007-08 ($458 million, a 33 per cent increase on 2006-07).

Fourth, there are strong people to people ties between our two communities, both in business and more broadly.

• Almost 15,000 Indonesian student enrolments were received in Australia in 2007
• there is no better investment in the future of the bilateral relationship than in education.

As well, the government-to-government relationship is very strong

• the very first overseas visits by Prime Minister Rudd, Trade Minister Crean and Foreign Minister Smith were to Indonesia
• and in February, during a visit by Indonesian Foreign Minister Dr Hassan Wirajuda to Perth, the Foreign Minister, Mr Smith, and Dr Wirajuda exchanged notes to bring the Lombok Treaty into effect
• this is a framework for expanding cooperation and exchanges on matters affecting the security of both countries.

Finally, the Government’s trade policy will help strengthen Australia’s trade performance, both with Indonesia and the rest of the world

• I want to explain how this will happen.

Government trade policy

The twin pillars of the Government’s trade policy are to open up new markets through international trade negotiations

• and to undertake the necessary reforms to improve productivity and competitiveness at home.

Over the past decades, multilateral liberalisation has delivered dramatic benefits to the global economy.

A successful conclusion of the WTO’s Doha Round would offer the biggest potential trade and economic gains not just to Australia, but to the region and the world.

That’s why the Doha Round is the Government’s top trade negotiations priority.

• Importantly, the gains from a successful Doha outcome would flow to both developing and developed countries.

The World Bank estimates that by freeing all merchandise trade and eliminating subsidies we could boost global income levels by up to $US 287 billion by 2015

• The Bank estimates that almost 45% of these gains would flow to developing countries.

But if these projections have a hope of being realised, we need to move now to firm up commitments in the three key sectors of the negotiations: agriculture, industrials and services

• There have been some encouraging developments in recent weeks, across all three sectors
• The key now is to maintain this momentum so that we can conclude the Round.

Through our leadership of the Cairns Group of fair agriculture trading nations, we will work hard to secure an ambitious outcome for Australian farmers in the WTO

• Australia and Indonesia have worked closely together in the Cairns Group
• Mr Crean looks forward to continued close cooperation with the Indonesian Trade Minister, Dr Pangestu. 
• The Government will restore the place of multilateralism in our trade policy, not only at the WTO, but also by committing to build on – rather than detract from – the WTO in our regional and bilateral work.

The Government will seek to complement WTO outcomes with liberalisation at the regional level via APEC and the ASEAN Australia New Zealand Free Trade Agreement

• APEC is the region’s premier forum for pursuing economic integration
• It also has a strong “behind the border agenda”, which will help address many difficulties for exporters and complement liberalisation efforts.

At the bilateral level, Australia’s interests are best served by networks of FTAs, both ours and others, that deliver comprehensive, genuinely liberalising outcomes.

• FTAs of this kind can help to generate broader commitment to trade reform, but they must be consistent with our multilateral aims
• As you know Australia and Indonesia are conducting a joint feasibility study on the merits of a bilateral free trade agreement
• I welcome the submissions by the AIBC and its members, which are a valuable contribution to the feasibility study.

Trade Policy Review

In the past five years, world trade has grown at twice the rate of world output

• that growth has been fuelled by the success of previous world trade liberalisation rounds
• trade liberalisation is the path to sustained economic growth.

Yet while world trade volumes have been growing at this pace, and while Australia has been experiencing its longest-ever commodities boom, the nation has experienced declining export growth

• that is a surprising and disappointing outcome.

Net exports - the difference between exports and imports - are currently subtracting a full percentage point from Australia's economic growth

• The economy is running at full capacity
• We’ve hit infrastructure capacity constraints, we’ve run out of skills in key areas, we’ve run out of innovation capacity
• Investment in the drivers of economic growth has been neglected.

We are determined to address those constraints, to invest in the drivers of growth.

Reform is vital if the Australian business environment is to remain internationally competitive

• particularly given the backdrop of the recent strengthening of the Australian dollar.

The Government has given a high priority to addressing a range of infrastructure bottlenecks – including in our ports, railways, roads and information technology

• Infrastructure Australia, a new Commonwealth statutory authority, will coordinate the planning, regulation and development of vital infrastructure around Australia.

We are also determined to support the diversification of our export base beyond agriculture and commodities.

• The future Australian export economy will still have a huge role for commodities exports
• But an increasing share of our exports will build on that commodities base – through knowledge-based services based on commodities industries, through expansion into downstream products from aquaculture to advanced aluminium alloys
• and through outward foreign investment that takes Australian know-how into other economies and plugs us into global supply chains.

And we will need to drive more export activity from our dynamic services industries, from education to financial services to project management to biotechnology to fashion design.

This is the reasoning behind the comprehensive, whole-of-government review of Australia's export policies and programs which Mr Crean announced in February.

The Review is headed by Mr David Mortimer, Chairman of Leighton Holdings and Australia Post.

The Review’s mandate is to identify future trade policy priorities and to develop effective trade and investment development strategies.

It will do this by analysing the factors that have affected Australia’s recent export performance, both internal and external, and making recommendations on what action can be taken to address impediments to exports..

The review will include a detailed examination of the Export Market Development Grants Scheme (EMDG), given its important role in Australia’s export policies and programs.

The review will also examine Australia’s approach to the negotiation of  FTAs.

We are a trading nation and increased competition at home and abroad is a fact of life in the contemporary global economy.

• so tariffs and other forms of trade restriction are not the answer to increased competition.

Looking to the future

Looking to the future, Australian and Indonesian Trade Ministers will be building on an already productive working relationship

• established when Mr Crean visited Indonesia in December 2007, in his first overseas visit as Minister for Trade

Australia expects to host the 9^th Australia Indonesia Ministerial Forum later this year

• it is the peak consultative forum between Ministers of both countries
• the forum is an opportunity to review and advance bilateral cooperation, including in economic, trade and investment matters 

I believe now is the time for Australian and Indonesian business to get on with the important work of building a strong commercial and economic relationship.

There is much that governments can do in assisting this process

• this Government is committed to trade liberalisation: at the WTO, through regional initiatives such as the ASEAN Australia New Zealand FTA and cooperation in APEC, and through examining the merits of bilateral options
• the Government is also committed to improving Australia’s export competitiveness by addressing capacity constraints and skills shortages, and by reviewing Australia’s export policies and programs.

 I look forward to the governments and businesses of Australia and Indonesia working together to expand the bilateral trade and economic relationship to the mutual benefit of both of our countries.