The Hon. John Murphy MP
The Hon John Murphy MP
Former Parliamentary Secretary for Trade

Speech

31 July 2008, Financial Services Hub Summit

Trading on our Services Strengths

Salutation and introduction

Thank you for that kind introduction. I’m delighted to be part of today’s stimulating discussion on what is a very important topic for the financial services sector and for the Australian economy.

Australia is one of the largest and most highly developed market places for financial services in the Asia-Pacific region, with a global reputation for sophisticated and innovative financial services products and exports. We have the largest investment funds asset pool in the Asia Pacific – and the fourth largest in the world.

Nine out of the ten top investment banks are based here, as are 17 of the top 20 global funds managers.

This Government understands the importance of trade for our nation’s prosperity. We don’t take it for granted.

We know that, despite our region’s rapid economic growth and unprecedented demand for our energy and mineral resources, Australia’s exports have underperformed in recent years. Diversification has not been our strong suit.

The growth of export volumes in the past six years has been below the historical average since the floating of the Australian dollar in 1983.

We understand that the nature of trade is changing, and with it, the way we must frame trade policy.

We’re no longer talking solely about agricultural and industrial goods, and the need to eliminate tariff barriers.

Services account for nearly 80 per cent of Australia’s GDP, 85 per cent of employment in 2006; but represent only 22 per cent of our exports in 2007.

The finance and insurance sector contributed about 8 per cent of GDP in 2007. The sector is a key enabler of economic growth and trade.

Investment flows are now crucial. As at December 2007, direct investment abroad by Australian companies of A$318 billion rivals foreign direct investment in Australia of A$357 billion.

And because these new elements of trade are so important, we need to develop an integrated approach to trade policy.

We need, above all, a trade policy that is business-focused, that crosses traditional portfolio barriers, and that forms the basis of a genuine Whole of Government approach.

My message to you is this: our trade policy is designed, through liberalisation in overseas markets and ongoing reform at home

to help your sector maximise its competitive advantage, and

to better position you to capture regional capital flows, including from pension and sovereign funds.

And the Government’s overseas network is committed to help you achieve your goals.

I should say at the outset that we acknowledge the current limitations on services statistics. But we are working with others, including the Australian Bureau of Statistics and the International Trade in Services User Group which it convenes, to improve statistical collections. That will give us better information about the scope of our challenges and our achievements.

At the border

Many of you will have heard me speak of the critical importance this Government attaches to achieving trade liberalisation through multilateral, regional and bilateral processes.

The WTO Doha Round is a key part of our approach to trade and the news of a breakdown in the Ministerial discussions this week in Geneva is a great disappointment.

There is no denying this is a significant setback to the Doha Round and the momentum for trade liberalisation, particularly given the major commercial gains that would have been offer to the world economy and to countries like Australia.

At the same time it is not the end of the Doha Round. Australia and other WTO members will now need to reflect on next steps but we are strong supporters of the multilateral trading system and will play our part in efforts to get the Round back on track – but this is likely to take some time.

While the key issues responsible for the breakdown revolved around the agriculture and industrials negotiations, the Australian services industry will also be disappointed with this lost opportunity.

This is particularly the case given a very successful meeting of trade ministers in Geneva last Saturday specifically on the services negotiations. This meeting – billed as a Services “signaling” conference – was aimed at getting WTO members to “signal” country-specific sectors where they intended to further liberalise services trade.

The atmosphere of that conference was very positive and there was clear recognition that progress on services was integral to securing overall progress. Simon Crean spoke first, which gave him the opportunity to outline the importance Australia’s attaches to a successful services outcome as well as the expectations Australia has for improvements from other Members.

Australia called for improvements in foreign equity caps for Australian services businesses and improvements in business mobility across a range of key sectors, including of course, financial services. We then outlined our own signals which complemented Australia’s already strong offer on services.

Important signals were given by key trading partners, including from countries in our region.

Despite the wider disappointment with latest Doha developments, the Australian services sector should at least be able to take comfort from the enormous level of good will which emerged at the signaling conference, and the widespread understanding of the importance of liberalising global trade in services.

In addition to the WTO, the Government is also actively pursuing a number of other trade initiatives. We’re now in the final phase of complex negotiations towards an ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA).

As with all our FTAs, we aim to achieve a comprehensive agreement that - in addition to strengthening our ties with ASEAN - supports the multilateral trading system and is commercially meaningful.

APEC is a key element in the Asia Pacific regional architecture. It is doing excellent work in the fields of trade, investment liberalisation and business facilitation.

In the longer term, we may be able to build on this work of APEC to achieve genuine region-wide free trade area. Or pursue a similar goal through the East Asia Summit

At the bilateral level, Australia has put in place a number of high quality FTAs, and we’re in the process of negotiating others (China, Japan, Malaysia) and scoping several more (Indonesia, India, Korea).

We pursue FTAs that support the multilateral trade reform process, that are ‘WTO plus’, and we ensure that the FTAs we sign set liberalising benchmarks that serve as models for other countries.

We recognise the potential benefits of financial services liberalisation through FTAs, which can deliver market access gains deeper and faster than is possible through multilateral negotiations.

In fact the services commitments in our FTAs with the US, Singapore and Chile are all GATS-plus. The FTA with Chile is a model of its kind, and includes a separate chapter on financial services and commitments by Chile for non-discriminatory access to its financial services market, including is expansive pension fund regime.

Australian insurers already benefit under the Australia-US FTA from US commitments aimed at promoting expeditious approval of insurance product applications.

Earlier this year, Australia and China agreed on a work program that specified the sectors in which both sides would seek early outcomes in our prospective FTA. For Australia, financial services was one of the two priority sectors – along with education.

A key objective of the FTA we are negotiating with Japan is to increase the share of services in our bilateral trade.

At present, services represent only six per cent of Australia's total exports to Japan.

Our negotiating team will this week be exploring a range of issues relating to financial services, such as licences and approvals.

This is a sector where there is significant potential for growth because of Australia’s considerable experience and expertise in fund and superannuation management.

Encouragingly, there is also growing interest in Japan in securing better returns on its very substantial pensions portfolio, possibly by involving more foreign fund managers.

As I indicated earlier, our trade policy is built on a Whole of Government approach, reflecting the changing nature of trade.

You’ll recall the Prime Minister’s announcement in New York earlier this year regarding mutual recognition of our countries’ respective securities regulation.

And the announcement by my colleague the Treasurer regarding China’s decision to allow Chinese institutional investors to invest in Australia.

Reform ‘behind the border’

And that brings me to the second pillar of our trade policy, which is domestic reform, a key priority for your sector and for all exporters.

Getting our domestic policy settings right is the necessary complement to our international work. They’re two sides of the same coin.

There’s no point winning concessions overseas if you can’t compete.

I know that Growth in financial services productivity has declined over the past 7 years. And that our share of international services exports has declined since start of this decade.

As I said at the outset, I’m committed to a modern trade policy that crosses traditional portfolio barriers, and forms the basis of a genuine Whole of Governments approach.

That is, one that acknowledges that investments and infrastructure improvements, for example, involve the States as well as Canberra.

So we have decided to coordinate our efforts within the framework of the new Ministerial Council on International Trade, which meets in five days’ time in Melbourne.

This Government is committed to trade policy reform at the both the macroeconomic level – involving much needed enhancements to our national infrastructure and skills and innovation policy – as well as microeconomic settings like enhanced trade facilitation and an expanded Export Market Development Grant scheme.

You’re all aware of the Mortimer Review of Export Policies and Programs Simon Crean commissioned earlier this year. I thank you for your substantive submissions to the Review team.

I envisage the Review’s findings – to be published later this year – feeding into other trade-related reforms that have been implemented or are being examined.

I refer, for example, to the measures taken by the Government on withholding tax; to our commitment to educational reform; and to the expansion of our migration program that will address your and other businesses’ calls for skills.

A theme of today’s discussions, and of your submissions to the Mortimer Review, is the need for Government to offer practical assistance to business.

Let me in this context turn to some of the things we have been doing with business.

You’ll recall that the recent Budget began to implement our election commitments to revitalise trade policy, by bringing Invest Australia and Global Opportunities back into Austrade.

This is one way we intend to deliver what you are looking for: broad-based expertise, risk mitigation in new markets, and introductions. We’re constantly looking for ways to improve.

Let me give you some examples of what we’ve been doing.

In Vietnam, the Government, through DFAT and Austrade, has worked closely with ANZ to help secure in-principle approval for the bank to incorporate locally. Similarly, we helped CBA in their successful application for a branch banking licence in Ho Chi Minh City.

Our diplomatic posts in Europe have assisted Macquarie Group in a variety of ways, including facilitating dialogue with key decision makers, backing Macquarie’s business credentials in new markets, and helping to leverage the positive impact of the Australian ‘brand’.

And when Macquarie was first looking at the Russian market one of their first calls was to Austrade in Moscow.

Austrade has also worked with a number of associations such as the Securities and Derivatives Industry Association to assist in the coordination of missions and meetings to markets such as India, China and the UAE.

And Austrade last year assisted a number of overseas institutions – such as AIG Investment Management and AXA Investment Managers – to enter the Australian market or expand their presence here.

More broadly, the Government works with industry groups like the European Australian Business Council in facilitating high level meetings for their Business Mission with policy makers and other business people, including, for example, in Budapest.

Conclusion

The Labor Government see the opportunities that lie ahead of our economy.

We are determined to position Australia so that it is best able to capitalise on the opportunities of the future; including by ensuring that we can achieve long-term sustainable growth that goes beyond the current resources boom.

Summits like this one give us a better understanding of your specific sectoral requirements.

For my part, I want to assure you that the Government is committed not only to boosting services exports generally, but to making Australia a regional financial hub.

You know that we have the policy pedigree, and a history of implementing far-reaching regulatory and tax reform.

The size of this country’s funds management sector owes much to those reforms.

We will continue to do everything possible, overseas and domestically, to help position the financial services sector for the future.

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