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

Speech

2 December 2008, Australia-India Business Council Luncheon, Canberra

A Wealth of Opportunities – the Australia-India Trade Relationship

Introduction

Thank you, Warwick Ryan for your introduction and thanks to the Australia-India Business Council for giving me this opportunity to make some remarks about Australia’s trade policy priorities and, in particular, our ever-evolving trade relations with India.

I’m sure I speak for all of you, just as I know I speak for the Australian Government, when I say that my pleasure in addressing this group and talking about so vibrant a relationship is tempered by sadness at the terrible recent events in Mumbai.

As the Prime Minister and other Ministers have said, the Australian Government unreservedly condemns these appalling attacks on innocent people.

We all wish the wounded a speedy recovery.

Australia remains ready to assist India in any way possible during this extremely difficult time.

And it’s very important at times like these that we do not let terror deflect us from our worthwhile and important task.

Your Association will, I know, remain committed to what it has for so long done so well: nurture a relationship by deepening the ties of commerce.

The Australian Government is determined to support that work.

We have a clear plan to make our relationship with India one of our foremost international partnerships.

The Indian Government has been a willing partner in this endeavour. We have had an excellent series of exchanges over the last year with frequent ministerial visits in each direction.

One of the overseas visits by the Trade Minister Simon Crean was to India in January and a few months later he hosted his counterpart, Commerce Minister Nath, in Melbourne for the annual bilateral trade discussions. I know both Ministers remain in close contact

But it will be businesspeople such as you, and your counterparts in India, who will really shape and drive this change. I look forward to hearing your views on where the opportunities are and how we are to grasp them.

The critical importance of free trade

Before turning to the bright future of our trading relationship with India, I’d like to touch briefly on the challenges both our countries face over this rocky period in global finances.

India’s emergence over the last decade or so as a major world economy has been built on opportunities seized from a globalised world economy. Indeed, India has itself become one of the hubs of global trade and commerce.

Mumbai has by any measure become one of the world’s most important commercial centres—and, even as our hearts go out to the many Mumbaikars who have lost family members, I can say that even acts of gross brutality of the sort we witnessed last week will not dampen this great city’s spirit.

Chennai, too, is an industrial powerhouse, while Bangalore has become a focal point of global information technology and biotechnology. Indian companies are global leaders in the IT world.

India took important strategic decisions to develop its skills base so that it could take advantage of globalisation. And it has reaped considerable rewards from its decision in the early 1990s to strengthen its connection to the global economy.

Recent months have shown us, however, that opening to global opportunities also means exposure to global risk. The continuing global financial crisis is a demonstration of just how closely the world’s major economies are interlinked.

But this crisis does not warrant any calls for isolationist or protectionist policies. No one can sensibly argue that globalisation, which has brought such tremendous benefits to India, Australia and many other countries, should be wound back.

What the global nature of the financial crisis does tell us is that only a truly global response can put us back on track. As WTO Director-General Lamy said last month, our response must include international initiatives that lock in the benefits, but also manage the risks, arising from globalisation.

Australia and India are helping form that response through our participation in the G20 process.

Last month’s highly successful Leaders’ Meeting in Washington successfully formulated an Action Plan which lays the foundation for reform of financial markets to help ensure that a global crisis such as this can not occur again.

Leaders recognised that we must not allow unprecedented challenges to the global economy to threaten one of the key drivers of global economic prosperity - the liberal international trading system.

The G20 issued a strong rejection of protectionism and gave new impetus to the WTO Doha Round negotiations by committing to a renewed effort to reach a modalities agreement for the negotiations. Once modalities are established, it may be possible to finalise the Round within six months.

Open international trade must not be a victim of the crisis. Instead, it has a big part to play in the global response.

The Trade Minister looks forward to working with his G20 counterparts, including Minister Nath, to demonstrate and generate the necessary political will and high level engagement needed to conclude the Doha Round.

Concluding the Round is the Australian Government’s highest trade policy priority.

World trade has been one of the drivers of global growth over the past 60 years and we need to build on the G20 agreement to reinvigorate the negotiations.

At this critical juncture, we need a successful Doha outcome that delivers real liberalisation of trade in goods and services and provides a confidence boost to a struggling global economy. We’ve come a long way and expended much effort. It’s time for a final push.

The bilateral trade relationship

Our partnership with India is embracing an increasingly diverse range of trade and economic interests.

As the Indian economy has emerged on a global scale, Australia’s trade with India has shown remarkable growth.

Before levelling off in the last financial year, our goods exports to India increased at around 30 per cent a year between 2002 and 2007 to make India our fastest growing major export market.

Last financial year India became our 11th largest trading partner and our 7th largest export market.

The demand in India for energy and resources is the principal driver of this export growth. As one of the world's largest suppliers of energy and resources, we are working closely with India to promote new areas of trade in this sector, whether in clean coal technology or liquefied natural gas.

Our mining services and technology sector also stands ready to offer its world-leading products and services to the Indian mining industry to help improve exploration success, mine safety, environmental management and the efficiency of resource extraction.

We are also aware, of course, that there is a growing Indian demand for uranium.

In September Australia supported an India-specific exemption to the Nuclear Suppliers Group’s Guidelines to enable civil nuclear supply to India by those participating nations who choose to do so.

Expanding the relationship

Australia and India have a broad-ranging, robust and dynamic relationship. It’s not a one issue relationship. It's one that can accommodate differences of opinion on particular issues, and can move forward constructively and positively.

There is much cause for optimism when looking at the Australia-India commercial relationship, but it is important to recognise that some key challenges remain. I’m sure some of these challenges will be familiar to AIBC members here today.

High tariff barriers, in particular, have made it difficult for some Australian exporters, as has the behind-the-border regulatory environment.

The bilateral economic relationship has considerable potential to expand. We began a joint feasibility study with India on a Free Trade Agreement (FTA) in 2007 to take advantage of this untapped potential.

Many would be aware of the FTA study from the consultations we carried out this year with businesses in all States and Territories – the participation of AIBC state offices was welcome. The consultations revealed that there is strong support from business for an FTA.

We have also received over 50 written submissions. These have proved a valuable source of information for our meetings with Indian officials.

We are working hard to finalise the feasibility study by the end of this year.

Bilateral FTAs can enhance the trading relationship if they are truly liberalising across all sectors. They should not only bring down tariff barriers but also address a range of other impediments affecting trade and investment between the two countries.

Experience has shown us that the more ambitious an FTA the greater the rewards for its members – ambition is the key.

Businesspeople like you will also play a crucial role in expanding the relationship.

Bringing together senior businesspeople on both sides is important to improve understanding of opportunities and challenges and to better inform governments of the facilitating role they can play.

That is why Ministers Nath and Crean have proposed developing an Australia-India CEO Forum similar to that which India currently has with some of its other major economic partners.

The Forum would engage top-level business figures to meet and discuss the full range of our current and emerging bilateral commercial interests and present policy ideas to governments based on these discussions. It would helpfully complement the valuable work the Australia India Business Council has been doing for so many years.

Australia is already amongst India’s top ten import sources and we have a major role to play as India continues to flourish in the 21st century.

India’s growth is widely expected to continue, driven in a large part by the expansion of its middle class. One recent study predicted that the Indian middle class would grow from 50 million today to 583 million by 2025.[1]

This demographic change is expected to lead to increased discretionary spending and the broadening of consumer tastes to include more Western goods and services.

The opportunities for Australia’s trade links with India to expand well beyond traditional strengths are outstanding.

Just as world trade is about more than just removing tariffs, our bilateral trade encompasses more than just goods. Services and investment are increasingly important components of our trade with India.

India’s service’s sector is its fastest growing sector and the trade in services is one of the most dynamic aspects of our trade relationship. Services trade between our two countries grew four-fold between 2002-03 and last year financial year.

The recent joint venture agreement between Insurance Australia Group (IAG) and the State Bank of India is a good example of the opportunities for Australian services companies in India. The joint venture will establish a general insurance company in India and will see IAG partner with India’s largest financial services organisation.

Some other recent trade successes for Australia have come in areas such as diverse as woolen garments, agricultural genetics, electronic retailing and microwave technology.

Australian companies are also making headway in India’s offshore oil and gas sector, as well picking up business in infrastructure, telecommunications and construction projects.

Encouragingly, Indian investors are also playing an increasing role in the Australian resources sector – for example in coal mining in NSW and biotechnology in Victoria.

Two-way investment is increasing, albeit from a relatively low base, and last financial year our services exports to India reached over $2.5 billion dollars.

The growth in Indian tourists coming to Australia has been strong over several years and we recently opened our first Tourism Australia office in India (in Mumbai) to encourage more visitors to our shores.

Tourism is strong but education exports are truly the outstanding performer amongst our services.

The numbers of Indian students enrolled in Australian education institutions increased from around 11,000 in 2002 to over 85,000 in the first nine months of this year. If current visa levels continue Australia will educate a million Indian students over the next 20 years.

The skills Indian students learn in Australia are taken back to India contributing to its economic growth and just as importantly strengthening the people-to-people links between our two countries, developing a greater understanding and appreciation of our respective cultures.

The Indian Institute of Technology Bombay (IITB) – Monash Research Academy in Mumbai is also increasing Indian students’ and researchers’ exposure to Australian innovation. The Academy is a centre of research excellence in clean energy, water, biotechnology, mineral exploration and computer simulation.

Many Indian students choose to stay in Australia after completing their courses, adding to the skills base of the Australian economy. These students are being joined by increasing numbers of skilled Indian workers who are coming to Australia.

India is now the biggest single source of skilled workers through our business visa system - which is helping our bilateral relations on many levels.

These people-to-people links will be vital in helping to take the relationship to a new level in business, but also across a broad range of areas like education, health, IT, the arts, entertainment and more.

I therefore consider it crucial that challenges arising from the rapid increase in numbers of Indian students in Australia are met with appropriate sensitivity and care.

The welfare of visiting students is paramount.

Some disturbing but fortunately isolated cases of assault against Indian taxi drivers led to a perception amongst some that Australia is not a safe place for Indian students.

The Foreign Minister and the Trade Minister have written to State Premiers to urge State Governments to work closely with Indian diplomatic missions to ensure any incidents are followed up be police in a rigorous, swift and sensitive fashion.

This is an issue that the states are sensitive to, and both levels of government will continue to work to ensure that an Australian education is a positive experience for foreign students.

Conclusion

Australian and India’s bilateral trading relationship has grown rapidly in recent years and generated considerable momentum.

But in seeking to capitalise on the wealth of opportunities in India, Australia faces stiff competition on a crowded international playing field. Now is not the time to take our eye off the ball.

The Government’s job is to enable business to do what it does best - and I can tell you today that we have a real political commitment to strengthen and diversify our trade with India.

But our efforts will only be rewarded in an international climate conducive to business confidence.

Just as we must, and will, together face down those who rely on deliberate cruelty to kill, and to disrupt the working life of a great trading city -- and through it, a great world economy—so too we must defend the underlying principles of free trade.

And Australia and India are committed to this. We will be working hard to put in place the plan of action set out at the recent G20 Summit, and to nip in the bud any emergent protectionist sentiment.

The other factor needed to realise the potential in this relationship is the participation of imaginative, hard working businesspeople such as yourselves.

Let me congratulate you on the commercial success you’ve already built and the work you’ve already put in to develop strong trading relations. I look forward to hearing how the Government can support your endeavours as we work together to further expand the trade and investment relationship.

Thank you.


[1] McKinsey Global Institute report, 2007

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