The Hon Anthony Byrne MP, Former Australian Parliamentary Secretary for Trade
Australian Commonwealth Coat of Arms

Speech

17 November, 2009

Australia and the EU: Meeting the Challenges of Trade and Investment Barriers Behind the Border

Introduction

Thank you for your kind introduction.

I thank the ANU for organising this event, and welcome the important work being done by the National Europe Centre on the trade and business relationship between Australia and the EU.

The theme of this conference – Building an Agenda for Australia EU Cooperation - sits very comfortably in a series on Trade and Investment Issues for the 21st Century.

Australia and the EU have a great foundation upon which to build a broader agenda.

We have close historical, political, economic and cultural ties.

We are both closely integrated into the global economy. We rank among the world’s most developed and open economies, with high education standards and tremendous innovation capability.

We have large financial markets, which in the case of Australia, is estimated to be worth US$4.4 trillion. We are safe investment destinations and our currencies are among the most traded in the world.

Prime Minister Rudd, during his visit to Brussels last year, made the point that we should take a broad view of our relationship.

He and EC President Barroso agreed a new era of creative engagement between Australia and the EU that will better equip us to work more closely together on 21st century challenges.

And clearly, repairing the global financial system and avoiding the conditions that caused its near collapse is one of those challenges.

There is no doubt that we need to make changes to the global financial system.

It is also becoming clearer what needs to be done.

Crucially, we now have the vehicle to make these changes happen, in the form of the G20.

Whilst we are globally weathering the most serious financial crisis since the great depression, the endorsement of the G20 as the premier forum for the global economic cooperation represents a ray of sunlight in this storm.

The collective and coordinated responses of G20 Leaders were crucial in preventing the global economy from spiralling further downward.

Going forward, G20 Leaders aim to deliver strong, sustainable, balanced long-term growth, through a new framework that will seek to avoid the boom and bust cycles of the past.

This framework recognises the need for greater consultation on issues such as strengthening financial supervision, increased cooperation on macroeconomic policies, and the implementation of sound fiscal policies.

Leaders agreed on the importance of maintaining stimulatory measures, until a sustained recovery is in place, and that after the recovery, the withdrawal of these extraordinary measures must be done in a coordinated and cooperative way.

G20 Leaders have also committed to pursue reforms of the IMF and the World Bank to ensure these institutions better reflect the economic weight of emerging and developed economies.

The G20 has also identified the conclusion of the World Trade Organization’s Doha Round of trade negotiations in 2010 as a crucial step both in the recovery, and in laying the foundations for future global prosperity.

There are two reasons for this.

Doha is an important economic stimulus you have that doesn’t drive Government’s further into deficit.

Secondly, it is the most effective insurance against the spread of protectionism.

Resisting protectionism is crucially important to shoring-up global growth. We know what happened in 1932 when the trade war started and its effect in prolonging and deepening the depression.

But G20 leaders also underscored the need to turn the page and embark on a new era of global economic management.

This involves unprecedented macroeconomic coordination, to address the global financial imbalances that helped exacerbate the crisis.

It is also clear that structural reform will be vital for balanced global growth that will reduce the global savings and investment imbalance.

All economies will have to look at impediments to sustainable growth.

In many cases this will involve tackling what we loosely term ‘behind-the-borders’ reform. That is, boosting productivity, reducing un-necessary regulation, and thereby increasing competitiveness.

The last thing we want is for the structure of the economy to become an impediment to trade and investment, and thus to prosperity.

Successfully tackling these ‘behind-the-border’ issues will lay the foundations upon which the next stage in trade liberalisation can be mapped out, offering even freer and more efficient global trade.

As we embark on this process, the interests of Australia and the EU are closely intertwined.

It is clear we have substantial shared interests in reduced global economic imbalances, particularly in the context of the United States-China relationship.

We have shared interests in communicating to our citizens the benefits of free trade, ensuring that we present the arguments against the siren call of protectionism.

Along the way we will have to answer the critics who say the global financial crisis proved that globalisation has failed, and that we should wind back our efforts to interconnect with each other.

We also have shared interests in addressing some of the pressing issues of this century, including the trade and environment nexus, energy security and the social and economic effects of demographic trends.

Australia is experiencing a rapid population increase that is expected to see the population reach 35 million in 2049 – most living in cities.

Europe, on the other hand, faces a stable or declining population. Managing both these situations will bring its challenges.

It is clear also that both Australia and the European Union face challenges in maintaining our standards of living as the proportion of people of working age declines, while we continue to live longer.

By mid-century, it is forecast that up to a quarter of Australia’s population will be 65 or older – up from about 13 per cent now.

The EU forecasts that by 2060, within its member states, there will be only two people of working age for each person aged 65 and over, compared with the current ratio of four to one.

Both Australia and the EU are considering how to respond to this challenge, including through labour market and pension reforms.

These sorts of strategic shared challenges have the potential to transform what is already a close relationship into one where we work together on a broader array of 21st century challenges.

Australia-EU Trade Relationship

The 27 members of the European Union as a bloc already constitute Australia’s largest trade and investment partner. Total two-way trade in the year to the end of June reached almost $90.3 billion.

EU members’ investments in Australia accounted for some 34 per cent of foreign direct investment, worth $133 billion, at the end of 2008.

EU companies have directly created nearly 500,000 jobs here.

With a population of almost half a billion, and an economy worth A$21.9 trillion in 2008 – bigger than that of the US – it is clear that the EU presents many opportunities in bilateral and multilateral trade.

As an example of this, earlier this year, at the inaugural Australia – Spain Business Forum in Sydney, I had the pleasure of meeting the visiting King of Spain, HM King Juan Carlos. This visit that was symbolic of the strengthening trade and investment relationship between Australia and the EU.

The Australia – Spain Business Forum also highlighted the scope for the EU, which is the world’s largest source of investment in the clean technology sector, to play a key role in clean and renewable energy projects in Australia.

Of particular note, was the substantial Spanish investments in wind farms in Australia by Union Fenosa and Acciona Energy, and in the landmark Western Australian desalination project, undertaken by Technicas Reuunidas.

In this spirit the Australian Government is working hard to provide a framework for an enhanced commercial environment.

The new energy in the relationship is evidenced by the conclusion last year of the Australia-EU Partnership Framework.

A key objective of the framework is to promote and support the multilateral, rules-based trading system, and to consolidate and expand the bilateral trade and investment relationship.

Cooperation on implementation of the G20 Leaders’ commitments has now been included as an action item, under this objective.

Already we are seeing important results under the Partnership Framework.

For example, once it enters into force, the recently concluded Agreement on Trade in Wine between Australia and the EC will provide additional benefits to a trade worth close to $A1.3 billion. For Australia a greater range of winemaking practices will be recognised and labelling rules will be less prescriptive, while the EU will gain protection for certain geographical indications used in naming wine.

We have also established dialogues to address food, plant health and animal welfare issues that have the potential to affect bilateral trade.

We are working together on a Comprehensive Air Transport Agreement that will replace 17 separate and outdated agreements with a single arrangement, covering all EU Member States.

Lastly, and I think this demonstrates a real step forward, we are developing an informal “early warning arrangement” that will allow us to discuss, at an early stage of their development, any proposed regulations that could affect bilateral trade.

Of course, this reinvigorated relationship does not mean that we do not raise our concerns when EU policies affect us adversely, such as the reintroduction of export subsidies for dairy earlier this year.

However, particularly in a world recovery from the GFC, it is critical that we won’t allow our differences to define and overwhelm our relationship.

For Australia, a challenge for the future of the bilateral relationship is to move beyond the reliance on one EU market, the UK, and to grow our economic relationship with other EU countries.

We need to explore opportunities available in other parts of Europe and encourage a greater understanding of European business culture.

And of course, the Lisbon Treaty will bring about institutional changes that will change the way the EU interacts with other countries, including on trade-related matters.

We know that these changes will begin from the 1st of December, and include:

It’s clear these are fundamental changes that we will need to get our heads around if we are to make the most of our opportunities in Europe.

Beyond the Bilateral

Beyond our bilateral relationship, Australia and the EU have a shared interest in concluding the Doha Round in 2010.

As the commitments made by the G20 attest, growth from trade liberalisation is one of the major ways we will help restore trend growth in the global economy.

Concluding Doha is the Australian Government’s highest trade priority and I know the EU shares our urgency.

Trade Minister Crean and EC Trade Commissioner Ashton continue to work closely together to help resolve the remaining differences.

It is tantalizingly close. Eighty per cent of the Doha Round is settled.

We look forward to establishing a clear path forward at the upcoming WTO Ministerial Conference that Trade Minister Crean will attend in Geneva at the end of the month.

While not a detailed Doha negotiating session, this conference is a timely opportunity to build momentum toward concluding the Round in 2010.

We know concluding the Round will bring benefits unparalleled and unequalled by any other trade agreement.

The global gains from doing this deal could be as high as US$700 billion.

On the other hand, analysis last month by Australia’s Productivity Commission found that, in the absence of a Doha outcome, countries could potentially raise applied tariffs to bound levels, at a cost of A$1 trillion to the world economy.

Australia and the EU share a strong commitment to the development dimension of the Doha Round.

We know that no economy has achieved strong and sustained economic growth – and thus rapid poverty reduction – without participating in international trade.

We also share an interest in ensuring that the Doha package includes significant liberalisation in services.

I’ll come back to services shortly as the development of services goes to the heart of laying the foundations for the next phase of trade liberalisation, post-Doha.

Behind the Border

There’s no doubt that we need to undertake structural reform to take advantage of the new openness that a successfully completed Doha Round will deliver.

However, addressing ‘behind the border’ challenges is fundamental to enabling a more open and transparent global trading system, post-Doha.

Structural reform is crucial for economic growth. It enhances our ability to trade and invest with the rest of the world and to reap greater benefits for doing so.

It means goods, services, ideas and capital can be traded efficiently, quickly and at least-cost to producers and consumers.

This means:

Behind the border reform is the second pillar of the Australian Government’s trade policy, standing alongside gaining greater access to markets overseas.

The Government is pursuing an extensive agenda to improve productivity and competitiveness.

Shortly after the Rudd Government came to office, the OECD ranked Australia 20th out of 25 countries on investment in public infrastructure, as a proportion of national income.

We understood that this was not good enough.

Two years later we are now well down the track in implementing our plan to fix the problem.

We know that Australia’s trade performance and our economic prosperity will be enhanced by addressing the drivers of productivity.

I want to run through a few examples of what the Government has done so far.

Firstly, we established Infrastructure Australia to coordinate planning, regulation and the development required to unlock infrastructure bottlenecks and modernise Australia’s transport, water, energy and communication assets.

We are rolling out the nation’s biggest infrastructure spending program in decades in the form of the new National Broadband Network.

The network will connect 90 per cent of Australian homes, schools and workplaces with broadband services up to 100 times faster than those now used by many households and businesses.

$43 billion will be invested over 8 years to deliver this network. It will help drive Australia’s productivity, improve education and health service delivery, and connect our big cities and regional centres.

We have launched the $11 billion Education Incentive Fund to transform higher education and vocational education and training, through investment in our educational institutions.

Under the Skilling Australia for the Future initiative, we will oversee the delivery of more than 700,000 training places over five years.

We are also addressing the red tape and regulation that constrains growth.

For example, the Minister for Finance and Deregulation is driving a program to reduce the level of business regulation undertaken by the different levels of government in Australia.

These reforms make Australian industry stronger.

We know they will make Australia a more attractive destination for investments.

We are also promoting a structural reform agenda in our region, particularly through APEC.

Behind-the-border trade facilitation is one of APEC’s key strengths. Through APEC, economies in our region have already reduced the cost of doing business within our region by five per cent. It is on track for a further five per cent reduction by the end 2010.

The EU, of course, is engaged on its own structural reform agenda and Ambassador Daly, Head of EU Delegation, who will speak next, will, I’m sure, outline progress in this area. We recognise that reform of the Common Agricultural Policy has been underway for some time.

I acknowledge that progress has been made. But much more remains to be done.

And if it’s done well, the benefits will be substantial.

Australia’s experience has shown that it’s possible to undertake agricultural reform without ruining farmers’ livelihoods, or sacrificing the land or landscape.

Our agricultural sector is now more efficient, competitive and sustainable and we can
share this experience with the EU.

EU farmers need the opportunity to build sustainable, profitable enterprises.

But reform benefits consumers too – they can buy the food they want at better prices.

And more European resources will become available to promote innovation and competitiveness – priorities of the Lisbon Strategy.

We’re looking forward to more progress, particularly in the context of EU’s budget for 2013 to 2020, as we do with the continuing reform of the Common Fisheries Policy.

We know that fisheries imports will be important in sustainably meeting demand from EU consumers in the future.

This is especially so given that 88 per cent of EU fisheries are being overfished, as the EC’s Green Paper on Reform of the Common Fisheries Policy acknowledges.

Australia, with its world-class sustainably managed fishing industry, is well-placed to help meet that demand.

We look forward in the spirit of cooperation to further progress in Australia’s quest for improved market access for a modest volume of our sustainably farmed yellowtail kingfish has so far been unsuccessful.

Now I want to come back to the regulation of services and investment, an area where I know Australia and the EU would benefit from working together to tackle behind-the-border reform.

On financial services, we know that the EU has made significant reforms on prudential regulation and barriers to a fully integrated EU financial services market.

But we would like to explore opportunities for closer integration of our respective financial services sectors, particularly the regulation affecting access to the EU market for Australia’s managed funds and collective investment schemes.

We would also like to talk about differences in the regulation of professional services, including national requirements and licensing restrictions.

And in terms of telecommunications services, we would like to see if we can work together on the regulation of international roaming on mobile networks.

And I’m sure the EU has some behind-the-border issues that it would like to raise with us.

We look forward to these conversations.

I know, for example, there’s interest in recent changes to our Foreign Investment regime which have cut some of the red tape for investors.

If we work together on these sorts of issues we make trade and investment between our countries easier.

Our actions will also prompt other countries to follow suit.

Eventually we will start joining the dots in the next phase of global trade liberalisation.

Conclusion

As we work through the fallout from the global financial crisis, it is clear that Australia and the EU have converging trade interests.

They go beyond our bilateral relationship.

They go beyond even the best efforts we are making to ensure a successful conclusion to the Doha Round.

Our broadest shared interests are in laying the building blocks for the next generation of trade openness – that is, tackling behind the border challenges.

It is no easy task.

But we have to start tackling them and sharing lessons learned.

This kind of difficult structural reform will be crucial if we are to avoid reliving the most severe economic event of our lifetimes.

Furthermore, it will be critical to laying the foundations for the global prosperity that will benefit future generations.

Thank you for the opportunity to address you today.

I wish you well as you undertake these important discussions on building an agenda for Australia/EU cooperation.

END