Address by The Hon Tim Fischer MP, Deputy Prime Minister, Leader of the National Party, Minister for Trade, to Australian Business in Europe, Melbourne, 29 August 1997

Introduction

Michael Selth, President of ABIE's Victorian Branch, George Finlayson, British Consul-General in Victoria, other distinguished guests.

I am very pleased to be able to address Australian Business in Europe as it is an organisation which is working hard to promote greater trade and investment ties between Australia and the European Union, one of our major economic partners. I am also very pleased to announce that I will be visiting Europe in just over a week's time. In addition to bilateral activities in Italy and Spain I will be visiting Brussels for discussions with the Commission on trade issues covering the European Union. This visit reinforces my commitment to re-invigorating our European bilateral relationships.

Yesterday the Government tabled the first Foreign Affairs and Trade Policy White Paper in Parliament setting out where our foreign and trade policies are headed for the foreseeable future. In that paper we have made clear that although the Asia Pacific region is necessarily our priority we certainly have other crucial links around the globe, including, of course, our important links with Europe.

Today I would like to set out for you why I think Australia is going to be an increasingly attractive trade and investment destination for European firms.

The Australian Economy: Performance and Prospects

Let me begin by saying that Australia's economic prospects, as outlined in Australia's 1997-98 Federal Budget, are good. The forecasts are for strong growth - with the lowest interest rates for decades, negligible inflation and faster employment growth. Real GDP is forecast to rise by 3.75 per cent in 1997-98, underpinned by a supportive international environment and structurally sound household and corporate sectors.

Moreover, the Australian Government is establishing a framework for economic growth for years to come. We are addressing the impediments to greater competitiveness - first - with our responsible macroeconomic policy framework - second - by accelerating microeconomic reform and - finally - by reducing the regulatory burden on business.

A key aim of our macroeconomic framework is to improve public and private savings. In our first term of government, we will have turned an underlying budget deficit of more than $10 billion into a surplus of $1.6 billion. By 2000-2001, the budget should be in the black to the tune of $10 billion. That's quite a reversal.

The Government is achieving this without increasing existing taxes or introducing new taxes. In addition, the Government is encouraging sensible debate on taxation reform aimed at achieving a more efficient and effective taxation system.

The June quarter ACCI-Westpac survey shows that business confidence is already strong following the May Budget and cuts in official interest rates.

But the Government is not resting on its laurels. We intend to press ahead with reforms to give Australia's competitiveness an even sharper edge. We will continue:

. vigorous microeconomic reform to increase productivity, including in key sectors such as telecommunications, transport and energy;

. labour market reform for a more efficient and flexible labour market; and

. regulation reform to reduce the compliance burden and costs for business.

As a result, when Europeans look at Australia they will see economic reforms being put in place which enhance even further Australia's international competitiveness and make Australia an even more attractive investment destination.

They will also see an economy which has consistently outgrown those of other industrialised economies.

The Prime Minister made this point strongly during his visit to the United Kingdom last month, when he highlighted the latest OECD economic outlook for Australia.

The OECD forecasts for the next two years for real economic growth, employment growth and business investment growth are higher for Australia than for any G-7 nation. For 1998 they are also higher than the OECD average.

And we could already meet the criteria for membership of Europe's economic and monetary union. Luxembourg is the only EU Member State that could make that claim!

A leaner, more efficient, domestic economy is making Australia a more internationally competitive exporter. Indeed, I am very pleased to say we are already seeing the benefits of the Government's positive approach.

Australia achieved a surplus of $A2.8 billion on the balance of trade in goods and services in 1996-97, compared with a deficit of $A0.8 billion the previous year. This was the first time Australia has recorded a surplus in both merchandise and services exports.

Economic Links with the European Union

A large proportion of our exports are, of course, bound for the EU.
I don't need to tell this audience of the importance of our economic relationship with the EU, but let me nevertheless recall a few key figures to underline the magnitude of the relationship.

Taken as a single entity, the EU is our largest source of investment, with 29 per cent of total foreign investment.

The EU is the second largest destination for Australian investors, which means that more than 25 per cent of Australia's total foreign investment went to the European Union.

The EU is also Australia's second largest overseas market for services, and the EU is Australia's second largest merchandise export market. It was also our major source of imports.

Moreover, Australia has increased its share of European imports of elaborately transformed manufactures. One of our major exporting success stories recently has been wine where we have seen sales increase many times over in the last decade. The other impressive performers include ships, office machine parts, telecommunications equipment and pharmaceuticals.

Australia as a Regional Headquarters

I am pleased to say that economic links between Australia and Europe are getting even stronger as more and more firms are making Australia their regional headquarters. European firms are looking both to take advantage of Australia's excellent growth prospects and to seize the opportunities afforded by our proximity to the engine room of world growth - the Asia Pacific.

And why are European companies looking to Australia as a launch pad for Asia-Pacific operations? I have already set out for you the positive macro-economic fundamentals and what we are doing to improve the microeconomic picture.

Australia also measures up very well against most of the key advantages sought by investors. These include an educated, skilled workforce, a large and sophisticated domestic market, our strategic location close to Asia Pacific markets, first class infrastructure services, a world class research and development base, and relatively liberal foreign investment and ownership rules.

Moreover, Australia is very cost competitive across a wide range of business inputs, especially in commercial and industrial property, and in managerial and professional salaries.

We also have a regional headquarters (RHQs) program to encourage global companies to establish RHQs in Australia. In particular, the Government provides limited tax concessions, such as wholesale sales tax and dividend withholding tax exemptions, as well as immigration agreements for firms establishing RHQs.

A Shared Interest in Trade Liberalisation

There is another important area in which Australia values its relationship with the EU. The EU's leadership on international trade issues in such key forums as the WTO, the OECD, and the Energy Charter conference demonstrates that we have a shared interest in trade liberalisation.

Similarly, I know that the EU places value on Australia's role as a key player both in the Asia Pacific - through organisations such as APEC - and also in a range of other influential international groups and organisations.

Both Australia and the EU attach considerable importance to securing freer and more open trade - across our region and globally.

Australia now has one of the most open economies in the world and, as a global trader, we are particularly concerned to see that global trade liberalisation is advanced further.

When I addressed the Japanese-German Centre in Berlin in May this year I challenged the European Union to accelerate structural reforms to keep pace with the trade liberalisation momentum of the Asia-Pacific region.

We believe that the EU does have a strong commitment to global trade reform. We have seen evidence of this in the achievements made in the post-Uruguay Round negotiations on freeing up international trade in services.

For this reason we were disappointed with the agricultural reform proposals that were contained in European Commission President, Jacques Santer's, recent reform package covering the period 2000 to 2006.

This package, called "Agenda 2000", was far-sighted in its treatment of reform of the institutions and the funding of the European Union as it heads towards an historical period of expansion. It also spelled out a re-arrangement of objectives for the Common Agricultural Policy which we applaud.

The Commission's proposal would give first priority to achieving a world-competitive farm sector. It would make a second priority of ensuring food quality and safety. We believe that this ranking of priorities would be appropriate. This would be the only way to ensure a real future for European agriculture while giving a fair deal to farmers in other countries and European consumers and taxpayers.

We consider, however, that the actual proposed changes to the CAP arrangements themselves would be too limited in scope and too slow. They would also fail to deal with important market access restrictions.

It is therefore our sincere hope that these measures are only a starting point and not the total extent of the European Union's ambition on market-oriented agricultural reform. We hope it will be reviewing its reform package with a view to taking a more positive and comprehensive approach to this vital issue in the lead-up to next year's WTO Ministerial meeting.

Conclusion

It is clear from what I have outlined today that Australia and Europe already have strong trade and investment links.

And I would again encourage the European Union to imbibe the spirit of trade liberalisation which is sweeping the Asia-Pacific. To take up that challenge will be to our mutual benefit.

Australian Business in Europe, I know, will do its best to encourage freer trade between us. I applaud your efforts to make stronger the powerful economic bonds between Australia and Europe.

With freer trade and investment they can be stronger still!