Wool Council of Australia

Address by The Hon Tim Fischer MP, Deputy Prime Minister, Leader of the National Party, Minister for Trade, to the Wool Council of Australia, Queanbeyan, 23 October 1997.

I would like to thank the Wool Council of Australia for the opportunity to address Australian wool growers.

We often say that Australia is no longer riding on the sheep's back to demonstrate how advanced we have become technologically. But that does not mean that the wool industry in no longer relevant to the Australian economy. It is, and its importance is hard to overestimate.

The wool industry remains important to Australian export capacity with $3.7 billion in exports last year, and the value is expected to reach over $4 billion this year. This is around 17 per cent of all our farm exports.

Australia remains the largest exporter of wool in the world and the immediate outlook is encouraging. Prices are generally up from last year and consumer demand appears to be improving. And you know there is plenty of wool to satisfy this demand. The fact that overseas demand is improving is especially encouraging.

I am sure I don't need to explain to this audience how important trade is to the livelihood of the Australian farm sector. Over 70 per cent of Australian farm produce is exported, but this figure is even higher for wool.

With wool exports reaching over 90 per cent of production this year, the wool industry heavily depends on access to overseas markets for success. As the Minister for Trade, I am here to tell you what the Government is doing to improve market access for Australian wool.

Market access

Since this Government took office 18 months ago, we have been actively pursuing market access for our agricultural exports through a range of bilateral contacts, though APEC and through the World Trade Organization. Wool is one of our key priorities. In this pursuit, we are achieving results that translate into real dollars for our wool growers and processors. Let me give you some examples.

Firstly, Mexico has removed its 10 per cent tariff on scoured wool, wool top and wool noils and waste imports from Australia. Following this decision, Australian wool exports to Mexico have increased by 60 per cent in volume and 75 per cent in value. Nearly all the increase has been in wool tops.

Admittedly this growth is from a low base, but the prospects are really good for even more exports to Mexico as Mexican textile industries are beginning to take advantage of the opening up of the North American market under NAFTA. In fact, Mexican wool processing capacity is expected to increase by nearly 40 per cent to 8 million kilograms by the year 2000.

Secondly, Korea has extended its zero wool tariff for six more months from 1 July 1997.

And India and China have lowered their applied wool tariffs, which saw expansion of our exports to these markets by 38 per cent and 18 per cent respectively. All these are important markets for our wool exports.

It is probably most heartening to see an increase of trade to new markets such as the 15 fold increase in value of wool exports to Indonesia and the 10 fold increase to Lithuania over the last four years. A large share of market expansion is happening in our region: Indonesia, Malaysia and Thailand are among other export destinations for wool.

An important characteristic of the international trade in wool is that much raw wool is often bought by countries not for consumption, but for processing and re-export as apparel. That is why Australian exports of wool depend on market access for woollen apparel for importers of our wool. Since Australia does not have a large export textile industry, we do not have the clout to open up lucrative overseas markets for exports of apparel produced from our wool.

That's where our multilateral and regional efforts on trade liberalisation become really important. The Mexican case I just talked about is a good demonstration of how trade liberalisation, even in a region which does not include Australia, can be beneficial for our trade interests.

Our multilateral efforts through the WTO and regional efforts through APEC help provide the reinforcement we need to resolve some issues which are too hard to crack bilaterally, and improve the rules applying to our trading partners.

Results do not come easily, nor do they come quickly. The Uruguay Round, which delivered important breakthroughs for agriculture, took seven years to complete. But the outcomes were worth the waiting - they have been estimated at $1 billion a year for Australian agriculture.

More long-term benefits are expected to flow from trade liberalisation under APEC. APEC leaders agreed to liberalise trade in the APEC region by the year 2010 for developed economies and 2020 for developing economies, opening up valuable markets for woollen apparel such as US and Japan, thus providing demand for Australian wool in processing countries such as China.

While the Uruguay Round has delivered benefits in the form of lower tariffs, the most important outcome for the wool industry was the agreement to phase out the Multifibre Arrangement over 10 years. Ten years, of course, is a long time, and you probably know that many countries chose to backload their commitments so that real benefits will only begin to flow after the year 2000, and most liberalisation will not occur until 2004. At the same time, textile tariffs will also be significantly reduced giving textile trade a better chance in many markets, particularly in the US.

But what is important, is that the trade in textiles will eventually be subject to WTO rules and disciplines. This should assist developing countries whose exports for many years have been constrained by restrictive quotas in major markets such as the EU and the US and many of which are using Australian wool for processing. This is how the WTO will deliver benefits to the Australian wool industry.

Another way to advance Australia's trade interests is through accessions. Thirty countries are now negotiating to join the WTO, each providing an opportunity to improve and secure access for a range of products including wool and to expand our markets.

Negotiations on China's accession are the most important of these for the industry because of the vital importance of the Chinese market for wool. And the Government is doing everything possible to secure this market for the future.

We are yet to settle market access negotiations with China, and protection of adequate access for our wool exports is one of the most important issues, if not the most important one. Securing current access levels with adequate provisions for growth will be the bare minimum we will be prepared to accept.

I had the opportunity to press this point with the Vice-Premier Zhu Rongji and MOFTEC Minister Wu Yi during my visit to China last month. I am confident that we are getting close to agreement on wool that will be acceptable to this industry.

However, I have to tell you that, while the wool issue is the most important, we will have to achieve similar breakthroughs on a number of other issues - we will only have one chance to negotiate with China on market access and we need to get the most out of the accession for the Australian economy.

Besides assured access, China eventually joining the WTO will also mean that China will have to play by the WTO rules. These cover subsidies to domestic wool growers and the State owned enterprises, and will ensure a transparent and fair taxation system that does not discriminate against imports of Australian wool.

Domestic competitiveness and reform: the need for strong leadership

While the Government can and does improve access to overseas markets, it is important that the industry should be prepared to take advantage of these improvements. To be able to do that, the industry should improve its place in the globalised market place.

The wool industry needs to support its leadership and to organise itself better to help it through this difficult but vital transition.

Peak industry bodies like the Wool Council have a vital role to play for their industries, especially at a time of change. Strong leadership also means that various sectors of the industry must work cooperatively though this change to sustain and enhance their industry. I believe that the Wool Council should be well placed to provide such leadership.

The Government can and will help to improve market access. The industry, however, can and should look after their markets by continuing to enhance the image of Australian wool as desirable product of consistent quality. Just as food industries are striving to promote the image of clean, green Australian food overseas, the wool industry can enhance the image of Australian wool by clever marketing and the consistency of product to support promotion efforts.

As the Minister for Trade, I was very disappointed to hear that year after year some Italian and Japanese importers of otherwise good quality Australian wool for their fashion industries complain about the same problem - contamination by low quality packaging material.

After all, what is the point of producing high quality wool suitable for the most exclusive and expensive garments only to pack it into packaging which is going to ruin the quality and reduce price - so that a minority damages the work of the entire industry?

However, I am pleased that the industry is taking the contamination issue seriously. The Contamination Working Party, established by my colleague, the Minister for Primary Industries and Energy in June, is working on issues such as the need to move to nylon or other non-contaminating material for packaging and adoption of quality assurance on the farm and throughout the pipeline.

But contamination is only one, although crucial, aspect of the broader issue of Quality Assurance which must be addressed by the industry with all seriousness. It is also important to build strategic alliances with brokers, processors and overseas importers. This will allow you to get maximum benefits from through-chain quality assurance. It will allow market signals to feed quickly through the chain and allow producers to produce what the market wants and what the market is prepared to pay extra for.

The industry cannot afford to ignore general trends in the global market. Other domestic industries are catching up with the world standards and world's best selling practice. The lamb industry, for example, has recently introduced the "Quality Australian Lamb on-line" electronic selling system.

So I believe the move towards such trading practices is clear, and we can't afford to sit on our hands any longer. In this respect, I should note that the establishment of "Auswool Direct" is certainly a step in the right direction.

In this age of innovation, I would like to encourage you to take an innovative approach to marketing your produce. After all, a great proportion of your produce ends up in the fashion industry.

The wool industry needs to produce for the market. Fortunately, I can say that the industry is getting its act together with respect to innovation. I mean the development of new, exciting products such as wool plus lycra, wool cotton blends such as "Denimwool" and "Colana", and Sportswool. This is a sign that industry is taking market development seriously.

Conclusion

But I believe that, if the wool industry can exercise, on every issue it is confronting, the same kind of cooperation and leadership which is evident on the issues on contamination and innovation, it can secure a prosperous future for everyone involved in it.

And the Government will continue with its business of getting the economic fundamentals right to create the economic environment to allow every industry to compete effectively on Australian and globalised markets.

We should not underestimate the opportunities on offer to our wool sector through increased exports, nor the challenges in front of us if we are to make the most of those opportunities.

I am confident that if we work together to take maximum advantage of these opportunities, we can significantly improve the welfare of our wool producers, both now and in the future.