Speech by the Minister for Trade The Hon Mark Vaile MP to the Federation of Industries of the State of Sao Paulo (FIESP) Seminar Sao Paulo, Brazil, 1 September 1999

(Check Against Delivery)

Introduction

Thank you Vice President Villares. It gives me great pleasure to be making my first visit to Sao Paulo and to have an opportunity to meet with FIESP members and guests.

I am in Brazil as I have heard so much about your wonderful country and especially about the dynamism of Sao Paulo. I am here to give some badly needed stimulus to bilateral relations, which are nowhere near their real potential. The fault lies on both sides. Australian companies compete aggressively and successfully in some of the toughest markets in the world. But even though Brazil is by far our largest market in Latin America, I regret it remains for many a largely unexplored frontier. For Brazilian business, Australia is much the same.

Great potential of our bilateral relations

Of course, we have had our successes here. Brazil is a very important market for Australian coking coal. We sell dairy products, including milk powder and cheese. The latest model General Motors Omega is made in Australia. The electronic commerce equipment found in Brazil's largest private bank, Bradesco, is Australian made, as is some agricultural machinery used on Brazilian farms. Brazilians will also soon be using Australian plastic banknotes, a very successful new technology developed by the Royal Australian Mint.

There are long-standing and very productive ties in the mining and energy sectors, including Australian companies BHP, WMC and Hamersley Iron, which all have projects here. With Australia's long history of successful innovation in mining and energy, and Brazil's vast potential in those sectors, I believe that collaboration between our two countries could be of great mutual benefit.

Back in Australia, our market is large, sophisticated and open, but sees only a modest participation by Brazil. Agricultural products such as orange juice, coffee and tobacco make up the majority of Brazilian sales to Australia.

Two-way trade between our countries reached almost A$740 million in the twelve months to June 1999. I think we can do much better than that. There is enormous potential for your industrial products, including sophisticated products such as aircraft, auto parts and machinery. And more Australian companies could consider Brazil as a market for their goods and services.

Common effort in the Cairns Group

I have just come from Buenos Aires where I attended the meeting of the Cairns Group of Fair Traders in Agriculture. The Cairns Group, with Australia and Brazil at the forefront, are working energetically in the final stages of preparations for the WTO Ministerial Conference in Seattle in November. The key outcome from the Buenos Aires meeting was a clear message that there is no justification for discrimination against agriculture in the sense that trade in farm and agrifood products must be put on the same basis as industrial goods.

Australia and Brazil agree that the major developed economies have a responsibility to undertake agricultural trade reform, and to recognise the harm protection causes - especially to developing countries. For much of the developing world, agriculture is the key potential driver for growth and employment. But high levels of protection in industrialised countries limit access for exports, while the use of subsidies and price supports create artificially high levels of production by the world's least efficient producers.

I do not believe I have to explain to a Brazilian audience how important opening up world trade in agriculture is. Studies and economic modelling prepared on behalf of my Department of Foreign Affairs and Trade in Canberra show that a halving of agricultural protection would deliver a net global welfare gain of US$90 billion, much of it in developing countries. Halving trade distortions in all goods and services would yield a further $US 400 billion. That is why Australia thinks a new comprehensive round of trade negotiations in the WTO is so important.

Australia's outstanding economic performance

I wanted to also speak to you today about the economic reform successes the Australian Government has had over the last three years.

There has been no luck involved. With the Asian financial crisis affecting the economies of some of our most significant trading partners, Australia faced the toughest external environment possible. The results we have achieved show our firm commitment to economic reform and our unwavering determination to make the Australian economy more productive, more competitive and more responsive.

If you look at the back pages of the Economist magazine each week, you will have noticed that Australia continues to top the economic indicators among OECD members.

We have one of the highest growth rates in the developed world, with a decade of growth averaging over 4% each year. Last year, at the height of the Asian crisis, it reached 5%. We have the lowest net government debt to GDP ratio, the lowest interest rates and one of the lowest levels of inflation in the OECD. And we have been able to reduce unemployment to the lowest level in 10 years.

This is a conjunction of economic figures that has not been seen in Australia for decades.

The reasons for this strong performance in our economy reside in reform efforts we have taken in six areas of the Australian economy.

(i) Firstly has been our efforts at fiscal consolidation through converting a $A10.5 billion government deficit to a surplus of $A2.5 billion in only two years. We have also repaid over $24 billion of the former Government's debt.

(ii) Second is that we have achieved the financial deregulation of the Australian economy, including through the floating of the Australian dollar, the admission of foreign banks, the abolition of exchange controls and other measures.

(iii) Thirdly, tariff reform has helped in creating a robust and competitive primary and secondary sector winning greater shares of markets overseas.

(iv) Fourthly, labour market deregulation has played a major role in boosting productivity.

(v) Fifthly, market diversification, partly in response to the Asian economic now sees about half of our exports going to non-East Asian markets, a ten percent increase in the last three years.

(vi) Finally, and perhaps most importantly has been the Government's commitment to genuine tax reform. We are about introduce a new GST that will replace an outdated and cumbersome system of taxes at State and Federal level that have restrained our domestic economic growth and seriously disadvantaged Australian exporters. Major business tax reforms are also about to be announced.

Australia - open for business

I hope these comments leave you with a very different impression of Australia than you would normally get from the media. There you hear about a country rich in natural resources, with unique landscapes, cute animals, and endless sun, sand and surf for international tourists.

Don't get me wrong - those images are all true, and we Australians cherish them as much as anyone. But Australia is so much more than that. The Sydney 2000 Olympic Games will provide us a unique opportunity to be seen on the world stage for what we are - a sophisticated and successful economy, a nation that is "open for business".

One very good reason for closer ties between Australian and Brazilian businesses lies in our potential as gateways to much wider commercial opportunities. Many Australian companies in Brazil, for example, see their operations here as crucial to a successful leap into the wider Latin American market.

And Australia represents attractive base for regional operations for Brazilian businesses. An increasing number of large corporations have chosen Australia as their regional headquarters for the Asian/Pacific area, and Brazilian companies could profit from a similar move.

Conclusion - stretching your horizons

So may I conclude by saying that I end my first visit to Sao Paulo in very high spirits. I have been bowled over by the activity and scale of your vast city, and by the wonderful warm friendship of your people.

But I have also been greatly encouraged by my discussions on the future of economic ties between Australia and Brazil. With the vast resources of our two countries and the hard work and ingenuity of our people, we can build two-way trade to levels that are far above what we have today. And if we think beyond our bilateral relationship, into the possibilities presented by strategic alliances between Australiana and Brazilian business in the broader East Asian and Latin American markets - well, the potential is almost unlimited.

So I urge you - as I will be urging Australian business people when I return home next week - consider what you might be able to achieve in Australia-Brazil trade. Stretch your personal horizons just a little, and you just might stretch your profits a whole lot more.