Speech

to the ABARE Outlook 2003 Conference

Canberra, 4 March 2003

ABARE Outlook Conference

Ladies and Gentlemen

It's a great pleasure to be back at the ABARE Outlook conference again.

Outlook 2003 is a timely opportunity for us to talk about the future of agriculture and natural resources in Australia.

It is especially timely for me - given the fast approaching 31 March deadline for agriculture modalities.

We are in an exciting period - the international trading environment is uncertain, yes, but it is also full of opportunity - and we intend to make the most of this opportunity.

The trading environment

Ladies and gentlemen

Drought, weak global demand and considerable international uncertainty have made Australia's trading environment at the moment a tough one.

In spite of the difficulties, and in some respects against the odds, we have performed extremely well.

The $701 million increase in Australia's exports in January is further good news for the Australian economy. 

Over the last ten years, Australia's export growth has averaged almost 8 per cent a year.

Our exports have become more diverse -reflecting the adaptability of the Australian economy.

The OECD's 2003 Annual Review of the Australian economic performance released overnight indicates:

• That Australia is one of the best performers in the OECD and that we have been notably resilient to economic shocks;
• That the OECD expects this excellent performance to continue unabated into the immediate future, forecasting growth of 3.75 per cent in both 2003 and 2004, despite and in spite of the ongoing drought; and,
• That the size of Australia's current account deficit is not a cause for concern as structural reforms to the economy have ensured that "private sector saving and investment decisions are likely to be efficient".

Much of our success reflects the ability of our exporters to adapt to highly competitive and demanding global trading markets, and the confidence of our trading partners in our economy, our exporters, and our products.

The WTO negotiations

Ladies and gentlemen

We rely heavily on a stable, fair system of multilateral rules and disciplines governing international trade.

And, we have a huge stake in the agriculture negotiations now underway in the WTO.

Our principal challenge now is to ensure that the Doha Round of multilateral trade negotiations ensures our continued export success.

Agriculture remains front and centre in our priorities, and we have made our bottom-line in the Doha Round very clear.

And that is: without progress on agriculture, there will be no progress in other areas such as services and manufactured goods.

This is not a threat, or an attempt to hold the Doha Round hostage to farming interests.  It is simply a statement of fact - a negotiating and political reality.

Why?  Well, the first reason is the unambiguous mandate we fought for at the start of the Doha Round.

That mandate requires that the WTO negotiations:

• improve substantially market access for agricultural products;
• reduce substantially trade-distorting domestic support; and
• reduce - with a view to phasing out - all forms of export subsidies.

Australia and the Cairns Group fought hard for this mandate, not over two years, four years, but many more years after the Uruguay Round.

The second reason the Doha Round will fail without an acceptable outcome on agriculture is that developing countries - mainly agricultural economies - have a new found role and influence in the WTO.

They now make up more than 100 of the 145 WTO members.

And they are not going to keep opening their markets to rich countries, until those same countries give them the things they want.

• like increased market access for agriculture, and the ability to compete fairly on world markets.

The third reason the multilateral negotiations won't succeed without agriculture is structural - WTO Rounds are what we call 'single undertakings'.  Nothing is agreed until everything is agreed.

In short - and I repeat - there will be no outcome in the Doha Round without an outcome on agriculture.

That is why, right now, the negotiations on agriculture have reached a critical stage.

Three weeks ago the Chair of the WTO agriculture committee, Stuart Harbinson, released a proposal to try and bring together the widely divergent positions in the WTO.

None of the proposed tariff cuts, expanded tariff quotas, end to export subsidies, limits to export credits or cuts in domestic support go far enough, or fast enough.

• That's because Harbinson has had to deal with protectionist countries that say they can go no further than the Uruguay Round outcome.
• Mr Harbinson has tried his best, but with his draft, there would still be high levels of protection:
• With - in some cases - tariffs of several hundred percent on some products in which we specialise.
• With tariff quota volumes for products such as beef and dairy in our key markets still largely unchanged.
• And with huge entitlements remaining on domestic support that would do little to reduce the distortions created by such subsidies.

Stuart Harbinson's text also proposes unacceptable amendments to single desk export arrangements.  Our single desk arrangements - on wheat, sugar and rice - do not distort world trade.

Already the 'no reform' group of WTO members, including the European Union and Japan, have dumped heavily on the Harbinson draft.  They reject it even as a basis for discussion

This is, to say the least, most disappointing.  We don't like the lack of ambition, or the technical shortcomings, but at least we've said it's a basis for discussion.

Don't get me wrong.  I am not writing off the prospects for success.

But we face a rocky road between here and the next Ministerial Conference in Cancun in Mexico in September this year.

Problems for the European Union

Australia is often characterised as a high profile critic of European Union agricultural policies.

A Magellan Project Report was released yesterday by the 'Five Nations Beef Group', written by the CIE here in Canberra, along with economic experts from Japan and Britain.

It shows that 91 per cent of an EU beef farmer's income comes from one form or another of government support.  91 per cent.

This alone is compelling evidence for reform.

I can understand the difficulties the EU has got itself into, given the cost of the Common Agriculture Policy, and impending EU enlargement.

After all, Poland's membership of the European Union will reportedly increase the number of farmers on the EC payroll by some 43 percent.

It will be difficult for the EU to decide on how to negotiate domestic support and export subsidies in the WTO negotiations before it has settled on its long awaited - and long overdue - mid term review of the CAP.

We understand that.  But we call on EU members to finish the CAP review so that the world can go about negotiating on agriculture.

We also call on reform-minded members of the EU, and there are some - and the Commission - to deliver improved market access to the EU - in the form of lower tariffs and improved tariff quotas.

Well that's all good and well but what about the rest of us?

I was particularly interested by President Chirac's recent call to "put an end to the negative impact of EU agricultural subsidy policies on sub-Saharan Africa".

Australia - and, I am sure, the Cairns Group and reform minded developing countries - trusts that France is motivated by a desire for reform that serves the legitimate demands of developing countries.

Australia and the Cairns Group have a ready solution to the problems President Chirac has identified.

It is set out in the mandate for the Doha Round agreed to, signed on to, by the European Union 15 months ago.  And I repeat:

• substantially improved market access for agricultural products;
• substantially reduced trade-distorting domestic support; and
• the phasing out of all forms of export subsidies.

Before I leave the subject of the EU, I should also say that we reject totally their proposal to include so-called non-trade concerns in the negotiations.

We cannot accept the EU's aim to develop a self-balancing package on agriculture that would impose a whole bunch of new rules on the WTO membership in return for very limited real agricultural trade liberalisation.

Non-trade concerns were listed in the mandate for discussion.  But they were given nowhere near the priority of the three pillars of market access, domestic support and export subsidies. WTO Members must aim for a package that is balanced across all sectors. We must pursue a broad agreement accepted across all sectors of the negotiations. .

The problem of Japan and South Korea

I am not sure that Japan and South Korea understand the dynamics of the agriculture negotiations.  Or perhaps they understand them too well.

Both countries have failed to develop meaningful proposals for the negotiations, and have also rejected the Harbinson draft.

Instead, it seems, Japan is content to keep providing its farmers with support equivalent to nearly 60 per cent of their farm receipts.  60 percent!

Japan's insistence on protecting its farmers from competition is ironic.  After all, Japan was one of the greatest beneficiaries of liberalisation in industrial goods in earlier Rounds of multilateral trade negotiations.

We have continued to argue there is no justification for the rules on agriculture to be any different for the rules on industrials and services.

We are waiting to see the slightest sign of movement on agriculture in Tokyo and Seoul.  But right now, there seems little cause for optimism.

The welcome stance of China

Fortunately, the stance of China in the negotiations is very welcome.

No country has embarked on as an ambitious a course of economic liberalisation and reform as China has over the past 20 years.

China is an important new player in the WTO, and we have been impressed by the Chinese proposal on agriculture.

China is lining up alongside the reformers in the agriculture negotiations, by pursuing the principle of open and transparent liberalisation.

To be sure, there is a healthy dose of self interest in the Chinese proposal.

But I am much encouraged, and I and the Cairns Group look forward to working closely with China in the agriculture negotiations.

The Cairns Group and developing countries

Of the 17 Cairns Group members, 14 are developing countries, spread across Latin America, South-East Asia and Africa.

The Cairns Group played a critical role in the Uruguay Round. Since then, it has evolved to meet the new and complex challenges of this current Round.

In fact it is referred to sometimes as the third force in the WTO.

The Group is actively coalition-building with a range of other like-minded developed and developing country partners.

The dialogues the Group has initiated with others have added a new dimension and dynamism to its operation and effectiveness.

I can report to you that we are winning significant support for Cairns Group positions in the negotiations.

I am the first to acknowledge that our position is motivated first by

self-interest.   You wouldn't expect anything else from a sovereign government.

Happily, our interests coincide with those of developing countries.  We are not hiding - as my French colleague suggested recently in a French newspaper - behind the interests of developing countries.

After all, as a major agricultural exporter with amongst the lowest levels of support in the OECD, we've nothing to hide!

The United States

Last week US Trade Representative Bob Zoellick said that without movement on agriculture, the Doha agenda would find itself stuck..  We will find that out by the end of this month, by 31 March.

He said that Europe and Japan were holding up the negotiations, and that the United States would walk away if Europe and Japan did not come to the party in negotiating an acceptable outcome on agriculture.

I'm glad he said that.  It reminds me of someone else .

We were extremely encouraged by the ambitious US proposal on agriculture for the Doha Round - despite the setbacks in the Farm Bill.

The US proposals on export subsidies and domestic support, in particular, were exemplary.

Our views on the Round and the central place of agriculture are very similar.  And we look forward to working closely with the US Administration in ensuring a strong result on agriculture in the Round.

Competitive liberalisation and the US FTA

Ladies and gentlemen

Our Government's policy of competitive liberalisation is about getting the most out of opportunities, wherever they occur and in the fastest possible timeframes, and in a manner that complements the WTO process.

The week before last, I signed one such initiative - the Singapore-Australia Free Trade Agreement - the first FTA Australia has concluded since the CER with New Zealand 20 years before in 1983.

Now, of course, we are starting to negotiate an FTA with the United States.

Recently we have drawn some flak - including publicity in the past week surrounding the ACIL report commissioned by RIRDC - on an FTA with the United States.

Frankly, the modelling in the ACIL report raises a number of questions.

Some commentators have said that no serious modelling of the Australian economy would support ACIL's findings that liberalising the economy would generate negative welfare gains for Australia.

The logic of ACIL's analysis suggests that we would be better off increasing protection - an argument that flies in the face of the robust economic growth Australia has enjoyed in recent years.

Not even Professor Ross Garnaut from the ANU, who is an opponent of the Government's ambitious US FTA, accepts that argument in the ACIL report.  He said:

"All of the economic analysis demonstrates that the benefits to Australia from completion of its own trade liberalisation, and from further steps in productivity-raising reform, greatly exceed any possible benefits even from widespread liberalisation in the rest of the world."

The ACIL Report is wrong.  Economic reform has increased Australia's GDP as any student of economics would know.

The proposed FTA with the United States is a significant and historic opportunity.

First, there is the potential for market access gains to the world's largest economy.

We have never said that the FTA will be easy to negotiate.  Quite the contrary - it's going to be bloody tough.  We know the Americans are tough to deal with.

But we are already, an open market for agricultural products - unlike the United States.

This FTA offers us the opportunity to improve access for our agricultural products to the US market.

Secondly, we won't preserve the status quo in international markets by not negotiating an FTA with the United States.

Indeed, if we do nothing, things will probably get worse for us.

The US Administration has said that a Free Trade of the Americas Agreement - which will include agriculture - is a high priority.

Our South American friends would get preferred and improved access to the US market - at our cost.  If we do nothing.

And in our own region, there is increased interest and pressure for Free Trade Agreements with the United States.

Thirdly, the argument that pursuing an FTA with the United States means that we have lost sight of our interests in the Doha Round is just absolutely wrong.

Our commitment to the multilateral trading system is not diminished by our negotiations with the United States.

A strong framework of multilateral rules governing international trade is essential for Australia - and for the cause of global economic openness.

We have been working hard to lodge serious proposals in the various sectors of the Doha Round negotiations.

And we have sought to inject maximum political momentum - such as when I hosted and chaired the mini-ministerial meeting in Sydney last November.

Fourthly, we can't discount the possibility that the WTO round will not deliver a result - in agriculture, or in any other sector for that matter.

The WTO now has 145 members, and an ever more complex agenda - we need to keep pushing for greater market access in every possible forum.

That's not defeatism about the WTO.  That's reality.  I was there in Seattle. That experience shows that the Round can easily fail.

Conclusion

Ladies and gentlemen

If my message today on agriculture seems tough, that's because the negotiations are getting tough.  And we are prepared to tough them out - no matter how long it takes.

Those WTO members who are not prepared to accept fundamental reform of agriculture will have to face up to the simple reality.

And that is there will be no round concluded without an acceptable result for agriculture.

Australia is well prepared for our trading future.

We have a strong economy, sophisticated and diverse exporters, and we are held in high regard in the international trading system.

We've done all the hard work in terms of reforming Australia.  We have put up with the rules agreed in the Uruguay Round.

It's real time. We are within a matter of three weeks of the deadline for agreeing on modalities for the agriculture negotiations.

We didn't like the Harbinson text but we didn't rip it up.  We have said at least it was a worthwhile start.

We are now seeking fundamental reform of world agricultural markets, and demand that all WTO Members meet this expectation set down in the Doha round.