Free Trade Agreements and Asia Securing Prosperity Together

Speech to the Australian Institute of Export, The American Club, Sydney.

Introduction

Thank you MC, distinguished guests, ladies and gentlemen.

I was very pleased to be asked to speak to you today on the topic of free trade agreements and Asia. Both are high priorities for this Government - and both offer enormous opportunities for Australian exporters. We will continue to work assiduously to maximise those opportunities.

One of the key factors that has made Australia an attractive trade and investment partner for countries in our region is the competitiveness of the Australian economy, due in large part to the Government's sound management, Australia has one of the strongest performing economies in the world. But we recognise that increased access to overseas markets is also vital to export success. And it is for this reason that the Government is pursuing the most ambitious trade policy agenda in this country's history.

A policy which acknowledges that well-selected free trade agreements with key markets can offer unique and valuable export opportunities, as well as encouraging the momentum of liberalisation more widely. And our trade agenda is also linking us more closely with our Asian neighbours…… with many positive benefits for Australia as a result.

These three factors

a strong domestic economy;

liberalisation in target markets, including through FTAs; and

solid relations with Asia

help shape the environment in which you, as Australian exporters, operate. And I would like to discuss each of these three issues in greater depth today.

The Australian economy

Firstly, and fundamentally, international success relies on a robust and competitive Australian economy. Australia today is one of the most open, stable and reliable economies in the world. Australian GDP growth has outpaced the OECD average in nine out of the past ten years.

Indeed, the OECD's recent economic survey of Australia concludes that the Australian economy has been a model for other OECD countries, in the tenacity and thoroughness with which deep structural reforms have been implemented and in increasing a deep-seated competitive culture.

Given our sustained economic growth, low unemployment, low inflation, low interest rates and high and rising productivity…… it is not surprising that others want to do business with us.

In its annual assessment of the Australian economy, in late 2004, the Executive Board of the International Monetary Fund (IMF) noted that: "Australia continues to reap the benefits of sustained implementation of appropriate macroeconomic policies and structural reforms". These reforms, including in the labour market, taxation, telecommunications, and monetary policy, have all contributed to the international competitiveness of Australian goods and services.

According to the KPMG survey 2004 Competitive Alternatives, Australia now ranks second in the world for business cost competitiveness…… with the cost of setting up a business in Australia around eight per cent cheaper than in the United States.

All the indications are that the current period of sustained growth will continue...… thereby ensuring that Australia will remain internationally competitive for the foreseeable future. Reflecting our strong economic credentials, International Trade in Goods and Services data, released on 1 February, showed that Australian exports of goods and services rebounded strongly in 2004. Total exports were valued at A$152.5 billion - the second highest annual export value on record - with particularly strong growth recorded for merchandise exports to Asia.

Having the economic fundamentals correct is the cornerstone of trading success. But that, alone, is not enough. Australian companies may be able to produce high quality products and services, at competitive prices. But in order to access many overseas markets, further liberalisation of those markets is necessary. And this brings me to the second part of my address today.

The FTA agenda

The government's free trade agreement agenda is one of the most exciting and dynamic developments in our recent trade policy history. It is a reflection of our strong support for market liberalisation, as well as increasing linkages with our region and key bilateral partners.

In today's competitive, international market-place, where FTAs are becomingly increasingly common, it is important for Australia to stay ahead of the game…… to ensure that Australian companies are not disadvantaged.

Of course, we have to be discerning. For instance, we will only commence FTA negotiations if we expect Australia to derive substantial economic benefits. FTAs must be consistent with the rules of the World Trade Organisation.

Australia is interested in negotiating FTAs that involve comprehensive liberalisation across goods, services, investment and other issues - agreed as a single, total package. And FTAs should support Australia's broader strategic interests with the partner country or countries.

FTAs concluded with Singapore and Thailand in the past eighteen months have achieved these objectives.

Since the Singapore-Australia Free Trade Agreement - SAFTA - entered into force in July 2003, Australian companies have experienced improved conditions of access in various sectors, notably financial, legal, educational and professional services. For example through its acquisition of the former Singapore Public Works Department, Downer EDI, Australia's second-largest listed engineering service firm, has expanded its operations in Singapore, and developed new business in Asia from its Singapore base. And the University of NSW has signed a Memorandum of Understanding with the Economic Development Board of Singapore to establish a campus in Singapore to provide undergraduate and post-graduate teaching and research.

In addition, the more open business relationship with Singapore has encouraged a number of new Australian exporters to enter the Singapore market. Since SAFTA entered into force, Austrade has helped 338 companies enter the Singapore market with deals worth more than $250 million. 141 of these - over 40 per cent - were new to exporting or hadn't exported in several years.

We have had initial, positive feedback on the Thailand-Australia Free Trade Agreement - TAFTA. TAFTA is clearly a very significant market-opening agreement.

More than half of Thailand's five thousand tariffs were eliminated for Australian goods on 1 January, and virtually all the remaining tariffs will be eliminated by 2010. It is estimated that Australian business will save $100 million this year alone on Thai customs duties. The services framework under TAFTA also represents a significant step forward towards the removal or reduction of restrictions to services trade.

I would like to encourage those of you who haven't already done so to take a close look at the new opportunities created by TAFTA. In some cases, the reduction of high tariff barriers may make exports to Thailand possible for the first time. Practical information to assist exporters take advantage of TAFTA was published in a Business Guide developed by my department, and is also available on the Department of Foreign Affairs and Trade website.

Austrade is arranging promotional events, facilitating trade missions and providing business advice targeting specific sectors in Thailand where new opportunities exist as a result of TAFTA. To help companies maximise the advantages flowing from all these new agreements, Austrade, with the Department of Foreign Affairs and Trade, will establish a Free Trade Agreement Export Advisory Panel. And let's not forget that exporters also have the Export Market Development Grant Scheme to draw on. This year I can announce that all recipients of this scheme will receive a 100% payout for all assessed grant entitlements.

Following our success in negotiating agreements with Singapore and Thailand, we have continued to develop an ambitious agenda for future FTAs. And given that around 60 per cent of our total exports go to East Asia, it makes sense to pursue opportunities in our region.

Let me turn, then, to our priorities for future FTA discussions in our region in 2005 and beyond.

Firstly, a joint feasibility study into a possible free trade agreement between Australia and China is nearing completion. This reflects the already significant, and growing, importance of China - both as bilateral trade and investment partner for Australia…… and as a driver of regional economic growth. Before long, China is likely to pass Japan as the world's third largest trading nation. Australia is particularly well-placed to benefit from China's rapidly expanding economy, with many complementarities between our economies.

The China FTA Taskforce, established in the Department of Foreign Affairs and Trade, has received around 140 submissions and has met with around 500 representatives of companies, industry groups, State and Territory governments and other interested parties. Australia and China expect to be in a position to assess the findings of the joint feasibility study soon. We will then need to give careful consideration as to whether to proceed to formal negotiations. As part of this, Australia will also need to consider whether to treat China as a market economy for the purpose of anti-dumping.

Second, in July last year I agreed with my Malaysian counterpart that we would conduct parallel scoping studies into a bilateral FTA. More than sixty submissions have been received from industry, state and territory governments and other interest groups in the scoping study process. The scoping studies are scheduled to be completed in the first quarter of this year, at which time the Australian and Malaysian Governments will consider whether to proceed to negotiations.

On 10 March the APEC Studies Centre will hold a conference on the possible Australia-Malaysia FTA in Melbourne. I look forward to participating in that event and encourage widespread participation from businesses with an interest in the Malaysian market. While Malaysia is already a very important trading partner for Australia - our tenth largest in terms of two-way merchandise trade in 2003-04 - there are opportunities for improved flows of trade and investment that could be facilitated by an FTA.

Just yesterday, I launched a new report by my department entitled Malaysia: An Economy Transformed, which is intended to assist Australian companies understand Malaysia's economic success and benefit from its strong future growth prospects.

Third, you will be aware that during the ASEAN Summit in Laos at the end of last year, leaders from ASEAN, Australia and New Zealand agreed to launch FTA negotiations. This is indeed a historic development in Australia's engagement with South-East Asia.

While negotiations with such a diverse group of markets are likely to be complex, the potential benefits are significant. An ASEAN Australia New Zealand FTA will consolidate Australia's economic integration with one of the most vibrant economic regions in the world.

The 10 countries of ASEAN are home to 545 million consumers…… generate a combined GDP of almost $700 billion US dollars…… and are experiencing average GDP growth of 5.5 per cent per year. Improved market access would boost our existing levels of two-way trade and investment with the 10 ASEAN countries. Negotiations on the ASEAN Australia New Zealand FTA are set to commence this month and are forecast to conclude early in 2007.

Unsurprisingly, this diverse and ambitious trade agenda has made a significant contribution to linking us more closely with our Asian neighbours. And it has helped to ensure that our relationship with Asia is in better shape than ever. Just as trade is helping us to build closer relations with Asia, closer relations with Asia also encourage greater trade.

For example, we have been able to make effective use of our relationship with China to promote Australian LNG at senior levels …….thereby helping Australian industry with a successful contract to supply Guangdong province with LNG - the single biggest trade deal in our history. Ongoing close engagement with Asia remains one of this Government's most important priorities.

In his address to business representatives in Singapore earlier this month, the Prime Minister, Mr Howard, stated that Australia's dominant interests in the years ahead will be found in the Asian region. This is our part of the world, this is the part of the world to which we increasingly relate - in a strategic sense, in an economic sense, and in terms of the close people-to-people links between Australia and the countries of Asia.

For example, over 225,000 students from Asian countries studied at Australian educational institutions in 2003, generating billions of dollars in income for the Australian economy and forging new friendships and contacts between Australians and those in our region.

Australia's merchandise trade exports to East Asia were valued at more than $63 billion in 2004, comprising 54 percent of our total merchandise exports. More than 2 million short-term visitors came to Australia from East Asia in 2004 - an increase of more than ten per cent compared to the previous year. And Australia's contributions to assist those affected by the tragic tsunami in the Indian Ocean region were a tangible expression of our commitment to the region…… and have been warmly appreciated.

Conclusion

In conclusion, let me stress that we are fully committed to working hard across the breath of our agenda to improve the international trading environment for Australian exporters.

Negotiating comprehensive FTAs is a resource-intensive and complex process, and the agenda I have outlined to you today is certainly a demanding one. We are keen to proceed, because we believe the rewards will be considerable.

We will also continue to deepen and broaden our links with the countries in our region to ensure that Australia's credentials are understood, and our products and services are sought and valued.

Once again, I would like to encourage you to submit comments on FTA developments…… as only then can we reflect accurately the needs of business in the development of our FTA agenda. Working together, we can achieve unprecedented access to - and engagement with - our region.

Thank you