Sydney, 8 June 2005

Speech at the Engaging China 2005 Conference

INTRODUCTION

Thank you Chairman (Max Henry, China Supply Chain Council).

To my former federal ministerial colleague, Warwick Smith, and now Chairman of the Australia China Business Council.

His able Vice-Chairman, Kevin Hobgood-Brown, other members of the Business Council.

Distinguished guests, ladies and gentlemen.

The contribution of the Australia China Business Council to promoting business and trade linkages between Australia and China dates back some 32 years to the period shortly after the normalization of relations between our two countries.

As I will address in more depth shortly, since that time, we have seen enormous developments in the bilateral relationship as well as in the economies of each country - well beyond what could have been envisaged.

Throughout this period, the Australia China Business Council has fulfilled its important role by facilitating network opportunities between the Chinese and Australian business communities, by encouraging high-level engagement between our two countries, and by contributing to the policy debate.

And through its official journal - Australia China Connections - the Business Council is bringing our countries even closer together.

I am very pleased that, through its organisation of this Conference, the Business Council has brought together so many of our business leaders, who have such an important stake in the continued development of the Australia-China relationship.

And the Conference comes at a particularly exciting time in that relationship.

Australia has welcomed the increasing role China is playing in the region and globally in efforts to address threats to regional and global security.

Deepening the relationship, Australian ministers have been frequent visitors to China…

… with the Prime Minister having made five visits to China since coming to office, most recently in April.

The last few years has seen an unprecedented number of visits to Australia by Chinese leaders…

… including in 2003 by the Chinese President Hu Jintao and, only a few weeks ago, by the Chairman of the National People's Congress, Mr Wu Bangguo.

And, of course, Australia and China have just commenced negotiations on a free trade agreement.

I was delighted with the recent launch of the WA Australia-China Trade and Business Foundation by the Western Australian branch of the Business Council together with BHP Billiton, Woodside Petroleum and the University of Western Australia…

… and am sure the Foundation will have a keen interest in the progress of the FTA talks.

An evolving economic relationship

When the Australia China Business Council was first formed back in 1973 - the same year that the two governments signed a trade agreement which would serve as the basis for the bilateral trade and economic relationship - China was much different to the China that we do business with today.

China was still some years away from taking the economic reform measures necessary to begin the process of returning it to the place it had held in global economic terms in centuries past.

It was in the late 1970s that China began to adopt economic reform policies to attract foreign direct investment - notably, to reduce central planning, to give business greater autonomy and the necessary incentives to succeed.

In the years since, we have seen China dramatically transform its economy and start to reap the benefits.

Since the 1980s China's GDP has increased by an annual average of just under ten per cent per annum, with occasional higher annual growth rates in the 1990s.

And continued reform - spurred on in part by China's accession to the WTO in 2001 - has seen China continue to grow very impressively in the early years of this decade.

As Minister for Trade, I must admit to watching these developments with great interest and enthusiasm - they have impacted greatly and positively on Australia and the region.

China is the world's fastest-growing major economy, accounting for a quarter of the world's total economic growth over the last two years.

China's share of world trade has risen from two per cent in 1988 to six per cent in 2004 …

… and is forecast by ABARE to rise to a massive 16 per cent by 2015.

Australia has benefitted enormously from this growth …

… with our merchandise exports to China - worth over $ 9 billion in 2004 - having grown by an average of 20 per cent per year since 1998 and expected to continue to grow rapidly.

Fortunately for us, the Chinese and Australian economies are highly complementary.

For Australia, China is a valuable customer for our rural and resource commodities as well as high-value manufactures and services…

… and Australian business people such as you here today, are finding niche areas for export to China, including in architecture, medical and health services, minerals technology and environmental products and services.

For China, Australia is a market place for manufactured goods as well as an attractive investment destination.

Australia is also highly regarded for its stable economy and strong market-oriented policies…

… ranked second in the world by KPMG for its business cost competitiveness.

The strength of the Australian and Chinese economies has been demonstrated by the ability of each, not only to weather, but to flourish in the face of recent challenges in regional and global economic circumstances.

And the bilateral commercial relationship has boomed over the last decade…

… with two-way merchandise trade between Australia and China having quadrupled in the last decade to nearly $29 billion…

… and with China being one of our fastest-growing services export markets, particularly in the education and tourism sectors.

The Australian Bureau of Tourism forecasts that Chinese visitor numbers to Australia could rise to one million by 2013.

The Australian Government has taken a very active and hands-on approach to our engagement with China, particularly to promote the trade and economic relationship…

… as you will recall, the Government provided strong political support for the commercial negotiations which secured the positive outcome on the Guandong LNG contract …

… and as can be seen through the depth of our relationship and the frequency and nature of the high level visits by both sides.

Contributors to regional and global prosperity

Australia and China are both active and constructive contributors to efforts in the region and globally to create a more favourable, more liberalised trading environment.

We are both firm supporters of a strong multilateral trading system and would both benefit substantially from a successful conclusion to the Doha Round of global trade negotiations.

An ambitious outcome to the Round remains the Australian Government's number one priority and we will be working closely with other key players in the negotiations, including China, to achieve this.

We must remember that what we do in the Doha Round will shape the global trading environment for the next decade.

It is in both our interests to have the negotiations deliver substantial gains in global market access - particularly in services trade, industrial products and agriculture.

China's economic position and emerging importance as a WTO member provides it with the opportunity to play a particularly important and positive role in building appetite among developing countries for major reform - particularly in agriculture, which remains the most grossly distorted area of world trade.

Of course, achieving true reform will require considerable movement and leadership by the major developed country subsidisers.

We need to work together to keep the pressure on these countries to achieve the ambitious goal we set ourselves at Doha - ambition is, after all, the cornerstone of the Doha mandate.

Australia has also been working with China to progress APEC's work on a range of issues important to the region including the promotion of corporate governance, anti corruption and counter-terrorism…

… and last year held joint workshops on how to negotiate substantive and meaningful free trade agreements.

As I said earlier, successfully concluding the multilateral trade negotiations remains the Australian Government's greatest trade priority.

At the same time, we take a pragmatic approach and take up all opportunities to advance Australia's trade interests and secure our future…

… including by pursuing free trade agreements and the enormous market opportunities they can deliver to Australian businesses.

Australia and China both have an active free trade agreement agenda, involving several ongoing, simultaneous negotiations, including those with ASEAN.

An Australia-China FTA: What lies ahead?

The decision in April this year by the Prime Minister, John Howard and the Chinese Premier, Mr Wen Jiabao to commence negotiations on an Australia-China free trade agreement is a major step forward in our already burgeoning relationship.

The decision followed consideration of the outcome of the joint FTA feasibility study - a study which found that Australia and China both stand to achieve substantial economic gains from an FTA - an estimated A$24.4 billion for Australia over a ten year period …

… with a significant and positive impact on output and employment for both countries…

… and where any structural adjustment is expected to be minimal compared to adjustment processes already underway.

It was my great pleasure, a couple of weeks ago, to officially launch the first negotiating session with China.

China has appointed its chief negotiator, and we have agreed to hold our first substantive meeting early in the second half of this year.

We made good progress with 'housekeeping' issues - such as a calendar of meetings, and how meetings will be conducted - that help to ensure a smooth negotiating process.

Our task now is to prepare ourselves thoroughly for what is likely to be a difficult, complex and long negotiation.

We need the clearest understanding of the problems faced by Australian business in China.

Australian exporters of goods and services as well as investors face a range of barriers at the border and behind the border, which we are keen to address in the negotiations.

China has made good progress in cutting tariffs by a third since their accession to the WTO.

But barriers at the border remain of concern to us.

Some of our agricultural exports - wool, wheat, sugar - are affected by an opaque system of tariff rate quotas and tariff peaks remain, for example, across a number of agriculture commodities and in manufacturing such as motor vehicles.

And while Chinese tariffs on some of our commodity exports, such as aluminium at 5-7 per cent and nickel at 3 per cent may be low, the volume of trade makes them worth addressing.

Other border measures also inhibit access for Australian goods into China.

Import licencing, customs valuation, non-science-based quarantine arrangements and technical standards are all issues that will need to be examined...

… for example, our wine industry continues to face onerous labelling and packaging restrictions on exports to China as well as excessive and expensive bureaucratic approval processes.

For Australian service providers and investors, a range of factors affect decisions in relation to doing business in China.

An array of regulations limits the delivery of Australian services into China…

… including restictions on establishing a commercial presence and branch offices and excessive capitalisation requirements.

Our service providers also face overly burdensome customs administrative procedures and problems in getting the experience, qualifications and skills of Australian professionals recognised…

… limiting the ability to get the right professionals into China to deliver a service.

These are issues which affect most services sectors, including banking, telecommunications, mining, counstruction, freight logistics, transport, education and tourism…

… as well as professional services such as architecture, legal, and accountancy.

Investment restrictions are also limiting the ability of service providers and investors in general to establish operations in China…

… and even when it is possible to set up a business in China, problems with the management of investments can be serious…

… and can be exacerbated by the cumbersome process for repatriating profits.

Another key 'beyond-the-border' barrier faced by Australian exporters of goods and services as well as investors is China's lax enforcement of intellectual property rights - a major problem for all sectors of Australian business having an interest in China.

Industry has also raised with us the lack of transparency of government regulations in China…

… where differences often arise between central and provincial levels of government in the implementation and interpretation of laws and regulations.

Particular transparency-related concerns raised by industry include the application of taxes, legal and financial systems; the inconsistent enforcement of import duties as well as unclear and conflicting standards across provinces.

The fact that regulations or administrative guidelines are not always publicly available makes it difficult to determine and meet any compliance requirements.

These are complex and difficult issues, which we will need to be well informed about and sure of our ground when raising them with the Chinese …

… and it may take some time to fully understand the barriers and the best way to address them.

My Department together with relevant agencies is working to develop a good understanding of all these issues.

We have begun an intensive round of consultations with industry on the negotiations…

… including a series of round tables in states and territories, with Adelaide and Melbourne next week.

At the same time, it is also important to understand that there will have to be some give and take on both sides of the negotiations.

With the negotiations having just started and given the complexity of the issues involved and the challenges before us, it is simply too early for us to be setting a deadline for the conclusion of the negotiations.

We have already seen from our first engagement and what we know about the skills of Chinese negotiators, that the negotiations will be tough.

But we also have a talented and dedicated team and the Australian Government will be devoting the necessary resources to the task.

And there is a serious commitment on both sides, with considerable goodwill, including at the most senior government levels.

As I indicated earlier, the time for making a decision on whether the give and take of the negotiations has resulted in a good deal, worthy of entering into a free trade agreement, is some way off…

… and will only be made when the negotiations have been concluded and the Government has before it, all the necessary relevant information.

But let me assure you, when that time comes, the Government will not enter into an agreement that it does not think is in Australia's national interest.

And you have an important part to play in helping to define our national interest.

As in all of our FTA negotiations, the Government is committed to taking into account the interests of all industry sectors and liaising closely with interested parties throughout the Australia-China FTA negotiations.

The Australia China Business Council was actively involved in the consultations process during the feasibility study phase and is doing the same during the negotiations, including through ACBC chapters in State capitals.

We very much welcome this involvement and leadership and look forward to continuing to work closely with you throughout the negotiations.

Such contributions are an essential part of the process, allowing us to better understand and take into account our various interests...

… and assist our officials and myself in developing negotiating positions.

Conclusion

We no doubt have a challenging time ahead of us in our negotiations.

But we have overcome past challenges in securing our free trade agreements with the United States, Singapore and Thailand.

And while the challenges facing us in the negotiations with China are unique, we will be bringing the same determination to meeting the challenges of these negotiations.

Securing an outcome in Australia's national interest will require hard-headed and enthusiastic engagement not only by the Australian Government but by all who have a stake in a stronger economic relationship.

To borrow a Chinese proverb for the occasion: "Only when all contribute their firewood, can we build a strong fire." We look to the Australia China Business Council to continue to add its fuel to the bilateral relationship…

… a relationship which has come a long way in recent years and which, we believe, has even more to offer in the future.