At the Central Queensland Port Authority Dinner

I’m very pleased to be here today to talk about the Government’s trade strategy and how it will benefit Gladstone and its industries.

Australia’s exports are now at record levels: $162.3 billion in 2004-05. The Government will continue to expand them through:

• Our efforts at a multilateral level to bring about genuine reform to the international marketplace through the World Trade Organization; and
• Our pragmatic approach to free trade agreements, where we can deliver deeper and faster gains on some issues than is possible through multilateral negotiations.

We now have free trade agreements with New Zealand, the United States, Singapore and Thailand. We are undertaking FTA negotiations with ASEAN in conjunction with New Zealand, and bilateral negotiations with Malaysia, the United Arab Emirates and, most importantly, China.

China’s emergence as a major industrial power is one of the most important global developments of the last fifty years.

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

Every aspect of China’s rapid growth is staggering. For example:

• In 1996, China had 7 million mobile phones. It now has 358 million.
• In 2004, China was the world’s largest grain consumer – around 380 million tonnes – and recently overtook the United States as the world’s largest beer market.

The Australian Bureau of Agricultural and Resource Economics (ABARE) recently finished some valuable modelling on the implications of China’s growth for Australia’s major industries.[1]

I’m going to brief you today on the bureau’s projections for alumina and coal.

China is the world’s largest consumer of aluminium, but there is a growing gap between its domestic alumina production and the feedstock requirements of its smelters.

As a result, its alumina imports tripled between 2000 and 2004, and they are projected to increase at about 7 per cent a year from 2005 to 2010.

ABARE’s projection is that our alumina exports to China have the potential to grow at an average rate of 6.6 per cent a year over the next five years. It also predicts a modest increase in Australia’s aluminium exports.

In the longer term, ABARE expects that the strong growth in refining capacity around the world will moderate prices.

As a result, it projects that our alumina exports to China will grow at a much slower rate, only 1.5 per cent per year, beyond 2010.

ABARE’s forecast for our coal exports to China is very different – and very dramatic.

China has substantial reserves of thermal and soft coking coal, but does not have enough hard coking coal to support its steel industry. In addition, its coal reserves are in western China, far from its major coal users.

ABARE projects that China’s coal imports will increase by about 12 per cent a year for the next 20 years. It projects that our coal exports to China will increase by a similar figure: about 13 per cent a year.

It’s a staggering growth rate. Over twenty years, it represents an eleven-fold increase in our coal exports to China – and a substantial part of it will flow through the Port of Gladstone.

At the moment, China accounts for only 2.5 per cent of our coal exports. It’s our sixth largest coal export market by volume. By 2025, China could be the destination of 15 per cent of our coal exports, and our second largest coal market after Japan.

The Government is working on a possible Free Trade Agreement with China, which would greatly benefit Queensland exporters.

For example, China currently imposes an 8 per cent tariff on our alumina and a 6 per cent tariff on our coal exports.

A Free Trade Agreement would increase Australia’s competitive position against other exporting countries and boost our exports even further.

An FTA would also enable us to address some of the non-tariff barriers to Australian exports, such as licensing requirements, domestic subsidies, and other administrative controls on the downstream market for our resources.

Since April last year, the Chinese and Australian governments have been working on the first stage of negotiating an agreement, which is to exchange information about how our trade and investment systems work.

We are now ready to talk in more detail about the shape of a possible final agreement. Our negotiators will meet again in late February.

I will now turn to Australia’s trade with India, which has grown faster than any of other top 30 markets over the last five years. India is now our sixth largest export market, ahead of the United Kingdom and Taiwan.

Australia is well positioned to supply India’s growing demand for primary products, including minerals and fuels. Again, Gladstone is set to benefit from India’s demand for coal – and especially hard coking coal.

India has the world’s third largest hard coal reserves, but the International Energy Agency has pointed out that its coal generally requires intensive washing before it can be turned into coke for steel production. Even then, it is only marginally acceptable; the integrated steel plants on India’s west coast often blend it with imported coal to bring down its ash content.[2]

The new, coastal coke plants in Gujarat and Orissa import all of their coal requirements to produce better coke with a lower ash content.

As a result, our coal exports to India can be expected to increase in line with its steelmaking capacity, which is set to grow rapidly.

The Australian and Indian governments have agreed that we will consolidate the trade linkages that we have developed by negotiating a Trade and Economic Framework (TEF).

The aim of a TEF is to provide a framework for the facilitation and development of the trade and economic relationship.

DFAT and the Indian Commerce Ministry have made progress in negotiating the text of the TEF and discussions are continuing.

I want to conclude by talking about climate change: it is real, it is the most important environmental challenge facing the world, and it will have a significant effect on Australia.

One idea that has been proposed would be for Australia to ratify the Kyoto protocol. The protocol would increase power prices by more than 25 per cent and would have a devastating effect on the thousands of people in Gladstone and Calliope who depend on the region’s export industries.

And it wouldn’t make the slightest difference, because Australia’s energy sector contributes just 1.4 per cent of the world’s energy-related carbon dioxide emissions.

In other words, we could shut down every power station in Australia, and the greenhouse gas savings would be replaced in less than a year by increased emissions from China’s power sector.

There is a better way, and that’s to develop new technologies and to help countries like China and India use them.

So we have launched the Asia-Pacific Partnership on Clean Development and Climate, in conjunction with China, India, Japan, the Republic of Korea and the United States.

The partnership countries will work together to adopt clean technologies such as geosequestration, which involves pumping the carbon dioxide from power stations into underground rock formations.

Australia has already invested $1.8 billion in addressing climate change, including $500 million for low emission technologies and over $200 million for renewable energy. We will now invest a further $100 million over five years to deliver results on clean development projects.

It’s a sensible and effective way to deal with climate change. It will protect Gladstone’s economic future – and change its skyline. I look forward to the day when the smokestacks of the Gladstone Power Station are replaced with the membrane systems, compressors and pipelines that are needed to store its carbon dioxide emissions safely.

So in conclusion, Australia’s growing trade with China and India will create enormous opportunities for Gladstone. The Government is pressing on with the international agreements that will secure your future.

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