Trade Benefits all Australians

I want to start by asking those of you with copies of my trade statement to turn to page 4.

The picture is from an engraving that was published in 1885. It shows customs officers searching the baggage of passengers arriving at Spencer Street Station in Melbourne.

They were looking for contraband from places like Sydney and Adelaide, because the colony of Victoria had a 45 per cent tariff on imported wigs and high tariffs on many other imported goods.

We look back at those tariffs now and wonder what the colonial politicians were thinking. It took years of debate before they finally agreed to abolish their tariffs and establish the Australian Commonwealth.

It was a decision that boosted trade between the former colonies and benefited every one of the 3.8 million people who became Australians.

Now we trade throughout the world, and our trade benefits every one of our 20.4 million people.

Australia's record trade performance

2005 was a record year for Australia's trade. Our exporters achieved their highest sales ever, A$176.7 billion, a 15 per cent increase on the 2004 figure.

Twelve of Australia's top 20 exports reached record levels in 2005, including coal and iron ore. Some commentators are saying that this resources boom will be stronger for longer. I think they're right!

In total, our minerals and energy exports surged by 47 per cent, but our export success was not just confined to resources.

Australia's manufacturing exports grew by 9 per cent in 2005, driven by strong world demand. Australia's services exports also hit a record - $37.2 billion - with short term visitor numbers increasing to 5.5 million visitors.

Supporting Our Economic Future

The Australian economy is now a model for the rest of the developed world.

The Government's strong reform policies have created 1.7 million new jobs over the last ten years. Real wages have increased by 16.8 per cent in the same period.

Australia's economic success over the last ten years shows that we have nothing to fear, and everything to gain, from the increasing globalisation of the world economy.

It's true that growing economies like China and India will be strong competition for Australian firms, but they will also provide us with immense opportunities. A combined middle class of between 400 and 800 million people is predicted to emerge from China and India over the next two generations.

Building better infrastructure

One important way that the Government can boost the productivity of Australia's exporters is to increase the capacity and efficiency of our export infrastructure.

The Government is investing $12.7 billion to upgrade Australia's transport links through AusLink. It has revolutionised the way we plan and fund Australia's national roads, railways, intermodal terminals and ports.

We are revitalising the railway network by investing $2 billion in rail infrastructure projects, in conjunction with the Australian Rail Track Corporation. The investment includes a dedicated freight line through Sydney and a massive upgrade to the rail network that serves the Hunter Valley coal industry.

The Australian, state and territory governments have also agreed on a package of competition policy reforms to make our export infrastructure more efficient.

The Government's approach, which includes the use of queue management systems, has already started to have an effect:

• Earlier this week, there were 16 ships queued off the Dalrymple Bay coal terminal, compared to 55 ships at the end of March 2005;

• In February, there was an average of 19 ships queued off Port Waratah in Newcastle. By contrast, there were 57 ships queued off Newcastle in March 2004.

Along with the privately operated ports in Western Australia, we must ensure that our bulk exports can move through all our ports efficiently and in a timely way.

World Trade Organization

Australia's number one trade priority is to secure an ambitious outcome from the Doha Round of negotiations in the World Trade Organization. I know it was launched back in 2001, but now we are engaged in the serious end of the negotiations - and hopefully a successful conclusion.

At the Hong Kong Ministerial Meeting last December, the members of the WTO agreed to abolish all agricultural export subsidies by the end of 2013. It's an important achievement, because Australia has been campaigning against export subsidies for half a century. At last, we have an end date!

However, there was no real progress on the two key issues that continue to stand in the way of concluding the Round: agricultural market access and market access for industrial goods.

In the European Union, the tariff on some dairy products is as much as 264 per cent. In Japan, the tariff on rice is equivalent to 771 per cent.

Cutting these tariffs and other trade barriers such as quotas would:

• reduce the price of food for consumers in the developed world;
• reduce poverty in developing countries; and
• benefit Australian farmers.

The World Bank's most recent estimate is that fully freeing-up merchandise trade would lift 32 million people out of desperate poverty, because they would finally be able to sell their crops for a fair price.

ABARE estimates that an ambitious outcome to the Round would boost our agricultural exports by 15 per cent and increase the income of Australian farmers by eight per cent, compared to its estimates for 2011 if the existing trade restrictions continued.

On Monday, in the Australian Parliament, Tony Blair said: ‘Europe's agricultural protection is a policy born of another age and it is time to end it.'

I agree.

I hope the other European leaders will also agree.

It is true the EU has made a number of import concessions in this round, including the agreement to end all agricultural export subsidies. But a key aspect of the development agenda is improving market access for agricultural exports, particularly for the least developed countries of the world.

The next stage in the negotiations must involve the European Union, Japan and the protectionist countries in the G10 making more credible offers on agricultural market access.

We must also see more movement from the large developing countries - such as Brazil and India - in opening up their markets for industrial goods and services.

We must move forward on all fronts simultaneously, if we are going to achieve success in the Round.

At a recent meeting in London of the G6 - a group of ministers from the EU, US, Brazil, India, Japan and Australia - I proposed a compromise that would enable us to move forward.

What I proposed in London was a ‘working hypothesis' - a simulation exercise based on four tiers of cuts to agricultural tariffs.

The compromise would remove the ‘pivot' proposed by the EU, which would allow it to avoid significant cuts to some of its lower end tariffs. It would also eliminate the progressive cuts favoured by Australia and the US, in favour of straight linear cuts across the four tiers.

We would use the tiers proposed by the G20 group of developing countries, which are in effect a compromise between what Australia and the US wants and those sought by the EU and other farm protectionists.

All of this would be balanced in the industrials sector by limiting the differential in the size of the tariff cuts between developed and developing countries.

My proposal was resisted by some, but I believe it is the only way forward as a compromise solution. I understand that senior officials meeting in Geneva in the past few days have been developing a similar proposal.

In Hong Kong, we set a deadline of 30 April for determining the formulas and methods for reducing tariffs and protection.

It is still possible for a breakthrough to happen, but the European Union must be prepared to show leadership on agriculture. The large developing countries must show leadership on non-agricultural market access.

The consequences of the failure of the Round would be severe. Not only would a great opportunity be lost, but the whole future of the WTO and the rules-based trading system would be brought into question.

The Doha Round is an opportunity to boost the world's income and development. It is essential that the world does not fumble it. The poorest people of the world are relying on us to give them a hand to start climbing the ladder of economic growth.

Australia-US Free Trade Agreement

The Australian Government will press on with pursuing free trade agreements, where they can deliver faster results for our exporters than the WTO process.

The Australia-US Free Trade Agreement had a substantial commercial impact during its first year of operation, with some of our export sectors reaching record levels.

Australia's lamb exports to the United States increased by 19 per cent. Our cheese exports that benefited from the agreement increased by 103 per cent.

Australian companies have also started to win important state and federal government procurement contracts in the United States.

A good example is Sealite, a Victorian based manufacturer of marine navigation equipment. It won the contract to light the 6.4 kilometre Skyway Bridge in Florida - the longest cable-stayed concrete bridge in the world.

Some commentators have asserted that the FTA is not benefiting Australia because our total exports to the United States fell marginally in 2005. Free trade agreements take time to deliver their full benefits, and in any case our exports to the US were heavily affected by one-off events in 2005.

For example, Australia is an exporter of crude oil to the United States, which is mainly used in Hawaii. In 2005, there was a shortage of light, sweet crude oil in Asia, caused by the region's dramatic growth. As a result, Australian oil producers shifted the direction of their international oil sales. Our exports to the United States decreased, but it was offset by the increase in our oil sales to Asia.

Australia's beef exports to the United States also decreased in 2005, but they didn't fall because of the FTA. Our beef producers diverted their shipments to the Japanese market, which was more profitable because of Japan's concerns about the safety of other suppliers. Overall, our beef exports actually increased in 2005 to their highest level ever - $4.7 billion.

I recently met the US Trade Representative, Ambassador Rob Portman, to review the first year of the Free Trade Agreement. Ambassador Portman and I agreed that we would build on the agreement by supporting mutual recognition initiatives to make it easier for professionals to take up work opportunities in both countries.

We also agreed to look at how we can further integrate our financial services markets to increase investment.

Bilateral trade negotiations

The Government is in the process of negotiating free trade agreements with Malaysia, the United Arab Emirates, ASEAN and China. We are also carrying out an FTA feasibility study with Japan.

Malaysia

Malaysia is Australia's ninth largest trading partner, and a free trade agreement could increase Australia's GDP by $1.9 billion over twenty years. A free trade agreement could reduce a number of high tariff and address non-tariff barriers, as well as freeing up our access to Malaysia's services sector.

We have now held three full rounds of negotiations, which have progressed issues across the board.

United Arab Emirates

The UAE is Australia's second largest market in the Middle East.

Around 90 per cent of Toyota's vehicle exports from Australia are to Gulf markets. Most of them pass through the ports of the UAE.

A free trade agreement with the UAE would help protect Australia's market share in the short term and bolster our economic and trade relationship with the Middle East in the longer term.

Australia and the UAE have made solid progress on negotiating an agreement. We have both put forward plans for market access increases in goods, services and investment.

ASEAN

In conjunction with New Zealand, Australia is working on a free trade agreement with the 10 members of ASEAN. The potential benefits for all twelve countries are compelling: an agreement would underpin further growth in the region and contribute to an improved climate for investment.

We held five negotiating rounds on the agreement in 2005, which have laid the foundation for the start of substantive market access negotiations this year.

India

India has now overtaken the United Kingdom as our sixth largest export market, and there are promising opportunities for Australian exporters across the subcontinent.

The Australian and Indian governments recently signed a Trade and Economic Framework, which will support the further expansion of our economic and commercial ties.

Japan

I want to turn now to Japan, which has long been Australia's largest export market. The Australia-Japan Commerce Agreement, which established the basis of our trade relationship, will be fifty years old in 2007.

Australia and Japan are building on Black Jack McEwen good work by carrying out a feasibility study into a possible free trade agreement. The study is a chance for both countries to examine the opportunities that an FTA would present, while considering any sensitivities that would need to be addressed, including in the agriculture sector.

China

I will now turn to China, the world's fastest growing major economy. In the last two years, China has accounted for a quarter of the world's economic growth. It is now our second largest export destination, after Japan. Our exports of minerals and fuels to China have grown by 700 per cent over the past decade.

From 2006, the North West Shelf Venture will supply liquefied natural gas to China in a contract worth $25 billion over 25 years.

Our nuclear safeguards negotiations with China are progressing well.

Australia has 30 per cent of the world's medium cost recoverable uranium and we are well placed to supply China's growing energy needs.

Any uranium sales to China in the future would have to comply with our stringent safeguards and export requirements, which ensure that Australian uranium can only be used for peaceful purposes.

Any Chinese proposal to invest in an Australian uranium mine would be subject to the normal process of consideration under the Foreign Acquisitions and Takeovers Act. Our export and safeguards requirements would still apply, regardless of the ownership of the mine.

The Australian and Chinese governments have now held four rounds of negotiations on a possible free trade agreement. We will be starting substantive market access negotiations later this year.

The negotiations offer the potential to secure more market access for our primary producers. China's tariffs on our agricultural exports average 15.3 per cent, and a number of our major exports face tariff rate quota restrictions, including wool.

Australia is the world's largest supplier of fine wool and China is the world's dominant wool consumer. The removal of China's tariff rate quotas and other barriers to wool is clearly in the interests of both countries.

The Australian wool industry have taken their case to farmers and people from ethnic minorities throughout China. Their proactive approach is giving themselves the best chance of a strong outcome from the FTA. I would encourage other Australian industries to do them same.

China's industrial transformation is occurring so fast that the potential of its services sector is sometimes overlooked. China's service sector is small by international standards. It's one of the legacies of its centrally planned economy and the Maoist doctrine that every factory and province should be self-reliant.

China now recognises that it needs a strong services sector to support its high rate of economic growth, and Australian companies are making significant gains.

China is our fifth largest market for services exports. There are 81,000 Chinese students enrolled in Australian education. Australian law firms, banks, and telcos are now operating in China.

A free trade agreement could build on our strengths and explore the scope for improving the recognition of Australian educational, professional and technical qualifications in China.

Any agreement would also need to address ‘behind the border' issues in China, such as the lack of enforcement of intellectual property rights. For example, my department recently completed a report on China's service sector, which concluded that 92 per cent of the software used in China is pirated.

Australia will approach the negotiations on the principle that any agreement will need to be comprehensive. It will need to cover agriculture, goods, services and investment.

W e will negotiate for as long as it takes to achieve high-quality, commercially valuable results for Australian businesses and an outcome that benefits both countries as equal partners.

Conclusion

So in conclusion, the Government's trade and economic policies are delivering results. Our exports are at the highest level ever. The 1.7 million new jobs that the Government has created since 1996 show that we have nothing to fear from globalisation.

The Government will press on with the domestic reforms that Australia needs to make us more competitive.

Internationally, we will continue our campaign to reduce tariffs, quotas and subsidies throughout the world. As a result of our efforts, there will come a time when today's barriers to international trade are just a quaint memory - like customs officers searching baggage at Spencer Street Station.

Thank you.