Speech to ABARE Outlook Conference

Trade Reform: Where to From Here?

7 March 2007, Canberra

Introduction

Thank you, Michael Pascoe.

Good morning, ladies and gentlemen. It’s certainly a great pleasure to be back here at the ABARE conference. As you would be aware, I’ve been a regular visitor to this event. In fact, my first visit was back in 1974.

Both now and in my previous portfolio as Minister for Agriculture, I have regarded this as one of the most important events of the year. And indeed, this conference has developed a reputation as one of the foremost economic forecasting events of the globe.

This is my first time here as Trade Minister. So this time I am going to talk about some things that are a little bit different from my previous visits.

Certainly, if you look at this particular event, leaders of rural industry, analysts and government see this as an opportunity to look at the various issues affecting rural and regional Australia; the challenges facing our rural exporters and our rural industries and what we need to do to help build a better environment for our producers in the future.

Now, I’ve been Trade Minister for only a short period but I didn’t have to be in my job long to know that we still really haven’t won the argument in the community about whether or not trade is even a good idea.

Most people are in favour of exports but they rail against imports. That doesn’t stop them going down to the local store and buying cheap Chinese products; it doesn’t stop them from going to the supermarket and buying imported food. But you’ll always hear them say they’re patriotic Australians; they want to only buy Australian, so why does the Government allow all this imported rubbish into the country?

The fact is that consumers are all powerful. If they didn’t buy these products they wouldn’t come into the country. The reality is that consumers make the choice. And they may make that choice on quality grounds or they may make it on price grounds. But certainly, imports are a part of giving consumers a range of choice in products that previously they would never have been able to dream of.

So it is important that when we look at trade, to not only be aware of the role that exports play in the economy of our country, but to recognise also that we use imports in Australia to drive the manufacturing industry, to encourage our export relationship with other countries (you can’t expect other people to buy our products if we don’t open our doors to theirs), and also to ensure that Australian consumers have access to the broadest range of products—the best things in the world at an affordable price.

And indeed the lower-cost manufacturing countries, particularly in Asia, have made an enormous difference to our consumer market with television sets, electrical appliances and so on are very much cheaper than they would be if we only made it in Australia or if we imported it from the United States or Europe.

The reality is that the dynamics of the world has changed. Goods can move very easily and very readily. We are good at many things in Australia. But, as a small country with a relatively small population, we can’t be the best in the world at everything.

We need to choose the things that we can do well and seek to sell those to other parts of the world while recognising that there are other countries that can do things on a scale or in a way that’s beyond what we can achieve in Australia.

And we should take advantage of the best technology, those best products that will feed our own consumer market and ensure that we are best equipped to do the things that we do well.

As we look at Australia’s large and productive landmass and our relatively small population, it’s just inevitable that we will need to sell our products to other parts of the world if we’re going to have world class industry. So our exports and our export performance is particularly important in that regard.

And that’s especially true of the rural sector. If our farm sector were to only supply the Australian market, our wool, our wheat, our beef, our sugar, our wine, our citrus, our cotton industry—almost every primary industry would only be a shadow of what it is today.

We have large scale productive agriculture industries only because we are exporting those products to other parts of the world. So it’s particularly important for the rural sector to have a free and fair and open trading international environment.

For example, look at Australia’s highly-efficient dairy industry. After two decades of reform and a lot of pain, hardship and direct exposure to world markets, Australia is now the world’s third-largest dairy exporter. Dairy exports added $2.4 billionto Australia’s income in 2006.

So lower world trade barriers are the best solution for future economic prosperity and growth for our dairy industry. We need to be able to sell our product overseas to make that industry grow. And the story is the same in almost every sphere of agricultural endeavour.

We all gain from trade

This Outlook Conference is being held amid the worst drought on record. Australian agriculture is doing it particularly tough. But our rural exporters continue to face up to challenges with a can-do attitude.

Drought doesn’t just affect farmers, it affects our whole country. It lowers our GDP; it lowers our trade performance; it lowers our growth; the impact is felt right across the board. And probably because this drought has resulted in water restrictions in every capital city in Australia, this is the most keenly felt drought in our nation’s history.

It hasn’t just been farmers out on the land that have been affected by the drought for whom we may feel sympathy but with whom we have no connection. This time, people in the cities can’t water their roses or wash their cars. And that is a true national crisis in their minds!

So we have the reality of the drought and its impact affecting right across the community. That has affected the way our country has been able to grow; all our economic statistics, and certainly our trade performance is the poorer because we have had less to export. Although, ironically, agricultural exports were up 6 per cent last year. But that’s a demonstration of how bad they were the year before. So the impact of the drought is very real right across the community.

So today I’d like to talk particularly about our trade policy: why trade talks matter to ordinary Australians and why free trade matters to the interests of Australia and the world.

Our exporters are diversifying; they’re innovating, developing niche markets and integrating with global supply chains. Last year, Australia’s exports achieved a record $210 billion dollars in value terms, growing by 16 per cent. That figure is especially creditable in view of the strength of the Australian dollar.

This growth has been led by robust demand for our resource exports; they were up by 21 per cent to $71 billion, largely because of higher prices. Indeed, it was somewhat of a disappointment that our resources sector has not been able to take maximum advantage of the higher world prices because of the domestic constraints.

The inability of our ports and infrastructure to adequately meet the demand around the world has cost the country dearly. It’s just a tragedy; a national tragedy to see 50 or 70 ships out at sea waiting to come in and take on board coal.

It’s true that there is some work being done at some of our coal export terminals, we’re upgrading rail systems and the like. But we’ve already lost two years of the resources boom. And they will never be made up. And who knows how long it will last.

It is important that the States who have control over ports and most of the key rail systems invest wisely and productively with a vision for the future, so we don’t have the constraints to export bubbles and so we can meet the capacity of our major buyers to take these products.

But in other areas our export performance has not been constrained: services exports made a solid contribution, increasing eight per cent to reach $44 billion; manufacturing exports grew 14 per cent to $42 billion. And rural exports, as I mentioned earlier, were up by six per cent to $26 billion.

In the broadest sense, Australia’s trade policy is about advancing and securing our national interests. We aim to open up trade and investment conditions. We want to create new market access opportunities and we strive to hold on to the ones we have.

We were once a protected economy. But we brought down trade and investment barriers and undertook widespread economic reform. Indeed, our agricultural sector was one of the first to open itself to global competition and reform.

Our openness to trade, our embrace of two-way trade and investment and our pro-market reforms, have certainly created real benefits for ordinary Australians.

For example, if Australia had not reduced tariffs on passenger motor vehicles, average families would pay an additional $10,000 on a $30,000 family car. If we had retained high levels of protection, clothes and shoes would cost at least 18 per cent more and families would pay an extra $450 or so a year to the average family budget.

Quite simply, trade creates jobs, it lifts living standards and encourages innovation. These are some of the points that are being made in a new series of brochures that I’m pleased to launch today about why trade matters, especially to regional Australia.

The brochures offer examples of many small and medium-sized businesses and some of our well-known big companies. It is also about the contribution they make to our export effort from regional areas. These brochures specifically talk about the impact of trade on regional Australia.

We all recognise that Australia creates excellent products but sometimes that is not enough for global recognition. Exporters need access to markets and the Australian Government is working with them and industry to remove barriers that prevent the best products from finding a home in the best markets.

For example, take Saurin, a company thathas invested in a ‘food park’ in Gippsland that focuses on milk powder products and manufacturing innovation. In six years, Saurin's turnover has grown from $300,000 dollars to $30 million per year; 70 per cent of its income comes from exports.

In Queensland, Buderim Ginger is the largest processor of sugared ginger in the world. It has 320 employees, and half of its product goes overseas.

In South Australia, Diamond Seafood Marketing. Around 90 per cent of the company’s revenue comes from exports of seafood sourced from producers across Australia and sold in niche volumes to Asia and the United States.

Foreign investment has also helped bring the best out of regional Australia. Ferrero Australia employs 110 people in Lithgow, New South Wales. One of the things they make is Nutella, which is a multi-million dollar export to Asia.

My point is that cutting trade barriers, tackling non-tariff measures, liberalising services trade and opening our economy to investment has helped create the prosperity we are experiencing today.

Nevertheless, I believe that global trade reform can deliver further benefits to Australian producers and the Australian economy. And that’s why a successful outcome of the Doha World Trade talks are so important. It is our top trade policy priority.

Doha

Since the inception of the Doha Round, the Australian Government has worked hard towards a successful outcome. We have played a key role through the Cairns Group to right the distortions which have skewed global trade in agriculture.

As you would be aware, the Doha Round has not been smooth sailing. In particular, from July last year until early this year, the Round was put on hold until the major players could come to some kind of understanding about the key points of difference.

The EU needs to do more on market access, the US has to cut farm subsidies more deeply and developing countries have to agree to actively participate in the overall outcome and open up their own market, including manufacturing and services industries.

To move negotiations ahead, we have had to deal with these seemingly intractable problems. I am pleased to report that the news on the Doha Round is now looking more encouraging, though there is still some way to go.

Bilateral discussions have been taking place over the past two months. And particularly since the decision in Davos to reactivate full negotiations there has been some headway. There’s a lot of work going on; it is very labour intensive; there are 149 members of the WTO and all will have to be a part of an eventual agreement.

There has been a clear sense from key players around the world that the Round must be progressed quickly with a view to a timely and ambitious conclusion. The expiry of the US Administration’s trade negotiating authority in the middle of this year adds further pressure to the mix.

Australia is playing its part. Last week, I met with the Indian Minister for Trade, Kamal Nath, in New Delhi. I keep in regular touch with the WTO Director-General Pascal Lamy.

Last month I was in Washington to meet some of my US counterparts. I am in close touch with other Ministers who are active in seeking to find a solution. I will also chair a meeting of Cairns Group Ministers in Pakistan next month and I hope, by that stage, there will be significant progress to report.

A key priority for Australia in the negotiations is a strong market access outcome that delivers commercially meaningful benefits to Australian exporters. We believe that to secure this outcome, the European Union, Japan and others in the developing world must be prepared to put more on the table, particularly through more substantial tariff cuts and an approach to so-called ‘Sensitive Products’ that delivers significantly new trade.

In this regard I am pleased to announce that the Cairns Group in Geneva has agreed to table an important new proposal on Sensitive products.

In the area of farm subsidies, the US needs to do more than its current proposal. Just what effect the recent US Farm Bill proposals will have on the US’s ability to offer further domestic support cuts in the Doha negotiations remains unclear.

The reality is that other parts of the world and other negotiators were looking for a signal in the Farm Bill that the US was prepared to make meaningful cuts to its farm subsidy program, and in that regard, what has been proposed is less than what was hoped for.

And I have to say, after visiting some of the people on the Hill in Washington, that I'm not even confident that these modest proposals will gain sufficient support in the Congress to carry.

On the other hand I am more optimistic that given a good deal, a new Trade Promotion Authority can be negotiated in Washington, and that does not need to be an insurmountable barrier. But the deal will have to be good. The Congress will not be of the mind to give a new TPA unless they believe it is in the interests of the US.

Of course, none of us want a new trade agreement if it doesn’t deliver good outcomes for our countries. And that’s the key purpose of the negotiations: to find a formula that delivers something worthwhile for everyone and opens up trade to a much fairer and freer environment.

The proposals in the US Farm Bill certainly see some cuts in farm subsidies but not as much as we had hoped. And many of the subsidy arrangements have been re-designed to make them more WTO consistent.

But they still leave a very large safety net for US farmers, particularly in the five commodities where most of the subsidies are spent. And all of those commodities, except for perhaps cotton, are currently enjoying very high prices. It was a unique opportunity for the United States to strip all of those measures away without any costs to US farmers at all.

The reality is that with prices high, many of those measures are not likely to even be activated. So why not take them away now? It would have been painless. Unfortunately, that opportunity looks like it is not going to be taken.

And so, the reality is we have still got a long way to go. And let me assure you that we will continue to argue for real and substantial reform.

We also have proposals on the table that will cut the capacity of the heaviest users of trade distorting subsidies by more than 70 per cent. And on market access all have agreed that the deal will have to deliver meaningful new commercial opportunities through significant tariff cuts and quota expansion.

So there are already some important things that have already been agreed. Remember that at the Hong Kong meetings, it was agreed that we would outlaw forever the use of agricultural export subsidies - a long-standing Australian and Cairns Group objective.

So the Doha Round is worth the effort. There are already significant agreements on the table. We want to take them to the next step to ensure that it can achieve its full potential.

If we don’t make progress, then there is an added risk that the whole WTO process will grind to a halt, particularly by the massive use of disputes settlement processes. The lawyers will take over where the negotiators have failed. And many will choose litigation over negotiation.

This matters to Australia because the disputes settlement system hands down rulings that are binding, legally enforceable and apply to all economies big and small.

The disputes settlement process is an important part of WTO arrangements. And I’m also launching today a book prepared by my department, Ten Years of WTO Dispute Settlement – Australian Perspectives. The book collects the views of industry, academics and government practitioners involved in running cases. It is ten years now since this rules-based system and the dispute settlement system was put in place.

Free Trade Agreements

As important as WTO negotiations are - and make no mistake this is our top priority - there are other trade policy tools that can complement our WTO efforts. This includes a range of Free Trade Agreements.

Negotiating regional and bilateral FTAs can reduce trade barriers for Australian products faster than through multilateral talks. FTAs can also tackle issues such as investment, competition policy and regulatory issues in far more depth than is possible through the WTO.

In Australia’s case, when most of our trading partners are engaged in FTA activity, we certainly cannot afford to be left behind.

Each FTA should produce substantial economic benefits - real commercial gains for Australian businesses, including, of course, our agricultural and food exporters. Each FTA should be fully consistent with the World Trade Organization’s principles and rules. And each FTA should be comprehensive and aim to reduce trade barriers across goods, services and investment.

We already have FTAs with New Zealand, the US, Singapore and Thailand. We’re currently negotiating with China, ASEAN and Malaysia. Negotiations will shortly commence with Japan and the Gulf Cooperation Council and we’re making inroads with Chile.

All of these countries account for 59per cent of our total two-way trade in goods and services. It demonstrates how important these FTAs are to Australia’s long-term economic prosperity.

APEC 2007

We’ve got another tremendous opportunity to advance our trade interests across a broad range of issues through our hosting of APEC this year.

Leaders have tasked Ministers to consider how to further deepen Asia-Pacific economic integration, a process that has driven the region’s prosperity. Among other options, we will consider the possibility of a Free Trade Agreement of the Asia-Pacific as a longer term option.

We are committed to addressing business concerns in APEC through trade facilitation measures to cut the costs of doing business.

We are also addressing ‘behind-the-border’ structural and regulatory barriers to trade and growth. And indeed, this is one of the areas where APEC has made its best contribution over recent years.

Our trade with the Asia-Pacific region has underpinned Australia’s prosperity. Strong world trade volumes over the past few years have contributed to a robust world economy that has defied threats like war and terrorism.

But we can’t be complacent. We certainly have to maintain our efforts against forces that would drag us down.

Conclusion

So we argue our case through the WTO, through FTA negotiations and through APEC. Our trade policy is designed to give our exporters, including our food and agricultural producers, every chance of creating new markets abroad.

In spite of the difficulties, our producers are doing remarkably well. Our trade figures are at a record level. We must keep on with those kinds of endeavours.

The government seeks to create the environment to give business the opportunity to expand and export. And we look to business, including the farm sector, to take up the opportunity and make sure our country continues to grow. Thank you.