Speech at the Australia-India Joint Business Council Dinner
Australia and India – Natural Partners
20 May 2008
Salutation
Thank you for that introduction. I welcome you all here tonight but a particular welcome to my home town of Melbourne to His Excellency Kamal Nath, India’s Minister for Commerce and Industry.
I am delighted to have the opportunity to speak tonight at the Australia India Joint Business Council - alongside my counterpart and good friend Kamal. Kamal and I last met earlier this month in Bali at a meeting which reinforced to me how vital it is that we get an outcome to the Doha Round. And I’m very pleased to have had good discussions today to advance our bilateral agenda.
Australia takes India seriously. One of my first overseas trips as Trade Minister was to India in January, where I took the opportunity to explore with the Indian Government and business sector a range of political and commercial issues. And Foreign Minister Stephen Smith and Prime Minister Rudd plan to visit India in the second half of 2008.
It was clear from my first visit that we have the opportunity to take our relationship – particularly our trade and economic relationship - to a higher level. And business groups in both countries will play an important role in deepening and strengthening this relationship. Because moving our relationship to a higher level isn’t just government business. It’s also about business-to-business engagement.
The size of this dinner tonight and the great representation from small, medium and large companies is a very encouraging signal that we are moving in the right direction.
Why Trade Matters
In the past 50 years world trade has grown - on average - three times faster than world output. But in the past five years it has only grown twice as fast. It should have been growing more strongly – part of the reason it hasn’t is that we have not been able to conclude the Doha Round of WTO trade negotiations.
Each successful round of trade liberalisation has fuelled world growth. And in times of economic uncertainty like those we face now, a successful round would be a tremendous boost to the confidence of the world economy.
That’s why trade matters. And it’s why the Australian Government is doing we all can to ensure an outcome to the Doha Round.
Trade matters to developed countries such as Australia, but it matters just as much, if not more, to rapidly developing countries like India. India is now more open to the world economy than at any time in its post-independence history and it is benefiting enormously from this openness. Millions of people have been lifted out of poverty.
India’s success has been spectacular. The ratio of merchandise trade to GDP for India jumped from 13 per cent in 1990 to around 34 per cent in 2007. India is now the world’s 26th largest exporter of goods and the 11th largest exporter of commercial services.
We welcome and admire this success. And there are greater benefits to be gained from further opening – and particularly from a successful conclusion this year to the Doha Round.
These opportunities will greatly assist India continue its spectacular transformation and to forge ahead as one of the world’s fastest growing economies.
It’s important to understand that the nature of trade is changing.
As India has proven through the extraordinary and unique growth of its services sector, services that we might have once thought impossible to trade across an international border can now be traded, transferred or exchanged…even at the touch of a button.
It’s not just produce and ship anymore. It’s more complex.
Investment is becoming increasingly important. Companies are now seizing opportunities to place their investment and operations wherever in the world makes sense.
Australia’s own foreign direct investment is growing rapidly. This is the major new dynamic in Australia’s relationships with the world economy. As at the end of December 2007, we reached the point where direct investment abroad by Australian companies of A$318 billion rivals foreign direct investment in Australia of A$357 billion.
Companies increasingly target the global marketplace and are prepared to locate the different stages of their production and supply chains where the business benefit is greatest – either onshore or offshore.
The same dynamic is at work in India. India’s direct investment abroad – estimated at US$13 billion in 2007 - is up from US$9.6 billion in 2005.
The Australia-India economic relationship exemplifies this trend.
But the base of the economic relationship is expanding rapidly into new areas. Our resources exports, especially gold, coal and copper, are the most important drivers of the economic relationship with India. There is significant scope for more co-operation on this front.
India’s optimism and dynamism are attracting Australian services companies to establish Indian operations.
The Leighton Group, for example, has become the fourth-largest infrastructure developer in India in a matter of a few years. By next year it could be the second biggest.
Linfox started its Indian operations with one customer in July 2006. After two years, it now employs 700 people. Over the next two years, Linfox plans to invest more than $300 million and employ up to 5,000 people, including expanding the vehicle fleet to up to 500 trucks and introduce dozens of new warehousing and distribution sites across India.
And Woolworths has linked with India’s second largest business house, Tata, to supply electrical consumer goods into the Indian market. Thiess India has won contracts worth $1billion to develop and operate open-cut mines in north-east India. In the burgeoning consumer market, the Gloria Jean’s coffee franchise has just set up operations in India.
And the business engagement is increasingly two-way. Indian businesses are doing well in Australia.
For example, this month Tata Power and Sedgman announced they have jointly invested in Australian mining technology firm Exergen. And Gujarat NRE listed on the Australian stock exchange last year and is now Australia’s largest coking coal producer.
The greater levels of investment evident in the Australia-India economic relationship is a truly transformational change in the way Australian companies conduct international business.
With the changing nature of trade, the opportunities are there, for both the Australian and Indian economies.
We acknowledge India’s concerns for their subsistence farmers—and those concerns can be met. But it’s worth noting that Australian farmers don’t threaten the livelihoods of subsistence farmers, who, by definition, don’t produce a surplus for the world market.
Now, I also recognise that trade is only part of the answer and needs to be complemented by supporting policies. That’s why today, I’m pleased that we are talking about launching a dialogue about water policy. We can also cooperate through important measures to boost farm productivity and through Australia’s international assistance to enhance rural development and food security.
And just quickly on food – let me just mention that I believe liberalised markets are a key means for delivering food security. Unhindered trade in agricultural products - and adopting measures that result in diversified global supply - is crucial.
Ladies and gentlemen,
It’s clear that Australia’s relationship with India will benefit from more attention.
The Labor government is committed to building a stronger, broader and deeper bilateral relationship with India. At the very broadest level we want to learn more about each others’ cultures, politics and societies. In Australia, we want to get to know India better.
We want to work more closely with India at three levels: multilaterally, regionally and bilaterally.
Let me examine what that means in a trade context.
Multilaterally, we will engage primarily through the WTO, as we work to conclude the Doha Round, but also in the UN and other multilateral institutions on crucial issues such as climate change and food security.
Let me be clear. Doha is do-able, but difficult. Both our countries stand to gain much from the new opportunities a successful Doha outcome would bring.
India and Australia have long called for the reduction of distortions in global agriculture through subsidy reform. If we are to be able to achieve this, we will need to continue to advance the reform effort in market access as well.
We have agreed to mechanisms in the Doha Round to cushion the impact of reform in developing country markets, such as “Special Products” and the “Special Safeguard Mechanism”. These instruments must be carefully targeted and must help us advance the long-term reform effort.
I welcome the release in the past twenty-four hours of two new negotiating texts on agriculture and industrial goods.
Obviously there will be areas of continuing disagreement - but the important thing is that we are clearly narrowing these areas of difference. This demonstrates the continuing desire to make progress.
Australia will be examining the detail of the agriculture text carefully and will be consulting closely with our Cairns Group colleagues in Geneva.
On industrials, our own view is that the gap between the developed and developing country cuts needs to narrow, not widen. We’ll be pursuing that priority in the discussions in Geneva.
I am also pleased that there is now widespread support for a services ‘signalling’ conference at Ministerial level for which Australia has strongly pushed. I fully expect that conference to be held in parallel with negotiations on goods when Ministers come together. Australia will continue to press for a strong outcome on services market access.
We should soon have a basis for discussions at Senior Officials’ level across these three main export market access issues in the Round which are of key interest to Australian farmers, services providers and manufacturing industries.
An injection of political will is now needed to drive home the Doha deal. I hope that Kamal and I are able to engage face-to-face with our other Ministerial colleagues in Geneva in coming weeks to narrow the remaining differences.
As I have said previously, a successful conclusion to the Doha Round this year would provide a real confidence boost to the global economy at a time of some uncertainty in the outlook. It would also be a key part of the solution in dealing with the impact of high world food prices.
Given its importance to the global economy – and to the developing world in particular – we cannot afford to let this opportunity pass.
Kamal and I have today reaffirmed our common commitment to concluding the Round this year. I will also be speaking to other key colleagues in the next few days to discuss how we might engage soon in Geneva towards this objective.
Regionally, we already work with India in the East Asia Summit and we strongly support India joining APEC. I was a strong proponent of this while in Opposition and will do all I can in coming years to make this happen. Unfortunately, the previous government missed the critical opportunity to secure India's entry when Australia hosted APEC last year.
We are now extending this cooperation into South Asia by applying to become an observer at the meetings of the South Asian Association for Regional Cooperation. We hope that SAARC members will approve this application when they meet in a few months.
So we look forward to stepping up our regional engagement with India at various levels.
Bilaterally, there’s no doubt we’ve come a long way in our relationship in the past few years.
India is Australia’s fastest growing major trading partner. Goods and services exports to India rose at an annual average of more than 32 per cent during the past five years.
Indian investment in Australia is also now growing more strongly, with Indian companies taking stakes in various areas, especially Information and Communications Technology and resources.
India has become Australia’s 10th largest trading partner.
India is Australia’s second largest source of overseas student enrolments. Indian student numbers grew by 49 per cent in 2007, contributing $1.6 billion to the Australian economy in 2007. Apart from being an important trade in its own right and valuable as an industry, education offers unique opportunities for cultures to learn more about each other. Some Indian students will stay here after they have finished their studies and go on to play important roles in the Australian business community; others will return to India, taking back with them new skills, a very personal experience and a better understanding of Australian culture.
These are just some of the important gains we’ve made in our trade.
But the Labor Government is committed to raising our relationship - including our growing economic partnership with India - to a new level.
There’s lots of potential to do this.
We are on the threshold of an historic opportunity—Australian business realises this. There is much more we could and should be doing together to unleash the potential of the economic relationship.
And it was a recognition of this that led to last year’s decision to undertake a joint feasibility study into a bilateral free trade agreement.
Our Government has taken a new approach to FTAs. We have recalibrated the focus of our trade negotiations by putting multilateralism back at the centre, we are committed to pursuing high-quality, comprehensive FTAs. We want to strike agreements that not only promote our bilateral economic and trade relationships, but which also support the multilateral trading system.
Our aim is to make sure these agreements are as comprehensive as possible.
We are very keen to see the recommendations of the FTA feasibility study with India. And I’m pleased that this will be a comprehensive study of the opportunities for trade.
I believe the relationship has been growing as a result of natural forces and it will continue to do so. Yet we can’t just leave it to natural forces. We can get quicker and more enduring growth if we focus constructively in an FTA process on some of the speed bumps which currently put limits on the economic partnership.
It seems to me, for instance, that there have to be things we can do through an FTA to increase the relatively low levels of Australian investment into India. At the same time, I hope an FTA would give a further boost to Indian investment in this country.
And trade in all services should flow as freely between our two countries as they do in areas such as business process outsourcing, education and software development.
For all these reasons I look forward to bold, forward-looking recommendations from the FTA feasibility study.
I’m very pleased that we’ve agreed today that our officials will complete the study by the end of this year.
Australia sets high standards for tariff liberalisation in its FTAs because we as a nation have experienced the overwhelmingly positive impact of trade reform. We actively encourage all our FTA partners to embrace the benefits of tariff liberalisation, including on agriculture.
It’s clear that the growth in the Australia-India trading partnership over the past five years has been driven by two things:
- domestic reforms in both countries, and
- the opportunities presented by the multilateral trading system, which I’ve already touched on.
On domestic reform, for our part Australia will be doing all we can to drive economic reforms behind the border.
The Rudd Government takes a “twin pillars” approach to trade policy, incorporating greater market access at the border with structural reforms behind the border. These reforms will enhance domestic supply and boost productivity and competitiveness. The sectors we will tackle include transport and infrastructure, innovation, education and training and regulatory arrangements.
There’s no point getting market access if you can’t compete.
We applaud the reforms India has made since 1991.
Australia particularly welcomes the work the Government of India has begun on regulatory reform. The Indian Cabinet recently approved recommendations to reform minerals policy, flowing from the Hoda Committee Report. We look forward to the implementation of the report’s recommendations, which will help realise the potential of the Indian mining sector and facilitate much greater Australian engagement.
Ladies and gentlemen.
India faces economic challenges in areas where Australian business is well-placed to assist. For example, where Indian farmers want to get their produce to market faster and fresher; we can offer expertise in agricultural logistics that we’ve developed as a big country with vast miles between big cities.
As India ramps up its export sector, there’s obvious scope for mutual benefit in the area of export logistics.
And as India tackles its infrastructure challenge, Australia is able to offer its expertise in finance and public-private partnerships.
These are the synergies that exist with our two economies. These synergies are concentrated in the services sector, in industries such as financial and legal services, information and communications technology, creative industries, education and tourism.
I believe that focussing on these synergies can make a big contribution to India and Australia.
On this score, it is particularly pleasing that just last week the State Bank of India selected the Australian insurer IAG as its preferred partner for a general insurance venture. I wish this venture well.
Conclusion
These growing synergies mean Australia and India have a natural partnership. It’s a relationship marked by enormous potential, but it's only just beginning. I believe we can take it to a higher level.
We are looking to business in both countries to play an important role in deepening and strengthening our relationship.
Groups such as the Joint Business Council have a very important role to play in pointing to the issues our governments should be pursuing to grow our relationship.
In the end it is the partnerships which you will forge, the investments which you will make, and the products which you trade, which will drive the economic relationship.
Thank you.
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