Former Minister for Trade
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Former Minister for Trade

Canberra, 4 March 2009

ABARE Outlook 2009: A Changing Climate for Agriculture

Thank you very much, Connall O’Connell.

I’m very pleased to be here today.  As I’ve said before I have had a long association with and commitment to Australian agriculture.  It’s good to be back at Outlook.

Australian agriculture is among the most efficient in the world – despite the droughts we’ve encountered.  Our farmers have done the right thing at home – behind the border – in making the effort to boost their productivity and competitiveness.

The challenge is to make more inroads in our overseas markets, at the border, to boost our export opportunities.  I’m working very closely with Agriculture Minister Tony Burke on this challenge, and that’s the challenge I want to talk to you about today.

In doing so it’s a special pleasure to be able to join you in welcoming my friend and colleague Pascal Lamy to this forum.  Pascal Lamy has, since 2005, brought very impressive qualities to his role as WTO Director-General.

Pascal is well known as a strong marathon runner and I understand the first thing he did on Monday at 7am after arriving in Sydney from his long flight was to go on a run.  He has brought this same legendary energy and stamina to the Doha Round, for which he has been a tireless advocate.  I thank him for his leadership.

It’s a pleasure to welcome him to Australia.  We had good discussions yesterday together with the Prime Minister, Minister Burke and Minister Ferguson.  I look forward to hearing his thoughts today.

Trade and the Global Economic Crisis

First, I want to make a few comments on the current international climate for agriculture. 

This year, the IMF’s best estimate for global growth is 0.5 per cent.  Parts of our own immediate neighbourhood, the Asia Pacific, may come out better than most—with modest growth still predicted in developing Asia—but our main trading partners, Japan and China and Korea are doing it tough.

Recent figures show that Japan’s economy has contracted at an annualised rate of 13 per cent.  China’s hitherto impressive growth is braking sharply: the Government’s latest forecasts predict it will fall to 6.7 per cent this year.  Korea’s economy is expected to contract by 4 per cent in 2009.

Although Australian agriculture is forecast to see a boost to export earnings in the short term, from crop increases and exchange rate factors, as we heard yesterday with the release of ABARE’s commodity forecasts, there will be an impact on world commodity demand.  An example is dairy, where prices are forecast to fall significantly.

world trade since 1950s

International trade is also being impacted by the economic downturn.  Trade is not the cause of the downturn: but it is very much a vital part of the solution.

This chart demonstrates that, since the 1950s, world trade has grown three times as fast as world output.  Each successful multilateral trade round has provided a boost to world trade growth. 

We need the stimulus that trade reform would bring and the Doha Round would deliver a significant impact.  As Pascal has noted, by removing over US$150 billion in tariffs, Doha would provide a boost to global demand and consumption.

Given the extent of the downturn, more than ever the world economy also needs the confidence boost that a breakthrough on Doha would bring and this has been, and remains, our priority.

The upcoming G20 Leaders’ Summit in London provides the next important opportunity to make progress on this front.  Given the strength of commitment and direction of the first G20 Summit in Washington, this meeting provides a vital opportunity to reinforce the urgency of Trade Ministers getting back to the table.

There’s a great deal at stake for Australian agriculture and the Cairns Group has pushed effectively for important gains.

This table shows the current status of Doha negotiations on agriculture.  In addition to the elimination of export subsidies – forever – a Doha package would offer deep cuts in tariffs and subsidies, which would constrain governments in acting on protectionism.

Doha negotiations

Over 80 per cent of the negotiating agenda had been effectively settled when the talks stalled last July. 

The deal would cut US agricultural subsidies to US$14.5 billion—a level the United States has exceeded in eight of the past 10 years.  Without Doha we get the US Farm Bills we’ve seen in recent years – with Doha, we can make a real attack on these levels of support.

Allowable domestic support in Europe would be reduced by 80%, providing real caps on increased protectionism and subsidies in the future.

These subsidy cuts would be more valuable now than they were last July – given that subsidies tend to grow as world prices drop.

Agricultural tariffs in the EU, the US and Japan would be cut by up to 70 per cent.  Tariff quotas for many agricultural products would be boosted to allow, in some cases, hundreds of thousands of tonnes of new market access in developed countries. 

Australian agriculture has a great deal to offer besides our commodity exports.  We need to think broadly about the opportunities.  A Doha package would offer significant new openings in agriculture services and technologies, areas in which Australian agriculture is highly competitive.

The Doha Round will lock in market openings for Australian agricultural services exporters across a raft of sectors, including consultancy services in areas such as dry-land farming and water resource management.

Beyond Doha, we have also successfully been pursuing our reinforcing strategy of negotiating free trade agreements that complement and advance the multilateral agenda.

Late last week, in Hua Hin, Thailand, I signed the ASEAN Australia New Zealand Free Trade Agreement. 

This is the largest trade FTA that Australia has ever entered into and the most comprehensive that ASEAN has ever signed.  It gives us market access gains in a wide range of sectors in a region of almost 600 million people with a combined GDP of US$1 trillion. That means increased job opportunities for Australians.

And it’s very good news for Australian agriculture.  AANZFTA provides for the progressive reduction or, for most products, elimination over a transition period of tariffs that Australian goods exports face in ASEAN.

We’ve posted a great deal of detail on the DFAT website about the new opportunities on offer – I urge you to look at it, work with Austrade and seize the opportunities.  I’ll also release a summary of the main outcomes on agriculture attached to the written copy of this speech.

I have asked Austrade to roll out a commercial strategy to assist Australian exporters to take advantage of this new FTA. 

AANZFTA signals a clear commitment to trade reform in the region.  It is a strong platform on which we will build our continuing bilateral efforts. 

We are negotiating a new agreement with Malaysia.  We have an FTA in the pipeline with Indonesia.  And with Thailand we are progressing our built-in agenda in our existing FTA, where we will be looking at implementation of the agreement to date and future opportunities. 

We’re also engaging bilaterally with a number of others to advance our trade relationships. Late last year Australia and the Philippines held our Ministerial meetings where we talked about opportunities for further bilateral trade growth.  Last week in Thailand I had the opportunity to engage with Vietnam and Cambodia about the same issues.

Outside of the region, we are pressing ahead with FTA negotiations with China, Japan, the Gulf Cooperation Council and looking at new opportunities with India.     

On Korea, our fourth largest export market, this week we’re welcoming President Lee and a number of Ministers to Australia for discussions on boosting our trade and economic ties.

Later this week, the Rudd Government’s first FTA—the one we signed with Chile—will come into force.    This agreement will eliminate tariffs on 97 per cent of bilateral trade on entering into force and eliminate virtually all the rest by 2015. 

Soon we will be embarking on a new chapter in our approach to trade liberalisation when we commence negotiations towards a Trans Pacific Partnership (TPP) Agreement, bringing in some of the most significant economies in the Pacific, including the United States.

We’re also working within our region to build greater economic sustainability in the South Pacific through the PACER Plus initiative.

Sustaining Trade in the Downturn

Boosting trade reform does more than stimulate economic activity.  It is also the best insurance policy against protectionism – and we must do more to sustain trade during the global downturn. 

The first thing we need to do is combat protectionism in very strong terms.  As world prices for agriculture commodities fall, governments will be tempted to protect their farmers, imposing costs on others.

Australia registered a very strong protest to the EU on its decision in January to re-introduce dairy export subsidies.  As most of you will know the EU will continue to argue that these measures are WTO-legal.  But under Doha, export subsidies in the future will be eliminated – such action could not be taken.

We also registered in strong terms our concerns with the moves to introduce the Buy America provisions in the US stimulus package.  The US’ international trade obligations are a constraint on these provisions. 

Concluding Doha also provides insurance against protectionism through new disciplines.

Here at home there are similar pressures emerging to mandate buying from Australian suppliers.  As a former union leader, I understand the pressures.  But we will not protect Australian jobs by mandating to Buy Australia: in fact quite the reverse is true.  I support Buy Australia as a promotional campaign but not as a mandatory requirement – because that would be contrary to trade law, to our interests as a trading nation, and would risk retaliatory action.

Second, we need to get trade finance right.  Trade finance is the lifeblood of international trade – and we need to ensure it continues to flow throughout this downturn.

Exporters are looking for more secure forms of financing – and because of the higher risk, banks are looking for more security.

The combined effect of these developments is that trade finance is tightening.

I’ve been talking to Pascal Lamy about how we can ameliorate these tightening conditions through the downturn, particularly for developing country exporters – and we are cooperating with others, through the WTO to ensure we are responding appropriately.

Third, we need to ensure that developing countries can continue to engage fully with the international economy.

There’s no point urging developing countries to liberalise unless they’re productive enough and competitive enough to benefit from that engagement.  That’s why aid for trade, to assist capacity building and structural reform, is so essential to this debate as well.

Australia is playing its part in efforts – at the multilateral level, regionally, and bilaterally – to ensure developing countries get the support they need to benefit from international trade.  Just one example is the $20 million in economic cooperation we are offering our partners under the AANZFTA to build their capacity to take advantage of trade opportunities under the agreement.

Conclusion

Trade – and our capacity to support it during this downturn – will play an integral role in our efforts to recover from the global financial crisis.

Put simply, trade can contribute positively or negatively to the crisis and to our collective response.

We must push ahead with trade reform, and ensure we are sustaining trade flows, if trade is to support global recovery efforts. 

If instead we allow trade reform to stall, and let protectionist measures fill the policy vacuum, then countries will turn inwards and the decline in trade flows will exacerbate the current crisis. 

Australia will play its part in efforts to ensure that the contribution is resoundingly positive, because that’s in the interests of our farmers, our economy and of global efforts to recover from this historic downturn.

Attachment:

AANZFTA and Australian Agriculture

Under AANZFTA, Australian farmers have substantial new opportunities to export into the South East Asian region – a region that is home to almost 600 million people. From 1 January 2010, thousands of tariffs hitting Australian exports into the region will be eliminated. In the case of Indonesia almost one thousand tariffs (currently applied at 5 per cent) will be instantly eliminated.

The agreement will offer Australian exporters substantial new opportunities through lower tariffs.  There will also be considerable new certainty from locking in tariffs where they are currently low – avoiding the risk that they will be raised in future.

Improvements in selected sectors

Australian dairy exports to ASEAN markets are currently worth $855 million each year. AANZFTA offers significant new opportunities into almost every country.  Some examples include:

Meat exports, currently worth approximately $800 million a year, will be boosted by the elimination of tariffs on most meat lines.  Examples are:

The ASEAN grain export market is worth $700 million to Australia.  New opportunities include:

Valuable markets for cotton and wool will be guaranteed, with 0% tariffs locked-in for most cotton and wool tariff lines from entry-into-force, and virtually all of the remaining cotton and wool tariffs eliminated over time.

In fruit and vegetables, there will be some important gains, with tariffs of up to 40 per cent being eliminated.  Examples include:

Malaysia has bound its sugar tariffs at zero.

Improvements in Selected Markets

Another way to look at the gains expected is to examine the improvements in particular markets. The following is an overview of the improvements for Australian agriculture in five selected ASEAN markets.

Most agricultural tariff lines in Indonesia currently have 5% tariffs and the vast majority of these tariffs will disappear on 1 January 2010. The percentage of agricultural tariff lines with tariff-free treatment will jump from 13% to 79% overnight. Australia exports over many of these 5% tariffs - so the elimination of almost one thousand tariffs overnight should be of significant value in supporting further growth in that trade.  Importantly, these 5% tariffs are bound from entry-into-force of the agreement. In the current international economic environment the guarantee that Australian exporters will not face any risk of increased tariff protection on such a big trade will be a big boost to confidence in the Australian agricultural sector.

Although the majority of agricultural tariff lines in Malaysia are already at zero tariffs, under the WTO Malaysia has the opportunity to raise these much higher.  The AANZFTA agreement will lock these tariffs in at zero on entry into force.  There will also be a significant increase in the number of lines with tariff-free treatment – this number will grow from 62% of agricultural lines to 82% by 2010.

There will be substantial new market opening in the Philippines.  The Philippines currently only has one agricultural tariff line (out of 1407 lines) with a zero tariff - this will increase to 540 lines (38% of agricultural lines) by 2010 and steadily increase each year and be at 75% of lines by 2013.

Given its lower development status, Vietnam has longer to implement its commitments, but Vietnam will grow as a market as its income grows and tariffs begin to come down. Significant opportunities for increased trade to Vietnam should be being created by at least 2016 onwards, when there will be a big increase in lines with tariff-free treatment in Vietnam. By 2017, 88% of Vietnam's agricultural tariffs will be very low (in the 0-5% range), compared to 22% in 2005.

The above summary was prepared by the Department of Foreign Affairs and Trade.  Further information is available at www.dfat.gov.au/trade

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