14 October 2008
Interview - Radio National
STEVE CANNANE: Aside from a stimulus package, the Federal Government has been working overtime to protect Australia from the worst effects of the global financial crisis. Our money in the bank is safe, and our economy can expect an injection of funds from the surplus - that's the news from the government.
But it will be a lot harder to protect the export sector, because when our trading partners slide backwards, when - we're necessarily affected.
Simon Crean is the Federal Trade Minister, and he joins us now.
Minister, China is seen as our great economic saviour. What is the latest you're hearing about China's growth prospects?
SIMON CREAN: Well China's interesting because China's growth is expected to slow, but drop something from about 12 per cent to, you know, mid-nine per cents.
Net exports from China added less than two percentage points . . . only two per cent to their growth. So a lot of their growth if you like is domestically driven, it depends on our resources, our energy.
So we have a significant cushion in the China market.
But, it's not just China that we've focused on. We've focused on Asia as a whole. And obviously this new Free Trade Agreement that we've concluded with the ASEAN group of countries is a very significant breakthrough. That brings forward trade liberalisation much sooner, but gives us a much better framework in which to work with those countries.
So, we saw the need, when last in government Steve, to refocus our trade direction to Asia. That set the country up for a long period of prosperity. It's fortuitous that, whilst it's been the fastest growing area in the world in the past, it will remain the fastest growing area in the world, but it will be at a lower rate.
CANNANE: So, if China continues to grow at a lower rate, a slow down or collapse in the commodities prices will hit us hard won't it?
CREAN: Well, interestingly, commodities prices have come down on the spot market but a lot of our contracts have been entered on fixed-term contracts. And they were just concluded before all this happened. So again we've got something of a breathing space there.
CANNANE: What about Japan? They are Australia's major trading partner - higher than China. Now even before the worst of the financial news emerged, they were already facing a recession, and last week alone their stock market fell a quarter. What will this mean for Australia?
CREAN: Yeah, well Japan has slowed, and Japan has done a lot on a stimulus package to generate its domestic economy.
So, Japan is a case in point of much slower growth, and that could impact on us more, but understand, Japan is not larger than China as our trading partner. China is the largest single country, but ASEAN as a whole, Steve, is the largest of the lot. ASEAN as a group is the largest trading partner for Australia - some $71 billion in two-way trade. China's round about $58 billion. Japan is around about $55 billion.
So, I make the point, that whilst Japan is an issue for us at the moment, both China and ASEAN still hold reasonably strong prospects for us.
CANNANE: The Australia...
CREAN: We have that cushion in other words.
CANNANE: ...the Australian Chamber of Commerce and Industry is trying to keep alive the prospect of a free trade agreement between Australia and Japan, despite the financial crisis. Do you agree with them?
CREAN: Yes I do. And it is terribly important that we modernise our longest trading relationship and until recently with our largest trading partner.
Japan is a country that has got considerably strong businesses. There's a lot of two-way investment between our countries. It's essential that we modernise the agreement. Of course...
CANNANE: Who would benefit most from that agreement?
CREAN: Well both countries will benefit. I mean, this is the advantage of trade. It's not a one-way street. The great advantage of trade is that it benefits all those who participate in it. And the reason for that is quite simple - world trade historically has grown three-times faster than world output.
If a country wants to close its borders, it's limiting its potential to expand. If it's prepared to open its borders, with all of the structural adjustments and with all of the pressures for change, it still in the long-term is a much better prospect for us.
Now we've got to prepare for the longer term, even though we are having to react to these short-term circumstances.
CANNANE: On Radio National Breakfast, it's a quarter to eight. Steve Cannane with you.
We're talking to Trade Minister Simon Crean.
Minister, given the trade outlook, are you still confident Australia's growth will be at more than two per cent in the next year?
CREAN: Well they're still the forecasts, and we'll obviously have to continue to assess those as circumstances develop.
But, I make the point Steve, that under the previous government, we weren't having net exports, despite the resources boom, contribute positively to economic growth.
We have got to not just sustain our growth, we have got to re-balance; we've got to re-balance the contributors to growth. We've got to put more effort into diversifying our export base, not just in the direction of the countries we trade with - and that's put us in good stead as I say by focusing on Asia, Asia rather than just the US and the EC.
We've also got to diversify the content. And whilst commodities will play a continuing important role, the big opportunities are in quality manufactures - which Australia is very good at, can be very good at - and services. Services is 80 per cent of our GDP, and yet they only contribute 22 per cent of our exports.
Clearly there is scope to diversify the content of Australian exports, and that's what this government is committed to achieving.
CANNANE: There's expected to be some announcement today on a stimulus package of money going back, back to taxpayers before Christmas. What can you tell us about that stimulus package?
CREAN: I can't comment about that. That's just speculation. But the Prime Minister has clearly signalled that quite apart from the initiatives that were announced to instil greater confidence into the banking system, we do understand that there are going to be ramifications on global growth.
We have to make adjustments; we have to use the surplus sensibly to ensure that the sorts of cushions that we're putting in place on the trade front are also cushions on the domestic front.
CANNANE: Are you concerned that that surplus could be eroded too with slower growth in Asia that affecting commodities and affecting how much business tax that you reel in?
CREAN: Well obviously if the terms of trade change, that's going to have an impact on revenues. But obviously also, if businesses start laying off or start going down in profit, that's going to have an impact on revenues.
That's why we've got to be watchful of what is happening, do what we can at the domestic level, but also continue to promote the longer term strategies that are going to position Australia beyond the resources boom and for a much more diversified economic base.
CANNANE: Simon Crean, thanks a lot for talking to us this morning.
CREAN: Thanks Steve.
CANNANE: Simon Crean, the Federal Trade Minister.
ENDS
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