Transcript
22 July, 2009
Interview with Bloomberg TV - Singapore
Subjects: Rio Tinto, China, FTA negotiations, Australian economy and exports.
Interviewer (Liza Lin): Minister, you said before that the Rio case will not hurt FTA talks with China. What progress do you hope to get on the FTA during these meetings?
Minister Crean: Well, we’ll continue to talk with China about how we can progress the FTA discussions. We had a very frank exchange last May in Beijing and made it clear that A, we want to conclude it. But B, there were some threshold issues that needed to be addressed.
One is we couldn’t accept a lesser outcome on agriculture than they offered New Zealand, and secondly that we needed to get progress on services, and thirdly that particularly given the climate surrounding investment between our two countries, it was important to have investment included in the FTA framework. Now we are awaiting the response from China to those discussions. We can continue to have officials meet, but not if there isn’t direction for progress. There’s not much point negotiating with yourself. So that’s that part of it.
That being said, the relationship with China and Australia continues to grow strongly. What I have done in the last couple of months is to also visit the regions of China to establish frameworks for better cooperation and better commercial interests with the provincial governments. That has been a very successful second front in terms of our discussions and engagement with China.
So just because the FTA is not progressing as quickly as we would have liked, we have to continue the pressure and the opportunities to conclude it. But that doesn’t mean that we stop engagement and developing and deepening the economic, the trade and the investment relations between our two countries.
Interviewer: Would you consider breaking up the FTA into sectors instead of a full FTA?
Minister Crean: No, it has to be a comprehensive FTA. That’s the basis upon which we went into it. It’s the basis upon which we conceded the recognition of China as a market economy. That’s the basis on which we have gone into the agreement. We are not going to renegotiate the threshold issues.
Interviewer: How close are you to signing the FTA with China? Would you say you’re 80 per cent there, 70 per cent there?
Minister Crean: I think we’re a fair way down the track. I don’t want to put percentages on it, nor timelines on it. I’m a patient person. But just because we’re not making the progress we would have liked doesn’t mean that the relationship itself is not growing. It is, and I think that is a reflection of the growing interdependency between our two economies. Both countries need each other. That’s the truth of it. And when you look at the strong growth that’s occurring in the region, when you look at the wealth distribution that’s happening in China, when you look at what’s happening in terms of the huge demand for autos, domestically, as well as housing, there are big opportunities out there. I think that we’ve got to engage more on those fronts as well as with Beijing on the FTA.
Interviewer: You said before that China will eventually become Australia’s biggest trade partner. When is that realistically possible?
Minister Crean: It could happen this year. Clearly it could happen this year. It happened for a short period last year. So you only have to look at the volumes of trade between us and China, compare them with us and Japan, but, you know, China is a very significant trading partner. But, so too is Japan, so too is Korea, so too is the US and now in ASEAN, the FTA that we’ve signed with ASEAN - that is bigger collectively that any of those countries separately.
Interviewer: China’s trade with Australia last year was AUD 68 billion, how do you expect the number to be like this year?
Minister Crean: No idea. Have you got a crystal ball? You tell me.
Interviewer: How will the Free Trade Agreement boost this number?
Minister Crean: The Free Trade Agreement can boost the number because it opens up more opportunities, it liberalises the markets between the two countries.
Interviewer: But, by how much? Can you quantify?
Minister Crean: Again, can’t quantify precisely, but it will be a significant boost to that trade relationship.
Interviewer: How significant?
Minister Crean: Very significant.
Interviewer: I just wanted to find out an update on the Australian economy. It narrowly averted a contraction in the last quarter, the numbers were reported. Is this rebound sustainable in the economy?
Minister Crean: Well, that again remains to be seen, but I think that everyone has been surprised that the resilience of the Australian economy. It is the only developed country in the world that has avoided a technical recession. Now, you therefore have to ask yourself, why is that?
Part of it is to do with the substantial fiscal stimulus packages which the Rudd Government moved very quickly on from December of last year. Fiscal stimulus packages that concentrated on consumption initially, because that is an important part of driving our economy, and subsequently on investment, in infrastructure in particular, and skills formation. The consumption fiscal stimulus has been terribly important in keeping retail sales up and keeping that part of the economy going.
The infrastructure has still got to kick in. That will be important projects and job opportunities going forward, but they’re not just job opportunities now. They also are investing in the fundamental drivers of economic growth, in infrastructure, physical infrastructure, particularly also broadband infrastructure so that we’re connecting better internally as well as with the rest of the world, but also in skills formation, also in innovation.
But there are two other important reasons why Australia was able to weather this storm. The first was that we undertook important structural reforms in the ‘80s. It opened up to the rest of the world. It cut tariffs. It opened its markets to the rest of the world, and trade has been hugely an important factor in helping drive GDP growth in our country.
The second big decision that we took over 20 years ago was to engage far more actively with Asia. And, that has placed us in good stead because Asia, even though it’s been impacted by the global recession, is still the fastest growing region the world.
Interviewer: Given what you’ve said, it sounds like you think the economy has bottomed out?
Minister Crean: Well, I’m not in a position to answer that question in the way in which you’ve posed. What I’ve tried to do is to explain to you why Australia has defied the trend. And, that comes about because of good long-term policies that were put in place by a previous Labor government, followed up by a Liberal government – but fundamentally the key decisions were taken by the previous Labor government – and the decisions, which have now been taken by the current Labor government, to wisely understand the huge impact the global financial crisis can have and seek to counter it.
If the private sector is not investing, governments have to step in. The trick is to, at the same time as judging when the bottoming is coming out, is to also work out your exit strategy. Well, this is the challenge for finance ministers. This is the challenge for governments, but I think that we picked the problem early. We responded immediately and effectively and give us a bit of credit for continuing to pick it in the future.
Interviewer: How about exports? Have they bottomed?
Minister Crean: No, I don’t think exports have bottomed. I think that the demand for Australia’s resources, given particularly the growth in part driven by the fiscal stimulus packages in infrastructure, that is huge demand for iron ore, that is huge demand for gas, that is huge demand for coal from all around the region.
Interviewer: So there a drop in export?
Minister Crean: The drop has been in export values. If you actually look at the last balance of payments figures on the quarterly (inaudible), volumes went up. So you know values went down. Why? Because, there was a huge spike last year. You’ll expect the values to go down and that was factored into our budget figuring.
But you’ve asked me the question as to whether I think exports will drop. I’m trying to explain to you why I think that, because of Australia’s comparatively advantage, there can be continuing strong opportunities for Australian exporters. That’s the challenge for us as a government. How do we position ourselves better for the global upturn? How do we grab some market share now when we are relatively better placed?
The way you position better for the future is to invest in the things that help our international competiveness. Invest in infrastructure. Invest in broadband. Invest in skills development. Invest in innovation. And, then try to open the markets at the same time.
Interviewer: Speaking about competitiveness, the Australian Dollar is actually the best performing currency among the G10 nations this year. Are you comfortable with the level of the Aussie Dollar?
Minister Crean: We accept the level on the Australian Dollar because we took a conscious decision two decades ago to float it. So you have to accept what the market determines. The level of the dollar, when it goes up, it makes it harder for exporters. That’s true. But it’s going up because that in turn is in part a reflection of the strong commodity prices still.
Interviewer: So it’s not hurting exports in any way or your competitiveness?
Minister Crean: Well, I’ve said before, the floating of the dollar did much to improve Australia’s competitiveness over a long period of time. Improving that competitiveness has enabled us to engage with the rest of the world a lot better and to improve our export performance.
So we’ve done the fundamentals. What we’ve now got to do is to try and deal better and better with the institutional constraints, and the institutional constraints are what trade negotiations are all about. But, we’ve got to continue to drive the agenda at home to improve our international competitiveness.
There isn’t any point calling for the opening of markets if you’re not competitive enough to take advantage of them. So, the two pillars approach of trade policy that we’re pursuing is liberalisation at the border and reform, structural reform and efficiency reforms, behind the border.
Interviewer: That’s true. Turning your attention back to China, have you seen any evidence of businesses pulling out of China or how do you think this will affect foreign direct investment from Australia into China?
Minister Crean: We’ve had no evidence of people pulling business out of China, or any impact on foreign direct investment from China into Australia.
Interviewer: And vice versa?
Minister Crean: Well, that’s what I’ve said. There’s got to be a focal point of the FTA. We’ve got to understand that the new trade between our countries isn’t just in goods. It is in investment flows as well. Now if that’s the reality, we should have a better framework that reflects that reality and that’s why I want investment to be an important part of the FTA.
Interviewer: Thanks a lot Minister. Thank you very much.
[ENDS]
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