The future of Australian trade: trend and opportunity

  • Speech, check against delivery
CEDA, Melbourne

Thanks for this opportunity to discuss the future of Australian trade.

It's an interesting time to do so, with plenty of disruption going on in the northern hemisphere.

I was in Britain earlier this month, a few days after President Trump's visit there, and trade was on everyone's minds.

I have to say, I came away thinking it's a good time to be Australia's Trade Minister!

But for us, as for our friends in the north, the times call for a measure of patience, a great deal of persistence, and a clear sense of where we've come from and where we're going.

Today, in discussing the future of Australian trade, I'm going to focus on one long trend, and one big opportunity.

The trend is Australia's broadening and deepening international engagement.

The opportunity is our region, the Indo-Pacific.

We have a very bright star to steer by, and that's delivering more and better jobs for Australians by opening up opportunities for Australian businesses globally.

To do that, we must build on past generations' success in integrating into the global economy, and break new ground in our relations with growing economies.

Ladies and gentlemen, Australia's economic history has a clear moral.

Mutually beneficial trade and investment with the world's major economies, and a widening range of economies across our region and the world, has supported Australia's 27 years of annual economic growth.

A small or medium sized economy can't get rich selling to itself.

From day one, international trade and investment has powered Australia's economic growth.

Here on Collins Street, I'm mindful of the contribution of the founding of two great mineral dynasties – Broken Hill Proprietary and the Collins House Group of companies from way back, the 1890s in fact.

It's a legacy that continues today through BHP and Rio Tinto.

In the first half of the twentieth century, when the Collins House Group of companies rose to global prominence, Britain and the United States were the world's major economic powers, along with Germany.

Exceptional businessmen like W.S. Robinson, one of the fathers of Rio Tinto, and BHP's "steel master", Essington Lewis, rose to the challenges of two world wars – and managed disruption on a massive, existential scale – by engaging deeply with Britain, Europe and the U.S.

But the key point to note here is that this isn't just a story of primary industry exports. It illustrates how goods exports can be a powerful driver for the development of a sophisticated, export-oriented services sector. For as Australia's resources majors grew, so did a host of Australian service providers.

Our mineral and energy exports generated opportunities and supported jobs for firms across the financial, legal, and logistical sectors; in engineering and marketing.

These earlier generations worked mainly within a cultural family of English speaking nations with institutions and ways of working very similar to our own.

But from 1957, our deep and enduring ties with Japan marked an historic turn.

From the 1960s, we deepened our linkages with Southeast Asia.

From the 1980s we have built productive relations with China and Korea that fuelled Northeast Asia's ongoing economic transformation – and our recent free trade agreements China, Japan and Korea have deepened these relationships.

Our Comprehensive Strategic Partnership with China continues to deliver mutual benefits, through burgeoning trade, investment, education and tourism.

In today's more diversified Australian economy, minerals and energy remain important, and related services continue to proliferate, like automated training and logistics, and highly advanced engineering services.

We increasingly mine our deep human resources – think of the science behind Cochlear and CSL, or the export of financial services such as our world-leading expertise in Infrastructure finance and PPPs.

And an increasing share of our growth comes from educating and hosting and entertaining the world.

Services such as these comprise around a fifth of Australia's exports.

When you include the value of Australian services, such as, research and development, design, finance and logistics, that is embedded into our goods exports, that proportion doubles to two fifths.

This is important, because services are jobs-intensive.

Australian companies like Ramsay Health and GroupGSA architects are leading the way in South East Asia.

We've placed particular focus on the opening up of opportunities for our services exports in our high-quality, comprehensive free trade agreements.

We expect even bigger benefits for Australian businesses and investors as more service providers set up permanent offices overseas.

Australian multinational architecture firm Woods Bagot has prised open a world of opportunity in China.

They are designing a new airport in Guangzhou for China Southern Airlines, and were recently shortlisted for this year's World Architecture Festival Awards for their design for Sunshine Insurance Plaza in Sanya Bay on "China's Hawaii", Hainan.

This kind of in-country services investment is where we expect the biggest growth to occur for Australian services.

That's why last year, we passed new laws to permit Australia's Export Finance and Insurance Corporation to make loans to support overseas direct investment for Australian companies, in addition to broadening the categories of exports it can finance to include the exports of services such as software, IT services or tourism.

The main way the Government brings more opportunity within the reach of more Australian businesses is through trade agreements.

The strategy is as simple as it is ambitious.

As the rules-based trading system comes under pressure from above, we are carefully crafting together a network of binding trade relationships from the ground up.

The scale of this effort is significant.

The Coalition has concluded or is undertaking free trade talks with countries accounting for more than $55 trillion in combined GDP.

Our agenda will give our goods and services exporters tariff free or preferential access to 3.6 billion consumers.

This has arguably been the most productive period in trade policy in Australia's economic history.

Since the Coalition was elected, the coverage of our free trade agreements has increased from around a quarter to two thirds of our two way trade.

By the time current negotiations are concluded, we will have locked in binding rules-based commitments with countries accounting for 88 per cent of our two-way trade.

Binding FTAs are one of the most effective countermeasures an open trading economy like Australia can adopt against protectionism.

Trade agreements lock in market access for Australian business, and lay down predictable, business-friendly rules of the road for trade and investment in goods and services alike, including in economies least like our own.

These agreements deepen our relations with particular countries.

They also help our businesses to link into global value chains that comprise an increasing proportion of economic activity.

Ladies and gentlemen, the 11-nation Trans Pacific Partnership is a testament to persistence and a clear sense of direction.

It's appropriate that it was Australia and Japan who steered the TPP negotiations to a successful conclusion after the Trump Administration's decision to withdraw.

Japan and Australia have been steadfast commercial partners for sixty years, enjoying compounding returns in two way investment, re-investment and trade.

The TPP sets a new standard for high quality free trade agreements.

It includes rules for new sectors such as digital trade, and it updates arrangements for competition, state-owned enterprises and intellectual property.

The TPP-11 will significantly increase market access for Australian business across a regional free trade area with a GDP worth almost $14 trillion.

TPP-11 countries already receive nearly one quarter of our total exports, worth nearly $92 billion, and we can expect that to grow under the new arrangements.

The TPP-11 delivers new high quality trade agreements with Mexico and Canada, and improved market access to countries with which we already have agreements, notably Japan.

The Australian Government is committed to bringing the TPP-11 into force as soon as possible.

Japan, Mexico and Singapore have already ratified the Agreement.

We expect Australia to be in a position to ratify by the end of the year and anticipate entry into force could occur in early 2019.

That will open a new chapter in regional trade and investment, as still more countries prepare to join the partnership.

Some have already begun to discuss their interest informally with TPP-11 countries.

The TPP-11's high standards and comprehensiveness are highly attractive.

The indications are that the TPP will encourage market-opening economic reforms across the Indo-Pacific region.

Reform in areas such as investment and competition is part of the deal, delivering growth to the reforming country and promoting opportunity across the region.

Australia's vision is for the TPP-11 to be an open platform, and we will support the accession of any regional economy willing and able to meet its high standards.

Separate studies by the OECD and the World Bank, both released this year, explain why trade agreements like the TPP are so effective.

Agreements that are both broad and deep give businesses the best opportunity to team up and produce highly valuable chains of production that sell into very large markets.

Negotiating a regional trade agreement is hard, but it's worth it.

That's why Australian and 15 other countries in our region continue to negotiate a Regional Economic Comprehensive Partnership, or 'RCEP'.

Negotiations are also underway for a Free Trade Agreement with the European Union, to make sure Australian business has access into that major market at least on a par with our competitors. It could be Australia's biggest FTA.

Trade agreements are just one of the ways in which the Australian Government delivers opportunity to Australian business.

Through our international network, we also work constantly to facilitate commercial relations all over the world.

In this vein, we commissioned a major piece of work that will guide and stimulate our economic engagement with India for decades to come.

On 12 July the Prime Minister released the India Economic Strategy, an independent report to Government by Peter Varghese.

It is the most comprehensive report Australia has produced on its economic relationship with India.

Its nearest equivalent would be the 1980s report by Ross Garnaut, "Australia and the North East Asian Ascendency", which drove our economic engagement with North Asia, particularly China.

Our economic relationship with India is underdone.

It is very much in our interests to fix this.

By 2025, one-fifth of the world's working age population will be Indian.

By 2030 there will be over 850 million internet users in India.

India's tertiary-age population, aged 18 to 22, is already the largest in the world and is projected to peak at 126 million in 2026 before stabilising at 118 million by 2035.

By 2030, India aims to lift its university enrolment rate to 50 per cent, which would mean that one in four graduates in the world would be a product of the Indian higher education system.

The Strategy sets out opportunities across 10 sectors, and with these demographics it is not surprising education is the flagship.

The Strategy identifies 10 Indian states that should, sooner rather than later, become household names as a focus for Australian engagement.

Consider just three of them.

Maharashtra on India's western coast is the country's most economically advanced state and second most populous, with over 112 million people.

Its capital, Mumbai, serves both as India's financial and film centre, akin to combining New York and Los Angeles in one city.

Mumbai is South Asia's wealthiest city, boasting more than 46,000 millionaires. And with the country's largest container port, the city alone generates a third of India's customs duties.

Maharashtra offers diverse opportunities for Australian firms in education and training, urban infrastructure, financial services, agribusiness and energy sectors.

Karnataka in India's south is home to the city of Bengaluru, India's Silicon Valley. It is the epicentre not only of India's IT, pharmaceuticals and biotechnology sectors, but also India's successful space program and its lively start-up scene.

Bengaluru is the world's fourth-largest – and second-fastest growing – technology cluster. It is home to around 400 research and development centres, of which 300 belong to Fortune 500 companies. The city engages Australian strengths in innovation, water management, life sciences and urban infrastructure.

West Bengal, on India's east coast, is India's fourth most populous state of over 90 million people. It's a strong agricultural producer – India's largest producer of rice and fish – and a mining and mining services hub for India's mineral-rich eastern states.

West Bengal's capital, Kolkata, is India's third largest metropolis, re-emerging as a growth centre and projected to be in the top 10 fastest growing cities in Asia out to 2021. It is already the main entry point for Australian coking coal and pulses exports to India.

Kolkata will shortly have one of Australia's newest diplomatic missions, following the Foreign Minister's announcement in April this year.

The India Economic Strategy details the opportunities for Australian business in these states and the others that hold the greatest promise now and into the future.

Australia and India have much to gain from greater engagement.

Resource and agricultural goods exports dominate the trade relationship. The targets in this report could see goods exports grow from $15 billion today, to $45 billion in today's dollars by 2035. This is an exciting prospect for Australian producers.

The event bigger story is the opportunities set out in the Strategy for services trade and investment. India is a tough market and success will require new thinking and new approaches by Australian business.

The Strategy points the way.

It has deep analysis of the Indian business environment and ways to bridge the differences. For example, it highlights how strategic decision-making processes can differ from typical Australian practices in large Indian family-owned conglomerates which dominate the Indian economy.

For both government and business, the Strategy offers a rich resource that will continue to be useful for years to come.

It has already set positive change in motion.

My Indian counterpart Minister Prabhu indicated during his recent visit to Australia that the Indian Government would commission a complementary study for Indian business in Australia.

We have a huge asset for our relations with India in our Indian diaspora – our fastest growing large diaspora.

Victoria is home to the largest Indian community of any Australian state.

Here's one good measure of the Indian diaspora's business success: they are Australia's second highest tax-paying diaspora.

But we can and must do more to embrace the contributions of our Indian diaspora, give them prominence in bilateral relations and better unlock their potential to enhance trade and investment links with India.

Indian born Australian entrepreneur Dhruv Deepak Saxena founded Riverina Oils and Bio Energy and has built a thriving business in canola oil, appealing to Indian demand for healthier cooking oils. Mr Saxena has a custom-built oilseed crushing and refining plant at Wagga Wagga.

Just as Mr Saxena has done, business must now come to the fore and seize the opportunities laid out in the Strategy.

The Government is determined to build on Australia's record of engaging deeply with the world's rising economies, while also developing established relationships.

These are, of course, mutually reinforcing growth areas.

But it's not just the rise of new economic powers that can herald growth opportunities for Australia.

Technological changes mean our old mainstay of resources and energy is on the cusp on a new generation of opportunity – driven by the growth of the New Energy Economy, and with it, growth in demand for lithium, nickel, cobalt, graphite and a host of rare earths.

In February, Mr Turnbull and President Trump launched the Australia-United States Strategic Partnership on Energy in the Indo-Pacific.

We have been working intensively on the arrangements that will underpin our collaboration on rare earths and high performance metals.

This partnership will see Australia and the United States together explore, extract, processing, and research strategic minerals.

The benefits will flow through our other economic relationships – there could be synergies with Indian IT, Japanese or Korean battery makers and Chinese renewables, for example.

Australia's Foreign Policy White Paper underscores the important part we see the United States playing in the Indo-Pacific for the long term, both economically and strategically.

At the same time, as the Prime Minister said in launching the White Paper, Australia's foreign policy must be sovereign, not reliant.

I am proud to be overseeing, with Defence Industries Minister, Christopher Pyne, Australia's new defence exports strategy.

It will open up a major new field for Australian businesses, by widening their markets and, importantly, assisting them to win continuous work to see them through the peaks and troughs of Australia's own defence contracts.

We've launched a $3.8 billion Defence Export Facility, to provide access to finance for the export of Australian defence equipment and services, and there's a new team of specialists within Austrade focused on the defence export industries, all aimed at fostering the high-skill, high-wage jobs in advanced manufacturing that defence industries can provide.

While the pursuit of export opportunities is ultimately a commercial decision for business, the Defence Exports Strategy will ensure that the Australian Government plays its part in laying the groundwork for an upsurge in defence exports into a number of priority markets: the United States, the United Kingdom, Canada and New Zealand; the Indo-Pacific region; the Middle East region; and Europe.

Ladies and gentlemen, successive generations of Australian governments and business have seized opportunities as the world has changed around us.

The Australian Government is determined to continue and accelerate this trend of deep and broad international engagement.

We are a society geared to the benefits of an open economy, and we have done best when we have fully embraced that orientation.

Yet we've done so in a way that hasn't benefited just one part of our society to the detriment of others. Through investments in education, retraining and strong social safety nets, we've ensured an age of shared prosperity.

In the last 20 years, Australian household median income – a good indicator of how well prosperity has been distributed – rose 51 per cent, while that of U.S. household rose 11 per cent.

I reckon that's as good an explanation as any as to why support remains firm for free trade in Australia and we haven't succumbed to the siren-song of protectionism.

We have shown that we can ensure Australians of all income levels benefit from the increased wealth that international trade and investment generate.

Through the Coalition's ambitious free trade agenda, Australia will continue to trade our way to greater prosperity, through deepening relations with major economies and increasing integration into our dynamic Indo-Pacific region.

Returning to where I started this speech – in the early 1890's at the birth of the Collins House Group, Australia was the richest country in the world measured by per capita income.

We lost our way through a failed experiment with protectionism, sliding to 16th in world per capita incomes. But starting in the early 80's, Australia has embraced openness and free trade, and reaped the rewards.

We just completed our 27th year of continuous economic growth, and our per capita income is the 11th highest in the world.

This is our challenge at a time of rising protectionism, and our opportunity: to stay the course, complete our network of FTAs and continue opening the path for free trade and openness to investment, for the benefit of the next century of Australians.

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