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Australian Government - Department of Foreign Affairs and Trade

Advancing the interests of Australia and Australians internationally

Australian Government - Department of Foreign Affairs and Trade

Advancing the interests of Australia and Australians internationally

Department of Foreign Affairs and Trade :: 2001-2002 Annual Report
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Output 1.1:

Protection and advocacy of Australia's international interests through the provision of policy advice to ministers and overseas diplomatic activity

1.1.6 Trade development/policy coordination and Asia-Pacific economic cooperation

Page Contents

Overview

The department continued to drive regional and bilateral trade and investment cooperation during the year, with close support of lobbying efforts by ministers and senior officials. Our work with key trading partners, through bilateral and sectoral initiatives, also helped to maintain or improve market access in a number of areas.

We again made a substantial contribution to APEC Click to view related information - opens in new window, notably through advocacy in support of the Prime Minister, Mr Howard, to secure agreement to the APEC leaders' Shanghai Accord in October 2001. Outcomes included agreement to reduce trade-related transaction costs within APEC, and to adopt a new 'pathfinder approach' to reinvigorate progress towards APEC's free trade and investment goals by enabling faster action by those economies ready to move forward. We also played a key role in garnering support for the implementation of comprehensive counter-terrorism measures in APEC.

At the APEC Trade Ministers' meeting in Mexico in May 2002, we supported Mr Vaile in securing commitment from APEC ministers to remain closely engaged in WTO Click to view related information - opens in new window negotiations to ensure the conclusion of the Doha Round by 1 January 2005.

The department worked successfully with Mr Vaile to achieve endorsement of the ASEAN Free Trade Area-Australia-New Zealand Closer Economic Relations Trade Agreement (AFTA-CER) Click to view related information - opens in new window Closer Economic Partnership framework by ASEAN-CER economic ministers. The framework aims to increase trade and investment flows in both directions.

We assisted the development of an alliance between a private insurer and the Export Finance and Insurance Corporation (EFIC) that will increase the range of export credit services available to exporters and strengthen the ability of Australian exporters to compete internationally. We also participated in a third Paris Club negotiation on Indonesian debt rescheduling, which resulted in US$5.4 billion in debt relief to Indonesia while protecting Australia's significant government loans to that country.

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APEC trade and investment liberalisation and facilitation

The department made a substantial contribution to reinvigorating APEC's trade and investment liberalisation and facilitation (TILF) agenda in 2001-02. These efforts were reflected in the Shanghai Accord agreed by leaders at the APEC Leaders' Meeting.

The Accord included a commitment to reduce trade-related transaction costs within APEC by five per cent over the next five years. It also involved agreement to adopt a 'pathfinder approach', where a group of APEC economies pilot the implementation of TILF initiatives to stimulate progress towards APEC's goals of free trade and investment. The 'pathfinder approach' was developed by the department and will help to streamline cross-border flows of goods through e-commerce, simplifying and harmonising trade-related procedures, improved governance and generally removing barriers to cross-border business.

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Small business and trade in APEC

An APEC report titled Small Business and Trade in APEC was prepared by the department and launched by Mr Vaile at the APEC Trade Ministers' Meeting in Mexico in May 2002. It highlights the importance to small and medium sized enterprises (SMEs) of APEC's second decade agenda. This agenda aims to reduce transaction costs, promote further liberalisation, improve governance and increase Internet access.

The report shows that, on average in APEC, SMEs account for 98 per cent of enterprises, 30 per cent of direct exports, 10 per cent of foreign direct investment and 60 per cent of private sector employment. While APEC economies have made substantial cuts in tariffs, which have generated significant growth in trade including growth in exports by SMEs, the relative contribution of SMEs to regional trade has remained static. Other impediments to trade, including transaction costs and non-tariff barriers, must be reduced in order to promote further trade by small business.

The report concluded that the implementation of APEC's broad trade and investment liberalisation and facilitation objectives could assist SMEs to contribute an additional US$1.18 trillion in exports over a five-year period.

See: www.dfat.gov.au/publications/
APEC_small_business_and_trade/index.html

The department led debate in APEC on globalisation and raised public awareness of its benefits through a joint publication with the Treasury and the Centre for International Economics titled Globalisation and Poverty: Turning the Corner. The report showed that between 1965 and 1997, income inequality fell by 10 per cent around the world and by 23 per cent within APEC. Most progress was made in those developing economies that had reformed their national economic policies, institutions and infrastructure.

The report helped to revitalise and broaden APEC's agenda, placing APEC at the forefront of promotion of the benefits of globalisation. It also served to galvanise members in their commitment to ongoing domestic reform.

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APEC Click to view related information - opens in new window and information and communications technology

The department is working to ensure that APEC economies can maximise the benefits of information and communications technology (ICT). We played a key role in drafting the e-APEC Strategy that was endorsed by APEC leaders in October 2001. The strategy identifies the necessary policy environment, goals and actions to enable APEC economies to maximise the benefits of ICT. We also organised a series of e-commerce awareness workshops for SMEs in China, Indonesia, the Philippines and Vietnam. These were designed to promote confidence in new technologies, which offer significant cost savings to SMEs trading internationally.

Paperless trading-benefits to APEC

This department-led report showed that APEC's goal of reducing or eliminating mandated paper-based documentation in cross-border trade will create a 3 per cent average cost reduction in imported items (US$60 billion savings annually) on existing trade among APEC member countries.

Paperless trading can deliver reduced shipping costs, lower communication charges, fewer errors, faster receipt of payments, reduced trade finance charges and lower inventories. It also increases participation in cross-border trade by developing countries and SMEs. The initiative may also lead to new markets for smaller producers of perishable items as shipments are delivered faster and trade administration costs decline.

See: www.dfat.gov.au/publications/paperless/index.html

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APEC and counter-terrorism

The department contributed to Australia's lead role in ensuring that APEC leaders made a commitment to comprehensive counter-terrorism measures at the APEC Leaders' Meeting in Shanghai. We worked closely with other Australian agencies and with our counterparts in other APEC economies to develop and implement collective APEC measures to suppress the financing of terrorism and to enhance air and maritime security, energy security, critical sector protection and border security.

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ASEAN, Australia and New Zealand

The department's main priority for AFTA-CER Click to view related information - opens in new window was to develop a framework to allow work to begin on removing non-tariff barriers to trade and to improve customs cooperation and electronic commerce. The AFTA-CER Closer Economic Partnership (CEP) framework, agreed by ministers in September 2001, is a significant advance in Australia's relations with ASEAN. For the first time, Australia will have a formal structure through which to promote trade, investment and regional economic integration.

The department also supported an initiative to establish a high-level AFTA-CER business advisory council at the annual ASEAN-CER Ministerial Consultations in Hanoi in September 2001. Australia has two members on the council. The council will meet with ASEAN and CER ministers at their annual consultations to provide business views on specific areas of cooperation under the CEP, and to discuss ways of reducing barriers to trade and lowering business costs in the region.

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Indian Ocean Rim Association for Regional Cooperation (IOR-ARC) Click to view related information - opens in new window

The department was instrumental in enhancing Australia's interests in the Indian Ocean region through the IOR-ARC High Level Task Force. The task force was designed to look at ways to improve the association's performance in facilitating business transparency and trade and investment among members. Its recommendations were largely agreed to by the IOR-ARC Committee of Senior Officials.

We also commissioned a study, Agricultural Trade Liberalisation: Implications for Indian Ocean Rim Countries, which was published recently and will make a valuable contribution to the IOR-ARC's work on agricultural trade liberalisation. These initiatives could set the scene for longer term results in the form of greater transparency, trade facilitation, liberalisation of markets, enhanced business opportunities and strengthened links between Indian Ocean Rim countries.

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Figure 13. Australia's top ten merchandise export markets (2001-02)

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Export credit policy

The department continued to work with the EFIC to improve the short-term export credit cover offered to Australian exporters. We managed a tender process to identify a private insurer for an alliance with EFIC to conduct its short-term export credit insurance business. The Government accepted our recommendation that a private insurer, Gerling-NCM, be selected for this purpose. It is intended that the private insurer purchase this part of EFIC's business if it meets performance benchmarks.

By providing a wider range of services than EFIC could provide on its own, the alliance with the private insurer will increase the opportunities for Australian exporters to compete more effectively in international markets. The department is helping EFIC implement the alliance and is monitoring its performance in meeting the requirements of exporters, a vital pre-condition of any future divestment of the business to Gerling-NCM.

The department managed whole-of-government coordination of National Interest Account (NIA) transactions that provide support to Australian exports deemed to be in the national interest where the private market is unable to provide cover. This work included a cost-benefit analysis of proposed transactions. Overall, the NIA supported $40.6 million worth of exports. EFIC made payments to the Government of $15.2 million (including dividends and net interest), while the Government paid $8.1 million to EFIC in respect of NIA loan losses. The Government accepted our recommendations from a review of NIA pricing and risk management systems to improve risk management and transparency in operating the NIA portfolio.

We also worked to advance standards of export credit agencies in the OECD, developing better environment standards for agencies and supporting liberalised agricultural trade.

The department continued to represent Australia in the Paris Club of creditor nations in negotiations with countries seeking debt relief. We participated with other major creditor countries such as Japan, the United States and Germany in a significant Paris Club rescheduling of Indonesian debt that provided further debt relief to Indonesia of US$5.4 billion. This included payments due to Australia of around A$220 million. The Paris Club outcome assisted Indonesia while encouraging it to continue with economic reforms and protecting Australian government loans to Indonesia.

The department worked closely with the Treasury and the Department of Finance and Administration to support the government's contribution to the IMF/World Bank Heavily Indebted Poor Countries Initiative. Under the initiative, debts are forgiven for the world's poorest countries if they meet certain economic management conditions. Ethiopia will not be required to repay around $12.6 million to Australia if it fulfils its economic management conditions.

See administered items for Outcome 1 at page 125 for further detail on the EFIC National Interest Account.

Market access Click to view related information - opens in new window

The department continued to place a high priority on the removal of market access barriers to Australian exports through a range of initiatives, working in conjunction with Austrade and other relevant government departments and agencies. We focused particularly on market access for Australia's automotive industry, processed foods, information industries and textiles, clothing and footwear. We continued to work closely with Australian exporters, including those in regional areas, to identify priority market access issues for these and other industry sectors (see output 1.3 at page 113 for further detail on market access facilitation).

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Figure 14. Direction of Australia's merchandise exports (2001-02)

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Market Development Group Click to view related information - opens in new window

The four-year old Market Development Task Force (MDTF), which groups departments with an interest in trade, was reviewed-and renamed the Market Development Group (MDG)-to ensure it continued to add significant value to the department's efforts to develop markets at the bilateral level. The change has led to closer engagement with industry, greater transparency and accountability in the process of identifying priorities, and increased awareness of whole-of-government activities to open markets and remove barriers to trade. Government agencies with a services trade focus were included in the revamped MDG, in recognition of the importance of education exports and the growing importance of IT and telecommunications exports.

Recent MDG successes include:

  • ICT contracts secured by Australian companies to the value of $215 million in China
  • automotive component exports to China increased by $4.9 million
  • new exports of organic food to Japan totalling $5 million and identification of two new active investment opportunities from Japan into the organic food industry
  • increased sale of meat and meat products to central Europe in light of increased demand for meat from countries free of BSE
  • new markets for exports of furniture to the United States, resulting in a 62 per cent increase in exports over 12 months.

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Figure 15. Australia's exports by broad category (2001-02)

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Trade policy coordination and business liaison

The department provided ministers with advice on international trade, economic and financial developments and Australia's trade performance, and implications for Australian foreign and trade policy. We participated in the inter-agency International Economic Policy Group, chaired by the Department of Prime Minister and Cabinet, as part of a whole-of-government approach to considering international trade, economic and financial developments with the potential to affect Australia's national interest.

Trade Outcomes and Objectives Statement 2002 Click to view related information - opens in new window
The department's Trade Outcomes and Objectives Statement (TOOS) is the principal annual account of Australia's trading performance and of the Government's trade objectives. The 2002 edition was launched by Mr Vaile in April 2002. The publication analyses global economic trading conditions and outlines the Government's trade priorities and strategies for the coming year.

TOOS 2002 was produced in four different formats-a full 200-page report, a 20-page summary document, a double-sided brochure, and an online version-ensuring that the Government's key messages about trade outcomes and objectives were disseminated more widely than in previous years.

National Trade Consultations
As part of the National Trade Consultations (NTC) process, the department arranged consultations between federal, state and territory ministers responsible for trade on a range of trade issues. These included exchanges on the WTO and proposed bilateral trade agreements and a whole-of-government initiative towards the doubling of the number of Australian exporters in five years. We conducted additional NTC consultations with state and territory officials and representatives of peak industry associations, focusing particularly on multilateral trade negotiations, the Australia-Singapore Free Trade Agreement and other prospective bilateral agreements with key trading partners.

Trade Policy Advisory Council Click to view related information - opens in new window
The department continued to administer the Trade Policy Advisory Council (TPAC), the pre-eminent source of advice from the business community to the Minister for Trade. Members are drawn from a wide cross-section of Australian business and industry. Mr Vaile sought advice from members, from a commercial perspective, on issues affecting Australia's trade policy interests, including WTO issues; bilateral free trade negotiations and other framework trade and economic agreements; APEC developments; and issues of specific commercial interest such as the value of the dollar, global commercial consolidation, Australia as an IT economy and prospects in key markets.

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World Economic Forum Summit
The department facilitated Mr Vaile's participation at the World Economic Forum's (WEF) annual summit in New York in January-February 2002. Mr Vaile conveyed Australia's position on key WTO issues. Attendance at the WEF more generally provided opportunities to showcase Australia to leading decision-makers and to give Australia a prominent voice in the dialogue on economic, social and strategic issues. While in New York, Mr Vaile promoted Australian food and beverages as part of a major wine and food promotion in the United States.

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Minister for Trade Mark Vaile (right) pictured with Australia's Ambassador to the United States Michael Thawley (left), in front of an Australian-made Mitsubishi Magna (sold in the United States as a Mitsubishi Diamante). Mr Vaile met with auto companies in Detroit in January 2002 to discuss new product development and opportunities for increased exports of Australian automotive components for North American vehicles. Photo copyright Jerome Magid 2001.

World Congress on Information Technology
The department assisted in making the World Congress on Information Technology-held in Adelaide from 27 February to 1 March 2002-Australia's premier ICT event in 2002. The active and coordinated promotion of this world class event by posts attracted key overseas ICT business decision-makers. This provided Australian business with valuable networking opportunities, including at an event at which Mr Vaile highlighted to delegates the importance and benefits of trade and investment with Australia's ICT industry.

Conflict diamonds
We also worked to ensure a whole-of-government approach to Australia's participation in the Kimberley Process, which is developing a non-binding international arrangement on combating trade in 'conflict diamonds'. These are diamonds used by rebel African movements or their allies to secure funds to undermine legitimate governments. A system of import/export certificates will help limit the international trade in these diamonds.

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Direct Aid Program

The department increased to 98 the number of recipient countries under the Direct Aid Program (DAP), in Asia, Africa, eastern Europe, the Pacific and the Middle East. The DAP is a flexible small grants scheme managed by 44 heads of mission/post to help alleviate basic hardship. Under DAP, $3.31 million was disbursed during the year. The program focused on assisting poor and other disadvantaged people directly. The program also helps build recognition of Australia and Australian assistance.

As a result of the disbursement of funds under DAP in 2001-02:

  • One of Kenya's important forest reserves is being preserved as a centre for biodiversity, funded by the income generated from a rural honey cooperative established under DAP
  • Previously unemployed youth in Samoa are generating income by developing mixed farming projects and marketing the produce locally. Part of the proceeds is used to establish new mixed farming projects
  • Women in regional Venezuela were trained to use locally found fibres to manufacture handmade paper which is sold in Spain. Proceeds are used to fund additional materials and to enable the project to continue.

Reporting against quality and quantity indicators and administered items begins on page 96.

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