Annual Report 2008-2009
 

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Your location: Performance > Outcome 1 > Output 1.1 > 1.1.8 Trade development and /policy coordination

OUTPUT 1.1: Protection and advocacy of Australia's international interests through the provision of policy advice to ministers and overseas diplomatic activity

1.1.8 Trade development and policy coordination

On this page: Overview :: G20 Leaders’ Summit :: APEC :: Trade finance :: Trade policy coordination and business liaison :: outlook

Overview

The global economic crisis generated significant challenges across the Government’s policy agenda, both at the domestic and international level. The department played an important role in advancing the Government’s G20 objectives—including in support of the Prime Minister’s attendance at the G20 Leaders’ Summits—and strongly advocated Australia’s interests in the G20 through international networks. The department contributed to an effective whole-of-government international response to the crisis.

The department helped focus the Asia-Pacific Economic Cooperation (APEC) forum on the core objectives of accelerating regional economic integration and intensifying work on structural reform. We worked to ensure that APEC provided support and momentum to the multilateral trading system through calls for the conclusion of the Doha round and for avoidance of protectionist responses to the crisis. The department also reinforced APEC’s links with business.

The department maintained a very active trade development and policy coordination role, involving extensive liaison with business, community groups and state and territory governments. We also monitored closely developments in trade finance markets.

G20 Leaders’ Summit

The severity of the global economic crisis precipitated an unprecedented degree of coordination between countries in their formulation of economic policies. The G20 Leaders’ Summit, to which the Government made a substantial contribution, has emerged as the pre-eminent international forum to coordinate the global response. It contains a balanced geographical and emerging/developed economy membership. It is outward-looking and has proved itself capable of establishing the political momentum vital to achieving necessarily ambitious outcomes.

Photo - See caption below for description
The Prime Minister, Mr Rudd, addresses the G20 Leaders’ Summit on Financial Markets and the World Economy in Washington, November 2008.
Photo: Auspic
Enlarge image :: Photo gallery

Through two summits, in Washington (in November 2008) and London (in April 2009), G20 leaders have made considerable progress in addressing the fundamentals underlying the economic crisis and setting a course for long-term global recovery. At the London summit, leaders committed to measures to restore global growth and jobs, to modernise international financial institutions, and to build a stronger, more globally consistent supervisory and regulatory framework. They also agreed to combat protectionism and to make all efforts to conclude the WTO Doha Round. The department supported the participation in both summits of the Prime Minister and other Australian ministers and officials.

The department played a significant role in supporting the Government’s G20 objectives and advocated Australia’s interests in the G20 through international networks. Both the Minister for Foreign Affairs, Mr Smith, and the Minister for Trade, Mr Crean, encouraged implementation of the G20 commitments. Mr Crean focused on the G20 commitment to combat protectionism and to conclude the Doha Round.

Australia’s diplomatic missions strongly supported the Prime Minister and Ministers in the G20 process through active advocacy with senior policy-makers. Our missions in non-G20 countries engaged in outreach to host governments to ensure that the views of other countries—particularly in Australia’s region and the Pacific—were reflected in the G20’s deliberations. As the global economic crisis will have profound local social and political implications, all posts played an important role in assessing the impact of local developments on Australia’s interests, and how the Government might best pursue Australia’s foreign, strategic and trade policy interests in this changed environment.

At 30 June 2009, Australia was weathering the global economic crisis much better than other advanced economies. The crisis, however, was still having a substantial impact. The direct economic effects included large falls in the prices of many of our commodity exports, reduced demand for manufacturing exports and substantial falls in the value of the stock market. The crisis has led to significant changes in the international environment in which Australia’s foreign and trade policy objectives are pursued.

The Global Economic Crisis

The global economic crisis had its genesis in the collapse of the US subprime mortgage market in mid–2007. A rapid increase in mortgage defaults left financial institutions that had invested in these mortgages with fragile balance sheets. Many suffered large losses and some, such as long-established investment bank Lehman Brothers, collapsed in September 2008. Unable to accurately value many of the assets on their own balance sheets and fearful that institutions to which they normally lent money might also collapse, US and European banks dramatically scaled back their lending to clients and to each other.

The rapid contraction in credit flows led to dramatic declines in economic activity in the US and Europe. Although other regions, including Asia, were not so directly exposed to subprime mortgages, the impact of the crisis spread quickly around the world. The contraction in US and European demand led to large falls in Asia’s exports, while global capital flows shrank rapidly as US and European banks repatriated funds to their parent companies. In Central and Eastern Europe governments were forced to seek funds from the International Monetary Fund (IMF) and other bodies such as the European Central Bank to stabilise their currencies and replace the capital withdrawn by foreign banks.

As a result, the global economy suffered its deepest and most synchronised recession since the Great Depression. Annualised global GDP contracted by around 6.25 per cent in the December quarter 2008. Almost every advanced economy, with the exception of Australia, fell into recession or recorded a decline in GDP in the final months of 2008.

Trade flows were particularly hard hit by the global contraction. As at 30 June 2009, trade flows are expected to fall anywhere between 10 per cent (WTO forecast) and 16 per cent (OECD forecast) in 2009, before a modest rebound in 2010. The GDP of eight of Australia’s top 10 trading partner economies is expected to contract in 2009; China and India will continue to grow, but much more slowly. China’s forecast growth of 6.25 per cent is less than half the rate recorded in 2007.

APEC

APEC has evolved to become the leading economic forum in Australia’s region, bringing together the leaders of 21 Asia-Pacific economies, including many of Australia’s major trading partners. APEC economies account for 68 per cent of Australia’s two-way trade in goods and services. Together, APEC economies accounted for 56.0 per cent of global GDP, 43.7 per cent of world trade and around 40.5 per cent of the world’s population in 2007. APEC is a major driving force in promoting open trade and investment, sustainable economic development and prosperity in our region. In 2009, APEC celebrates its 20th anniversary.

The department continued to push the Government’s ambitious and forward-looking agenda in APEC, helping to maintain the Asia-Pacific as the world’s most economically dynamic region. We coordinated the involvement of 15 Australian Government agencies that, with the department, were active in 22 APEC forums—Australia played a leadership role in all and chaired ten.

Our work on regional economic integration and structural reform focused on facilitating trade in services, making rules of origin more business-friendly, enhancing trade logistics, supporting ongoing analytical work on a possible Free Trade Area of the Asia-Pacific (FTAAP) and implementing APEC’s Second Trade Facilitation Action Plan. The plan aims to reduce business costs by five per cent while APEC’s Investment Facilitation Action Plan aims to improve investment flows across the region. We worked with Peru in 2008 and Singapore in 2009 to drive forward the implementation of the initiatives set in train during Australia’s host year in 2007.

Regional economic integration

The department played a key role in APEC’s adoption of a work plan to accelerate regional economic integration through trade and investment liberalisation and facilitation. The centrepiece of this plan is the work associated with a proposed FTAAP. We continued to be a main driver of streamlined formalities for rules of origin. We also contributed substantially to an APEC initiative to promote expanded trade in environmental goods and services.

Trade and investment facilitation

Photo - See caption below for description
Parliamentary Secretary for Trade, Mr Anthony Byrne, with Singaporean Minister for Trade and Industry, Mr Lim Hng Kiang, at the APEC Supply-chain Connectivity Symposium, in Singapore, May 2009.
Photo: Courtesy of Ministry of Trade and Industry, Singapore
Enlarge image :: Photo gallery

The department secured agreement to develop an APEC Services Action Plan, and co-hosted, with Singapore, a Supply-chain Connectivity Symposium in May 2009 in Singapore. The outcomes of this symposium will inform the development of an APEC Supply-chain Connectivity Framework, including the development of a logistics action plan. A ten per cent improvement in the efficiency of transporting goods between the borders of APEC economies is estimated to produce a total benefit across all economies of US$21 billion (in 2004 real dollar terms). We worked closely with the recently established Policy Support Unit to improve understanding of the benefits to business of APEC’s trade facilitation and investment facilitation action plans.

Reinforcing the Government’s commitment to strengthening APEC’s links with business, the department continued to support Australia’s APEC Business Advisory Council, which is made up of three senior Australian business leaders appointed by the Prime Minister to ensure APEC’s work aligns with the priorities of business and generates economic benefits.

Structural reform

The department helped secure APEC agreement on the fundamental importance of tackling behind-the-border barriers to trade and investment. In August 2008, we supported APEC’s first ministerial meeting dedicated to structural reform hosted by the Treasurer, Mr Swan, in Melbourne. The meeting was one of APEC’s major achievements in 2008 and kick-started the APEC Leaders’ agenda to implement structural reform.

Key outcomes of the APEC structural reform ministerial meeting included decisions by ministers to:

Human security

The department was instrumental in advancing APEC’s human security agenda to build resilience to disruptions, including from terrorism, natural disasters and disease. We chaired a number of workshops to help detect and prevent terrorist smuggling of cash across borders and to protect non-profit organisations from terrorists. Together with Indonesia, Australia co-chaired APEC’s Task Force on Emergency Preparedness which builds capacity in the region to deal with emergencies and disasters. The department led work with Standards Australia and the Australian Competition and Consumer Commission (ACCC) on consumer product safety. Australia announced an additional $1 million contribution for APEC human security projects in November 2008.

APEC institutional reform

Strengthening APEC is a key priority for the Government. The department contributed to efforts to create the position of APEC’s first fixed-term Executive Director, to provide greater continuity and leadership in the APEC Secretariat. A successful applicant was selected in June 2009 and will take up the position in November 2009. We provided advice to ensure the smooth establishment of the principally Australia-funded Policy Support Unit which significantly boosted the analytical capacity of the APEC Secretariat. The department is also leading efforts to reform APEC’s project management system and maintain the financial viability of the organisation. At the APEC ministerial meeting in November 2008, Australia announced a $1 million assistance package to strengthen APEC’s project management systems. We also assisted in achieving significant budget savings for APEC as the 2008 chair of the APEC Budget Management Committee.

Trade finance

A major focus this year has been the impact of the global economic crisis on trade finance. We undertook extensive analysis of the impact of the crisis on the availability of trade finance for Australian exporters and overseas investors and on the policy responses of other countries.

In April 2009 Australia, along with 27 other members of the Organisation for Economic Co-operation and Development (OECD) Working Party on Export Credits and seven non-OECD members, agreed to coordinate export credit support to boost international trade and investment during the economic crisis. Some of the rules of the OECD Arrangement on Officially Supported Export Credits were modified to enhance support for several lower-income countries and for the renewable energies and water sectors. An improved peer review process was introduced to monitor implementation of the OECD Recommendations on anti-bribery measures and on the environment. In addition, there was a two-year extension to the pilot program aimed at providing greater transparency and efficiency.

We continued to represent Australia in the Paris Club group of creditor nations, which coordinates the response of official creditors to requests from countries seeking debt relief. On 17 December 2008, Australia implemented the final tranche of forgiveness of Iraq debt, bringing this to a total of 80 per cent of the US$1072 million (as at November 2004) outstanding debt owed to Australia by Iraq. This follows the Paris Club’s decision to forgive 80 per cent of Iraq’s debt contingent on Iraq entering into a suitable IMF program. Iraq’s remaining debt to Australia (the 20 per cent not forgiven plus accrued interest on this amount) will be repaid between 2011 and 2028.

The department worked closely with the Export Finance and Insurance Corporation (EFIC), a statutory corporation that provides finance and insurance services to support Australian exporters and overseas investors. EFIC operates in that segment of the market where private sector financiers or insurers lack the capacity or willingness to assist Australian companies. A key issue has been ongoing assessment of the impacts of the global economic crisis on Australian trade finance conditions. In 2008–09 EFIC signed 51 new facilities that supported 39 clients. These transactions had an aggregate value of $576.5 million and supported exports and overseas investments with an aggregate value of $1.35 billion.

Trade policy coordination and business liaison

Ministerial Council on International Trade

In March 2008, the Council of Australian Governments (COAG) established the Ministerial Council on International Trade. The Council replaced the existing National Trade Consultations as the primary ministerial-level mechanism for consultation between the Australian Government and state and territory governments on international trade issues. The department and Austrade provide the secretariat for the Council.

The role of the Council is to facilitate cooperation on measures to enhance Australia’s international competitiveness and export performance. It consults on issues such as international trade negotiations, trade development and trade promotion activities, investment promotion and international business activities, and domestic competitiveness issues related to export performance and productivity.

The Council’s inaugural meeting took place in Melbourne in August 2008. Ministers agreed on several new initiatives, including coordination of inward investment activity through a National Investment Advisory Board, and more effective use of Brand Australia across the states and territories for international trade and investment promotion purposes. The Council’s COAG status facilitates close cooperation with other COAG initiatives. The Council provided advice on trade competitiveness issues in decisions on infrastructure development, skills, regulation, broadband and climate change.

Review of Export Policies and Programs

Photo - See caption below for description
Minister for Foreign Affairs, Mr Smith, and Minister for Trade, Mr Crean, at the APEC Ministerial Meeting in November 2008.
Photo: Courtesy of APEC Peru 2008 Taskforce
Enlarge image :: Photo gallery

In September 2008, Mr David Mortimer AO and Dr John Edwards submitted to the Government a comprehensive Review of Export Policies and Programs, a process set up by the Minister for Trade in February 2008. The review provided input into government consideration of the future direction of Australia’s trade policies and programs. We provided staff for the review’s secretariat. We have implemented many of the Review’s recommendations. These include completing negotiations on free trade agreements (FTAs) with Chile and with ASEAN. Beginning FTA negotiations with Korea, joining the Trans-Pacific Partnership Agreement discussions, and a renewed focus on trade policy dialogue with the EC are some of the other initiatives already underway (see sub-output 1.1.7).

Submissions to policy reviews

The department contributed to the Government’s White Paper on the Carbon Pollution Reduction Scheme, completed in December 2008, and to the Energy White Paper. Our submissions highlighted the possible implications for Australia’s international competitiveness and trade performance of the policies under consideration and outlined Australia’s obligations under its international trade agreements.

Conflict diamonds

The department worked with the Department of Resources, Energy and Tourism and the Australian Customs and Border Protection Service in leading Australia’s participation in the UN-sanctioned Kimberley Process Certification Scheme for rough diamonds. The scheme aims to ensure that so-called ‘conflict diamonds’ cannot be traded internationally. ‘Conflict diamonds’ are rough diamonds mined and sold by non-government groups to finance wars and civil conflict.

As a result, Australian exports of rough diamonds, worth more than $400 million in 2008, benefit from a secure trade regime which involves more than 70 countries, including the world’s major producers, traders and polishers of rough diamonds. The scheme assures buyers that diamonds purchased from Australia are mined in Australia and are not tainted by the conflict diamond trade. It also provides consumers in Australia and overseas with confidence that the diamonds they buy are not being used to fund armed conflict.

We led Australia’s delegation to meetings of the scheme’s participants in New Delhi, India, and in Windhoek, Namibia, where participants agreed on responses to allegations of illicit diamond smuggling from Zimbabwe, Venezuela and Côte d’Ivoire.

Live animal exports

The department continued to work actively with the Department of Agriculture, Fisheries and Forestry (DAFF) to support Australian livestock exports, worth about $1 billion in 2008. We supported negotiation of memorandums of understanding (MOUs) with several countries in the Middle East, including Bahrain and Oman, and amendments to the MOU with Egypt. The MOUs allow Australia to help our trading partners improve animal welfare-related post-arrival handling and slaughter practices. The department also supported projects worth more than $2.4 million provided by DAFF under its Live Animal Trade Program aimed at improving animal welfare practices in importing countries in the Middle East, North Africa and Asia, including upgrades to livestock facilities in the Middle East and Asian regions.

Outlook

Supporting the Government’s efforts to promote recovery in the world economy and ensuring that Australia’s voice is heard—and its interests protected—in international economic forums will continue to be a priority for the department. The next G20 Leaders’ Summit will be held in Pittsburgh, United States, in September 2009. Ensuring an effective G20 summit process remains one of the Government’s top international priorities. The department will focus on advancing this priority in 2009–10.

The department will advance APEC’s trade and investment liberalisation, facilitation and reform agendas, including further work towards a possible FTAAP (which could also be advanced through the Trans-Pacific Partnership Agreement negotiations—see page 102). We will work with the current and the two incoming APEC hosts—Singapore, Japan and the United States—to ensure that APEC remains ambitious and able to achieve the immediate and longer-term priorities set by leaders and ministers. Ensuring APEC remains the pre-eminent economic grouping in the region and contributes to a strong regional economy will continue to be a priority.

The department will support the second meeting of the Ministerial Council on International Trade in August 2009 in Brisbane. We will also continue to engage actively in whole-of-government review processes on issues with significant trade implications. A targeted, comprehensive trade outreach program to enhance understanding of the Government’s trade policy agenda in the wider community remains a priority for the department. We will also maintain our oversight of trade finance issues, in particular in the context of the evolution of global economic and financial market conditions.

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