Annual Report 1994-95

PROGRAM 1: INTERNATIONAL RELATIONS, TRADE AND BUSINESS LIAISON
PROGRAM 2: CONSULAR AND PASSPORT SERVICES
- 2.1 PASSPORT SERVICES
- 2.2 CONSULAR SERVICES
PROGRAM 3: SERVICES FOR OTHER AGENCIES
PROGRAM 4: SECURE GOVERNMENT COMMUNICATIONS AND SECURITY SERVICES
- 4.1 THE AUSTRALIAN DIPLOMATIC COMMUNICATIONS NETWORK
- 4.2 SECURITY SERVICES
PROGRAM 5: EXECUTIVE AND DFAT CORPORATE SERVICES
- 5.1 EXECUTIVE DIRECTION
- 5.2 DFAT CORPORATE SERVICES
PROGRAM 6: DEVELOPMENT COOPERATION

PROGRAMS

PROGRAM 1: INTERNATIONAL RELATIONS, TRADE AND BUSINESS LIAISON

Objectives:

To increase Australia's economic prosperity through trade and investment flows.

To ensure a favourable security environment for Australia.

To advance Australia's standing as a good international citizen.

To promote global cooperation based on fair rules.

Resources Summary by Sub-programs

1.1 INTERESTS IN NORTH ASIA


1993-94		1994-95	1994-95
Actual		Budget	Actual
& AEs
$'000		$'000	$'000
Appropriations
Running costs	37,398	44,834	37,871
Other program costs	615	615	757
Total appropriations	38,012	45,449	38,628
Less adjustments	1,517	n.a.	2,868
Total outlays	36,495	n.a.	35,760
Staff years	262	275	267

1.2 INTERESTS IN SOUTH AND SOUTH EAST ASIA


1993-94		1994-95	1994-95
Actual		Budget	Actual
& AEs
$'000		$'000	$'000
Appropriations
Running costs	43,439	49,140	42,042
Other program costs	346	346	373
Total appropriations	43,785	49,486	42,415
Less adjustments	628	n.a.	3,886
Total outlays	43,157	n.a.	38,529
Staff years	640	585	573

1.3 INTERESTS IN AMERICAS AND EUROPE


1993-94		1994-95	1994-95
Actual		Budget	Actual
& AEs
$'000		$'000	$'000
Appropriations
Running costs	85,304	90,527	75,382
Other program costs	3,670	2,406	3,336
Total appropriations	88,974	92,933	78,718
Less adjustments	284	n.a.	6,371
Total outlays	88,690	n.a.	72,347
Staff years	663	722	627

1.4 INTERESTS IN SOUTH PACIFIC, AFRICA AND MIDDLE EAST


1993-94		1994-95	1994-95
Actual		Budget	Actual
& AEs
$'000		$'000	$'000
Appropriations
Running costs	35,241	35,797	34,946
Other program costs	40,000	17,000	17,000
Total appropriations	75,241	52,797	51,946
Less adjustments	24,392	n.a.	3,281
Total outlays	50,849	n.a.	48,665
Staff years	415	383	360

1.5 MULTILATERAL TRADE POLICY AND NEGOTIATIONS


1993-94		1994-95	1994-95
Actual		Budget	Actual
& AEs
$'000		$'000	$'000
Appropriations
Running costs	7,792	8,570	7,102
Other program costs	1,201	1,353	1,353
Total appropriations	8,994	9,923	8,455
Less adjustments	358	n.a.	174
Total outlays	8,636	n.a.	8,281
Staff years	94	71	103

1.6 TRADE STRATEGY DEVELOPMENT AND BUSINESS LIAISON


1993-94		1994-95	1994-95
Actual		Budget	Actual
& AEs
$'000		$'000	$'000
Appropriations
Running costs	19,774	21,629	17,953
Other program costs	5,954	7,495	5,994
Total appropriations	25,729	29,124	23,947
Less adjustments	1,520	n.a.	933
Total outlays	24,209	n.a.	23,014
Staff years	202	185	187

1.7 GLOBAL ISSUES


1993-94		1994-95	1994-95
Actual		Budget	Actual
& AEs
$'000		$'000	$'000
Appropriations
Running costs	17,324	18,852	24,622
Other program costs	112,932	128,013	102,893
Total appropriations	130,255	146,865	127,515
Less adjustments	1,372	n.a.	1,130
Total outlays	128,883	n.a.	126,386
Staff years	173	179	194

1.8 INTERNATIONAL LEGAL INTERESTS


1993-94		1994-95	1994-95
Actual		Budget	Actual
& AEs
$'000		$'000	$'000
Appropriations
Running costs	4,101	4,381	4,187
Other program costs	54	55	65
Total appropriations	4,155	4,436	4,252
Less adjustments	269	n.a.	39
Total outlays	3,886	n.a.	4,213
Staff years	49	49	49

1.9 INFORMATION AND CULTURAL RELATIONS


1993-94		1994-95	1994-95
Actual		Budget	Actual
& AEs
$'000		$'000	$'000
Appropriations
Running costs	17,911	29,204	24,871
Other program costs	4,446	4,546	4,558
Total appropriations	22,356	33,750	29,430
Less adjustments	692	n.a.	2,734
Total outlays	21,664	n.a.	26,695
Staff years	107	109	137

1.1 INTERESTS IN NORTH ASIA

Objectives

Inform and advise the Government on the advancement of Australia's political, economic and security interests in North Asia.
Enhance trade and investment opportunities in countries in the region through commercial diplomacy, bilateral government-industry forums, and the provision of information and in-country assistance to Australian companies.
Maintain and expand high-level consultations, exchanges and mechanisms for dialogue to promote Australia's interests in the security and economic development of the region.
Encourage wider adherence by countries in the region to international human rights standards and democratic principles.
Project an accurate, contemporary image of Australia in the region and inform debate within Australia in support of Australia's interests there, particularly closer economic integration.

Description

The five principal economies of North Asia - Japan, China, the Republic of Korea (ROK), Taiwan and Hong Kong - play a vital role in securing Australia's economic future, both in Asia and the wider world. In 1994-95, they accounted for 45% of Australian merchandise exports and 37% of total trade.

The process of Australian engagement with the region further intensified in 1994-95, with merchandise exports to the region as a whole increasing by 5.0%. The overall performance, however, masked significant differences between countries. Exports to Japan increased by only 2.2%, in part reflecting the subdued nature of the Japanese economy. Exports to China, on the other hand, increased by 14.2%. The increase in exports to the ROK of 11.7% caused it to displace the US as Australia's second-largest export market. The region now contains Australia's two largest export markets and five of the top 10 export markets.

The diversification of trade with the region away from its more traditional commodity base continued in line with the Government's overall priorities, but at a more subdued pace. Such diversification is all the more important in the case of Japan, as it enters the post-industrial age. The other key markets of North Asia will offer opportunities for trade in many areas for which Japan was formerly the key target market. Unprocessed primary products to the region have fallen from 69% of merchandise exports to 42% over the past 10 years (see chart). Correspondingly, manufactures exports have grown strongly, increasing their share of total exports to the region from a little over 10% to more than 20%. Elaborately transformed manufactures have contributed overwhelmingly to this growth, increasing their share from 2.8% to 10.6% over the same period.

North Asia figures less prominently in services exports and two-way investment compared with merchandise trade, but the countries of the region are growing in importance in these areas. It now accounts for approximately 30 per cent of global services exports, and Japan is Australia's largest services export market. Tourism from the region has grown substantially in recent years and now accounts for around 25% of short-term visitors. Hong Kong is the largest source of full-fee paying students, and Japan, the ROK, Taiwan and China are also among the top 10 sources of students.

North Asian investment in Australia amounted to $65.9 billion at June 1994, representing 17.8% of total foreign investment in Australia. The level of investment from the region as a whole fell slightly from the previous year on account of the worldwide fall-off in Japanese investment abroad. Australian investment in North Asia stood at $15.3 billion (11.7% of total investment abroad), a 30% increase on the previous year.

The countries of the region are also playing a growing role in regional and global affairs. The already extensive array of strategic and policy consultations on wide-ranging regional and global issues was further extended through the year. Japan will host the APEC heads of government meeting later in 1995. Japan is also seeking, with Australia's support, to become a permanent member of the UN Security Council. North Asian countries took part in the first meeting of the ASEAN Regional Forum (ARF), which had important outcomes for the longer term goal of comprehensive regional security arrangements.

Changing structure of exports to North Asia

Chinese engagement in the global economy is already linked with double-digit economic growth rates over the past 15 years, making it a country whose markets and opinions on international issues cannot be ignored. Both China and Taiwan are seeking to accede to the World Trade Organisation (WTO) and its rules. Accession will result in opportunities for both economies as well as obligations to their trading partners. Australia is playing an active part in the negotiations that are an essential part of the accession process. The ROK is also seeking to become more engaged in international issues, as illustrated by its efforts this year to secure the position of WTO Director-General, fully supported by Australia.

Several important events promoted the achievement of objectives, most notably the November visit to Australia by ROK President Kim Young-Sam and the May visit to Japan by Prime Minister Keating.

The resources dedicated to sub-program 1.1 were the North Asia Division (North East Asia Branch, East Asia Branch, North Asia Projects Section and the East Asia Analytic Unit - the Unit having a broader mandate than just North Asian matters) and a significant proportion of the work of Australia's overseas missions in North Asia.

Performance summary

Performance against the objectives has been assessed according to such measures as:

satisfaction among ministerial, parliamentary and other client sectors, including the business community, with timely, appropriate responses to developments and opportunities in North Asia;
indications, through high-level, official and institutional contacts, and through media coverage, of enhanced understanding and acceptance of Australian policies.

The outcomes achieved country by country are detailed below.

1.1.1 Interests in North-East Asia

Japan

The growth and diversification of the Australia-Japan relationship and its importance to both sides was illustrated by increasingly close consultation and cooperation on the APEC trade liberalisation agenda , with Japan having taken over the APEC chairing role in November 1995, and reinforced through numerous bilateral visits and consultations.

In 1994-95, merchandise exports to Japan amounted to $16.3 billion representing a 2.2% increase over 1993-94 and 24.3% of total exports. Japan remained Australia's second-largest source of imports ($12.8 billion or 17.1% of total imports) after the US. Australia maintained a trade surplus with Japan, albeit a reduced one. Australian exports of foodstuffs, elaborately transformed manufactures (ETMs) and simply transformed manufactures (STMs) to Japan grew strongly - by 7.6% (food), 12.4% (ETMs) and 14% (STMs). In the growing services trade area, tourism from Japan is estimated to have generated about $2 billion of receipts in 1994 (690 000 visitors).

At June 1994, Japan ranked third after the US and the UK as a source of foreign investment, with an investment stock of $48.9 billion. Japanese investment in Australia has in the past heavily favoured the mining, real estate and tourism sectors. There is now a trend towards the manufacturing sector, which accounted for 61.5% of Japan's $US990 million of new investment in Australia in the first half of the 1994-95 Japanese fiscal year, much of it in the food processing sector. At 30 June 1994, the total stock of Australian investment in Japan was $10.7 billion, an increase of more than 40% on June 1993 and representing 8.2% of total Australian investment in foreign enterprises.

Strengthened Australia-Japan cooperation was evidenced by the steadily increasing congruence of policies on such regional issues as APEC, the mooted East Asia Economic Caucus (EAEC) and the ASEAN Regional Forum on security. In a landmark Joint Declaration issued during Prime Minister Keating's official visit to Japan in May, the Japanese Government welcomed 'Australia's decision to create its future in the region' and reaffirmed that 'Australia was an indispensable partner in regional affairs'.

Visits by Prime Minister Keating in September and May and the Ministers for Foreign Affairs and Trade, Senator Evans and Senator McMullan, served to increase mutual awareness and confidence and to promote Australia's economic and foreign policy interests. In addition, the development of specific interests were successfully targeted through six other ministerial visits. Australia was thus able to maintain dialogue with Japan at the highest levels of government on such issues as Japanese economic reform and deregulation and market access, and on pressing regional and international issues.

Representations were also made through annual and biannual bilateral consultations on several issues, including dairy, beef, energy, science and technology, space cooperation, fisheries, aviation, and housing standards. In consultation with the private sector, major submissions on deregulation and on dairy issues were presented to the Japanese Government. As a result, small gains were made in particular problem areas. The deregulation program released by the Japanese Government in March addressed about one-third of Australia's concerns, and there were signs of progress on housing and construction materials, commitments to greater harmonisation of standards, acceptance of foreign testing, and facilitation of cargo flows through airports. The Japanese Government and bureaucracy also responded to repeated representations on specific issues and eliminated, reduced or modified particular non-tariff barriers affecting dairy products, cut flowers, certain fruits, beef, rice and processed foods.

The Department maintained and developed its contacts with the Australian motor vehicle and motor vehicle parts industry to ensure that its interests were fully taken into account in the representations made to the Japanese and US governments during the US-Japan auto sector negotiations. The agreement reached between the US and Japan at the end of June will provide improved access to the Japanese market, particularly in motor vehicle imports. Both Japan and the US have given the assurances which Australia sought that the agreement reached will be implemented on a MFN basis, but it will be necessary to continue to liaise closely with the industry to monitor the results and ensure that Australian companies are not disadvantaged, either in terms of the markets which they have developed or the new opportunities which will become available.

In April, Japan formally responded positively to Australia's proposal to institute annual politico-military talks between the two countries, the first to be held in Tokyo in January 1996. This development extends the already extensive array of annual strategic and policy discussions between the two countries. In 1994-95, these included exchanges between senior civilian and military defence officials, Foreign Ministry Officials' Talks, Nuclear Policy and Disarmament Talks, Policy Planning Talks, pre-UNGA consultations together with discussions on global environmental issues and a series of talks on aid at ministerial and officials level at which several joint projects (in the Pacific, the Philippines and Indonesia) were agreed.

The appointment of a DFAT Deputy Consul General to the Austrade office in Osaka office in January, after the opening of direct air links in September, helped serve the needs of the increasing number of Australian business and other visitors to Kansai and recognised the potential for future trade and investment with the Kansai region. The officer and staff seconded from the Tokyo Embassy were also able to provide immediate, on-the-spot assistance to Australian nationals caught up in the Kobe earthquake.

The Embassy in Tokyo made renewed representations through the year on the coverage of Japan's role in the Second World War in Japanese school textbooks. There have been some significant improvements in the coverage in recent years, but there still appear to be inadequacies, such as the coverage of the impact of Japan's actions on Australia and Australians. The expectation is that, in the 50th anniversary of the end of the war, new editions will more adequately reflect what happened. The process may, however, take time as changes first need to be drawn up by individual textbook publishers.

Republic of Korea

Relations between Australia and the ROK reached new levels, as the ROK became Australia's second largest export market and both countries continued efforts to diversify the strong complementary trade relationship and broaden relations in other non-trade areas. The gradual opening of the ROK economy will assist in diversifying Australia's trade with that country. President Kim Young-Sam's visit in November highlighted the constructive dialogue on a wide range of issues at the highest levels, confirming the expectation on both sides of increasing interdependence between Australia and Korea at bilateral, regional and global levels. This was complemented by the development of wider people-to-people linkages throughout the community.

There was considerable Australian and wider international interest in the implementation of GATT Uruguay Round commitments by the ROK in the agriculture sector and considerable pressure for removal of related technical barriers to trade. The ROK Government announced significant proposed amendments to food regulations and some quarantine/inspection procedures. It continued, however, to face domestic political difficulties in implementing reform relating to the agriculture sector.

The ROK economy sustained its strong growth, recording an 8.4% increase in GDP in 1994. Two-way trade reached $7.3 billion in 1994-95 compared with $6.6 billion in 1993-94, making the ROK Australia's second-largest export market and Australia's fourth-largest trading partner overall. Imports from Korea increased slightly to $2 billion, and Korea maintained its rank as Australia's eighth-largest source of imports. Australia's trade surplus of almost $3.2 billion in 1994-95 was of continuing concern to Korea, as were Australian anti-dumping actions, government procurement practice and tariffs on automobiles and textiles, clothing and footwear. Australia continued to press for greater access for agricultural product exports to the Korean market.

Australia's largest exports to the ROK continued to be primary products, including non-monetary gold, coal, iron ore and aluminium, but the growing competitiveness of Australian products in non-traditional export areas was confirmed in 1994-95 by a growth of 13.2% in exports of manufactures, which now comprise 25% of total exports to the ROK.

Korea's increasing awareness of Australia as a sophisticated industrial country was evident in expanded business and trade links which flowed from a range of initiatives the Department arranged or supported. These included participation by Korean industry delegations in NTIOC, enhanced high-technology links as a result of an Australia-Korea Information Superhighway workshop held in Sydney and Australian participation in the APEC Technomart in Taejon. Expanded food sector links were supported through Australian participation at the Seoulfood '95 exhibition. These efforts were complemented by the launch in May of a comprehensive campaign in Korea titled 'Inventive Australia', an initiative designed to promote Australia's more sophisticated, high-value-added capabilities in 10 priority sectors.

Efforts to diversify further the economic relationship were reflected in outcomes from a busy agenda of Ministerial visits and officials' meetings. The visit to Australia by President Kim Young-Sam significantly increased mutual awareness, with discussion centring on ways to broaden trade and investment links and to boost the range of political, security and people-to-people exchanges. Outcomes from this visit included agreement to establish a $1 million fund for research and exchange of industrial technology, to hold an energy symposium in late 1995, to strengthen bilateral cooperation on environmental management issues, and to establish a comprehensive education exchange program and an Australia-Korea Economic Research Centre.

People-to-people linkages were enhanced with agreement to establish a bilateral vocational education and training scholarship and the signature of a bilateral Working Holiday Visa arrangement. Korean tourism to Australia continued its impressive growth, with a 78% increase in 1994. Immigration procedures will be streamlined from August 1995 to facilitate their continuing growth. Education links also expanded with more than 4500 full-fee Korean students in Australia in 1994, a 25% increase over 1993.

Australia continued to encourage greater Korean investment in Australia. Two-way foreign direct investment remains relatively minor. Together with the ROK's announced relaxation of foreign exchange controls, this should see higher levels of foreign investment. As an example of Australian efforts, it was agreed at the November Ministerial Trade Talks that Senator McMullan would lead a business mission to Korea in late 1995.

Close cooperation on regional economic and security issues continued. The rapport established between President Kim Young-Sam and Prime Minister Keating in 1993 was reaffirmed at the Bogor APEC Leaders' Meeting in November 1994 and during President Kim's subsequent visit to Australia. Ministerial meetings, together with Senior Officials' Talks, the Joint Economic Committee meeting and other officials' meetings, enabled both countries to exchange views on trade liberalisation and trade facilitation in APEC and the World Trade Organisation, and the North Korean nuclear issue, and served to reinforce the commonality of interest between the two countries.

Democratic People's Republic of Korea (DPRK)

Developments on the Korean Peninsula pertaining to the Democratic People's Republic of Korea (DPRK) remained a significant security concern for Australia during the report period. Tension continued in the second half of 1994, coinciding with the unexpected death of DPRK President Kim Il Sung in July, but eased with the conclusion of the US-DPRK Agreed Framework in October followed by the launch of the Korean Peninsula Energy Development Organisation (KEDO) in March. In June, the DPRK publicly acknowledged it had a severe food crisis and accepted humanitarian assistance from the ROK. In conjunction with these developments, the DPRK undertook a concerted effort to induce Australia, and several other countries, to restore relations, and the DPRK's Korean People's Army (KPA) continued its efforts to immobilise and replace the operation of the Korea Armistice Agreement.

Senator Evans welcomed the conclusion of the Agreed Framework as a major breakthrough in resolving Australian and international concerns about the DPRK's nuclear program. The Government's decision in early 1995 to join the US-led KEDO consortium which is to arrange the financing and supply of the light water nuclear reactor (LWR) package to the DPRK reflects the importance it attaches to a negotiated settlement with the DPRK as a step towards a nuclear weapons-free Korean Peninsula. The DPRK's continued freeze of its nuclear program is tangible evidence of the value of the Agreed Framework in contributing to peace and security on the Korean Peninsula. Close consultation between Department officials and their US, Japanese and ROK counterparts during the US-DPRK Agreed Framework negotiations ensured the Department was able to keep the Government well informed of developments. Australia made a one-off contribution to KEDO of $US5 million in June.

Australia-DPRK relations remain suspended despite persistent DPRK overtures during the year for resumed relations. The Department has outlined to the DPRK Australian requirements for resumed relations, which include improved inter-Korean dialogue, a resolution of the nuclear situation, and more responsible international behaviour by the DPRK. The Department also relayed Australian concerns over DPRK actions against the Korean Armistice.

1.1.2 Interests in East Asia

China

China's strategic and economic importance in the region continues to grow. The Australian Government continued to place strong emphasis on development of the bilateral relationship across the full range of its interests. The visits to Australia by the Chairman of China's National People's Congress, Qiao Shi, in November and by Vice Premier Zou Jiahua in June enabled senior Chinese leaders to focus on the prospects for furthering trade and investment links with Australia. In addition, the visit by State Councillors responsible for Agriculture (Chen Junsheng), and for Science and Technology (Song Jian), brought key leaders in both sectors to Australia.

These visits as well as complementary visits to China by the Minister for Trade, Senator McMullan, leading a delegation of senior business executives; six other ministers; and the Speaker of the House of Representatives acquainted China with Australia's excellence in a wide range of sectors, including high technology and advanced services industries. A wide range of other visits has also occurred, including that by the Chairman of the China Disabled Persons' Federation, Deng Pufang (a son of Deng Xiaoping), and several state and provincial leaders.

Senior official contacts also played an important role in advancing Australia's dialogue on strategic issues with Beijing, including through the annual Policy Planning and Disarmament Talks, held in Beijing in February. These frank and productive talks focused on APEC, regional security, weapons of mass destruction, disarmament and non-proliferation issues, and China's participation in the ASEAN Regional Forum (ARF). China's activities in the Spratly Islands and underground nuclear testing raised particular concerns.

The Department made intensive efforts, in conjunction with its posts in the PRC, to consolidate Australia's economic integration with the region's fastest-growing region. Export growth remained strong, with a significant increase in the number of Australian firms launching ventures with Chinese partners. China is now Australia's sixth-largest trading partner. Bilateral merchandise trade totalled $6.6 billion in 1994-95, 15.7% higher than 1993-94. However, trade is in deficit to China by $693 million. Exports increased by 14.2% to $3.0 billion and imports by 17% to $3.7 billion. Major exports included wool, iron ore, barley, alumina, cotton, transport equipment, such as high-speed catamarans, and telecommunications.

Australian firms are now involved in mineral exploration, power, roads, beer, food processing, packaging, telecommunications, education, legal services, banking, insurance and architectural design. Australia is one of the top 10 investors in China, and the second most important destination for outwards investment from China after Hong Kong.

Improved market access continued to form a central element in exchanges with senior Chinese ministers and officials. Senator McMullan pressed access concerns with Chinese Trade Minister, Wu Yi, and other Chinese ministers, especially over wool and services. In meetings with officials of the People's Bank of China in May, he also pressed Australian bids for insurance licences in China. As part of its market-access strategy, Australia also took an active part in negotiations for China's accession to the GATT/WTO. Australia maintains strong support China's entry, but accession requires a high preparedness on China's part to conform to WTO principles, and to make the firm contractual commitments necessary to conclude negotiations. Progress has been slower than Australia would have liked. Success in this arena would result in a more transparent, non-discriminatory trade regime in China, with fewer barriers to trade and investment. Australia has also sought to strengthen China's engagement in regional and global activities, in particular in APEC.

Support for strengthened business links between Australia and China remained a high priority for Australian Government activity. NTIOC brought important Chinese business leaders to Australia and introduced them to key areas of niche high technology relevant to China's modernisation. Australia also pressed particular business interests, as well as access issues, at the officials-level intersessional meeting of the Joint Ministerial Economic Commission in Beijing in late 1994. Australia's posts in China as well as department officers in Canberra also played a key role in assisting business activities through regular briefings in Canberra and State capitals.

To further human-rights objectives, the Australian Government continued to make high-level representations about abuses in China, including Tibet, and about individual human-rights cases. Australia was again a co-sponsor of the draft resolution on the human-rights situation in China at this year's UN Commission on Human Rights. In discussions with PRC Foreign Minister Qian Qichen, Senator Evans renewed Australia's invitation for a Chinese human-rights delegation to visit Australia. Australian Government intervention also continued on behalf of Australian citizens detained in China, particularly in the case of Mr James Peng.

Mongolia

Australia advanced its objective of supporting the independence, and democratic and market-economic development, of Mongolia with the visit of Senator Evans in October 1994. He confirmed Australia's commitment to an increase in Australia's aid program to Mongolia from $750 000 to $1 million a year. With the Przewalski horse nearing extinction, Senator Evans announced funding for the transport to Mongolia of Australia's gift of seven horses from Western Plains Zoo. Senator Evans also exchanged views on regional security and opportunities for economic co-operation.

Hong Kong

The portfolio Ministers endorsed a review of the extensive range of Australian interests in Hong Kong and the strategy for upholding and advancing them. From its long-term perspective of the relationship and its concern to protect its trading interests, Australia continues to supports the implementation of the Sino-British Joint Declaration on the Question of Hong Kong (1984), which provides for a 'high degree of autonomy' for Hong Kong after 30 June 1997, and the Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China (1990).

Australia believes the maintenance of the rule of law, a predictable system of legal redress, an efficient civil service, freedom of speech, freedom of abode and travel, and free and transparent financial and economic systems will be essential in maintaining international and Australian business confidence in Hong Kong.

Through numerous high-level ministerial and other parliamentary visits and contacts with senior officials, Australia has registered with Britain, China and the Hong Kong Government its conviction that the maintenance of these guarantees will be essential to Hong Kong's continued stability and prosperity. Australia welcomes agreement on major issues such as a Court of Final Appeal and the recent resolution of the impasse over the airport project, in part because of international concern.

Australia has a major interest in the continued stability and prosperity of Hong Kong. It is Australia's 10th-largest trading partner, with two-way trade totalling $3.6 billion in 1994-95. Australia's exports to Hong Kong - predominantly gold, seafood, pearls and precious stones, coal and aluminium - amounted to $2.6 billion, slightly down on the previous year due to significantly lower gold exports. About 35% of those exports are estimated to be re-exported into China. Imports from Hong Kong in 1994-95 were valued at $0.8 billion, a slight increase over the previous year.

More than 350 Australian companies are based in Hong Kong and more than 1000 have representative offices there. About 30 000 Australian citizens are estimated to be living in Hong Kong. Australian companies have achieved a good market share across all service sectors, especially education, accounting, consulting, insurance, legal and finance and banking. Hong Kong is Australia's largest source of fee-paying overseas students (more than 11 000 in 1994). The Department provided a substantial written and oral briefing on Hong Kong and Australia's participation in its service sector to the Australian Joint Parliamentary Committee Inquiry into Australia's Services Exports, and was closely involved in negotiations to resolve the air services dispute with Hong Kong.

On 30 June 1994, Australian investment in Hong Kong stood at $3.5 billion, about 2.7% of Australia's investment overseas, while Hong Kong investment in Australia has more than doubled over the past five years to $14.4 billion.

To ensure that the legal basis of the bilateral relationship is in place for the post-1997 period, the Government instituted a review of all bilateral and other treaties with application in Hong Kong. Groundwork was laid for the opening of the Hong Kong Trade and Economic office in Sydney in the second half of 1995, and a program of exchanges of trade officials and police was begun.

Australia has continued to work closely with Hong Kong in regional and multilateral forums, particularly in the WTO and APEC, where Hong Kong has indicated a particular interest in closer consultation.

Macau

As with Hong Kong, Australia supports the maintenance of a high degree of autonomy for Macau, as agreed by Portugal and by China, after China assumes sovereignty in 1999.

Australian commercial involvement in Macau continues to be confined to a small number of niche areas, especially in the tourist, education and horse- and dog-racing industries. Australia is a major supplier of wool to China's largest enterprise in Macau. Good commercial prospects exist in Macau's new airport and infrastructure projects and the transport services sector. Relations with Macau at the political level were affected by Australia's concern at the involvement of Macau authorities in the removal from Macau of Australian businessman James Peng and his detention in China.

Taiwan

The Australian Government continued to facilitate trade and economic links with Taiwan, multilaterally and bilaterally, within the parameters of its one-China policy. Two-way merchandise trade between Australia and Taiwan, our ninth-largest trading partner, totalled $5.7 billion in 1994-95, growing by 10.7% and accounting for 4.0% of Australia's total trade. Exports to Taiwan, our sixth-largest export market, were worth $3.1 billion, with higher exports of crustaceans and copper offsetting lower aluminium, gold, coal and cotton exports. Imports were $2.6 billion, mainly computer and office machines and sporting goods. Taiwan continues to be a rapidly growing source of tourism to Australia, with a growth of 54.7% over the past year to 131 500 visitors. The number of fee-paying students from Taiwan rose 20% in 1994 to 3300.

Multilaterally, the Government made major progress towards securing concessions in areas of interest to Australia, including horticultural and other agricultural goods, which will result in expanded export opportunities when Taiwan joins the GATT/WTO. A small list of market access and services trade issues remains unresolved pending further negotiations. In line with Taiwan's status as a member economy of APEC, Australia has maintained close consultations with it on a range of APEC issues. In the context of GATT/WTO trade discussions, the Government intensively pursued specific market access objectives bilaterally, including non-discriminatory access for beef.

The Government has continued to place maximum focus on the economic and trade relationship within the context of Australia's one-China policy. The Department worked closely with Austrade to refine its trade strategy approaches, for example by assisting a Metal Trades Industry Association mission to Taipei in July. The Australian Commerce and Industry Office in Taipei opened branch offices in Taichung and Kaohsiung. Direct weekly flights started between Cairns and Taipei in September.

Unofficial visits to Taiwan were made by the Minister for Tourism, Mr Lee; a bipartisan parliamentary group in July; and the Parliamentary Secretary for Transport, Mr O'Keefe, in May to explore opportunities arising from Taiwan's infrastructure development programs.

The Government aggressively countered the negative publicity surrounding the discovery of chlorfluazuron residues in Australian beef. An increased public affairs effort has been directed at building Australia's image as a multicultural society and source of highly skilled labour and sophisticated technology.

Progress was made in working towards the conclusion of several bilateral arrangements which will benefit Australian commercial interests. An MOU on quarantine matters, which provides for regular consultations and covers fruit and vegetables, was signed in March. Negotiations are continuing on a double-tax arrangement, copyright and ATA Carnet (providing for temporary entry of goods for sample purposes). An MOU on industrial property came into effect in late 1994.

Taiwan made a concerted push during 1994-95 to achieve an enhanced international profile commensurate with political and economic achievements. The Department monitored these developments closely, giving particular attention to Taiwan's dealings with China and the US, for any possible impact they might have on Australian interests.

1.1.3 East Asia Analytical Unit

The East Asia Analytical Unit continued to fulfil the need of business and government for high-quality analytical reports on East Asia. The Unit launched one major report during the year and published two titles in the working paper series. Five reports were near completion by year's end, and work began on the design of three new reports. In a cooperative effort with the Bureau of Industry Economics, the Unit also produced a briefing paper on Australia's links with Asia for participants at the second National Trade and Investment Outlook Conference (NTIOC) in Melbourne in December.

Senator McMullan launched the Unit's latest report, Subsistence to Supermarket: Food and Agricultural Transformation in South-East Asia, in Canberra on 12 August. The report extended the research on changes in food and agriculture markets in South-East Asia. Its detailed examination of the changing demand for food and agricultural products in South-East Asia and their supply was aimed at helping Australian exporters and investors as well as governments, and was well received.

The report series Sub-Regional Growth Areas in South-East Asia focused on three sub-regional growth 'triangles' likely to attract Australian investment - Indonesia-Malaysia-Singapore, Indonesia-Malaysia-Thailand, and Brunei-Indonesia-Malaysia-Philippines. Other reports nearing completion include a comprehensive study, Overseas Chinese Business Networks in Asia, which will highlight the role of Australian Chinese business entrepreneurs in enhancing our economic integration with Asia.

New reports in preparation include an examination of the growing economic links between Japan and China, a report on Russia's Pacific region focusing on the outlook for its increased integration with the North-East Asian region, and opportunities for Australian business, and a report on the iron and steel industry in China examining long-term prospects for new and expanded links with industries in Australia.

Work also began on three reports covering economic developments in Japan, China and East Asia's transitional economies, mainly Indochina and Myanmar.

Two new titles were added to the Unit's working papers series during the year. Tapping into China's Transport Infrastructure, which focused particular attention on prospects for Australian Build, Operate and Transfer (BOT) projects, was given wide local and international media coverage and was well received by Australian business. The Challenge of Logistics: Shipping Services between Australia and Indonesia, detailing shipping links between the two countries, was commended by the Australian shipping industry.

Wide distribution of the Unit's reports enhances Australia's reputation and credentials as a serious economic player with a long-term commitment to East Asia. Sales have averaged more than 100 copies a month. Five reports have each sold more than 1000 copies since publication; and two have sold more than 3000 copies. Copies of the briefing paper The Asia-Australia Nexus: Issues for Business, were distributed to Australian and international participants at NTIOC94.

Findings and recommendations in two reports, India's Economy at the Midnight Hour: Australia's India Strategy, and ASEAN Free Trade Area: Trading Bloc or Building Block, were publicised in a series of business seminars conducted by the Unit in state capitals. In addition, officers of the Unit represented the Department, and on occasion the Government, as speakers at conferences and seminars in Australia and overseas.

Australia's regional trade - North Asia


	EXPORTS			IMPORTS
	$m	Trend Growth		$m	Trend Growth
	1993-94	1994-95	90-91 to	1993-94	1994-95	90-91 to
			94-95			94-95
Japan	15,930.0	16,286.5	3.4	11,700.1	12,779.1	10.1
Korea, Rep.	4,718.0	5,270.5	14.0	1,882.5	2,028.5	15.0
Taiwan	2,756.8	3,098.4	10.5	2,362.2	2,570.1	9.9
Hong Kong	2,797.8	2,626.1	14.2	801.0	923.6	4.6
China	2,590.4	2,957.5	24.0	3,119.7	3,650.8	25.0
Other	7.1	5.2	-41.2	13.1	12.1	-21.7
TOTAL	28,800.1	30,244.2	8.0	19,878.5	21,964.2	12.1

Source: Compiled by the DFAT Statistical Services Section from data supplied by the ABS.

1.2 INTERESTS IN SOUTH AND SOUTH EAST ASIA

Objectives

Inform and advise the Government on the advancement of Australia's political, economic and security interests in South-East Asia and South Asia.
Enhance trade and investment opportunities in countries in these regions through commercial diplomacy, bilateral and regional government-industry forums, and the provision of information and in-country assistance to Australian companies.
Maintain and expand high-level consultations, exchanges and mechanisms for dialogue to promote Australia's interests in the security and economic development of these regions.
Encourage wider adherence by countries in these regions to international human rights standards and democratic principles.
Project an accurate, contemporary image of Australia in these regions and inform debate within Australia in support of Australia's interests there, particularly closer economic integration.

Description

This sub-program is administered by the South and South-East Asia Division. As a result of a major restructure in mid 1994, it comprises three branches - ASEAN Bilateral Branch (ABB), South Asia and Indochina Branch (SIB) and Regional Policies and Projects Branch (RPB). Seventeen DFAT-administered overseas posts are in the Division's area of responsibility.

Performance summary

Australia's links with the region, which is an area of high priority and activity for the Department, continued to diversify and acquire greater substance during the year. The policy of 'comprehensive engagement' pursued since 1989 has had considerable success, and Australia is now in a position to move into a new phase of partnership and integration with the region. This is particularly so as South-East Asia increasingly 'looks south' for goods and services needed at its current stage of economic and social development. Strong interaction with the region warrants consideration of Australia as an integral part of an 'East Asian hemisphere'.

High-profile and contentious issues, notably kidnappings in Cambodia and human rights issues in East Timor, have generated a high level of public interest and required a major commitment of resources.

Priority market access concerns and the implementation of Uruguay Round commitments in the region were pursued, with particular success in Indonesia and Thailand. Market access issues were raised on behalf of Australian companies in meetings between Australian ministers and their counterparts. Positive feedback has been received from the companies concerned, and indications are that successful outcomes are likely in several of the cases raised.

Enhancing trade and investment opportunities was another high-priority area. Ministerial business missions, follow-up to the National Trade and Investment Outlook Conference (NTIOC), joint trade commissions and extensive bilateral dialogue were among the techniques used to achieve this objective. There were some disappointments, including the cancellation of the visit by Thai Prime Minister Chuan, and Senator McMullan had to postpone his planned Business Mission to Pakistan. Progress has, however, been made with many countries in the region as indicated by the overall increase in trade, particularly with ASEAN countries.

The sub-program played a significant role in the success of NTIOC in 1994. Follow-up action ensured that full advantage was taken of the opportunities which arose from the five market focus groups and the Singapore mission. Results from the Thai and Philippine missions were particularly pleasing and the presence of India and Vietnam as market focus countries for the first time was an important achievement.

In a significant step, Indonesia invited Australia to participate in the Biological Diversity Technical Working Group under the auspices of its South China Sea Workshop process.

Human rights issues in the region generated a high level of effort, and produced successes and disappointments. The visit to Vietnam by the Australian Consultative Parliamentary Delegation established a comprehensive dialogue on human rights issues inside its wider focus. On Cambodia, Australia worked in the United Nations Commission of Human Rights (CHR) to achieve a strong resolution through consensus. There was also a growing effort, in response to community interests and concerns, to pursue human rights issues in India, Pakistan and Sri Lanka. Australia made repeated representations for change in Myanmar, but the military regime (SLORC) appeared unwilling to implement reforms and seemed largely impervious to international pressure. A forthcoming policy review will examine options for relations with that country. Human rights problems in Indonesia continued to cause concern for the Australian Government and generated a high level of public interest. The Australian Embassy in Jakarta took up significant human rights issues with the Indonesian Government, including disturbances and detentions in East Timor, media freedom, labour rights and alleged human rights abuses in Irian Jaya.

Important high-level visits made a significant contribution to the projection of a positive image of Australia in the countries of the region. The Indonesian Minister for Research and Technology, Dr B. J. Habibie, developed positive impressions of Australia and its capabilities through his visit, as demonstrated by his comments to the Australian and Indonesian media. He returned to Indonesia with a range of proposals for possible future cooperation. Mr Banharn Silpa-archa, then Thai Leader of the Opposition and a strong contender for Prime Minister, has publicly referred favourably to his visit several times. Visits by key advisers, ministers and business groups from India, Vietnam, Pakistan and Laos have reinforced understanding of Australia's industrial, services and technological capacities in those countries.

Support was given to Market Australia's campaign to present Australia to the region as a sophisticated, internationally competitive economy capable of supplying advanced manufactures, technology and services.

The restructure of the Division, which resulted in the establishment of the new Regional Policies and Projects Branch, enabled the Division to concentrate more resources on the core bilateral relationships and to deal more effectively with a range of additional complex issues of major significance to Australia's long-term interests and standing in the region, notably the proposed Asia-Europe Meeting and Australia's Indian Ocean Initiative.

The Department advised Senator Evans and Senator McMullan in their discussions with Japan, Korea, China and the ASEAN countries aimed at securing a place for Australia at the Asia-Europe meeting scheduled for 1996. Australia's Indian Ocean initiative involved organising a major international forum in Perth, which included sensitive discussions with regional countries on the economic advancement of the region and on the handling of difficult security issues. The Forum advanced the process of developing networks in the Indian Ocean, brought together for the first time participants from a large group of Indian Ocean states and produced significant support for increasing regional cooperation.

1.2.1 Interests in ASEAN

Indonesia

The relationship with Indonesia, which remains central to Australia's foreign policy, became increasingly diverse during the year. It was not without its tensions arising, for example, from Australia's concerns over human rights abuses, particularly in East Timor and Irian Jaya and, in the period after this review, over the issue of General Mantiri's nomination as Ambassador to Australia. Bilateral activity spanned an enormous range of areas, and necessitated effective liaison with federal and state departments and the private sector to project coherent and coordinated foreign and trade policies towards Indonesia. The range of activity taking place and the number of agencies involved makes effective coordination a challenge. Timely and relevant advice and information was provided to the Government on key economic and political developments, and the range of academic contact in these areas was extended.

The Ministerial Forum process continued to provide the two governments with a means to work together to support and promote expanded commercial links. The second Ministerial Forum meeting was held in Canberra in August and brought together 11 Australian and four key Indonesian ministers. It reviewed progress in the economic relationship, set directions for future bilateral activity, led to substantial outcomes on a range of trade and investment issues including improved market access, and gave participants a broader perspective on the diversity of the relationship. Three working groups and a high-level group on minerals and energy resources remain responsible for implementing many of the forum decisions, and they have met independently during the year. In April, DFAT hosted an interdepartmental meeting which endorsed the establishment of a core group of federal departments, state and territory government representatives and the business sector to improve Australian coordination of forum-related activities. The first meeting of the group was held in August.

Bilateral commercial links were pursued through follow-up to the successful Australia Today Indonesia '94 (ATI) promotion and the National Trade and Investment Outlook Conference (NTIOC94) and the launch of the 'Inventive Australia' campaign in Indonesia to improve perceptions of Australia's capabilities in high value-added goods and services. These vehicles have raised awareness in Indonesia of Australia's commercial and technological strengths and in Australia about business opportunities in Indonesia. They have also encouraged Australian businesses to diversify their activities in Indonesia, including exports of higher-value-added products and manufactures.

Specific issues of concern, including market access issues, were raised several times. Bilateral representations were made to the Indonesian Government in support of multilateral objectives relating to APEC, AFTA/CER and the World Trade Organisation (WTO)/Uruguay Round. Insti-tutional and industry body links between Australia and Indonesia were strengthened, including the development of Memoranda of Understanding (MOUs). Overall, bilateral trade diver-sified and expanded steadily throughout the year, with exports up 10% to $2.1 billion and imports by 8.3% to $1.2 billion. However there is scope for the Department to do more, including involving the private sector more closely in the Ministerial Forum process.

The bilateral relationship was again characterised by frequent high-level visits in both directions, including the Prime Minister paying his fourth visit to Indonesia in November 1994 to attend the APEC Leaders' Meeting in Bogor, the Governor-General's State Visit to Indonesia in May 1995, three visits by Senator Evans and three by Senator McMullan. Visits to Australia by Indonesian Ministers included Vice President Try Sutrisno; the Minister for Education and Culture, Wardiman Djojonegoro; Minister for Tourism, Posts and Telecommunications, Joop Ave; and the Minister for Research and Technology, Dr B. J. Habibie.

The Australian Government raised its concerns with the Indonesian Government over human rights abuses on numerous occasions, particularly in relation to East Timor (about disturbances at the end of 1994 and early 1995 and the Liquica killings) and Irian Jaya. The Australian Government also raised labour issues, including the arrest of independent trade unionist Muchtar Pakpahan and the possibility of regulating Indonesian NGOs. Despite improvements, including the performance of the new Human Rights Commission, Indonesia's record in the human rights area remains below international standards and the Department will continue to express its concern about human rights abuses in Indonesia and the importance of human rights issues to the bilateral relationship. The Department responded to 1700 items of correspondence expressing concerns within the Australian community about the human rights situation in Indonesia.

The Department worked closely with the Department of Defence to ensure that the defence relationship developed within the parameters of broader foreign policy objectives. The defence relationship was increasingly confident and included joint exercises, increased officer exchanges between Australian and Indonesian armed forces and the training of 138 ABRI personnel in Australia. The Defence and Security Minister, General Sudradjat, visited Australia in September 1994 as a member of Vice President Sutrisno's delegation and Senator Ray visited Indonesia in July-August.

Brunei Darussalam

Brunei's importance to Australia increased significantly over the past 12 months as it became the chair of ASEAN and Australia's consultative partner in the organisation, and was reflected in the visit to Australia by the Permanent Secretary of the Brunei Ministry of Foreign Affairs, Dato' Lim Jock Seng, and the Sultan's sister, Her Royal Highness Princess Hajjah Masna, for discussions on security and other regional issues. DFAT Secretary Costello visited Brunei in January, and Senator Evans visited in February.

The Department sought to engage Brunei on a wide range of regional and international issues. Brunei provided useful insights into ASEAN processes and provided concrete support on issues such as Asia Pacific Economic Cooperation, ASEAN Free Trade Area/Closer Economic Relations and Brunei, Indonesia, Malaysia and the Philippines-East ASEAN Growth Area. During Senator Evans's visit in February, Brunei agreed to support Australia's candidacy for election to the United Nations Security Council for 1997-98.

The promotion of trade and investment with Brunei had a positive impact. The number of Bruneian students undertaking tertiary courses in Australia grew by 106 to reach 460. In January 1995, a contract was concluded between the Bruneian Government and an Australian partnership for the supply of Australian halal meat. An increase in car import duties in Brunei of up to 200% had, however, adverse implications for a small but growing market for Australian manufacturers. The Department made representations opposing these increases.

Defence relations continued to be strengthened, with an increased level of military exercises and exchanges taking place. These complemented sustained efforts by the Department and the post to ensure that Australian tenderers remain well placed to win valuable contracts for three Bruneian offshore patrol vessels and an upgrade of the naval base.

Singapore

Over 1994-95 the bilateral relationship between Australia and Singapore developed into a broader partnership, flowing from similar approaches to regional and multilateral issues, underpinned by strong defence and economic links. The bilateral agenda was driven particularly by initiatives promulgated jointly by Prime Ministers Keating and Goh Chok Tong.

The two Prime Ministers met twice during this period, first in Australia in September and then in Singapore in March. At the first meeting, they agreed to establish a special Singapore-Australia Business Alliance Forum (SABAF) and a dedicated $2 million Joint Feasibility Fund, to be launched in August 1995, to enable Australian and Singaporean businesses to forge strategic alliances in third country markets. At the March meeting, Prime Minister Goh suggested a comprehensive look at the bilateral relationship. A high-level inter-departmental committee of senior Australian and Singaporean officials will meet during the second half of 1995 to produce a blueprint to be proposed to the Prime Ministers as guidance for the future direction of the bilateral relationship.

Visits by the Governor-General, Mr Bill Hayden, the Minister for Trade, Senator McMullan, Singapore's Minister for Defence, Dr Lee Boon Yang, and the Permanent Secretary, Singapore Ministry of Foreign Affairs, Mr Kishore Mahbubani, strengthened an already close pattern of consultations with Singapore and led to agreement to work more closely in advancing joint interests in key areas such as Asia Pacific Economic Cooperation, closer links between the ASEAN Free Trade Area and the Australia-New Zealand Closer Economic Relations agreement and the ASEAN Regional Forum.

Two-way trade between Australia and Singapore in 1994-95 amounted to $5.9 billion, an increase of 17.9% over 1993-94.

Defence cooperation continued to expand. The Department supported arrangements for the opening of the Republic of Singapore Air Force (RSAF) Flying Training School at Pearce, Western Australia, and longer-term RSAF access to Australian Defence Force training areas.

Malaysia

After the bilateral controversy of November-December 1993, there were several indications that the relationship was firmly back on track. Dr Mahathir opened a Sydney University-linked tertiary college in July and launched the Malaysia Australia Foundation (MAF) to foster people-to-people links in September. Dr Mahathir and Prime Minister Keating had a productive meeting in Jakarta in November at the time of the APEC Summit.

Australian ministerial and official visits to Malaysia included Senator Evans, Senator Ray, Secretary Costello, and Mr Dawkins as Special Investment Representative. From Malaysia, there were visits by the Human Resources Minister, Datuk Lim Ahlek, the then Defence Minister,Dato Seri Mohd Najib, and the Government Economic Adviser, Tun Daim Zainuddin, at the invitation of Prime Minister Keating.

The Department played a key role in facilitating these visits, and the post provided strong support for the launch of the MAF. Another important initiative in promoting people-to-people contact was the post's establishment of an alumni data base, which is the first step in formalising a network of more than 120 000 Malaysians who have been educated in Australia.

The Department made a concerted effort to improve and reinforce commercial cooperation during the year. There was a range of important commercial opportunities which the Department has been closely involved in pursuing, ranging from defence-related contracts in Malaysia to projects in third-country markets. The visit by the Government Economic Adviser, Tun Daim, and a high-level business-military delegation provided a focus for consideration of such issues. The Joint Trade Committee meeting in April provided an opportunity for officials and private sector representatives to address regional and multilateral trade policy issues, market access issues and mutual promotion of investment opportunities, and to begin negotiations on revising the bilateral trade agreement. At NTIOC94, Malaysia was a market focus country for the second consecutive year.

The Department engaged the Malaysian Government in dialogue on a wide range of regional and international economic and political issues, with mixed results. Malaysia now favours the development of links between the ASEAN Free Trade Area and the Australia-New Zealand Closer Economic Relationship and having the Northern Territory linked with the Brunei-Indonesia-Malaysia-Philippines-East ASEAN Growth Area (BIMP-EAGA).Australia has secured considerable cooperation on regional security issues, notably in the context of the ASEAN Regional Forum, though Malaysia remains wary about Australia moving too quickly. Malaysia has played a more constructive role in APEC but remains one of its most cautious members.

The continued diversification of the relationship was reflected in the Department's decision to establish new honorary consuls in Penang and Kota Kinabalu. Defence cooperation was maintained at a high level under the Malaysia-Australia Joint Defence Program, the largest of its kind with an ASEAN country, and through the Five Power Defence Arrangements.

Philippines

The bilateral relationship with the Philippines continued to expand and develop, reflecting the new era of political stability and economic growth under the Ramos Administration. Expanding trade and investment was a priority, but the changed relationship between the Philippines and the US and its increasing focus on the Asia Pacific region also placed emphasis on enhancing cooperation on a range of regional economic and security issues. The visit to Australia of President Fidel Ramos in August 1995, the first state visit by a Philippine President, is a clear sign of the maturing bilateral relationship.

A particular highlight was the participation of the Philippines as a market focus country at NTIOC94. The Philippine delegation was led by the Secretary for Trade and Industry, Rizalino Navarro, and comprised a former Secretary for Energy, an Under-Secretary and eight leading Philippine business people. Washington Sycip, a prominent Philippine businessman, was a keynote speaker. Delegations of Australian business people travelled to the Philippines after NTIOC to examine opportunities in the infrastructure and energy sectors.

Another important step towards expanding bilateral trade and investment was the Investment Promotion and Protection Agreement (IPPA) signed in Manila in January, providing investors with a range of guarantees relating to non-commercial risks.

Two-way trade during 1994-95 increased by 23.7% to $1.1 billion. Australian exports to the Philippines totalled $838 million, an increase of 20%, and consisted predominantly of dairy produce, metals, live cattle and cereals. While the balance of trade continued to be in Australia's favour, imports from the Philippines showed an increase of 37.6% to reach $259 million, consisting mainly of electrical equipment, copper, furniture and textiles. Australian investment in the Philippines was steady at $135 million at 30 June.

Trading achievements during the year included the granting of a foreign banking licence to the ANZ and the granting of the first two Financial and Technical Assistance Agreements in the mining sector to two Australian companies, Arimco and Western Mining. Agreement was also reached on the establishment of a joint Philippine-Australian Working Group on Meat, Dairy and Livestock in addition to the established Working Group on Energy. Trade inquiries from Australian companies increased by 30%. On the negative side, Australian agricultural trade continued to be complicated by several quarantine issues, while the Philippine plan for a shift in customs valuations from Home Consumption Value (HCV) to our preferred Transactions Value (TV) system is yet to be implemented.

In May, Australia hosted the fifth round of Australia-Philippines Senior Officials' Talks, which provided an opportunity to discuss shared regional interests, including ASEAN issues and APEC, as well as the bilateral relationship. The talks were also timed to allow discussion of the full range of issues which might arise during the visit of President Ramos.

Of the new regional growth areas, the one of greatest interest to Australia is the Brunei-Indonesia-Malaysia-Philippines-East ASEAN Growth Area (BIMP-EAGA). Among the high-level visitors from Australia to the Philippines was the then Northern Territory Minister for Asian Relations and Trade and now Chief Minister, Shane Stone, who attended the East ASEAN Business Convention held in Davao in November at which BIMP-EAGA member countries welcomed future Australian, specifically Northern Territorian, participation. Though the Northern Territory will not be a member of BIMP-EAGA, it will have a special relationship with it. As a result, an MOU setting out principles of trade enhancement between the Philippines and the Northern Territory is likely to be finalised by the end of the 1995 calendar year. Other significant Australian visitors to the Philippines included the Deputy Prime Minister, Brian Howe; the Minister for Defence, Robert Ray; Senator McMullan; and an Australian Parliamentary delegation led by Martyn Evans MP.

Defence relations focused on training, attachments and visits, with particular emphasis on enhancing the Philippines' capability for external defence. Australia was the largest single provider of training to the Armed Forces of the Philippines (AFP); 114 Filipino military trainees studied in Australia during 1994-95. Training was also conducted in the Philippines and among the successful courses was counter-hijack training which took place in November. In May, the AFP's Deputy-Chief for Education and Training visited Australia to discuss training opportunities. Expenditure on defence cooperation was slightly more than $3 million.

Myanmar

Australia maintained correct but limited diplomatic relations with Yangon and continued to play a prominent role in international and regional efforts to press the Myanmar State Law and Order Restoration Council (SLORC), the country's ruling body, to implement political reforms and adhere to universally accepted standards of human rights.

The fundamentals of Australia's approach to Myanmar remained unchanged. Australia co-sponsored United Nations consensus resolutions calling for political and human rights reform, and continued to use its best endeavours to restrict the assistance programs of UN organisations in Myanmar to grass roots activities. Bilateral development assistance remained suspended in the absence of substantial progress in political and human rights, and a ban on defence exports to Myanmar and the suspension of defence visits from Australia remained in place. There were intermittent signs that this approach had some effect, with indications that the SLORC was making some concessions and seeking to explain its position to the international community. Australia maintained a vigorous dialogue with the Myanmar authorities through our Embassy in Yangon. In addition, Senator Evans was able to convey Australia's policy directly to his counterpart, the Myanmar Foreign Minister, U Ohn Gyaw.

Australia continued to encourage ASEAN countries to apply greater direct influence to encourage positive movement in Myanmar. At the ASEAN PMC in Bangkok in July, there was widespread support for the view that dialogue had an important role to play in encouraging positive change. Several benchmarks were identified as providing a useful means of measuring progress, and there was support for the proposition that concessions to the Government of Myanmar should be matched to progress against the following benchmarks: the unconditional release of Aung San Suu Kyi, who was released in the period after this review; the start of a serious dialogue between the SLORC and Aung San Suu Kyi about the political and constitutional evolution of the country; access to political prisoners by the International Committee of the Red Cross, UN Special Rapporteur and other outsiders; a review and reduction of sentences imposed for political activity; significant progress in the proposed dialogue between the SLORC and the UN; a clear timetable for the constitutional process with delegates able to participate more freely; agreement by the SLORC to the inclusion of transitional provisions in the new constitution permitting further constitutional development; the provision of legal guarantees for the rights of the ethnic minorities; the cessation of forced labour and porterage beyond what are traditional practices; and the repeal of censorship and state protection legislation.

There were positive developments in the latter part of 1994, but the military activity in December and January which led to the fall of Manerplaw, the headquarters of the Karen National Union, caused a considerable setback. On the fall of Manerplaw, Senator Evans issued a statement in which he expressed the Australian Government's deep concern and urged all parties to engage in a process of national reconciliation through dialogue rather than through military activity.

Other developments included an increase in the amount of humanitarian assistance delivered through NGOs to a total of $3.4 million in 1994-95 (including assistance to Karen who sought refuge in Thailand from the fighting in December and January), and limited cooperation on narcotics issues (including the provision of training in anti-narcotics measures to Myanmar officials).

Thailand

The past year was an eventful one in Thai politics, with three major cabinet reshuffles and a series of ministerial resignations. The year culminated in the calling of a general election after the withdrawal of one party from the governing coalition. Despite the many political changes, Australia's relations with Thailand continued to develop robustly. Trade, the cornerstone of the relationship, boomed. Allegations in Australia of continued links between individual Thais and the Khmer Rouge caused strains, but the sound foundations of the Australia-Thailand relationship enabled both parties to put this matter behind them.

Ministerial exchanges accelerated, and included visits to Thailand by Senator Evans, Senator McMullan, Mr Bilney and Mr Crean and visits to Australia by Deputy Prime Minister Supachai, Foreign Minister Prasong, Commerce Minister Uthai and the then-Leader of the Opposition, Mr Banharn Silpa-archa.

With total trade valued at $2.5 billion, Thailand ranked 15th among Australia's trading partners in 1994-95, up from 17th in 1993-94. This ranking reflected rapid growth in Australia's exports to Thailand (up 21.8% on the previous year to $1.6 billion in 1994-95) and imports (up 22.1% to $1.0 billion).

The share of manufactures in Australia's export mix to Thailand has increased in recent years, with elaborately transformed manufactures constituting about $503 million in 1994-95, followed by primary products ($367 million) and simply transformed manufactures ($390 million).

Investment flows remain disappointing, with Thailand ranked 18th as a destination ($418 million, or 0.3%, of Australia's overseas investment) at 30 June. A recent survey, however, conducted by the Australian Embassy and the Australian Thai Chamber of Commerce reveals a positive attitude to investment in Thailand by Australian companies. In light of its rapid economic growth and attractive business environment, Thailand was again a focus country at NTIOC94 and is one of four focus markets in the Market Australia campaign.

Meetings of the Joint Technical Working Group on Quarantine and Food Inspection and the Joint Trade Committee in August produced advances towards solving several economic issues. Issues relating to tapioca and sweetened condensed milk have subsequently been resolved, and settlement of a Specific Commodity Understanding for the import of Australian citrus into Thailand should be achieved during 1995. Agreement has been reached with Thailand to establish a structured program of cooperation on intellectual property. An Industrial Property Agreement and a Memorandum of Understanding on Cooperation in Intellectual Property are expected to be signed soon. Thailand has also indicated that regulations are being prepared which would give Qantas a zero rating under its VAT regime. Unfortunately, Australia's long-standing major market access concern about the prohibitive tariff imposed on ready-to-eat breakfast cereals remains unresolved. There is also difficulty in encouraging Thailand to participate in a new round of discussions on civil aviation issues.

On APEC, Australia has sought to reassure Thailand - which has taken a cautious approach to suggestions for implementing outcomes of the Bogor meeting - that the liberalisation process Australia is suggesting will not confront its most sensitive sectors from the outset. Australia has emphasised the importance of concrete progress being made in APEC and the overall benefit trade and investment liberalisation will have on the Thai economy. Australia has also gained the support of Thailand to move forward the concept of AFTA-CER links.

1.2.2 Interests in South Asia and Indochina

Vietnam

Despite the increased profile of Vietnam's other regional relationships, in particular with the ASEAN nations and major investors such as Taiwan and South Korea, Australia maintained its position as an established and long-term political and economic partner and consolidated and expanded relations across a range of issues. Dialogues on strategic, security and human rights matters were added to a bilateral relationship hitherto dominated by aid and trade.

Australia took every opportunity during the year to encourage Vietnam's accession to ASEAN and the normalisation of diplomatic relations with the United States. The achievement of these goals in 1995 will foreshadow a major change to Vietnam's regional strategic status and will allow Vietnam to pursue more comprehensive engagement in regional affairs.

Vietnam continued to achieve significant progress in its political and economic engagement with the region, including participation in the ASEAN Regional Forum in Bangkok in July, its first official presence at a regional security meeting. This was followed by attendance at a Trust Building Measures Seminar held in Canberra in November.

There were significant visits in both directions. Mr Bill Hayden made the first visit to Vietnam by an Australian Governor-General and the Minister for Small Business, Customs and Construction, Senator Schacht, led a construction mission. From Vietnam, Foreign Minister Nguyen Manh Cam; Labour, Invalids and Social Affairs Minister Tran Dinh Hoan; and Education and Training Minister Tran Hong Quan visited Australia during the year.

In November, Australia opened a Consulate General in Ho Chi Minh City, reflecting the rapid expansion of the Australian business presence in Vietnam. The Consulate now has fully operational consular, immigration, trade and bilateral assistance programs in the south of Vietnam. The Australian Embassy in Hanoi gained an Education Counsellor, a second Trade Commissioner and additional development assistance staff during the year, in response to the increasing breadth and depth of its relations.

Australia continued to develop its human rights dialogue with Vietnam, notably through the visit by the Australian Parliamentary Consultative Delegation (APCD) in April. The inclusion of members of the Vietnamese Australian community enabled them to raise many of their concerns directly with Vietnamese authorities and to gain an objective view of the current situation. The delegation report recommended several measures to improve Australia's capacity to encourage and promote improvements in the structures and systems which affect human rights standards in Vietnam. Australia will increase its already active contribution to the reform of the legal and judicial systems in Vietnam through a 'Cooperating for Justice' package. Australia continued to raise its human rights concerns with the Vietnamese Government through the Australian Embassy in Hanoi. Several prisoners on whose behalf Australia had made representations were released.

The first Senior Officials Talks were held in Hanoi in June, expanding dialogue on regional and multilateral issues, the trade and commercial relationship, consular access and prospects for cooperation on foreign service management issues. Based on the successful inaugural session, it is envisaged that the talks will become an annual event.

Australia's investment in Vietnam continued to grow in an increasingly competitive environment, with projects totalling more than $945 million in a range of industry sectors. However, Australia's ranking as a foreign investor in Vietnam slipped from fourth to sixth, reflecting Vietnam's increasing importance as a regional investment destination for major investors such as Taiwan, Singapore and South Korea. The Department, with Austrade, devoted considerable resources to supporting Australian commercial interests in Vietnam. Vietnam was designated as a Market Focus Group under the Government's National Trade Promotion Scheme and participated in NTIOC94.

Two-way trade continued to grow, reaching $445 million in 1994-95. The major Australian exports were telecommunications equipment, electrical machinery and appliances, wool, cereals and preparations and medicaments. Imports consisted largely of crude petroleum and oil, coffee and substitutes, and seafood.

Australia concluded an Air Services Agreement with Vietnam, opening the way for regular scheduled air services to be introduced in the latter part of 1995.

Laos

Australia has a strongly positive profile in Laos, built up over more than 40 years of diplomatic relations and supplemented by a highly appreciated program of development assistance, best known for the Friendship Bridge over the Mekong. The excellent state of bilateral relations was highlighted by the April visit of the Governor-General.

Australian commercial involvement has grown over recent years in market sectors where Lao development priorities and Australian commercial and technical expertise complement each other. Several of Australia's biggest companies are active in Laos, including Transfield, John Holland, Thiess, Maunsell, Snowy Mountains Engineering Corporation, the Hydroelectric Corporation of Tasmania, Normandy Poseidon, CRA, Western Mining Corporation and Telstra.

Australia maintains excellent access to Lao decision-makers. The visit to Australia by the Lao Vice Minister for Industry under the Department's Special

About the Department of Foreign Affairs and Trade

Travel

Annual Report 1994-95

PROGRAMS

PROGRAM 1: INTERNATIONAL RELATIONS, TRADE AND BUSINESS LIAISON

1.1 INTERESTS IN NORTH ASIA

1.2 INTERESTS IN SOUTH AND SOUTH EAST ASIA