Closing Speech at the Australia-China FTA Conference - Future Directions

Speech by DFAT Secretary, Dr Ashton Calvert AC

Sydney, August 2004

Introduction

Thank you Alan

Yesterday in my opening remarks to the conference I said that I looked forward to our discussions providing further insight into the range of issues covered in the FTA study.

From my perspective we have more than achieved this.

Each of the sessions has provided many important insights.

We have been able to give consideration to the broader economic and political significance of a possible FTA, as well as discuss in detail many of the specific opportunities and challenges a possible FTA would present for Australia and China.

I must say too that the high level of interest - over two hundred participants - has been very gratifying.

It is a clear indication that the FTA study - and the broader question of an FTA with China - is being given serious consideration by business and the wider community.

A number of participants have remarked that this conference has been very well timed.

The interest and focus we have brought to the subject shows clearly, I think, how topical the question of a possible FTA has become for Australia and China.

Rationale for a possible FTA

Perhaps the most important message I have taken from the conference's deliberations is that the main motivation for concluding an FTA between Australia and China has to rest on the judgment that such an agreement will bring clear-cut trade and economic benefits to both sides.

Obviously there are other significant benefits that might derive from an FTA, and I will touch on them in a moment.

But, first and foremost, the feasibility study has to establish a clear trade and economic rationale for an FTA.

That central judgment about the likely trade and economic benefits of an agreement should remain the primary focus of the Australian government's consultations with the private sector.

The overall thrust of discussion at the conference seems to indicate strong arguments in favour of an FTA and support from a number of key sectors, but also some significant reservations and misgivings that we all have to take seriously. There is clearly more work to be done.

Going on from the direct trade and economic benefits, some speakers at the conference have explained that an FTA would be an obvious political sign of the strength of Australia and China's relationship.

It would also serve to develop China and Australia's shared interest in developing pan-regional infrastructure, intra-regional trade and a prosperous, peaceful and stable Asia-Pacific region.

In short, an FTA could become the means of strategically positioning our relationship for the long term, providing a formal arrangement between our two governments which would foster the growth of a wide-ranging and mature relationship for the future.

It would also add to Australia's voice in China's policy development, while preserving our competitive position as others strike their own FTAs with China.

Dynamism and Opportunity

Another strong theme emerging through our discussions was that China has an increasingly important position and role in global affairs, a diversity of commercial capacities and interests, and seemingly unstoppable dynamism.

As we have heard from several speakers, China's rapid economic and industrial expansion has also irreversibly altered international trade, investment and production patterns at the global and regional level.

We have also had the opportunity to hear first-hand examples of how this growth has affected specific sectors and specific Australian companies.

It is clear that there is much strong opinion on the importance of these developments for Australia's national interests.

Alongside its growing external influence, China's changing economy has influenced important aspects of community and society within China.

Urbanisation is occurring at a rapid rate - we have heard that ten million Chinese people are migrating from rural to urban areas each year. This is driving a construction and infrastructure boom, which is reliant on imports of materials and resources.

Increasing disposable incomes are giving China's population unprecedented access to consumer goods and professional services. Several speakers have noted that Australia is well-placed to supply ETMs and services into the rapidly growing consumer and business markets.

Prospects and Challenges

As I've already said, for both Australia and China, an FTA would need to balance the wealth of opportunity across our specific economic, trade and investment interests with a realistic approach to potential challenges.

Australia's mining and energy sector already has substantial and rapidly expanding trade and investment interests with China.

Future prospects for trade in this sector are obviously very positive. While minerals and energy companies do not face serious obstacles in the Chinese market, they seem to support an FTA for more general reasons.

Speakers have also noted how an FTA could improve investment conditions and help facilitate further involvement of Australian business in the Chinese market.

While some Australian companies have been successful in expanding their operations in the Chinese market, there remain a number of issues which restrict the capacity of foreign companies to operate freely.

These issues include standards, the legal and regulatory framework, foreign investment protocols and property rights.

Our discussions here reinforced the importance of these issues for Australian industry, and have highlighted the need to factor them into our work ahead.

China's economy and trading system have unique features that reflect its past and its level of development.

These differences - real and important as they are - are issues for the negotiations themselves, and not reasons for standing back from China.

Agriculture is an important sector for both our countries and one which we see as crucial to our FTA agenda. With Australia's comparative advantage in broadacre production, speakers have suggested that there is significant potential for Australian grain and wool producers to expand their exports.

As speakers have reflected, an FTA would provide an appropriate means to address tariffs, quotas and other barriers.

There has been much discussion on the need to reduce quotas so that buyers and sellers can work together for the best outcomes.

We have also heard the wool industry's concerns about the differential between raw wool and processed wool tariffs and the impact these differential have in the very competitive fibres market.

Competition is particularly strong in the manufacturing sector, and for the foreseeable future, Australian manufacturers will continue to face strong competition from China and other related countries.

During the course of this conference, Australian manufacturers have stated their intention to continue to take measures to increase their involvement in the lucrative Chinese manufacturing sector.

As Heather Ridout has explained, the Australian manufacturing industry is already highly integrated with China. My view is that we must not look to increase protection of our industry, but instead find ways to increase further our levels of integration in the Chinese market.

The Chinese economy holds enormous prospect for Australian service providers in the fields of education, legal, insurance, banking, tourism and telecommunications, construction and logistics. With 10 per cent of the Chinese population now estimated to be entering the “middle class”, demand for professional services is expected to grow rapidly.

China is already our largest market for education services - but the potential remains enormous as the economy and incomes continue to grow.

I think the conference has also very helpfully considered the question of China's Market Economy Status, in particular clarifying that by Market Economy Status we do not mean to claim that China is a market economy per se.

According to China Market Economy Status would be for the precise purposes of anti-dumping only and would make Australia and China co-equals in the event that we negotiate an FTA.

Fundamental to any future decision on MES would be Australia's right to protect the legitimate interests of Australian industry.

Regardless of China's status for anti-dumping purposes under Australia's domestic legislation, Australia will maintain, through our WTO rights, an effective anti-dumping system to ensure that industry is not forced to compete with unfairly priced imports.

In conclusion

This conference has provided an excellent opportunity for the business community, government and other interested parties to hold open and robust discussions on the full range of important issues currently being considered in the context of the FTA study.

The discussions have been invaluable and will greatly assist us advance the study process.

We remain committed to strongly engage with business and all stakeholders, and look forward to continued close cooperation ahead of the study's completion in the first half of next year.

I would like to thank those who have taken time to submit detailed and thoughtful submissions.

I would also like to once again invite - indeed urge - others in the business community to make submissions.

In conclusion, let me say we are gratified by the high-level of interest shown in the conference and the quality contributions all participants have brought to the proceedings.

It is also through the generosity of the business community that we have been able to hold this excellent conference.

Sincere thanks to all our sponsors for their generous contributions.

Thank you to our Chinese guests, including Mr Long Yongtu, a long time friend of Australia, and Ambassador Fu Ying.

And finally, many thanks to Alan Oxley and his colleagues at the APEC Studies Centre for their ongoing commitment to quality public debate on important foreign and trade policy issues such as this.

Thank you