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Speech to the Committee for Economic Development of Australia

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Speaker: Mr Peter Varghese, Secretary of the Department of Foreign Affairs and Trade


Can I thank you all for coming here this afternoon. It's obviously a very quiet day in Perth to see so many people here. And may I particularly acknowledge CEDA for the invitation they extended to me to speak today. And thank you to CEDA for the extraordinary work that it does across Australia in promoting a considered discussion of issues of high public policy importance. So I think they do a great deal of work.

I'm delighted to be back in Perth. I don't think anyone who has a serious interest in foreign affairs and trade can be anything other than focussed on Western Australia, not only because of the contribution that this state's economy makes to our trade profile but also I think the influence it's had over many years in focussing the attention of Canberra policy-makers more towards the Indian Ocean. And I'll talk a little bit about that in a moment. I want to spend a few minutes just talking about what my priorities on the policy agenda are as Secretary and then perhaps also to touch on a few issues that may be of particular relevance to Western Australia.

When I took up this job in December last year I said to my colleagues in the Department that one way of thinking about our policy agenda priorities, was to use a formulation that I labelled "six plus two plus N" and I want to take you through that. It's a faux mathematical formula that gives a much greater degree of precision to what I have to say than a narrative. But it kind of makes sense I think.

The "six" is the six key relationships for Australia. That is, the six relationships which will most shape our external environment as well as the six relationships which most directly engage our medium- and long-term policy and national interests. And they are the United States, China, Japan, Indonesia, India and South Korea. And let me talk a little bit about each in turn. The United States obviously doesn't require much explanation as to why it matters to Australia. It has been our primary security partner now since the early 1950s when we concluded the ANZUS Treaty. The United States' position as the global pre-eminent power for all of the post-war period really created the space under which the Asian economic miracle occurred.

If it wasn't for the strategic stability that the US underpinned in Asia, it would be very difficult to conceive of the environment which led to the Asian growth story. And it's become fashionable of late to talk of the United States as a country in decline. My view is that it never pays to dismiss the regenerative history of the United States, the ability of that society to bounce back and reinvent itself. But clearly we are heading into a world where the margin of US influence is going to be less than it has been for the last seven decades.

We're also heading into a world where the poles of power are going to be more dispersed and where the capacity of a single country or even a single region to dominate the agenda is going to be severely constrained. But that said, I think the United States is likely to remain the world's strongest military power for several decades to come and it's also likely to go through a period of significant economic renewal. And you only have to look at the way in which the shale gas sector is transforming the competitive edge of the United States to get a glimpse of the capacity of the US economy to change and reform. I think the United States has some very, very big challenges in terms of its political system and an element of political dysfunction at times in the way in which its system operates. But I think it would be a mistake of historical proportions to see the future of the United States as a future of decline.

China's importance obviously needs no explanation to an audience in Western Australia. China's economic growth has been probably the single most transformative development in our region of the last several decades. And we're seeing now in Asia the rise and strength of a clutch of Asian countries that are simultaneously strong and it's been a long time historically since we last saw that. In many ways, Asia is returning to the position it had in the 1800s when it accounted for half of global GDP and half of global population. And I think if you believe in projections – and you should always take projections with a grain of salt – the trend lines here are reasonably clear. We will see that position re-emerge over the next couple of decades.

China is going through a period of profound transition and it will test the capacity of China's leaders which up to now have demonstrated a very high level of skill in managing the challenges of running a country of the size and complexity of China. But it is shifting from an economic model which is export-led to an economic model which is going to place a much greater emphasis on consumption. That's going to have implications for China's demand for various goods and services. I think it's unlikely to have a substantial adverse impact on the underlying trend towards urbanisation in China and that trend is very important for Australia's future because off the back of urbanisation, you have continuing high levels of demand for our resources sector but you also have opening new demand for our services sector.

But if China navigates its way through a different economic landscape, it is also having to come to grips with its domestic priorities, its domestic challenges, the challenges of maintaining political stability in a country which has had a long history of instability and also the challenges of managing an open or an economy which is becoming more open, while still hanging on to what I think the Chinese leadership still sees as the prerequisite of future stability which is the monopoly of political authority in the hands of the Chinese Communist Party.

These are big and difficult and complicated things to juggle. And all of us who wish China well and all of us who benefit from a prosperous China and all of us who want a stable China into the future, very much hope that the leadership will be able to deal with it effectively.

Japan has been part of Australia's growth story, part of Australia's export story, for a very long time. It is still a country that matters hugely to Australia. It matters to us not just as an economic partner but it matters to us also as a strategic partner. We have become accustomed over the last two decades to see Japanese growth at very low levels. I think there're now some signs that the Japanese economy is moving in a more positive direction. The Abe Government has certainly put in place a very ambitious set of policies both across economics and geo-politics which is designed to lift Japan above the levels where it's been for the last two decades. There are a lot of positive elements in what's happening domestically in Japan and I think it's also going to have implications for the way in which the bilateral relationship tracks and I'll come back to that in the context of our trade negotiations with Japan.

Indonesia has been in some sense the unsung success of our near neighbourhood over the last couple of decades. When one looked at Indonesia in the late '90s as it was beginning its post-Suharto period, there were many in Australia, many in the Australian Government, who worried about the capacity of Indonesia to hold together, and the capacity of Indonesia to deal with the challenges it then faced.

I think the fact that we have in that period seen not only Indonesia consolidate its democracy, and it is now a very robust democracy, but also manage extraordinary pressures on its economic system through the Asian financial crisis, all the while also putting in place a very significant structural shift on the decentralisation of power in decision making. I think we in Australia should consider ourselves extraordinarily lucky that Indonesia has been able to make that transition in the way that it has, and in the process, continue to grow its economy.

The Indonesian economy is already larger than the Australian economy if you measure it by purchasing power parity, which is probably the best measure for comparative sizes of international economies. And if you rewind to the days when we used to pride ourselves on having an economy that was larger than all of the ASEAN economies put together, and that's certainly what I used to do when I was a speech writer early in my career, to now think that the Indonesian economy in and of itself is larger than the Australian economy is reflective I think of a broader story that is happening in our region.

India is a country which will matter to Australia more, but probably will not reach its full potential until the medium to long term. India's already the world's third largest economy. Even on a no further reforms basis we can expect it to grow at around six per cent, or six per cent plus. And that will be a transformative event for the world's third largest economy to keep growing at that level. I think there's a structural complementarity between the Australian and the Indian economy which is not dissimilar, it's not identical, but it's not dissimilar to the structural complementarity that we've seen between Australia and the large North East Asian economies. That is going to create a connection between the two countries which will have a very long way to run.

If you add to that now a convergence of our strategic interests between Australia and India, and what is now a very large people-to-people connection, with India being our largest source of skilled migration, then I think we've got the basis for a very strong partnership with India. It will require us to have the patience that India always demands, and to recognise that there are constraints on India's own capacity to grow and to manage the challenges of being a major power.

South Korea was a country that we singled out in the Asian Century White Paper as one of the five most important Asian relationships for us, and I think South Korea is one of those relationships which hasn't attracted a huge amount of public attention in Australia but whose substance has increased over time very, very significantly. We are now very like-minded middle powers, we are finding a lot more that we can do with each other multilaterally. We have a bilateral relationship which is following a very familiar pattern which is starting off strong on the economic trade front, and then broadening out into a genuinely strategic partnership. So that's the relationship that is going to matter a great deal to us.

So that's the "six". The "plus two" was a comment on the two multilateral institutions which in my view are still at their most formative stage, but which have the potential at least to serve very important Australian interests. They are the East Asian Summit in our region, and the G20 globally.

The East Asia Summit is important to us for this reason: we are going through a period of profound strategic transition in Asia. Profound strategic transition which is triggered by the shift in economic weight as countries like China, and India, and Indonesia, Korea, Vietnam become more prominent international actors. Now, if we are to manage this period of transition in Asia, and if we are to emerge from it with an Asian environment which is strategically stable and economically open, it is going to require us to build strong institutions within the region which can promote those two objectives of strategic stability and economic opening.

Now the big strategic questions in Asia will ultimately be shaped by the way in which the major powers behave, and the relationship that the major powers have with each other, particularly the relationship amongst the United States, China, India, and Japan. And even more particularly within that cluster, the way in which the United States and China manage their relationship.

But what regional institutions can do is to assist at the margin to ensure that there is, at least, a culture in the region for constructive dialogue amongst all of the key players. To try and ensure to the extent that we can that the assumptions upon which we build relationships in the region will be a respect for international order, a willingness to work within institutions, a strategic culture which puts a premium on the peaceful resolution of dispute, and a strategic environment which recognises that if we want to achieve our goals of economic prosperity, we need to have a baseline of strategic stability, because without that we will not be able to do what we want to do economically.

So for that reason the East Asia Summit is very important. It brings together all of the right countries, it has the right mandate to pursue economic and security issues. So in other words, we've got the right vehicle with the East Asian Summit, but we have a lot of work to do to build in the sort of navigation system which will get us where we want to get over the long term in Asia.

The G20 is important because it puts Australia at the high table for global economic and financial cooperation. And it's very important that the G20 anchors itself as an institution which is up to dealing with the big challenges of the global economy. I think the G20 performed extraordinarily well during the time of the global financial crisis and immediately afterwards, I think it still has to define a continuing role in the post-crisis period and it's very important that it does.

It's particularly important that it does because I think multilateralism more generally is under a huge amount of strain. Wherever you look globally, whether it's the Doha Round for trade liberalisation, whether it's climate negotiations, it is very difficult these days to find an example of a successful global multilateral negotiation. The G20 has the right balance between size and weight. In other words, it's small enough to be able to come to decisions, and it is weighty enough to ensure that decisions that it comes to are actually followed through. The G20 can potentially play a huge role in terms of revamping the architecture of global cooperation, which we have to admit is sorely in need of refurbishment. I mean, we are essentially living with the institutions that were created for the world of the 1940s, and if we want to see those institutions rise to the challenge of this century, we will need to adapt them and to change them in a way which is reflective not just of the current distribution of power in the world as opposed to the 1940s, but reflective also of the future distribution of power.

The "N" in my formula was neighbourhood and if you don't get your neighbourhood right in foreign policy, you get nothing right. You fall at the first hurdle. So for Australia it is very important that we do what we need to do in our immediate neighbourhood, and particularly in the South Pacific. It's important that we have a relationship with Papua New Guinea for example which is not only a constructive relationship but which is one which can be a partnership for dealing with the enormous challenges that a country like PNG has.

It's important that we work, for example, on the restoration of democracy in Fiji, because the overturning of democracy in Fiji was a retrograde step for the region, and it's in the interest I think of Fiji and Fijians to return to the path of democracy.

It's important that we find innovative ways of responding to the economic challenges of micro states, in particular that we find ways better to integrate the small island economies with the Australian economy. Whether that's through more open access to the labour market, as we're beginning to do with some targeted programs, or in other ways, because the long term viability of many of these countries will be greatly assisted by their integration into the Australian economy.

So these are all very big challenges in the South Pacific and we need to work closely with New Zealand in particular to deal with them.

Let me now just turn to a couple of things which I think would be of particular interest to Western Australia. The first is energy security. There is no more important an issue for the emerging Asian economies, particularly for China and India, than energy security. And so we need to do what we can to embed the prospects of genuine energy security into the future to give countries the confidence that their economic growth and all that depends on it, including the reduction of poverty, will not be impeded by a lack of access to energy.

So that means a global market in energy, which runs more along open market lines. It means increasing the supply of energy, and it means ensuring that sea lines of communication, which are so fundamental to energy trade, remain open. These are all big challenges. The G20, I think, can play some role in helping to advance them and I think it's part of the whole project of reforming international institutions. I think there's scope for us to do much more by way of international institutions dealing with energy, including the International Energy Agency.

Food security, which, like energy, is going to be fundamental in the priorities of the emerging Asian economies. As we see economic growth in Asia, as we see a middle class rising on some estimates to about three and a half billion by 2050, we will also see changes in the eating pattern, as well as in the calorie intake of Asian economies.

And Australia is particularly well positioned to take advantage of that. I think Western Australia is particularly well positioned to take advantage of that. It's very important that we be thinking now, as the Asian Century White Paper foreshadows, about how Australia can best position itself to take advantage of those opportunities in Asia.

I think the whole question of where the Indian Ocean fits into our national strategy and into our broader foreign and strategic policy is going to become more important and no area of Australia will watch that with greater interest, I suspect, than Western Australia.

We are already now conceptualising our strategic environment in terms of the Indo-Pacific rather than the Asia Pacific. And that's not because we think North East Asia and South East Asia or the United States are any less important than they have been for the last many decades, it's because of two things.

One, we need to find a framework which returns India to the strategic matrix of Asia. As India is pulled eastward by its economic interests, it will inevitably become a more significant strategic player in this part of the world. And so when we think about our strategic environment and when we think about our strategic posture and planning, we need to factor that in.

Secondly, the Indo-Pacific is important because it acknowledges that the big strategic challenges for a country like Australia and indeed, I would argue, the big strategic challenges for the region more generally are going to be maritime challenges. And what the Indo-Pacific does is that it connects the Pacific and the Indian Oceans in a way that can address these crucial questions of transit through sea lanes upon which so much of global trade, particularly energy trade, is based.

So that growing sense of the Indo-Pacific will loom very much larger in our thinking.

Let me just say a couple of things of where we are on the trade agenda. There is a lot happening at the moment on the trade agenda, even if the prospects of a successful Doha Round for the moment don't look particularly bright. Although I think there's a lot more happening on the Doha front than probably is covered by the Australian media.

We have an extensive bilateral free trade agenda. Of the six countries that I mentioned as the highest priorities, we only have a free trade agreement with one of them, and we're negotiating free trade agreements with all the other five.

Now, the rates of progress of those negotiations are obviously going to vary. We're at an advanced stage with Korea. We've seen enormous movement recently on the Japan negotiations, reflecting, I think, a renewed interest on the part of the Abe Government in trying to conclude an agreement. The negotiations with China, with India, with Indonesia are less advanced, I'd say, but they're still very high priorities.

We're very keen on the Trans-Pacific Partnership, the TPP, which now brings together 12 countries. The importance of the TPP is that it can set a benchmark for trade liberalisation which would be cutting edge globally. Our interest in the TPP is essentially to set a platinum standard for trade liberalisation. It's very important that in thinking about the TPP, we have an open mind about future membership of the TPP. In other words, that we have a position that countries that are able to meet what we hope will be a platinum standard, will be able to join the TPP.

We should be very careful about not presenting the TPP in geopolitical terms as designed to exclude any one country. At the end of the day, the best trade liberalisation is inclusive trade liberalisation and the very best trade liberalisation is inclusive trade liberalisation at the highest possible level.

We've now just begun negotiating something called RCEP, the Regional Comprehensive Economic Partnership, which brings together all the countries involved in the East Asia Summit, or at least the ASEAN plus six countries that are involved in the East Asia Summit. This will be a long term negotiation, but ultimately, it could get us closer to the objective of a Trans-Pacific free trade agreement than anything else.

And even within the Doha Round, we are pursuing initiatives such as the plurilateral services negotiations, which basically tries to make progress where you can and not wait until everything is agreed before anything is agreed, which has been the fundamental principle of multilateral trade negotiations up to now.

I think one of the things we're going to have to rethink in terms of the future of global multilateralism is the need to be willing to consider these plurilateral arrangements where countries that are willing and able to do things, go ahead and do them, and leave the door open for others to join as and if they can.

So let me just end with a couple of observations. One, the Asian century story is obviously a story of enormous scope and tremendous significance, but like any story, it doesn't have an absolutely predictable trajectory or an absolutely predictable conclusion. All of us will have to go through periods of reform economically if we are to maximise our economic future and there will be no major Asian economy which won't face very fundamental questions about their economic future and their economic structure.

But I think if you look at the magnitude of what's happening in Asia, if you look at the fact that now for many, many decades, Australia has been amongst the most Asia integrated economies in the world, and if you look at the growing acceptance within the Australian community that in order to maximise the advantages of proximity and to maximise the advantages of historical integration, we need to have a whole of society approach to the region, then I think there are grounds for enormous optimism about Australia's ability to ride this wave successfully.

That doesn't mean that we can depend exclusively on proximity or that we can depend exclusively on the structural complementarity between our economy and the Asian economy. Obviously the questions of reform relate as much to Australia's future as it does to the future of these Asian economies. But I think if we play our cards right here, if we recognise the magnitude of the opportunity, if we are realistic about the risk, there are a number of attributes we have I think as an economy, but even more important, a number of attributes I think that we have as a nation and a society, which will place us well for the next couple of decades.

Thank you.

QUESTION: You will be aware we have huge levels investment in oil and gas projects in Australia, in Western Australia in particular, and there has been some debate as to how we capitalise on that level of investment for our local industry. Many of our peers around the world are quite protectionist in supporting their local economy and have things like local content quotas and so on. In particular I worked for a Norwegian company. In the early days of the oil industry in the Norway there was a strong local content push and a state oil company established of course, but that was back in the '60s, but today Canada still is very interventionist in local content to the extent that it's not even Canadian local content, it's even provincial content. Should we accept the free trade mantra and just let the industry find its own place or is it time for an interventionist policy, at least for now?

PETER VARGHESE: Well, thank you very much. I think that's a terrific question because it goes to an issue which is very hotly debated internationally. I'm going to be a little bit cautious about straying into policy areas which are a bit outside of my portfolio, but I will say this: for all of the bad mouthing that the so-called Washington consensus has received, for all of the damage that the global financial crisis has created, I think the tenets of free trade, the tenets of comparative advantage, the proposition that an economy is stronger the freer it is in terms of market forces to my mind still hold true.

We are moving into a political environment globally – I'm not talking about what's happening in Australia – we are moving into a political environment globally where protectionist pressures will increase. I think we've been reasonably successful post global financial crisis in containing protectionism. It could be a lot worse than it might otherwise have been and I hope that the G20 played some role in that. But we are seeing a vein of economic nationalism emerging, particularly in Asia which, in my view, would be damaging to the prospects of those countries and damaging to the system of liberal international trade upon which the prosperity of Australia continues to depend. So I think if we end up back to something that's a beggar thy neighbour set of principles governing international trade Australia would be the loser.

QUESTION: I've got two very brief questions for you. The first relates to the visit to India by the Chinese Premier which is ongoing right now, and I think it's probably the first time that a head-of-state of China has actually visited India as the first foreign country in his term of office. My question to you is what's the future of Chinese/Indian relations? I mean, this is against a background of a disputed border which of course got some publicity recently, but it's also against a background where there's increasing trade between the countries, increasing interaction and a whole range of issues. So the first question is what's the future of that inter-relationship? And the second question is: do we need something equivalent to an East Asia Summit in the Indian Ocean region? Is the Indian Ocean Rim Association for Regional Cooperation (IOR-ARC), for instance, sufficient to what we want in terms of having a multinational organisation in that area? Thank you.

PETER VARGHESE: Thanks very much. Let me take your second question first. I think we need to be realistic about how far and how fast we can go with Indian Ocean integration and Indian Ocean institutions. Australia is now chair of the very awkwardly named IOR-ARC process and in November we will be hosting here in Perth the meeting of foreign ministers that comes with our chairing. The Indian Ocean differs from what we've seen on the Asia Pacific side of our continent to this extent.

Regional institutions like the EAS reflect now a long history of economic integration in the Asia Pacific, a history of trade flows and investment patterns which have been running now for four or five decades. I don't think you can take the Indian Ocean region in the broad and find anything similar, certainly nothing to that extent. You may be able to find patterns of trade and investment flows in subregions of the Indian Ocean, but not across the Indian Ocean. So these things do matter at the end of the day because it's one thing to convene a meeting, and we will certainly try and use our two years as chair of IOR-ARC to push this institution as far as it can go, but you do need a bedrock of actual economic integration and strategic coherence before you can build institutions. So it's just a question of timeframes, I think, that's really important.

On your first question, China and India, it's a complicated relationship. I think in many ways what China and India and trying to work through is what a number of other countries are trying to work through at this time. That is, how do you manage a relationship which has large elements of interdependence as well as large elements of strategic competition, and this in fact is the big strategic challenge for all of us into the next several decades.

How do you manage relationships, build institutions that are based upon both interdependence and competition? It's what happens when you basically take a global economic system and a globalised economic system and superimpose it on a strategic map which has centuries and centuries of rivalries and competition. Now, I think, India and China are trying to come to grips with that proposition. It's not an easy proposition to come to grips with. I think each of their leaderships recognise the importance of stability in the relationship.

I think they each want to maximise the economic opportunity and it's a question of how they minimise the strategic risk that's going to be a challenge for both of them. My sense is that neither sets of leaders are looking to exacerbate that element of competition, but obviously it's a factor, if only an historical factor, that's there at the table whenever India and China get together.

QUESTION: Just two short questions. First your comment on the rising profile of China in the South Pacific – what are the implications for Australia? The second question is: what did you feel personally when the Asia Pacific community was first raised in Canberra because you were talking about multi-nationalism and its significance to Australia?

PETER VARGHESE: Thank you. Well, let me take the second question first. The Asia Pacific community idea that Mr Rudd put forward is in the broad very similar to where we ended up with the East Asia Summit because the community that was then being proposed was essentially the ASEAN plus six plus two, as it was then known. In other words, the 10 ASEAN countries, the three North East Asians, Japan, China, Korea, the other three, India, New Zealand, Australia and then the US and Russia. So I think the two ideas actually came together quite neatly, and when we did eventually agree to the formal expansion of the EAS to include all of those countries, I think what ended up, in effect, was an Asia Pacific small "c" community not dissimilar to what was being propounded at the time.

On China and the South Pacific, the Prime Minister's visit to China in April included the signing of an agreement for our two countries to work together on issues of development assistance and development cooperation and that will include examining – we will have to see how far we can go with any of this – examining whether there are things we could usefully do together in the area of development cooperation.

I think what drives China's interest in the South Pacific is what drives a lot of Chinese foreign policy. There is a strong interest in resources questions and whether that's going to be fisheries or nickel or other resources. There was a very strong interest in terms of the China-Taiwan diplomatic competition, although I think that's now much diminished in large measure because Taiwan's own courting of extra diplomatic recognition is nowhere as intense as it was in the past. The South Pacific has a number of development challenges and we don't take a proprietary attitude to either the South Pacific or to Australia's development cooperation in the South Pacific and we will be willing to work with other countries as long as our objectives are aligned.

QUESTION: Thank you, Peter. I would like to ask your view, perhaps a more focused type of discipline-related question on the potential of ocean and climate – coupled climate science per se and Australia's strength as an oceanic and climate science power and leader in the region across the environmental and socio economic spheres, the potential of that area to enhance Australia's strategic interests in the Indian Ocean and Southern South East Asian area through building relationships and friendships and cultural awareness?

And secondly, in supporting the transfer of knowledge and capacity building for the benefit of our regional neighbours, but also for our own mutual benefit? And just as a footnote to my question, I'm just recalling and noting the 2010 Australian Strategic Policy Institute Report, Our Western Front, where I think about two-thirds of their 27 recommendations had in some shape or form ocean and marine embedded within them, the IOR-ARC which has been mentioned and also actually Western Australia's existing frameworks in marine and climate science both fundamental and applied.

PETER VARGHESE: Thank you. Well, look, this is an area where Australia does have a lot of expertise and it's also an area which would benefit enormously from further international cooperation. You know, one of the things we've been trying to do over the last several years in the context of IOR-ARC is to find areas of practical cooperation which would be of interest to the member states, but over time would help to create a more clear sense of common interest across a vast area of subregions which may not always be necessarily like-minded across the board, and when we were looking at areas that fit that definition ocean and climate science was one of them.

So I think what we're seeing is more activity across the Indian Ocean in those areas. I think the academic track of IOR-ARC in which Australia is active and in which Western Australia is particularly active recognises that and is working on it. I think it's something which at the ministerial level there will be support for because it's seen as something practical, as something that matters to all of the countries of the Indian Ocean and it has the added advantage from an Australian perspective that you're also tapping into an issue where there is very considerable expertise.

QUESTION: First of all, an observation on John Hartley's question in relation to the relationship between China and India: I think perhaps the challenge in that relationship was best summed up by the Canadian comedian, Russell Peters, when he said that the Chinese love a bargain and want every dollar you have whereas the Indians will never give you a bargain and want to hang on to every dollar they've got, so it's certainly a challenging backdrop there.

Australia's approach to overseas foreign direct investment is coloured by a highly cautious view of the intentions of state owned enterprises yet we don't seem to have that same caution when we're dealing with multinational corporations that are highly influential on their domestic governance, for example, some global corporations speak for 20 per cent of domestic GDP. Samsung springs to mind. As we pursue free trade agreements overseas companies are seeking a more balanced treatment on this front.

I understand that DFAT don't have a legislative role here, but they certainly do seek to nurture investment and trade flows. Do you sense that Australia has an appetite to engage meaningfully to move forward our current highly cautious position?

PETER VARGHESE: Well, the whole question of state owned enterprises is certainly an issue in our bilateral negotiations on a free trade agreement because we both want a free trade agreement that covers goods, services and investment in a comprehensive way. My view on this is foreign investment is very important for Australia's economic development. We are not a country that has sufficient domestic savings to fund the projects that will contribute to growth and standard of living and our historical experience has been that foreign investment has been crucial to the development of important sectors.

So, on the whole, I think Australia, rightly, has an open attitude to foreign direct investment. I don't think we need to be too apologetic about putting in place rules which are designed ultimately to protect the Australian national interest and the difference between a multinational, no matter how big, and a state owned enterprise is self-evidently that one is controlled by a state and the other is not, and, therefore, questions of investment will need to be looked at from that perspective.

Now, I don't think anyone is saying that Australia should discourage investment from state owned enterprises. I don't think anyone is saying that we should have a predisposition to not approving investment from a state owned enterprise, but I think it's entirely reasonable and legitimate, given the difference between the state owned enterprise and multinational corporation for the Australian Government to take the view that investment applications from an SOE would need to go through the approval processes of the Foreign Investment Review Board.

This is not something which is unique in the foreign investment policies of other countries. All countries have foreign investment policies which ultimately have a national security safety net and I don't think we're in any different position and it seems to me an entirely reasonable proposition to advance.

Thank you.

Last Updated: 20 May 2013
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