Thank you very much and good morning ladies and gentlemen and thank you for your interest in what I think is a very significant development I hope for the country, and I do appreciate this opportunity that Bloomberg has provided, to report to a distinguished audience and to respond subsequently to some questions. I will focus my comments initially on the Free Trade Agreement with China and some reference to the other two. When we go to questions, if you want to ask me about India, or anything for that matter, as long as you keep away from Melbourne Football Club and things like that, I get depressed with that sort of reference.
I do feel that most of you, if not everyone, would have a fairly strong understanding of a lot of the detail, there are packs here today that are in a very user-friendly form, but I would assume and I wanted to assume for the purposes of today’s presentation, that the line-by-line description of what was agreed, is fairly well out there, and you’ve got access to it, you can refer to the questions if you want to get into any of that detail, but I thought that I wouldn’t repeat all that, as it has had a lot of wide coverage, but rather I do intend to comment this morning on some of the drivers of the approach taken by China and ourselves – what were the things that I think both of us were keen to achieve in the outcome, and you can make your own assessment whether that has been achieved or will be achieved once this thing takes effect.
I thought that I would present an overview assessment in two or three paragraphs, and I couldn’t do any better than Jennifer Westacott in her first public comments after the Business Council reviewed the document, and Jennifer said and I quote: “This historic Agreement is a transformative moment for the Australian economy.
“It puts many of our most important sectors on a more competitive footing internationally, and gives Australian companies an enormous scope to boost trade and create jobs. The Agreement opens up an unprecedented level of access for our key sectors into Chinese markets and builds on Australia’s existing strengths and opens new avenues for growth and job creation.
“There is a major access for dairy and beef products, sheep meats, tariffs on our resources and new opportunities that have been opened up to maximise Australia’s comparative advantages in high-tech manufacturing and services which is 80 per cent of the Australian economy.” End of quote.
Jennifer has really touched on, I think from my perspective, the key elements that I set out to achieve. It wasn’t just about agriculture, that’s very important yes, the opportunities that are coming down the pipeline, and it wasn’t just about resources, although there are some very significant improvements in the resources sector, but it was very heavily associated with services where I think, with currently about 80 per cent of our GDP coming from services and 15 per cent of our exports, and to me in a structural sense, that is where the future is.
Foundations in traditional products, resources and energy and agriculture, but the growth, a lot of the growth will, I think, come about because of the extraordinary service offering we’ve got, literally hundreds of services across the economy, that are in demand in China and so many parts of the region. From the Australian drivers, just let me paint a picture of what some broad strategic drivers we had in the pursuing not only this Free Trade Agreement but the other two that have been completed this year. It has been our determination since taking office, to drive economic growth through private sector investment, and to replace what has been a key driver outside of resources and energy, government spending. And government spending of increasingly borrowed money, and that is not just an Australian phenomena, if you look around the western world, the developed world, ever since the Global Financial Crisis – the GFC – the instinctive response and I think the appropriate one, was to seek to restore liquidity and confidence and governments spent money to stabilise things.
The trouble was most of the developed world have not weaned themselves off that public policy response. It has dominated so much of what is happening in terms of the attempt to drive growth, and we are now seeing the consequence with Europe I think, with many parts of it heading back into recession and a real drag on so much of the world. The U.S. fortunately has discovered in the meantime, cheap energy and thank God for that, I think we would be globally in a very bad state if the U.S. wasn’t underpinned by that extraordinary development over the last 4 to 5 years.
We have in a very determined way, as a government, sought to do what we can to slow the growth of government spending; not to cut it off or stop it, but to slow the growth, so that we can live within our means. I’ve seen with my investment hat on, when I go around the world, I’m finding that the world is awash with cash and it’s cheap, but the investors are not interested in investing, in fact many of them are prepared to put $50 million into a European bank with negative interest rates. So they are prepared to lose guaranteed loss for a couple of million on their capital, so they don’t risk $50 million in investments.
The investors do understand that all of this strength in share markets has really been driven by borrowed money being spent by governments, and there is a sense it could be a house of cards. That’s why I think there is such reluctance to invest, and that is why economic growth is not coming back the way it should, and certainly not at the levels that will reduce unemployment around the developed world.
Now we are determined as a government to seek to drive growth through private investment spending, we are blessed in Australia with a reputation for stability, politically and for stability economically compared with many other parts of the world, and that is true and it does provide us with an opportunity, a window I think, where we can capture so much of that money if we’ve got projects here, and if we do set ourselves up in a way which encourages foreign investment over the next five to 10 years.
So if we are to replace government spending with the private sector activity, it explains a lot of the issues, such as getting costs down on our side, so the Carbon Tax, the Mining Tax; our big assault on regulation, trying to narrow dramatically the approval times of big projects, labour market reform, which is in the pipeline, ending corporate welfare, trying to re-establish a culture of personal and corporate responsibility across the community, a cultural issue that we’ve got.
All of those are part of our agenda, but externally it has led to a much greater emphasis on trade and foreign investment. And this explains the urgency that we have attached over the first 14 months of government, to seeing comprehensive free trade agreements being struck with our key regional markets in Korea, Japan and finally China. It also explains the 44 investment roundtables that I’ve held now in 17 countries over the last 12 months, as Australia’s first ever Investment Minister. I’ve got Trade and Investment and that’s on top of the traditional trade responsibility, but from where I sit that’s two sides of the same coin. Wherever you see a strong trading relationship, history shows you get a strong investment relationship following, and it is very important to advance the trade and foreign investment.
We have been a country, historically for 200 years, that’s relied very, very much on foreign investment, we’ve still got thin capital markets, and the imperative is still the same today as it was nearly 200 years ago, to drive a lot of the essential infrastructure, both publicly and privately, from private investment contributions.
So that really is the motivation that we have had, that is the broad driver if you like, to see if we can in a way encourage trade and investment through trade agreements, and other means of course, a lot of personal and direct contact, but through trade agreements and to make our economy an attractive one to foreign investors, and to make our businesses more competitive so they can trade in a competitive way and take advantage of Free Trade Agreements. So it is a package approach to try and drive private sector activity and jobs.
From China’s perspective after 12 months, now 14 months of going backwards and forwards and meeting my counterpart at other forums around the world for negotiations, I feel that there appear to be 3 or 4 key drivers that I have observed which led to the Agreement and it is by far the most comprehensive and ambitious agreement that China has struck with any country in the developed world.
And I think you’ve got to see it in the context of the last 20 centuries, because for 18 of the 20 centuries, China was the biggest economy in the world and India was the second. The last 200 years are an exception to the last 2000 years around the world, and of course both those countries are very proud nations, as they should be, about their thousands of years of their sophisticated communities in many respects, major civilisations, and…you see the legitimate and not unexpected desire, to re-establish their former prominence in the world, because they are still, certainly in terms of number of people, by far the two biggest countries in the world and they are seeking to drive this historical positioning in world affairs.
So my observation after 12 months or more of intense contact and negotiation, has meant that I see the Chinese government, has come to realise that the re-emergence of China as a superpower requires, in my view, 3 or 4 things that they have come to judge. Now there are endless examination of the motives of China and other countries when they make reforms and do things; do they really mean it? Are they going to stick to their word?
I suppose really what I am putting to you and I will now, there are things that I have come to conclude that they see as imperatives, if they are to restore their former glory and get back to that position that they can give to their whole population, the sort of living standards that countries like Australia enjoy, everyone, or most people in our country enjoy, and the safety nets that exist in other countries.
That’s a very legitimate objective and it is not a question of them being pressured, I see that so much of the points I am going to go through, are things that they have come to the conclusion are necessary for them to take, it is in their self-interest and I think Paul Keating famously said years ago: ‘put your money on the horse named personal interest or self-interest, it’s the fastest horse in the race,’ and that’s human nature, you don’t expect them to do it out of the goodness of their heart or that we would do anything in an agreement like this.
There has to be mutual respect, mutual benefits but it was all driven by self-interest, and I try to, as a negotiator, to put myself in the shoes of those I’m negotiating with. What is their self-interest, so that can help shape the way in which I might frame what we’ve got to offer and I thought first and foremost they’ve got an absolute imperative – which you only have to travel around the country a fair bit like I have – to meet the reasonable expectations of their fellow citizens. Now they have nearly 1.4 billion, over the last 15 or 20 years they have, through their opening up and their market economy, they have really brought close to half a billion people out of poverty. It is a humanitarian miracle which overshadows by thousands of times the efforts of all the developed world for decades through aid programs and things to bring people out of poverty.
They have removed 500 million, but the problem they’ve got is there is still some 700 million who are subsistence farmers, and the difference between now and in the past in many countries is that those 700 million farmers have got a mobile phone. They are connected; they know and have a fair idea of what a lot of their fellow citizens, another 500 or 600 million of them, have got, the lifestyle they’ve got and they have expectations to share in that and it explains a lot of the problems a couple of years ago in the Middle East, the same phenomena. Young people there started to realise what they did not have compared to young people in the developed countries.
And I can see, the political pressure of 700 million people, if they don’t feel that every effort is being made and they don’t see progress continuing and there are millions of them every month going into the cities, they are still going in by the millions every month. There is a real political imperative if the government wants to maintain a stable and peaceful, harmonious community, they have got a real imperative to keep their growth going at a significant level and to ultimately to provide opportunities and jobs and quality of life for all of their citizens.
The second thing they have concluded from my observation is that unless they install the institutional structures and rules-based economy, that characterize the developed world then they will not succeed. They will fall short dramatically in their potential, if they don’t install these institutions and rules. Things such as sophisticated financial markets, if you have a look at the document, and many of you have in the financial sector I suspect, it’s replete with all sorts of advancements across financial services which are grossly unexpected, but it demonstrates that they can see that if they…don’t open up to the world that they’ve got problems and they are not going to realise their potential. They are not going to satisfy those nearly 1.4 billion citizens.
They want effective, and they must have effective anti-corruption mechanisms. Again President Xi – it is one of his primary objectives, it has really shaken up China and you no longer get 14-course banquets, you get an 8 course banquet you know. The quality of the wine has come down a little bit, quite a lot actually, I haven’t seen a bottle of Grange in the whole 12 months, all of these are symptoms of the real effect, there is a real effect and he is trying to change the culture and the practice, especially at the provincial levels – a lot of the corruption. A lot of you go to lots of cities and people say, you know the nine people who have been running this show for the last few years, they are all in jail, and it is having a profound effect all the way down the line. But they have to remove it because who is going to invest in China? All of the investment opportunities that have been opened up in this agreement; who is going to take them up if they think that they are going to be confronted with corruption every step of the way, even once they are fully established.
The third part of that institutional structure or rules, the reliable and understood and independent legal system, international governance standards, transparency the sorts of things that I think they will establish very much for the Asia Investment Bank that they are proposing – a great initiative, very important. I see them looking to provide leadership with this, to provide the sort of role that an increasingly wealthy superpower in the region should be doing, sharing the wealth and sharing the opportunity as a good neighbour, and we have said we will join with our ears pinned back, as soon as those governance requirements, half of which they have met already, but once we get the others in place, we will join the bank with enthusiasm and we will encourage Japan and the United States to follow suit.
They need democratic processes, they need very democratic processes, they need strong cultural sectors and of course open markets and rules-based trade and investment, which is pretty much a part of the Agreement. The democratic processes, President Xi said on Monday in the Parliament, a very profound comment, that by 2050 you can expect China to be fully democratic. Maybe still with a different political system but a very democratic system is his prophecy at least. But they do see that they have to move to that if they are to remove the corruption and all the rest. So much of this is obviously still a work in progress, but these things I think appear to be understood, and I felt reflected in President Xi Jinping’s most powerful speech to the Australian Parliament on Monday.
The next thing is to become predominately a service based economy. Now if they are to do the first objective and that is to meet the expectations of their population, they need to continue the transition from an investment, manufacturing, export-intensive model of growth, to a consumption and service-based economy because that’s where the jobs are. It’s in the services, and with a rapidly urbanising economy and a continuing urbanising economy, they’re going to have to. Only 52 per cent of their GDP is currently services, it’s just jumped over the 50 per cent mark, for the first time in modern history. We’re at 80 per cent. A lot of the developed countries are closer to the 80 per cent, than they are to 50, because that’s where the jobs are.
If they’re going to absorb many of those 700 million, they’ve got to create the jobs, and its services everywhere. The one thing that has been raised with me most in all of my trips, not just in China, but throughout the region, in all the developing countries, the one thing that keeps being asked of me, is queries about the availability of Australian services and in so many areas. Dozens and dozens of different types of services, it’s not just financial and legal – the sort of typical things – it is aged care services, it is health. All sorts of health services; you think of all the myriad of things that go with the health sector, they ask about it.
Design, architecture, engineering, water management; 20 per cent of the world’s population’s in China, 7 per cent of the world’s water, and most of it is polluted. We’ve got an enormous opportunity, because of our skills to contribute to fixing that problem over the next few decades with the Chinese – contributing to their growth. And they see it. They want these sorts of skills now, and that’s why the nervousness through much of the negotiations…for the first 6 to 8 months…and I’d be saying ‘you’ve got to open up services, we’ve got something that will benefit us – it’s to get the services in, but it will benefit you, because you need to come up in your services capabilities and we can help. Because we’re a knowledge-based economy, and we’re seen as such throughout the region, a highly knowledge-based economy,’ and they kept saying: ‘but we would have to give this to much bigger countries, these services,’ and I said, in the end, ‘think of us as a special economic zone’ – that’s been a very effective tool for public policy in China both to test things but also to get acceptance amongst the population of certain changes. So think of us as a special economic zone.
We’re not big enough to swamp China with services, and if it doesn’t work in some areas you can just say to others they were a special economic zone – we’re not giving it to you, but we’ll do the things that do work, and I don’t know whether that was the conclusive, but in the last two months the services door just opened. And this Agreement is rich, highly rich and you’ll be able to, once this takes effect in four or five months, if you’re in aged care, you’ll be able to walk in the next day and open up an aged care facility, or 100 if you want to, if you’re running private hospitals, you’ll be able to walk in and open up a private hospital, and own it 100 per cent like the aged-care facility or several, if you’re running restaurants, running hotels, the same thing – 100 per cent owned. So when people say: ‘well they can buy things here, but we can’t buy things there,’ that is changing. This document changes that.
It does prove to me that it is in their self-interest. They know that the best way to get these services and that IP and expertise, skillsets, to train their people, is to bring in significant numbers of people who do know what they are doing. They have had a career in those sorts of areas; across the financial services, the same, so many things in that financial services area. And I can tell that is just a start. They are looking at significantly opening up. So I think the services side is very significant.
The fourth and final area I thought was to be strong and resolute in the direction that you are going, but not threatening; a good regional neighbour. Now the comments that President Xi, on Monday I think adds enormous weight to that. He made some absolutely unambiguous, quite definitive statements, then if that holds true, it is a wonderful thing if that is the objective and he did say, if he could, on Monday, that they intend to do unto others as they would want done unto them. Now that is the sort of benchmark that I think we need from a country that’s emerging like it is. So I think it’s those four objectives that I felt once they understood them, we were able to use those objectives, as I said with the special economic zone example, and other things, to encourage them to see the benefits of Australia.
And I think the other thing was that my sense through it all, was that they were looking to send a very powerful signal to the rest of the developed world in particular, that they’re ready and able to engage in a 21st century, open-way with the developed world. And it was I think easier to do it with a smaller economy, but we are very export focused, big agricultural exporter and resources, but I think it was obviously easier than doing something with the EU or the United States, that they were able, I think, through this and I do feel that they’ve achieved that objective of sending a powerful signal. A lot of these provisions, some of the developed world would choke on China to make some of the concessions that we received.
Finally could I just reflect briefly on the power of the combined three Free Trade Agreements; having the three, and having them done quickly and negotiated by basically the same team, with myself and my departmental colleagues who did an extraordinary job in all of this; their expertise has been a great source of comfort and benefit to me, some of them have been nearly needing counselling, because they’ve been involved with these things for so long. China was ten years – the longest – but the others were also nearly that long, they’ve all experienced late hours but the thing is that across the three agreements I was in a position – including with the TPP, which is coming up and is not far off conclusion I suspect – I was able to look at: well I can get those things in Korea because of all sorts of reasons, I will look after other sectors in Japan, and you I can also with China balance the mix of the benefits and opportunities, conditioned by the different political sensitivities in each of those three countries and again with TPP I can do it again, but it just gives me, as a negotiator more flexibility.
I mean the dairy industry didn’t get much out of Japan, but I knew all along that China was where the big opportunity was – that I had reasonable prospects, and it’s a killer deal for dairy, it’ll set the dairy industry up for decades according to the leadership of the dairy industry. And the opportunities are just phenomenal – this’ll encourage a lot of investment into the sector; into the processing, the logistics, you know, the consolidation and we need all that, we need innovation because we are a high cost country, if we are going to compete in all these areas, we’ve got to be able to meet all these markets so we were able to also, with these agreements, to leverage our strengths. One very clear decision we took at the outset, was that we’re not going to be in there protecting our weaknesses. If we’ve got this growth imperative, like you do with your own skills, if you’re smart, you maximise what God-given talents you’ve got.
With any business I’ve run, or worked with, no one in the organisation steps outside of the brand of the organisation – contradicts it – and that’s basically the strength of the business. They’re leveraging their strengths; sure try to grow them, but always protecting those strengths and it’s the same running the country. We’ve got fundamental areas that we’ve got a comparative advantage for all sorts of reasons, and the idea was to protect and grow those strengths and not spend a lot of political capital and a lot of finance and a lot of tax payers’ money on protecting weaknesses – things that others could do well – so these Agreements taken as a total, in large part, reflects the strengths of Korea, Japan and China and the strengths of Australia, and we have sought in negotiating, to focus on advancing those strengths and not focusing on the weaknesses.
The second thing it has established a trading advantage, this is the first substantial agreement with most economies, so where you’ve got a growing market, one of the objectives from a business point of view, you try and grab as much market share as you can get so when the competition comes in, you’ve got an established position, you’ve got knowledge, you’ve got relationships, you’ve got trust has been established, you’ve got a serious amount of market share, and then you focus on staying competitive, and innovative and all the rest. And this is giving us an opportunity in a whole lot of market areas, to get first mover advantage almost, in a growing market. There are 600 million people in the region, in the middle class from India all the way through to China and everything in between.
That’s going to grow in the next 30 years, not 100 years, the next 30 years, to three billion, the growth is phenomenal now, this is happening now, we’ve got to be in there. A few years ago, we sold 60,000 tonnes of beef to China, last year we sold 260,000 tonnes of beef to China, they went from 12th to 3rd in our market in one year, it’s happening and many of you could site many other examples, and we’ve got to be in there and we’ve got to be in there in an aggressive way and these agreements gives us that opportunity.
Removing the trade disadvantage; there were some smaller countries Chile, Switzerland and New Zealand who have struck agreements – New Zealand had really hurt us in dairy because four years ago they struck an agreement and it was a good agreement. And we’ve got a New Zealand equivalent in dairy – a New Zealand-plus equivalent; we’re still four years behind, because with a lot of those things they’ve graduated reductions to elimination, so much of this, nearly all of this is elimination of tariffs.
The third thing is that it removes the three of them together as I said I’m repeating the different benefits across all sectors, the sharing benefits, so you win some here and you don’t win so much there. The fifth thing is it has created an opportunity for increased investment models. The investment provisions and there’s all sorts of things, including a provision which has not got any publicity for obvious reasons, it’s not relevant to most of the punters, but there is a provision a Most Favoured Nation provision in the investment area, that whatever concessions that China gives on the investment front to any other nation in the future come to us at the same time.
Now at the moment, in China the Investment Chapter is smaller than normal, because China is currently negotiating an investment treaty with the United States. This will be the most advanced agreement, all the benefits that we currently haven’t got, that they include will come to us at the same time, including anything they do in the future with other countries – that’s a huge thing, but also, there’s competition I can see coming already. I’ve observed competition coming for projects. I said at the outset, the world’s awash with cash it’s cheap money – investors are ready to start going into countries.
Australia is triple-A rated, with all the stability, and we are seen as a safe haven, but they want projects and with this asset recycling, it has set them alight. A lot of people I’ve been in touch with in New York, in Zurich, UK and other places, the money is starting to line up, it’s lining up in Japan, all the relationships, the intangibles that come with negotiating one of these agreements, and the efforts of the Prime Minister and the other leaders and the focus they bring on it, is very material, very material, in influencing the attitudes and trust between our countries and Japan I can see are lining up to make sure they don’t lose-out on projects they’re all lining up so they don’t miss out on premium products. You get China going from 60,000 tonnes of prime beef to 260,000 tonnes, there’s a limit to how much we’ve got, and someone’s going to miss out, in due course, and so these sorts of agreements, if you get in advantages to our industries, are also creating a sense of competition, between those three.
Could I just finish and give the last word if I might to Kevin Rudd as you would. Kevin said on the BBC overnight: “It’s the easiest thing in the world to run fear agendas against Free Trade Agreements.” He said: “If you look at the whole package; on the trade side, the investment side, I think this is genuinely a win-win for both sides.” End the quote. Now I appreciate his assessment of the agreement, and I agree with it – of the benefits, but I just say already, there are hints by the ACTU and our opponents, you can hear, I think I just heard it then, the dog whistle.
While Bill Shorten was gushing in the chamber to President Xi, his spin doctors were upstairs in the gallery already sort of dog whistling about the investment and the movement of skilled labour. I just want to clarify some of this, because you can’t have an agreement of such consequence, sullied and misrepresented. The fact of the matter is we’re very conscious that we’ve got unemployment levels over 6 per cent and have got to look after Australian workers first and foremost. I do make the point though that no Australian job was threatened if there’s no project.
Secondly the provisions that we put in there; there’s a new name to a provision which is the Investment Facilitation Arrangement, but it really was just taking out of the existing 457 arrangements, and the Enterprise Migration Agreements – which were actually brought into power, brought into effect by the Labor Party when they were in office – which allowed – enterprise-by-enterprise – a separate negotiation if, if there was skills shortage in certain areas.
If someone comes in and says I’m going to put in $4 billion into a Greenfields project, it doesn’t matter whether it’s from China or anywhere else in the world, I’m going to put in $4 billion, it’s going to take two years to get it to shovel ready, I’ve got to spend millions before I get it to shovel ready, in two years’ time when I need all these skills, if they’re not there, I’d like to know that I’ve prearranged two years before, that I can negotiate to bring in under 457 legislation, the appropriate skills.
That has been the common sense approach that I thought the Labor Party took in government, all we’ve done is taken those provisions and called it an Investment Facilitation agreement and put them into the Free Trade Agreement – they are exactly the same safe-guards, provisions and it just means they’ve got surety when they decide to make a huge investment, whenever it gets to be shovel ready; it could be years away, if they’re short 100 welders and they can demonstrate that there is a skills shortage, if they can demonstrate that, they’re allowed to bring in from wherever, under 457s for a limited period, welders or whatever it might be.
Now there is nothing exceptional about this, there is no change, absolutely no change, they’ll be paid Australian wages, all the conditions that were negotiated and put into effect by the Labor Party in the parliament when they were in power are embodied in this Investment Facilitation agreement. That’s as it should be, but it will – because of that provision – give a level of surety to potential investors which I think is reasonable, logical and will greatly enhance their confidence about making very significant investments.
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