Ladies and gentlemen, the signing of this trade and investment agreement between our two countries is the economic confirmation of our long standing friendship. And as Mark Vaile mentioned, a friendship very much forged by the heroic deeds of the young men from both our armies, who fought alongside one another in the Korean War.
And I do feel that this agreement will take our relationship to yet another level. This is a momentous time in the history between our two countries. Since I became the first Trade and Investment Minister, I’ve often said that as a Government, we make a priority of backing our country’s strengths; things that we do as well as anybody, but better than most. We’ve always had Trade Ministers, but I’ve also got the investment role.
I do feel our great strengths are in the economic, resources and energy sector, agriculture and agri-business, international education, health and ageing, medical research, and tourism and hospitality. We are also strong in the financial services industry, engineering services, legal services and other services.
In addition, we have logistics and high-end manufacturing that cluster around those areas of great strength. For me, the signing of the Korea-Australia Free Trade Agreement demonstrated not only our long-standing friendship, but also that both our countries are now backing our own strengths.
KAFTA removes barriers to trade in goods and services and very importantly, it removes barriers to investment and enables the private sector to boost growth. It will unleash the full creativity of our two dynamic economies and as Dr Kwon observed, the services component of this agreement is very fundamental to unlocking so much of the innovation that’s inherent in both our economies in complementary areas.
That’s the beauty of this agreement. We are two very complementary countries and this agreement allows both our countries to take full advantage of that complementary nature.
Unlocking the benefits of the FTA for business and industries on both sides as quickly as possible is a priority. Both the co-chairs for this AKBC/KABC meeting have cited the importance of doing this. But to bring the agreement into force, requires one more push to get it over the line. We just need the approval of both parliaments. Both governments have agreed to work towards completing the domestic processes before the end of this year.
We’ve got to understand the benefit of this. If we get entry into force before December 31st, both countries get a tariff cut immediately. On January 1st, we get the second tariff cut. If we don’t start until January 1, we get one cut and we have to wait another 12 months for the second cut. This is important for industries in both our countries.
We will see the phase-out of many tariffs, some of which are over quite a considerable amount of time, while some take effect over a short period of time. And to get two rounds of tariff cuts immediately will be of significant advantage. But also, and importantly, it will give us both significant advantages against our competitors.
It will give Korean consumers cheaper access to Australia’s premium clean, green agricultural goods. The wine we drank last night will be 15 per cent cheaper. Just wait a couple of months and you can stock up.
It will give Korean farmers new opportunities. This is often misunderstood. There are significant advantages in this agreement for the agricultural sector in Korea, because it will enable counter-seasonal produce to be delivered into Australia - like grapes, for instance, and many other horticultural products - because when it’s summer here, it is winter in Australia and vice versa.
So there are counter-seasonal opportunities for both our countries to benefit one another through cheap produce, while not competing with one another. That needs to be properly understood. And it will give Koreans and Australians the benefits of a range of other improvements to goods and services and investment across the board.
As has also been noted by Chairman Kwon, and Mark Vaile, last night we got the passage of legislation that is necessary to finalise this agreement through our Parliament. Twenty seconds before the Senate rose last night, it got pushed through.
But it was only able to be pushed through because we, in the end, got the support of the opposition. So effectively, 95 per cent of the Australian Parliament has given full support to KAFTA. And to me that is very important because this is a long-standing agreement. This is an agreement for the future and we need bi-partisan support, no matter who is in the Parliament. We got full support for this agreement last night.
I want to congratulate the government of President Park and my Korean counterpart Minister Yoon, for submitting KAFTA to the Korean National Assembly last month. I think every effort has been made and is being made to fast track this agreement within the National Assembly. The very unfortunate and very sad situation with the Sewol ferry disaster has, I think, created unexpected distractions for the Parliament. It is a very important issue to deal with, obviously and I do extend our condolences to all of those who lost family members in that tragedy.
In particular, I’d like to acknowledge, if I could, the tough but very fair negotiating skills of Trade Minister Yoon. He is an effective minister - a very effective minister by my observation - and a good man and a person that I came very much to trust through our negotiations. I had the great pleasure of spending another hour and a half with him this morning over breakfast so that I could gain a proper feel for the politics here. I would be happy to, in any way, assist the process of getting this agreement into force.
Today I will be meeting with representatives of the National Assembly to discuss the benefits of KAFTA for both our countries that will accrue from early entry into force and from the long term opportunities it will bring. The timing is tight, but I am confident that we can get there. And I would like to publicly thank the KABC and the AKBC for supporting KAFTA, not just over the years of negotiation - which have been somewhat testing at times - but importantly, for their support now, critically, in this push for entry into force.
Entry into force will be a major achievement for both our governments and allow our businesses and industries to boost trade and bilateral investment flows. In many ways, this FTA is the roadmap to taking our relationship - as I said at the outset - to a whole new level. The Federation of Korean Industries, the Korean Chamber of Commerce and Industry, and the KABC and the AKBC, and their executive committees and secretariats have worked tirelessly over 35 years to build the special trade and investment relationship that we share between Korea and Australia. Indeed, the members of the KABC and the AKBC form the backbone of the economic relationship between our two countries.
And I acknowledge in particular the role that POSCO has played. POSCO is Australia’s single largest global customer; an amazing fact, that of all the countries we trade with and all of the trade we do - we’re a trading nation - POSCO is our single largest global customer. It has played a critical role in supporting the relationship. POSCO has made much effort. I thank you, Chairman Kwon, for your efforts and those of your company over a very long period of time in fostering the wonderful relationship - the very friendly and the very supportive relationship that exists between our two countries.
That relationship has already led to two-way trade in services and goods between Australia and the Republic of Korea reaching $32 billion in 2013 – that’s a huge amount of trade. What Korea has, we want to buy, be it the latest curved HDTVs, wearable technology, fuel efficient cars, or ground breaking FLNG vessels. In fact, I swim every morning in the bay in Melbourne and I look around at all the other swimmers. Korean manufacturing is worn on their arms and around their chests – through such products you are also making a big contribution to health in our country.
What Australia has, Korea wants - from iron ore and LNG, beef, cereals, dairy and wine, to tourism, education and financial services expertise. There has also been phenomenal growth in investment between our two countries that foreshadows the exponential growth to come. Total investment has grown from $4.4 billion in 2003 to $27.5 billion a decade later, which is a massive increase. Looking ahead I see some immediate opportunities: the Gorgon LNG modules, which I understand have just been exported from Busan / Ulsan and which are soon to be exporting LNG back to Korea from the Northwest coast of Western Australia. Another example is POSCO’s investment in the Roy Hill project - the iron ore project in the Pilbara which is being built by Samsung C&T.
There are also significant opportunities to invest in agriculture and the development of Northern Australia as Australia’s future food bowl.
Two-way tourism is also growing, including having more Australians visiting the trendy Gangnam district of Seoul. Australians are increasingly using Incheon airport, which is the world’s best airport. It has had this title, I think, for eight years in succession. It’s been a great airport as a gateway to the world. And more Australian students will study in Korean universities under the New Colombo Plan in 2015.
Every year from 2015, we will fund 10,000 new students to be educated in universities around the region, including, importantly, South Korea. And we hope that they will not only study but have at least a two year internship with industries here in South Korea. They will build not only proper understanding and language skills, but also friendships and linkages which will be enduring through their lives.
And in the end, life is about trust. Business relationships are about trust, family relationships are about trust and this is also the case between countries. We have to build trust, which comes from relationships. Knowing one another and being able to put ourselves in the shoes of one another helps create understanding and allows us to quickly resolve problems and capitalise on opportunities.
The New Colombo Plan - as we call it – follows a plan from many decades ago, when we funded many students to come to Australia. This time, we are funding our own students to go into the region, which will enable Australians to be far more conversant with countries within our region, which are such a big part of our everyday life now.
And I would also like to note Shell’s Prelude Project. It will soon be the largest floating object on the planet. On Sunday I am going to have a look at that, and to have a look at the shipyards building it. Once built at the Samsung Heavy Industry shipyard on Geoje Island, in just a few years it will be exporting gas from the Browse Basin off Australia’s coast. I am really thrilled at the prospect of visiting Busan and the Prelude Project on Sunday. Before I came into the Parliament, I was for two years on an Investment Team, which was amongst other things the Investment Team for the Gorgon Gas Project, so I’ve got a very keen interest in LNG prospects.
We also have tremendous growth potential for services and it is important to look at the role that services are playing in global trade nowadays. 70 per cent of all exports of goods and services from anywhere in the world are becoming intermediate goods in some other product. And we are starting to see products moving five to six times across borders before they become a final product. That compares with 20 per cent of all goods and services which were traded in the world in the early 1990s. To facilitate so much of that movement between borders, as you can imagine, has a big impact on services - on financial services, logistical services, transport services, telecommunication services.
All of these services are fundamental to the quick and most efficient transfer of goods across borders so as to deliver final products, the very sophisticated final products that we are so familiar with today.
And as I say, for Australia, our strength in legal services and financial services, tourism, hospitality and medical technology, and audio visual services are very important in fostering greater trade in services between our two countries. And it’s no coincidence that the largest foreign asset manager in Korea is Australia’s Macquarie Bank. It is our most successful overseas bank around the globe, and it has forged a very strong base here in Korea. Also, many of Korea’s five star hotels are led by Australian managers.
We have got a $100 billion tourism industry in Australia. These sorts of services are things that can become commonplace in both countries - the services that you excel in, the services that we do. And with KAFTA, Korea will have greater access to all of these services exports and Australia will have equal to the best treatment of any trading partner to Korea, on par with the Korean agreements with the United States and Europe, and that’s a very good thing.
The Korea-Australia Services Sector Promotional Forum mentioned again by the co-chairs this morning is being held this afternoon. It is an opportunity to discuss opportunities and challenges for services trade between our two countries face to face.
KAFTA is a big breakthrough in my view, allowing a great deal of focus on reducing goods tariffs. But the services chapter in this agreement opens up a whole new front, which will really turbocharge so much of the goods trade. I ask you all at the Services Sector Promotional Forum this afternoon, to do your best to identify the range of services that can be exploited once KAFTA is in place.
KAFTA will deliver immediate benefits to Korean industries – 85 per cent of Australian exports to South Korea will have a zero tariff and 90 per cent of South Korean exports to Australia will have no tariffs. And of course, the agreement leads to the total elimination of so many of those tariffs - nearly all tariffs - in due course. In Australia, the screening threshold on investment will be raised from $248 million to just over one billion dollars for non-sensitive sectors. Korean investment applications will be given special treatment which will be in line with the best given to any other country.
Our experience with free trade agreements suggests that such agreements lead to major increases in investment. For instance, the United States agreement, that Mark Vaile was so heavily responsible for, has, in the eight years since it was struck, led to a 38 per cent increase in two-way trade. But it also led to a doubling of investment in that time. Australia’s investment into the US, which amounts to hundreds of billions of dollars, is more than matched by hundreds of billions of dollars of investment the other way. There is over a trillion dollars now of investment between our countries. The atmospherics have changed. This is an intangible factor, but once you’ve struck these agreements, you build relationships between trading partners, you build more understanding, and therefore, there are more opportunities and more inclination to then make investments.
If you look at history, wherever there have been strong trading relations between two countries, there has been a correspondingly strong investment relationship. And I predict that this agreement will see a massive increase in the two-way investment between our countries. There is over $1.3 trillion in Australia’s pension funds. This will grow exponentially. Korea is a very attractive place for us to be investing and I think the reverse is also true for many of your investors.
The Australian Government’s priority in all of this is to create the right environment to make it easier to do business and to maximize the opportunities and returns on investment. We have, as a new government, got a very strong trade and investment focus. This underpins also our determination to get our budget under control, to live within our means as a government, to reduce debt and deficit, and we’ve already fulfilled our promise to abolish the carbon tax and the mining tax, which were a major impost on many of your industries involved in Australia.
We are committed to freeing up regulation, cutting red and green tape and streamlining approval processes, especially for major projects and investments. The first of our planned six-monthly repeal days in parliament saw 10,000 regulations removed in one day in May and every six months, as long as we’re in government, we’re going to have a repeal day, which will be a very public day, with the expectation that we will continue to remove unnecessary and inefficient regulations. If we do repeal 10,000 regulations every six months, the economy will be in pretty good shape.
In backing our strengths, we’re looking to replace growth driven by government spending. In many countries in the developed world, since the Global Financial Crisis, the response has been to drive growth with government spending.
But so much of this is debt-funded. We’re looking to reverse that, to stop the increase in growth of government spending and replace it by private sector investment and consumer confidence. And KAFTA will play a big part in doing that. This is the only long-term, sustainable way of achieving strong economic growth which keeps employment at a high level. And for this reason, we’re deliberately pursuing an aggressive trade and investment agenda and will continue to do so.
There is no doubt that it is difficult to undertake reform, and to do it we have to take our people with us. That’s the approach we have in Australia now, as do you here in Korea. It is important to take people with you to achieve reform, important reform. If it wasn’t important and difficult, what would be the point? I would have been done a long time ago. I am talking about significant reform which is difficult. We have to explain this to people patiently and exhaustively. We have to explain to people the benefits for them of what we’ve just agreed to. The strength and the talent of the private sector in Korea and Australia are evident in this room - we have achieved much - but the future, I think, offers a phenomenal opportunity to do much more.
In the region around both our countries, from India through to China and everywhere in between, we are seeing the growth of a middle class of unprecedented proportions – there are currently 600 million people in that region in the middle class. It is expected that within 30 years there will be 3 billion people in that region, in the middle class. The opportunities are enormous for both our countries. We’ve got such a complementary range of skills and expertise and endowments that we can, in partnership, do so much to help all of those countries realise the growth in the middle class. It’s a humanitarian miracle. Think of the billions of people that will come out of poverty. We can play a big part in that.
Also, in the process, we can benefit our own communities by helping other communities with the goods and the services, as well as the expertise, training and the educational skills that are so fundamental to having a good quality of life that our communities enjoy. This will not come easily, we have to plan for it; we have to work for it. The next vital step - the right one - before us is to get KAFTA over the line. That will play a big part in our partnership, fully capitalising on what can be the most spectacular 30 or 40 years that we both have seen in modern times.
Thank you for this opportunity today and thank you for your support.
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