Press conference

Parliament House, Canberra

Subject: Release of the text of the Korea-Australia Free Trade Agreement

Transcript, E&OE, proof only

17 February 2014

ANDREW ROBB: Well, as I say, thanks for joining us this morning.

Just by way of introduction, in the last five months, as I've got to many parts of the world, in my contact with public policy makers, I have observed a sort of emerging disillusionment with the interventionist approaches that typified public policy in the aftermath of the global financial crisis. And the disillusionment is about the capacity of more and more spending and more and more intervention to deliver sustainable economic growth. They're not making any inroads in so many of the countries, the developed world, into unemployment levels in any consequence.

So the world really, from my observation - and I saw it again at Davos, I've seen it all over the developed world - they're looking for alternative public policy approaches to drive growth at a level that will bring down unemployment in a sustainable way. So in that regards, all eyes really are on trade and investment as a major component of driving sustainable growth and jobs and it explains our Government's approach to the G20 this year, which has got a very heavy trade focus. It explains our ambitious trade and investment agenda that we've had from the outset as a new government. It is a key priority of the Abbott Government's plan for sustainable growth and job creation.

And this free trade agreement with Korea, which we announced a couple of months ago, but the details are out today, the comprehensive details, I think about 1800 pages of detail, this is an agreement with our third largest export market and it can be seen as a first instalment of our plan for creating jobs and growth. As you know, we've got many more that we're looking at with Japan and China and the TPP and a string of others that will follow beyond that.

This agreement, fundamentally, it backs those things that Australia does well and it backs those things that Korea does well so that our trade and our investment can reflect the strengths of Australia and reflect the strengths of Korea so that off the back of this agreement, the sustainable jobs and growth will come because we are enhancing, we're improving, we're innovating in all of those areas that we have typically been very strong, been as good as anyone, and better than most in terms of production and services.

Just a couple of other things. It is a really world class agreement. It's high quality. In the end, it will reflect the elimination of 99.8 per cent of tariffs on things that we export to Korea. So it doesn't really get any better than this in terms of its comprehensive nature. It is also restoring our competitive position with the United States and the EU and the ASEAN countries who have already struck, a couple of years ago, agreements with Korea. And it has put so many of our traditional exports at a very severe disadvantage. So that will be corrected.

It is particularly strong for Australian farmers and with the Prime Minister at the moment touring western New South Wales and western Queensland, this is an agreement which does go to the heart of trying to assist our farmers, in particular, and agribusiness, to compete better and better in the region around us. And with tariffs of up to 550 per cent being withdrawn - potatoes, 300 per cent on potatoes, that will go immediately this thing comes into force; 15 per cent on wine will go immediately this thing comes into force; in dairy, we've got 36 to 176 per cent tariffs which will go, some of them over time.

There's just a suite of things. Those folders you've all got, you can see the endless detail on very important products, but these are really wonderful opportunities for agriculture and, again, it's our third biggest market. So there's 50 million people. It's a big market and it's a population that are well off relative to so many other markets and there's real opportunities.

Importantly, I think, this time we have placed a particular emphasis on services. So there's quite - very significant, actually, access that from a legal point of view, accounting point of view, environmental point of view, health services, a whole raft of services, architecture, you name it, companies can now go in and establish in their own right. This hardly ever happens anywhere in Asia. Usually it's joint ventures, and there may be complications. I've been involved in some of that myself before coming into the parliament in some Asian countries and I know the difficulties that that involves. So this is really a significant breakthrough.

Many of the Korean companies who are dramatically ramping up their investment in Australia - it's gone from very little to $12 billion in the last few years - they want the advice in Korea of Australian laws and regulations and whatever. They like to have Australian advice at hand in Korea to assist with their investments and their ongoing management of those investments in Australia. So it will facilitate even more and more direct investment.

We have increased the threshold to equate with what we've given the United States and New Zealand of just over $1 billion threshold before investments need to go to the Foreign Investment Review Board with a couple of exceptions, including agriculture, which you've got lower thresholds as per Government policy.

So with an expected or a modelled anticipation of agriculture growing - agricultural exports growing about nearly 75 per cent in the next 15 years off the back of this agreement; manufacturing growing by an extra - over 50 per cent in the next 15 years; mining, 17 per cent over the next 15 years; and an untold growth in services that hasn't been modelled - very difficult to model, but that will be another - not hidden, but another really major facet of the progress on this agreement.

In terms of what have we, in a sense, traded off or what concessions have we given Korea, they're principally on the auto front. 75 per cent of tariffs on cars from Korea will go immediately on entry into force. The bigger cars, they're spread over three years, the reduction in those tariffs. On components, we've spent a lot of time with the component industry over the last year or so and those things which are sensitive are phased - the tariffs are phased out over three to five years and the remainder will immediately go to zero when this thing goes into force.

There's textile, clothing, and footwear. Importantly, tariffs on white goods and electronics. So it will put downward pressure on a lot of everyday white good items and electronics that Australians are purchasing. And steel – some elements of steel production - again, over several years. They're the main things.

We've given, as I said, the investment threshold of $1 billion. We have included this because we wouldn't have got a deal without it, but an ISDS provision, but there are important carve-outs which ensure that public policy decisions in regard to the environment or public health issues are not then covered by the ISDS.

And we've got some things in the agricultural area, a few areas which were deemed by the Koreans to be too sensitive where we made no progress, and that was rice and things like walnuts and honey. But overwhelmingly, you've seen the list on agriculture, - as I said before, when it's all finished, when all of the phasings have been completed, we will have 99.8 per cent of all of those exports from Australia down to zero tariff levels with the Koreans.

Over to you.

QUESTION: Minister Robb, can I just get some clarification on cars? You mentioned there would be some big cars that we'll still keep the tariff on. Can you just explain which models?

ANDREW ROBB:

It's more to do with engine size. So all the V8 models, some of the larger six cylinder vehicles, they phase out over three years. It's all of the smaller cars, the little four cylinder cars, the smaller four cylinder cars and diesel. Some of the bigger diesel, six cylinder cars, and the V8s are typically the ones across all sorts of models.

QUESTION: Is that because of the timing and phase out of our local industry? Are you trying to protect [inaudible] for three years?

ANDREW ROBB: Yes. It's a sensitivity associated with the ability to compete in those areas - the Territory, for instance, is a vehicle that is produced here, is finding it difficult to compete in some of those markets, and that's why we've phased it out over three years.

QUESTION: Mr Robb, you spoke about the projected growth for manufacturing exports. What sort of - given the recent history of manufacturing in this country, where do you see the strengths being there?

ANDREW ROBB: Well, it certainly is in the high value added - high margin, high-tech knowledge economy based manufacturing. You look at even today, there's $130 million worth of gear boxes were sold in the last year to Korea, $50 million worth of engines. Now, there's an eight per cent tariff currently on that in Korea. That will go immediately when this takes effect. But again, it's the high value end of the auto component market.

The same with medical devices and so many things that sit around what we're good at in terms of a lot of mining and resources technology, we're world leaders in a lot of this. Now, this will take us to another level of opportunity. A lot of the manufacturing that's now starting to emerge around health medical research, we're one of the leaders in medical research in the world. That is now starting to spawn all sorts of manufacturing opportunities we've seen down in Geelong and other places.

So I think if you go forward, you can find all over the country in manufacturing areas, even in some quite traditional areas, they get to the high-value end, highly automated, knowledge based, creative, and there's some outstanding things that we're competing on, and almost some ‘coal to Newcastle' examples all around Australia.

But they are - they've just got to move from the sort of routine low-value stuff which we find it very hard to compete with, and move into this high-value end.

QUESTION: Minister, you mention the changes in terms of the safeguard measures for Korean imports of beef and malting barley and others. How long will they have to be in place for? Will they phase out or should - and do they increase over time?

ANDREW ROBB: The beef one for instance - it's a 40 per cent tariff. Of course it's our second biggest beef market I think so it's huge already but we're starting to get affected by the US. The US conducted a successful free trade agreement two years ago and it phases out in a linear sense over 15 years. So, already the US has got an eight per cent advantage over Australia in trying to sell beef into Korea. Now this will restore - it will go back to a five per cent gap and then we will drop by the same amount each year as the US and the EU into that market.

So it is arresting what was becoming a quite a serious trading disadvantage between ourselves and producers in the US in particular but also the European Community. Now so that's beef -goes down over 15 years.

QUESTION: [inaudible] referring to the safeguard mechanisms that allow Korea to impose - to reimpose tariff depending on the increase…?

ANDREW ROBB: Well…

QUESTION: (inaudible) in the imports into Australia?

ANDREW ROBB: Well, if it jumps dramatically, like if you had, we've just had a thousand per cent increase in chilled beef into China. And they stopped the trade because - it will resume but they felt it was growing too quickly. Now it's these sorts of major jumps, if there's something happened and there was a major jump. If there was disease in beef discovered in other supplying countries it could lead to a massive increase in Australia but now that doesn't necessarily trigger that reverse action but it would trigger a consideration, and they would look at where the beef is available and probably work in our favour in that instance. But they're the sorts of things - it's only in unusual circumstances and they're temporary.

QUESTION: Minister, what would qualify as a dramatic increase and who would be the judge of that, would it be Korea or the WTO?

ANDREW ROBB: It's the Koreans that make a decision. I'm not sure of the actual formula but our negotiators were comfortable - if it represented a change that was not reflective of true market conditions. So something dramatic would have to happen to - like I say we've just seen a thousand per cent increase in chilled beef into China and a thousand per cent increase I suspect would trigger some of these actions.

QUESTION: You mentioned that you wouldn't have been able to secure the deal without including the ISDS provision ?

ANDREW ROBB: Yes.

QUESTION: Does that - I mean by some sort of reluctance on the part of the Government to [inaudible]?

ANDREW ROBB: Well, we've said always we'll look on a case by case basis. But we wanted to make sure that if we did have it, it was a modern version of the ISDS with the carve-outs. So we had to be satisfied that we could engage in public policy decisions in the future in regard to health or the environment and not have it subject to the ISDS. So that was - that is the reservation - but there's a lot of misinformation running around. A lot of anti-trade groups, particularly some elements of the trade union movement who are backing anti-trade fronts who are saying that the roof's going to fall in. But the truth of the matter is ISDS provisions have existed for up to 30 years in Australia in agreements Australia has struck. There are currently 28 countries that we now have investments and or trade agreements in which the ISDS is a component.

There's been one case in 30 years taken against Australia and that is the case against the tobacco - plain packaging. And that's also been challenged in WTO which is another matter altogether. So - and it's not certain in any sense that they'll be successful. Most of the cases that have been taken in other parts of the world have found against the companies. Three-quarters of the cases - if you look at the US and Canada. But in Australia's case, we've only had that one case yet Australian companies have taken some actions successfully and got compensation where there was a breach of the agreement. And you get - it's really there for those countries where the legal system, the existing legal system in those countries may not be accessible. You try and bring a legal action in India. You'll grow old waiting.

And it's just the system. Very difficult for even the locals to get into court. Or you get to other countries where you'll never get a judge ruling in favour of a foreign company. They've got an unsophisticated - not a robust legal system in some countries but we still want to trade with them and we want to invest. In this instance this relates to investments. It's a protection for our investors which has been used and effectively in some cases with Australian companies into other markets and it's to me, just a logical thing, if you strike an agreement, we've spent - there's been six years coming up with this or nearly six - five years anyway.

All of the effort and 1800 pages of detail;11,000 tariff lines have been negotiated. It's a highly complex agreement. Now if in two years time, it's in place, if we make major investments into Korea and they breach subsequently this contract we're signing is breached, there should be some comeback and that's the nature of the ISDS - it has been a very effective, little-used but very effective component, especially in countries where their legal system is not up to the standard that it might be in ours.

QUESTION: Minister, just to be clear, does the agreement make it impossible for any environmentally related action to be taken under the ISDS or anything to do with our environmental laws, et cetera?

ANDREW ROBB: It does carve out public policy relating to environment, yes.

QUESTION: So what are things that people - could other companies pursue Australia or vice versa over [inaudible]?

ANDREW ROBB: Well, I'll give you an example. This is a case, normally it has to prove discrimination against a foreign company compared with the locals, or unfair expropriation of assets. Now, there's a nice example out of Mexico. It was soft drinks - the Mexicans moved to impose a tax on soft drinks that were sweetened with corn syrup, but soft drinks that were sweetened with cane sugar weren't taxed, and it just so happened that all the companies from the United States sweetened their soft drinks with corn syrup.

All the Mexican companies sweetened their soft drinks with cane sugar. It was clearly a measure designed to provide protection, and yet they had the NAFTA which said there is to be no discrimination against companies trading across the border. So that was a classic example that the ISDS was used and the Government lost because they had breached the contract that they had signed in the NAFTA.

QUESTION: Where are the Trans-Pacific Partnership negotiations up to?

ANDREW ROBB: Next week I'm in Singapore for a few days, and we really are at a very advanced stage, but, like most agreements, the hard yards are in the last five minutes, and the hard yards in terms of the TPP are in the market offering, the market access offering for Australia, which is - we have liberalised our market hugely compared with many other countries. We need a decent market access offering to make this thing work for us. So a lot of countries have been holding back - this is what usually happens - and we're now getting to those hard yards.

So this is quite an important few days coming up in Singapore to really start to see the colour of their money. A lot of the more complicated issues - intellectual property, the SOEs. For the first time, state-owned organisation enterprises have become part of a trade agreement.

A lot of the attempts to define, how can we ensure a level playing field with other private enterprise groups in other countries. There is online commercial trading - there's a whole lot of 21st century issues that this agreement is attempting to sort of strike rules that will ensure, fair trade and trade which is not compromised with protectionary measures taken by different countries.

So it's at an advanced stage. If the market access offering is ambitious and attractive and of significant consequence, we can move quickly on all of this.

QUESTION: [inaudible] other Democrats, they're also encouraging on the whole idea of this TPP, so do you - is there any prospect whether you could get a situation where you, say, have 11 of the 12? I think it's - is it 12 ?

ANDREW ROBB: It's 12, yes.

QUESTION: So you maybe have 10 or 11 sign up and then political hurdles…?

ANDREW ROBB: Well, we have to – the US has to be – the US is a critical part because it's such a big market, so it's a critical part of this trade agreement. Overwhelmingly, the Democrats have - most of the Democrats have never supported any trade agreement - so it's not a new phenomena.

And I've been to Washington now a couple of times. There's a lot of politics obviously going on, they had all the deficit stuff, and it's an unusual environment in Washington. But having said that, I think most of the Republicans, if not all of the Republicans, will support it, and they don't need a large number of Democrats to get this through. So at the end of the day, I still think that, it'll be tight, but I think it will still get through in the US.

QUESTION: Mr Robb, how damaging are the latest allegations or revelations we've seen from Edward Snowden about the trade negotiations, that Australia apparently gave information to the US about the Indonesian [indistinct] negotiating? And do you fear any retaliation against Australian [indistinct]?

ANDREW ROBB: Well, again, you know, I've got no idea of the voracity of any of that, and we don't comment on - no one's commented on any of this. I mean, it's just Snowden dropping these accusations, really, out there. What I can say is that we would never use information against allies. So we have consistently informed Indonesia of that in regard to all of the other supposed - all the other accusations that Snowden's been floating around.

And I can just say to you, in the last few months - just take the live cattle trade. It was - after the previous Labor Government in Australia stopped the trade overnight, it caused enormous damage. There's still unbelievable problems across the North of Australia with debt situations and all the rest in the industry, but it had got back to 200,000, which was still totally unacceptable. It's now this year gone from 200,000 to 700,000, which is back to the peak.

Now, in the course of the last few months I've met at least five times with my counterpart, who's just resigned to run for presidency, but we've had a very good relationship, and the trade side of things, despite, some of the comments on other issues, the trade side of things has not been in any way affected. And I think that's a reflection of the nature - in fact, not only not been affected, it's improved quite dramatically in the case of the live cattle exercise. So, you know, I think there is a healthy relationship between ourselves and Indonesia, even though there's been some issues running around.

QUESTION: [Inaudible] retaliation, if you'd call it that, that we saw the volumes taking a while to come back up with live exporting, given the diplomatic stand-off, I guess, we've seen with the Indonesians in the last six months, could those two factors together - as in, these latest revelations - what happened with live cattle and then the spying allegations, is this coming to a perfect storm between Australia and Indonesia?

ANDREW ROBB: No, it's not. No, my point is that the live cattle exercise was going nowhere until 10 days after the election, when the Prime Minister and Julie Bishop and myself went there. I had round tables with the industry, we met with the Cabinet, all of those things. It had sort of bottomed out at 200,000 and was going nowhere. Since then, it's gone to 700,000. Now, that was - since then, we've had all these, Snowden so-called leaks, and yet the trade is in a very strong position. I feel the relationship - as I say, the relationship I've had with the Trade Minister Gita would be as strong as I've got with any, frankly, around the world.

QUESTION: Mr Robb, with the ratification date for Korea, as you mentioned, the beef tariff differential only decreases from eight to 5.4 per cent if it's ratified this year. Given the political sensitivities in Korea and the concerns in Australia over the ISDS clause, how confident are you it will be ratified before the end of the year?

ANDREW ROBB: Look, the Korean Government's very happy with what's been negotiated, and - you mean the TPP or the Korean?

QUESTION: [inaudible]

ANDREW ROBB: Look, it's - we've now initialled - the chief negotiators have both initialled it. It's gone through all of the legal vetting. All I can say is my contact with my counterpart in Korea, they are very excited about what we've signed up to. They've got processes to go through because there is, of course - I mean, to make all these concessions to us, it does lead to - there are pockets of concern amongst industries who might be affected in Korea, but they've made a very conscious decision as a government. They are really leading much of Asia in terms of the liberalisation, and they're going to benefit as a country, I've got no doubt, as a consequence. And I'm very confident that, hopefully we'll get it signed within a couple of months, and then there are processes to go through, and hopefully it'll go into force before the end of the year and we get the full advantage then of that beef run-down.

Thank you very much. Thanks, everybody.

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