CHAIR —Welcome. As you know, the subcommittee prefers that all evidence be given in public but, if you should at any time wish to go into camera, please let us know. The subcommittee has a submission from the embassy. That is submission No. 9. I now invite you to make a short opening statement, if you wish, before we proceed to questions.

Ambassador Vulpe —Thank you very much for inviting me and for taking an interest in my part of the world. I welcome the initiative of the Australian government and the federal parliament in conducting an inquiry into the business opportunities for Australia in central Europe. Some of the members of the parliament may be familiar with my approach to this issue, because from the beginning of my mandate here in Australia more than three years ago I encouraged the Australian government, the parliament and the business circles to take a closer look at and a proactive approach to the trade, investment and business opportunities that Romania and my part of the world generally have to offer.

I have always considered—and I still do—that the emerging democracies and markets in central and eastern Europe offer plenty of economic opportunities that will ultimately prove to be equally beneficial for the countries themselves and their partners. I hope that this will be also the conclusion of your overall assessment after conducting this inquiry—especially after establishing direct contacts in central Europe, which you will do during your visit there. It a visit that I warmly welcome.

After so many submissions and inquiries, I am absolutely confident that your knowledge about Romania and central Europe as a whole has increased substantially; therefore, I do not want to give a presentation that overlaps with those of the speakers before me. Please interrupt me at any time during my presentation if you consider that you are too familiar with the issue, if you are not familiar with it at all, or if it is too boring. How long should I speak for?

CHAIR —For about five minutes.

Ambassador Vulpe —You will not allow me any more time than that?

CHAIR —Ten minutes?

Ambassador Vulpe —Okay. I will try to make it fast.

CHAIR —It is really a matter of hitting the highlights, because we have got the main outline. If you could give us something brief in terms of your economy and what you hope to gain out of EU accession. What is the date for your accession?

Ambassador Vulpe —It is 1 January 2007; we are not in the first 10 groups that are going in.

CHAIR —Also, could you indicate your trade situation at the moment: the commodities, people who are investing and two-way trade. You could indicate what the future holds.

Ambassador Vulpe —I will start with 1990 and the main foreign policy goals of Romania that are directly linked to the internal and domestic development in my country. I am sure that most of the issues I will present in this context are similar to those in all the other countries in central Europe. You may be familiar with our desire to join two main international institutions—the European Union and NATO. Romania has made a lot of progress in the last 13 years since the collapse of communism in my part of the world, and it is getting closer to achieving these goals. With regard to NATO, you may be aware that recently, in November 2002, at the NATO summit in Prague, Romania was invited to join NATO. Romania sees itself now as a de facto member but will become a fully-fledged member in the course of 2004, after the ratification process of the accession protocols is completed in all member states. Romania believes that the integration into NATO will provide further investment guarantees and will add to the existing incentives for foreign investors to locate their projects in Romania. For Romania, the accession to NATO is not merely a political or military prospect but also has an important economic connotation.

With regard to the European Union, as I mentioned, our target to join the European Union is January 2007. This objective was endorsed by the European Council at its summit in December 2002. So far, out of a total of 31 chapters that should be negotiated in order to join the EU, Romania has closed 16 chapters and the remaining 15 are open and under negotiation. So Romania is now approaching the end of a very important stage in its development and the beginning of a new one. If joining NATO represents the end of the transition in Romanian politics to a total break-up with the communist past, joining the EU will also mean the end of that transition and the economic transformation of our country. After more than 30 years we can say today that Romania is much closer to the country that she has always wanted to be: free, democratic, with a functioning market economy and embraced by the European family. That is just a short outline of these two main important issues that have been dominating Romanian foreign policy and its internal developments over the last 13 or 14 years.

With regard to the economic and investment environment in Romania, I have a lot of information to provide but I will try to be brief. Romania is situated in the south-eastern part of central Europe and we believe that one of its main assets is that Romania enjoys a favourable geographical position. It is a gateway to western Europe. I am sure you have heard much of this before from my colleagues, but I want to present Romania as a `hub' for Romanian investment and economic activities. It is not my original term. I borrowed it from Australia and from your representatives—the Australian ambassador to Belgrade and from Austrade. I think Romania is perceived like this in economic and government circles in Australia. It is a country full of opportunities. It has 22 million inhabitants and is the second largest country in that part of the world after Poland. It has considerable human potential, skill and competitive labour, and solid knowledge in science and technology, IT and engineering, which I think makes it safe and attractive for investment. The foreign investment policy, the continuous growth of Romanian exports, the development of small and medium enterprises, and sustained and well-balanced regional development are considered major tools of the reform process and fundamental premises for our country's integration into the European Union. The prospect of joining NATO and the EU generates a stable and predictable business climate.

With regard to our economic performances, 2001 was the second year of economic growth after a long period of hesitating transition towards the market economy. The gross domestic product recorded an impressive growth of 5.3 per cent, which positioned Romania in first place among the central and eastern European countries. For 2002, the GDP increase was 4.9 per cent and for 2003 there is an estimated economic growth of 4.5 to five per cent. That confirms the positive trend of the Romanian economy. The contribution of the private sector to the GDP structure was 67 per cent; this reflects the dynamic of the reform in the privatisation process in Romania. As a main driver of the Romanian economy, foreign trade registered an increase of 17.8 per cent in 2002, with exports representing $US14 billion.

CHAIR —Was 17.8 per cent the growth factor?

Ambassador Vulpe —Yes; the growth compared to 2002. The export share was $US14 billion—all my figures will be in US dollars—and the import share was $US17.8 billion. It is relevant to mention that European countries accounted for 82.3 per cent of Romanian exports and 82.5 per cent of its imports, so most of the trade is done with European countries. Among this, trade with the EU accounts for 67 per cent of Romanian exports and 58 per cent of its imports. The economic performance registered in the last period allowed for three consecutive improvements over the country's risk indicators for Romania. There are rating agencies, like Moodys and Standard and Poors, that increased the rating for Romania several times, which was a good signal given to the foreign investors and business circles.

CHAIR —What rating is it now?

Ambassador Vulpe —It is from BB- to BB for credit ratings. The privatisation process is essential; it has always been a priority in restructuring the Romanian economy, so the Romanian government privatised almost the entire small and medium sized companies, as well a number of big companies. We have a Romanian authority in charge of the privatisation of state owned assets. Recent figures, at mid-January 2003, show that the portfolio held by this Romanian authority for privatisation still includes 1,267 companies which should be privatised by the end of this year—that is the intention of our government. I will mention only a few of the most important achievements in the privatisation process. The Romanian Development Bank, one of the biggest banks in Romania, was sold to Soci[eacute]t[eacute] G[eacute]n[eacute]rale, France. Dacia, the car manufacturer, was sold to French Renault. Sidex—which is a relevant company in terms of our bilateral relations because it processes iron and steel, and processes coal and iron ore from Australia—was sold to an Anglo-Indian consortium, LNM Ispat. Also, the agricultural bank was sold to Raiffeisenbank Austria.

Improving the business environment also means improving the investment environment. We have an attractive legal framework for investment that stipulates the granting of specific facilities in accordance with the kind of investment. This was presented in detail in my written submission to the committee. If you have had a chance to look at it, you may have seen the investment facilities and incentives that are offered by the government. In order to more efficiently promote Romania as a profitable destination for investments, Romania has created a governmental agency to specifically deal with this issue. It is the Romanian Agency for Foreign Investment. The agency offers assistance to foreign investors, it offers a database for investors, and it aims to become a service organisation in order to facilitate and support the implementation of foreign investment.

Counting from 1990, the level of foreign investment in Romania now amounts to $US8.5 billion, out of which $US1.37 billion was invested in 2001. The main countries to invest in Romania are the Netherlands, Germany, France, the United States, Cyprus, Austria and Italy. We consider that Australia has a high investment and export potential, and Romania could be Australia's economic expansion base in central and eastern Europe, the Balkans and the Black Sea area—a region with a very important market. That was a general outline of Romania's economy.

With regard to Romanian-Australian bilateral relations, I am delighted to say that there are no pending issues that may hinder the further development of our relations. I see only opportunities. Romania is committed to working with Australia in order to identify and promote these opportunities. Even though Romania is one of Australia's biggest export markets in central Europe, the trade figures show that only a modest volume of goods is exchanged between our two countries—a volume much below the real potential of Romania and Australia. According to the Romanian statistical data, the total bilateral trade between Romania and Australia in 2002 amounted to $US29.6 million, of which Romanian exports were a very small $4.13 million. The exports included machinery, equipment, wood and furniture. Romania's imports amounted to $US25.4 million, of which almost 50 per cent was minerals. I conclude that there is room for an active and fast development of Romanian[hyphen]Australian trade and economic cooperation.

I want to highlight some of the Romanian initiatives that will make relations with Australia more relevant. I underline that Romania is attaching special attention to developing relations with Australia; Australia is perceived as an important player in the Asia-Pacific and in the world arena, and as a developed, like[hyphen]minded country with which Romania shares similar aspirations and goals. One of the concrete measures undertaken by the Romanian government in order to enhance relations with Australia, especially in the economic area, is the recent establishment of the Consulate-General of Romania in Sydney. We decided to expand our diplomatic and economic representation to Australia, so we established a consulate-general in Sydney, upgrading the former Romanian trade office that was functioning there. The new office will be better equipped with personnel and logistic support to deal with economic related issues.

With the support of the Australian government, in January 2003 we also established an honorary consulate in Melbourne. It is the first honorary consulate that Romania has had in Australia. The main task of this office is the promotion of economic relations between Romania and Australia, especially the state of Victoria. The honorary consulate is led by an Australian businessman of Romanian origin. He is your main investor in Romania. He acquired an impressive piggery, and this was mentioned in the briefing file that you had from DFAT and our embassy.

In addition to this, Romania would like to send an important signal with regard to the status and prospect of its relations with Australia. This year we will have a very important event in our bilateral agenda; I refer to the planned visit of the President of Romania to Australia, expected to take place by the end of 2003. I am currently working with the Department of Foreign Affairs and Trade and the Department of the Prime Minister and Cabinet in order to find a mutually acceptable date for this visit to take place. I would like to take this opportunity to express my gratitude for all the support that I am receiving from these departments in preparing the visit, and I am confident that the visit will be highly successful.

It is worth mentioning that, apart from the political signal that such a visit will convey, the presidential delegation is expected to include an important business component. During the president's visit, we may even hold the 15th session of the joint economic ministerial commission between Romania and Australia, the main purpose of which is to reinvigorate the bilateral economic dialogue between our two countries. So, from Romania's and my point of view, the forthcoming Australian parliamentary visit to Romania is a timely one, better equipping the Australian officials with first-hand information about the status of our economy and preparing the ground for the high-level contact later this year.

I wanted to be original at this point but I cannot be, because my colleague from the Czech Republic and probably some of my other colleagues have already mentioned this issue of Australia's diplomatic representation in other countries. Romania is aware of the budgetary constraints imposed on each and every government, including the Australian one, and is aware of Australia's foreign policy goals. But Romania embraces the view that the existence of an Australian embassy in Bucharest will properly reflect the status of our bilateral relations and will essentially contribute to the advancement of our relations as a whole. Current relations with Romania are covered from Belgrade, and you have a consulate-general that is led by an Austrade person who is doing a great job for Australia. But, for your information and for the sake of statistical data that may sometimes be relevant, I would mention that of the 30 member countries of the OECD—and I speak here of the most advanced economies in the world—Australia is one of the few countries that does not have an embassy in Bucharest. Only Iceland, Ireland, Luxembourg and Australia do not have embassies in Bucharest—and I understand Ireland will soon open an embassy. I am of the opinion that Australia should join the other 26 OECD member states and be fully represented in Bucharest. Australia has the means, the capacity and the interests to do so.

CHAIR —Thank you very much for the comprehensive review. Going to the core of it, where do you see the best opportunities for Australia in terms of exports to your country, and where do you see the best opportunities for investment?

Ambassador Vulpe —With regard to your exports to Romania, I am sure you have very good promoters in Austrade and your Department of Foreign Affairs and Trade. I concentrate on promoting Romania's exports to Australia. I do not know whether I have been very successful so far. Even though the level of Romanian exports to Australia has steadily increased by an average of 25 per cent every year, Romanian exports to Australia still remain at a modest level. On Australian exports, I think there is still a way of increasing your mineral exports to our steel industry. Recently, your export figures to Romania dramatically decreased from about $A200 million. I will have to look at my papers to see the exact trend but, from a big figure, your export figures decreased quite dramatically.

CHAIR —I understand that that was following privatisation.

Ambassador Vulpe —Yes, following privatisation of this big coal and iron ore consumer. But I am confident that your exports and the bilateral trade will be able to stand up for a higher share of our total trade. With regard to investments, the main point that our embassy's submission made, and which the Romanian government would also like to make, is that Romania is an attractive destination for investment. In terms of recommendations for investment, there are a lot of areas with huge possibilities—infrastructure, energy, environment, tourism and agriculture, to name a few. I gave a comprehensive list of opportunities in my submission; perhaps you may like to go through that.

CHAIR —Thank you for that. I noticed that the Department of Foreign Affairs and Trade talked about the slow reform process and some of the bureaucratic obstacles that are in the way of investment. What comments could you make about reform of government structures and the bureaucracy and those impediments that we have found ourselves in the past, here in this country?

Ambassador Vulpe —As I mentioned before, in the last 13 years Romania had a lot to learn in order to transform its economy from being a heavily centralised one to a fully functioning market economy. It has not reached this point yet, but constant efforts have been made by successive Romanian governments to improve the administration and the business climate and to ease up the bureaucracy. I think heavy bureaucratic procedures are acknowledged by the Romanian government as being a problem, and the first step towards solving a problem is to acknowledge that it exists. The agency that I mentioned that deals with privatisation and helping foreign investors is just one of the examples that show that the Romanian government is committed to improving the bureaucracy and the way procedures are done in Romania. Perhaps there is some specific issue that you would like to deal with. Of course, bureaucracy in general is an issue that I am always confronted with, even in my own department, for example.

CHAIR —Are there funds available for the modernisation of the government services? Have you used multilateral funds?

Ambassador Vulpe —We definitely have. Modernisation of the administration is a prerequisite of joining the European Union, so you will hear me mentioning this issue a few more times. In terms of our preparation for the European Union, we have to adapt ourselves to the European Union standards. There is not too much time left to go before we are accepted, and Romania will definitely be up to the standards required. The administration, the bureaucracy, the business climate and the environment in general in Romania are progressing constantly and rapidly, so I am sure that you will hear less and less about this issue in a few years time.

CHAIR —Have you become a member of NATO yet?

Ambassador Vulpe —We were invited on 21 November. In Prague there was, from our point of view, a historic summit that decided on the further expansion of NATO. We have not joined yet because we are involved in a short negotiation process which is just about to be completed. In one year's time, in 2004, probably in April, we will be ready to join if all the accession protocols are ratified by the member countries of NATO. It is a technical procedure.

Senator O'BRIEN —I want to ask about shipping access. I think it was yesterday that we were told that there is a limitation on ship size in through the Bosporus. What limitations are there on cargo shipments between Australia and ports in Romania?

Ambassador Vulpe —I should be better equipped for this question because my husband is a chief engineer in the merchant navy—but I am not. I know that the traffic through the Turkish straits has been a constant problem for the Turkish government. I have attended many meetings in the International Maritime Organisation in London about this. It is not about cargoes—there is no limit. It is mainly an issue of protecting the environment. As far as I know, it is about the tankers. I am not properly briefed about this. In terms of Romania's capacity for sea transportation, it does not affect the traffic through the straits.

Senator O'BRIEN —So we can take bulk iron ore and coal and potentially wheat?

Ambassador Vulpe —Yes, definitely so. I think it refers only to tankers—oil carriers. So I do not think this will affect in any way other goods. I should have mentioned that Romania is well positioned because of its access to the Black Sea and because of the existence of Constanza Harbour, which is the largest in the Black Sea and one of the biggest and most modern in Europe. Australia could take advantage of this five-star harbour in Romania.

Senator O'BRIEN —It was interesting that the Croatian ambassador was encouraging us to look at one of their ports as an access point into Europe. What are the connections from Romania into central Europe and Northern Europe?

Ambassador Vulpe —We have connections through all sorts of ways of transportation—by air, road, train and by river. We have quite a solid infrastructure, which is constantly upgraded. It is still a condition for joining the European Union, and we receive assistance for constantly improving our infrastructure. Romania is well connected with regard to all of our neighbouring countries.

Senator O'BRIEN —In terms of airport linkages, what are the main connecting ports?

Ambassador Vulpe —European ports?

Senator O'BRIEN —Yes.

Ambassador Vulpe —All major capitals. We have our own company, Tarom. Many airlines fly to Romania, so we have direct links with practically all the European capitals.

Senator O'BRIEN —Obviously that is critically important for tourism.

Ambassador Vulpe —Definitely. Romania is a tourist country, and we want to promote it as a tourist destination. I am happy to see an increase in Australian tourists to Romania as part of their tour to central Europe. Years ago, Romania used to be a highly regarded tourist destination. This is another sector under modernisation and privatisation, and lately the facilities have improved dramatically.

Senator EGGLESTON —The matter of education has been raised quite a lot. Is there any potential for Romanians to use Australian educational services?

Ambassador Vulpe —I am confident that this will be the case. I am not aware of the figures, but I do not think that there are many Romanian students in Australia at this point. That is related to the financial capabilities of Romanian students to be able to bear the costs of Australia. I was one of those students: I recently completed a degree in one of your universities. So you can count me among the students who took benefit of your highly regarded universities. I am sure that, with time, more and more young people would like to come here. I know that there is a great interest. I follow with great interest the establishment of direct links between universities. I hope that my interest and the Australian interest in attracting Romanian students will bear fruit in the near future. Romanian students are highly skilled. The education standards in Romania are very high. I am sure that for university degrees there will be greater and greater interest for Romanians to come to Australia. The financial cost is a barrier and the visas may also be an issue.

Senator EGGLESTON —Yes, I understand that. The other area that I am interested in is information technology, ICT. I suppose Romania is building up its IT base. Is there potential there for Australia to be involved?

Ambassador Vulpe —Definitely. I should have mentioned this in my presentation: Romania has a strong IT sector. That is a consequence of our education system, which has a lot of options that offer students scientific IT and engineering degrees. I think the value of the Romanian IT standard is recognised around the world. As far as I am aware, an initiative of an Australian group of businesspeople is to look into this field of activity. A forum devoted to IT&T opportunities in central Europe will be organised soon in Sopron in Hungary. As far as I know, Romania will be represented there. There is a standing invitation on behalf of your minister of communications to the Romanian minister of IT—and I hope my minister will give course to this invitation—in order to discuss directly the possibilities of developing this sector. Romania definitely has opportunities and possibilities to offer to Australia.

Senator EGGLESTON —You said that there are IT courses at universities: what is the percentage of Internet uptake in Romania?

Ambassador Vulpe —I am not briefed. It is increasing. There are a lot of computer literate students, young people and persons in Romania. Computer units are increasing, and schools pay particular attention to these. Great attention is accorded to this side of education, and schools now make sure that they have computers. The information courses in Romanian schools, even at the younger ages, are of a very high standard. Young children in Romania are introduced to it from a very early age.

CHAIR —Ambassador, we have come to the end of our time. Thank you very much for your comprehensive review. We look forward to having further contact with you. You have a high profile around Canberra, so we see you often. We are planning a luncheon with all of the members of the committee, eight of whom are committed to the visit. We will be splitting into two groups, so about four members will be coming through Romania.

You will be given a copy of the transcript of your evidence. If you see any problems with it, please let us know. We look forward to having contact with you, both before we go and when we come back.

Ambassador Vulpe —Thank you very much. I wish you all the best of luck with your visit. I look forward to assisting you in any way. I have just received your letter of interest, and I would like to discuss further with you the way in which I as the ambassador and the embassy could be useful in preparing your visit. I wish you all the best of luck with it. Thank you.

CHAIR —Thank you. Jane Vincent, our retiring secretary, will have contact with you, and Pierre Huetter is taking over that role. Trent Mumford from my office will also be involved, as well as my colleagues.

Ambassador Vulpe —Best of luck to all your staff.

CHAIR —What is the degree you have just finished?

Ambassador Vulpe —A masters degree in international affairs.

CHAIR —Where was that at?

Ambassador Vulpe —ANU. I thought I was not too old to do this.

CHAIR —Congratulations. Well done.

Ambassador Vulpe —It was hard work. I have to tell you that it was the most difficult thing that I have obtained in my life.

CHAIR —I do not think they would be game to fail the ambassador, would they?

Ambassador Vulpe —The course was extremely demanding, and I did not have any feeling that they would be prepared to make allowances for an ambassador.

CHAIR —Again, thank you very much.

[3.20 p.m.]