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Australia's trade and investment relations with Central Europe

CHAIR —Welcome. As you know, the committee prefers all evidence to be given in public. If you at any time wish to go in camera, please let us know, but I do not think that will be necessary in this case. The subcommittee has an exhibit from the embassy. That is exhibit No. 2. I now invite you to make a short opening statement before we proceed to questions.

Ambassador Turenicova —Thank you very much for this opportunity. I say that very frankly and sincerely, because I am very grateful for it. Even now when I introduce myself and say that I am from Slovakia, people quite often say, `What? Yugoslavia? Czechoslovakia?' Even last week, an Australian daily newspaper published a map of Europe, listing the countries which support and oppose the US approach towards the crisis in Iraq, and the map did not show my country. It was swallowed by Poland, Hungary and the Czech Republic. Slovakia just disappeared from the map.

CHAIR —I apologise on behalf of the media.

Ambassador Turenicova —I do not blame you. I know that you know where Slovakia is. Many of the members of the subcommittee visited my country two years ago. That delegation included the Speaker of the House of Representatives. So I know that you are aware of where the country is and what it is like. This low level of knowledge is probably because the country is so very young. We recently commemorated the 10th anniversary of the independent existence of the Slovak Republic. Slovakia is only 10 years old.

CHAIR —You were part of Czechoslovakia before. Is that right?

Ambassador Turenicova —It was Czechoslovakia before. It has only been Slovakia for 10 years. If you consider that the Slovaks settled on the territory of today's Slovakia in the fifth and sixth centuries and that Christianity was spread in the ninth century, the Slovak lands and people have been incorporated into various states and empires for a long time. But all the time they were struggling and hoping for their own country and identity. Fortunately, independence was achieved in a peaceful and smooth way. From recent history, you might remember the famous Velvet Revolution by which the old regime was transformed into a democracy. That happened peacefully. This was followed by what might be called the Velvet Divorce—the splitting of the former Czechoslovakia, when the two peoples, the Czechs and Slovaks, agreed to go their own ways. That also happened without conflict, by negotiation and without a drop of blood being spilt.

Instead of repeating all the figures and numbers we have delivered to you in written form, it would probably be better if I gave you a picture of the country—an idea of the atmosphere and situation currently. Slovakia these days is a fully democratic country which sees its future as a part of Europe, as a part of the European family of nations and as a future member of the European Union.

CHAIR —When is your referendum on accession?

Ambassador Turenicova —The referendum is on 16 and 17 May this year. From the very beginning, the firm policy priorities of the Slovak government included the membership of three key international bodies: the OECD, NATO and the European Union. Slovakia became a member of the OECD in August 2000. I would like to take this opportunity to thank you very much for Australia's support for our membership. We were invited during Australia's presidency in the organisation, so I really appreciated that very much because I could inform my ministry and my government that it was `my country' which supported our membership. We were invited to join NATO last November at the summit of NATO in Prague. With respect to membership of the European Union, Slovakia was among the first countries which closed the 30 chapters the union negotiated with the candidate countries. Over 70 per cent of the population of our country support membership. I think that will be demonstrated in the referendum in May this year.

All these positive steps and developments are achievements of the current government, which was re-elected in September last year. It is also a very interesting and positive moment: probably for the first time in a postcommunist country the same government has been re-elected. Usually, the government is changed or there are some preliminary elections, but for the first time the same government is staying again for a second period, which we consider a sign of stability.

Slovakia definitely had a much more difficult starting point than other countries in our region. As you can understand, you cannot have everything twice in one country. After the split, many things—especially institutions, including the foreign service—remained on the Czech side. In going through a transformation process—transforming the economy to a market economy—Slovakia had to build many things, such as institutions and so on, from point zero. So that was the difficulty we had to go through. Fortunately, Slovakia was able to catch up. Today's economic results are very comparable with the results of the other countries in the region; in some cases, they are better than those of some areas.

A lot of help and cooperation from other foreign countries and the inflow of foreign investments have made these results possible. Attracting foreign investors is one of the Slovak government's priorities. Foreign investment is still considered to be the big hope for bringing positive prospects to the Slovak economy. Slovakia offers a lot of advantages to investors. Allow me to mention just some of them: its tax credit; its duty-free import of machinery and equipment; and its repatriation—up to 100 per cent— of post-tax profits in foreign currency. Slovakia is ready to close agreements concerning double taxation and protection of investment. At this stage, allow me to add that Australia and Slovakia have already signed the agreement about avoiding double taxation, and the IPPA—the Investment Protection and Promotion Agreement—is in its final approval stage. It will be ready to be signed in a very short time.

At this stage, I would also like to mention a very important thing—that is, that Slovakia is the first and, as far as I am informed, probably the only country in central Europe which abolished visa requirements for Australian passport holders. You are experts in economics so you will understand that it is, of course, a certain loss of financial income for us—for example, my embassy was able to live from the money we charged for the visas. But I was able to convince my government that it would help our bilateral relations and that, once Australian citizens in another country in Europe knew that there were no formalities necessary to enter our country, they would go and visit Slovakia. I was right. I get the proof every day when Australian citizens call the embassy, and we happily inform them about this arrangement. They very much appreciate that, and we know that they are going to visit Slovakia.

CHAIR —Well done.

Ambassador Turenicova —Thank you. Another advantage to investors is the possibility of up to 100 per cent company ownership. Slovakia offers a skilled work force with a high percentage of university graduates. At this stage, I would like to mention that Slovakia's work force has received highly positive evaluations in respect of high professional levels. If you look at the education structure in the Slovak Republic, you find that 12 per cent of the population are university graduates, 79 per cent of the population have secondary or technical education and there is almost no illiteracy.

Another very interesting and important thing is that currently—from the little country of Slovakia, with its population of 5.4 million—1,600 students are studying at educational institutions in Australia. Most of them are in Sydney, but there are also some in Perth, Adelaide, Brisbane and here in Canberra. I say that with real pride and happiness, because I belong to the generation that was punished. Under the communist regime, my generation and the older generations were not allowed to learn foreign languages or to travel. You can recognise that by my knowledge of English.

CHAIR —You have caught up since.

Ambassador Turenicova —I am happy that the kids have different opportunities and that they can go out in the world and get education. I am also happy that their parents are able to afford to pay for these courses, to buy their tickets and to send them to this developed part of the world to get a good high standard of education.

CHAIR —Why has Australia done so well?

Ambassador Turenicova —Australia is, of course an attractive, beautiful country, and those who have already been here go back and spread the information and more and more students come. However, your question is very important, because the other significant factor is the fact that Australia allows students to work for a certain time per week, which means that they can pay for their stay here from the money they earn. First they have to pay for the course when they are still at home—and they have to buy their tickets, of course—but then it is easier for them to afford their stay because they can work as waiters, pizza deliverers et cetera.

CHAIR —I met someone last night driving a taxi who was a student at ANU, and he was on 20 hours a week—I think that is what they are restricted to.

Ambassador Turenicova —Yes. That is a big help and a big advantage for them. Additional advantages for investors in Slovakia also include the fact that Slovakia is a candidate country to the European Union, which means that Slovak industrial goods have free access to the European markets. While having a skilled work force, labour costs are still very low in Slovakia, and a very important advantage for investors is that Slovakia provides a top location to promote traditional trading ties with the developing economies in the east, including the former Soviet Union, while offering a low cost base for supplying the European Union. The advantage of Slovakia's location is that it is in the middle of Europe: the geographical centre of Europe is on the territory of the Slovak Republic. Slovakia has been used already by an Australian company called Legend, which is based in Adelaide in South Australia. Legend opened its base in Slovakia in the city of Bojnice. It distributes its computer hardware products not only to the former communist countries but also to the members of the European Union.

CHAIR —Is the head of that company a former Slovak?

Ambassador Turenicova —It is an Australian company, but one of the directors is of Polish origin. He recognised that Slovakia is in the middle of Europe, and so he opened his base in our country, even providing goods from Slovakia to Poland.

Among other advantages to investors are a top network of roads and inland waterways to market areas and a stable microeconomic environment within eastern Europe, based on a low per capita foreign debt and a stable currency. I could list a lot of other advantages, including the 10-year tax holiday and many others. Thanks to these, the Slovak Republic received the greatest number of investments in ratio to GDP of all the European Union candidate countries. Germany, Holland, Austria, Italy, France and the United States have been among the strongest investors. France is especially strong. Since Slovakia was invited to join NATO, France has decided to build a new plant producing Peugeot and Citroen cars in the city of Trnava in Slovakia. That is really a green field project. Another very important and increasing source of investment in Slovakia is Japan. In 1992 there were zero investments in Slovakia from Japan. Now, with Namuri, Yazaki and Sony, Japan is among the strongest investors. As a result, Japan opened an embassy in Bratislava last year.

I have been going through different magazines and brochures about the current development of foreign trade and foreign investment. To give you an idea, there are headlines like `South Korea Samsung shall employ up to 600 employees in Slovakia'; `Italian businessman intends to build an industrial zone in Levice'; `The entry of concern US Steel into Slovak steelworks: advantages for both parties'; `Dell Computer Corporation opens a centre in Bratislava'; `American Delphi increases its investment in Slovakia'; `German investors visit Kosice' et cetera.

The Slovak Republic welcomed the first investment from Australia. QBE bought 99.4 per cent of a Slovak insurance company and, as I have already mentioned, the company called Legend is taking advantage of the top location in Bojnice. But bilateral economic cooperation is not a one[hyphen]way street. I can state that some Slovak capital has also come to Australia. We have a company called R Glass—Royal Glass—in Sydney, which is exporting crystal from Slovakia and importing it into Australia. They are quite successful. We have a software company called Gratex. It is also based in Sydney. These are Slovakia's exports to Australia. Talking of exports, we also exported somebody who is regarded as a very successful businessman. I think he is regarded as the second richest man in Australia—the owner of the Westfield shopping centres, Frank Lowy. He was born, educated and grew up in Slovakia.

CHAIR —A good man to have on side.

Ambassador Turenicova —I hope we have more of that kind in Slovakia. In the materials we prepare for our government—for our ministers—there is a very nice expression. The expression is `unused reserves'—or `unused opportunities'—between Australia and Slovakia. I am sure this inquiry, for which I am very thankful, will help to get better use of these unused reserves or opportunities.

My personal praise of my country might not sound all that convincing, so I will avail myself of another Australian daily, which announced a competition for its readers. They asked readers to send them postcards from locations where they spent their holidays, and the postcard with the best and most interesting text on it would win a book prize. The winner was a postcard from Slovakia. From the city of Banska Bystrica, the Australian tourist writes:

We discovered this enchanting musical comedy town by chance and before the tourist hordes who will come soon enough, alas. No tipping accepted in cafes and the tower in the village square plays waltzes on the hour. Charming, polite, helpful locals. No graffiti. Innocence and charm everywhere. We are delighted and wish we could stay longer. Lovely mountains surround and the variety of flowers delightful. Excellent food and strong coffee—nothing expensive.

I encourage you to go and see it.

CHAIR —It sounds good. Before we get on to questions, there is a technical problem in terms of our committee's visit to Slovakia. We have discovered that Good Friday is in our program, and we need to cut back because I understand that it would be very difficult to meet people on Good Friday. People do not work on Good Friday. Is that true?

Ambassador Turenicova —Will you be in Slovakia from 8 to 10 April?

CHAIR —We are not sure because we are looking at the program now. We have problems with our program because of Good Friday. Is it true that that is a public holiday?

Ambassador Turenicova —Yes, Good Friday is a public holiday.

CHAIR —We need to have a look at our program again, as we have some problems with trying to fit everything in. Thank you for your very enthusiastic presentation of your country. It sounds as though it would be great to visit. With your knowledge of Australia and Slovakia, what represent the best opportunities for Australian trade in Slovakia? We have had some suggestions in terms of investment. But, knowing what you do about the Australian opportunities, can you say whether they are in areas like e-commerce, the agricultural area, the manufactured areas, sporting goods or automotive equipment? We are looking at possibilities. Have you given any thought to that?

Ambassador Turenicova —There are already some products which are either imported or exported, and I would say that those are the most suitable for export or import. From Slovakia to Australia, there are some small agricultural machines, some minitractors and some other vehicles—I do not know the name of them—to put up some heavy goods; they are special vehicles for that. Those things are already imported from Slovakia. This equipment and these vehicles are becoming more modern. They are now, and will be in the future, good articles for import.

What is very important to Slovakia is tourism. The country is truly beautiful. It is often called the Switzerland of central Europe with the wonderful Tatra mountains, which are common to Poland and Slovakia. But what we need are new hotels and accommodation facilities, and also services. When I say that the country is recovering from the past, the most difficult thing to change is the way of thinking—the minds of people. They quite often still think in the previous era, so the services generally are not as good as those in the Western world. It would be a really wonderful opportunity for Australia because here services are number one and we would need to either prepare or to educate—

CHAIR —They are not number one all the time, but most of the time.

Ambassador Turenicova —I consider this area of tourism to be a wonderful opportunity: for us it is necessary and for Australia it is very suitable.

CHAIR —Is 2007 the date of proposed access for Slovakia to the EU?

Ambassador Turenicova —No, it is 2004. On 16 April this year, the Accession Treaty will be signed in Athens. The referendum will take place in May, and then the accession agreement will be ratified in all the parliaments of the member countries of the European Union. In 2004 the new invited countries, the candidate countries, will become full members. It is arranged so that they will be able to vote in the European Parliament elections in 2004.

CHAIR —I understand that the government is promoting industrial parks in Slovakia. Can you outline the benefits to Australian companies wishing to locate there?

Ambassador Turenicova —I mentioned that there are some countries that are already building industrial parks. What is very correct here in Australia is that there are residential areas and there are industrial areas. In our countries, and my colleagues will probably confirm this, it is quite mixed. This is a very progressive way to organise the structure of industry and residential parts. These industrial parks are starting to be built in different parts outside the cities. For example, the one I mentioned earlier that the Italians are building is a wonderful opportunity for the citizens from the capital city, Bratislava, to find a workplace that is not in the city itself but outside it, and it offers a lot of workplaces for the citizens.

CHAIR —Do you offer special incentives to locate there?

Ambassador Turenicova —For sure: as I mentioned, they have special advantages like 100 per cent ownership, 10-year tax holidays and so on.

Senator EGGLESTON —Under the heading of `opportunities', you mentioned opportunities for Australia to export minerals and other raw materials. What are we talking about: coal, iron ore and those kinds of minerals, or things like aluminium?

Ambassador Turenicova —We are a small country. We have some resources for our own needs, especially resources of brown coal. Our next door neighbour, the Czech Republic, has some black coal resources and Poland, our northern neighbour, also has black coal. So we are importing coal especially from our neighbouring countries, and probably all these sources—our own source and those of these two neighbouring countries—are sufficient for us. I have already spoken with several partners in Slovakia about this issue because I was approached at the beginning of my posting here, but at this time we probably have sufficient coal.

Senator EGGLESTON —What about other minerals and raw materials? You mention them as export opportunities for Australia. What are we talking about—bauxite or titanium perhaps?

Ambassador Turenicova —That would probably be a better opportunity, because we have an aluminium factory in Slovakia.

CHAIR —Is it a smelter or is it an extrusion plant? Is it where they produce the aluminium ingots or where they extrude the aluminium products?

Ambassador Turenicova —Extrusion. That would probably be an opportunity, but it would be necessary to speak with the experts in this field.

Senator EGGLESTON —Do you have a steel making capacity?

Ambassador Turenicova —Yes, we have one of the biggest factories in the eastern part of Slovakia. I mentioned that the US Steel concern is already there.

Senator EGGLESTON —Where does your iron ore for the steel mill come from—Sweden or somewhere like that?

Ambassador Turenicova —It comes from the former Soviet Union. We also have our own resources under the High Tatra Mountains.

Senator EGGLESTON —Do you get oil and gas from Romania?

Ambassador Turenicova —We also get them from the former Soviet Union, but the government has negotiated with many other countries about the diversification of our sources for oil and gas.

Senator EGGLESTON —You said that there was a lot of Japanese investment. Does that include making cars?

Ambassador Turenicova —Exactly. We are a small country, but so many car parts are produced in Slovakia that you would be able to put together a whole car. There is strong investment from Germany, from Volkswagen, and whole cars are being built in Slovakia. A lot of small parts are also being made—for example, rear-vision mirrors. Other car parts are being produced by a Japanese factory in Slovakia—I do not know which parts, but some parts.

Senator EGGLESTON —That is interesting. Thank you very much.

CHAIR —What is the average income in Slovakia, compared with the current average income in EU countries? If there is going to be an attraction to invest, obviously the labour component is important.

Ambassador Turenicova —I could not tell you exactly. As I mentioned, the labour cost is very low in Slovakia.

CHAIR —What is the average income?

Ambassador Turenicova —The average income in Slovakia would be about 12,000 Slovak crowns, and 22 Slovak crowns would equal $A1.

CHAIR —So that is about $A5,000.

Ambassador Turenicova —It is very low. It is less than the average income in neighbouring countries in the European Union.

Senator EGGLESTON —Slovakia was where all the industry was in Czechoslovakia, wasn't it; you were more industrialised than the Czech Republic?

Ambassador Turenicova —The former Czechoslovakia was among the seven best developed countries in the world, but many years under the old regime have thrown us back into the Middle Ages, unfortunately.

Senator EGGLESTON —That is very dramatic.

CHAIR —There are great opportunities for you now, though. I notice that SARIO, the Slovak investment and trade development agency, has set itself the task of attracting 10 per cent of CEFTA FDI flows by 2010. How does the government plan to reach this goal?

Ambassador Turenicova —Those advantages which I listed are very interesting and important for potential investors. SARIO are doing promotions in different countries. I have tried to get them to Australia for many years, and hopefully I will be successful in the future. They are doing these promotions to explain to potential investors the advantages of and the incentives for coming to Slovakia and how to establish a company in the Slovak Republic. So they make potential investors aware of the very interesting and lucrative advantages there.

CHAIR —Which country in the existing EU does Slovakia have the most relations with—economically, politically et cetera?

Ambassador Turenicova —Economically, it is definitely Germany. Germany is the strongest investor and foreign trade partner. Of course, Slovakia also has the most relations with Germany politically, but I would also say Austria. As our next-door neighbour, Austria helped us very much, especially after the fall of the Communist regime. Austrian politicians were the first to speak on the tribunes and in the big square in Bratislava to give us courage, encouragement and motivation not to give up. So I would definitely say Austria, regarding the political scene. But it is also amongst the biggest investors and trade partners. Germany would take first place as the strongest investor, with Volkswagen, Siemens and Henkel. A lot of German companies are in Slovakia. They built a lot of plants from point zero—for example, a shoe company in a less developed part of Slovakia offered more than 2,000 jobs for Slovak citizens.

CHAIR —You mentioned that France has been there with their new plants.

Ambassador Turenicova —Yes, France has been the most recent to develop, as I mentioned. Being invited to join NATO meant for the member countries that Slovakia is a safe environment. France chose Slovakia from amongst various competitors and decided to build a plant for Peugeot and Citroen cars.

CHAIR —Is the second language in Slovakia now English or German?

Ambassador Turenicova —It is definitely English now. In the past it was probably German because Austria is our next-door neighbour but, as I mentioned, we were not allowed to learn foreign languages. I was perhaps over 30 when I first heard a native speaker of a foreign language. So it was a really bad situation but, with the influence of Western culture, it would now definitely be English. If you go around the streets, you will hear that everybody younger than me speaks English perfectly.

Senator EGGLESTON —What about the older people? Do they speak Russian as well? Did they learn Russian as a second language?

Ambassador Turenicova —Yes. The only foreign language taught in our schools was Russian, so we all speak Russian.

CHAIR —What about your own background? You have done a very good job in representing your country. Could you tell us about your career and how you ended up being the ambassador to Australia? It would be interesting to know.

Ambassador Turenicova —Thank you very much. I was a simple village girl from simple parents. I had the chance and the privilege to be chosen to study in the eastern part of Germany, of course; nothing else would have been possible at that time. My first foreign language was German, but in Germany we learnt a little bit of English. However, this was taught through German. When you say `sky', I do not think of the equivalent word in the Slovak language but `Himmel' in German because I learnt English via German. I studied in a university in Germany. I studied Germanistics, which is German literature, history and culture. Then I worked with the then Czechoslovak television in the international relations department. But what kind of international relations could that be? It could be between Slovakia and Bulgaria, Slovakia and Poland et cetera, but it was taboo with other countries. When I wrote my PhD—

CHAIR —What was the PhD in? Was it in German?

Ambassador Turenicova —Yes, it was in German. I did it in the same university where I had studied, in the city of Leipzig. I asked the government to allow me to go to Switzerland for two months. I do not know how it happened, but I was allowed to travel to Switzerland. That was a shock for me. We had been brainwashed about how the bad capitalist enemies lived. We were told that they were just beggars on the streets. Then I saw the reality.

CHAIR —You started at the top a bit with Switzerland!

Ambassador Turenicova —Yes, exactly. It opened my eyes and that is why, when the regime was falling down, I was able to convince the people to protest on the streets and in the squares.

CHAIR —What role were you in at that time to be able to convince people?

Ambassador Turenicova —I was able to convince them because I had seen the reality behind the Iron Curtain. I was among the leaders who brought the people into the streets and into the squares. I was able to tell them what the reality was—how it actually looks rather than how they were telling us it looked. I was able to tell the people how they were manipulating our minds. After the fall of the regime, it was not only the old politicians who were fired but also their staff. New staffers were needed. Because they knew that I spoke German and a little bit of English they asked me to join the first democratically elected prime minister in Slovakia. I was the spokesperson and press secretary for three prime ministers. Then after the splitting up of the former Czechoslovakia, they elected the first Slovak president and he asked me to join his chancellery, also as his spokesperson.

CHAIR —Is this your first posting as ambassador?

Ambassador Turenicova —Yes, it is my first posting.

CHAIR —You have done very well. Thank you for the excellent job you have done today and we look forward to being in contact as we try to organise our program.

Ambassador Turenicova —I would be more than happy to help you with your trip to my country.

CHAIR —Thank you.

Proceedings suspended from 12.31 p.m. to 1.34 p.m.