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Joint Standing Committee on Foreign Affairs, Defence and Trade
07/08/2017
Australia’s trade and investment relationship with the United Kingdom

HAERMEYER, Hon. Andre, Deputy Chair, German-Australian Business Council

HARRISON, Dr Robert, Board Member, German-Australian Business Council

PITTROF, Dr Sabine, Chair, German-Australian Business Council

RINZE, Dr Jens, Partner, Squire Patton Boggs (US) LLP; and Member, German-Australian Business Council

E vidence was taken via videoconference—

CHAIR: I welcome representatives from the German-Australian Business Council, who are appearing before us via videoconference from Germany. We have your submission, and I now invite you to make a brief opening statement and then we'll proceed to discussion.

Dr Pittrof : First of all we would like to thank the subcommittee for trade for this opportunity to present our views and to elaborate a bit more on our submission. I thought it would be appropriate to very briefly introduce the German-Australian Business Council and also explain why there are four of us representing the business council. The business council is a networking association, and we focus on fostering long-term relationships between Australia and Germany and, in particular, we like to offer business networking opportunities and activities for catalysing business opportunities. It's a voluntary organisation, and we are operating on a not-for-profit basis. We are part of an informal network called Australian Business in Europe. I take it some of the other organisations participating in that network, the Australia-UK Chamber of Commerce and ABIE France, will be appearing later today. The European-Australian Business Council, which is doing great work in fostering Australian-European relationships, is also part of this informal network.

I'd like to explain very briefly why we are appearing with four representatives. I would like to introduce Dr Robert Harrison first. He is a longstanding board member in our Munich area— Germany being decentralised, the

business council operates out of three areas, Frankfurt, Munich and Berlin. Dr Robert Harrison is the board member in charge of our submission. He has an engineering and technology background and he is also a director of a number of companies. He is a dual national—he is both British and Australian—but he tells me that he's not about to stand for parliament in Australia, so that won't cause a problem!

CHAIR: That's lucky!

Dr Pittrof : The Hon. Andre Haermeyer is the deputy chair of the German-Australian Business Council. He is also a longstanding board member based in Frankfurt. As was mentioned before, he is a former minister for industry and trade in the Victorian government and afterwards he was Victoria's Commissioner to the EU. He was based in Frankfurt and represented Victoria's economic interests in Europe. Although he was born in Germany, he has been an Australian citizen for a very long time—upon entering parliament in Victoria, he had to give up his German citizenship. Then we have Dr Jens Rinze, who is a partner with Squire Patton Boggs, a law firm. He is a German Brexit expert and co-heads Squire Patton Boggs's Brexit group. Squire Patton Boggs is a member organisation of the German-Australian Business Council, and Dr Jens Rinze has helped us with the submission from a legal point of view. So if there are any legal questions we thought it would be appropriate for him to be present as well.

Finally, to me: I chair the German-Australian Business Council. Although I am a German national, I have been involved with Australia for close to 30 years in various roles. As I said, I am not a dual national but I have dual legal education, both in Germany and Australia. Basically, I have an Australian desk—I run a corporate legal practice and I advise Australian companies and German companies on cross-border transactions. Both Mr Haermeyer and myself were recently part of the German delegation to the EU-Australian Senior Leaders Forum in Sydney in June. That's the background to the business council.

With a few more minutes, I will briefly address our submission. Basically, there are six main points we are advocating. The first point would be that we would urge Australia to prioritise a free trade agreement with Europe over one with the UK. We are supporting a free trade agreement between the UK and Australia as well, of course, but our basic remit is looking after businesses between Australia and Germany and also embedded in Europe in a wider sense. So anything that will facilitate the move of the UK out of the European Union to ease the pressure on business we will support. Because of that, we would support both free trade agreements but we would advocate to prioritise the free trade agreement with the European Union. There are basically three reasons for that: one is the European Union is by far the bigger market than the UK. The European Union itself has 506 million people and, even with the UK deducted from that number, it is still quite a substantial number of people. Germany, for example, is the third largest exporter of manufactured goods worldwide and so there is a large potential there. In a purely practical sense, it seems to make sense to have a free trade agreement encompassing 27 countries. It would be easier to get them under one umbrella first and then add the UK, rather than do it the other way round. The third reason is, as you would be aware, that the UK at the moment is not allowed legally to start negotiations or to enter into a free trade agreement as long as it is part of the European Union. We feel it does not have the capacity to negotiate all these agreements at the same time.

Our second point is that we would urge similar provisions in both free trade agreements and basically put them back to back and model them according to each other, again with a view to easing the constraints on business that the Brexit places on them. The third point is that we would advocate that European companies with significant operations in the UK should benefit from a free trade agreement between the UK and Australia and, conversely, British companies with significant operations in the EU should benefit from a free trade agreement between the European Union and Australia. The fourth point we wish to make is that any regulations relating to the rules of origin in both free trade agreements should take into account that products might contain substantial parts from other parts of the European Union in the case of the British free trade agreement or the other way round from Britain in the case of the European Union free trade agreement.

The fifth point is that, if there were tribunals in the free trade agreement, they should be transparent tribunals to increase the acceptance in the population, as this has been a problem in the past. The sixth point we want to make is that we see great difficulties looming in relation to the air traffic agreement, and that's why we are saying there should be a coordinated, and if possible unified, approach with respect to that. That concludes the summary.

CHAIR: Thank you very much. We appreciate that.

Mr LITTLEPROUD: While Senator McKenzie says she is from the great state of Victoria, my electorate of Maranoa is actually three times the size of Victoria and so it is three times as great. My electorate is rural and regional and remote focused. It is in Queensland and it takes up nearly 43 per cent of the state of Queensland—the most important half, really.

You are asking us to preference an agreement with the EU over the UK. How open is the EU to renegotiating some of the protocols it imposes on some of our importers, particularly in the agricultural sector? We have heard significant evidence from them to suggest that the costs imposed on them by the protocols do not substantiate any great outcomes. Is there any appetite in the EU for changing that, because that seems to be holding back more or better trade with the EU?

Dr Pittrof : Firstly, I have to say we have lost the picture. We can still hear you but we can't see you right now. That may be a question for Mr Haermeyer.

Mr Haermeyer : Thank you for your question. It is a very important one in any potential free trade agreement with the EU. Agriculture contributes about 1.6 per cent to the European Union's GDP, but it is always a sticking point with the EU, when you're starting to talk trade with them. To emphasise the point, it comes down to the political importance of French farmers. It is really France and French farmers, and it's one area where Australia, if it is going to do an FTA with the EU, really needs to drive a fairly hard bargain. I think France is at a stage now where they understand they have a lot of rigidities in their own economy and that now is as good a time as any to really push that issue. I don't think the fly in the ointment is any other country. The opportunity for our agricultural sector to get into the European market is a big one and it is one we need to seize with both hands. It really does come down, as I say, to 1.6 per cent of GDP, which is really very little, but the political significance of French farmers is enormous within the EU.

Dr Harrison : I would add to that that what is very interesting with the election of President Macron in France is, for the first time in a long while, you've got a centre/centre-right politician who's not in hock to the French farming lobby. I think that might be very significant if Australia could seize this window of opportunity with Macron while he is young and new in the political system in France to push the agricultural chapter of the free trade agreement to go forward. Then we probably have an excellent opportunity to relax some of the protocols that Mr Littleproud was talking about. The one I know a little about is the wine industry, which I do not think is a major concern for Queensland, though it is for Victoria and South Australia.

CHAIR: That is one of our bones of contention—one that we fight about.

Dr Harrison : I beg your pardon. I am actually an exiled Queenslander—my family used to have a farm on the Darling Downs, but they weren't into wine at that stage. I know there are some wineries around there. Geographical indication is something which you will find there will be a lot of resistance to change, and I know that has been one of the bones of contention with the Australian wine industry. But, regarding for meat and livestock, I think there is massive opportunity to work with the French government, and I would hope that Australia would be putting resources through its embassy in Paris to actually understand their concerns and to work with the French government to overcome them.

CHAIR: We've had some academics come through with the same contention. Then you talk to the realists—the industry leaders, such as the farmers federations, the chambers of commerce and the like—who have the opposite view. They say that by the time you could get the EU to do anything Brexit would have been completed and we would have been able to negotiate a UK-Australia free trade agreement five times over. What do you say to the obvious critique that's out there regarding the agility of the EU and its ability to complete free trade negotiations with Australia in a time frame prior to the UK being able to start?

Dr Pittrof : I think the negotiations are far advanced. From what we gather, the official negotiations are due to start later on this year. Yes, of course, there will be 27 member states, but what we are seeing is that, with the developments in the West, there is also an appetite to enter into free trade agreements with other nations and form other alliances, and you might have followed the Japan free trade agreement, which is nearly done. So I do think there is an appetite, with Australia, in particular, being a friendly country and, as we've seen over the last few years, the relations between Germany and Australia, in particular, and also with Europe, in the wider sense, having really increased. We've had really regular ministerial visits. We're very fortunate to have the finance minister, Senator Cormann, who is also fluent in German. He is a great champion of German-Australian and Australian-European relations in the broader sense. So I do think there is an appetite, and I do believe that it's actually going to be one of the easier free trade agreements, compared to other discussions and protests we've had with the TTIP and all that.

Mr Haermeyer : Can I just come in on that? Australia has had someone based down in Geneva, I think. He has basically been doing a scoping on an FTA with the EU for quite some time, so a lot of ground work has already been done on it. I would also say that, until the recent presidential elections in the US, the EU was getting fairly close to an agreement on a transatlantic free trade agreement, and that's far, far more complex than anything you could imagine with Australia. I think the real sticking point for us is going to be agriculture, if there is to be an FTA, and I think we can get over that. But I also note that in the Sydney Morning Herald on 28 July this year there was a story where, effectively, the Chancellor of the Exchequer in the UK, Philip Hammond, said that he does not foresee the possibility of an Australia-UK bilateral agreement until at least 2022. I think we can get an EU one done well before that.

Mr RAMSEY: My question is regarding the drivers for Europe. The drivers at the moment are for the EU to want to complete an agreement with Australia. Pretty much the only impediment I can see to the EU bringing anything into Australia, apart from biosecurity standards, is the five per cent general tariff that still exists. Is there anything on the table that Australia has to offer?

CHAIR: What's in it for you?

Mr Haermeyer : To be quite honest, I think this type of FTA is more important to us than it is to them. We're a market of 23 million people; the EU is a market of over 500 million. But, because of that, I think it's probably an easier one for the EU to negotiate because, other than the issue of agriculture, I can't see that there are a lot of hurdles in the way from their perspective. Look, it's another market to them, but I think they're very keen in pursuing it. And, because it's two developed markets, I don't think they feel particularly threatened by it and nor should we.

Mr RAMSEY: You are right, it's going to be agriculture, as it has always been between Australia and Europe, as the sticking point. It requires the rest of the EU economy to look at Australia and say, 'Well, we need better access than what we've got.' I don't see any real shortage of European goods in the Australian market. I can buy any amount of European cars, European dishwashers, European irons or European all kinds of things—and they're seen as good quality products—that exist under this five per cent tariff already. I agree with you, it absolutely seems to be more in our interest to nail this agreement than in Europe's; that's why it concerns me that, effectively, we don't have a strong negotiating hand.

Mr Haermeyer : Maybe not, but, as I say, we're a fairly small fish compared to them, so, other than agriculture, we don't represent much of a threat. I think the opportunities on both sides, the trade balance—I think they sell us about three times the value of goods and services as what we sell to them. I think a good FTA would need to also include access to government acquisitions. I note that we had that in the FTA with the United States. They are very keen to get into our supply chain or into our tendering, especially in defence, major government purchases and major government technology. There are opportunities there for them. They've always felt that they, I guess, don't perform as well against the Americans, for example, with military contracts. There are the opportunities there, I think, on that front and there is some interest. Certainly, talking to major German corporations that operate in that space, there is a strong interest from companies like Rheinmetall and various other major corporates in Germany who are very keen for this agreement to go ahead. It's more than just an issue of tariffs as far as they're concerned. From our perspective, it means that if we can get a good agreement we can get access to government purchases throughout the EU. We did it with the US; unfortunately, I don't think that we exploited that as well as we could have or should have.

Dr Harrison : Could I pick up on one point that Andre has just mentioned: it is not about tariffs. As Mr Ramsey quite clearly said, five per cent tariffs really don't add a great deal to the ultimate end-price of goods. I think it's much more about mutual recognition of standards so that European companies can actually understand what they can sell in Australia and can sell those products or those services much more easily and not have to worry too much about adapting them to local standards. Quite frankly, a European company is probably prepared to adapt its products to the US standards simply because it's the larger marketplace, but for a marketplace of 23 million it is not going to adapt. We started off the proposition of this as the free trade agreement or proposed free trade agreement between the UK and Australia. I remind you of what Dr Pittrof's words were, that one of the things that we are concerned about as the German Australian Business Council is that, by moving forward too quickly on a UK agreement without taking into account the whole European considerations, one may get into the situation where you have a UK free trade agreement with Australia which would be of disadvantage to the ultimate goal of a European free trade agreement with Australia.

Dr Pittrof : I will add to that basically two things. I would add the regulated industries, which goes along the lines of what Dr Harrison was just saying in terms of standards. There are still some restrictions on financial industries—what investments can and cannot be made in Australia—and the restrictions are on both sides. I'm not saying Australia is too restrictive; I'm just saying there are restrictions in general. That's something that could be addressed in the agreement.

Also, on a broader policy point, with the developments in the US, the EU has an interest in finding other allies. I think Australia is an easy find and probably an easy win as well. The fact that there is a new free trade agreement out there in the world is something that I think the EU is keen to have, simply for that reason.

Mr LITTLEPROUD: I want to get a little bit more meat on the bone around your call for a coordinated approach on the air transport agreement. Can you run us through that with a bit more detail?

Dr Pittrof : That might be a question for Dr Rinze.

Dr Rinze : Insofar as our transportation is concerned, the UK is not only leaving the European Single Market but is also leaving the Single European Sky. Currently, the Single European Sky is the most liberalised aviation market in the world. Any air carrier stemming from a European Union member state can fly to any point within the European Union, in any country.

Insofar as the future aviation agreements between Australia and the European Union are concerned, as well as future aviation agreements between Australia and the UK, one might consider making sure that air carriers cannot only fly directly from Australia to the UK and directly from Australia to any member state within the European Union but may also, under the Fifth Freedom of the Air, for example, fly from Perth to Frankfurt or from Perth to Munich and then to London, or fly to London and then to Frankfurt. It is our proposal that the future aviation agreements between Australia and the European Union, as well as between Australia and the UK, are coordinated so that the Fifth Freedom of the Air is also implemented in this triangle.

Mr LITTLEPROUD: What sort of potential is that going to create, just so I can quantify it? Have you done any work on that?

Dr Pittrof : The German-Australian Business Council hasn't done any specific work on the air traffic agreement. We fear that there will be great disruptions if agreements aren't in place when the day comes that Britain is no longer part of the European Union. That's our main concern. Dr Rinze just mentioned the direct flight from Perth to London. There are concerns that may not happen because you do not have the rights to fly over European Union territory. Obviously, people wouldn't just fly from Perth to London direct. They might go elsewhere in Europe. If you're selling a ticket from Perth to Munich via London, that may be disrupted. Of course, air traffic is so important for business today. It's something that, in our view, should be on the front of everybody's mind when it comes to Brexit.

Dr Rinze : Yes, in particular when you take into account that, in the current discussions between the European Union and the UK, aviation is not a priority and it will only be discussed at a later stage. It is currently quite unclear whether and on what basis there will be future flights between the UK and the European Union, since falling back on old bilateral air service agreements is probably not the solution for future flights between the UK and the EU 27.

Dr Harrison : Just take a practical example of that: these days, the usual Qantas routing between Munich and Brisbane involves taking a connecting flight to London and then the Qantas flight through Dubai. That would not be allowed under the future arrangements unless an interim arrangement is achieved. And it doesn't just apply to Munich; it applies to any European city with which Qantas has a codesharing destination.

Dr Pittrof : Can I just—

CHAIR: Sorry, we're running out of time. I wanted to go to the rules-of-origin commentary in your submission. We've just instigated a whole new range of country-of-origin labelling here in Australia, particularly with respect to our food-processing sector. Could you expand on your recommendation with a couple of practical examples of what you're wanting to see occur.

Dr Pittrof : Sure. I think Dr Harrison might want to take that question.

Dr Harrison : I don't know if you've heard about the egg scandal over here—that's probably a bad example. There's a significant amount of poultry processing occurring within continental Europe, and there's a significant amount of that poultry then going on to the United Kingdom for further processing. There are a number of large food conglomerates based in the United Kingdom. Obviously Unilever is a UK based company. Monteo, the US based conglomerate, also has a large number of UK based food-processing subsidiaries, which take their raw materials from other countries within the European Union, process them and then export them, either back to the European Union or to third countries such as Australia.

One of the issues has then been: if a chicken is raised in the Netherlands, its eggs are exported across to the UK to make, for example, Bird's Custard or something like that, and then that product is exported outside of the European Union, we can call it a European Union product these days. It's not clear what is going to happen after Brexit. We are starting to see a number of supply chains within Europe being altered to avoid the United Kingdom, and that is causing disruption in the supply chain marketplace. But it is something that is going to be inevitable. In the future, once the United Kingdom leaves the European Union, we're going to need to work out what 'country of origin Europe' actually means. Can it go through the United Kingdom? From the point of view of business, with the supply chains in place, that would be a useful option.

CHAIR: Could you give us some sort of quantification of the number of businesses operating in Australia? How do we quantify the relationship between the German and the Australian business network that you're representing? I read your submission, but I might've missed it. We had the British chamber in earlier this morning, who rattled off their 447 members and said they do this, that and the other thing.

Dr Pittrof : Our membership is probably a bit more diverse than the Australian British chamber. They're great; we work with them, and they were at our last international meeting as well.

CHAIR: Oh yes, no judgement.

Dr Pittrof : Definitely not. Our membership is about 150. That would include corporate and individual members. We have quite a large distribution list of friends and people interested. When we send our mail-outs, they reach about 700 people. In terms of how much business there is between Australia and Germany, that is really hard to quantify. We do know that there are, from memory, around 50 Australian companies that are actually here with subsidiaries, but there are substantially more that are operating out of other countries—

Teleconference disconnected

CHAIR: So how did that happen?

Mr RAMSEY: The videoconference timed out.

Mr LITTLEPROUD: Their take on the trade agreement with the EU was interesting.

CHAIR: I think we can get it done by 2022. In terms of questions on notice for them, I think how the EU would approach national sovereignty is very different to how we would, so I would like that fleshed out a bit. Also there is the Austrade question about what interaction their members have had and whether it has been positive or negative. They could give us some advice on that. I am also interested in the movement of people and visas.