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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

PORTER, Mr Richard, Chairman, Australia-United Kingdom Chamber of Commerce

SAUNDERS, Ms Kelly, Board member, Australian Business in Europe-France

WOO, Ms Catherine Ann, Chief Executive Officer, Australia-United Kingdom Chamber of Commerce

Evidence was taken via teleconference

CHAIR: Welcome. Our witnesses are appearing via videoconferencing from somewhere in the south-west of France and in London. We have your submissions and we thank each of your organisations for putting one in. Parliamentary privilege doesn't extend beyond Australia's jurisdiction, so if you want to say anything on Hansard that you shouldn't say, just consider yourself warned. I now invite each of you to make an opening statement and then we'll proceed to discussion.

Ms Saunders : Australian Business in Europe-France, ABIE France, is a not-for-profit business association. We've got 100 members—corporate, business and individuals. We're focused on increasing and improving links between Australia and France in terms of business. In terms of the inquiry, we're picking up the terms of reference around the opportunities and risks for Australia in respect of Europe. So we're not focused on the UK; we're focused on Europe. We think that that is where we can have the most influence. We're not really focused on EU investment into Australia; we're focused more on exports into Europe. We note that the government is already quite heavily focused on investment into Australia. Three quick points. Where are we? What are the opportunities that we see? What do we think about that work that is to be done?

In terms of context, Brexit is obviously a very complex moment for the UK. It has had quite low GDP figures since the start of this year and it's in a situation with [inaudible] and considerable political complexity. We don't know yet whether Brexit is Brexit, as Theresa May has said, or whether it will end up being part of the common market [inaudible] Turkey. We really don't know whether a free trade agreement with the UK will be the result, but we're working off the assumption that Brexit is Brexit for this quick introduction.

The next point is the EU is an enormous market. Without the UK we've got 27 countries and 430 million people. Growth here is accelerating [inaudible]. In respect of Australia, Australian business in the EU is often headquartered through the UK. We understand that around 48 per cent of the companies doing export services into the EU are based in the UK. This may need to change. Not many of ABIE's Australian corporate members are headquartered in France. We note this. So we think that there is a bit of a perception from Australian companies that English language and anglophone culture is enough for doing business in the EU. We have feedback from EU parties which suggest otherwise—that Australian businesses tendering in the EU often don't know the local market and for that reason are not competitive. So it is fair to say that Australia is not overly present in continental Europe.

In the context of France, we have obviously a new president, Emmanuel Macron. He is 39 years old. He's considered here a bit of a game changer. He's a young, smart President who is very interested in strengthening France and for adapting it to the digital age and the environmental age. It's a very exciting time. He's also very business friendly. Largely thanks to Macron, France was nominated the soft power of the world, overtaking the US and the UK. There are several factors that contribute to France being reasonably attractive right now. It has got the best diplomatic channels in the world. We saw that with the unprecedented success of COP 21, the environmental negotiation in 2015, which was really considerable work [inaudible].

CHAIR: Ms Saunders, I am just wondering how long your statement is going to go for because we do want to get to questions.

Ms Saunders : Probably another three minutes, if that's okay.

CHAIR: Yes. Could you just summarise very quickly so we can get the chamber's opening statement. Thank you.

Ms Saunders : No problem.

CHAIR: Because we do have your submission.

Ms Saunders : Okay. We see Europe as being a massive market and we think that Australia has got a decent advantage over other anglophone countries into this market. We think that Australia has got competencies that are not recognised necessarily by France or the EU. We've got competencies to sell and services to sell here—the strength of our public institutions, adult education and the list goes on. Evaluation and collaboration—I won't go into them, but there are lots of services that we can sell here.

We have got a complimentary market with the EU. Their needs and our services are a good match, which is not the case with the UK. It is often quite competitive with Australia. In terms of bridging the gaps—I won't go into that too much because obviously we don't have too much time—we think that there's a lot that Australia needs to do in terms of work going into Europe to be better prepared. In terms of the future FTA, we support the German business council's submission, which is that the EU negotiation should happen first and that we would want any sort of agreement with the UK to have reasonable parity with any EU free trade agreement.

Just to conclude very quickly, we think that going into the EU is going to take a lot more work from Australia in terms of rigorous due diligence. It's outside our comfort zone, but there are many advantages to going into the market here and that to look at Europe beyond the cliches we think is well worth the time.

CHAIR: Thank you, Ms Saunders.

Ms Woo : We would like to thank the committee for their invitation to participate in this inquiry. We're the UK based chamber of commerce for Australian and UK business and industry, representing more than 270 members with interests in both markets. We are based alongside the Australian High Commission at Australia House in the UK and we work closely with the high commission, Australian state governments and Austrade, as well as the UK government. We support bilateral ties to strengthen trade, investment and people ties between the UK and Australia. We consider these ties to be valuable contributors to Australia's economy, with over 1,500 Australian businesses operating in the UK, approximately 120,000 Australians in the UK, and the UK, as you know, represents Australia's fifth-largest two-way trading partner. I note DFAT's recently released Composition of trade 2016 report found that two-way trade with the UK now comprises 4.3 per cent of Australia's total two-way trade and was the fastest growing in 2015-16, with a 25.4 per cent increase over that year, which was in stark comparison with other major two-way trading partners, including the US, Japan and Korea, all of which contracted between negative six per cent and negative 12 per cent.

Since the UK public voted on 23 June last year to leave the EU, the chamber has been speaking extensively with our membership and broader network on their views regarding the implications of Brexit for Australia. The consensus is that Brexit presents an opportunity for an Australia-UK free trade agreement which both confirms and builds upon existing two-way trade between the two markets through four primary mechanisms: (1) agreed terms to reduce or eliminate tariffs and quotas attached to export goods; (2) mutual recognition of regulatory requirements and standards to lower entry barriers and thereby increase exchange of goods and services; (3) freer movement of talent, coupled with transferability of professional qualifications; and (4) confirmation and enhancement of market access arrangements to increase two-way foreign direct investment—for instance, by lower thresholds as well as more seamless exchange of services in areas such as financial services and digital technology.

Brexit represents an immense an unprecedented challenge for the UK, and a key part of making the post-Brexit future a success will be the establishment of free trade agreements with countries like Australia, where there is a history of not only strong and stable trade but also like-mindedness on key supporting factors, including governance, rule of law and global security. Both of our countries are supportive of trade liberalisation and there is consensus that trade promotes economic growth, creates jobs, drives productivity and raises household incomes. In the case of Australia, trade liberalisation has boosted GDP by between 2.5 and 3.5 per cent. Free trade will give Australian producers and manufacturers greater access to the UK's 66 million consumers and will allow greater investment flow from the UK, which will create direct and indirect benefits, in our opinion. It is projected that, in the period between 2012 and 2050, Australia's food industry will need up to AU$1 trillion in additional capital to increase its size, productivity and competitiveness as it increasingly becomes a food bowl to Asia. A free trade agreement with the UK which enables greater capital flow into Australia would help inject this capital, thereby not only increasing trade with the UK but also with surrounding economies that Australia exports to. While, as we all know, formal negotiations cannot be undertaken until Brexit is complete, we support preliminary inquiries and discussions, such as this one, as well as that of the recently established Australia-UK Trade Working Group, which spoke of the potential ambit issues and priorities of a free trade agreement to facilitate a quicker negotiation process.

In relation to the question of a free trade agreement between Australia and the EU, we are supportive of this and we don't have a dogmatic approach. As to which free trade agreement should occur first, we advocate for a pragmatic approach which favours efficiency and the best interests of Australian industry.

I close by thanking the committee again and saying that we welcome working with the Australian government on an inclusive process across this scoping period which includes both ourselves, our members and wider state policy partners, including the Australian state governments and our peer chambers of commerce. Thank you very much.

CHAIR: Thank you. We will now go to questions.

Mr PERRETT: I will throw this to all three of you. Do you believe there may be early-mover advantage from rushing into a negotiated trade agreement with the UK before others compared to waiting to see what concessions other large trading countries may negotiate?

Mr Porter : I think there is an opportunity because the British are looking for quick wins. Assuming we can get an FTA the allows for terms that are beneficial because of the early mover advantage, in particular around the movement of people and the four items we've talked about, together with some protections where in future agreements you get a grandfather clause that protects us—if future agreements are better termed and they flow back, we do think that's an opportunity. We think the British really want an early win. They see Australia as an opportunity for an early win, partly to practice—they haven't done a lot of trade agreements—but also, basically, to say to the world that Britain is open to business. So there's an opportunity there, and it depends on the negotiation. If it's taken carefully, we think there is a win for Australia.

Mr PERRETT: So do you think we should send over some of our skilled negotiators to the UK so that they can negotiate with Australia?

Mr Porter : Help them to train the British. I think they are—

Mr PERRETT: I'm just kidding.

Mr Porter : I know that. But, actually, it's not beyond bounds. I just wanted to respond. We're both Australians, so we're different in a way because we're over here looking at them. But, frankly, they need help—and any help we can give them.

CHAIR: We've heard that.

Ms Saunders : From my perspective, I think it's a 'no' for us. Obviously, there are slightly different interests. I guess we would say that that quick need to align as a result of our history and our common culture is probably tempting but that there is a definite advantage in putting for an FTA with Europe at this stage. It's hard to see the UK being, in any way, ready to negotiate with Australia, given that they're going to want to keep the EU on side, as well.

CHAIR: This is one of the tensions—and it wasn't planned that we would have two people giving evidence with opposing views. I think we had found it difficult to get in contact with one of you. Some of the evidence is exactly as is being presented here. The EU is cumbersome. It takes forever for anything to happen. We haven't even started formal negotiations with the EU yet. Blind Freddy can see we could get a bilateral with the UK quicker than we can the EU. However, the evidence we have got today was that, absolutely, an EU agreement could be done before 2022, which was the bare minimum that they could set the UK agreement being completed by. I would really appreciate your advice to the committee.

Mr Porter : I've been on the European Australian Business Council tours to Brussels for a number of years. In fact, we have spoken of ABIE France, who you are meeting at the moment. 'ABIE' the brand is actually owned by us as a chamber, and we have a collaboration with those organisations Europe wide. We are here speaking about UK trade agreement. If you wanted a higher level view of it—yes, when we were in Brussels several weeks ago, the European Australian Business Council were trying to fast-track the agreement. We think that would be a good thing. This is a conversation about the UK—whether there's an opportunity for an early win with the UK. Our belief is: there is. I don't think it's particularly a race. If Europe will come quicker, grab it. They are sort of competing with each other—

CHAIR: They are.

Mr Porter : but, in reality, we think, for Australia, both agreements we need. In what order? If one mandates that the other can't be done—that Europe has to walk away if Australia talks to the UK—we're not privy to that. All we're saying is we think there's a big win for having a free trade agreement between the UK and Australia. There's an opportunity to do it quickly. If Europe want to do it quickly in competition with the UK, well, come on! That would help Australia, as well. But they're going to be two separate markets, and there are wins each way.

CHAIR: I absolutely agree. So it's your view that a UK-Australia free trade agreement could be completed before 2021?

Mr Porter : It depends. It's the whole Brexit discussion—the legal stuff around Brexit, which we're not entirely privy to. No-one can tell us what Brexit is going to look like; we can't tell you.

Ms Woo : It's entirely speculative at the moment as to what the time line associated with Brexit will look like, which will inevitably impact upon when formal negotiations regarding a free trade agreement can commence between the UK and any other non-EU country or Australia. From the commencement of discussions to the completion of the free trade agreement, I'm told the average time is seven years. Of course, the Australia-US Free Trade Agreement was done in under two years. If we were to complete Brexit by March 2019, then 2021 is a feasible time line based on that, but it's very, very hypothetical. Calling back to my opening statement, pragmatism needs to rule the day.

Ms Saunders : One thing I will add here is that there's a certain opportunism for Australia at this stage with the negotiation with the EU, particularly in France. As everybody knows, we've entered into a major submarine deal with France. That has absolutely strengthened links between the countries. It's our view that there is momentum here and certainly a basis for us to push for greater reciprocity from the French. I realise that's a bilateral relationship, but there is a certain momentum that we could push with in relation to the EU and that negotiation.

My other intelligence is that the Australian government is ramping up for the start of negotiations with the EU even as early as October this year. That was the last reference.

Mr PERRETT: Should DFAT and Austrade provide more support at posts in the United Kingdom and France to improve Australia's business profile beyond London and Paris, building on the connections that are coming through defence ties and the like? Which cities would you recommend if you needed to?

Mr Porter : Because we're in the Australia Centre next to Australia House—so we're with Austrade and so on—there's a real opportunity. It's quite interesting. With Britain joining the common market, like when we were all kids—well, I was a kid, but some of you probably weren't born; I'm an old man, so there we go!

Mr PERRETT: It's nice of you to say that.

CHAIR: Thank you. We'll take that.

Mr Porter : I'm being very complimentary to you, senators.

Mr PERRETT: There's a lot of Vaseline on that lens for me!

Mr Porter : In the last 40 years, I think the Brits were focused on the biggest market, which was Europe, and they forgot about Australia. It's been interesting since Brexit. There is a reawakening awareness of the links with Australia, Australia's positioning vis-a-vis Asia, the free trade agreements between Australia and Asia—which don't exist in Europe and aren't going to exist for a long time—and so on. There's an awakening of that. I'm involved in businesses around the UK and it's very interesting to see. They're talking about the opportunities for bilateral relationships—not selling to Australia, but collaborating at a strategic level. Yes, some people want to sell to Australia and Australians want to sell here, but it's that collaborative approach. That reawakening means that, yes, I think there should be investment.

Our own view, as a chamber, is that there should be more money put into really grabbing those opportunities. As to where you put that money, I think the agencies are well placed. Austrade and others are very well placed in understanding that. Clearly, their view is that what's going to happen in Ireland is going to be fascinating, being on both sides of the border—if a border exists in the north and south. Fascinatingly, Scotland is a no-brainer. In the Midlands of the UK, if what happens out of the Europe-UK relationship continues, there's going to be a fallout on the crossover between, for example, car part manufacturers. The Germans build a hell of a lot of cars here to sell to the British market, but their car part manufacturing is done in other countries. Australia has some very useful technology and skills in that area and may want to begin to establish in the Midlands, for example—begin to supply some of the chain there. So, again, pragmatism, but there is real opportunity looking at it. Our view is that further engagement outside of London into those historic areas will give big payback, and it's an opportunity we should take up.

CHAIR: Mr Porter, when you're saying engagement, are you meaning specific legs on the ground from Austrade—

Mr Porter : Yes.

CHAIR: or are you talking about trade missions that specifically target those areas and don't just go to London? What sort of strategies would you suggest?

Mr Porter : I think there's been a continual downscaling for Austrade. It's a significantly smaller organisation here than it was five to 10 years ago. There are very few legs on the ground. We need legs on the ground in the UK. Where they're located, I would take the advice of Austrade. We need to just simply engage.

Ms Woo : If I could add to that as well, our views are really going to be focused on UK resourcing for Australia. I've worked in bilateral trade and investment in the UK previously on behalf of the state government and now for the chamber for the last 6½ years. I think amongst those who work in the area in Australia House there is no doubt that there could be more resourcing both at the state level and at the federal level by Austrade to support trade and investment. On the investment side, the UK is the second-largest source market for foreign direct investment into Australia, and the footprint of Austrade is not proportionate to that fact. I think, certainly, there could be more resourcing, as Dick says, placed into regional areas outside of London where most or all of Austrade's resourcing is focused.

Secondly, there is no trade-focused resource in place on behalf of Austrade or any of the state governments when you look at their strategic imperatives in market. Certainly, if a free-trade agreement were to happen between the UK and Australia, we would anticipate that trade volumes from Australia into the UK would only grow. We would love to see further resource placed in the UK to reflect that. That would, as you say, take the form of extra feet on the ground in addition to perhaps some more strategic assets as well. When the Prime Minister launched his $1.1 billion innovation strategy—as you know, five landing pads were set up around the world—no landing pad was placed in London despite it being a very large tech market and despite the fact that there are a number of technology agreements, for instance, between the FCA and ASIC set up, for sandboxing. We would certainly support the establishment of assets such as those to further drive exchange between the UK and Australia on a trade basis as well as an investment one.

CHAIR: Ms Saunders, do you have anything to add?

Ms Saunders : The question was framed around beyond London and Paris. I would probably go so far as to say that Australia doesn't really have a reputation in Paris, so, going beyond Paris, I think we've got some work to do in the sense of our services into France and into Paris. From our perspective, the understanding is that Austrade has been very focused on investment into Australia and imports into Australia, and it doesn't have significant resourcing to be focused on Australian business going into Europe and France. From our perspective, a focus on MEDEF-type delegations for Australian companies into Paris, France and Europe would be a good thing. Also, having people on the ground here—and people that really understand Europe, understand that continental Europe has a different way of working and requires a lot more work perhaps but also the rewards are certainly there. People to assist from the government to assist businesses in scoping and preparing extremely well to go into this market, we think that that would be well worth the government's time and resources.

Mr PERRETT: I know the submarine contract's just early days, but I would've thought there were some opportunities to build on that as you indicated. Do you know of any European companies that have significant operations in the UK that might look at opportunities should Australia and the UK strike a free trade agreement?

Ms Saunders : There certainly are European companies—I can speak for French companies that are operating significant operations in the UK, and, yes, absolutely, they would be seeking to benefit from any beneficial terms that were agreed in the UK trade agreement with Australia. As we've said, it's not a competition. We're certainly not interested in that. To the extent that Australia can do good business with European companies via that agreement, that's great.

CHAIR: I was going to ask about state governments. It's interesting. You're all players in this space and you've been players for a long time. When we ask about the mixed messages that can sometimes be sent from brand Australia and the states, nobody wants to step on anyone's toes. But the NFF—Bravo NFF!—this morning said what we all assumed would be the case—that it can get messy and that it's not always coherent and clear. I would appreciate both of your organisation's perspectives on how Australia as an entity has a conversation around trade opportunities, when we've got trade missions from certain states and not others, Austrade representatives and industry representatives. We want to provide advice to government from this committee that helps brand Australia in this market.

Mr PERRETT: Does competitive federalism improve international trade with the nation of Australia?

CHAIR: Discuss.

Mr PERRETT: Answer in 500 words or less.

CHAIR: We've only got a few minutes left before we all get cut off, so we might go to the British chamber.

Ms Woo : That's a really interesting question. Competitive federalism goes to the DNA of Australia, and we see that reflected here, sitting in Australia House, where we have a collection of state governments as well as federal government and a number of Australian affiliated bodies. I think that Brexit has been a unifying force for all of those groups, which is hugely positive to see, and we've certainly been involved in that conversation. In the last six months, all of the state governments and Austrade have, for the first time in many years, formed a number of working groups that are focused on Brexit as well as broader opportunities for us to collaborate.

I think we are moving, and we need to move, to a recognition that, particularly when working in foreign direct investment, you have to think about the sales funnel. At the top of the funnel you've got collaboration; as projects move down the funnel, you've got competition. It's really about building a mutual understanding about where you collaborate and where you compete—where is it very valuable, when casting a broad net to get team Australia messages out there, to work together, and what are the rules of engagement around competition to make sure that there is goodwill and cooperation in place along with a healthy dose of competition?

Mr PERRETT: You're suggesting that information is sufficient to bring out the best will of people who are competing for businesses and the like. I'm wondering if you've got any practical examples of Commonwealth carrots or Commonwealth sticks outside of information and the hope that we sit around singing Kumbaya together and work for team Australia.

Ms Woo : May I add to that very quickly by saying that it isn't purely about information. We have had those working groups, but they have developed into concrete initiatives. As an example, just a couple of months ago, all of the state governments and the Australian high commission collaborated to put on an event for London Tech Week, which attracted 350 companies from across the UK and Australia. It was run by us, and it was a platform for all of Australia in terms of encouraging trade investment between the UK and Australia. That's a very concrete example that went beyond information.

Mr PERRETT: So that's what the Commonwealth can do: get them through the door—

CHAIR: Then you carve them up.

Mr PERRETT: But you get more people, more capital and more schools through the door.

Ms Woo : You grow the pie.

Mr PERRETT: A bigger pie?

CHAIR: Grow the pie.

Ms Woo : Grow the pie—yes. Get people to the game and then—

CHAIR: That's it.

Mr Porter : Also, part of it is interesting because of the way it's set up. It's not just that there's competition and they're eating each other. There is no single organisation that, really, has the overarching responsibility at a significant level. Were that to happen, it may be a different game. Here we are at Australia House, which is very different from other areas of the UK, but there is no overarching—

CHAIR: Ms Saunders, do you have anything to add?

Ms Saunders : Yes. Taking probably a slightly different approach, I would say that—again, speaking from France—France is fairly fascinated by Australia. I think part of the fascination, perhaps, is the fact that we have a federal system with very strong states coming over on delegation—often with different messages. By contrast, France is a very centralised country. To some extent that competition and robustness between states is interesting. I think, though, here we sometimes do get the impression that Australia is reduced, perhaps, to tourism and natural resources in terms of the press here and the way that Australia is perceived. Whereas, within individual states, obviously there's a lot of interesting work going on within what's covered off by states. So I think we could do a lot better in terms of marketing ourselves and all of the work that states to and, also, that overarching Commonwealth brand. I would agree.

Mr PERRETT: So we need the overarching brand?

Ms Saunders : It's about messaging. It's about a good message.

Mr PERRETT: With the 'clean, green and safe brand', we do need something that symbolises that?

Ms Saunders : I think that moving towards something a bit more which focuses on our knowledge economy and the fact that we are a really smart country. That sort of thing has great currency in Europe. You need to be extremely smart to operate in Europe. So we need to demonstrate and market ourselves as extremely smart.

Mr PERRETT: Are you saying put glasses on that kangaroo? Is that what you're saying?

Ms Saunders : I think that's it!

Mr PERRETT: A pocket protector, maybe!

Mr Porter : I have just one comment. We do a lot of business in Germany. They're a good model to look at. They are not centralised. They are very federal. Bavaria are very good at marketing themselves. So they have an overarching central brand—Germany—while the states are very aggressive in competing for a share. So there are other examples that look around that. The UK—we haven't done it very well. We could do it a lot better. I think a single brand would be helpful, but I wouldn't renew the states. I think the states have different emphases. We see them up here with very different emphases. It's difficult to see how you elaborate that. I think Germany is a good model to look at, and one, I would hope, Australia would emulate because we would like to see them wealthier than Germany in a few years time, please.

Ms Woo : In terms of what the federal government can do, I do think that the idea of actually allocating some funding towards encouraging state governments to corporate on certain platforms where there is mutual interest would be a really good idea actually.

CHAIR: What about some sticks, not just carrots?

Ms Woo : What did you have in mind?

CHAIR: I don't know. We're exploring options. It's a fiscally constrained environment, Ms Woo! You know that.

Ms Woo : Yes. Certainly.

Mr Porter : I'm from Western Australia and Ms Woo is from Victoria. So we sit here understanding it fully!

CHAIR: Exactly! You just want to secede! With the chamber's mutual recognition goal—we have had a lot of evidence to the committee around EU accreditation being a significant barrier for our exporters, particularly in meat processing and food processing. I want to know: if any of your membership have had similar experiences; what we may be able to do practically at our end in getting accreditation to speed that process up; and whether it is something we should be looking at for the UK agreement. If we cut out, please answer that on notice.

Ms Woo : I think we will take on notice coming back to you with some more specific recommendation. But, certainly, I feel the mutual recognition in a free trade agreement would be very important in food, in defence, in pharmaceuticals, as well as a range of other areas.

CHAIR: But won't that mean that we're accepting the EU accreditation and EU standards, which is incredibly problematic for so many of our producers?

Teleconference disconnected—