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JOINT STANDING COMMITTEE ON FOREIGN AFFAIRS, DEFENCE AND TRADE
24/06/2009
Australia's trade and investment relations with Asia, the Pacific and Latin America

CHAIR —On behalf of the subcommittee I welcome you, Ambassador. Although the subcommittee prefers that all evidence be given in public, should you at any stage wish to give any evidence in private you may ask to do so and the subcommittee will give consideration to your request.

Ambassador Balmaceda —Thank you very much for this very kind invitation. I am delighted to be here to share with you the Chilean reality on how we see the possibilities between Australia and Chile.

CHAIR —Although this committee does not require you to give evidence on oath, you should be aware that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the chambers themselves. Before we proceed to questions and discussion with you, do you wish to make a short opening statement to the subcommittee?

Ambassador Balmaceda —Yes. Once again, thank you very much for this invitation. I will try to be as brief as possible. There is no doubt that the relations between Chile and Australia have experienced substantial growth in the last few years, which allows us to define them as ‘mature’. The year 2008 was a historic one, with the first signing of an FTA by Australia with a Latin American country; the creation of a bilateral business committee by the Australian Industry Group and its Chilean counterpart, SOFOFA; the signing of three agreements on education with Universities Australia, the Go8 and TAFE institutions. This will allow us to send to Australia on a yearly basis and for the next 10 years between 500 and 1,000 young professionals to undertake postgraduate studies, as well as the identification of five strategic areas, which led us to sign 27 instruments in recent times, and I am referring to mining, energy, agriculture, wines—our flag product—and education.

As President Obama mentioned in Cairo, education and innovation are the currencies of the 21st century. Therefore, a few days ago we agreed with the board chairman of the CSIRO to establish a CSIRO mineral centre in Chile early next year. The impulse of innovation and education, together with the improvement of our human resources, are an essential axis necessary to achieve the highest level in productive processes with much added value. Chile and Australia share an important number of facts and common views on a large variety of aspects, such as integration in the Asia-Pacific, a development strategy based on exports, abundant natural resources, similar production structures and the conviction that commercial openings, economic growth and living standards—I am referring to employment, human development and other things—are strongly related. Likewise, both countries present themselves as investment platforms in this region.

With regard to the new environment provided by the FTA, assuming that its contents are known by this committee, allow me to briefly refer to the present bilateral situation and areas where we see trade and investment opportunities, cooperation, barriers and challenges. Chile has one of the most open economies in the world, having FTAs with nearly 60 countries, covering more than 90 per cent of the world GDP. We are Australia’s third largest trading partner in Latin America, with more than 120 companies doing business with us—70 of them based in Chile—and using Chile as a platform to deal with the rest of the region. Chile is the main destination of Australian investment in the region. Australia is our fifth largest foreign investor, with more than US$3.2 billion, mostly in the mining and energy sectors. According to the current market value, these assets are worth over US$10 billion.

Two weeks ago Pacific Hydro announced a new investment of US$450 million in a hydroelectric plant south of Santiago that will create 4,200 jobs in the next two years. Its current assets in Chile and Brazil exceed US$1.5 billion. Securency, a company from Melbourne which manufactures some of our notes, announced the opening of a plant in Chile, the first in South America—they have another one in Mexico.

We definitely are a good platform for Australian companies to further extend business in the region, thanks to our new agreement and the large number of FTAs we have with most of the Latin American countries. We would also anticipate using Australia in the same way to expand our business activities in the Asia-Pacific, mainly through the establishment of Chilean companies in this country and joint ventures with Australian counterparts. As a clear example of this reality, three Chilean companies involved in forestry, services for the mining sector and innovation in the environmental field, recently opened branches in this country. With the incorporation of these companies, the total number grew to 11, as well as eight joint ventures.

Our trade relations are still modest, yet last year we increased our exports to Australia by 75 per cent, bringing the bilateral exchange to more than A$1 billion. As you know, the FTA eliminated almost entirely the barriers to trade, which should allow us to increase the flow in goods and services, such as energy—and I am thinking about coal, LNG and renewable energies—mining technology and services, agro-industry, aquaculture, forestry, wines, animal genetics, irrigation and tourism, among others. Particularly important appear to be the financial services sector, in which there is a lot of potential. We need to do more to engage fund managers from both countries in developing business opportunities, and I am thinking about the pension funds. In terms of cooperation related to developing joint research projects in technologies and innovation, there is common ground for sectors such as mining technologies, consulting services, ITC, engineering, agribusiness, renewable energy, and food and beverages, among others.

In the field of innovation, three weeks ago Minister Carr, together with our Minister for Economy and Innovation, agreed to create a think tank in charge of identifying areas of common interest. This will include representatives of the public and private sectors and a member of the research area. Through this strategic collaboration, both countries look at strengthening and developing opportunities for investments and the promotion of competitiveness.

With respect to barriers, Australia’s strict biosecurity requirements are affecting our exports to this country. We need to create a mechanism between SAG, which is our national AQIS, and AQIS to speed up the consultation process on sanitary and phytosanitary measures in order to facilitate and promote bilateral trade. This will allow us to gain access for products like avocados, berries, kiwifruit, horses and pork, which are still under consideration. All of these products have very strict quarantine requirements and demand an import risk analysis that takes at least two years to complete.

With regard to challenges, we need to strongly improve the promotion of the new FTA with a common strategy, and I am thinking about the roadshows in both countries; provide the tools to eliminate unnecessary costs and risks for those companies involved; continue efforts to increase our competitiveness through collaboration and innovation that would benefit both countries, as I said before; re-establish a direct shipping service between our two countries, which we are really missing; support the work of the bilateral business committee between the Australian Industry Group and SOFOFA to bring our businesspeople together and to organise delegations that could join ministers’ visits. To achieve these goals, the contributions of ALABC, COALAR, Austrade, ProChile and the bilateral chambers of commerce are of great importance.

They can also promote partnerships between companies of both countries, to develop opportunities in co-investments, supply chain integration, joint marketing or strategic alliances, to work together in gaining access to our respective regional markets. It is a fact that this scenario will promote a major flow of researchers, academics, students and journalists in both directions. Chile is also very interested in receiving and sending young professionals to do internships with Australian high-tech companies—a program we are funding through the development agency, CORFO. This is an excellent way to promote the business connections between enterprises in both countries, which are necessary to increase trade and investment flows.

As I mentioned before, 27 instruments between ministries, government entities, universities, research centres and private sector organisations have been signed in the last three years. We should work at implementing them. In terms of investments, I hope that, soon, we will end the negotiations for a double taxation agreement. Besides the FTA, we expect to consolidate strategic alliances in the fields mentioned before and finalise negotiations that will bring together the state of Queensland and our second region. The establishment of a regional office in Chile by the government of South Australia is a valuable contribution to the new bilateral environment. We hope that other states will follow this example.

Finally, we expect that Australia will join the Trans-Pacific Strategic Economic Partnership Agreement, commonly known as the P4—a valid tool, or bridge, to increase trade and investment between Latin America and this region, where Chile and Australia appear to be the best gateways. With Australia being a reference country for Chile, our main goal is to achieve a multidimensional relationship, which will allow us: first, to improve our links in strategic areas of common interest; second, to look to future challenges with a common view; and third, to speed up our development process in order to, hopefully, become the third developed country in the Southern Hemisphere, after Australia and New Zealand.

CHAIR —Thank you, Excellency, for such a comprehensive opening statement. We will now go to questions.

Mr BRUCE SCOTT —Bilateral trade is going to be very important but there is also a bilateral approach, in a way, to the Carbon Pollution Reduction Scheme. Is that currently on the agenda for the government of Chile?

Ambassador Balmaceda —Yes, it is. Obviously, we have been dealing with this problem for quite a long time. The main problem, to be quite honest, is that, because of our energy needs and the lack of natural gas, the Chilean government has decided to use carbon energy, again—to be able to cope with our development. Obviously, the way we deal with this problem will have an impact on our policy. But, as I said before, this is a problem. We are aware of it. We are a party to the Kyoto Protocol but, unfortunately, we are facing a reality which makes it, at the moment, very difficult to deal with this problem.

Mr HAWKER —Ambassador, thank you very much for that comprehensive briefing and for the very positive view you taking to our relationship. My question is: the free trade agreement has been in place properly, I think, for just over three months—

Ambassador Balmaceda —Since March.

Mr HAWKER —March, yes. Have you got any specific cases where that is starting to increase the trade between our two countries?

Ambassador Balmaceda —Sorry?

Mr HAWKER —Are you seeing some results from that? Now that the free trade agreement has come into effect, can you say, ‘Well, this has definitely got some positive results already’? Have you seen anything that is expanding in our two-way trade?

CHAIR —Are there any tangibles coming out of the free trade agreement?

Ambassador Balmaceda —Any profit?

CHAIR —Any tangibles, any concrete things?

Mr HAWKER —Results?

Ambassador Balmaceda —Any results?

CHAIR —Yes.

Ambassador Balmaceda —As I mentioned in my presentation, we can see the first results through the establishment of new companies in Australia and through Australian companies in Chile. We expect that in the near future, at least in the case of Chile, we will be able to increase our trade by almost 30 per cent. So the prospects, regardless of the present global financial crisis, are still quite good. According to the information we have been getting through our trade office in Sydney, all the signs are extremely positive in terms of investments and trade and I can mention that in the last three weeks two very important companies—Woolworths and Bunnings—have moved to Chile to look into new business. These are very important signs of a willingness to take advantage of this agreement as soon as possible. Never before has our trade office in Sydney received so many calls from Australian companies willing to get involved in Chile, because they realise—through what I expressed in my presentation—that Chile is not only a very good bilateral partner but a very good platform from which to get involved in other Latin American countries, thanks to our free trade agreement network.

Mr BRUCE SCOTT —The CPRS is a difficult issue for the whole world. That is why I think Copenhagen will be important, because it could create trade distortions unless we have a fairly unified position. That is why I asked—and I appreciate the difficulty that you will have, as we will have, as will many other countries that want to keep free trade moving forward. How it is implemented is going to, I think—

Ambassador Balmaceda —If you will allow me. Our President Bachelet had a very good meeting with Prime Minister Rudd in the frame of the last APEC Summit in Lima. They agreed to work together on this issue, facing the next Copenhagen challenge. So we expect that both parties will get together as soon as possible in order to look into a possible common position that could involve other Latin American countries, which is something that we have been promoting for quite a long time.

Mr BRUCE SCOTT —I had a question on quarantine. You mentioned the difficulty and the slowness—

Ambassador Balmaceda —Yes, very slow.

Mr BRUCE SCOTT —of AQIS dealing with applications for importation. Have you commenced discussions with the government?

Ambassador Balmaceda —Yes, many times. Actually, I discussed this point with Minister Burke, when I met him for the very first time, then with his deputy and, later on, with the people who are involved in this area—particularly the relationship between Chile and Australia. At the same time I had a very good meeting with the director of AQIS. We had a quite frank discussion about this problem because we have a large number of products on the table. My very first experience with AQIS in Australia was related to the introduction of Chilean table grapes, which took nine years.

CHAIR —So two years is not so long, then!

Ambassador Balmaceda —Unfortunately, yes. When we look at New Zealand apples—

Mr BRUCE SCOTT —Apples from New Zealand.

CHAIR —Two years is definitely shorter.

Ambassador Balmaceda —But, fortunately, I know that AQIS is making a big effort in order to reduce the time. According to the last meeting we had in my residence with the AQIS people, the idea is not to take decisions beyond three years time—which for us is quite a long time. In Chile, we apply an almost similar procedure, but it is far faster than the ones that you apply in Australia.

The answer that I got from the director of AQIS was that he had a lack of qualified people to deal with every single requirement. This obviously plays against the requirements coming from an important number of countries, including Chile, obviously. I do not know—and this is obviously quite an important question to be discussed internally—if the FTA, this new bilateral tool, could serve us to give a little more speed to AQIS’s internal procedure. The answer that I got from the director was, in principle, quite positive; at least he promised to look into this possibility. Two days ago, as a matter of fact, I received a letter from him telling me that in the case of the avocados he will pass this power from the C list to the B list. You have three lists. This is the situation at the moment, and we are quite confident that, if both parties can get together and define a common way, maybe we can speed the internal process. Obviously that will have a very positive impact on our products. We have to stress that, in the case of Australia, you are exporting beef and dairy products to Chile without any problem.

CHAIR —Understood.

Mr MURPHY —Your Excellency, picking up on my colleague’s question to you about the problems between SAG and AQIS, you will recall my interest in the transportation of livestock between our countries. We had that delegation from the thoroughbred industry that came out last year. There is this problem at the moment where horseflesh has to go via North America prior to coming to Australia.

Ambassador Balmaceda —Exactly.

Mr MURPHY —Has there been any discussion—in the context of all the problems with agricultural products—about the barriers that are presented by quarantine restrictions?

Ambassador Balmaceda —Yes, of course. I went through every single problem, including the horses. Our trade office in Sydney started receiving many calls from businesspeople who wanted to import horses from Chile directly, not through the United States. Again, as I said before, we are clear that the internal procedures that Australia makes vis-a-vis every single product are extremely similar to the ones that Chile applies. We are as tough in our procedure as Australia. The only problem is the timing. In the case of Chile I do not know the reasons why we work faster, but this is very important for every single country that wants to introduce products into Chile.

Mr MURPHY —I still find it extraordinary that they cannot sort the problems out with SAG. Chile could be the gateway to Latin America for the transportation of all horse flesh, and it is a great opportunity. Just looking out our racing industry in Australia alone, there are tremendous opportunities for importing and exporting our stallions, our brood mares, our foals and our yearlings, because our industry is so good, and your delegation was very impressed with the way we administer racing in all its manifestations in Australia. I think that is something we should be pushing.

Ambassador Balmaceda —Yes.

Mr MURPHY —Argentina and Brazil have horses too. I think we have got to do something. There has to be a will on both sides to get a resolution to it, because if there are problems with our agriculture minister, in terms of some of these barriers brought about—

Ambassador Balmaceda —We would really appreciate if you could help us to look into ways to speed up this process. Almost every three months we send professionals from our equivalent of AQIS to be involved in some AQIS activities because, from our point of view, the personal link between both our authorities is extremely important. The knowledge of our professionals is the very first step to improving the way that we work.

CHAIR —I note in your submission you talked about an MOU on the quarantine issues. It might be good if you could provide us, even as a follow-up, with some additional information about how you see that working and things that you might want in that MOU.

Ambassador Balmaceda —Yes.

Mr MURPHY —It is so frustrating. I remember talking with your predecessor, Fernando, about table grapes. Thank God, that is one achievement, but it just seems that we need to get the right parties together to thrash out these problems, because it is a stupid impediment. Particularly in relation to horse flesh, there is a great opportunity for Australia. There is great interest in the bloodlines in Latin America, and I have talked to a number of people in the industry. Having to go through North America is just stopping the investment and the trade in this area.

Ambassador Balmaceda —Exactly.

Mr MURPHY —Our bloodlines in Australia are some of the best in the world, but you have some pretty good ones too that Australia is interested in. So there are opportunities for both countries and I think we have to push hard on this, whether through this memorandum of understanding—

CHAIR —We can deal with it as one of the recommendations. His Excellency’s submission talks about the shipping routes and the problems there. We can certainly discuss it, in terms of the way forward with the inquiry. Obviously that is why you have raised these issues in your submission, Your Excellency.

Ambassador Balmaceda —Yes. As you know, we have fantastic flight connections today. We have three companies, LAN, Qantas and Aerolineas Argentinas, covering the route between Sydney, Santiago and Buenos Aires. These are three fantastic bridges. But, if we want to improve our trade relations, obviously we should try to convince the shipping companies to re-establish. I have been here for three years, and four years ago we had three or four companies providing this service.

We are trying to work out, together with Australia, a new strategy vis-a-vis the shipping companies. I invited my colleagues from Argentina and Brazil to make a joint representation to the shipping companies that are today covering this route in order to re-establish a direct service between Sydney, Melbourne and, for instance, Valparaiso, Buenos Aires and Rio.

Senator FURNER —Thank you, your Excellency, for a comprehensive response on the trade relationships between Chile and Australia. In response to Mr Hawker’s question, you mentioned the growth of some businesses, those being Bunnings and Woolworths. Have they already been established in Chile?

Ambassador Balmaceda —We organised two workshops for them. They are very big companies and they wanted to look into Chilean production and see what they could bring to Australia thanks to the FTA. Taking advantage of the FTA, they moved to Chile to look into different products. They went from fruit products to—I am not sure what you call it: ‘white product lines’—for example, toilets.

Senator FURNER —In regards to your wine industry, I was in Chile last May, on a holiday before I entered politics, and had the opportunity to sample some of your fine red wine. I wonder if, as a result of the FTA, that has been reciprocated and Australia is now exporting to Chile some of our fine wine.

Ambassador Balmaceda —In the wine field we have been working quite closely with Australia. As a matter of fact, we are now working on a project between your Australian Wine Research Institute, AWRI, which is based in Adelaide, and Vinnova, which is the Chilean counterpart. We agreed to try to define a common strategy to markets like China. As part of that—and coming back to the first results of the new FTA—at the moment we have almost 40 Chilean wine companies already in Australia, which to me is incredible because this is a very difficult market to penetrate.

I have to acknowledge that we are also receiving an important number of Australian wines from companies like Foster’s and De Bortoli Wines—I think they are a wine company from Victoria. De Bortoli have already agreed on a joint venture with Undurraga, which is a quite famous Chilean wine producer. So there are clear signs of bilateral involvement in wine production. We are facing the same problems, not only in terms of market but also in terms of climate change. There is a large number of topics on which we expect to work together in the near future, starting from this compromise agreed between AWRI and Vinnova.

If you allow me, I will make a last remark related to the ways to improve relations between Latin America and Australia. This is a major topic on our agenda. We have been working very hard—and I am speaking on behalf of the Latin American ambassadors—in order to bring Australia and Latin America even closer. I think that the Chilean example is a clear one in terms of what Australia can do with Latin America. If you allow me, I will mention some points that maybe you could consider.

CHAIR —Please do, your Excellency.

Ambassador Balmaceda —Firstly, we need to intensify the knowledge of both parties among the business, research and student communities, using entities like Austrade and its Latin American counterparts, COALAR, ALABC and the chambers of commerce. This is very, very important because every time we discuss the relations between Latin America and Australia, the first thing we see is the lack of knowledge, on both sides. Secondly, the FTA with Chile is certainly a solid bridge, with the daily flight connections, as I mentioned before, between Sydney and Santiago and those between Sydney and Buenos Aires.

This strategy should be supported by a major exchange of political authorities, and I am referring to ministers chairing business delegations. We are really missing a major involvement of ministers from the Australian side. As you probably know, Australia receives, every two or three months, a Latin American minister chairing a business delegation—three weeks ago it was the Chilean Minister for Economy and Innovation, in two weeks time it will be the Peruvian Minister of Trade, and 1½ months ago it was a Colombian minister. So we would really appreciate it if we could count on more Australian ministers going to Chile, especially chairing business delegations.

Parliamentarian diplomacy should also be part of it. You are the key players in the definition of the legal rules that will animate this scenario—this is a fact. And we are placing a high priority on the exchange of parliamentarians. In this respect, we really appreciate that the President of the Senate managed to pay a visit to Chile and Mexico last month.

A very last important remark for you to consider is that Australia is becoming more and more important for our region—a reference country for our region. This is an invaluable asset for Australia, considering we are talking about an environment of 600 million people. So I thought that this very last remark, about the challenges between Australia and Latin America, is there to debate. This is the right momentum—to work together as fast as we can, in order to take advantage, as I mentioned before, of how important Australia is becoming for every single Latin American country. You can see it, not only from the business point of view but from the number of Latin American students that are moving to this country on a yearly basis. I mentioned the case of Chile but you have an important number of Columbian students, of Brazilian students and of Peruvian students, and the number will increase dramatically in the next year. This is something to be considered when you define policy vis-a-vis Latin America.

CHAIR —Thank you, Ambassador. I am sorry; we are out of time. But thank you for those concluding remarks; they were very helpful and instructive. You are right to talk about the relationship and the strengthening of it—we are looking specifically at trade in our inquiry but it requires a strong relationship to have trade as part of it. So we fully appreciate your comments and your appearance here today. I want to thank you on behalf of the committee. If there are any matters on which we might need additional information, and I think that there will be, the secretariat will write to you.

Ambassador Balmaceda —Thank you very much for this kind invitation. As part of what I mentioned before, it would be excellent if sometime during this year the Latin American group could get together with this committee to have an informal and frank discussion.

CHAIR —Yes, that is happening in August. We will do that.

Ambassador Balmaceda —I think it would be very helpful to have a frank and open discussion in a smaller room

CHAIR —Yes, a roundtable. Thank you, Ambassador.

Proceedings suspended from 11.56 am to 12.00 pm