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Joint Standing Committee on Foreign Affairs, Defence and Trade
06/07/2017
Australia’s trade and investment relationship with the United Kingdom

AIREY, Ms Alison, Director, International Investment and Markets, New South Wales Department of Industry

BROSNAN, Mr Ashley, Project Officer, International Investment and Markets, New South Wales Department of Industry

[09:22]

CHAIR: I now welcome representatives of the New South Wales Department of Industry. I remind the subcommittee members that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were developed. It is great to have you with us. We have your submission. I will now invite you to make a brief opening statement and then we will proceed to a discussion.

Ms Airey : Thank you for this opportunity to appear before the subcommittee. The relationship of New South Wales with the United Kingdom is very important. It is much more important from the services perspective than from the goods perspective. New South Wales exports about $700 million worth of goods to the United Kingdom. They are very important exports. A big component of those exports is manufactures and, within that category, there is a very high proportion of medical devices, which obviously, as an advanced manufacturing sector, is very important to our economy. It is also a significant agriculture market for us, particularly for beef and beverages, including alcoholic beverages.

As I have said, services are by far the most important component of our trade relationship with the UK, far outstripping our goods exports. It is a very important tourism market for us. The UK represents 10 per cent of all travellers coming into New South Wales, and that is the biggest single export for us regarding the United Kingdom. A very significant trade area for us is financial services. Financial services are extremely important to the state of New South Wales. A very large number of our people are employed in that sectorabout five per cent of our workforce is actually engaged in that sectorand it is a very successful sector for us in terms of trade with the United Kingdom. We export about $700 million worth of financial services to the UK and we actually have a surplus with the UK in financial services. Another big sector for us is professional and business services, which is about $800 million in exports. These are very important sectors for New South Wales and, in the context of any future free trade agreement negotiations with the UK, services will certainly be our focus.

CHAIR: Thank you. We will go to questions, starting with the deputy chair.

Mr PERRETT: Have you had much success in attracting direct investment from the UK; if so, in which of those areas that you have mentioned?

Ms Airey : Yes, we have. As you know, we do not have ABS data on a state-by-state basis on foreign direct investment, but, as you know, the UK is our third largest foreign direct investment source into New South Wales. There is a lot of investment in the financial services sector, in retail, and we are seeing a growing interest in our market in technology sectors. That is a really encouraging development from our point of view. Ash Brosnan works directly on encouraging that investment into New South Wales and he might want to give a few examples of recent investments that we have attracted and the sorts of benefits that they have brought to New South Wales.

Yes, certainly. New South Wales and the United Kingdom obviously have a long history of investing in each other. In particular, we have had some huge success in the technology sphere. There are two good examples. One is TransferWise, which is a global exchange fintech. That has recently entered the Australian market from the UK. Another example is BT. BT financial services has long been based in Sydney and has recently expanded into a cybersecurity vertical, bringing nearly 200 high, post-doctoral level jobs investing in cybersecurity. They are two of the most salient examples of UK-based investment here in Sydney.

Mr PERRETT: I am particularly interested in the idea of how your office, or Australia House, for that matter, works in terms of a trade commission, perhaps even in working with other states. If you want to give those examples, how do you target the financial sector or the commercial sector? How do you actually do that? I know we have seen the trade minister on the sand, on a beach, trying to attract tourists. I can understand those sorts of things, but how do we go into the more complicated arguments? I am particularly interested in how you work with other statesQueensland, for example.

Mr Brosnan : New South Wales is part of the NIAB process; we work very closely with Austrade.

CHAIR: You work closely with Austrade. Could you flesh that out? What does that look like and how can it be made better?

Mr PERRETT: Are there people physically sitting next to the Austrade desk in London?

Mr Brosnan : We have one representative who is embedded with Austrade in Australia House in London. They are jointly employed. They work as an employee of Austrade but they are partly funded by the New South Wales government. Investment is sought by that representative and also by Austrade representatives based in London.

Mr PERRETT: Do they go to trade fairs? Do they walk up and down the high street, knocking on doors and saying, 'What are you doing; do you want to come to Sydney?'

Mr Brosnan : Obviously, they are spruiking Australia and New South Wales; that is at trade fairs, as you have mentioned. They are attending some

Mr PERRETT: I know that we are a federation, but do you have any connections with the other states? Is your job New South Wales and that is it, or is there a sense of 'Team Australia' in there?

Ms Airey : We promote the interests of New South Wales primarily, but we take a very strong view in New South Wales that the 'team Australia' approach is most beneficial to all the states. For example, if there is a trade show, we would be part of an Australian pavilion and market ourselves as

Mr PERRETT: You wouldn't hide the Queensland stuff around the back, or anything?

Ms Airey : We think internationally that it is most beneficial to all states to put forward an 'Australia' face. It is a very competitive market out there and a lot of countries, and a lot of subnational entities, are promoting themselves to international investors. We are best placed, and have best impact, if we sell ourselves as 'team Australia'. When we start to build relationships with those potential investors, then we start having a conversation about what it is about New South Wales which would be attractive to that particular investor. So that is when we start to talk specifically about New South Wales.

Mr Brosnan : International investors tend to get fatigued talking to various different levels of government. So, reiterating what Alison has said, we generally talk about Australia in general and do not weigh off different states and go, 'Don't go there; come here.' We definitely highlight the Australia opportunity. Often Sydney, being the business centre of Australia, is able to present itself very well.

Mr LITTLEPROUD: Is there appropriate coordination between federal and state, and all state governments, in making sure that the fatigue you talk about is managed well? Is there anything we could do better in terms of that coordination and cooperation amongst the states so that we do not fatigue potential investors? Is there anything you would recommend?

Mr Brosnan : Yes. Certainly Austrade has an information request process. That is sent throughout the Austrade network, and states are invited to respond to that. Sometimes New South Wales does not have the ability to follow up with that client or work together with other states to best attract that client. We provide information and it often goes in together without our having any understanding of where that client is or whether they had any feedback on the information or required more information. So being able to work a lot more closely with the representatives in the market to come up with a solid strategy about how to promote Australia and put our best foot forward would be most helpful to the work that we do.

Dr McVEIGH: Thank you for your presentation. I appreciate the department's submission. I want a little more advice and opinion from you about a potential free trade agreement with the UK, and the timing of that. I do so in the context of a few comments you have made in the submission. You have talked about there being significant potential in the services sector to grow that, so I take that on board. You make a comment that, pending the outcome of Brexit, there might even be a rebalance, as is stated in the written submission, towards Asian markets. I do not know whether that is a rebalance or just a continuing focus, or increased focus, on Asian markets. You also make a recommendation in the submission that a potential agreement should focus on reducing tariffs and regulatory hurdles, which is fairly obvious in a fair trade agreement. Are you able to comment further than that in terms of the timing of the pursuit of a free trade agreement? Some in industry are saying to us, 'Go hard, go fast.' But we have some in academia and other commentators saying, 'Hold back and see how the dust settles.' Does your department, a New South Wales department, have any advice for the federal government in terms of how a potential agreement should be considered, and when?

Ms Airey : Certainly there is a great deal of interest in this market from our business community; it is considered the fourth most important in terms of current and future business interest. It is a very easy place to do business, and the growth story from the UK has been very positive. There is a sense from our business community that they would like to do a free trade agreement with the UK, and as quickly as possible. I think the sentiment there is that, the sooner we get in, the sooner we have the advantages of those preferences. Certainly our beef producers have expressed that view. They are aware that they are competing in an international market and they want to not be in a position where others negotiate preferences ahead of them.

CHAIR: Such as?

Ms Airey : Other beef producers.

CHAIR: But are they specific about which competitors they are most concerned about?

Mr Brosnan : The main competitors for Australia are the US, Canada, New Zealand, Uruguay and Argentina. At the moment we are limited by the EU's beef quota. Being able to enter the UK market on a freer basis would certainly be beneficial to Australian producers.

Ms Airey : Certainly the beef producers have expressed the sentiment that a free trade agreement earlier would be in their interests. In the financial services sector, they are watching very closely the negotiations over Brexit because, on the financial services side, that will be quite significant in terms of whether London retains its pre-eminent position or whether the balance of the industry moves to continental Europe. But ensuring greater harmonisation through FTA negotiations in the financial services and professional services sector is certainly a big area of interest. The view of industry is that there is no reason to wait; the sooner we can get moving, the better.

Mr Brosnan : The biggest challenge for business is ensuring stability and continuity in the short term. A lot of businesses might have supply chains that operate both through the EU and UK zones and that obviously exposes their organisation to two lots of tariffs. So a major concern is whether there can be some sort of strategy that ensures that in the short term there is some certainty for business.

Dr McVEIGH: I will ask a follow-up question, Chair. I suggest that your reflection of what industry is saying here in New South Wales about proceeding as soon as we can probably reflects a lot of the evidence we are receiving in this inquiry from industry across the country. But at the same time, academics are almost universally saying exactly the opposite. For example, the previous witness this morning, Associate Professor Mark Melatos, from the School of Economics at the University of Sydney, even suggested that Australia would have what he terms a 'late mover advantage'; Australia is better off sitting back and just waiting to seemy wordsthe dust settle. As we work through this inquiry, we will need to consider those conflicting messages or alternative views that are being contributed to this inquiry. Do you have any advice or suggestions in that regard as to how we grapple with those alternative views?

Ms Airey : I guess the point of the 'late mover advantage' is that you get to have the benefit of the preferences already negotiated. There is more uncertainty over those benefits, though. We may or may not secure them. Trade negotiations take a very long time so, if we end up being further back in the queue, it can take years. So I think our industry would prefer to be among the first negotiations that are conducted with the UK so that we can start reaping the benefits of those preferences.

CHAIR: You have an international engagement strategy in New South Wales. What are the strengths and advantages of having such a strategy, and how does it compare with how other states approach international trade and investment?

Ms Airey : We have an international strategy to focus the resources on a limited number of key markets. We have 10 key markets, and the UK is one of our top markets. What we do in our strategy is, market by market, to identify priority sectors for New South Wales, so they will be different from the priorities of other states. Financial services and fin-tech are probably two areas where we place a lot of emphasis in our international engagement strategy, and that will be different from the other states. Under our strategy, we try to get one New South Wales minister per year to visit each of our 10 priority markets. We use ministerial missions as an important lever to get out to the market and build those relationships, which are so key in underpinning business outcomes.

CHAIR: How successful have those visits been in terms of generating new business and maintaining existing business in those 10 key markets?

Mr PERRETT: Can I ask something about the scope of that, as well, Chair?

CHAIR: Yes, sure.

Mr PERRETT: Those 10 key marketsand then I think you said specific sectors?

Ms Airey : Yes.

Mr PERRETT: So they are not just visiting a country; they are visiting a country and focusing on the manufacturing there, or the high-tech.

Ms Airey : Yes.

Mr PERRETT: Would the minister take a delegation with the expertise of New South Wales in that particular sector?

Ms Airey : Yes, that is right. We have our 10 priority markets and, for each of those markets, we have a market plan, and that market plan identifies the priority sectors for New South Wales in that particular market. So we look at the demand in the target market and our capability to deliver on that demand. We do not always send business delegations with ministers, but sometimes we do. Sending ministers on their own without delegations is very beneficial. We had former trade and investment minister Stuart Ayres travel to the United Kingdom last year and hold investment roundtables and one-on-one investment meetings with investors. That secured a number of positive outcomes for us. For example, the investor that Ash mentioned earlier, TransferWise, a big fin-tech supplier, came to New South Wales as a result of that. So investors and potential investors really do value the effort that government takes to meet with them, and I think that does influence their business decisions.

CHAIR: The other states have other ways of dealing with this issue. You talk about brand Australia, but the reality is that it is a competitive space. Melbourne would argue equally, on a range of fronts, as Sydney would be arguing, that they are the capital of doing business in X, Y or Z space in a number of your strategic markets. We need to understand how effective brand Australia is on the ground in reality, rather than the theoretical aspiration and how particularly the federal government and the agencies we look after can better facilitate a 'brand Australia' approach than is currently occurring.

Ms Airey : I think we have to be realistic about how well states are recognised and understood in an international market. There is a very strong international recognition of brand Sydney but a lot of people have not heard of New South Wales. I am not talking about the UK here but, in a lot of our Asian markets, we have very limited brand recognition as states. So that is why New South Wales in particular takes a very strong view that we need to sell ourselves as brand Australia. A lot of our advantages as an investment market are not specific to New South Wales but are about Australia. They are about our legal system, our stability, our proximity to Asia, our lifestyle and the growth that we have had over the last 25 years. They are the messages that resonate with an international audience and, once we get an investor interested in investing in Australia, it is at that point that we talk specifically about the advantages of New South Wales. I think it is very important that states do not undercut each other, and that is certainly something I do not think we do but it is very important that we

CHAIR: It does happen though, does it not?

Mr PERRETT: Competitive federalism.

CHAIR: Yes.

Mr Brosnan : Perhaps I can add to that. I think a lot of countries that have a federal system do struggle with this exact same question whereas countries that have more of an unitary systemsay, Singaporeare able to really push brand Singapore exceptionally well and they have got that very pinpoint target. In terms of how we are seen as a brand, as a business destination we are probably regarded quite highly. For a lot of my clients, Australia is actually a top three, four or five market for them, outside the US, China and Europe, and it is because we are eager to take things on. We have an excellent business regulatory system and we are a wealthy country. In terms of Australia as a brand, we probably have not sold ourselves as well as our Asian competitors and we are probably slipping behind our Asian competitors as being the location of talent and of capital. I think they are the two things that we need to work to improve on and also sell better into the market.

CHAIR: Do I take it from your evidence that there is no need to improve anything with communications from the federal government to states or vice versa?

Ms Airey : I think we can always do more.

CHAIR: What could we do?

Ms Airey : I think more coordinated messaging about Australia and its strengths would be useful. If we had a common set of sales points that we used across the states, I think that would be very powerful.

Mr PERRETT: One hundred per cent pure New Zealand, that sort of thing?

Ms Airey : That is right, yes.

Mr PERRETT: One brand, effectively.

CHAIR: Then, once you get them all across the line on those, that is when you differentiate.

Ms Airey : That is right.

CHAIR: We spoke to Cricket Australia and Netball Australia about some of those big iconic events, for instance, in the tourism market. They spoke about having a two-year planning calendar in terms of making sure that we do not have coms games on the Gold Coast butting up against a rugby world cup in Sydney. Does that level of coordination happen at the moment?

Mr Brosnan : No. That would certainly improve things greatly in terms of communicating in market. The other thing that I think could improve our communication is that a lot of Australia's branding, I think, has relied on 'Australia's a great place' without really underpinning what is actually the return on investment here in Australia, what are the costs of doing business and where are the actual market opportunities. I think we sell our strengths very well, but a strength might suggest to an international investor that there is not a market opportunity here because it has already been filled. So it is actually communicating, 'Okay, here are some of the gaps and here is actually where your company can slot in to fill that gap.'

CHAIR: Are there any further questions?

Mr LITTLEPROUD: I have a question. Sydney obviously is a financial capital, as you articulate in your submission, and obviously London has played that role significantly. There are obviously some risks in terms of how hard Brexit comes about. Do you see any risks in the flow of capital if there is a need for change in the financial institutions in Australia having to move to a European basis rather than a London basis in terms of transactions at the moment, because obviously there is still a rather fluid situation between the UK and Europe at the moment?

Mr Brosnan : My understanding is that Australian banks have de-risked themselves in terms of their exposure to Brexit. In terms of whether London stays as the European centre of finance, I cannot predict the future. I think that it will still continue to be the financial capital of Europe. There are still those significant flows. It is still the Euro hub. In terms of the future, one thing that I think would work really well in negotiating future agreements with the UK is having some sort of bank passport system. That exists currently with the UK. I do not know whether they could develop some sort of Commonwealth-wide bank passport-type system. I think that would be of huge benefit to both the UK and Australia.

Mr LITTLEPROUD: There has been some evidence over the last couple of days that there were some concerns that that change in how the Brexit may come could impact significantly on or disrupt the financial sector and the flow of capital and transactions. You are more comfortable with that outcome, whatever that may be?

Mr Brosnan : Yes, at this point. I think it is impossible to guess at this point.

Mr LITTLEPROUD: But you do not see any significant risks or impediments that will come out of that if it does come to fruition?

Ms Airey : I think change and uncertainty are always disruptive for business. The reality is that there is a lot of uncertainty about how Brexit will play out. Just anecdotally, we can see that businesses are pulling back on their business decisions until things do settle down. I think that in itself is a concern. In terms of direct investment into the financial services sector, we know that a number of the banks and financial services companies are already doing a UK-plus-one strategy to have a foot in both camps.

Dr McVEIGH: I have one other question. I am not sure whether you are the right part of the New South Wales government to talk about this. It is a tourism question. Does that come under the responsibility of your department?

Ms Airey : Of our department but not of my specific business unit, but we can take the question and get the information, if you would like.

Dr McVEIGH: My interest in asking this question applies to the UK markets as much as anywhere else and is based around regional tourism potential in Australia. I come from a part of the world, as does my good friend and colleague Mr Littleproud, that has, in southern inland Queensland, significant regional tourism potential, we believe. I have often made the observation that tourism in Australiato get back to team Australia discussions and I am not referring to the organisation Tourism Australia necessarilyreflects just a focus on Melbourne, Sydney and the Gold Coast, whereas we have, as a nation, far more potential than that. I suspect it is particularly Sydney as a gateway into the country that, I would humbly suggest, has almost a bit of a responsibility to the rest of the country, from a regional tourism perspective, to facilitate that flow. Obviously you have to play the New South Wales card. I understand that perfectly. But with direct flights, for example, into my regional city of Toowoomba from Sydney and from Melbourneand that airport is my electoratewe have tremendous potential there, whether it is the UK market or elsewhere. Do you have any comments or observations about how we can develop that regional tourism product throughout Australia, keeping in mind that Sydney is a gateway for much of our tourism?

Ms Airey : Yes. We are very fortunate in Sydney that we do have that gateway status. So, when international visitors come in for their holiday in beautiful Queensland, they do pass through Sydney, and we do have the benefit of that. Specifically, in New South Wales, we are very conscious of the need to get tourists out of just Sydney and into our regions, and we are putting a lot of effort into developing regional tourism products to promote to international investors and tourists. We are promoting investment into regional tourism. The returns are a little less certain in regional tourism. So it is a bit more difficult to attract tourism into regional tourism infrastructure than it is into metropolitan, but that is where government has a role to play in bringing players together and encouraging the packaging up of tourism investment products.

But I agree that tourism is also an area where we need to take a team Australia approach and try to get more international travellers staying here and staying for longer and visiting a diverse range of different communities. I think across Australia we are seeing a phenomenon where growth rates in the cities are very high but not so high in the regions. So we need to address the needs of those communities by helping economic development, and tourism is a wonderful example of where communities and small businesses can really benefit from that industry. I think that would be a good way to move.

CHAIR: Just on Dr McVeigh's point, I note that you referred to getting them out to regional New South Wales. Can you maybe on notice, after checking with those the responsible within the New South Wales government, tell us what conversations and what forums exist for places outside regional New South Wales, with Sydney as the gatewayI am thinking of the Great Ocean Road, the Great Barrier Reef and a range of regional destinations outside New South Walesand what role Sydney airport and Sydney itself play as a gateway opportunity? Are there any formal discussions around expanding those opportunities and that responsibility?

Ms Airey : Yes. I will have to take that on notice.

CHAIR: Yes, I know.

Ms Airey : I will consult my colleagues.

CHAIR: That is fine. We have plenty of time. Do you have any idea of which states do have somebody working out of Australia House like New South Wales does?

Ms Airey : I would have to take that on notice but

CHAIR: It is all right; we can ask them. We will ask Australia House. Also, what sorts of formal conversations that a cooperative federalist model would hope to have in this area do take place between different states and the federal government in terms of pursuing this team Australia strategy?

Ms Airey : Tourism ministers do get together under the COAG process

CHAIR: And trade ministers?

Ms Airey : Trade ministers do as well, yes. Then below that the officials meet. But I will get the specific details of mechanisms from my colleagues.

CHAIR: That would be great; thank you.

Ms Airey : Thank you.

Proceedings suspended from 10:00 to 10 : 39