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Foreign Affairs, Defence and Trade References Committee
29/10/2015
Australia's relationship with Mexico

BRADLEY, Mr Paul Francis, Director, Australia-Latin America Business Council

MEIRAS, Ms Sandra Edith, Board Director, Australia-Latin America Business Council

[11:47]

CHAIR: Welcome. Would either or both of you like to make a brief opening statement before we go to questions?

Mr Bradley : We will assume that our submission is taken as read. The thing that I would like to give recognition to is the excellent presentation and submission that was given by our predecessor, the Australia, New Zealand, Mexico Chamber of Commerce & Industry, with their 39 recommendations. In there you will find some excellent recommendations and a common theme across all the recommendations. I am sure you do not need us to draw those threads together.

I want to talk a bit about the positioning of the Australia-Latin America Business Council in this marketplace or amongst the audience that we have. The council has been around since 1989. We have seen a great deal of growth in the development of relations, starting with the joint committee of 2001, which resulted in the establishment of COALAR. Since the establishment of COALAR, there has been nothing but growth and momentum in the quality and value of the relations between Australia and all countries in Latin America.

Where the ALABC has a unique position, we believe, as a private organisation is in the relationship it has with large corporate Australia, bringing large companies together as a college of sorts with common interests in the region. A lot of those companies have the resources to carry out their activities and pursue their objectives without relying on an organisation like ours, but they choose, in the interests of, I think, promoting Australia, to join together. The other special relationship that the ALABC has is with the heads of mission. When I say that, I mean all the heads of mission—the heads of mission not just for Mexico but across all of the countries in Latin America.

Ms Meiras : I would like to make some very brief statements specific to our submission. First of all, thank you very much for having us here. It is a great pleasure to be able to participate in this inquiry on behalf of ALABC. The first point I would to highlight is that the two countries represent some of the world's top economies. The second point is that there is great potential for further trade and investment and that the current few years are not representative of the potential. The third point is that Mexico has been seen as one of the most prospective emerging markets in the world. The fourth point is the participation that both countries have in strategic alliances. The TPP has been discussed before, and I am sure that has come out in many of the submissions. All of those are very good indicators for a strategic relationship. One of the things that the Australia-Latin America Business Council would like to see, and where we could assist in whichever way that would be relevant to the council, is in building those strategic directions.

Senator BACK: Thank you for your appearance. I want to go to point 6 in your submission, regarding the automotive industry. Obviously, as you point out, there is going to be a decline in production here. Is there scope for our automotive component manufacturers to get more actively into the Mexican market, which itself, I understand, is growing enormously as an automotive manufacturer?

Mr Bradley : There is great scope for any Australian manufacturer to look at Mexico as the manufacturing platform for the North American market, including automotive manufacturing. That would be the platform where Mexico has very good productivity and access to that market—

Ms Meiras : Low cost.

Mr Bradley : Low cost, yes, and very competitive against suppliers like China.

Senator BACK: You made the observation, pretty obviously, about the fact that there have not been flows between our two countries and you point to Mexico's focus on North America and our focus on Asia. Is that likely to change, realistically?

Mr Bradley : Can I just say something about that. The figures can be a little deceiving. Often you will find, especially in minerals, that there is trade originating from Mexico by an Australian company to a third market. So the only flows you see are the value-add coming back to the country. If we focus purely on the physical trade flow and what comes with that, we will get a much more diminished picture of what the activity is. Of course, Australia is a very open trading economy and this is happening in all markets, where you have Australian companies with reach overseas trading, say, between a region like Latin America and Asia.

Senator BACK: We see data now as to where Mexico is in the world economy, at about 15th, and there are predictions that it could grow to being the 10th and possibly even the sixth or seventh.

Mexico has had free trade agreements—in fact, I think it has free trade agreements with almost all countries in the world! Where do you see—if, indeed, you agree with the likelihood of Mexico going up the ladder—that happening and how? And how might Australia actually tap into that significant economic growth over the next 35 years?

Ms Meiras : I would have to have a crystal ball to see when that would happen. Certainly, there is wealth in Mexico and there is a very large consumer market in Mexico. Whilst the wealth is concentrated in some sectors there, there are strong attempts to move wealth and to overcome inequality. I think that growth in the consumer market is quite important.

We have seen changes in the educational landscape. The English language and VET sectors are now the ones. Higher education has been more steady, but in the vocational sector and the English language sector there has been growth. We also see a lot of education—my other hat is that I am the director of the Office of Global Engagement at the University of Sydney. That is something that I know a little about, although I do not work on recruitment in particular. But education is one—when you look at the reliance on the US market and the European markets from the Mexican standpoint, Australia has potential to erode those markets because we do have a quality education system.

So I see a lot in the consumer market in Mexico that has great potential.

CHAIR: Sorry—can I just throw something in there that might excite some interest? I heard yesterday that the New Zealanders are doing us over in the American wine market. How is New Zealand going in its trade with Mexico? Are they big in dairy, or are they our competitors?

Mr Bradley : Absolutely.

CHAIR: Do they have a leg up on us because they have had a look around a bit more carefully?

Mr Bradley : I was going to add to this story on trade relationships. For many years Australia did pursue a strategy of multilateralism in its trade relationships, whilst many other countries were producing bilateralism. I think this was to Australia's disadvantage, because many bilateral relationships were established in the nineties and at the turn of the century. So it is pleasing to see that that has changed.

New Zealand is a country that considers Australia as a competitor in those markets. It was very successful in pursuing its bilateral strategy for trade agreements. That is where it has stolen the march on Australia in dairy and in some other sectors. It is an important lesson, and now it seems that we are moving towards multilateral agreements with the Trans-Pacific Partnership—that is good to see as well. But we should not forget the fact that there is a lot to be gained in having closer bilateral relations as well. For example, Chile has zero wine tariffs with Mexico, whereas when you read the submissions there are a multitude of wine tariffs which compound to something like 75 per cent for Australian wine.

CHAIR: I have a very simplistic view of this. It may not be economically correct, but sooner or later Australia's product is going to be recognised as organic, green, clean and pesticide-free or whatever, and there will be competition for it—rather than being concentrated on one market, like China, and trying to get it all in there and having them lock up all our products. Do we have any visibility in Mexico at all for our agricultural products?

Mr Bradley : To give you an example of history: look at the market for Australian lamb, not only in Mexico but in parts of Asia. The best cuts of lamb would go to Japan—the most expensive cuts of lamb would go to Japan—and the cheapest cuts of lamb would go to countries like Mexico because that was their preference, for a lot of mutton. It was the way that they prepared it; it was not so much an economic thing.

Will that market value a premium product from a country like Australia? If you want an opinion, it might be a bit early for that to happen.

Senator BACK: I just want to explore your comments on Mexican investment in Australia. Obviously, CEMEX is one; I was familiar with that some time ago. They came in and went out. Is it GRUMA?

Mr Bradley : GRUMA, yes.

Senator BACK: Are there others? And what, if anything, do we need to be doing to promote further investment by Mexican companies in Australian entities?

Mr Bradley : I could talk about the CEMEX example as an interesting one, because having met with CEMEX many years ago and spoken with their international people about the Australian market, their attitude was not to enter the market to compete with Australian companies for fear—if you want to call it that—of the repercussions that it might cause by having a counter in their own markets.

The CEMEX entry into Australia was highly opportunistic, I think—as it has proven to be. Of the other ones, GRUMA is a leader in their local market. I think they have pursued a classic and very sensible strategy of branching out in what they do best into other markets.

Other opportunities: there are very few Mexican companies, as you know—as you can see operating in Australia. There are fewer, perhaps, than there are from other countries in South America. A lot of that might have to do with familiarity and the extent of the population here which, as you know, is very much less represented from Mexico than it is from those other countries.

Senator BACK: My question then is—as I guess that you people are really well equipped to answer it: if we want to be serious, what do we have to do? When I was in Mexico in January I learnt that the British government had a policy of 'a minister a month' going from the UK to Mexico. The Austrade commissioner in Mr Rodwell is well spoken of, and that was the impression that I gained also. But there are very limited resources. Again, my understanding is that whatever the British equivalent of Austrade is, they were increasing their numbers permanently in Mexico by 20 or 30 people.

From where you are here in Australia, what do you see the Australian government's commitment has to be if we are really going to capitalise and maximise on this—especially, indeed, if the TPP is ratified and becomes part of the exercise? And there is MIKTA. What do we have to do?

Ms Meiras : I think that offering relationship building and raising awareness in both countries are fundamental. That was in our submissions as well and was part of the previous discussion. We should not be naive about that, because it would be unrealistic for us to think that we can send a minister a month, or a government official a month, to Mexico. We are probably not even doing that with some of the Asian countries, although we have a very close relationship with China. Lots of our people travel to China all the time. But it is simply not in that league of relationship.

So we do not have very much. We do need to increase mobility of our government officials and our business people, and we need to foster those relationships. And, to some extent, we need to ask: where are the strategic countries in Latin America? Which are the countries where we should have some positioning of Australia? Chile would be one—and we have a close relationship—and Mexico would be another one. This is as much for the position it has in Latin America as one of the middle-power economies as it is because of the gateway it represents to other countries, and because of the relationship that we have already. So we need to be alert to that.

Senator BACK: The big Australian companies—BHP Billiton, Rio Tinto, WorleyParsons, Macquarie and others—they can look after themselves, can't they? They are big and ugly and they are okay. But if we are going to see some opportunities in the SME sector, there are the concerns that have been expressed here earlier this morning of Mexico's reputation, and that is being addressed and was answered this morning. What is the most effective assistance that Australia can give to Australian SMEs looking towards Mexico and, presumably, using Mexico as a springboard into Latin America? What do you suggest this committee should be recommending in its report to try and encourage that expansion and development of SME relationships with Mexican business?

Mr Bradley : What parliament can do, what the government can do, is build and promote the institutional relationships—facilitating that is extremely important. That can be facilitated very well at the official level. Government can provide essential infrastructure: many submissions have spoken about Austrade, and we are talking about getting Australians out there into that market, rather than the other way around. People have spoken about the New Colombo Plan, getting Australian students out there into those environments and markets, and, as Sandra mentioned, it is about mobility—promoting and facilitating mobility for Australian students, researchers and businesses, small and large, to explore the opportunities.

Ms Meiras : There are things that are not on the scale of just travelling and facilitating mobility, which is also complicated by airfares, costs, visas and all of that. We have implemented some small-scale initiatives through the Australia-Latin America Business Council. We did a small networking drinks round table sponsored by the Australia-Latin American Business Council. We invited the head of—I forget his exact title now, but he is one of the top meat industry persons in Australia, a great speaker.

Mr Bradley : Sanger meat.

Ms Meiras : He spoke of how they exported Australian chooks to Brazil, which was quite amazing, because they never thought that the Brazilians were going to buy Australian chooks. He spoke of how he built that relationship from an executive assistant that he had, who happened to be Brazilian and had a relationship with someone who was in the chook industry. They built this very people-to-people relationship and ended up exporting I do not know how many chooks to Brazil. It has been a massive success story.

This was a very informal networking drinks, where we invited lots of small and medium companies that wanted to operate in—the usual thing that ALABC does. Those can be very powerful and they could be even more powerful if we could do it in conjunction with the government. We do those events all the time; that is the role of ALABC and many of the other business councils.

Senator BACK: I guess the question is: is there a critical mass there to expand on and support?

Mr Bradley : Momentum has been growing. The institution of COALAR has made a big difference, because that has provided a lot of support for things that otherwise would not be economical. It provides profile and it provides the link between the official sector, DFAT, and the rest of the community, and the external community as well. From the perspective of this organisation, having been involved in Latin America for a long time, the momentum is growing. It continues to grow. In the last perhaps year and a half it has suffered a little bit because of the METS industry, but that is what you might call a correction. It continues to grow. Australian businesses continue to build their reputation and contacts in the region. Are we at the tipping point? Perhaps not yet; there is a distance. One specific thing to mention about the relationship between Australia and Mexico is that, as in Australia we might show some anxiety about the concentration of our economic partnership with China, perhaps the same could be said of Mexico with their economic partnership with the United States. There is a great desire in that country to diversify their relationships so that they are not so dependent on that one relationship.

Senator BACK: My last question is getting back to the New Colombo Plan. One of the features of the New Colombo Plan program is that, when students go and study at a university or whatever in Asia now, there is an attempt for them to link up with an Australian company and be mentored by that Australian company. The obvious thing is that, when they return to Australia and finish their degree, they will already have some of that networking. If we are able to expand the New Colombo Plan into the Mexican higher education system, are you confident there would be sufficient Australian companies in the major cities that it would be possible to link students up to for the period of time that they are going to be in a Mexican university?

Mr Bradley : I would say absolutely yes. The market is big enough. There is good representation in Mexico now amongst larger Australian companies—much better than there was 10 or 15 years ago.

Senator BACK: I think it is a very important feature of this, for the cultural exchange apart from anything else—for kids, often on their first overseas experience, to know that there is going to be someone who they can go to.

CHAIR: In relation to the diversification that you spoke about—that Australia should not have all its eggs in one basket, and Mexico is the same—who do they deal with most when they look to this part of the world? Are there any significant trading relationships in this part of the world—Mexico and Japan or what? Who would be the biggest trader in Asia?

Mr Bradley : I think the embassy can answer that question for you in their submission later on.

CHAIR: I would like to know the answer before they get here, because then they cannot tell me—

Ms Meiras : Japan was one of the top ones.

Mr Bradley : I expect it would be Japan and possibly China.

Ms Meiras : China, yes.

CHAIR: We often get very good briefs of Australia and Mexico or whatever, but we do not always get a sense of the region. Thanks very much for your submission and contribution here today.

Proceedings suspended from 12:13 to 13:02