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Foreign Affairs, Defence and Trade Legislation Committee - 18/10/2012 - Estimates - FOREIGN AFFAIRS AND TRADE PORTFOLIO - Australian Trade Commission

Australian Trade Commission

[16:30]

CHAIR: The committee will resume. I welcome back Senator Conroy, representing the minister for trade; Mr Bruce Gosper, Deputy Secretary of Austrade; and other officers at the table. This evening the committee will hear all DFAT's trade programs, in conjunction with EFIC and the Australian Trade Commission. We will begin with supplementary budget estimates for the department's trade programs, including bilateral regional and multilateral trade negotiations, and trade development policy coordination and APEC, and then we will hear from Austrade and EFIC to conclude matters. Does anybody wish to make an opening statement before we go to questions?

Mr Gosper : No, Senator.

CHAIR: Thank you. We will start off then with Senator Whish-Wilson.

Senator WHISH-WILSON: Thank you, Chair. I would like to follow up two questions that my colleague Senator Ludlam asked at the last estimates about the trans-Pacific partnership agreement. Australia is not proposing to change our intellectual property system through the TPP negotiations; is that still the case?

Mr McCormick : Yes, that is correct, Senator.

Senator WHISH-WILSON: Thank you. The Australian government have previously indicated they are not willing to sign up to investor-state dispute settlement provisions. Is that still the case?

Mr McCormick : It is.

Senator WHISH-WILSON: Okay. I would like to talk a little bit about the consultation process that DFAT has conducted outside the negotiations. I understand there have been some rounds of stakeholder consultations; is there an ongoing consultation process?

Mr McCormick : Yes, there is a fulsome consultation process going on, and it is broken up into about five different compartments. First of all, we have written submissions by any stakeholders interested in the TPP. We have received a number of those, and they are on the DFAT website. We have day-to-day contact with the full range of stakeholders, particularly those who have asked for any form of consultation with us. We are in contact on a day-to-day basis. We also have regular formal consultation processes where we go around to different states. We did so in February and we will be doing so again in November.

In addition, we sometimes hold, on request, specific issue related consultations—so we have done them on intellectual property, with people who have an interest in intellectual property issues. On top of that, at each of the negotiating rounds for the TPP, we have a process where stakeholders can come along and make presentations; they can also meet with not only their own national negotiating teams on request but also the negotiating teams from the other now 10 parties to the TPP negotiations. There is an additional mechanism now where we are having, basically, a period where all the interested stakeholders can request to have a presentation booth, if you like, where all of the negotiators and other stakeholders can discuss specific issues as they go along. So we have this very full consultation process.

Senator WHISH-WILSON: Have you approached any stakeholders about putting their hat in the ring for that process or have they engaged in some other way? Have you approached any stakeholders yourself to engage in this process?

Mr McCormick : We have used newspapers to advertise consultation processes and we have used the DFAT website. But there are also a lot of stakeholders actively contacting us—industry, civil society and a whole range of groups.

Senator WHISH-WILSON: Fantastic. Have DFAT officials met with any foreign stakeholders?

Mr McCormick : Yes, on request, we agree to meet with foreign stakeholders if they would like to discuss their issues of concern.

Senator WHISH-WILSON: I assume that, obviously, for good reasons a number of stakeholders would want to be involved in the process. Who decides which stakeholders participate in the negotiating rounds?

Mr McCormick : It is simply on request. Any stakeholder from the TPP parties who wished to be involved would be accepted.

Senator WHISH-WILSON: Would you say that was a satisfactory public consultation process? You said there were civil society groups and—

Mr McCormick : Yes, there is a very wide range of civil society groups from around the region. All we can go on is the feedback we get from, in particular, the Australian stakeholders. The feedback we have received is that they seem to find our consultation processes quite reasonable. Some of them would like something more—they have other requests—but, in terms of the effort and detail we go into and how we involve people and discuss their issues and where negotiations are up to, the feedback we have from our consultations is reasonably positive.

Senator WHISH-WILSON: What are your thoughts on the timing of these negotiations? Is it a case of 'How long is a piece of string?' or do you have confidence that it will wind up in a certain time frame?

Mr McCormick : I think there is a reticence to set some arbitrary date by which we have to finish. The leaders of the TPP economies put out a press release in September at the end of the APEC meeting—a report from a meeting of ministers was also released publicly—and, in that, we as the negotiators have been instructed to try and complete negotiations as soon as possible. We have been making good progress for such a complicated exercise, but it is quite clear that we still have a lot of issues to go through. So our focus is on trying to go as far as we possibly can until the end of next year.

Senator WHISH-WILSON: Is it putting strain on DFAT's resources? How many staff do you have involved in these negotiations?

Mr McCormick : There are approximately 29 subject areas which are subject to discussion or negotiation and there are about 20 negotiators involved on a regular basis. Each of the areas is quite distinct. It is time consuming but it is an important initiative of the government. It is identified as a priority. I do not think we are doing anything other than following through on the instructions we have from the government.

Senator WHISH-WILSON: Has there been any further interest from the Chinese in participating in future discussions or negotiations?

Mr McCormick : No. It is basically self-initiation of those who want to be involved. All of those who are involved in the negotiations now—we have just admitted Mexico and Canada and they will attend the next round in December—have identified for themselves that they would like to be involved. We do know that China is watching with interest, as are all countries and economies in the Asia-Pacific Economic Cooperation forum. The members of the TPP provide regular briefings to all APEC economies. I have mentioned before that Australia has provided China with briefings on where we are up to with the TPP. We are all committed to expanding the TPP over time. We would like to see it as the pathway to the FTA of the Asia-Pacific, which is an APEC objective. That would involve all members of APEC, at a minimum, being involved at some stage.

But people are at different stages of where they would like to assess where the TPP is going. It is meant to be a very ambitious, comprehensive free trade agreement. Some economies may think that they need to wait a little while before they seriously think about joining. That is essentially the situation we are in at the moment.

Senator FAWCETT: I represent South Australia. We have a vibrant fruit and vegetable growing industry in the horticultural sector. They welcome the news that free trade agreements provide a level playing field. We are constantly told that the growing middle class in India and China is opening up a huge new market. Could you tell me, in the light of the work you are doing on free trade agreements: what are the tariffs that China and India charge on Australian fruit and vegetables?

Mr Gosper : We would have to take the detail of that on notice because of course tariffs will differ between those two markets and between particular products of interest to us.

Senator FAWCETT: Let us take India. What is the maximum tariff that you are aware of that India charges on Australian fruit and vegetables?

Mr Gosper : I do not have those tariffs with me. There may be someone in the room who could give that to you. From what we have seen in the context of, for instance, other negotiations, I am aware that those tariffs are often in the order of 30 or 40 per cent or higher. But, again, it depends upon the particular commodity. In addition to tariffs there are other restrictions that often are relevant to trade in these items—import regulations of one sort or another, including seasonal restrictions. There are often sanitary or phytosanitary measures of one sort or another that are relevant as well. So, again, I am quite happy to respond on specific commodities or on notice to give you what information we can. But I cannot be precise on specific commodity lines at this point.

Senator FAWCETT: I appreciate that. All I am after is an indication. You have indicated that many are 30 or 40 per cent. Some tariffs are reported to be up to 100 per cent.

Mr Gosper : Indeed. If I may, Senator, because you asked about China in addition to India: generally tariffs into China will be quite a bit lower as a product of its WTO accession process. Its tariffs are actually quite low, relatively low, for a developing economy. Mostly, of course, they are bound at applied rates. So what you see is what you get in the sense of what the actual tariff is. There the tariffs are often single figures rather than double figures.

Senator FAWCETT: Sure. As I said, most of the South Australian growers are happy to compete on a level playing field. Could you confirm what tariffs are charged on produce coming from India or China into Australia?

Mr Gosper : Most of those tariffs are fairly low.

Senator FAWCETT: Or non-existent.

Mr Gosper : We have very low tariffs of single figures. I cannot think of a particular agricultural line that would be above 10 per cent and, indeed, most of them are zero or quite low, as I think you probably know.

Senator FAWCETT: That is fantastic. The trade minister talking about the tariffs from China and India made the comment that under the free trade agreement it is fantastic because it means that the growers can get cheaper equipment coming in from China or India. Could you give me an idea of what sort of equipment a horticultural primary producer would be bringing in from China or India that would benefit their business?

Mr Gosper : I am not sure of the specific context of that reported comment, but I imagine the minister would have been referring to imports of machinery or capital goods; he could be referring to inputs of chemicals or fertilisers that were relevant to the industry. There are a range of possibilities.

Senator FAWCETT: I accept that. The Prime Minister has just been in India and one of the headlines of her visit was 'Better trade relations with India' Was the topic of tariffs on Australian horticultural produce raised by the Prime Minister in India?

Mr Gosper : I am not aware of the specific nature of those discussions.

Senator Conroy: We are happy to take that on notice if you would like.

Senator FAWCETT: I am happy for you to take on notice whether it was raised but can I ask you: did the department provide advice, as part of the briefing for the visit, as to that differential between the 100 per cent on our products going that way and the zero per cent on products coming this way?

Mr Gosper : We provided input to the briefing that talked about the overall relationship and the advantages to be hard by deepening that relationship by liberalising trade between the two economies, including in the context of our FTA.

Senator FAWCETT: So the Prime Minister would have been aware of the fact that there was a very big differential—

Mr Gosper : That was a general subject of discussion that we anticipated would take place, yes.

Senator FAWCETT: I would be very grateful if you could come back to me on notice to let me know if it was discussed. Certainly the impression people get is that they were not stood up for during the visit and that it is not a level playing field, which they would welcome given the size of the markets. We welcome the better relationships with our neighbours to the north, but our growers are looking for a level playing field.

Senator NASH: Gentlemen, are you aware of the recent LAND 17 decision cancelling the South Korean self-propelled howitzer project?

Mr Gosper : Only in the broadest detail. That was something that came up in discussions earlier—

Senator NASH: I am asking specifically in terms of trade, so I am just interested to know if you were aware of it first up.

Mr Gosper : I am aware of it but not in the context of trade.

CHAIR: It was canvassed substantially earlier on, Senator Nash.

Senator NASH: I do realise that. 'Not substantially in terms of trade'—is that what you just said?

Mr Gosper : I would appreciate it if you would ask the question. If you ask the question, I could give you an answer.

Senator NASH: I was just trying to clarify what you said; I just did not hear you. I thought you said that—

Mr Gosper : I am aware of the issue, of course, but it has not come up in the specific context of our trade discussions.

Senator NASH: Okay. Are you aware of the general unhappiness of the South Korean industry regarding the cancellation?

Mr Gosper : Are you referring to the South Korean military defence industry?

Senator NASH: At a stretch, you could say that. I was referring to the companies that were involved which obviously have very close links with the government.

Mr Gosper : No, I am not aware of that.

Senator NASH: Is anybody aware of it?

Mr P Rowe : I have seen news reports of it. It has not been drawn to our attention in the department or to our embassy's attention particularly.

Senator NASH: So nobody in the room is aware of any level of discomfort within South Korea at what they see as a fairly unfair cancellation of the project? I am just trying to clarify this.

Mr P Rowe : The Koreans have not been making representations to us about this, if that is what you mean.

Senator NASH: No. I was asking if any of you were aware of it.

Mr P Rowe : I am saying that the Koreans are not making us aware of this, no.

Senator NASH: What are the terms of trade between Australia and South Korea?

Mr Gosper : It is a very substantial trading partner, of course.

Mr P Rowe : It is about $30 billion two ways.

Senator NASH: What are the figures for exports and imports?

Mr P Rowe : I think our exports are around $21 billion.

Senator NASH: Leaving about $9 billion.

Mr P Rowe : Something like that. I can get the exact figures for you.

Senator NASH: Thank you. That would be useful.

Mr Gosper : Korea is our fourth largest two-way trading partner at $31.1 billion. In terms of exports, it is our No. 3 market at $22 billion. In terms of imports, it does not register in the first five markets. We can get that figure for you.

Mr P Rowe : But it is about $7,000,130,000.

Senator NASH: So we have a significant trade surplus around $16 billion or $17 billion—is it about that?

Mr P Rowe : Yes.

Senator NASH: We have a trade surplus with South Korea, a significant market for this nation, and you are not aware of a distinct level of unhappiness within South Korea as a result of the cancellation of the SPH project? Given you have just indicated to me what a significant trading partner they are, does that not strike you as a little extraordinary?

Mr P Rowe : They are not making us aware, as I said, of this unhappiness.

Senator NASH: Wouldn't you perhaps have noticed, in some way, shape or form, given the significant nature of them as our, as you say, fourth largest trading partner, if industry within the nation with close links to the government was a little perturbed, to say the least, about the cancellation of the project? That has not come on your radar at all, because they have not raised it with you?

Mr P Rowe : I think if they were very disturbed about it they would raise it with us.

Senator Conroy: That is usually what happens.

Senator NASH: You think.

Senator STERLE: That is what my wife does!

Senator NASH: Thank you for the interjection, Senator Sterle. I am not at all surprised!

Mr P Rowe : Senator, with some familiarity with Korea—

Senator NASH: Just wait—just let me ask the question.

Senator Conroy: Do you expect the officers to be mind-readers?

Senator NASH: I expect the officers to be aware. If I am aware of it, I would expect the department of trade to be aware of it.

Senator Conroy: Goodness knows how you come to be aware of things, Senator Nash.

Senator NASH: Goodness knows how I do, but I suspect that if an insignificant little backbencher like me is aware of it—

Senator Conroy: Never insignificant!

Senator NASH: an entire department should be aware of this. What are the top 10 nations that we trade with where we have a trading surplus?

Mr P Rowe : China, Japan, Korea—

Mr Gosper : India. New Zealand, I imagine.

Senator NASH: New Zealand you imagine?

Mr Gosper : I do not have the figures here in front of me. Would you like me to take the 10 figures on notice for you?

Senator NASH: I would like you to take the 10 figures on notice. The department of trade cannot give me the top 10 nations where we have a trading surplus!

Mr Gosper : We normally, of course, do not look at specific markets in terms of whether there is a surplus or not. We look at it in terms of: which are our major 10 trading nations? Our major 10 trading nations, of course, are for the most part in this region, and we seek to improve the trading relationship with all of them.

Senator NASH: So you look at the overall. Would it not be circumspect to look at those nations where we have a surplus? That would indicate, even to me, very important nations. To know—

Senator Conroy: I think the officers have indicated—

Senator NASH: Sorry, just let me finish, Minister.

Senator Conroy: No, sorry, you are berating the officers.

Senator NASH: I am not berating the officers at all. I am not at all, Minister; you know me better than that.

Senator Conroy: They have indicated that they will take your question on notice.

Senator NASH: I am asking another question, Minister.

Senator Conroy: It sounded like a berating lecture to me.

Senator NASH: Well, you need to pay a little more attention, Minister.

Senator Conroy: I was paying very close attention.

Senator KROGER: It has been a long day!

Senator Conroy: That is true. It started at 6.10 as well. I got up at 4.30 this morning.

CHAIR: Order! Senator Nash, do you have a question?

Senator NASH: I do, Madam Chair.

CHAIR: Can we have the question and not the lecture? Senator Nash, what is your question?

Senator NASH: I was not even speaking. The minister was speaking.

Mr Gosper : I can give at least a partial answer to the senator's question.

Senator NASH: I would appreciate that, Mr Gosper, thank you.

Mr Gosper : Our top five trade surplus markets are, as we indicated, China, Japan, the Republic of Korea, India and Taiwan. I do not have the figures for the other five here with me, but rather than guess we will take that on notice for you.

Senator NASH: Thank you. I would appreciate that very much. In relation to the cancellation of the project, I am sure the South Korean government are probably mature enough and honourable enough to ignore formally the government's behaviour in cancelling the program, but, from the perspective of their significance as a trading partner, what effect is likely, in your view, to result from the fact that the government has effectively snubbed their national iconic firm, Samsung? What potential may that have on the trading relationship we have with them?

Mr Gosper : It is a very robust and durable relationship. There are disappointments of this sort in every bilateral relationship from time to time, but this relationship is one that continues to grow quite strongly. I am sure it will endure any of these sorts of disappointments.

Senator NASH: You do not foresee or you do not countenance the possibility that, as a result of the significant and distinct unhappiness within South Korea, there might potentially be a reduction in imports by South Korea of Australian product?

Senator Conroy: So significant and large that they have not raised it with us!

Senator NASH: I ask the department if they would not mind following up on this particular issue to see if indeed I am correct that there is a significant level of disquiet about the cancellation of the project, which I am very surprised you are not aware about. I am obviously particularly concerned about our beef exports, which have been performing very well. I think they have increased from about 660 million to around 770 million. Can you guarantee me that Australian farmers will not be disadvantaged by this significant unhappiness within South Korea and that it will not impact that beef trade?

Mr Gosper : On the first part of your question: we are of course, as we have said, aware of the disappointment the Koreans have in the howitzer decision, but what we are doing is responding—

Senator NASH: Sorry, Mr Gosper, I thought you said earlier on that you were not aware of it, that they had not raised it with you.

Mr Gosper : We were aware of the disappointment. They have not raised it with us in the context of our trade discussions.

Senator NASH: Now we are clarifying this. You are aware of it, but they have not raised it with you?

Mr Gosper : That is right.

Senator NASH: Why did you not indicate that at the beginning when I asked you?

Mr Gosper : I believe I did, Senator.

Senator NASH: All right. I will go and check the record.

Mr Gosper : On the second part of your question: yes, of course Korea is a very important beef market for us, and we are quite aware, of course, of the understandable anxiety the industry has about the preference that the Americans have now negotiated into that market for the removal of tariff over 15 years. That is a process which has begun with respect to the Korea-US agreement. We have not yet been able to conclude our agreement, but we have been talking closely with the beef industry about that, so we are very conscious of the importance of bringing that agreement to the earliest possible conclusion so that we can ensure that it does not face a particular differential with respect to its major competitors.

Senator NASH: Thank you for that. Given that you are aware of the unhappiness, as I have termed it—that is probably a very loose term—

Senator Conroy: 'Disappointment' was, I think, the word you actually used.

Senator NASH: I think I used both at various stages, Minister: disappointment and unhappiness. But the fact that the government has not raised it directly with you—you are not concerned about it? I am just trying to understand if that is the case. You are aware that there is disappointment. You are aware of the unhappiness, the significant level of concern within South Korea about the cancellation, but, because the government has not relayed that directly to you, you are not concerned about that level of unhappiness within the industry and within the country. Is that a correct summation?

Mr P Rowe : If there were a very significant level of unhappiness, on experience with dealing with Korea I would expect that they would raise it with us, and they would consistently raise it with us. And they have not. I think it would be detrimental to our own interest to elicit that, to go around asking them if they were concerned, because that would simply give them the advantage to know that we were defensive about the issue.

Senator NASH: Good Lord! In terms of South Korea, just refresh my memory. Is there a free trade agreement afoot with South Korea? Are we looking to do that at all?

Mr Gosper : Yes, we have been for some time negotiating, seeking to negotiate, a free trade agreement with South Korea, but we do not have it yet.

Senator NASH: Exactly in terms of that, how do you see the cancellation of the project—which is seen as very unfair by South Korea—impacting on those negotiations?

Mr Gosper : Again, disappointments occur in every bilateral relationship, but there is no sense for us that either side thinks that such a thing is relevant in the context of a very mature relationship, a very robust relationship, a relationship that is not just economic but covers defence, cultural and many other issues, a relationship that is seen as an immensely important dialogue between us and Korea in areas such as G20 over the last few years. So I do not really think that we should think that the relationship is imperilled by this.

Senator NASH: I suspect the situation is rather more significant than you believe.

Senator RHIANNON: In light of the government's strong support for the World Trade Organisation and for lowering trade barriers around the world, what is the government doing or what does the government intend to do with respect to tariffs, subsidies and other market distortions applied by the governments of the gulf cooperation states and Indonesia which have the effect of encouraging the live animal trade at the expense of frozen and chilled meat exports?

Mr Gosper : Perhaps I can answer if I can better understand your question. You are asking us whether we are putting pressure on or seeking in countries which accept live animal exports a reduction in tariffs on live animal exports and processed meat products?

Senator RHIANNON: Yes.

Mr Gosper : Yes, indeed. We have been seeking to negotiate with, for instance, the Gulf Cooperation Council, which is six markets within the Middle East region, for some time. But that negotiation has been in suspension for a couple of years now, at the decision of the Gulf Cooperation Council itself. Equally, of course, we have negotiated with Indonesia in the context of the ASEAN FTA and in a bilateral negotiation we have just commenced in the last few weeks—the Indonesia-Australia closer economic partnership. Reducing tariffs for agricultural products is a key part of both of those negotiations.

Senator RHIANNON: Could you go back to the comment you made about the gulf cooperation states? What did you say has been suspended for a few years?

Mr Gosper : The negotiations. The Gulf Cooperation Council has been negotiating with various countries. It has been negotiating with the European Union, with Japan and with Australia for free trade agreements. But the Gulf Cooperation Council itself made a decision a couple of years ago to suspend all negotiations while it reviewed its internal position on those negotiations, which essentially relates to industry policy of one of the particular members.

Senator RHIANNON: So you understand it is internal differences or maybe policy differences between the member states that is holding it up?

Mr Gosper : Indeed. We continue from time to time, as opportunity comes, to encourage them to resume negotiations. Ministers raise it with their counterparts periodically. But this is a decision they have taken with respect to all trading partners and that process has not yet concluded.

Senator RHIANNON: Which country is at variance on these issues of negotiations?

Mr Gosper : I think Saudi Arabia has some particular issues with respect to some of the industry sectors.

Senator RHIANNON: Was it your understanding that that was the country that placed more emphasis on retaining tariffs and subsidies?

Mr Gosper : I would not characterise them too far. We do not understand that much about their internal discussions, but Saudi Arabia has a particular interest in the automotive sector.

Senator RHIANNON: I think you just said that some of our representatives have raised it in country-to-country discussions.

Mr Gosper : Yes.

Senator RHIANNON: Is there a possibility that the negotiations could occur on a country-to-country basis or a country to the European Union basis, or do you think it has to be in the context of the GCS?

Mr Gosper : They have a customs union, so they will negotiate together.

Senator RHIANNON: Right, so that has to happen. The demand for meat in China, I see, has been rising quite rapidly, and also across much of Asia. Are the government and industry working together to grow Australia's share of this market?

Mr Gosper : The demand for that product is growing. One of the things we have been doing in the context of our FTA negotiations with China has been to seek much greater access, in particular for our sheepmeat sector but also for beef and other livestock products. Those negotiations are continuing.

I cannot talk with any detail about industry promotion activities in that market, but I know it is an important market and I would be confident that there is a good deal of consultation. I would think that our posts assist exporters where they are looking to develop markets, and I am sure Austrade would be involved similarly.

Senator RHIANNON: I was interested in more detail about how you are working with industry and how it is being promoted across Asia. Do you need to take that on notice?

Mr Gosper : I think we will take that on notice.

Senator RHIANNON: I would also be interested in the figures that show the growth in trade, as well as your tactics to help grow that trade.

Mr Gosper : The growth in the meat trade?

Senator RHIANNON: Yes.

Mr Gosper : Yes, we can do that.

Senator BACK: I want to start with the circumstance in Bahrain. Can you tell me what engagement, at a ministerial or senior departmental level, you have had with the government of that country in recent times with regard to both live animal and meat sales?

Mr Gosper : I will ask Mr Robilliard join us. Our post in that part of the world has been involved. I do not have the detail here in front of me at the moment. These matters have been the subject of very close consultation with the department of agriculture and with our posts, assisting in liaison with the livestock sector and relevant authorities as well as the ministries involved in this issue.

Senator BACK: Has there been minister-to-minister or government-to-government level negotiation and discussion, above the bureaucratic level, to understand the circumstance going on in Bahrain?

Mr Robilliard : I would like to take that on notice because I would need to check with our DAFF colleagues as to whether there has been any level of representation.

Senator BACK: It is not just a live sheep situation; the media that I have seen in the last couple of days indicates that Australian chilled meat has also been rejected by these authorities. A report given to me today says that one of our large vendors of mutton into that market, where they would typically be sending 10 to 20 container loads of muttons into that market at $3.70 a kilo, this week are expecting to send two to three container loads at a price of $1.20, a threefold reduction. The concern that I raise with you is that this seems to be now a Middle East-wide circumstance. Have you had any communication with Kuwait, again at minister-to-minister or senior departmental level, in terms of their expectations of Australia and our performance?

Mr Robilliard : Firstly, in response to your noting about the issue of mutton with Bahrain, that has not come to my attention. It may have come to the attention of colleagues in DAFF, but I am certainly happy to follow that up and to see where that it is up to. As you mentioned, a series of incidents have occurred in the Middle East over the last two months. You referred to Bahrain and to Kuwait. We have also had issues in relation to Egypt and Jordan, covering a range of issues to do with live sheep and live cattle.

All of those issues have been quite vigorously pursued. They all relate to different sets of circumstances; no-one is suggesting there is any sort of general effort on the way here. For instance, in Egypt, as you will be aware, there has been concern about hormone growth, and there are different circumstances Jordan and different circumstances in Kuwait. Together with our colleagues in DAFF we have been pursuing those issues, and we will continue to do so.

Senator BACK: I am just not altogether sure that it is not a region-wide issue. It has been put to me that appearing in the front window of a prominent Omani restaurant recently in Muscat was a sign saying 'no Australian meat sold here'. My concern is that this may well be an issue not affecting just our agricultural exports but also our reputation in the Middle East region.

You will be aware of what is a political issue going on in Karachi in Pakistan. I just wonder if you could advise what assistance the department and/or the minister has given in attempting to reach a resolution of that particular issue.

Mr Gosper : On the first part of your question: my briefing tells me that a delegation from the department of agriculture visited quite a few of those markets in early October—Bahrain, Qatar, Oman, Jordan and Saudi Arabia. All the countries that the delegation visited expressed their continued commitment to live animal trade with Australia. They noted our action animal health record and, for their part, emphasised their commitment to implementing the appropriate local laws on quarantine and animal welfare. So I do not have the sense of any wider problem, but there are certainly a number of problem shipments in that region of the world at the moment. We are watching that very closely, as Mr Robilliard has indicated.

Senator BACK: With Eid al-Adha upon us in about the next 8 to 9 days, the concern I have is that these are markets that we have long traditionally supplied—Kuwait, Bahrain; the Gulf States. I understand, for example, that Bahrain is down to 1,000 live sheep in the entire area and that there is a concern that there will be civil unrest if there are not animals for that particular purpose.

My concern extends further, also, to Saudi Arabia. I understand that the Saudis have now concluded a supply agreement with Brazil to supply live animals to that market. We all know the importance of Saudi Arabia in the hierarchy of the Islamic world—it starts with Saudi Arabia.

Can I ask you again what, if any, liaison there has been between your department and minister with the Saudi authorities in terms of trying to work through the current non-supply and whether or not Saudi Arabia will participate in what is referred to as ESCAS phase 3. At the moment, as you would know, from 1 September the trade with Saudi Arabia has ceased.

Mr Fisher : We continue to talk with the Saudi government and to encourage Saudi industry also to talk to the Australian industry about a possible ESCAS arrangement, but really it is up to the exporters and importers to put those arrangements in place. That is how the new ESCAS system works, as you would well know, Senator.

Senator BACK: I am aware of that, Mr Fisher. But can also make a point to you—and I am sure it is preaching to the converted—that the difference between the Western approach and that of the Middle East, Asia et cetera is the fact that industry cannot achieve a lot unless there is very senior ministerial-to-ministerial liaison and co-operation which then flows to bureaucrat-to-bureaucrat and only then does it flow to industry-to-industry.

My fear is that, if we are not seeing that ministerial-to-ministerial communication, then, with deep respect, any work being undertaken by either Trade officials or DAFF officials—or, indeed, industry operatives—will be deficient because the clients do not see that ministerial-to-ministerial cooperation and liaison. Could I ask you to respond to that?

Mr Fisher : Certainly. We are actually seeing a good deal of ministerial-to-ministerial involvement. For instance, on the issue of the Jordanian and the Egyptian problem, which was about two months back, there was ministerial contact on that occasion. With the Indonesian ESCAS arrangements, we have had consistent ministerial engagement there. Those are only two examples. There has also been ministerial engagement in other areas as well. That is certainly not lacking.

Mr Robilliard : I will just follow up on that. Going back to Bahrain—and I think this reinforces the point you are making—with the Bahraini authorities we now have an agreement to recommit to the existing MOU which we have with Bahrain. That will be done at a ministerial-to-ministerial level. That just reinforces that point you make. Can I go back to the question you raised in relation to Pakistan. I just want to assure you that this department and DAFF have been very actively engaged on that. This goes back to mid-September with the High Commissioner in Islamabad discussing these issues. There has been fairly constant interaction based in Pakistan and here in Canberra with Pakistani officials. I will just note a slight note of caution in relation to all of this on Pakistan. The Sindh court had hearings in relation to this matter yesterday. It adjourned and I think will be resuming its considerations possibly later today. Given those legal proceedings are underway—

Senator BACK: It is a very fluid process, I can assure you.

Mr Robilliard : Yes, it is.

Senator BACK: It changes literally by the hour. I will turn for a moment to another issue, not that I think you can have any influence on it. India, which of course is a country endemic with foot-and-mouth disease, has now taken over as the world's largest exporter of beef. We know from our veterinary colleagues in the department and other places that historically when a country which is endemic with foot-and-mouth disease exports beef that it is not all that long before foot-and-mouth disease follows into those recipient countries. I just ask again: is that something that is on the radar of your department? I ask this because we know that there are illegal shipments of buffalo and beef going into Indonesia. Is this something the department is aware of and are you conscious of the heightened risk of foot-and-mouth disease to Australia as a result of the movement of people from Indonesian islands to the areas north of Australia?

Mr Gosper : We have certainly heard rumours about illicit trade in such product, and we are quite conscious of any possible spread of FMD in the area immediately to our north. We are aware of that and we are certainly watching it closely. Beyond that, I would have to talk to our DAFF colleagues, given their particular responsibilities, to answer it further.

Senator BACK: I will finish up on China. I met with the Australian trade attache in China in July. It was interesting to me, and I would be keen to hear your comments. We are at this moment a very small exporter of agricultural commodities, particularly wheat and beef to China, although the potential is there. I think we exported something like 180,000 tonnes of wheat last year from Western Australia to China and we exported about 15 million tonnes all around the market, principally to Indonesia. The concern that was raised with me by the official at the embassy was that, as a result of our sales of iron ore and coal, where we obviously are a dominant player in the Chinese market, the Chinese are reluctant to look to purchase our beef and our wheat. For whatever reason, they think we are a massive supplier and we dominate world beef and wheat markets, which we do not. The UK produces more wheat than Australia does. Are you aware of and do you concur with that observation he made?

Also, what action are you able to take through the trade portfolio to have the Chinese understand that increasing their purchases of our beef and our wheat is not going to put them at risk in terms of our dominance of those markets?

Mr Gosper : Certainly in our discussions with the Chinese on better access to their market, including in the FTA, they often point out that the overall economic relationship is doing very, very well. It is, courtesy of the resources trade and many other parts of trade. They point out, of course, the particular sensitivity of agriculture in China, particularly for products like wool, sugar, wheat and dairy products. They make the claim, for instance, that they cannot really open up any further in those areas because they have many disadvantaged poor people who rely on those products. We often make the point that, yes, the overall economic relationship is growing very strongly and we are pleased with that, but that is no reason to think we cannot do a lot better, particularly in the area of agriculture. We are a significant exporter of a lot of these commodities.

We have been through this discussion many, many times with the Chinese, including at ministerial level. But we do not have unlimited capacity. We cannot expand beef production, wheat production and sugar production endlessly. In terms of the size of their market, it is hardly the case that we can swamp them. But what we can do of course is provide high-quality, low-cost product in a very reliable fashion in a very safe manner, and it would be to their advantage to open up the market significantly more. The discussion that you describe is one that we engage in with the Chinese consistently, but we have made very clear to them that we need to address the agriculture issue, particularly the FTA, if we are to see the economic relationship grow to its optimum.

Senator BACK: In urging you to remain vigilant with the Middle East market, I ask finally if you would bear in mind the dilemma that is facing Western Australian producers at the moment. You cannot get sheep into our abattoirs. In fact, I understand that early in 2013 is the first time that the abattoirs can take, because they have got a backlog. We are now going into spring at the end of a very poor winter. Feed supplies are dangerously low. The concern is that the ships are not returning to pick up stock. There will not be sales of meat. There are not sales of live animals and we are facing an animal welfare disaster as a result of the fact that there is not sufficient feed to actually maintain stock. So I do ask you to bear in mind the comments I have made. The supply of meat has collapsed; the price of meat has collapsed. Our reputation in those markets is unfortunately at a dangerously low level, having been so reliable for so long. I do ask you at your level and through to your minister to please be aware of that.

Mr Gosper : Senator, I can assure you that we understand this is a billion-dollar trade. It is very important for the livestock sector and it is very important for regional parts of the country in particular. We are doing our utmost to ensure that we safeguard that trade and see it advanced in a sustainable manner.

Senator BACK: Thank you.

CHAIR: Are there any further questions in this area?

Senator COLBECK: The first question I want to talk about is Norway's recent announcement of an increase in import tariffs on meats and cheese. I am wondering, firstly, what our awareness of that is. My understanding is that the tariff hike on imported hard cheese, for example, may equate to a tax of 277 per cent of their value. I have had a look at our trade figures for food exports and they do not appear in our top 18. I am interested in our exposure to that market but also in whether that is having an impact in a regional sense and how that might impact on some of the other markets.

Mr Gosper : That has not been brought to our attention by industry, which might be because it is too recent or—

Senator COLBECK: The date of the announcement is 16 October.

Mr Gosper : We will follow up straight away to assess exactly what has happened—whether it is consistent with Norway's WTO commitments, for instance—

Senator COLBECK: That was to be my next question—is a significant tariff increase on imported product of that nature consistent with WTO requirements?

Mr Gosper : It may or may not be. It depends of course what tariff rate quota commitments they have scheduled in the WTO. I do not recall them, off the top of my head.

Senator COLBECK: The report that I have also talks about it being in breach of article 19 of the European Economic Area agreement, negotiated in 2000. I do not know what implications that actually has over and above the WTO stuff.

Mr Gosper : Probably none. That would be one for the members of the agreement.

Senator COLBECK: I think we have had a discussion before about Doha and the general agreement on tariffs and trade, particularly in agriculture. Are we seeing any movement in that area at the moment in Europe? Obviously they are under significant financial pressure more generally and it would, I would have thought, be a significant burden for them to continue to be paying large tariffs, particularly on exports which are effectively subsidising someone else's standard of living, when their internal issues are so significant.

Mr Gosper : Indeed. Agriculture supports about half of the total community spend, so we are talking about 50 billion euros—a very significant item. Given the fiscal pressures within Europe, you would expect there would be a good deal of scrutiny on that. But these things take a lot of time, particularly in the EU, to work their way through. We are keeping engaged and encouraging reform wherever we can see it. There is a process for the next tranche of CAP reform leading through to the early part of next year, and we would hope that budgetary pressure will lead to some further pressure on levels of subsidies.

Over the last two years they have not been a large user of export subsidies. You will recall that in the earlier part of the Doha Round they made a commitment, which of course is captured if we conclude the negotiations, to eliminate export subsidies in 2013. That is one reason why we want to get those negotiations back on track as quickly as possible. Given the economic circumstances, demand has been a little depressed but I have not seen any sign recently of any particular abrogation of commitments relating to market access. Of course we watch these things quite closely.

Senator COLBECK: In the US, with their farm bill process, they both look at each other and smile across the table and say 'you take yours away and I will take mine away'. Is there any sense of where that process is going?

Mr Gosper : No, it is a somewhat vexed process particularly in a presidential election year. We have not seen any really encouraging signs of further reform in the US farm bill. Of course some of this is masked by the high prices. They have a countercyclical program so that when prices are high the level of subsidies tends to go down. We have not seen any real appetite there for fundamental reform—again, notwithstanding the budgetary pressures. My expectation is that we will see very limited further attention given to the farm bill during the remainder of this year. They will presumably seek to re-engage those discussions in Congress under the administration early next year, in which case I would expect that there is some possibility of a further one-year extension of the existing farm bill.

Senator COLBECK: That changes the dynamics a little bit because the discussion I heard was that the four-year cycle of the farm bill, which locks in the US-based subsidy regime, is effectively matched by the Europeans, because they tend to shadow each other—the concern being that if they roll theirs over for a period of time, that just encourages the Europeans to do something similar in the cycle, and that puts off the capacity for any real advancement in the removal of tariffs while that cycle exists.

Mr Gosper : Indeed. Frankly, there is not a lot of encouragement in the majors continuing reform of their agricultural systems at the moment. The additional element that factors into this, of course, is that in the US they look increasingly not just at the EU subsidies but at subsidies provided by others—for instance, China.

Senator COLBECK: The absurdity of all of that is that there are not a lot of farmers anywhere making any money, despite the subsidy.

Mr Gosper : Indeed.

Senator KROGER:    The Attorney-General has previously described the WTO action against plain packaging as not being based on strong legal grounds, and yet I understand the department has established a special task force to deal with that action and to handle the case. Can you confirm if that is the case?

Mr Gosper : Yes, that is indeed the case. When Australia is defending any measure in the WTO against a challenge from other members we always establish a team that is more or less exclusively devoted to it, because it is a very intensive process which goes for 18 months or longer. The additional factor here, of course, is that Australia's measures have been challenged in three separate jurisdictions: the constitutional case, the Hong Kong investment treaty case and the WTO case. The additional feature that requires is that, as we ordinarily consult closely with the Attorney-General's Department and other agencies as necessary, coordination is very important when you are facing separate jurisdictions, defending the same measure in all those jurisdictions. So we have established a task force to do that and they work hand in glove with the Attorney-General's office, the Solicitor General and the department of health.

Senator KROGER: What is the composition of the task force?

Mr Gosper : I will have to take the exact composition on notice. We have three or four people who are working on that.

Senator KROGER: Are they consultants or our own in-house lawyers?

Mr Gosper : They are our own people.

Senator KROGER: Lawyers, I presume?

Mr Gosper : Yes.

Senator KROGER: So there are no consultants that have been engaged?

Mr Gosper : No consultants. To assist on evidentiary matters in particular, we have a QC that has been employed to assist us. That arrangement is supported and funded by the department of health.

Senator KROGER: Clearly you have put together a budget for this task force?

Mr Gosper : Yes.

Senator KROGER: Have you got that budget with you?

Mr Gosper : No, I do not have it with me. I will take it on notice.

Senator KROGER: Could you provide a budget that includes staff wages? How many people did you say were included on the task force?

Mr Gosper : Three or four, from memory.

Senator KROGER: Could you include a breakdown of the size of the task force, the expertise that they bring to the table, the costs associated with establishing the task force and what your projected budget is for running that task force. Was Minister Roxon consulted before you set up the task force, or was the task force set up on the basis of discussions with her?

Mr Gosper : The arrangements, given the parallel nature of these, are done in close consultation between the three key agencies: the Attorney-General's Department, the department of health and us. The precise arrangements are regularly reported to the ministers responsible.

Senator KROGER: I just make the point because the minister has been quite strong in prosecuting her view that she does not believe that this case is particularly strong. I find it interesting that there has been a significant task force set up and designated to it, but I hear what you are saying and I look forward to seeing the breakdown of the task force and what the composition is.

Mr Gosper : We are similarly confident of our ground in the claims that are made against us in the WTO, but we resource every defence of Australian measures appropriately, and in this case there is the additional consideration of the fact that some countries and tobacco companies are seeking to challenge our measure in multiple jurisdictions.

Senator KROGER: Is the resourcing any greater for this than for other negotiations in relation to trade and treaties that we are pursuing?

Mr Gosper : It is probably a little more. We set up a team which dealt with the challenge brought by New Zealand against Australia on apples and resourced that appropriately, and it would be perhaps a little more than that.

Senator KROGER: When you say 'a little more', how does it compare to something like that?

Mr Gosper : Maybe a couple more people, but not really significantly so.

Senator EGGLESTON: I would like to look at Australia's free trade agreements. Can you quickly run through the current status of the Australia-China Free Trade Agreement?

Mr Gosper : On the Australia-China agreement, we have had two rounds of discussions, as I recall it, this year—the last one in July. We have had at least three occasions when the relevant ministers have sat down together to go through the FTA, and on at least two occasions we have had discussions at vice-ministerial level. Nevertheless, it is quite true that only a small amount of progress has been made and we still face some very substantial differences, particularly on market access issues, into China and into Australia. We have another discussion at vice-ministerial level scheduled in the next month or so.

Senator EGGLESTON: What do the market access issues relate to specifically? Is it the sort of thing Senator Back was talking about with beef?

Mr Gosper : For Australia, they primarily—not exclusively but primarily—relate to agricultural products, in particular livestock products, sugar, wheat and the like, as well as the services sector, which has very high expectations of improved access of one sort or another into the Chinese market. The Chinese, of course, take up the issue of Australian tariffs across the board. They are also interested in conditions relating to investment and to the movement of people.

Senator EGGLESTON: The movement of people is an interesting one. Does that mean visitors or permanent residents or what?

Mr Gosper : It means temporary workers.

Senator EGGLESTON: How is the Australia-Gulf Cooperation Council agreement going?

Mr Gosper : It has been in suspension for some time now, as I mentioned a little earlier.

Senator EGGLESTON: I am sorry; I must have missed that.

Mr Gosper : There has been no progress. We take what occasions we have to encourage the GCC members to re-engage, but they are in suspension—and similarly with their other negotiations as well.

Senator EGGLESTON: What about the Indonesia-Australia Comprehensive Economic Partnership?

Mr Gosper : We were pleased to have the first round on that just a few weeks ago in Jakarta. That has made a successful start. The Minister for Trade and his counterpart, Gita Wirjawan, met last week to underline that progress, so that is beginning. But it is at the very early stages of that negotiation, which will be a very important one. That negotiation has also been informed by a relatively new development, and that is a joint Indonesia-Australia business group which is directly feeding in its perspectives to the negotiating process. It has presented a report to government and it will be engaged through the course of negotiations.

Senator EGGLESTON: That is different to the Australia Indonesia Business Council, is it?

Mr Gosper : It is similar.

Senator EGGLESTON: What about Australia-Japan?

Mr Gosper : Australia-Japan has made very good progress over the past year. A lot of areas of negotiation have been closed or put relatively close to closure. But there is a very significant gap remaining on key agricultural products.

Senator EGGLESTON: Such as?

Mr Gosper : Beef, dairy products, wheat and sugar. On other agricultural products, the Japanese have made offers which are quite promising—in areas such as seafood, horticulture, barley, wine and so forth. But, on the key items—items where there is already quite significant trade but on which we are asking for quite a bit more—we have made no progress at all. Those gaps will need to be closed before we can conclude.

Senator EGGLESTON: You mentioned that wheat was a problem with China as well. What is it about wheat that is an issue with these two countries? Is it that it is an alternative to rice or something?

Mr Gosper : Domestic sectors.

Senator EGGLESTON: Australia-Korea?

Mr Gosper : Again, good progress has been made on that negotiation, but there are quite significant differences remaining on investor-state dispute settlement which we have not unable to resolve. We have also not been able to close the file, so to speak, on the key export items which, for Australia, include beef and dairy products and, for Korea into Australia, automotive tariffs of course.

Senator EGGLESTON: The Pacific Agreement on Closer Economic Relations?

Mr Gosper : PACER Plus is making reasonable progress. There have been two intersessional meetings and the next officials meeting will take place in late November. To clarify: we are talking about the PACER negotiation with the Pacific Island countries here or were you talking about the Trans-Pacific Partnership Agreement?

Senator EGGLESTON: That is my next question. I do understand the difference. Where are we with the Trans-Pacific Partnership Agreement?

Mr Gosper : We are making good progress. As Mr McCormick said earlier, we have just completed the 14th round in Washington. In December in Auckland we will undertake the next round. That will be the first round which takes place with both Canada and Mexico at the table. They are making good progress on what is a quite big and complex negotiation.

Senator EGGLESTON: Thank you for mentioning Canada. I was going to ask you about Canada. My next question relates to tariffs on steel imports. Has the department received any representations from foreign governments that an increase in tariffs on steel imports would lead to retaliatory action against Australian exporters? If so, from what countries?

Mr Gosper : I am not aware of that. I will take that on notice.

Senator EGGLESTON: That is fine. Obviously you would not have given any advice to the government on it if you are not aware of it. The Wall Street Journal did have an article about this on 5 October, saying 'Australia proposes punitive steel tariffs'. It was written by David Winning if you wish to look it up. My next question is about AUSVEG and another newspaper article from the Weekly Times. It says that Australian exporters are paying huge tariffs to get produce into China and India but that produce from those countries faces no tariffs when entering Australia. Is that the case?

Mr Gosper : Yes, it is certainly the case that the tariffs faced for imports of horticultural products into those two markets are generally higher than they would face into Australia. That is why, in our FTA negotiations with both China and India, we are seeking that tariffs for agricultural products, including horticultural products, be addressed.

Senator EGGLESTON: So you are seeking to ease the tariff burdens for Australian producers in these markets?

Mr Gosper : Of course.

Senator EGGLESTON: All right.

Senator COLBECK: Can I just come in on the back of that?

Senator EGGLESTON: Yes, of course.

Senator COLBECK: Horticultural products are something that I have a fair bit of interest in, and I noticed in our trade figures for exports, particularly to China, that vegetables, for example, do not feature at all, but the big ones that you have talked about that seem to be key elements of concern in the negotiations feature pretty highly—grains, sugar, beef and dairy. What is the general attitude to horticultural imports, vegetables and things of that nature, in the negotiations? Because obviously that is an area in which there is significant opportunity for Australian producers and which would provide an alternative market stream to just competing in the local market. What is the general attitude towards those particular products, and what are the other access issues, like the access protocols? Where do we sit in relation to those?

Mr Gosper : I do not have the answer on the specific import protocols, if you are talking about the quarantine protocols and—

Senator COLBECK: So that would be done through DAFF?

Mr Gosper : That is generally done by DAFF. We support them as necessary. It is true we do not have trade in horticulture at the level that we have for a lot of the livestock and grain products. There are probably many reasons for that, including the fact that China is itself now a significant exporter of those products, or maybe that the markets that are concentrated on by the Australian industry tend to be a bit closer to home, in places like South-East Asia. But we are very keen to work with the horticultural industry on specific market access issues.

Senator COLBECK: But what is the attitude of our trading partners, the Chinese and/or the Indians, towards accepting those products? What is the feedback we are getting on that? Or is the discussion more about the big-ticket commodities?

Mr Gosper : Their attitude on the import of any agricultural products is not very encouraging generally.

Senator COLBECK: I experienced that myself a month or so back. So it is an across-the-board thing but with a focus on grain, beef and dairy?

Mr Gosper : Those are the items in which we have, with China in particular, already big levels of trade and the potential to grow that a lot further, and there is a lot of industry support of and attention to those sorts of markets. With horticulture, as you would be aware, it depends on the product and what the industry group association you are dealing with have focused their attention on.

Senator COLBECK: So what focus is coming from Australia to push those things? If I look at the latest ABARES trade figures into China, the indicators for vegetables going back to 2006-07 and every single year show up as zero right across those numbers. So there is effectively no trade. Now, we are getting a lot of pressure and comments from organisations such as AUSVEG about the growth in incoming trade—product coming in from New Zealand—but is there any push from our local industry to actually engage with those markets? From what I have seen, there are significant opportunities for trade in certain sections of the market in China. So what is our activity level in those areas of the market and what is the push from Australia to activate those? When you apply that alongside the pressure that is coming from the major supermarkets, for a lot of commodities, such as dairy and beef, having that export market actually provides some price protection for the industry because they can say, 'If you're not going to pay the price we want, we'll sell it into the export market,' which is what happens, particularly in beef but also, in some parts of the country where we are competitive for production, in dairy. So, if we were to open up some of those markets in certain niches, we could get a good price for our product, given its recognised quality—and I know that is an issue in China. How active are we in those markets in promoting the opportunities and attempting to get that access; and what is the push coming from industry in Australia?

Mr Gosper : I cannot respond in any particular detail on the activity in those markets. I can certainly take that on notice and get advice from our posts and elsewhere. In the negotiating context we can see opportunities, but we respond in particular to expressed industry interest. We consult with all the key industry sectors, including the horticulture people. I think what I was indicating before is that their demand for access to particular markets does vary according to the product and according to the group you are dealing with. Often they are aware that although tariffs might be low there are import protocols to be negotiated and often they take a number of years before they are secured.

Senator COLBECK: I understand that is all part of the process, but if we do not actually start anywhere we are not moving anywhere. In the context of the broader market as it currently sits, there is no question that there are opportunities and perhaps our local industry needs to be a bit more engaged as part of that process and, rather than just fearing what is coming in, actually starting to look at what the opportunities might be heading out. But that is also part of the deal, so I am not trying to lay it all onto government; that is not specifically their role. I am just trying to get a sense of where things might be as part of the negotiations, because a really important element of the overall deal is commencing the access so that the priorities around setting the import protocols in those countries can start. I know there is a process that also occurs within Australia around the priority process for establishing those protocols.

Mr Gosper : There is of course a very developed process with the DAFF people to develop priorities for what protocols they should negotiate. I can only agree there are significant opportunities in the region. Sometimes the horticulture industry is not as engaged as some others, but on some particular products it is quite keen and we are very keen to work with them wherever we can.

Mr L Smith : Beyond the further opening of access through ongoing negotiations, the current trade policies implemented by China do permit trade in certain products. I think we have seen most activity in fruit rather than vegetables, so in previous years mangoes, citrus, table grapes and so on have had quarantine arrangements settled, and from the Austrade perspective we work quite actively with exporters and industry associations, with Horticulture Australia, to promote those products that have got clearance into the market. Chinese consumers in the most affluent cities are prepared to pay premiums, for imported fruit in particular. I think vegetables into the China market are a little more challenging, given the sheer scale of production within China—the low unit costs, and the quality of products as well, if consumers are satisfied with integrity and safety issues. Certainly on the fruit side there has been `quite a bit of activity, and the trend has been upwards over the last five years or so.

Senator COLBECK: I was at Asia Fruit Logistica in Hong Kong a few weeks ago, and I must give credit to your people in Hong Kong—they did a really good job, and it was an excellent display in what is obviously a very competitive market. I got a sense of the scale of that market and the number of competitors that were there in that area, but one message that was very clear to me was the very strong understanding of the quality and safety of product coming out of Australia. It did not really matter what it was. I was talking to a retailer down in the south-west, in Kunming, who was buying baby food from Australia for her kids because she knew it was safe. I think Bellamy's was the name of the product. We have a really strong reputation for our food safety over there, and it is a significant issue for them. My view is that we ought to be leveraging from that and ensuring that any opportunity that we can develop is taken advantage of. That was clearly demonstrated from what I saw in the fruit area at Asia Fruit Logistica. I think that we can replicate that, if we put the effort into it from an industry and a government perspective, in those other commodity groups.

Mr L Smith : I agree. I think supply chain integrity and product safety is a rising concern for Chinese consumers, and that is something that Australian suppliers can look to play to as they compete with other potentially lower cost or equally competitive suppliers in a price sense from within China or from other suppliers in the region.

Senator EGGLESTON: That is an interesting point. Does China import from other countries in the region, while excluding Australia, and is that on the basis of price or is there another factor there?

Mr Gosper : China import agricultural products from many countries in the region.

Mr L Smith : For example, Thailand is a very competitive supplier of tropical or subtropical horticultural products. It is very close geographically; there are very good transport links in through the north of Thailand to south-west China. So there are a range of suppliers from the region looking at niches in the China market—not necessarily the mainstream bulk opportunities but high-value niches.

Senator EGGLESTON: What is the reason for them not importing Australian produce? Is it price?

Mr Gosper : Depending on what product we are talking about, there may well be price factors. There may well be particular preferences given to other developing economies. There may well be an absence or otherwise of particular import protocols or issues of concern there. There are a number of possible reasons, depending on the product we are talking about.

Senator EGGLESTON: I would like to ask you a question about a security corruption scandal which involved a Colonel Ahn, who received some $20 million in bribes from the Reserve Bank's half-owned subsidiary Securency to help secure a bank note contract with the State Bank of Vietnam. Ms Elizabeth Masamune was Austrade's chief trade representative, I gather, in Vietnam. What is the total cost to Austrade of its legal expenses to date in this matter?

Mr Grey : I do not have the figure for the legal expenses. We are not actually appearing in the court case, as such. We are not a party to the court. We have provided some assistance to staff who have been appearing as the witness of the prosecution. I do not have that figure. I am happy to take it on notice if that is okay.

Senator EGGLESTON: Thank you. You have anticipated my second question, which was: were you responsible for her legal expenses? I gather that, according to reports, Austrade declared that Colonel Ahn was a senior officer in the Ministry of Public Security in Vietnam in 2007. You could take these questions on notice. What was the exact date of this declaration?

Mr Grey : I would need to take it on notice, given the court case.

Senator EGGLESTON: What were the implications of the declaration? Did it prevent Austrade officials from associating with him?

Mr Grey : Again, if I could take it on notice.

Senator EGGLESTON: There are five more questions, so you might have to take them all on notice. When was Austrade first aware of Colonel Ahn's connection to the Ministry of Public Security? Are Austrade officials required to report any contact with officials from the Ministry of Public Security in Vietnam? If so, how many times did Ms Masamune meet with Colonel Ahn and any other ministry official? Do these records contain details of what was discussed? When did Austrade first become aware of bribery allegations?

Mr Grey : I think all questions up to that last one are questions which are subject to the police investigation and court case. On the last one, as far as I can gather from looking back at our own records, the question of when we first knew of the bribery allegations in respect of this case was when they appeared in the media, which was 23 May 2009.

Senator EGGLESTON: And did Austrade raise this matter with the minister concerned at the time?

Mr Yuile : Yes, we did. We obviously briefed the minister after the media article on 23 May.

Senator EGGLESTON: Lastly, what procedures have been put in place by Austrade to ensure this kind of thing does not happen in the future?

Mr Grey : Generally, we have made a major effort in the last two years on this whole issue. Firstly, we started by being in contact with these different companies. Secondly, we went through a process with an independent legal adviser who went through all our documentation and our policies in early 2010 to make sure that what we were doing met the requirements. We also put in place some substantial training programs for staff. There are a whole range of measures. I have a list of the measures, if that is of any help, that we have taken since early 2010 to make sure that we have what has been independently reviewed by the Australia-New Zealand institute of governance and described in many instances as international best practice on these issues. I am happy to provide some further material for you on notice.

Senator EGGLESTON: If you could do that, that would be appreciated. I would like to change subjects now to Japan. There was an article in the Australian on 8 October 2012 entitled 'Japan ties are "key to growth"'. A representative from PricewaterhouseCoopers warned Australia not to remain fixated solely on China, ignoring Japan. How would the department respond to that criticism?

Mr Gosper : We do not ignore Japan at all. That is one of the reasons why we have been so keen to not only support the trade but do it through an expansion of the trading relationship and the FTA. Japan is an extremely important trading partner for us. It is a key market for many of our resources and agricultural products and services industry. It is a very important investor and source of capital into this market as well as for machinery and technology. We never underestimate the importance of building on that economic relationship which was forged in the 1957 agreement. We would like to extend and deepen the relationship very keenly.

Mr Grey : From an Austrade perspective, we still have a major presence in Japan in Osaka, Tokyo and Sapporo. It is still one of our major markets. We put a lot of effort into that particular market. As Mr Gosper said, one of the interesting areas where there is likely to be significant future activity of great importance to Australia is Japanese direct investment in Australia. It is already substantial and is continuing to grow.

Senator EGGLESTON: That is very good to hear. I would just like to ask you about the development of trade offices in Africa. In June, the trade minister announced the creation of a trade commissioner role to be based in Accra as a means of improving ties with Africa. Has this position being filled?

Mr Grey : Yes, it has. We now have a trade commissioner located in the embassy in Accra. I think it is supported by two or three local staff—business development managers. That is the first time we have had one there.

Senator EGGLESTON: That is in Ghana, of course. What is the rest of our trade representation in Africa?

Mr Grey : It is very limited. In terms of southern Africa, it is Johannesburg—

Mr L Smith : We also had someone based in the High Commission in Nairobi. We have had trade commissioners seconded on some short-term assignments there to look to develop opportunities in East Africa.

But, as Mr Grey said, it is a relatively limited network across those three countries.

Mr Grey : We are committed, to the extent we can, to upgrading that area.

Senator EGGLESTON: What are the main areas in which Australia can develop trade with African countries, do you think?

Mr Grey : Probably at the moment the most obvious area is mining—not mining per se but mining equipment, technology and services, which are quite substantial. There are prospects in other areas of aid related consulting, providing education services and some agribusiness areas. Africa actually has a very large and growing middle class. I think someone told me Ghana last year was the fastest growing country in the world. There is growth there. There are problems and risks, but it is increasingly going to be an important trading partner.

Senator EGGLESTON: There certainly is growth in the middle class in Africa and it does offer a lot of opportunities. I would also like to ask you about Zimbabwe. In July the Prime Minister announced a review of Australia's sanctions on Zimbabwe. What is the status of that review?

Mr Wilson : There is a review being undertaken. That was decided by the Prime Minister following the visit by the Zimbabwe Prime Minister, Morgan Tsvangirai, in July. That is being undertaken, taking into account developments on the ground in Zimbabwe. It is encouraging that there is to be a stakeholders conference next week to look at the draft constitution. That will be an important meeting. Hopefully there will be agreement reached there and the process can be taken forward and a referendum held on the constitution, hopefully sometime next year.

Senator EGGLESTON: That is quite complicated, isn't it? So what opportunities for trade do you see with Zimbabwe? The same sorts of things we have just discussed?

Mr L Smith : From an Austrade perspective, we keep a watching brief from Johannesburg. I would have to come back to you on notice with respect to any specific opportunities, but it is a country that has obviously come through a very difficult period, so it would be a challenging environment in which Australian companies would be operating. I could come back to you with some detail on that on notice.

Senator EGGLESTON: I might put some more questions on notice, particularly in reference to what we are doing to redevelop trade with Burma and about Latin America.

Senator RHIANNON: I have questions about EFIC. I understand that EFIC is required to abide by the OECD working party on export credit and credit guarantees. Under these rules, the applicant is responsible for providing the appropriate information on the project to EFIC, including information on mitigating and monitoring measures of the social and environmental impacts of the project. Are there mechanisms in place for EFIC to monitor that the mitigating and monitoring measures are actually implemented after the approval of the application?

Mr Armour : Yes, those procedures are in place. They are a matter of public record. They are on our website.

Senator RHIANNON: So you have the measures in place. Does EFIC do it itself, or do you rely on what comes from the applicant?

Mr Armour : That would depend on the complexity of the project. There are projects where we feel that we have sufficient technical capability to review the materials ourselves. There are larger and more complex projects where we may engage an independent consultant.

Senator RHIANNON: Do I take it from your answer there that either EFIC or a company that you engage, independent from the applicant, undertakes that work?

Mr Armour : We review their compliance with their obligations, yes.

Senator RHIANNON: So you do not rely just on the report that they hand in; you actually do look at it or you bring in a consultant to do that?

Mr Armour : That is correct.

Senator RHIANNON: Does EFIC, when appropriate, instruct the borrowers to amend their mitigating and monitoring measures when the environmental and social impact of the program is different from what was anticipated when the borrower submitted their impact assessment?

Mr Armour : Just to clarify: you are asking, if a project is underway—once we have approved a project—whether during the execution phase we determine something should be amended. Is that the nature of the question?

Senator RHIANNON: Yes—at some stage you determine that something needs to change. Have you done that?

Mr Armour : To the extent that we have the right to do that, we certainly do.

Senator RHIANNON: So you have the right to do it. Have you done it?

Mr Armour : I am not aware of any time where we have had to make a material change to the agreements we have had with companies in the past. Obviously, for a large project that is executed over three or four years, we would expect to see some changes as the project evolves and as the construction take place. But I am inferring from your remark that you are thinking of larger-scale changes, and I am not aware of any.

Senator RHIANNON: I am just thinking of any changes at all. The nature of most projects, particularly of some of the big projects that you are funded for, is that they change. It seems surprising, therefore that at some stage—even if it is just now and then—you have not required that the mitigating and monitoring measures be amended. So that has not happened? There are no examples?

Mr Armour : Yes, I am agreeing with you. I think that, over the course of a project which lasts for many years, there are times when you will need to have a dialogue with your counterparts and say, 'Obviously this has evolved in a direction that requires us to change our procedure or change the way we are approaching something, and we will have that discussion.' My comment was that I am not conscious of any major material shifts and that these are all in the nature of evolutionary changes rather than fundamental changes.

Senator RHIANNON: You have talked about evolutionary changes—it is in some ways semantics and over time—but my question was: have you required the borrowers to amend their mitigating and monitoring measures? Have you ever required that to happen?

Mr Armour : I believe so, but I would prefer to take that on notice if you are looking for specifics.

Senator RHIANNON: Okay. I am interested in any examples where that has been done. Does EFIC have enough resources to keep a close watch on borrowers to ensure that the possible environmental and social impacts are adequately mitigated by the borrowers? It is a big job.

Mr Armour : Yes, we believe that we do. We take this responsibility very seriously and, as I indicated earlier, if we not comfortable that we have the resources or the skill, then we will seek to have an independent engineer give us advice.

Senator RHIANNON: I want to move on to the OECD guidelines in paragraph 38 of the OECD recommendation. In summary it states:

Members should make available to the public at least annually environmental and social information on projects classified in Category A and Category B …

I had a look on your website, and I could not find any of that information.

Mr Armour : That information is available. We more than comply with what the OECD requires under its guidelines. I am happy to provide a direct reference.

Senator RHIANNON: Where is that information available?

Mr Armour : On the website.

Senator RHIANNON: So you can send some links?

Mr Armour : Yes.

Senator RHIANNON: I had a really good look. Do you think it is readily available? Are you satisfied? We really looked.

Mr Armour : Obviously we feel that it is, but—

Senator RHIANNON: It might be worth checking that out, because it is obviously important. 'Available to the public' really means that you can find it. That is one that would be interesting to come back to, but I look forward to looking at the links.

I want to move on to the Equator Principles. We know that EFIC voluntarily applies the Equator Principles to its operations, and principle 6 requires borrowers to establish a grievance mechanism. Does EFIC require this of category A projects?

Mr Armour : Yes, Senator. We will comply with whatever is required under the Equator Principles, I believe. But I will ask Mr Parsons to join me, on that specific point.

Senator RHIANNON: Okay. What I am after is: does EFIC require the establishment of grievance mechanisms for your projects?

Mr Parsons : Yes, we do. The Equator Principles apply to project finance, and all project finance is benchmarked against IFC performance standards. One of the requirements of the performance standards is that the project have a grievance mechanism in place.

Senator RHIANNON: For this grievance mechanism, do you have a template that you supply to your borrowers, saying, 'This is how you do it'? Or do you just rely on them coming up with their own grievance mechanism?

Mr Parsons : There are various templates that people can use. The IFC has a good practice note, I think, on grievance mechanisms. The mining industry, through the ICMM, has some guidance on grievance mechanisms. There is quite a bit of industry guidance on grievance mechanisms.

Senator RHIANNON: So you are able to supply that to them?

Mr Parsons : Yes.

Senator RHIANNON: Considering that, how do you ensure that the grievance mechanism is independent and that local people can engage with that grievance mechanism?

Mr Parsons : It is probably best illustrated by an example. If I use the PNG LNG project, on their website there are details of their grievance mechanism, and our independent advisers on environmental social issues monitor the application and the use of the grievance mechanism. So we get pre-audit reports from the independent advisers on the issues—whether people have been able to use it, whether it is culturally available, whether it is available to people who cannot read, for example. So we get advice from our advisers on PNG, and that would be typical for a project finance project.

Senator RHIANNON: In what you outlined there, you mentioned people who might not be able to read and whether it is culturally sensitive et cetera. Apart from websites, how are companies alerting communities to their grievance mechanisms?

Mr Parsons : That can be very project specific. It can range from having actors who go out into the field and enact scenarios for people through to just talking to people and advising them. There are a whole variety of different mechanisms people can use to get the information out there.

Senator RHIANNON: You said that there were a number of templates covering grievance mechanisms. Could you also take it on notice to supply those, please?

Mr Parsons : Sure.

Senator RHIANNON: I have read that one of the concerns about these grievance mechanisms is that sometimes it might appear that they are working but, when you look at who they have engaged with, it is the peak organisations within a country, who are part of civil society, and often the local people who are impacted are not engaging with the grievance mechanism. Is that something you are conscious of—the need to ensure that we get past just the peak organisations within civil society and that people who are immediately impacted have access to such a mechanism?

Mr Parsons : Yes, that is a basic requirement for a project's grievance mechanism, that it be available to anyone, not just to the peak organisations but to the actual community people affected by the project. That is a fundamental requirement of the mechanism.

Senator RHIANNON: So how do you test that that is achieved within these grievance mechanisms? How do you check that that is real?

Mr Parsons : We do check that it is real. It is how it is established in the first place, how its potential use is communicated to people, and then the records of how many grievances are recorded during the course of the project and where they are coming from. Initially the establishment of the grievance mechanism is reviewed and then, through the progress of the project, how it is being used. If it is never used by anyone, obviously there may be some problems with it, in which case we would ask the project to look at it.

Senator RHIANNON: Do you rely again on reports from the company about the grievance mechanism, or are you on the ground actually investigating for yourself?

Mr Parsons : In the example of PNG, which is one of the larger projects we have, our independent advisers, on each site visit, specifically look at the grievance mechanism and how it has been used.

Senator RHIANNON: They go to the site and they talk to people?

Mr Parsons : They go to the site and talk to people. They talk to the company people who are in charge of running the mechanism and then also to people in the field like community members.

Senator RHIANNON: These visits are documented?

Mr Parsons : This is documented in the PNG independent advisers reports, which are publicly available.

Senator RHIANNON: We have established that the applications that have the potential to affect the environment and social conditions of the place of the proposed project are required to submit an environmental and social impact assessment. I also understand that, in the assessment and application, borrowers need to put in place a mitigation and monitoring measure. Then I came up against a contradiction. In the EFIC procedures—and I will read it out to you—this is on page 7. This is the procedure for environmental and social review of transactions. It states:

If EFIC’s client has no ability or authority to directly manage the environmental and social impact of a project … EFIC is generally not in a position to impose conditions on the project.

I found that really surprising to come across. It just seems an enormous contradiction about what we have just talked about, because you get to a point where it sounds like it does not have to happen.

Mr Parsons : This just reflects the broad range of facilities that EFIC can provide. What we are trying to explain in that section is that for some types of transactions such as project finance we have direct recourse and direct ability to influence the project, down to something such as performance bonds, where all we are doing is guaranteeing an exporter's ability to do something, where we do not have any role with the projects and we do not necessarily have any contact with the project. So it is that type of project where we cannot influence the project, if you like, and we cannot impose conditions, because all we are doing is providing a performance bond.

Senator RHIANNON: Can you acknowledge that it appears on reading—for somebody like me, a member of the public—to contradict so many of what appear to be reasonable social and environmental standards?

Mr Parsons : No, I do not think so, because our policy and procedure cover every type of transaction EFIC does, which is different to most other ECAs, and it is different to the 'common approaches', which only apply to export credits, and the Equator Principles, which only apply to project finance. Our policy and procedure apply to every type of facility we provide. We have different ways of reviewing transactions. That acknowledgement in section 7 is an acknowledgement that sometimes we have no ability to influence the project, so our choice, our decision making then, if we have concerns about the environmental and social impacts of the end project, is maybe a yes or a no, whereas there are other types of transactions where we can actually impose covenants on projects. We are just acknowledging what we can do in reality in the field and practically.

Senator RHIANNON: I will come back to that another time. I will just finish on the Productivity Commission. The Productivity Commission's report on the Inquiry into the Australia's Export Credit Arrangements was released in June this year. I noticed that it was mentioned in its overview that EFIC should target transactions in a way that generates a net benefit to the economy. Is this what guides the EFIC's targeting of transactions, or is it merely encouraging export trade without assessing its economic benefits to the Australian economy?

Mr Armour : Our mandate as it currently stands has a number of elements. Obviously, exports are integral to what we do. That is the basis on which we would provide our support. However, beyond that we have to operate profitably—that is, we must be very careful in the risks that we take. The third critical element is that we must not compete with the private market, so, if there is an opportunity for a commercial market to provide the support that is required, we should stand back. The benefit under our current mandate, if I can summarise, is to help exporters but to do it responsibly.

Senator RHIANNON: Do you measure what percentage of GDP growth is brought about by EFIC transactions?

Mr Armour : No, we have not calculated that.

Senator RHIANNON: Maybe you can take on notice to demonstrate the returns there are for the Australian economy, because, from what I am hearing, you are not offering ways that you actually measure that.

Mr Armour : We measure precisely and publicly EFIC's performance from the perspective of the elements that I have described—that is, we measure the exports that we have supported, and we measure our profitability and the return to Australian taxpayers from their investment in EFIC. I took your question to be quite a broad macroeconomic question involving multiplier effects et cetera, which is a little beyond our scope, but the amount of exports that we support and our profitability and our return on equity that Australian taxpayers have invested in EFIC are a matter of public record.

Senator RHIANNON: Thank you.

Senator COLBECK: I just want to ask some questions quickly about contacts from the Dutch government in relation to recent legislation passed to prevent fishing in the small pelagic fishery. Can someone give me some information to characterise the contacts that we have had in relation to that matter?

Mr Gosper : We do not have anyone here who is familiar with that, so perhaps you could ask your question and we will take it on notice.

Senator COLBECK: Firstly, I just want to confirm what contacts were made by the Dutch government in relation to that matter. I am aware that a direct approach from one of the Dutch ministers to our minister for agriculture was made, and I just want to quantify what other contacts have been made with the Australian government in relation to that matter.

Mr Gosper : I am not aware that there were contacts at ministerial level with Senator Carr or Dr Emerson, but I will have to check that. I will take it on notice.

Senator COLBECK: What about contacts through the agency, through the department?

Mr Gosper : Again, I am not aware of that. I think most of this would have been with the department of agriculture.

Senator COLBECK: Did you provide any advice in relation to this matter as part of the contacts that were made between the Dutch government and Minister Ludwig?

Mr Gosper : I have to take that on notice.

Senator COLBECK: Can you also take on notice to give me some advice as to the nature of the contacts that were made and the concerns that were raised by the Dutch government as part of that process?

Mr Gosper : Certainly.

Senator COLBECK: And particularly whether or not they raised any concerns about the government ignoring the current science around that fishery and, particularly, making a political decision which overrode the science.

Mr Gosper : We will give you what information we can on the nature of their concerns.

Senator COLBECK: Thank you.

CHAIR: That concludes our examination of the trade portfolio, so thank you very much to everybody for your assistance this evening.

Proceedings suspended from 18:29 to 19:31