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Coalition offers 'leaner, greener' ETS

ELEANOR HALL: We go first to the national parliament where the Federal Opposition has revealed the
detail of an alternative emissions trading scheme. Twice as green and one-third cheaper, that's
what the Coalition's modelling promises.

The economic-modelling company, Frontier Economics was commissioned by the Coalition and the
Independent senator Nick Xenophon at the end of the last parliamentary term. And this morning it
unveiled a scheme it says would be $49 billion cheaper than the Government's scheme and would save
jobs.

Chief political correspondent, Lyndal Curtis, joins us now.

So Lyndal, what is Frontier Economics' involvement in this and what is it proposing?

LYNDAL CURTIS: When the emissions trading scheme, the Government's scheme was debated last in the
Senate, the Opposition in particular wanted a productivity commission inquiry into not only the
scheme but the alternatives. The Government of course, you wouldn't be surprised, wouldn't agree to
that. So the Coalition and Senator Xenophon decided to commission their own modelling from Frontier
Economics.

Now that modelling shows, or says that, the relatively few simple changes, the economic cost could
be cut, the carbon target could be doubled from the Government unconditional target of 5 per cent
to 10 per cent and it would get better political support.

The scheme proposes excluding agriculture altogether, although rewarding farmers who take part in
abatement, for example, planting trees. It says emissions intensive trade expose industries instead
of getting a percentage of free permits, should get 100 per cent free permits. And the electricity
industry should be treated with what's called a baseline and a credit system. They get free permits
up to a baseline and then pay for whatever they pollute over that.

It also suggests that the coal industry should get more help it doesn't raise as much money, but it
doesn't give out as much in compensation as well because Frontier Economics believes that under its
scheme, the price rises for electricity would be cut from about $200 to as low as $8 a year for the
first five years. They say it would make the transition easier so people could plan better, they
could buy more energy-efficient appliances rather than being hit with higher costs straight away.

It also says the employment affects for regional Australia would be much better, instead of
potential job losses. There's potential for job creation, although there would be more potential
jobs lost in the cities.

Malcolm Turnbull is already arguing this proposal would save jobs. But it's really only in the
context of what the Government's proposing, about 10,000 fewer job losses than the Government's
proposing.

The scheme also, proposed by Frontier, also suggests more permits to be imported. That means
Australian businesses paying for permits from another country, rather than buying permits in
Australian and cutting emissions in Australia.

ELEANOR HALL: So Lyndal, this isn't Opposition policy, but what signals has the Coalition leader
Malcolm Turnbull sent about these ideas?

LYNDAL CURTIS: Well it's not policy yet but he says it will be a large imput. Now he sped up the
process of the Opposition coming up with its own ETS by signalling a few weeks ago that it would be
willing to negotiate with the Government. That won't happen in time for the Senate vote this
Thursday, and the Opposition will help vote the scheme down.

But it will mean, when it comes to the second vote, there's a period in which the Government and
the Opposition will negotiate. The Government's always said it will only negotiate when the
Opposition has amendments. So the Opposition has to come up with its own ideas, either a scheme or
amendments to the Government's scheme. It has to be something acceptable to the party, where the
opinions range from doing something now to not doing anything at all. It may be some of the things
the Frontier scheme comes up with make it more attractive to the National Party.

There will be a party-room meeting tomorrow. Both the Liberal party-room meeting and the Coalition
party-room meeting, there will be debate on this issue.

Malcolm Turnbull says the point is getting the environmental benefits at the lowest cost, while he
says the Frontier proposal is a valuable element of the Coalition scheme. He does sound like the
ideas are something he'd like to take up.

MALCOLM TURNBULL: Not good enough. The time has come for Mr Rudd to sit down with the independent
senators, with the Coalition. Sit down with us, here assemble, and discuss a better scheme, a
better design.

We're prepared to do that, he's rejected our approach as out of hand. Now he will have to say why
this report is wrong. He'll have to deliver reasoned argument to refute what is presented here.

Of course, reasoned argument is not something the Government is very interested in at the moment. I
see Mr Combet has rejected this report without having read it. That must be wonderful to be able to
come to a conclusion about reports without having to read them. So confident is he, in the
direction they're taking Australia.

ELEANOR HALL: That's the Opposition Leader Malcolm Turnbull in Canberra this morning.

Lyndal, we just heard him make some reference to the Government . What are the chances the
Government will take notice of this proposal?

LYNDAL CURTIS: Well, at first blush, not very much as Mr Turnbull said, the Government spoke before
the modelling had been released. It says that the idea's been kicking around, been shopped around
was the term Greg Combet used for some time. That Frontier had already done similar work for
someone else.

The Government will, if it really wants it emissions trading scheme through this year, before the
Copenhagen climate-change meeting, have to negotiate on some things, but the Minister assisting the
Minister for Climate Change, Greg Combet, says the Government did consider the sorts of ideas put
forward by Frontier when it was putting together its own emissions trading scheme. But he says it's
a magic pudding, and it won't work.

GREG COMBET: How do you get a carbon price in the economy when something sounds so good, but it
means we don't really have to experience any substantive economic adjustment. Perhaps it doesn't
achieve the goals and that's the trouble with what Mr Turnbull seems to be putting forward here. It
all sounds great, no real structural adjustment necessary, we'll exempt everyone, it's not felt,
and the end result, you can't set a cap, you can't set a target, you can't achieve targeted
reductions and there's no carbon-price signal in the economy.

ELEANOR HALL: That's Greg Combet, the Minister assisting the Minister for Climate Change.

And our chief political correspondent Lyndal Curtis with the details in Canberra.

Bendigo-Adelaide Bank profit in 58 per cent dive

To business news now and despite the more positive news on the Australian economy of late, the
regional lender, Bendigo and Adelaide Bank, has given a reminder of the precarious times by posting
a 58 per cent fall in its full year profit. The community bank still recorded a net profit of
almost $84 million though.

I'm joined now in the studio by Business editor Peter Ryan. So Peter this Bendigo report kicks off
a busy company reporting week. But were there any surprises from the bank?

PETER RYAN: Well Eleanor like most other banks, Bendigo and Adelaide Bank has been very careful to
flag any bad news as soon as it breaks. Just last week, for example, Bendigo went public with the
extent of its exposure to the Great Southern rural investment scheme which really did hurt its
bottom line.

The bad loans associated with the Great Southern now account for around $550 million. That's an
average $70,000 per investor, although Bendigo has noted the exposure comprises just 1.5 per cent
of Bendigo's asset base.

Not surprisingly, the newly appointed chief executive Mike Hirst was keen to point to some good
news, such as retail deposits up 20 per cent to $28.5 billion in the face of the global financial
crisis, which, he says, means the bank can reduce its reliance on wholesale funding.

But Mike Hirst made the point that trust has taken a big battering during the crisis, and he says
the focus for Bendigo is still very much on the uncertain picture for banks all around the world
both big and small, given the events of the past year.

MIKE HIRST: We're certainly planning for the uncertainty to continue. There's no doubt in my mind
that this still has some way to work its way through. I think there's potentially more issues to
emerge offshore and I was listening to Mike Smith from the ANZ the other day saying the troubles
that have emerged over there are certainly far more significant than what we've seen here. But it
doesn't mean that over time that it won't work its way through.

So we're managing the business on the basis of continuing uncertainty for financial markets and the
industry.

ELEANOR HALL: That the chief executive of the Bendigo and Adelaide Bank, Mike Hirst, speaking
earlier today. So Peter, Mr Hirst also announced this morning that the bank was preparing another
big capital raising to strengthen Bendigo's balance sheet. What's that about?

PETER RYAN: That's right. Early in the financial crisis, Bendigo was on the front foot raising cash
from investors. Today it announced a $300 million share sale, raising $127 million from
institutions and the rest from existing investors. The shares will be offered at $6.75 each.
Interestingly that's a 17 per cent discount to Friday's closing price. As a result, Bendigo and
Adelaide shares are in a trading halt as we speak.

One piece of bad news for investors though is that Bendigo's dividend has been cut to 43 cents a
share, that's down from 63 cents.

ELEANOR HALL: Just on the issue of the local economy. Does Mike Hirst think interest rates will
start rising if the economy starts firing again?

PETER RYAN: Mike Hirst believes a rising rates environment could be part of the bank's revival in
many ways when good times return, and it will certainly be good news for Bendigo's depositors.

But on the other side, the bank has been quite busy stress-testing its mortgage clients, using the
extreme of what might happen if the worst-case scenario, such as a US or British housing slump, was
replicated here. Bendigo is expecting around $8 million in potential losses as opposed to what Mike
Hirst called "the Armageddon" scenario, loss of $58 million.

So Mike Hirst agrees with economists who believe official rates could go from the 49-year low of 3
per cent to 5 per cent over the next few years. But he doesn't believe that will place unexpected
stress on the mortgage belt.

MIKE HIRST: One of the key things that's been occurring as rates have fallen is that the majority
of people have maintained their payments at the levels where they took the mortgages on in the
first place, which of course were at much higher rates.

So most of the book is well ahead of where they need to be in terms of their repayment schedule. So
there's quite some room to move around that. So if there was a 2 per cent increase in rates over
the next few years, I don't think that would place a lot of stress on the mortgage book.

ELEANOR HALL: That's the chief executive of Bendigo Bank again, Mike Hirst.

That confidence in the housing sector has been borne out by today's official figures on home
approval, hasn't Peter?

PETER RYAN: That's right. According to the ABS, Eleanor, home loan approvals rose for the ninth
straight month in June, thanks to record low interest rates and assistance to first home buyers. It
is a modest rise of 1.1 per cent from May, and below estimates, to just over 65,000 new approvals.

But this is the longest run of gains in home loans since the figures were first published in 1975.
And it shows the economy is far from dead, but this action might be a little bit too hot for the
Reserve Bank which is worried about demand outstripping supply. And that might be another case for
a rates hike to prevent a bubble from forming in what does appear to be a recovering market.

ELEANOR HALL: Business editor Peter Ryan, thank you.

IMF warns of risks for Australia's economy

ELEANOR HALL: The International Monetary Fund is going against that trend on interest rates. In its
latest report on the Australian economy, it says the Reserve Bank should consider more interest
rate cuts.

On Friday, the RBA board gave a very clear signal that it would keep interest rates on hold but
suggested it may raise them if there were signs of a durable economic recovery. The IMF though is
not so upbeat and it's warning that there is still a risk of a sharp fall in house prices over the
next few years.

Finance reporter, Sue Lannin.

SUE LANNIN: The International Monetary Fund says economic stimulus and lower interest rates limited
the fallout from the global recession in Australia. But it does have some reservations. It says the
Australian economy will shrink by half a per cent this year, and the main risks to growth come from
our trading partners. The fund says there is the scope for more interest rate cuts.

But the Reserve Bank now thinks that the economy will grow by half a per cent, and says it may
raise rates if a recovery takes hold.

Shane Oliver is the chief economist at AMP Capital Investors.

SHANE OLIVER: Bear in mind that the IMF would have finalised their estimates a fair bit before the
Reserve Bank figures were. The report from the IMF, I think, was finalised on July 22nd, and of
course the minus 0.5 per cent forecast was put out by the IMF back in June.

So yes, the IMF has revised up its numbers, but my feeling is that more recent information,
particularly data for the labour markets, consumer and business confidence and also the export
sector, would warrant a more optimistic take on the economy, more consistent with what the Reserve
Bank is saying in its latest statement on monetary policy.

SUE LANNIN: The IMF notes that its report that its medium-term outlook is more pessimistic than the
Government's. It thinks the Budget won't return to surplus until the 2017/2018 financial year. The
Government thinks it will return to surplus two years earlier.

Shane Oliver says he thinks it will be somewhere in between.

SHANE OLIVER: Well at the time of the Budget, many economists felt that the medium-term growth
forecasts embedded into the Budget and therefore underpinning the return to a Budget surplus were a
bit too optimistic.

Against that, I would probably say that the IMF forecast was probably a little bit too pessimistic.
So my feeling would be that it's likely to be somewhere in between. I think that at the end of the
day all of this highlights that sooner or later the Government will have to announce a tougher
stance in terms of the Budget, both in terms of either raising taxes or cutting spending.

SUE LANNIN: Professor of finance at the University of New South Wales, Fariborz Moshirian, says the
IMF's outlook for Australia is too pessimistic.

FARIBORZ MOSHIRIAN: Every time we get the forecast from the IMF we need to be cautious. Simply
because the Reserve Bank and the Australian Treasury have more resources, more insight about the
Australian economy and also we need to look at the forecasts in a dynamic process rather than in a
static environment, where for instance, in the next two to three years, we do not know the massive
amount of demand which might come at our port from China, India and other parts of Asia.

SUE LANNIN: But the professor of economics at the University of Newcastle Bill Mitchell thinks the
IMF is more on the money.

BILL MITCHELL: We're significantly exposed to the revision of all of the export contracts, even
though China looks like growing and Japan has got good figures out this morning on its trade and
manufacturing. We are facing lower contract prices and that will affect our receipts, our volumes
may well hold up, but our revenues will fall.

And I think it also still depends upon what happens in the US. I think the benefits of the low
interest rates on growth have been overrated. I think the major benefits have been taking the
pressure off the indebted households and I think right now if the RBA was to increase interest
rates, that would be a fairly, in my view, irresponsible way to go.

SUE LANNIN: The IMF is also worried by the high level of borrowing by Australian households. It
thinks house prices are overvalued by up to 20 per cent and they could fall over the next few
years.

Bill Mitchell says the level of borrowing is a real concern.

BILL MITCHELL: Period of Budget surpluses really was associated, in Australia, was associated with
a massive escalation in household debt. That's really the only way the economy maintained its
growth as the Government was contracting through those surplus periods.

I think that was a fairly myopic growth strategy. I think that we are still highly exposed to that
household debt and at the moment the low interest rates and the strong fiscal intervention is
stopping major bankruptcies in the household sector and that's why we need to ensure that our
growth continues now.

ELEANOR HALL: That's the professor of economics at the University of Newcastle, Bill Mitchell,
ending that report by Sue Lannin.

Abortion pill to become more widely available

ELEANOR HALL: The abortion drug RU486 is set to become more widely used in Australia.

Three years ago, Federal Parliament removed the Health Minister's right to veto the use of the
drug, but it was still only available at a limited number of hospitals, until now. Now one of the
nation's largest family planning clinics has been authorised to prescribe the drug, as Meredith
Griffiths reports.

MEREDITH GRIFFITHS: Advocates of RU486 say it's important that women be given the option of medical
abortions because they are less invasive and more private than surgery.

After lengthy debate about the drug, in 2006 a conscience vote in Federal Parliament stripped the
Health Minister of the right to veto its use and gave that power to the Therapeutic Goods
Administration.

But since then only a very small amount of doctors have applied to prescribe it. And the leading
family planning organisation, Marie Stopes International, says the use is quite restricted.

Jill Michelson is the organisation's national clinical advisor.

JILL MICHELSON: Quite often is has been for women who have got severe medical conditions that are
requiring them to abort or there are near-natal issues.

MEREDITH GRIFFITHS: Marie Stopes has now received authorisation for doctors in its nine clinics
around the country to prescribe RU486 to women in their first trimester.

Jill Michelson says it has taken longer than expected for the organisation to get approval.

JILL MICHELSON: We would have preferred that if a drug company would have gone directly to the TGA
and got that approval across the board. But because that was taking so long, we felt that we needed
to do something in the interim.

MEREDITH GRIFFITHS: Do you know if any companies have applied?

JILL MICHELSON: We wouldn't be aware of that and we're still hoping that that's going to occur. Of
course, this is authorised, prescribed status is only lasts two years, and we're hoping within that
two-year timeframe that a drug company does apply to the TGA and gets that approval.

MEREDITH GRIFFITHS: The College of Obstetricians and Gynaecologists says it's not unusual that no
drug company has applied to import RU486.

Federal secretary Dr Gino Pecoraro.

GINO PECORARO: Because of the emotional nature of the drug and what it's used for, companies may be
put off because they don't want to be put into the spotlight as the importer of a drug that they
know is going to engender strong opinion in both directions in the community.

The second thing is that they may make an economically based decision where it's not viable for
them or the profit margins are not large enough.

MEREDITH GRIFFITHS: The Australian Medical Association says it's very expensive and complicated for
drug companies to make applications to the Therapeutic Goods Administration.

The association's president, Dr Andrew Pesce has welcomed the news that RU486 will now be more
widely available, but he says that will not lead to a greater number of abortions in Australia.

ANDREW PESCE: There are studies now in countries where RU486 was introduced some years ago. And
they've been very specifically looking at whether or not the availability of this increases the
rate of terminations to pregnancy in a country, and the evidence would suggest that isn't the case.
It's just that some women who were going to terminate a pregnancy make the choice to have a medical
termination rather than a surgical termination.

But there is no evidence that I am aware of that suggests that this increases the number or
percentage of pregnancies that are terminated.

MEREDITH GRIFFITHS: But the Australian Christian Lobby disagrees. Spokesman Lyle Shelton is worried
that the drug will now be more aggressively promoted by groups like Marie Stopes.

LYLE SHELTON: The last thing that women need is another way to chemically kill their babies. What
is needed is more support for women who find themselves in a situation where they have an
unsupported pregnancy and we should be really offering a greater choice for women rather than just
the default position that abortion is really the only approach and by then broadening the
availability of abortion through the more widespread availability of this chemical cocktail which
poisons the unborn child before expelling it.

MEREDITH GRIFFITHS: RU486 is available at Marie Stopes clinics from today.

ELEANOR HALL: Meredith Griffiths reporting.

Court stops 60 Minutes broadcast at 11th hour

ELEANOR HALL: Most suicides in Australia go unreported by the media, because of concerns that the
publicity could lead to further deaths.

Last night the Channel Nine program 60 Minutes tried to air a story on the issue but was forced to
back down when it was served with an injunction. The national depression initiative Beyondblue won
the order in the Victorian Supreme Court, as Lexi Metherell reports.

LEXI METHERELL: Over six months, four students at a Geelong high school have committed suicide.
Viewers tuning in to Channel Nine's 60 Minutes last night were expecting to see a story on the
issue.

(Excerpt from 60 minutes.)

VOICEOVER: Tonight, on 60 minutes...

REPORTER: Geelong, a town searching for answers.

FATHER: Everyday is just flying...

(End of excerpt.)

LEXI METHERELL: But despite the promo, the story never came and in its place was an extra 10
minutes' of ads - 60 Minutes had been forced to pull the story at the last minute, because an hour
before it went to air Beyondblue had won a Victorian Supreme Court ruling preventing the story
being shown.

In an affidavit to the court, Beyondblue's chairman Jeff Kennett said the story could jeopardise
the welfare of the school's students and teachers.

He said he'd spoken to the head of Channel Nine, David Gyngell, after becoming aware the network
was going to run the program the weekend before last.

Here is part of the affidavit read by an actor.

STATEMENT FROM JEFF KENNETT (voiceover): I believe from my previous experience that 60 Minutes is a
law unto itself and rarely takes direction from management. Mr Gyngell said "I know and respect the
work that you do with Beyondblue and I undertake to have the program withdrawn".

LEXI METHERELL: Mr Kennett says despite that undertaking, he then became aware 60 Minutes was going
to run the story last night.

Channel Nine did not appear in court yesterday but today issued a statement saying it will fight
the injunction at a hearing on Wednesday. It says it has the support of the families involved and
consulted mental-health experts over the story.

But on ABC local radio his morning, a father with a suicidal child praised Beyondblue's actions,
and criticised some of the recent reporting on the deaths at the Geelong school.

STEVE, TALKBACK CALLER: The frenzy is just causing so much immense pain on individual levels. I
ask, is it worth the public interest to report it in the way they're doing it? It's just
astounding, absolutely astounding.

LEXI METHERELL: The executive secretary of the Australian Press Council, Jack Herman, says its
guidelines call for extreme sensitivity when reporting on individual suicides. But discussion of
the broader issue may actually help promote awareness.

JACK HERMAN: And in particular, what the Press Council says is, that when the press reports about
the phenomenon of suicide, about aspects of say an increase in the number of youth suicides or
putting a spotlight on situations where a number of suicides or suicide clusters have occurred.
This can in fact be more helpful than harmful.

LEXI METHERELL: The ABC understands that the Victorian Education Department was also seeking to
join Beyondblue's application.

Beyondblue is not commenting. A spokeswoman says the organisation doesn't want any media debate on
the matter until after Wednesday's hearing.

ELEANOR HALL: Lexi Metherell reporting.

And anyone needing confidential mental health advice or support for depression, can contact the
24-hour helpline: Lifeline on 13 11 14.

US hints at more troops to Afghanistan

ELEANOR HALL: To the United States now where there are predictions that the US administration is
about to announce that even more troops will be sent to Afghanistan.

The White House is rejecting suggestions that the situation there is reaching crisis point. But the
US national security advisor, General Jim Jones, won't rule out the option of sending more American
troops.

And the pressure is also on America's allies, including Australia, to do more, as North America
correspondent Lisa Millar reports.

LISA MILLAR: The White House is waiting for an assessment from its top commander in Afghanistan
General Stanley McChrystal, before making its next move. But most are expecting extra troops to be
part of the strategy.

General Jim Jones is the White House's national security advisor.

JIM JONES: We have over 40 nations on the ground, we have all of the international organisations
you could want, from the UN to NATO, the EU, the World Bank, IMF and nongovernmental organisations
and Afghanistan will be solved by a better coordination of these elements. The troops strength is
an important piece of it.

LISA MILLAR: Republican Lindsey Graham who sits on the Senate's armed services committee says he'll
be stunned if there isn't a request for more troops. And he's urging this Democratic White House to
avoid the mistakes made by a previous defence secretary Donald Rumsfeld.

LINDSEY GRAHAM: If Afghanistan becomes a chaotic situation it affects Pakistan. So we're going to
need more of everything. My message to my Democratic colleagues is that we made mistakes in Iraq.
Let's not "Rumsfeld" Afghanistan. Let's don't do this thing on the cheap. Let's have enough combat
power and engagement across the board to make sure we're successful and quite frankly we've got a
lot of ground to make up.

LISA MILLAR: The US is convinced it's struck a blow against Taliban forces in the last few days,
killing the Pakistani Taliban leader Baitullah Mehsud. His followers claim he's still alive and
didn't die in a US missile strike.

General Jones has described his death as a "big deal".

JIM JONES: Mehsud was a very bad individual. A real thug, responsible for a lot of violence, a lot
of innocent people losing their lives and I think that if there's dissension in the ranks and that
if in fact he is, as we think, dead, this is a positive indication that in Pakistan things are
turning for the better.

LISA MILLAR: He says Baitullah Mehsud was the public enemy Number One in Pakistan. General Jones
says there's more intelligence sharing between the US and Pakistan, and both are working more
closely together on Afghanistan as well.

The US is sending in an extra 21,000 troops into Afghanistan to combat the Taliban and General
Jones says the White House can't rule out having to send even more. But he's making it clear
America isn't in this on its own.

JIM JONES: And I wanna make sure that I make this point as well. This is not just a US problem.
This is an international problem and we cannot. I think we have the strategy and we will shortly
see, and I mean within a year, whether this strategy is working and then we'll adjust from there.

LISA MILLAR: Australia has already increased its troop numbers this year. The chairman of the armed
services committee Senator Carl Levin says he doesn't want the US committing more troops because it
takes the pressure off America's allies.

CARL LEVIN: A number of countries have taken very hard hits, losses of troops but a lot of the
other NATO allies have fallen short of their commitments and we're going to put maximum pressure on
them to do what they promised to do in terms of providing trainers for the Afghan army and also
providing money. They promised a billion dollars, a billion Euros, a long time ago and they have
only provided 10 per cent of that.

LISA MILLAR: America's allies can expect even more arm twisting, with the latest prediction that it
could be a decade before it's safe to leave Afghanistan.

This is Lisa Millar in Washington for The World Today.

Rio refutes China spy claims

ELEANOR HALL: The mining giant, Rio Tinto, is today denying allegations that it's been spying on
China for six years, and that its employee, the now-detained Stern Hu, helped extort $122 billion
from the industrialising nation.

The claims were made in a report by China's National Administration for the Protection of State
Secrets which was translated by a Western journalist.

Mike Berrell is a business consultant to an engineering firm that operates in China. He's been
travelling there in recent days and says the allegations are a smokescreen. He joined me on the
phone from Abu Dhabi a short time ago.

Mike Berrell, how worrying is the use of the term 'spying' in terms of the Stern Hu case on
semi-official Chinese websites?

MIKE BERRELL: Well I think that it has to be taken in context in that what is classified as a state
secret in China is quite different from what is classified in Australia and other Western countries
as state secrets.

We would normally tend to think of anyone that's involved in the stealing of state secrets as being
involved in traditional types of espionage. Where in China, the state security bureau has a very
broad definition of what constitutes a state secret. And for all intents and purposes, it is really
anything that is going to be significantly disadvantageous to the Chinese Government.

ELEANOR HALL: Are the Chinese authorities though trying to send a message here, by using this term
'spying' on their websites?

MIKE BERRELL: I think they probably are. They're trying to hit home very clearly the case that when
you operate in China you have to operate by Chinese laws and they have tended to be a little bit
heavy-handed in this case I think.

It's been at least 15 years since we've had a similar type of event. So perhaps there is a message
here in business, but again this is what came to our knowledge on the 5th July. So it's been only a
couple of weeks into the process. I'm hoping, from my point of view, that it should be resolved in
the next two to three months.

ELEANOR HALL: And what do you make of this figure of a $122 billion, more than Rio's total iron ore
trade with China over the period.

MIKE BERRELL: I think that's again a message that this is Chinese view of the perceived damage that
this has caused the industry over a period of time, a projected period of time.

But you've also got to remember that this is a strategic industry for the Chinese and so they're
going to of course be a little bit more creative with the figures that they're offering about the
damage that this case has caused. And it also helps them, that it perhaps saves a little bit of
face on the Chinese side to justify the actual course of action that they took.

ELEANOR HALL: So is this a case of Stern Hu just doing his job too well, or has he been caught in a
wider espionage crackdown? I mean we've seen China cracking down on corruption in recent years.

MIKE BERRELL: Yes, look, this is something that of course being on the outside, looking in, you
wouldn't know. But the way that you do business in China and of course there are a lot of people
who don't really understand doing business in China, but it does involve network, relationships, it
does involved understanding in part of what the other side's thinking and of course the most
important thing for negotiating with the Chinese is that both sides maintain face during
negotiations.

So I suspect that something else has come adrift in these negotiations and it may well be that the
Chinese Government have been looking at the people who Stern Hu's been dealing with, quite
separately from Mr Hu.

So again, being on the outside looking in, it's very difficult to know what's going on. But a way
of doing business in China is working with all your network partners and gathering intelligence and
you could be right that Mr Hu has done his job very well.

ELEANOR HALL: If this is China cracking down on corruption, is that ultimately a good thing for
trade with the West and for Western companies, or is it scaring off foreigners?

MIKE BERRELL: No, I think in the long term it's got to be in the best interests of China to bring
its index rating down as a corrupt country. Over a number of years, especially in intellectual
property rights, it's been very keen to increase its perception in the West as a legitimate country
in which to do business.

So I think in the longer term, leaving aside the particularities of Mr Hu's case and Rio Tinto, in
the longer term, this type of move against corruption will be welcomed by Westerners doing business
in China.

ELEANOR HALL: In the interim, the businessmen that you're speaking to, are they watching this case
with fear?

MIKE BERRELL: I wouldn't say with fear, with a bit of trepidation, I've had a number of calls from
my clients who have asked me to review their current negotiation stances in China. In many cases I
think people are just stepping back a little bit and waiting to see how this case is going to be
resolved.

Because it's in the best interests of all parties concerned for this to be resolved in a way that
is open and a way that it's legitimate, but also a way that both the Chinese and Australians come
out feeling yes, the best thing has been done.

So I think in the longer term, yes, that people will move back into China again, perhaps with
renewed confidence, but in the short-term they're sitting back and just saying, let's just wait for
a minute and see what's going to happen over the next eight to 10 weeks.

ELEANOR HALL: Mike Berrell, thank very much for joining us.

MIKE BERRELL: Thank you, bye, bye.

ELEANOR HALL: That's a China business analyst Mike Berrell.

Iran puts foreigners and embassy staff on trial

ELEANOR HALL: Now to Iran, where officials have admitted that some of the election protestors who
were arrested in June were tortured while in custody. The admission comes as a second mass trial of
the alleged ringleaders of the protests gets underway.

Jennifer Macey has our report.

JENNIFER MACEY: Among the 100 defendants appearing in Tehran's Revolutionary Court this weekend,
included a 24-year-old French teacher and local staff from the British and French embassies.
They're accused of spying and plotting to overthrow the regime, following the presidential election
in June.

Hossein Rassam, a political analyst at the British Embassy, was arrested shortly after the
election. In a statement to the court he expressed regret for his actions and asked for a pardon.

HOSSEIN RASSAM (translated): Every morning at nine o'clock, the ambassador would hold a meeting
with staff of the political section, including diplomats and local staffers as a matter of routine.
The UK ambassador had asked us to collect information and news about illegal protests and clashes.

JENNIFER MACEY: Britain has described the trial of one of its embassy staff as an outrage while
France has demanded the immediate release of its citizen and the embassy employee Nazak Afshar. Her
son Arash Naimian who lives in Paris told CNN his mother has been arrested on trumped-up charges.

ARASH NAIMIAN: She is not at all a political person and she did not have anything to do with
politics. She is a cultural person, she is so fragile right now and I don't know if they've told
her to, "We are going to harm your son or your mother", she will confess to anything that you could
imagine.

JENNIFER MACEY: Professor Armin Saikal director of the Centre for Arab and Islamic Studies at the
Australian National University, says international condemnation will have little impact in Iran.

ARMIN SAIKAL: The Iranian authorities seem to want to show to the outside world that the foreigners
had a hand in the latest mass protest which had taken place in Iran over the elections of the 12th
of June.

But I think in the medium to long run, it will have some impact because it will complicate Iran's
relations. Whether European Union, particularly at the time, when they were also under pressure
from President Obama's overtures for improved relationship with Iran.

JENNIFER MACEY: Iranian opposition leaders Mir Hossein Mousavi and former president Mohammad
Khatami have also criticised the mass trials saying many have made confessions after being
tortured.

Iran's police chief and the prosecutor general have admitted that prisoners of Kahrizak prison were
tortured. They've now arrested the head of the prison and other guards. But they deny that the
three prisoners who died at the prison suffered abuse, saying they died from a virus.

A senior commander of the revolutionary guard has now called for the three top opposition figures
to also be put on trial.

The ANU's Professor Armin Saikal says it's going to be difficult for the authorities to justify
their arrests.

ARMIN SAIKAL: There is no question that a number of core conservatives within the administration
would like to see people like Mr Mousavi and Mr Karoubi as well as the former president Khatami to
be put on trial. But that could only deepen the threat and rivalry within the ruling clerics and
could even cause a deeper split within the conservative core which the regime needs in terms of
boosting its position.

JENNIFER MACEY: And he believes that relations between Iran and the international community will
suffer a further blow with the arrest of three Americans who were hiking in Iraq and strayed across
the border into Iran.

The US National Security Adviser, James Jones, has confirmed that Iran is holding the three
Americans. He said the US is sending "strong messages" to Iran to release the US citizens, who were
detained more than a week ago.

ELEANOR HALL: Jennifer Macey reporting.

Upper house would help prevent Queensland corruption: Senator.

ELEANOR HALL: A Queensland Liberal Senator has written to the state's Labor Premier calling for the
return of an Upper House, saying it would improve accountability in the state especially in light
of the renewed concern about corruption.

Queenslanders abolished their Upper House in 1922. But Premier Anna Bligh has issued a green paper
for reform, saying she's open to considering all options for targeting cronyism in Government.

In Brisbane, Charlotte Glennie reports.

CHARLOTTE GLENNIE: Nearly 90 years ago a Queensland Labour Government, led by Premier Ted Theodore,
abolished the state's Upper House.

Ross Fitzgerald is a professor of history at Griffith University.

ROSS FITZGERALD: As I point out in my biography of Theodore, he appointed what he called the
"suicide club". He appointed a number of new members to the Legislative Council on the proviso that
they vote for council's abolition.

It wouldn't happen these days but it happened then and that meant that Queenslanders never had a
house of review, coupled with the fact that there's never, until say the Beattie government, or the
Gough government, there was never a proper committee system. So that's why almost all of the
premiers in Queensland, from 'Red' Ted Theodore onwards, were very authoritarian.

CHARLOTTE GLENNIE: But the Queensland Liberal Senator Ian Macdonald wants the state's Upper House
brought back.

IAN MACDONALD: There is a lot of concern around Queensland about the way that Queensland is being
governed. There are suggestions of impropriety and in some cases, of outright corruption. An upper
house I think would put a balance into the governance of Queensland. It's something that every
other state in the Commonwealth has. And I think it should occur in Queensland.

CHARLOTTE GLENNIE: It's been nearly a fortnight since QC Tony Fitzgerald spoke out about cronyism
in the state, which he believes is still rife two decades after his landmark Fitzgerald Inquiry
into corruption.

Premier Anna Bligh has reacted by abolishing success fees for lobbyists and banning her MPs from
attending fundraisers with the business community.

Many lobbyists used to be politicians, like former Queensland deputy premier Terry Mackenroth. He's
now under investigation by the Crime and Misconduct Commission, as to whether one of his clients
benefited from a rezoning decision.

Mr Mackenroth has announced he's quitting lobbying, although he says he's not done anything wrong.

TERRY MACKENROTH: With the publicity that's been there and the spotlight, I think that's going to
continue and if I was to do any work for any company, they would be brought into the spotlight and
you know, even though nothing is done wrong people would question it and I just don't wish to do
that and to bring companies' names into the spotlight in that way.

CHARLOTTE GLENNIE: Premier Anna Bligh says she supports a broad debate on Government accountability
and she says she'll consider all options for improving the integrity of the political system.

The Premier hasn't said yet what she thinks of returning an upper house to the state, but Professor
Ross Fitzgerald says the idea has merit.

ROSS FITZGERALD: I think there's no doubt that it makes corruption much easier to flourish if you
don't have a house of review. And if you don't have a properly operating committee system.

So as I said, since 'Red' Ted Theodore abolished the Queensland Upper house in 1922, all the
governments were pretty much the same. Labor and non-Labor. Very authoritarian, they were able to
push through their, you know whatever they wanted through the one-house parliament.

CHARLOTTE GLENNIE: Senator Macdonald's already thinking about the possible make-up of an upper
house.

IAN MACDONALD: I originally proposed this as an upper house comprised of local mayors, which would
obviate an additional election, would not necessitate new politicians. That's just one idea. There
are many ways that it could be looked at.

ELEANOR HALL: That's Queensland Liberal Senator Ian Macdonald ending Charlotte Glennie's report.

Anti-drugs poster girl faces drug charges.

ELEANOR HALL: She was an actor and singer with a girl-next-door image and she was also an
anti-drugs campaigner. Now Japanese star, Noriko Sakai, has surrendered to police, after nearly a
week on the run over drug-possession charges.

North Asia correspondent Mark Willacy reports from Tokyo that the story has stunned her fans in
Japan, China and Taiwan.

(Noriko Sakai song)

MARK WILLACY: To the Japanese Noriko Sakai is the pretty, wholesome, girl next door. A sort of
Asian Kylie Minogue without the revealing hot pants and gyrating male dancers. But in an instant
the 38-year-old went from superstar singer to fleet-footed fugitive.

NEWS PRESENTER: An arrest warrant has been issued for pop singer and actress Noriko Sakai on
suspicion of illegal drug possession. She's been missing since Monday and thought to be on the run.

MARK WILLACY: Noriko Sakai's troubles began when her self-styled surfer-dude husband was stopped by
police on the street and found with a bag of stimulants down his underpants. Sakai was summoned to
the arrest site but refused a police request to come down to the station for a urine test. Instead
she deposited her 10-year-old son with a friend and hit the road.

(Teenage fan speaking.)

"This is unbelievable," says this teenage fan. "I feel so sorry for her," she says.

After finding stimulants and a drug device at Noriko Sakai's home, police issued a warrant for her
arrest. This scandal has already cost the singer-turned-fugitive her wholesome, good-girl image,
and now it's costing her cold, hard cash.

The world's biggest car-maker Toyota has pulled the plug on an ad featuring the pop-star.

(Noriko Sakai video)

And now the country's Supreme Court has stopped showing a video starring Sakai which has been used
to promote Japan's new jury system, probably because the pop star could soon find herself in front
of a jury.

(Masahisa Aizawa speaking)

Left to front the frenzied Japanese media pack was Masahisa Aizawa, the president of Sakai's
management company.

"This incident has caused everyone great concern," says Mr Aizawa, "And for that I apologise," he
says with a bow.

"If I could tell Noriko anything, it would be give yourself up as quickly as possible," he says.

Over the weekend she turned herself into police.

Overall, it's been a pretty scandalous year for Japan's usually squeaky-clean pop idols. In April a
member of the super-group SMAP was found drunk, naked and screaming in a Tokyo park. After
apologising to the nation, and spending weeks in self-imposed exile, he made a triumphant comeback.

(Song)

But with a serious drugs charge hanging over her head, Noriko Sakai may not be forgiven so readily.

This is Mark Willacy in Tokyo for The World Today.

England outlook gloomy ahead of final Test

Now to the cricket, this year's battle for the Ashes is going right down to the last Test,
beginning in London next week.

Last night Australia beat England at Headingley in Yorkshire, winning by an innings and 80 runs
with two days to spare. The series is now level at one Test match each.

But as Europe correspondent Emma Alberici reports, the Poms are already sounding as though they've
lost.

ENGLISH CRICKET FAN: It went wrong in the first morning, the first hour and a half when the ball
was swinging earlier on, I just think England couldn't cope, especially Prior getting injured in
the warm up, it's just kind of made things hard for them, and that's where I think they lost this
Test match, to be honest.

ENGLISH CRICKET FAN 2: 'Cause when you're winning, to talk to us English people, isn't it?

EMMA ALBERICI: You think we're only talking to you because we're winning.

ENGLISH CRICKET FAN 2: Yeah, something like that. No, you're all quiet when we're winning but now
when you're winning, you're speaking to us, aren't you?

EMMA ALBERICI: Well it's a draw isn't it?

(Sound of clapping)

ENGLISH CRICKET FAN 2: Yeah, but you only need a draw to claim the Ashes back.

EMMA ALBERICI: And tell me what's your impression of how the Test wrapped up today?

ENGLISH CRICKET FAN 3: Sadly I think it was almost inevitable. I think we were batting on the edge
for the last three of four games anyhow, so it didn't actually come to any surprise when they got
bowled out for 100 on Friday.

EMMA ALBERICI: They could have wrapped the series up so what happened?

ENGLISH CRICKET FAN 3: Not good enough batting, Australia are probably a better team. Better
together so that individuals batting for England, people have been tried and found wanting before I
think.

EMMA ALBERICI: What's it going to take for them to secure any kind of victory next week at the
oval?

ENGLISH CRICKET FAN 3: I've got no idea, they'll manage that, it's usually pretty flat wicket I
would have thought a draw would be the best we could get out of it. I don't know how we're going to
get enough runs anyhow. No Flintoff, no Petersen, it's going to be very difficult.

ENGLISH CRICKET FAN 4: Also taking 20 wickets would be nice as well. I think that would be a start.
If England can take 20 wickets, they've got a good chance of maybe winning the Ashes again.

EMMA ALBERICI: Do they have any chance next week at the oval?

ENGLISH CRICKET FAN 4: Um, yeah, I think it's pretty even, the Test match, the series has been
pretty even so far. Obviously Australia have got the momentum so far, but last Test match, cup
final, anything can happen. If Australia go out with the mentality of trying to draw the Test
match, they could easily lose it so, should be a good one, let's see.

EMMA ALBERICI: Now, I didn't catch your name over there, but how does it feel today of being an
Aussie out here amongst all these English blokes at a cricket match?

CHRIS RIDLEY: Chris Ridley from Sydney, from Bankstown in Sydney. Today's a good day, I think.
Especially after the win this morning after the first of the good performance the Aussies have put
up over the past three days. Hopefully, where is the last test, at the oval? No, next is at the
oval isn't it? I think that the oval will be two-one to someone, that'll make it exciting.

Both teams have nothing to lose, like if Australia goes, as my friend Maz Hatergy (phonetic), said
next to me here. He said, "If Australian goes in with the mentality to draw the test, I think
there's a good chance that they might lose. Sort of a bit of negative cricket. Hopefully they will
win.

ELEANOR HALL: An English cricket fan, ending that report from our Europe correspondent, Emma
Alberici.