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Transcript of interview with Laurie Wilson: APAC Viewpoint program: 27 August 2009: India, Doha; protectionism; China, iron ore prices; Stern Hu; Shanghai Expo 2010



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The Hon Simon Crean MP AUSTRALIAN MINISTER FOR TRADE

Transcript - E&OE

27 August 2009

Interview: APAC Viewpoint program with Laurie Wilson

Topics: India, Doha, Protectionism, China, Iron Ore Prices, Stern Hu, Shanghai Expo 2010

COMPERE: Hello, and welcome to another edition of Viewpoint. While diplomatic relations between Australia and China have been strained of late, there appears to have been little or no impact on the trade relationship between the two countries. Despite concerns amongst the business community, Trade Minister Simon Crean is confident of concluding a free trade agreement with the Chinese.

In terms of Australia's economic recovery, he also points to the continuing growth in exports to China and is equally upbeat about the prospects for Australian exporters in other emerging economies, such as India and the ASEAN nations.

Despite the global economic downturn, Australia actually recorded a trade surplus last year, in fact a record trade surplus which is something many people might not be aware of. How important is trade to Australia's economic recovery and, indeed where do you see future trade growth coming from?

SIMON CREAN: It's essential to sustaining our economic recovery going forward. It's been very important in helping us get through the global financial crisis, but it's essential to our future and the reason for that is pretty simple. We're a nation of 22 million people. You can't just produce for yourselves and sustain an economic base. We have to engage with rest of the world. That's why for the last three decades huge effort has been put in to try to open markets, but to make ourselves competitive and productive within the country so that we can get into those markets.

I think that the opportunities going forward are enormous. They're enormous because the rest of the world needs support in terms of growing food supplies and energy. Australia has those in abundance, but it's not just the commodities. It's the services that relate to them and it's also the great skill and adaptability of the Australian economy. This is a clear Australian brand but we've got to promote it much better in the rest of the world. For that we need markets to open, but we have to be much more aggressive in grabbing the market share.

COMPERE: Well obviously, much of our growth has been driven by China, but you're now increasingly focussing on India as a market. Indeed, you're about to visit India. How important do you see India being to Australia's future trade growth?

SIMON CREAN: It's huge. I mean you look at it: it's 1.1 billion people. It's a very diversified economy. It's not just agriculture. It's got a strong manufacturing base and it's big in services. It's also a

great democracy and it is an economy which is now reaching out to the rest of the world. Our trade relationship with India has been underdone for a long time.

Interestingly at the moment, it's our fastest growing market in both goods and services, but off a low base. So we have to engage much more strongly with them. I'm going there for two reasons. One is to advance the bilateral relationship in the lead up to our PM's visit there later this year, but secondly and really importantly at the moment, is India are prepared now to play a very constructive role in trying to bring the Doha Round to a conclusion.

India was one of the problem countries when the talks broke down last July. The fact that we've got new engagement by India on the multilateral front, the Doha Round, I think is a very important signal about their desire to engage. If we get that part of it right, it produces a much

better platform to build and strengthen the bilateral relationship.

COMPERE: There's a meeting of trade ministers in India prior to the next G20 meeting in Pittsburgh. Are you genuinely positive about the prospects of reviving the Doha Round?

SIMON CREAN: I am but you know I'm an optimist, but we won't do it unless we can continue driving the political will to achieve it. Getting a conclusion is there in technical terms. What we've got to do is to get the political will driving the conclusion now. We've had some very important meetings over the last couple of months to develop that momentum, first in Bali, then in Paris, then in Singapore.

Delhi is the next part of that equation. We have as ministers given a general instruction to our trade negotiators to narrow the gaps, identify much better the areas for difference for ministers to resolve.

The general direction has been important because we've got movement in Geneva, but not enough. I'm hopeful that out of Delhi what we can get is more specific instructions to trade negotiators. If we can get them meeting around a greater or more specific activity in the lead up to Pittsburgh, it is possible we can go with a positive report to leaders of the G20. Why is that important? Because the G20 leaders said in London, get this fixed.

We remain ready, we as leaders, remain ready to assist in the conclusion. That political will, that engagement at the highest level is terribly important if we can narrow the differences. So I'm optimistic but not starry eyed about it and have been working very actively to try and make sure that we get a structure and a momentum of political will to close the Round. If we do it will be terrific, and if you think about the G20, Laurie, the G20 is now saying as a key part of global recovery, trade is

crucial to global recovery.

Why? Because trade is an economic stimulus. Trade historically has grown three times faster than world output. Any country that wants to secure its economic future has to engage in trade. The G20 leaders know it's fundamental to the stimulus. It's our task to try and strengthen and give confidence to that stimulus by concluding the Round.

COMPERE: How important is it that in the wake of the global financial crisis, the flight to protectionism wasn't nearly as bad as many people had feared? Do you see that as a positive sign?

SIMON CREAN: I do, and I think it is a very important reflection of why having a rules based system in place and strengthening those rules is so important going forward. This is the other reason why world leaders want Doha concluded. Concluding Doha is also the most effective insurance against the spread of protectionism. But I think we have won the argument in the main against protectionism. We didn't see what most feared out of this global financial crisis, the rush to it.

We've seen examples of it they're worrying and we have to try and address them, and we will but there hasn't been the turning in on ourselves, the belief that the way to protect jobs is to revert to protectionism. We need to protect jobs but we can do that in more effective ways by developing the growth model. Protectionism strangles the growth model.

COMPERE: Going back to your earlier comments about India, about it being our fastest growing market, but off a low base, what specific areas of export do you see as having real potential looking ahead in future years?

SIMON CREAN: I think food processing. I think energy, because they are hugely dependant on that. I think the services sector and India is, as I said, a very diversified economy. What I don't think is appreciated enough between both economies I suppose is the diversity of each other's economy, and I'm very keen that apart from developing the government to government relationship, we get a much better business to business relationship.

I'm a great believer in the fact that advancing trade is the combination of G to G and B to B. The trick for us if we're clever enough at it is to join the dots and to get a constant engagement, reinforcement, of the commercial interests, identifying the barriers to entry, governments responding to that, but governments in turn understanding where they see

their futures and really urging businesses to become more competitive, to understand the opportunities that are out there through more liberalised markets. I want to see that sort of relationship developed in relation to India.

COMPERE: Of course, China remains that key global driver of economic growth, and a very important key trading partner for Australia. We've recently seen the $50 billion natural gas deal, the North-West Shelf Gorgon deal with China. Despite the diplomatic difficulties that the two countries are going through at the moment, it doesn't seem that our trade relations have been particularly hampered.

SIMON CREAN: It hasn't and it won't be because it's too important to both economies. We are too interdependent on each other that we can't afford to let it be hampered.

Now, there are things that can be done to strengthen it and that's why we're trying to get an FTA with China. It's been frustrating in its process, even before these recent diplomatic incidents, but I think the key in terms of China is that it has up until now been heavily dependent

upon exports for its growth.

Global financial crisis has hit it in a big way, but what's emerging in China is that as a consequence of that growth, there's now a large increase in living standards within the nation which is capable of

generating its own domestic economy, because they're so big, one and a half billion people. And if you look at the challenge of the urbanisation of China, this is an economy that is, they told me when I was last over there, is going to have to build 400 million new homes over the next two decades.

Think of it. Think of what that involves, not just in the construction phase, but the fitting out, the servicing. As people move from subsistence agriculture into urban development, this is going to be massive in terms of its implications. That's why Australia has to be in this space. They do need energy, but they need clean energy. And the important thing as well about the Gorgon commitment, is this is the first time that China has really for many - since the Woodside deal, has been prepared to commit to long-term contracts.

We've now got long-term contracts in energy, always had them with Japan but we've now got them with China, with India. Hopefully, we can get them with Korea. We've got them with Malaysia now. So Australia will become a global-energy superpower and the fact that we've got gas which is cleaner fuel and we're developing it with the smartest technology in the world that also is addressing the challenge of climate change means we're not just exporting a cleaner fuel, we're exporting a cleaner capacity and a know-how by which we can extract and sell that energy source.

That will attract a premium, but it's these markets, India, China, Asia

as a whole, it's these markets that are going to be huge demanders of these sorts of - not just commodities, but I want us to be positioned in solving those problems about how they develop their urbanisation challenge. We can be in there with smart building, with clever product design, with building construction materials that are combination of energy efficient, that are a competitive but long lasting quality product. This is the space we've also got to position ourselves in.

COMPERE: On a less positive note, we're facing a sharp, potentially sharp, reduction in iron ore prices. When do you see those negotiations being completed and, indeed, are you concerned about the possible impact on our trade performance of a reduction in iron ore prices?

SIMON CREAN: See I think you've got to put this in perspective, Laurie. It is the reduction off last year, but last year was the biggest spike in history. It was gargantuan.

COMPERE: It obviously helped push that record trade surplus.

SIMON CREAN: Well it helped push the record trade surplus and it did it in value terms. What we'd been suffering from in the lead up to that was because as a nation we hadn't invested sufficiently in our infrastructure and our skill base. We had capacity constraints as the world was coming strongly in demand. Now, what's therefore being reflected is this mismatch between supply and demand, and that came to a head last year. It's come off in part, mostly because demand has reduced, not in China and not in other parts of Asia, but generally speaking it's reduced.

The challenge for us is to expand supply to meet it. If supply expands, I think going forward we'll get much more predictability in terms of the pricing structure, but even with the drop in prices, there's still not much, in fact if you look at them in terms of the trend rate it's still a continuing trend off where it was going up until 2007.

Importantly though, over the last - during the global financial crisis, the last six months or so, whilst values have dropped, volumes have gone up. And the reason volumes have gone up is because all of the economies within our region are being urged to invest, to undertake their own fiscal stimulus.

What are they investing in? Infrastructure. What's that require? Demand for our resource base.

So it's not just China that's seeing this increase in volume, it's the Koreas, the Japans, the ASEAN economies because they're all investing in infrastructure.

COMPERE: The Stern Hu case, while we're talking about China and iron ore, much has been said about that, but it does send a sober message does it not to Australian businessmen doing business with countries like China

where the legal system is quite different to our own?

SIMON CREAN: That's true. It will send that message and business - the business community is watching it carefully, but the truth is the business community also has to understand that when it operates in a country it does have to conform with the laws of the land. We expect that of business people that come to our country.

Now charges have now been laid against Stern Hu. The legal process is continuing. We would like it be more expedited. We would like it to be more open. We would like it to be more transparent. But it has to run its course.

And if the allegations against him stand up in court, he has to accept the penalty. But the difficulty we've got at the moment is that up until recently we're operating in an environment in which very little information was there and that's when you get all sorts of speculation. I don't mind dealing with the facts - I hate dealing with the speculation.

And whilst we will try and establish the facts a lot better, I think we have to see it as it is: as a consular case. The legal system has to run its course. And we will continue to say to the Chinese we want the access that he's entitled to, we want to ensure his welfare, his wellbeing, we want to make sure his family has access to him, that he gets legal representation.

[Parliament bell rings]

More bells ringing here, Laurie. This is the parliament in action so - this is the Government in action, we'll keep working through it.

So having said that, it's an issue that we will pursue, but I'm convinced that it has not been an issue that is impacting on our economic and our trade relations.

COMPERE: Now, the Chinese economy is now being tipped to grow possibly by 9 per cent - a fair bit more than was being forecast even a few months ago.

You're taking more of a regional focus in terms of trade promotion in China. I mean, witness the recent motor vehicle deals that you announced in Anhui, the Hubei provinces. Does this reflect a change in our trade strategy?

SIMON CREAN: It's the deepening of our trade strategy. I've said before that I'm frustrated with the slowness in terms of the free trade agreement negotiations. I believe there's a political will to conclude it. I think that there is a real problem inter-agency within China which only they can resolve. When they do, I think the FTA will move forward.

But rather than be frustrated by that and simply say, well, we've just got to wait until something happens, I was amazed when I started to go out into the regions, and I've been to China six times now in the last 15 months, but I don't just go to Beijing and Shanghai. I want to see what's happening in the rest of the country.

But the more you go out there you just see these growth potentials. That urban development issue that I talked of before, I found that in Huhan. I found it in Wuhan. We signed MOUs. We said, "let's get better cooperation between the types of skills, the capability here in Australia and what you require".

Very positive response to that. The same in agri. business. The same in autos. China is now the largest automotive market in the world and it's become the largest manufacturer of cars. It's got a huge market, but it hasn't got all of the automotive capability.

Australia on the other hand is one of the few countries in the world that can take a car from design to the show floor, but it hasn't got a big market.

Now, what we've therefore got to be creative about is understanding their gaps, where we can fill those gaps in a way that builds greater cooperation. We can do that on so many fronts. And the Expo in Shanghai next year I believe will give us a great opportunity to showcase those fronts.

I talked before about the Australian brand, its comparative advantage in so many different ways. Its - most of it off its skill not, and it's not only off its resource and its agriculture base. It's off its smarts, the ability to do things cleverly, to adapt to be creative.

We've got to promote this a lot more. We've got to strengthen that brand and promote it. And Shanghai will give us a huge opportunity in that fast growing market of the world, not just to showcase it in China and the diversity of what we have to offer and the importance to them in terms of their economic development, we can showcase it to the world as well.

COMPERE: Well, some people might say that - I think we're spending something like $80-plus million on the Expo next year, some people might say gee that's a lot of money in a market where we're doing very well anyway. You obviously do take a different view to that?

SIMON CREAN: I do because we can do better. It's my point about going for market share. We are the only developed country in the world to have avoided a technical recession, we are the fastest growing developed

economy in the world and we are trading effectively into the fastest growing region in the world.

Our opportunity, because we have got growth, is to go for market share.

And that's why we have to position ourselves a lot better, but not just in the traditional areas. We've got to look for those opportunities, not just in terms of what we've got to offer, but understanding better what countries like China and Vietnam and Indonesia and Cambodia and Thailand - all of them going through their own development phases - what they need, what we can bring to the table, how we can help them in a cooperate way.

We've convinced them of the argument to open their markets, not as quickly as we would like but nevertheless they're embracing liberalisation. We've now got to work with them to ensure that they can become competitive and productive to themselves participate in trade. That's where we can play a huge role.

And if you look at what we've done in Asia, despite the global financial crisis, despite the failure to conclude Doha, we've concluded a free trade agreement with ASEAN, 600 million people.

This is - and two-way trade already with ASEAN that's $80 billion a year. It's bigger than China, it's bigger than the US, it's bigger than Japan.

Now that we've got markets opening up and the challenge of how do we respond coming out of the global financial crisis, how do we become more efficient in a global sense in meeting the challenges going forward, there is huge opportunity in ASEAN.

But also if you look at the Asian region as a whole, ASEAN hasn't just signed a trade agreement with Australia and New Zealand, it's signed it with four other countries: China, India, Japan and Korea.

And the other important development over a couple of weekends ago in Bangkok was the agreement now - now that we've got ASEAN plus six ones how do we get convergence amongst the six ones? How do we really build greater economic integration within the region, a region of three billion people, a region of combined GDP of close to $17 trillion?

This is huge and this is Australia, a 22 million country with a huge opportunity to go into these markets and on a win-win basis. That's what we've got to establish. We've got a framework to do it. We now just have to have the will and strengthen our capacity to do it. That's why we have to be investing in things like skills, in research, in innovation, in infrastructure. It's why we need to be pushing the boundaries. Having opened markets and got into borders, we've almost got to become borderless in the region. And that means opening up better logistics and communications so that goods and services flow much more freely across borders.

It's not just a question of breaking down the borders, it's re-forming behind the borders and it's moving more efficiently across the borders. That's the challenge for us and that's the agenda that I want to see us

driving. We certainly will be approaching it from the Australian perspective but we've got to take this message, we've got to promote that in terms of the region and then I think the rest of the world will take note.

COMPERE: In terms of the free trade agreement you just referred to with ASEAN and the potential to expand that to the other major economies around the region, where does that leave the free trade agreement with China itself?

You'd be aware that many in the business sector are saying that that FTA really is now dead.

SIMON CREAN: That's not the view I get from the business community and I would argue very strongly that it's not dead. I think if we get Doha concluded, what's been holding us up with China is essentially agriculture. It's holding up the FTA with Japan too by the way.

If we can get a better framework out of Doha that actually deals with a lot of the agricultural issues and then start to talk about the areas of other opportunity in services, in manufactures, I think we've got a different frame of mind.

I think the difficulty with the FTAs, Laurie, is done on their own they're very hard, but done off the back of a successful global agreement - and think about it, if we've got Doha up and we've got the regional architecture that I've just talked about that's the better context in which we go and close the bilateral deal. It's that cascade effect.

You've got to have the primacy of focus at the multilateral level, then the regional level, then the FTA.

I think the problem with the previous government is they reversed that order and that's what - we've inherited it, we will continue to pursue it, but we're trying to put the…we're trying to recalibrate the equation to better ensure our capacity to close the deal.

COMPERE: Finally, you've now served as a senior minister in three Labor Governments - the Hawke Government, the Keating Government and now of course the Rudd Government. You are in fact the longest serving Labor Minister still in Government.

Despite the long years in Opposition, you must have fulfilled many or most of your ambitions. What still remains in politics for Simon Crean?

SIMON CREAN: Well, the first point I'd make is that I'm following in a very good tradition because my father was in the other Labor Government, the Whitlam Government.

So it's a long tradition of commitment by us and I think it says a lot

about what's in the genes and everything.

What's the ambition? It's to close Doha. It's to get that regional architecture up in place. It's to position Australia so that it can stand proud in the world, it can continue to punch above its weight, and secure its economic future and understand why trade is so important. Not just what we export, but what we take in as imports, convert and sell back out to the rest of the world.

That's my ambition. That's what I want to conclude and that's what I'll hang around to do.

COMPERE: Well, let's hope you get to retire at some stage. It could take some time. Simon Crean, let's conclude on that note. Thanks very much for your time

today. Thanks very much for talking to us on Viewpoint.

SIMON CREAN: My pleasure, Laurie.

[ENDS]

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