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Monday, 22 September 2008
Page: 8091

Mr CREAN (Minister for Trade) (4:00 PM) —by leave—I have the pleasure to make a ministerial statement to announce the release of an independent report into Australia’s export policies and programs, the Mortimer report, conducted by Mr David Mortimer AO and Dr John Edwards. A key part of this review was the Export Market Development Grants Scheme, the EMDG Scheme. I present the Review of the Export Market Development Grants Scheme.

Release of the Mortimer report

The Mortimer report provides a basis for the government’s future trade policies. I will use its recommendations to continue our commitment to refocus Australian trade policy and to help lay the foundations for our future prosperity. The report notes with concern our persistent trade deficits in recent years and that they have contributed to the increase in the net foreign liabilities. The report makes the point that an increase in exports will be necessary to stabilise net foreign liabilities and to avoid a potentially painful adjustment process in the future.

Whilst the report does not actually set a target for improving our export performance, I think we do need to set ourselves a goal. There are differences of opinion as to what measure is best. But we must take steps to ensure that our net exports make a consistently positive contribution to economic growth. For that, we need to set ambitious objectives. We have got to be ambitious if we are to turn around the failures of the previous government on trade policy. We have got to be ambitious if we are to respond to the changing nature of trade, and we have got to be ambitious if we are to boost our international competitiveness.

We have already achieved significant outcomes that will improve our trade performance and made significant down payments on which we can now build. Our first budget made significant commitments to invest in the drivers of economic growth—in particular, to invest in infrastructure, skills formation and innovation. The government commissioned this report because Australia needed a comprehensive review into our trade performance due to the previous government’s failure to address this critical contributor to our economy.

The previous government in fact had no policy on trade, and it showed. Under their watch, despite the resources boom, net exports made a positive contribution to economic growth in just two out of their 11 years in office. This stands in stark contrast to Labor’s performance when it was last in government, when net exports made a positive contribution to growth in 10 of our 13 years in office. That is the difference: two out of 11 from the other side; 10 out of 13 when we took a comprehensive approach and understood the importance of lifting our trade performance.

I have spoken before in this place on a number of occasions about the record 72 consecutive trade deficits that we inherited from the previous government. No other government in our history has presided over such a disastrous run. Worse, the Mortimer report tells us that much of the deterioration under the previous government was in the last five years, when we had the benefit of a major resources boom and very favourable terms of trade.

Not only was their trade negotiation strategy not productive, they failed on two other important fronts. First, they failed to invest in the key drivers of economic growth and competitiveness. Second, they failed to understand the changing nature of trade and investment. In the previous response to the Treasurer’s ministerial statement, I noticed that the new shadow Treasurer talked about the legacy of the previous government. Well, the legacy of the previous government was an appalling one when it came to trade performance.

The shadow Treasurer also made mention of the fact that under them there had been a diversification of our export base. The truth is that that diversification did not happen. The services economy is 80 per cent of our domestic economy, yet it is only responsible for 23 per cent of our exports. That is not a diversification. The previous government’s failure to understand the opportunities in the services economy and the importance of investment is part of the reason we had such an appalling trade performance under them. The previous government just rode the resources boom and hoped that strong demand for Australian resources would boost our exports. They did not think about how we would meet that demand and they did not think about the long term.

The Mortimer report finds that critical parts of Australia’s infrastructure have failed to cope with the current demands and that this has substantially limited export volumes and competitiveness. Mortimer also received considerable input on the extent to which shortages of labour, both skilled and unskilled, have emerged as a constraint on Australia’s export and investment capacity. No wonder our export performance under the previous government has been so poor.

A new approach

This review confirms the need for the Rudd government to implement its new trade and investment strategy to lift Australia’s trade performance. We will seek to ensure net exports once again make a positive contribution to economic growth, because this is what boosts our economic prosperity. This is what lifts our standard of living. This is what creates jobs—higher paying, more skilled and more sustainable jobs. And, Mr Deputy Speaker, we know it can be done.

The last Labor government—of which I was proud to be part—did it. Net exports made a positive contribution, as I said earlier, in 10 out of our 13 years in office. In the Hawke-Keating years we laid the groundwork for successful export performance by:

  • investing in the drivers of economic growth
  • opening up the economy through broad structural reform and
  • broadening the export base.

And we reaped a positive trade dividend as a consequence. The Rudd government has already, in its very first budget, laid the basis for doing this again. The Mortimer report strongly endorses the government’s view that, as important as market access is, trade policy must also focus on broader economic and trade reform in order to capitalise on that access. It’s what we in government have continually referred to as the twin pillars approach to our trade policy. That is, trade reform at the border, to increase our market access, and trade reform behind the border, to improve our international competitiveness. There is no point improving market access if we as a nation are not competitive enough and productive enough to take advantage of the opportunities.

What we have already achieved

Consistent with the report’s recommendations, we have already made a significant down payment on improving our trade performance. And the completion of the Mortimer review marks the fulfilment of another key election commitment.

On the first pillar—the market access pillar—the Mortimer report provides a comprehensive set of recommendations on how we can better respond to the market access priorities of Australian business. It calls for the conclusion of the WTO Doha round of negotiations as the most effective basis for enhancing trade liberalisation. Given the trend towards bilateral free trade agreements, the Mortimer report strongly advocates engaging our approach to the free trade agreements in a way that reinforces the gains we make at the WTO—in other words, free trade agreements that are complementary and enhancing of multilateralism, not detractors of it.

While we are keen to develop this strategy further, we have not waited for the Mortimer report to get on with the job of opening markets for Australian business. We have already recalibrated our trade negotiating policy under the first pillar. We are 80 per cent there on the WTO Doha round of trade negotiations. And we are absolutely committed to resolving the outstanding issues.

But not only have we seen significant progress in the multilateral negotiations, we have also achieved greater market access bilaterally and regionally. In our first 10 months, we have concluded two important FTAs. First with Chile—a model FTA in terms of its coverage and its comprehensiveness and one that is an enhancer of the multilateral system—and, most recently, Australia’s first region-wide FTA, with New Zealand and the ASEAN group of countries—our largest trading partner. This has given Australian exporters significantly better access to rapidly growing market—the first pillar of our trade policy.

We have unfrozen the China FTA negotiations. We have advanced negotiations on the Japan FTA. We have brought the India FTA study forward. We have agreed to preparatory talks on a Korea FTA. We have also established new coordination structures at the whole-of-government level and the whole-of-governments level through COAG. We have signalled a broadening of our export base with a strong focus on services and investment. We have integrated trade and investment promotion functions into one organisation, Austrade, reflecting the changing nature of trade and the needs of Australian firms. We have taken steps to modernise and strengthen the EMDG Scheme and in our first budget we added $50 million to fund commitments in 2009-10.

International competitiveness

Given the importance of trade to our economic prosperity, it will be critical that our domestic policies and spending are seen through the prism of enhancing our international competitiveness. This, in essence, is the second pillar of our trade policy approach. We have to ensure that Australia is productive enough and competitive enough to take advantage of our market access gains.

In this regard, we have also made a significant down payment on the second pillar, ie structural reform behind the border. We have invested heavily in the drivers of economic growth and competitiveness. In its first budget, the Rudd government established Infrastructure Australia, Skills Australia, the Education Investment Fund and the Building Australia Fund. Consistent with our rationale for commissioning the Mortimer review, and the conclusions in his report, we have already laid the foundations for a transformation.

Enhanced coordination

The review also recommends concerted efforts to strengthen coordination and delivery of trade policies and services, and a strong voice for business in developing trade and investment priorities and programs. The government has already established for the very first time a COAG council to coordinate efforts to improve our trade performance. I chaired the inaugural meeting of the COAG Ministerial Council on International Trade in August.

At that meeting, all Australian governments—federal and state—developed an ambitious and forward looking work agenda, which includes an assessment of the infrastructure and skills needed to improve Australia’s trade performance, as well as cooperation on exports and investment promotion, and the development of options for Brand Australia. This Mortimer report will also shape that council’s ongoing agenda and I look forward to working with my colleagues in responding to Mortimer’s recommendations.

More generally, the review reported on the declining proportion of Commonwealth government assistance directed to trade and investment facilitation, relative to other forms of business assistance. From 2000-01 to 2006-07, the proportion declined from a total of 42 per cent down to a mere 13 per cent; again, all under the previous government’s watch. This is another example of the Howard government’s neglect—and it is imperative that this government turns things around.

Austrade is our trade facilitation arm and the review endorses it as the central focus for all export and investment facilitation activities. It provides a vital link between policy and implementation. The need for more strategic cooperation between DFAT and Austrade is critical. Austrade also provides the link between government and the Australian business community. Whereas the previous government abolished the Austrade board, the Mortimer report reinforces the need for re-engagement with business and we have taken steps in this direction.

The review provides a solid basis for further strengthening Austrade. It welcomes the down payment made by this government starting with the integration of the former Invest Australia and Global Opportunities programs into Austrade. It recommends the organisation move beyond the delivery of services to individual firms and to develop and implement more strategic, sectoral based market development strategies. It flags the need for some new services for Australian exporters, reflecting the changing nature of global trade.

Building an international business culture

We also need to rebuild an international business culture in this country, and to enhance the capability of Australian firms to engage internationally. This requires a strengthened and more contemporary approach to trade development and facilitation. Mortimer reports that the most significant impediments to Australian firms going global are access to finance and inadequate knowledge of overseas markets. Recognising this, revitalising the Export Market Development Grants Scheme is an important part of Labor’s whole-of-government approach to improving Australia’s export performance.

The EMDG Scheme is integral in the current mix of export policies and programs and the reason we brought forward the EMDG review by two years. The review, the report of which I tabled earlier, concludes that the EMDG Scheme is effective and recommends its continuation. Independent econometric analysis conducted in the course of the review concluded that each dollar of EMDG generates an additional $13.50 to $27 of exports. The analysis also confirmed that the scheme has a positive impact on the economy as a whole. This analysis will also be published today.

Despite these conclusions, the review highlights the impact that lack of funding certainty has on applicants. Mortimer states that the uncertainty has ‘unnecessarily diminished its value and public repute’. EMDG funding has effectively been cut in real terms since 1995-96 by the failure of the Howard government to top up funding for the scheme. Decisions by the Howard government in 2006 to make the scheme, on the face of it, more available combined with the failure to provide additional funding to cover the impact of those decisions will continue to affect grant payments paid this year—that is, 2008-09—for expenditure undertaken by firms in the 2007-08 financial year. This is the unfortunate legacy of squandered opportunities inherited by the Rudd Labor government. In contrast, in this year’s budget Labor has allocated an additional $50 million in 2009-10 to respond to commitments made by firms in this financial year. This is a significant down payment on our expansion of the EMDG Scheme.

The review identifies options both for addressing the funding of the scheme and for further modernising the scheme. In considering the broader question of access to finance the review goes further and identifies a number of other potential areas of market failure experienced by Australian firms seeking to grow global businesses. This is timely given both the changing nature of trade and investment and the opportunities for Australian companies to seize strategic benefit from new market access gains.

A classic example is the FTA with our 10 ASEAN neighbours. As a group they are our largest trading partner. Larger than China. Larger than Japan. And larger than the United States. We are developing a commercial strategy to take advantage of new opportunities in ASEAN as trade barriers fall. The Mortimer report reinforces this point and argues that Australia’s market and investment development efforts should be focused on rapidly growing and prospective markets and industry sectors. In particular, the report supports initiatives that actively maximise the internationalisation of traditional Australian industry sectors—like mining technology and agricultural services or automotive products and services—where this will reinforce the long-term competitive position of those sectors.

The report also highlights the need to take advantage of growing opportunities in international markets for newer, knowledge intensive services such as the financial services sector (particularly funds management), telecommunications and logistics, as well as to develop the export capacity and performance of areas of emerging capability including clean energy technology and water. We will need to strengthen export and investment development efforts through new services to support outwards investment and new efforts to build international business skills and culture. We will also need to strengthen efforts to raise international awareness of Australia’s commercial capabilities and look at a national approach to ‘branding’.


I would like to thank Mr David Mortimer and Dr John Edwards for their insightful analysis and forward-looking recommendations in this report. Our region has become the economic powerhouse of the global economy. Our vision is for Australia to make much more of this opportunity. The challenge is not only to take advantage of the opportunities but also to help secure that economic growth in a sustainable way for ourselves and our region.

That not only means that we have to continue to take the lead in the trade liberalisation agenda but, fundamentally, it also means that we have to diversify our trade base to harness much more of the huge potential this nation has. It means doing more with our resources and agriculture base, and it means going significantly beyond it and expanding our opportunities. It means a much bigger focus on services and investment and understanding the importance of ensuring the necessary reforms to support that drive forward.

If we get this right, we will set up this nation for sustained prosperity beyond the resources boom. We showed the way when we were last in government. And now the Rudd government has picked up where we left off—with a new era of economic reform. In the first 10 months, we have already made a huge down payment on our commitment to turning around Australia’s trade performance, and there are indications already that we are turning the corner. I look forward to keeping the House informed of my response to Mr Mortimer’s report and our progress.

I ask leave of the House to move a motion to enable the member for Groom to speak for 23½ minutes.

Leave granted.

Mr CREAN —I move:

That so much of the standing orders be suspended as would prevent Mr Macfarlane speaking for a period not exceeding 23½ minutes.

Question agreed to.