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Partnership for prosperity: speech at the First Annual Australia-Korea Leadership Forum, Canberra.



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Speech by

The Hon Simon Crean MP Minister for Trade

First Annual Australia-Korea Leadership Forum “Partnership For Prosperity”

Hyatt Hotel, Canberra 14 October 2008

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Salutation

Thank you, Ambassador Kim for that introduction. And my thanks to the Australian

National University and the East Asia Institute of South Korea for jointly hosting this

event.

It is my great pleasure to welcome our guests from Korea. I look forward to some in-depth discussion with the very knowledgeable group of participants here today.

The Australian Government is determined to strengthen and broaden our relationship

with Korea and we are very pleased to sense a similar determination on the part of the

Korean Government.

I am confident that this Leadership Forum will contribute to the exchange of ideas that

is necessary to take that vision forward: to develop the partnership for prosperity

envisaged in its title.

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Why trade matters

As the world looks for solutions to the global economic crisis, trade is an arrow in the

quiver.

Over the past fifty years, world trade has grown at three times the rate of world output

growth.

So if economies are to secure their economic future, they have to engage in trade.

We’re aggressively pushing for a successful outcome in Doha, for example, because

each round of trade liberalisation has provided further impetus to growth in world trade.

And in times of economic uncertainty like those we face now, a successful round

would be a tremendous boost to the confidence of the world economy.

That’s why trade matters.

We see trade as an opportunity, not as a threat.

In the current global climate of turbulence on financial markets, food insecurity

and higher fuel prices, it’s critical that we remain committed to increased

liberalisation, not fall back on protectionism.

Changing nature of trade

In pushing for trade reform we must also recognise - even though the previous

government failed to see it - that the nature of international trade is changing rapidly.

It’s not just about ‘produce and ship’ anymore.

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It’s also about services and investment. Services are a crucial part of the Australian

economy - 80% of GDP - and offer still untapped potential for export into new

markets.

Australia’s foreign direct investment is growing rapidly. This is the major new dynamic

in Australia’s relationship with the world economy.

As at December 2007, we reached the point where direct investment abroad by

Australian companies of A$324 billion rivals foreign direct investment in Australia of

A$377 billion.

What this means is that behind the border issues and our domestic reform agenda are

important and affect our trade performance.

Twin pillars

With this in mind, we’ve been recalibrating Australia’s approach to trade since we

came to office in November.

The previous government never understood the integrated nature of trade and

domestic economic policy.

Trade is more than trade negotiations. It’s got to be about both trade reform at the

border and about economic reform behind the border. That’s what we call the twin

pillars approach.

Reform behind the border means investing in the drivers of economic growth, such

as education, skills formation, infrastructure, innovation, smarter regulation, and trade

facilitation.

Because all these factors affect our trade competitiveness, the Rudd Government is

committed to looking at economic policy decisions through the prism of trade

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competitiveness - focussing not just on our productive capacity but on our

international competitiveness.

As part of our action to reinvigorate Australian trade policy, we commissioned a major

review of export policies and programs, the Mortimer Review.

I released the Review last month and the Government will present its formal response

soon.

But I should tell you that I was impressed by the Review’s support for a broader and

more coordinated focus on economic and trade reform in order to capitalise on market

access gains.

This is, in effect, what the Government has been pursuing since taking office, including

through establishing for the first time a COAG Council to coordinate efforts to improve

our trade performance.

The Review also recommends a strong voice for business in developing trade and

investment priorities and programs. In this context it endorses the role of the

Government’s trade promotion agency, Austrade.

The Government has already begun to implement some of these recommendations.

For example, in recognition of the integral role of investment flows to trade policy the

Australian Government recently recentralised inward and outward trade and

investment promotion arms in Austrade.

I will also be promoting a much bigger focus on services and investment, with special

emphasis on the key, rapidly growing, emerging markets within our own region.

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In this respect, Australia applauds Korea’s commitment to deregulation, reform and

liberalisation in the services sector. These reforms have already contributed to

continued strong GDP growth and trade flows.

Australia welcomes foreign investment and our companies are increasingly looking to

invest overseas themselves. Australian firms, like others around the world, are

repositioning themselves in global supply chains, and expanding their presence in

other markets.

We look forward to further liberalisation of Korea’s foreign investment regime to reduce

the high levels of regulation identified in the recent WTO Secretariat’s report.

Doha is difficult, but doable

It is by now well known that the talks at the end of July in Geneva did not produce a

successful outcome to the Doha Round of world trade talks.

But they did make huge progress and we did get close to an outcome - so close in

fact that all have agreed we need to re-engage soon.

Last month officials restarted discussions in Geneva in an effort to finalise the

outstanding areas of difference.

These talks are of critical importance to Australia. With world trade having grown

three times as fast as world output, the Doha Round would offer a significant boost to

global and Australian economic prospects

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Engaging more deeply in international trade is essential to sustaining Australia’s

prosperity beyond the resources boom - rather than simply riding that boom like the

last Government

A successful outcome to the Doha Round would mean more jobs for Australians - in

agriculture, in manufacturing and in our fast-growing services sector

Australia worked hard in Geneva to get as far as we did and we secured a great deal

through our activism and through our successful chairing of the Cairns Group

No-one is pretending that Doha will deliver all of our ambitions for trade liberalisation.

But a strong outcome will make a substantial contribution to global trade reform efforts

and importantly, serve as a platform for further liberalisation efforts at the

regional and bilateral levels.

The Trade Relationship with Korea

In moving towards a partnership for prosperity we have an excellent basis in the

healthy trade relationship between Australia and Korea. We are very close economic

partners and we benefit enormously from the trade between our two countries.

But how does the Australian Government intend to strengthen the basis of that

relationship, and to build on existing complementarities and expand into new areas?

The business-to-business connections between our two countries are growing

strongly. And could benefit from a ‘partnership concept’ - one that marries Korea’s

expertise in third markets with Australia’s know-how and innovation.

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And Australia has expertise in management technology, management systems and

software applications across a wide range of fields, including mining.

Developing partnerships in third markets in this way would be a natural extension of

the strong collaboration evidenced in our bilateral relationship.

The greater challenge is how do we develop the government-to-government

relationship to assist in promoting trade?

First, let’s consider our starting point.

By most measures, our trade relationship with Korea is doing well. Korea is our sixth

largest goods and services trading partner, with two-way trade in goods and services

in 2007 worth nearly $22 billion.

Our exports have grown steadily over the last five years and Korean manufactures are

increasingly popular with Australian consumers.

Our exports to Korea over the last five years have outperformed our exports to North

Asia (excluding China) over the last five years.

These strong trade flows are built on a long-standing commercial relationship reflecting

complementary markets in our two countries.

A great example can be found in POSCO, the Pohang Iron and Steel Company, which

is a major sponsor of today’s event. That company’s forty-year history - from a

fledgling company of just 39 employees in 1968 to the world’s third-largest steel

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producer in 2008 - is closely linked to Australia’s own history as a major iron ore

exporter.

It now stands as one of Australia’s largest single customers.

Other natural resources, including oil, copper, uranium and coal have also played a

vital role in Korea’s rapid post-war industrialisation.

Australia has a deserved reputation as a stable and reliable supplier of LNG, a

commodity with considerable potential in the Korean market. In this context I look

forward to Ambassador Cho’s presentation this morning on Korea’s energy and

resources policy.

At present, Korea is Australia’s fourth-largest export destination and a very important

market for our agricultural products, notably beef, sugar and wheat.

Korean products meanwhile have also performed strongly in Australian markets. Our

imports of Korean cars, for example, have grown in every one of the past four years.

And sales of Korean telecommunications equipment, computers and electronics are

strong.

So yes, the broad picture looks good. We have a solid trading relationship with a firm

basis.

But the new Australian Government is not content to allow this trading relationship to

just tick along, powered by the traditional strengths of our industries.

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We are determined to diversify Australia’s engagement with Korea including by

expanding the trading relationship beyond those traditional sectors. I believe there is

great potential in this ‘second phase’ of complementarity.

Our services trade with Korea has become increasingly important, with two-way trade

in services almost doubling in value between 2003 and 2007.

Education, recreational travel and transport services currently dominate this area,

building particularly on the strong links formed by visiting students and young people.

In 2007 almost 35,000 Korean students were enrolled in Australian educational

institutions and 30,000 young Koreans visited Australia on “Working Holiday” visas.

But we need to grasp opportunities for expanded trade across the breadth of the

services sector.

The changing nature of Korean society, wealthier and more sophisticated patterns of

consumer spending are creating opportunities for greater diversification in the nature

of Australian exports to Korea.

This has led to a greater demand now on new, high-quality and emerging lifestyle

enhancing areas such as knowledge-based industries, IT, financial and education

services, the performing arts and culture, wine and organic food, fashion, jewellery,

furniture and cosmetics and leisure services.

Indeed, the adoption of a five-day working week in 2005 added impetus to the

demands of the growing middle class for new products and services in education,

entertainment, telecommunications and lifestyle.

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And Korea’s desire to carve a niche for itself in the North East Asian region as a

regional hub, encompassing freight logistics, financial services, and knowledge-based

industry clusters has become a strong objective shared by government and industry

alike, and presents a range of opportunities to Australian companies to contribute

technology and services.

In the financial services industry, the Macquarie Group of companies has a major

presence in Korea, employing over 300 people and with investments of around $20

billion in Korean assets.

Ours is one of the largest, fastest growing and most sophisticated financial services

industries in the Asia-Pacific region.

Australia has the fourth largest pool of investment fund assets and the seventh largest

stock and foreign exchange markets in the world.

Against the background of the current global financial turmoil, I make the point that,

while Australia is not immune from its effects, our financial systems are better placed

than that of most countries to deal with the uncertainty. The World Economic Forum

Global Competitiveness report released last week ranked Australia third out of 134

countries for the regulation of its securities exchanges, and fourth for the soundness of

its banks.

Australia’s financial sector is well-regulated and well-capitalised. The Government has

built a strong budget surplus, to buffer against global turmoil and to provide a

foundation for responsible investment in the future.

The Government’s commitment to strengthening and broadening ties with Korea is

clear and has been demonstrated through a series of visits since we took office late

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last year. The Prime Minister visited Korea in August, building on earlier visits by my

counterparts the Minister for Foreign Affairs and the Minister for Agriculture, Fisheries

and Forestry.

And I am looking to visit Korea at an appropriate time.

We recognise that Korea, like Australia, had a change of government in 2007 and we

are resolved to grasp this opportunity to build firm partnerships that can best take the

relationship forward.

Conclusion

Before taking some questions I would like to conclude by again thanking the

organisers and sponsors of this inaugural Leadership Forum.

The strength and importance of Australia’s relationship with Korea makes it crucial that

we have mechanisms such as this for an exchange of ideas across government,

academic and business sectors.

As I’ve already mentioned, Australia and Korea face many of the same issues and

challenges in pursuing a strategic approach to trade policy at a time of rapid change in

the international trade environment.

We have much to learn from each other as we go down these parallel paths. And I’m

sure this annual Leadership Forum will play a vital role in facilitating that learning.

Thank you.