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Australia's trade prospects: opportunities and challenges. Speech to the Federation of Automotive Products Manufacturers, Coolum, 22 July 2004

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22 July 2004

Australia's Trade Prospects: Opportunities and Challenges

Speech to the Federation of Automotive Products Manufacturers, Coolum, 22 July 2004


Thank you, Grant [Grant Anderson, FAPM President], ladies and gentlemen.

I am very pleased to once again address the FAPM Annual Convention here in Coolum.

The Government greatly appreciates the close working relationship we have enjoyed

with FAPM over the past year and the organisation's helpful input on various trade policy issues. As the Prime Minister noted just last week, Australia's automotive industry is experiencing somewhat of a 'golden age' - and continues to make an enormous contribution to the strength and vitally of the Australian economy.

I know that your industry's fortunes are closely linked to the health of the car industry. So I'm very pleased to see new car sales are at record levels and exports of vehicles and components remain strong. While the car industry is developing a range of exciting new products to entice domestic buyers, there are limits to the growth opportunities available in the domestic market. Improved export performance is therefore critical to the future of the Australian automotive industry.

The Government appreciates this fact and has been working hard - with industry - to create new market opportunities for exports. The Government also appreciates that the industry's biggest export gains so far have been in the Middle East - a region

that does not have an automotive industry to protect. And that the real challenge for us is to gain new access in markets where protective tariffs present barriers to our exports.

I am pleased to say we have already had some success and that the Government also has a number of trade policy initiatives that should yield future gains. Major opportunities for the automotive sector will flow once our free trade agreement with the Thailand, and our historic FTA with the United States, enter into force. I will say something more about these FTAs in a moment.

But today I would also like to outline the Government's broader trade policy agenda, highlight some of the opportunities that are being created, and detail what the Government is doing to assist Australian businesses to export.

Automotive exports: a great success

It is no secret that Australia's automotive

sector has been one of our best performing export industries over the past decade - exports have been growing, on average, at more than 13 per cent per annum and are now worth close to A$5 billion per annum.

The automotive sector is also our leading exporter of manufactured products, with extensive international markets in the Middle East, North Asia, South East Asia, North America, UK and the Pacific, not only for the car companies but also for component companies with innovative and competitive products.

Of course, this success has not come overnight. And many of us can remember a time when the industry was struggling to survive, let alone export. But the industry has worked hard to improve its international competitiveness - in cooperation with Government. And the Government is committed to continuing to provide the right economic environment and policy settings for this success to continue.

A competitive economy

The Government's sound economic management and program of structural reform have created one of the most competitive economies in the world. Australia's economic growth has been about half a per cent per annum higher than both the US and the OECD average since 1990. This pattern of strong growth and low inflation is set to continue - growth is forecast at 3.5 per cent for the coming financial year - with inflation at just two per cent.

Unemployment is historically low and interest rates are around their lowest level for 30 years. and the Government has repaid A$70 billion worth of debt since 1996 - which sees us with one of the lowest debt to GDP ratios in the OECD.

The Government has also undertaken other significant reforms that have fostered dynamism in the economy - we have:

-increased the flexibility of the Australian labour market; -revamped an outdated and unfair tax system -undertaken telecommunications reform; and

-reformed sea freight and Australian ports.

All these initiatives have improved the international competitiveness of Australian business including our automotive sector, and the Government is committed to giving the industry the time and resources it needs to cement its future as an innovative international competitor. As you are all aware, automotive tariffs will fall to 10 per cent next year and 5 per cent in 2010. And the Automotive Competitiveness and Investment Scheme (ACIS) has been extended for ten years to 2015 to help the industry adjust to the lower tariff regime.

The extension of the ACIS will provide an additional $4.2 billion in assistance, and last week the Government announced that Australia's four local car makers will be able to apply for funding under the new $150 million Motor Vehicle Producer Research and Development Scheme, as part of this assistance package.

The post-2005 assistance arrangements have provided the automotive industry with a decade of certainty for investment

decisions. Investments such as:

-Holden's $400 million Port Melbourne V6 engine plant

-Ford's new $20 million product engineering and development centre in Geelong

-and Toyotas' new headquarters in Port Melbourne, are all signs of confidence in the future of the industry.

But a strong and competitive economy and a great environment for investment isn't enough for trade success, Australian automotive exporters also need market access.

An ambitious trade agenda

The Government is pursuing every opportunity - be it at the bilateral level, the regional level or the multilateral level - to improve conditions for Australian exporters in global markets.

On the bilateral front, the Government is

continuing to seek closer economic integration in our region, including through the conclusion of free trade agreements. The Government's position on FTAs is clear: we will pursue FTAs where these can deliver significant economic gains ahead of the timeframe possible in the World Trade Organization.

In the past two years we have concluded FTAs with Singapore, Thailand and the United States.

The Singapore-Australia FTA came into force in 2003 providing improved access to the Singapore market for many Australian businesses, particularly for suppliers of financial, legal, educational and professional services, and since the FTA entered into force last year, Austrade has helped 159 companies - many of them new exporters - to enter the Singapore market, with deals worth $120 million.

Of even greater relevance to your industry are the FTAs with Thailand and the US. The Thailand-Australia FTA will see more than half of Thailand's five thousand tariffs eliminated as soon as the Agreement enters

into force - which will be 1 January 2005, subject to the passage of necessary implementing legislation, and virtually all the remaining tariffs will be eliminated by 2010.

Access will be markedly improved for our agriculture products, processed foods and beverages, metals and mining, and, of course, automotive products. The outcome in the automotive sector reflects the clear commitment in both countries to build on the existing strong complementarities between the two industries by stimulating trade through lower trade barriers. Currently, Thailand maintains tariffs of 80 per cent on imports of large passenger motor vehicles from Australia.

When I spoke at this Convention last year, I noted that Thailand's initial offer had been to cut this tariff to 20 per cent at the outset of an FTA, and then eliminate it through phased reductions until 2010. I am pleased to say that we managed to negotiate an even better deal and that the tariff will now be eliminated immediately the agreement comes into force. For smaller vehicles, the

tariff will be cut immediately to 30 per cent and then phased to zero by 2010. FAPM members will be particularly interested to hear that Thai tariffs on all automotive parts, components and accessories (currently rates up to 42 per cent) will be cut immediately to 20 per cent and then phased to zero in 2010; tariffs on engines will be halved immediately.

On the Australian side, upon entry into force of the Agreement, we have agreed to:

-eliminate current tariffs on all motor vehicles of Thai origin; and

-reduce all tariffs on automotive parts and components from Thailand to 0 or 5 per cent, before eliminating them in 2010.

As Thai tariffs fall there will be greater opportunities for Australia parts makers to break directly into what is the region's most dynamic car industry. Our car manufacturers are already examining the possibilities flowing from the Agreement.

The other big news on the FTA front is of

course the finalisation of our negotiations with the United States. The FTA with the US is truly a landmark deal, providing enhanced access to a market of around 300 million people and further integrating Australia's economy with the largest, most dynamic and innovative economy in the world. Independent economic analysis suggests the FTA will result in a boost to the Australian economy of over $6 billion a year, one decade after coming into force, and create more than 30,000 additional Australian jobs. The potential opportunities to increase our $750 million worth of automotive exports to this market are huge - after all, more cars are sold in the US in a week than are manufactured in Australia each year.

Turning to the detail of the deal, the US has agreed to remove, from day one, all tariffs on automotive products. Most of these tariffs are already quite low, but their elimination will put our companies on the same footing as Canadian companies and companies from other countries with FTAs with the US.

The agreement also means the elimination

of the 25 per cent tariff on light commercial vehicles

-this will provide an opportunity for Australian ute manufacturers -and while I understand it is not a simple matter, I encourage the industry to look closely at the possibilities.

For our part, Australian tariffs on finished passenger motor vehicles will be phased out gradually between entry into force of the agreement and 2010. This phased approach was negotiated in direct response to concerns expressed by Australian manufacturers about the impact of removing tariffs immediately. Australia's tariffs on all other automotive goods, in particular car parts and commercial vehicles, will be eliminated from day one of the Agreement. I acknowledge and welcome FAPM's consistent support for the US FTA. Don't underestimate how important that support is. Unless the Australian Labor Party passes the necessary legislation for its implementation by next month there will be no FTA.

The Government needs industry, the pro-

FTA state governments and the wider Australian community to convince Mark Latham to show some leadership over his divided party and support the FTA - an agreement which is undoubtedly in Australia's national interest.

Other regional initiatives

The Government has also been hard at work with other countries in our region to build on our strong trade and economic relationships. Last year we concluded Trade and Economic Frameworks with two of our most important trading partners, China and Japan.

-the Trade and Economic Framework with China sets out an agenda to deepen economic integration over next 5-10 years -the Framework includes a joint FTA feasibility study - which we have agreed to fast-track following good progress.

I am encouraged that FAPM have participated early in the Government's

consultation process and made a submission to the China FTA feasibility study. But more broadly than the FTA study, China will obviously become a major player in the Asian automotive market and I applaud the efforts of companies such as Air International and PBR Automotive to establish in China, and firms such as ION Limited on their announcement this month of a new $180 million five year contract to supply automatic transmissions and transmission control units to a Chinese customer.

As many of you would be aware, Australia will have a significant presence at the 2005 World Expo to be held in Aichi, Japan from March to September next year

-this is a major event, expected to attract more than 15 million visitors -and the Federal Government has committed $35 million towards Australia's participation.

Aichi is of course Toyota's backyard and partly for this reason the Government has selected automotives as one of six key

industry sectors to profile at the Expo. We are pleased to be working with Toyota Australia - as one of the Australian Pavilion's major sponsors - and FAPM to develop a targeted program showcasing Australia's automotive sector. We believe this will lead to greater market opportunities for Australian component makers in Japan and I would encourage your participation.

Australia's economic relationship with ASEAN is also strengthening.

South East Asia is an obvious target for increased exports of auto products - given their high tariff and non-tariff barriers - and I am pleased that ASEAN Foreign Ministers have welcomed a proposal by their Economic Minister colleagues to launch FTA negotiations between ASEAN and Australia and New Zealand. With 500 million people and a combined GDP of around US$700 billion, ASEAN offers exciting prospects for Australian exporters, and I will be discussing next steps to launch the FTA when I meet with my ASEAN and New Zealand colleagues

in Indonesia in September.

Of course, regional and bilateral trade liberalisation also supports multilateral liberalisation. The WTO Doha Round negotiations offer the deepest potential gains for Australian business, therefore progress in these negotiations remains Australia's top trade priority, and we are working hard down to the wire to get meaningful global market access gains for all Australian exporters - including our automotive sector.


Ladies and gentlemen. The Government is helping to build Australia's future - and that of our automotive industry - with sound economic policy, and by pursuing all opportunities to expand exports through our ambitious trade policy objectives. In doing so, we have closely consulted the Australian automotive industry - including the FAPM - and we will continue to do so.

As the global car companies with their global platforms continue to dominate the

automotive industry, more of Australia's component suppliers will need a global presence to participate in global purchasing.

In the Budget, the Government announced it would allocate $19.6 million dollars over four years, to assist Australian exporters capitalise on trade opportunities arising from FTAs, and the accession of China to the WTO

Delegates we meet here at this convention at a critical time in our history. The nation is about to make a decision on the economic future of our country. It will either re-elect a government renowned for its sound economic management and for delivering prosperity or elect a Federal Labor Government to join the eight Labor state and territory governments in Australia.

Think about that.

The choice is clear - eight Labor state and territory governments and a Federal Labor Government running our economy and our industrial relations versus the tried and true economic and industrial management of the Federal Coalition Government.

Thank you