SENATOR THE HON PENNY WONG

SHADOW MINISTER FOR TRADE AND INVESTMENT

SPEECH

28 July 2015

AUSTRALIAN GRAINS INDUSTRY CONFERENCE

MELBOURNE

TOPIC: TRADE

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Thank you Peter [Peter Reading, chairman of Grain Trade Australia] for that overview of the work Australia’s grains organisations are performing on behalf of your industry.

It really is an impressive and wide-ranging agenda running all the way from the farm to the customer:

  • research and development;
  • improving production;
  • issues in the supply chain;
  • best-practice quality assurance;
  • and marketing Australian grains to the world.

It is important work and the fact that your organisations are so engaged in this work is a sign of a dynamic industry that is strongly focussed on issues that are critical for the future.

I would like to thank Grain Trade Australia, the Australian Oilseeds Federation and Pulse Australia for inviting me to speak at this conference.

This is the premier annual event for Australia’s grains industries.

It’s an event that brings together growers, service providers, traders, and buyers.

And I join Peter in welcoming our friends from overseas – visitors from countries which are such valued customers for Australia’s high-quality grains exports.

INTRODUCTION

Agriculture has played a foundational role in Australia’s economic history – and it is set to play just as critical a role in our future.

Australian agriculture has great advantages.

We have the natural resources: our tracts of arable land, our forests, and our fisheries.

We have the human resources: efficient and productive farmers and world-class researchers, technologists, innovators and entrepreneurs.

And we have the economic and financial resources: a competitive economy with sophisticated financial markets and modern transport and communications infrastructure.

But despite our advantages, translating the opportunities into outcomes will not happen by itself.

It will require getting many things right.

My colleague the shadow Minister for Agriculture, Joel Fitzgibbon, has often spoken about how the benefits of proximity to new export markets can be eroded by inefficiencies in our supply chains.

He has also made the point that retaining our clean, green, safe image requires the highest attention, in industry and in government.

There are many other challenges:

  • The efficiency of our transport, storage and distribution networks;
  • Environmental degradation and pressures on natural resources;
  • The need to attract investment capital;
  • And the need to reform the global agricultural trade system.

Given your conference theme – Australia’s changing role in the global grain industry – and my shadow portfolio responsibilities, I want to focus this morning on trade and investment.

The key challenge for trade and investment policy is how to position Australia’s grains industry to maximise its engagement in world markets.

IMPORTANCE OF TRADE

I don’t need to tell this audience how important trade is for Australia’s economic prosperity.

Agriculture punches above its weight in generating our export income.

While the farm sector accounts for around three per cent of our GDP, it accounts for 15 per cent of our merchandise exports.

Australia’s exports of cereals, pulses and oilseeds were worth more than $11.5 billion in 2013-14.

That makes your sector one of Australia’s biggest export-earning industries.

Exports account for a large slice of your production – more than two-thirds of the production of some of our key grains commodities by value.

The opening up of Australia’s economy, including the dismantling of barriers to trade, has been one of the most important reforms of the modern era.

It has built today’s dynamic Australian economy.

It has improved the living standards of Australians.

And it has stimulated the growth of competitive Australian businesses.

In Government, Labor has pursued trade liberalisation for decades.

In Opposition, we are scrutinising the Abbott Government’s trade policies to ensure they deliver the best deal for Australia.

That is because Labor knows that a competitive, innovative and productive economy must be engaged with the world.

And we know that trade will be a critical part of our future as the global economy’s centre of gravity is shifting to our region.

Asia’s middle class now comprises around 500 million people.

It is expected to increase more than six-fold in the next 15 years.

That will be 3.2 billion middle-class consumers – or two-thirds of the world’s middle class – in Asia by 2030.

This will translate into rising demand for goods and services like education, tourism, health and aged care, and financial and professional services.

And, as you know, food will be a big part of the story of Australia’s future opportunities in this Asian Century.

With higher incomes in Asia we are seeing rising food consumption – and changing patterns of consumption.

Traditional diets oriented around staples like rice are giving way to more varied diets – this means higher consumption of wheat-based products and higher-value proteins like meat and dairy products.

China’s consumption of coarse grains is projected to increase by 18 per cent in real terms over the next three decades – for oilseeds, China’s consumption is expected to grow by 46 per cent, and for vegetable oils by 61 per cent.

ABARES is projecting similar or larger increases in consumption of grains products in India and south-east Asia over the period to 2050.

It expects Australia’s wheat exports to increase by 50 per cent by 2050 compared to average levels over the last couple of decades.

This will create new export opportunities for Australian producers.

But to realise this potential, Australia will need to pursue reforms both abroad and at home.

We need reforms abroad – external reforms – to improve your industry’s access to export markets.

And we need reforms at home – internal reforms – to improve your ability to increase production to meet the new sources of demand.

BARRIERS TO TRADE IN AGRICULTURAL GOODS

Let me start with the need for reforms abroad.

Barriers to trade in farm goods distort markets and tilt the playing field against Australia’s agricultural producers.

Australia applies an average tariff of just 1.2 per cent on agricultural imports.

By contrast, our five biggest export markets impose an average most favoured nation tariff of 24 per cent on farm goods.

Market access for agricultural goods remains one of the toughest areas in trade negotiations.

But progress can be made – and when it is, it translates into direct benefits for Australia’s agricultural producers.

Let me give a couple of examples.

Wheat consumption in south-east Asia has risen rapidly over the last couple of decades, with most of the consumption met by imports.

Because of our proximity we enjoy freight cost advantages – but trade liberalisation has helped grow these markets too.

In 2009 the former Labor Government signed the ASEAN-Australia-New Zealand Free Trade Agreement.

The agreement delivered duty-free status for Australian grains and milled products in the 10 member countries of ASEAN.

In the case of the Philippines, the agreement eliminated tariffs of up to seven per cent on Australian wheat.

This saw Australia’s wheat exports to the Philippines surge – they increased seven-fold in 2010 and doubled again in 2011, after the trade agreement came into effect.

Indonesia and the Philippines are amongst the biggest wheat importers in the region.

Australian wheat producers compete with the United States and Canada to meet this demand.

But Australia has a head start because the US and Canada do not currently have FTAs with any major wheat importing ASEAN member countries.

So free trade agreements open up markets.

They also affect Australia’s competitiveness in export markets.

Let me give an example from the beef industry.

Korea is a major market for Australian beef.

In recent years, however, our beef producers have been losing market share in Korea to their American competitors.

In 2011, Korea and the US signed a free trade agreement which cut tariffs on American beef.

This put Australia at a competitive disadvantage.

That is why it was important that Korea agreed to extend the same tariff cuts to Australian beef in the Korea-Australia FTA which the Government finalised last year.

With these tariff cuts, the value of our beef exports to Korea is projected to increase by 57 per cent by 2029.

By contrast, if the US had retained its advantage on tariffs, our exports to Korea were projected to decline in coming years.

Our beef producers would have been like a starter in the Stawell Gift who was given a 10-metre mark behind the American starter.

WHAT ABOUT MULTILATERAL TRADE LIBERALISATION?

These examples highlight the benefits that FTAs can bring.

But they also highlight one of the problems with the proliferation of bilateral free trade agreements in recent years.

These are preferential trade agreements.

That means the improvements in market access only apply to the countries signing the agreements.

One exporting country’s preferential access under a bilateral FTA is another exporting country’s unfair competitive disadvantage.

This creates trade diversion, which can cancel out some of the benefits of bilateral FTAs.

It has also generated a scramble between countries to ensure they are not left out.

At the latest count, more than 260 bilateral and regional free trade agreements are in force around the world – a number which has doubled over the last decade.

The result is a complex pattern of overlapping, criss-crossing FTAs, which increases red tape and costs for exporters.

By contrast, tariff cuts negotiated under multilateral trade agreements are extended to all countries.

This generates larger economic benefits and avoids trade diversion.

It puts everyone on a level playing field, and reduces red tape by removing the need for rules of origin under preferential trade deals.

Labor has been a strong supporter of the multilateral trading system since its inception in 1948, when Australia played a key role in negotiations for the General Agreement on Tariffs and Trade (GATT), the first global trade agreement.

Agriculture was brought into the multilateral trading system in the 1990s as a result of efforts during the GATT’s Uruguay Round by Australia and its allies in the Cairns group.

Protectionism and subsidies that had distorted international agricultural markets for decades began to be dismantled.

The burden of this protectionism falls not only on agricultural exporters which do not play the subsidies game, like Australia.

It also falls on some of the world’s poorest people, farmers and rural workers in developing economies.

While rich-world farm subsidies have been declining, they still amounted to $US258 billion across the OECD in 2013.

The impacts of subsidies on agricultural markets are complex.

But they can seriously hurt third-world farmers by depressing the prices they receive on international markets.

It is unfortunate that progress in the World Trade Organisation’s current Doha round of trade negotiations has stalled.

Because freeing up global trade in farm goods is central to the Doha agenda – and the potential gains are significant.

Research by the World Bank has found that removing barriers to trade in agricultural products and other merchandise goods would reduce global poverty and inequality.

It showed freeing up trade would result in:

  • Higher incomes for poor country farmers as their exports rise – real agricultural GDP is estimated to increase by six per cent across all developing countries;
  • Higher wages for unskilled workers in poor countries – their wages are estimated to rise by three to six per cent in real terms across all developing countries.

Another study found that freeing up trade in grains would make the largest contribution to poverty reduction of all agricultural trade reforms.

It is true that agricultural trade barriers and trade-distorting subsidies have declined since the completion of the GATT’s Uruguay Round in 1994.

But they still remain much higher for farm goods than for non-agricultural goods.

And while developed economies have been easing back on farm protectionism, some developing countries have been moving in the other direction.

Government support for farmers in China and Indonesia has risen to the point where it is now in line with the OECD average – and the price supports and subsidies in these two developing countries focus strongly on grains.

Bilateral trade agreements typically do not tackle the trade-distorting aspects of subsidies and other domestic policies.

And while these agreements have helped reduce farm tariffs, they often leave relatively high barriers in place for sensitive agricultural goods.

For example, the Japan-Australia Economic Partnership Agreement last year left in place significant barriers to imports of Australian rice, sugar, beef, pork and dairy products.

Regional and bilateral agreements also lead to overlapping and inconsistent approaches with differential tariffs across agreements.

And they often allow countries to invoke safeguard mechanisms like snap-back tariffs to protect their domestic farm sectors from unanticipated increases in import volumes.

By comparison, a multilateral trade agreement has the potential to deliver sharp cuts to tariffs on farm goods on a global basis, stronger disciplines against protectionist back-sliding, and significant reductions in trade-distorting subsidies.

This is why the WTO’s Doha round and multilateral disciplines on agricultural trade remain important – they offer the scope to tackle not only barriers at the border, but also the trade-distorting aspects of behind the border policies.

A Labor Government will renew Australia’s focus on the multilateral trade negotiations.

We will also work to ensure Australia’s bilateral and regional trade agreements are stepping stones to further multilateral trade liberalisation.

CHINA: THE NEW MEGA-TRADER

Another significant factor which is reshaping world trade is the rise of China.

China is on a path to become one of the few “mega-trading” nations in world history.

In the late 1970s, China’s share of the world’s merchandise exports was just one per cent.

By 2010, its share of merchandise exports had risen to 10 per cent.

By 2030, China is projected to account for nearly 15 per cent of world trade.

That would give it twice the share of world trade as the US in 2030.

And it would make China the biggest trader the world has seen since Britain at the height of empire, just before the First World War.

It is imperative that China is constructively engaged in the global trade architecture – through the WTO, through bilateral agreements, and through the emerging regime of regional trade agreements.

China is not part of the proposed Trans-Pacific Partnership which is currently being negotiated amongst 12 Asian-Pacific countries.

But it is a key player in negotiations for another regional trade agreement, the Regional Comprehensive Economic Partnership or RCEP.

RCEP brings together China, the 10 ASEAN nations, and six non-ASEAN countries in the region – including Australia.

Australia’s relationships with key RCEP players mean we can contribute to a successful outcome.

Australia is also in a unique position to help bridge the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership.

This could ultimately lead to a free trade area covering the whole Asia-Pacific region.

This would be a new economic architecture for the Asian Century: a plurilateral framework delivering an open, market-oriented system of trade and investment throughout our region.

A framework which brings together China and the US in a commitment to free trade and economic integration.

ATTRACTING INVESTMENT – THE OTHER SIDE OF THE COIN

As I mentioned earlier, ensuring Australia’s agricultural producers can take advantage of the opportunities in our region will not only require reducing external barriers to trade.

It will also require expanding production and improving productivity at home.

And that will require reforms at home, including reforms which reduce internal barriers to investment.

Trade and investment are two sides of the same coin.

To take advantage of new markets abroad, we need to scale up production at home.

And to scale up production, we need investment – including foreign investment.

The National Farmers Federation has estimated that for Australian agriculture to reach the capacity which will be needed to meet rising demand will require investment of between $1.2 and $1.5 trillion over the next 35 years.

Unfortunately the Abbott Government’s approach to investment in agriculture has been retrograde.

I know there were strong views about the proposed acquisition of GrainCorp by Archer Daniels Midland.

But whatever you think about the merits of the takeover, you should be concerned about the capricious way the Government handled this proposed $3.4 billion investment.

Certainty about Australia’s foreign investment policy, and transparency in communicating reasons for decisions, are important for investor confidence.

The Abbott Government has also imposed new barriers to foreign investment in Australian agriculture and agribusiness.

It has introduced a complex regime of differential and discriminatory thresholds for Foreign Investment Review Board screening of proposed investments.

The Government has reduced the investment screening threshold for agricultural land to $15 million for investors from China, Korea and Japan – but not for investors from the US or New Zealand.

Furthermore the new $15 million threshold on investment in agricultural land even applies where an existing investor seeks to make improvements to their property.

Buying a small adjoining parcel of land, perhaps to facilitate significant investment in improved farm infrastructure, triggers a FIRB review if it takes the cumulative value of the investment above $15 million.

So the new rules are not just a deterrent to new investors.

They also create disincentives for existing investors to improve their operations.

The Government is also proposing to reduce the screening threshold for investments in agribusiness to $55 million – and to define agribusiness so broadly that it would include around half of Australia’s food manufacturing industry.

In this year’s Budget, the Government also announced $735 million in new application fees for foreign investors – making Australia one of the few countries in the world to impose a tax on inward investment.

These policies will make Australia less attractive as an investment destination.

They will make it harder for your sector to raise capital.

And they will put downward pressure on the values of farm assets.

Australia has always required foreign capital to build our economy.

If we are serious about growing our food exports to Asia, we will need foreign as well as domestic investment in our agricultural sector.

Placing hurdles in the way of this investment will only jeopardise the growth of our primary production industries.

I might observe on this issue, that it takes a great deal of effort for a Coalition policy to attract criticism from the Business Council of Australia, the National Farmers’ Federation, the Australian Food and Grocery Council, the Queensland Farmers Federation, the West Australian Chamber of Commerce and Industry and other business and farm groups.

EMERGING AGRICULTURAL TRADE ISSUES

I’ve dwelt today on traditional agricultural trade issues like tariffs and subsidies.

There are also emerging issues which have the potential to act as impediments to trade in farm goods in the future.

Concerns about food security in the wake of the price spikes in 2008 and 2011 have prompted some developing countries to introduce restrictions on exports.

These policies aim to preserve domestic food supplies.

But responses like this can be counterproductive.

Restricting exports exacerbates supply shortages on global markets – this puts upward pressure on prices which can hurt the very people the policy is designed to protect.

As part of the food security debate, we need to improve confidence that trade is a reliable source of food supplies – and to make out the case that targeted social safety nets are a more effective way of tackling poverty and hunger than imposing new trade barriers.

Another set of emerging issues concerns food safety and revolves around the standards and protocols for assuring the quality of traded agricultural goods.

Supermarket chains and food processors are playing increasingly important roles in local and global food supply systems.

Retailers are marketing food to consumers based on attributes like health, quality, animal welfare, environmental impact and social responsibility.

This has seen the emergence of private food standards and certification schemes which can have implications for trade.

Private standards may overlap with government standards.

They also risk undermining WTO rules requiring sanitary and phytosanitary standards applied to agricultural imports to be based on scientific evidence and risk assessment.

As exporters, you will be keenly aware of the potential for non-tariff barriers such as product standards or testing requirements to jeopardise shipments of Australian products.

These technical barriers to trade can be just as important as tariffs or quotas in curtailing access to export markets – and sometimes they can be even harder to tackle.

A critical development here has been the finalisation of the World Trade Organisation’s Trade Facilitation Agreement in late 2013.

The Trade Facilitation Agreement is designed to expedite the movement, release and clearance of goods across international borders.

It will simplify and harmonise customs, licensing and transit procedures and ensure more effective cooperation on trade facilitation and customs compliance issues.

This is the first major multilateral trade agreement concluded by WTO member countries since 1995 – it is currently being ratified and implemented around the world.

For Australia, we need to do more than just implement the agreement at home.

Developing countries will need technical support and capacity building assistance if they are to implement the Trade Facilitation Agreement effectively.

The Australian Government should provide this assistance because it will be in the long-term interests of Australian exporters.

We should look to target assistance to regional trading partners where there is significant potential to expand bilateral trade and where trade facilitation could yield greater market access for Australian exporters.

Technical barriers to trade can also emerge in forums outside the trade arena.

I know your industry organisations are strongly focussed on ensuring you are represented at the table in international forums on issues like:

  • The development of a new international standard on phytosanitary measures for the international movement of grains;
  • The Global Low Level Presence Initiative, on procedures for shipments containing traces of genetically-modified crops, and;
  • The Cartagena Protocol on Biosafety, which will regulate transport of living modified organisms (LMOs) resulting from modern biotechnology, including GM grains.

It is critical to ensure that Australia’s interests are represented in the development of these new standards to ensure they do not have unintended consequences for trade.

I would like to thank Grain Trade Australia and other industry organisations for the work they are doing in this area.

Labor is supportive of these efforts.

Just as we will support freeing up trade in farm goods, tapping into new sources of investment, and maintaining Australia as an open, globally-engaged economy.

Because these are the policies that will allow your industry to continue growing and contributing to our national prosperity.

Peter’s opening comments today made the point that the Australian grains industry of 2015 stands in striking contrast to the industry of a decade ago.

The industry can be proud of what it has achieved.

It has been a decade of continuous improvement, constant innovation, and willingness to grapple with the challenges of reform.

With the right policies in place, and with strong cooperation between industry and government, I am confident you will secure even greater achievements over the next decade.