Kevin Rudd (Griffith, Australian Labor Party, Shadow Minister for Foreign Affairs and Trade and International Security) Share this | Hansard source

I rise today to speak on the Customs Legislation Amendment (New Zealand Rules of Origin) Bill 2006. The bill amends Australia’s customs legislation to give effect to an agreement between Australia and New Zealand to amend the rules of origin under the Australia-New Zealand Closer Economic Relations Trade Agreement, ANZCERTA. Specifically, the bill replaces the existing regional value content, or RVC, rules of origin with the change of tariff classification, or CTC, rules.

Rules of origin are used to determine which products qualify as domestically produced such that they can receive preferential tariff treatment under the FTA. Under the current RVC rules, a New Zealand product exported to Australia can receive preferential tariff treatment if the last production process occurred in New Zealand and at least 50 per cent of the cost of production also occurred in New Zealand. Under the proposed CTC rules of origin, for a good to receive preferential tariff treatment it must have been substantially transformed. This is determined by whether the good changes its tariff classification under the harmonised system of tariff codes, a system defined by the World Customs Organisation.

In a world of global supply chains, in which various processes of manufacture for one finished product may take place in several countries, the RVC system of rules is becoming increasingly irrelevant to modern production methods. Under the current RVC system, should the final process of manufacture occur in a third country, the product will not qualify for preferential treatment no matter how minor the final process. This is the case even if more than 50 per cent of the cost of manufacture has occurred in Australia or New Zealand.

In a report on the ANZCERTA rules of origin in 2004, the Productivity Commission concluded that the current system of rules of origin was out of date and acting as a constraint on trade. The Productivity Commission outlined the following advantages of the CTC method in general: (1) it reduces compliance costs; (2) it avoids the impact of price changes or exchange rate movements on origin status; (3) it increases certainty; and (4) it requires minimal records for Customs audits. The CTC method was also adopted in the Australia-US Free Trade Agreement and the Australia-Thailand Free Trade Agreement. This consistency makes compliance simpler for companies exporting to two or three of these countries.

On the whole, Labor supports the amendment to the rules of origin since it provides for an up-to-date and consistent method of prescribing preferential tariff treatment. However, our concern is that, through the government’s inadequate consultation process, at least one company could needlessly be negatively affected by the change to the point where a significant number of jobs may be at risk.

While we are considering a key piece of legislation that affects Australia’s trade, we should take some time to consider Australia’s recent trade performance. Australia is experiencing its worst trade performance on record. Tomorrow, the Australian Bureau of Statistics will release data on Australia’s trade performance in October. Australia has already had 54 consecutive monthly trade deficits, the longest run of trade deficits on record. Australia’s annual trade deficit for 2005-06 was $14.5 billion; that is, Australia imported $14.5 billion more in goods and services than it exported. Each trade deficit adds directly to our current account deficit. The trade deficit, together with Australia’s interest and dividend payments on existing foreign debt, equals our current account deficit. In 2005-06, Australia’s current account deficit was $54.4 billion, marginally lower than the record $57.4 billion current account deficit in 2004-05.

Every month, every quarter and every year that Australia imports more than it exports, the money to pay for the shortfall must come from somewhere. To cover our current account deficit, Australia borrows from overseas. As a result of the current account deficit in 2005-06, Australia’s foreign debt grew by a further $60 billion to $494 billion; that is, Australia now has a foreign debt of close to half a trillion dollars. To put that in some perspective, that equates to $24,000 of debt for every man, woman and child in this country.

This has occurred at a time when Australia has experienced its strongest terms of trade in 30 years. Driven by a boom in demand for resource commodities, the prices of Australia’s resource exports have increased significantly over the past three years. The real problem has not been the prices of our largest exports, but the failure of the volume of exports to pick up in response. Between 1983 and 1996, Australia averaged growth in export volumes of 8.4 per cent per annum. However, over the last 10 years this has slowed to just 3.8 per cent per annum; what is even more concerning is that it has declined further to average growth of just 0.9 per cent per annum over the past five years.

Australia’s exports of manufacturing and services have been affected in a similar way. The volume of Australia’s exports of elaborate manufactures averaged growth of 12.9 per cent a year between 1983 and 1996. Over the past 10 years growth has more than halved, averaging 5.6 per cent a year, and over the past five years it has slowed further to just 2.7 per cent a year. The volume of services exports averaged yearly growth of 9.3 per cent between 1983 and 1996. This has slowed to an average of just 2.6 per cent per annum over the past 10 years. Worst of all, over the past five years the volume of services exports has recorded an average decline of 0.7 per cent per year.

By taking a strategy that involves Australia becoming merely China’s quarry and Japan’s beach, the Howard government has chosen by and large to ignore our high-tech services and manufacturing industries—and particularly their capacity to contribute to the country’s overall export performance. In 2005, of total world trade of $12.5 trillion, the largest share—$7.3 trillion, or 58 per cent—was accounted for by trade in manufactures. The second largest traded item was services at $2.4 trillion or 19 per cent. Natural resource commodities accounted for $1.75 trillion, or just 14 per cent, of world trade. By taking a narrow approach the government is not just putting all our eggs in one basket; it is putting all our eggs in the smallest basket of world trade.

Australia’s trading relationship with New Zealand is one of the bright spots of Australia’s overall trade performance. In 2005-06, Australia exported $11.9 billion worth of goods and services to New Zealand, which comprised $8.7 billion in goods exports and $3.2 billion in services exports. This makes New Zealand Australia’s fifth largest export destination after Japan, China, the United States and the Republic of Korea.

New Zealand is one of the few major trading partners with which Australia has a trade surplus. In 2005-06 Australia’s goods and services trade surplus with New Zealand was valued at $4.3 billion, though this is a seven per cent reduction on the $4.6 billion recorded in 2004-05. The decline in the trade surplus was due to a fall in Australia’s exports to New Zealand of 1.8 per cent at the same time as Australia’s imports from New Zealand rose by 1.6 per cent. Australia’s goods exports to New Zealand declined by 4.5 per cent in 2005-06, while exports of services managed solid growth of 6.7 per cent.

Looking at longer run trends, we see that the growth in Australia’s exports to New Zealand follows a similar pattern to Australia’s overall exports growth performance—that is, one of slowing growth under the current government. Data on Australia’s exports of goods by country is only available back to 1988-89. However, for seven years, between 1988-89 and 1995-96, under the previous Labor government, exports of goods from Australia to New Zealand averaged an annual growth of 13.9 per cent. This compares to average annual growth of just 4.5 per cent over the 10 years under the current government.

The importance of New Zealand to the Australian economy is highlighted when the breakdown of Australia’s exports to New Zealand is considered. New Zealand is rare among Australia’s trading partners in that our largest export to New Zealand is in the services sector. In 2005-06, Australia exported $2.1 billion of personal travel services to New Zealand, placing it third behind China and Japan.

Despite being only Australia’s fifth largest exports market overall, New Zealand is our largest destination for elaborately transformed manufactured exports. Australia’s elaborately transformed manufactured exports to New Zealand were valued at $5.5 billion in 2005, which was 21 per cent of our total ETM exports globally. In fact, apart from refined petroleum, the top five Australian goods exports to New Zealand are all elaborate manufactures. Specifically, they are passenger motor vehicles, medicines, computers and paper products. In 2005, Australia exported $450 million worth of passenger motor vehicles to New Zealand, making it the second largest export destination for the Australian automotive industry. At a time when Australia’s exports base is narrowing, this makes New Zealand a very important trading partner for Australia.

Australia is also an important trading partner for New Zealand. In fact, Australia is New Zealand’s largest trading partner, with Australia accounting for 21.4 per cent of New Zealand’s exports in 2005 and 20.9 per cent of its imports. New Zealanders also invest heavily in Australia. Total investment by New Zealand in Australia was valued at $24.3 billion in 2005, making it the country with the eighth largest investment in the Australian economy. The relationship is not just measured in dollar terms; it can also be measured by the influx of people. In 2005, 18,500 New Zealanders migrated permanently to Australia, making New Zealand the second largest source of migrants for Australia behind the United Kingdom.

Some argue that the Australia-New Zealand Closer Economic Relations Trade Agreement could be said to be our only successful bilateral free trade agreement to date. In general, preferential bilateral free trade agreements have a number of drawbacks. First, bilateral agreements can lead to trade distortion rather than trade creation. That is, when two countries sign a bilateral agreement, the lower preferential tariff may induce them to import from their new partner because the reduced tariff makes that country’s imports cheaper. However, the most efficient and lowest cost producer may be a third country whose product becomes uncompetitive since they do not receive the lower tariff rate. Hence, trade is merely diverted from a low-cost country to a higher cost country.

Second, bilateral agreements create a spaghetti bowl of rules of origin. Each bilateral agreement has its own rules of origin, sometimes using different methodologies. With the proliferation of bilateral agreements and attached rules of origin, it becomes time consuming and costly for companies to adhere to them all. This can reach the point where it becomes cheaper for an exporter to pay the higher tariff rather than comply with the rules of origin and receive the lower preferential tariff under an FTA.

Third, bilateral free trade agreements take scarce resources and diplomatic focus away from the main game in liberalising world trade, which is the multilateral agreements currently under negotiation through the World Trade Organisation. This is clearly the case for Australia’s prosecution of the Doha Round of WTO negotiations—and these, of course, have run significantly into the mud in recent times.

At the same time as we are negotiating the Doha Round, Australia has also been negotiating bilateral agreements with Singapore, the United States, Thailand, the United Arab Emirates—now expanded to the Gulf Cooperation Council—China and Malaysia. There have also been preliminary discussions and studies on bilateral agreements with Japan and Chile. This has clearly diverted scarce resources away from the negotiation of the Doha Round.

What is more, Australia’s lead in the rush to bilateral agreements has diverted the attention of other countries from the Doha Round. Bilateral agreements provide an easy fallback position for countries negotiating the Doha Round. It is easy to say, ‘If the Doha Round fails, we can always have the bilaterals.’ This is particularly disappointing given that Australia, through its leadership of the Cairns Group, is pivotal in bringing the Uruguay Round to a successful conclusion. Further, the empirical evidence to date for Australia on bilateral agreements is not good; in fact, the data is disappointing. The Australia-United States Free Trade Agreement and the Thailand-Australia Free Trade Agreement came into effect on 1 January 2005. The Singapore free trade agreement came into effect in July 2003. Australia’s export performance with each of these countries has in overall terms worsened since these agreements came into effect.

Since the Australia-United States Free Trade Agreement came into effect, Australia’s annualised trade deficit with the US has increased by 13 per cent, to $14.7 billion. The government’s commissioned study into the AUSFTA predicted that Australian exports to the United States would grow by $3 billion per annum. In 2005, Australia’s exports to the United States actually fell by $132 million. While it is early days, it has to be recognised that there is a long way to go from the negative growth in exports experienced in 2005 to the projected growth of $3 billion a year anticipated by the government at the time we negotiated the Australia-United States Free Trade Agreement. The government commissioned study on the AUSFTA also anticipated that the largest gains from the agreement would come through the increased investment flows between the two countries. The Department of Foreign Affairs and Trade fact sheet on the AUSFTA stated:

Much of this growth will be generated by the dynamic gains expected from the deeper links the Agreement establishes between Australia and the US, with the CIE finding investment liberalisation the biggest contributor to the projected increase in Australia’s GDP.

However, US investment in Australia has in fact fallen significantly since the agreement came into effect. There are a number of key sectors in the economy that were left out of that agreement. Australian sugar farmers received no additional long-term access to US markets despite Central American countries receiving an additional 100,000 tonnes access per annum under the Central American free trade agreement. I am sure that the member for Dawson, who is currently sitting at the table, would as a fellow Queenslander be concerned about the fact that we have received no additional access to the US sugar market as a consequence of the AUSFTA despite the fact that we were assured at the time that if there were no sugar there would be no deal. It is a pity that promise was not honoured. As a result, Australia’s sugar farmers will continue to be restricted to a quota of just 90,000 tonnes.

Another outstanding concern is the lack of mutual recognition of Australian financial markets qualifications by the United States. Under the agreement, US qualified and licensed brokers are automatically recognised and able to trade in Australia. Australian brokers must go through an onerous process with the US Securities and Exchange Commission to be able to operate in the US.

Australia’s free trade agreement with Thailand has seen our trade deficit with Thailand worsen. In 2004, Australia’s annual trade deficit with Thailand was $1.5 billion. By June 2006, Australia’s annualised trade deficit with Thailand had grown to $1.6 billion.

Australia’s free trade agreement with Singapore has had more time to have an effect on the economy, since it became operational in mid-2003. In 2002-03, Australia had a trade surplus of $162 million with the Republic of Singapore. By 2005-06, this had not only been reversed into a trade deficit but had blown out to a most significant trade deficit indeed. Australia’s exports to Singapore have flatlined over the past two years. In 2002-03, Australia’s exports to Singapore were valued at $6.9 billion. In 2005-06, they were valued at $6.4 billion. Something is going radically wrong with our export performance in relation to the Republic of Singapore. Singapore’s exports to Australia, however, have more than doubled from $6.9 billion to $14.5 billion. It would be interesting to know what is happening in this significant regional economic relationship to see such a radical turnaround in the bilateral trade figures, which has been significantly negative from Australia’s perspective.

In a period when Australia is experiencing its worst trade performance on record, the government’s trade policies appear to be not significantly improving this position. The challenge overall, beyond these bilateral agreements and all the complications that are associated with them, is for this government to join every element of its diplomatic and political energies towards the successful conclusion of the Doha multilateral round.

The Australian Labor Party in government—at a time, Mr Deputy Speaker Kerr, when you were a member of that previous Labor government—actively contributed to the resolution of the Uruguay Round through the sterling contributions of the likes of the late Senator Peter Cook. Through those agencies, we were able to bring to the negotiating table an influence which brought that round to a successful conclusion—which, for the first time, included agriculture. There you have it. It was a Labor government—those opposite would say the ALP does not have a natural connection with the agricultural constituency, but I beg to differ; I grew up on a farm myself—that delivered in terms of getting agriculture onto the WTO agenda. We are proud of that fact.

But what we are concerned about is that there has been a sapping of the diplomatic and political energies behind the multilateral trade effort. What I know of the Department of Foreign Affairs and Trade is that, at the end of the day, there is a limited number of qualified people who are charged with the negotiating brief. You cannot expect officials to pull off miracles when they are being asked to undertake multiple tasks at the same time. These bilateral deals are personnel intensive. The deal with China is exceptionally personnel intensive. When we are simultaneously seeking in the last period of the Doha negotiating round to try to bring that most critical round to a conclusion, I question and question again the extent to which our department is being asked to do too much, given the limits to its bureaucratic resources, with a Prime Minister who is not fully seized of the significance of the successful conclusion of Doha in terms of the political capital he is prepared to inject into this exercise.

Recently, I reflected on and read again of the successful conclusion of the Uruguay Round. When I read the speeches by Minister Dawkins, Minister Cook, Prime Minister Hawke and Prime Minister Keating, what struck me time and time again was that, each time these ministers and prime ministers travelled abroad, the successful conclusion of the multilateral round was at the top of the prime ministerial list of priorities; it was at the top of the negotiating list for whichever country they were visiting around the region and around the world. I do not see that evident in Prime Minister Howard’s list of priorities when he travels the region and the world; it is not accorded the same level of priority. Instead, this government has placed a large number of its eggs in one basket—that is, a series of bilateral agreements—and the figures which begin to produce themselves off the back of these bilateral agreements are not, thus far, encouraging for Australia.

Leaving aside the broader point—not just the philosophical point but the basic economic theory that global trade liberalisation enables all economies to advance and to grow—it provides the most efficient allocation of resources across the global economic system, as opposed to bilateral arrangements which can be trade distorting, although not necessarily. Certainly it delivers complexity to exporters-producers—the spaghetti bol I referred to before.

The legislation which is the subject of debate in the House tonight is the Customs Legislation Amendment (New Zealand Rules of Origin) Bill 2006. I have canvassed our approach to the legislation. I have indicated that we have concerns about the impact of this legislation and this agreement as it relates to a particular firm. My colleague the member for Gellibrand will move an amendment at the appropriate time. We would ask the government to give that amendment strong and appropriate consideration, given the impact that will be felt by one particular group of employees.

Beyond that, could I simply conclude by saying that, for Australia, the economic relationship with New Zealand is of critical importance. The political relationship with New Zealand is of critical importance. We look to the South Pacific—and I notice my colleague the member for Maribyrnong, the shadow minister for the Pacific Islands, sitting at the table right now—and, were it not for New Zealand and many of the countries where we are currently engaged politically and militarily in the South Pacific, we would be in even greater difficulty than we are at the moment. New Zealanders have been strong and positive partners in our regional diplomacy in the South Pacific. However, as I have indicated through my remarks this evening, it is not just as diplomatic partners; the numbers reflected in our bilateral economic relationship show the New Zealand trade relationship is one of the few bright spots in our overall trade horizon when the global data for Australia has been trending negative for almost five years.

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