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'Economic Diplomacy: the path to prosperity and peace' Address by The Hon. Julie Bishop MP Deputy Leader of the Federal Opposition

13 June 2013

The Hon. Julie Bishop MP, Deputy Leader of the Federal Opposition, Shadow Minister for Foreign Affairs and Shadow Minister for Trade addressed ACBC members with a keynote speech in June.

Ms Bishop had recently returned from China, where she attended the Boao Forum for the third consecutive year. During her speech, Ms Bishop shared her insights on the Forum, as well as the opposition’s perspective on Australia’s engagement with the APEC economies and China in particular. Please see below a transcript of The Hon. Julie Bishop's speech. It is also available at her website.

I’m delighted to have the opportunity to speak to the Australia China Business Council this evening.

Last December, in my capacity as the Deputy Leader of the Opposition and Shadow Minister for Foreign Affairs and Trade, I led a delegation to China at the invitation of the Chinese Government. Accompanying me were some senior members of the Coalition front bench - Warren Truss, the leader of the National Party, Senator Nigel Scullion, the Deputy Leader of the National Party and from the Northern Territory, the Shadow-Attorney General, George Brandis, Senator from Queensland and the Shadow Minister for Defence, Senator David Johnston from Western Australia.

We visited aircraft manufacturers, high technology zones, factories across China. We stayed in Beijing, Shanghai and cities of 20 million people or more and it was evident to us, as it is evident to every visitor to China, whenever you are there, that China’s economic growth is quite miraculous.

I recall being on the fast train between Beijing and Shanghai and talking to my colleagues about what we had seen for I had been to China a number of times by that stage and the transformation that I had witnessed, even since I have been Shadow Foreign Minister. I was reminded of an article which the celebrated columnist Paul Krugman had written called ‘The myth of Asia's miracle: A cautionary fable’. In effect Krugman compared China and the emerging Asian economies to the Soviet Union and the Warsaw Pact countries of the 1950s and 1960s and the challenge that they then posed to the West in terms of economic strength. He was suggesting that the same fate would befall China and the Asian economies. Now to be fair, this article was written in 1994, but Krugman is not the first and will not be the last person to predict the imminent collapse of Chinese economic growth and other Asian countries. I join the ranks of the optimists in regard to China’s future economic growth and China’s integration into the international system.

The World Bank published a report last year updated this year ‘China 2030’. The World Bank is of the view that China will still be amongst the countries with the highest rate of economic growth even if it is at a much slower rate than at present. Indeed the World Bank believes that China’s growth could be one third slower than it is now, in other words grow at an average of 6.6 per cent over the next 30 years, rather than an average of 9.9 per cent as it has over the past 30 years, and it would still become a high income society with an economy that will rival the United States, indeed outstrip the United States, by 2030.

The World Bank does suggest that there will need to be more reform, more pro-market reform, a stronger private sector, less reliance on state-owned enterprises, more focus on innovation, more focus on environmental outcomes, a social security net and a much greater focus on ensuring stronger budgets at every level of government. Nevertheless the World Bank is optimistic about China’s future.

There are some who are still deeply concerned about the potential for social and political instability as China makes that transformation from an export focus to domestic demand. Indeed the change of leadership has put this issue into focus again but I believe the world has been reassured by President Xi Jinping’s approach and indeed by the ‘shirt sleeve summit’ that was held by the United States President recently, where President Xi Jinping laid out his vision for the future of China.

I have no doubt that China will continue to be a global economic powerhouse for decades to come and that it will continue to be the major trading partner of, at least 100 countries as it is at present and possibly more, and that it will continue to be the most important trading partner for  Australia.

Currently our two-way trade is about $125 billion. An astonishing $44 billion of that is iron ore exports, mainly from my home state of Western Australia, but also about $6.5 billion in coal exports, about $4.5 billion in gold and about $4 billion in educational services - for Australia remains a preferred destination for Chinese students and I believe we have over 110,000 Chinese students here.

So minerals, resources and energy and higher education services, and increasingly tourism, are areas of growth for us.

However, I believe that we need to broaden and deepen and diversify our trading relationship with China and whilst it’s currently seen through the prism of mining and resource exports, I believe there is much more that our two countries can share and that can be achieved through the implementation of a Free Trade Agreement. It will be a first order priority for a Coalition Government to conclude a Free Trade Agreement with China, along with South Korea and Japan. We will also be focussing on Free Trade Agreements with India, Indonesia, the European Union, the Gulf countries and I’ve got my sights on Russia after a rather interesting visit there recently.

New Zealand has certainly shown us the way. After China entered the World Trade Organisation and subsequent to the virtual collapse of the Doha round, the Howard Government commenced negotiations for a Free Trade Agreement with China in 2005. So did New Zealand. New Zealand concluded its Free Trade Agreement with China in 2008. Ours is still sitting in Minister Emerson’s in-tray. In fact it doesn’t appear to have progressed much farther than when I visited China in 2006, then as the Education Minister in the Howard Government, and I attended a round of negotiations on the services side of a Free Trade Agreement, particularly in education.

Trade Minister Craig Emerson - and perhaps he’s busy as he does have seven other portfolios as well as trade - but Trade Minister Craig Emerson has described a Free Trade Agreement between Australia and China as ‘overrated’. I’m surprised by that given that the predictions at the time we commenced negotiations in 2005 were that it could be worth an increase to our GDP of about $25 billion between 2005 and 2015. He’s also inferred that New Zealand’s Free Trade Agreement with China is just a “trophy on the mantle”.

I attended the Boao Forum this year, China’s premier trade and investment forum. It was a very special occasion because President Xi Jinping was present and about 16 other Heads of State, Heads of Government were also there. And the plenary sessions televised throughout China. It gave New Zealand Prime Minister John Key the opportunity to talk about New Zealand’s Free Trade Agreement with China. The fact is that it had trebled the trade relationship between the two countries and that 90 per cent of New Zealand’s products are getting into China duty free.

In comparison Australian exporters still face pretty stiff tariffs in some key areas including beef and seafood. There’s a rather bizarre situation now occurring where Australian seafood producers are selling their seafood to New Zealand, who are then selling it to China, and it’s still cheaper than Australia selling direct to China. We are at a competitive disadvantage with our dear friends across the Tasman and we are losing market share in a number of key areas.

Prime Minister Gillard also spoke at that event. She was not able to talk about a Free Trade Agreement with China because we don’t have one. Instead she spoke about climate change reminding the Chinese audience that we have a carbon tax in this country, which I thought was a less than helpful reminder of the challenges to our international competitiveness.

I believe that there is a great opportunity for us to broaden the relationship with a Free Trade Agreement which would also encompass the issue of investment. The Coalition will retain the Foreign Investment Review Board process should we be elected to government the national interest test will remain. We have had a working group look at the issue of investment in agriculture and agricultural businesses. I believe that there’s a lot of misinformation out there on how much investment there is from various countries in Australia’s agricultural assets and agribusinesses. Indeed the United States is by far the biggest investor, but there is a concern about investment from state-owned enterprises. The current rules require that any investment from a state-owned enterprise triggers foreign investment review and we will maintain that.

We do believe however that there is a need to have more expertise on the Foreign Investment Review Board and we would put someone with experience in agriculture, agricultural businesses on the Board.

We also think there’s a confusing array of thresholds that trigger foreign investment. There are about five or six that come to mind and they don’t seem to have any logic behind them. So we will seek to make the thresholds more logical and more consistent. Otherwise the message from the Coalition will be that foreign investment is welcome, that our economy has been built on foreign investment - we don’t have the domestic savings to undertake some of the major projects and infrastructure needs in this country - and that foreign investment from China will continue to be welcomed, subject to the national interest test.

Should the Coalition be elected to government in September of this year, or any other day that any particular person that’s the Prime Minister at the time wants to choose, we will have a foreign policy that’s aligned with our trade policy, indeed trade and our economic interests will be at the core of our foreign policy.

A Coalition foreign policy will be focussed on what I will call economic diplomacy. Our foreign policy will be designed to protect and project our reputation as a prosperous nation with an open-export orientated economic model and as a virtuous nation based on our values of, or commitment to democracy, freedoms and the rule of law.

 All of our foreign policy assets, whether they be hard assets like military and defence capability, or economic and trade capacity, or diplomatic and foreign aid efforts, will be focussed unmistakeably, but not exclusively on our region.

The Department of Foreign Affairs and Trade and all its agencies will be realigned so that we’re all pursuing common strategic goals. Our diplomats, our representatives overseas, will be expected to be skilled in economic statecraft as we pursue our strategic goals focussing on our economic interests.

There are some who would have you believe that a focus on our region is a recent phenomenon, but I want to reassure you that a focus on the Asia-Pacific has long been Coalition policy.

Let me read a few words to you: “Geographically Australia is next door to Asia and our destiny as a nation is irrevocably conditioned by what takes place in Asia. This means that our future depends to an ever increasing degree upon the political stability of our Asian neighbours, upon the economic well-being of Asian people and upon the development of an understanding and friendly relations between Australia and Asia. While it remains true that peace is indivisible and that what takes place in any part of the world may affect us, our vital interests are closer to home. It is therefore in Asia and the Pacific that Australia should make its primary effort in the field of foreign relations.” The 9th of January, 1950, Percy Spender, the Foreign Minister in a Menzies Government, on his way to Colombo to sign up to the Colombo Plan, part of which was a scholarship scheme where the best and brightest students in the region were offered scholarships to come to Australia and study in our universities.

It was how Menzies’ foreign policy found expression. Through this scholarship scheme that saw 40,000 young students come to Australia between 1951 and about 1981, live in our homes, study in our universities, get to know the Australian people and our way of life and return to their countries after a positive experience and be ambassadors for Australia in their home countries.

I’m often struck, when I travel through the region, by the number of people in positions of power and influence, Cabinet Ministers, heads of departments, regulators, decision makers who have been recipients of a Colombo Plan scholarship.

A Coalition Government under Tony Abbott will seek to establish a rather grand initiative, that we’ve dubbed the ‘New Colombo Plan’, a scholarship scheme but in reverse, whereby the Government will offer opportunities to Australian undergraduates in our universities to spend part of their time studying for their course in a university in our region.

For example, a student at the University of Melbourne could be offered a scholarship to Peking University, one of the top universities in the world let alone in the region, and do six months to 12 months of their degree at Peking University.

What will make this initiative work is it will also partner with businesses who are operating in the region. So our students will be offered an internship or a mentorship with an Australian business with operations in Beijing, say Rio Tinto or ANZ bank. In this way the students will have a connection with Australian businesses overseas, the Australian businesses will have a connection with students who hopefully will be Asia-literate, or in this case China-literate - learning the language, understanding the culture, understanding the politics.

Over time we hope it becomes a right of passage, it becomes the norm rather than the exception, for Australian students to undertake part of their studies in our region. I can’t think of a better way to undertake public diplomacy. I can’t think of better expenditure of public money than to have a large body of young people over time who have lived and studied and experienced life in the region.

On about 22nd March, I hosted a policy development day to focus on the New Colombo Plan. We had about 160 participants, people from universities, vice chancellors, pro vice chancellors, the ambassadors and high commissioners from the region, business people, the head of the Business Council of Australia, NGOs, student organisations, who came along enthusiastic about what they saw as a long term vision for Australia.

It is my hope that should we establish the New Colombo Plan, it will be embraced by all sides of politics, all colour of government and be in place for a very long time (hopefully more than the 30 years that the original Colombo Plan was in place).

That meeting was very exciting, and at the end of it it was decided to set up a steering group to continue to advise the Coalition on the issues of course there will be many. Just think about a scholarship scheme with China -  we’ll have to look at issues of course accreditation, mutual recognition, student visas, work visas, capacity and the like. The response I’ve had from people wanting to be on the steering committee has given me great heart that none of these challenges can’t be overcome. I’ll be announcing the details of that steering committee shortly.

So in this way we see it as a practical, yet long term proposal that will see Australia truly take its place in our region. I believe that Australia’s standing in the world is at its highest when our influence in our region is at its strongest.

Under a Coalition Government there will be a renewed commitment for a deeper and broader and more diversified relationship with China. We do have our issues, we do have our differences of opinion on a number of matters, but the Howard Government found that the best way to do that was through frank and open discussion and set up a Ministerial-level Human Rights Dialogue, I believe it’s the only ministerial level human rights dialogue that China has with another country, and work through any issues that we have with China or that China has with us, through that process or similar.

I believe that we have the leadership, the political will, the enthusiasm and the ideas to take this relationship even further. I believe that as long as we continue to build a relationship on mutual trust and respect, then the best days of an Australia-China relationship lie ahead.