Introduction

Thank you Jose. Excellencies, distinguished guests, ladies and gentlemen.

It gives me great pleasure to welcome you here to launch the report Investing in Latin American Growth: Unlocking Business Opportunities in Brazil, Mexico, Argentina and Chile.

I congratulate Dr Frances Perkins and her team in the Economic Analytical Unit of the Department of Foreign Affairs and Trade. I also thank BHP Billiton for their valuable sponsorship of EAU research, and Orica for their generous sponsorship of this report.

Today's launch gives me the opportunity to discuss two important issues. First I want to draw some lessons about economic crisis and reform from recent East Asian and Latin American experience. Second, I want to discuss how Australia can exploit opportunities in Latin America in trade and investment. Third, I want to talk about the value of increased in people-to-people links in raising awareness. In doing so, I want to identify some key challenges for us.

The setting

Latin America has taken vast strides in the 1990s. In Brazil, Mexico, Argentina and Chile, democracy has been entrenched. The people have voted for social, economic and political reform. And these reforms have been impressive.

Latin America's most significant economies have liberalised their trade and investment regimes. They have privatised inefficient public utilities. They have stripped away stifling regulation. And we have seen average annual growth in the 1990s almost double that of the 1980s.

I want to commend the tough decisions taken by Argentina to deal with its current crisis. The Argentine government is restricting public spending to actual revenue. It is cutting public sector wage and superannuation payments. These measures to restore fiscal balance are not only necessary but also courageous, given the current difficult social, economic and political circumstances.

Long term reform in Latin America is not only happening on a national basis. The entire western hemisphere, excepting Cuba, has embarked on a far reaching process of regional integration. The Free Trade Area of the Americas may one day mean free trade in goods and services, and in investment, from Chile to Canada.

Improved economic performance and market opening in Latin America has the attention of international investors. Brazil, Mexico, Argentina and Chile attracted almost 40 per cent of global emerging market foreign direct investment in 1999. This represents a major, long term bet on the future of the region.

Crisis and reform in Asia and Latin America

Importantly, the report highlights some of the lessons Latin America and East Asia have for each other, and for Australia. Both regions have undergone major economic and political reform and crisis over the last decade. East Asia's strong performance, from the 1960s to the late 1990s, was an important model for emerging economies, including in Latin America. East Asia's trade was highly globalised. East Asian governments ran tight fiscal policies. And the region's banking systems generally worked well. These factors underpinned stronger East Asian growth performance than in Latin America.

Mexico, Brazil and Argentina have had longstanding problems reducing government borrowing pressure on local capital markets, developing functioning insolvency regimes, and encouraging banks to lend to the private sector. These challenges are clear warnings for East Asian economies. Many of them now face the same problems.

Latin American experience tells us that East Asian governments must work to reduce debt. Their courts must work to uphold creditors' rights and enforce corporate restructuring, and where necessary bankruptcy. Otherwise East Asian credit cultures may be damaged for a long time. Banks will not be willing to lend to the private sector and long term growth will suffer.

Australia's role in Latin America

The major challenge facing Australia in Latin America is ongoing hemispheric integration, combined with growing US and EU commercial influence. In response, we remain focused on building our presence in Latin America.

The largest development is the Free Trade Agreement of the Americas (FTAA), due to be completed in 2005. Mercosur, the Southern Cone Common Market of South America, includes Brazil, Argentina, Paraguay and Uruguay, Chile and Bolivia as associate members, and Venezuela wants to join. Mercosur is moving towards a common market despite current difficulties. The North American Free Trade Agreement (NAFTA) is thriving, with prospects for further Latin American accessions. The EU has signed a free trade agreement with Mexico, and is negotiating with Mercosur. There are a profusion of other bilateral free trade agreements in the region, and with third countries.

Unlike APEC, these arrangements discriminate against non-members like Australia. They provide for free trade between members. But they often leave high tariffs for non-members. They are therefore big hurdles for our exporters to overcome. Australian companies could find building a significant presence more difficult in the years to come.

For Australian business, Latin American integration has two main implications. Firstly, businesses must investigate the tariff discrimination they will face in exporting compared to North and Latin American and EU competitors. Secondly, investors need to investigate rules of origin in trade agreements their host country enters. These rules may mean significant zero-tariff export opportunities in third markets.

I should note that hemispheric trade arrangements underscore how important a bilateral free trade agreement with the United States is. A bilateral FTA with the United States would not only deliver economic benefits of A$19 billion over 20 years. It would also help protect and promote Australia's annual A$2.5 billion in agricultural exports to the US market - for which our Latin American friends are often direct competitors.

The Government is working to expand trade and investment with Latin American trading partners. We are negotiating investment promotion and protection and double taxation agreements with Mexico. We already have similar agreements with Argentina and Chile. We have in place a mechanism for further trade facilitation with the region through the CER-Mercosur dialogue.

Another important way to extend our presence is cooperation with Latin American countries in multilateral fora. The Cairns Group of agriculture exporters (chaired by Australia and including Brazil, Argentina, Uruguay, Paraguay, Chile and Colombia) is a prime example of such cooperation. My colleague, Mark Vaile, travels to Uruguay shortly to chair the next Cairns Group ministerial meeting. The Group will develop common objectives for the World Trade Organisation ministerial conference in November, and refine its strategy in the ongoing agriculture negotiations.

It is worth noting here that between us, Mr Vaile and I will have visited all of the major Latin American countries in the last year.

The opportunities - building a presence

Notwithstanding the challenge posed by regional integration, Latin America presents us with significant commercial opportunities.

On trade, Australia will never have the commodity trade with Latin America that we have with East Asia, for three reasons. The first is distance. The second is Latin America's own export competitiveness. The third is the dominance of traditional trading partners (many of whom have preferential access agreements). Australia's exports to Brazil, Mexico, Argentina and Chile of just over A$1 billion are very modest compared to A$70 billion to East Asia.

However, good export potential still exists for sophisticated manufactures, services and simply transformed manufactures. Distance and transport costs are much less of a disadvantage for these higher value exports. As incomes rise and markets continue to open, many more opportunities are emerging.

On investment, Australian companies already have invested at least A$7.4 billion in projects in Brazil, Mexico, Argentina and Chile. These investments generate significant trade benefits. In 1999, Australia invested $420 million in Brazil. In the same year we exported $120 million of goods and services to Brazil.

Australian companies with world leading technology are investing in Latin America's large mining and agribusiness sectors, and in financial and infrastructure services. Argentina (the world's fifth largest wine producer), consumes the vast majority of its 'vin ordinaire' wine domestically. But it is still seeking partners to help it upgrade quality. Back in the 1880's, Argentina sent a delegation to examine trends in Australian agriculture. It is refreshing to see that the Argentines are again looking to us for world best practice.

Deep and long lasting personal contact - people-to-people links - remains one of the best ways of overcoming a history of benign neglect - on both sides of the Pacific. The government recognises this. In March 2001 I announced that a Council on Australia Latin America Relations would be established. The Council will enhance Australia's economic, political and social relations with the region. A visits program, media events and possibly a young business executives exchange program, can only help build people-to-people links.

Indeed, I am pleased to announce today that Mr Bernard Wheelahan, of Normandy Gold, has accepted my invitation to chair the executive committee of the Council. The executive committee will also include other prominent representatives of the private sector.

Only a few days ago I hosted the Argentine Foreign Minister, Dr Adalberto Rodriguez Giavarini, on an official visit to Australia. It was a great pleasure reciprocating his hospitality extended on my visit to Argentina in March this year.

We have actively encouraged Qantas to develop the 'tango route' to Buenos Aires, which soon will offer three flights per week. And it is great to read that the 'tango' is now six times more profitable than Qantas's Los Angeles and New York routes.

Education and tourism are exciting areas, particularly in the wake of the blaze of publicity the Sydney Olympics generated. Australia is already Brazil's fourth most important destination for offshore study. We are in a great position to expand our share. Our living costs are lower than the United States or the UK. Our summer holidays coincide. And foreign students can work in Australia. Over time, as has occurred in Asia, Brazil's elite will be increasingly familiar with Australia.

In November Australia plays against the fifth-ranked South American side for a place in the World Cup. After the Olympics, what an opportunity to further increase awareness of Australia in Latin America. Economic, social and political dynamism in Latin American countries make them great places for Australian entrepeneurs. But I have to admit to wondering whether the likes of Brazil, Argentina, Mexico or Chile will be easy pickings for our Socceroos.

Conclusions

Today I have highlighted just a few of the issues covered in this broad ranging report. It compares the East Asian and Latin American experience. It analyses recent economic reforms, the business environment, and commercial opportunities in Brazil, Mexico, Argentina and Chile. And it assesses the implications for Australia of Western hemisphere regional integration.

Latin America is a region that offers immense potential for Australian business. It is up to us - business and government - to work together in responding to the challenges and making the most of the wealth of opportunity the region has to offer.

I reiterate my congratulations to the authors and sponsors. And I commend the report to you. (Investing in Latin American Growth: Unlocking Business Opportunities in Brazil, Mexico, Argentina and Chile)