Speech

Melbourne, 6 June 2006

Speech to the Council on Australia - Latin American Relations (COALAR) Business Seminar

Latin America's Changing Landscape and Australia-Latin America Relations

Mr Chairperson
Your Excellencies
Distinguished guests

Thank you for that kind introduction, Bernard, and for the invitation to address today's seminar.

Under your leadership, Bernard, the Council has accomplished a great deal in its first five years. The Council has raised public awareness of the Australia-Latin America relationship. And you've been an important source of advice for the Government as well as a catalyst for stronger ties with Latin America in a number of areas. We value your views on Latin America and the relationship.

I'd like to cover two things in my remarks today.

First, I think these are very interesting times for Latin America - major changes are taking place at the political level. The Economist calls this "a battle for Latin America's soul" between "authoritarian populists" on the one side and "liberal democrats" from both the left and right on the other. So, I thought I would talk first about the big picture.

Second, my role is to develop bilateral relations. So, I should give you my views on the state of Australia's relations with the region. I had the pleasure in January of making my third trip to the region as Foreign Minister. And I can tell you that, if you haven't enjoyed real Mexican food in a Hacienda with Mariachi music in the background, then you haven't lived.

The Big Picture

Starting with the big picture then…

Today we see a Latin American region which is undergoing rapid changes, both economic and political.

On the economic side we've seen high growth rates over the past two to three years - 5.9 per cent last year and 4.6 per cent predicted for this year. Like Australia, growth has been fuelled by trade with Asia and particularly commodity exports to China. Australian companies have played a role in many of these mining and resource projects.

At the same time, a number of countries emerged from the most recent financial crisis with better economic policies - better fiscal management, lower foreign and public debt, lower inflation. Credit ratings are better, currencies have stabilised. The business environment is much improved.

On the political front, there are some fascinating developments. This is the year of elections. There have been elections in Chile, Colombia, and Bolivia. Peru's Presidential election was held last weekend with the election of Alan Garcia - the centre left candidate who defeated his nationalist backed opponent. Later in the year there will be Presidential elections in Mexico and Brazil.

The countries of the region have overcome a difficult history to build their democracies. And while we see a consolidation of democracy through elections over the last year, in some countries democracy is going backwards.

While governance seems to have improved in most cases, voters still remain sceptical about the benefits of free trade and open markets. Difficult social problems continue to plague several countries. Voters see unequal income distribution, poverty, crime, corruption and poor social services. This has provoked a passionate political debate.

And we're seeing a reaction to the so-called "Washington consensus" - the World Bank and IMF policy frameworks - which people feel hasn't advanced their interests.

It's not just a battle between left and right, what in our system would be Liberal and Labor or in Europe would be Centre Left and Centre Right. In Latin America we have a new type of populist political style - or perhaps it's a renewal of a style practiced in the past.

There's a lot at stake here. At stake is the pace of Latin American economic integration. At stake also is the role of the United States in the region. These political factors play into the viability of regional energy arrangements and the future shape and cohesiveness of Mercosur.

Brazil under President Lula has worked hard to develop a leadership role in South America and to encourage economic integration; we welcome this. The President has promoted sound economic policy with an emphasis on social policy.

Chile has been a world leader in engaging in FTAs. And Mexico has integrated its economy with the US and Canada. Other countries have also pushed ahead with economic reforms.

I think there is now compelling evidence from the last ten years of world growth that openness to trade and investment are the keys to growth and development. China has increased its trade threefold over the past 5 years, by further opening its economy. Poverty has fallen dramatically in Asia as a result of trade-driven economic growth.

One of the debates in Latin America today is about non-renewable resources. Of course, every country has the right to tax non-renewable resources. No one challenges that. But investment won't flourish without predictable and transparent rules. And nationalised industries rarely have the capital to invest in the massive infrastructure that is required.

There are questions now about the extent to which certain Latin American countries will be able to attract future foreign direct investment, and continue to grow their economies. I know - from being a cabinet minister for ten years - that all policy decisions come at some cost; there are always trade-offs to be made.

So the nationalisation of the strategic sectors to gain greater control and higher revenue could sacrifice long-term economic development and poverty alleviation. The simple fact is that governments don't need to own assets to tax them.

And they don't need to nationalise in order to change tax regimes.

Australia-Latin American Relations

So much for the big picture, what of Australia's relations with Latin America? Well, the first point of course is that it is hard to talk of Latin America as one entity. It's a huge region from Tijuana to Tierra Del Fuego. So please excuse me if I don't quote an example from each and every country.

The development of our relationship with Latin America has in the past been limited by a number of factors:

• geographic distance
• different colonial pasts
• language
• different strategic imperatives
• periods of instability and inwardness in Latin America
• and the fact that our economies tend to compete in some key commodities.

But globalisation is shrinking distances. Much of Latin America today is outward looking and growing. And, as I note later, the fact that we are both big resource and agricultural exporters provides opportunities for investment and trade in knowledge.

So, naturally, our relations over the years have been defined by multilateral issues such as the Cairns Group in the WTO, where 9 of the 19 members are Latin American. We work together in APEC, which we host next year and then hand over to Peru. We collaborate on UN reform.

Of course, in this era of globalisation, neither countries nor regions can afford to tackle problems on their own. Some of the most important challenges we face - from security to energy, from governance to trade, from fisheries management to the environment - are global ones.

I think in the past few years we've gone beyond this multilaterally-focused relationship. Increasing trade and investment has given the relationships a different dynamic. That's not to downplay our shared multilateral interests, which matter more than ever. But trade and investment links clearly are now just as important.

Interestingly, globalisation makes competitive economies more integrated. The fact that Latin America and Australia are both strong in agriculture and mining is actually leading to closer business ties. This is because our increasingly global companies have a presence in both markets. Best practice here can be shared with Latin America and visa versa.

Trade has surged - increasing an incredible 40 per cent in 2005. Australia's exports of coal to Mexico led this growth. Our trade with Brazil and Mexico makes up $3 billion of the $4 billion total, so these two countries are clear priorities along with Chile, which is our largest investment destination.

As many of you would be aware, Australian investment in the region has surged. BHP Billiton operates Escondida in Chile, the world's largest copper mine by volume. Other companies - Mincom, Pacific Hydro, Orica - have significant investments and continue to expand.

As a Government, we've tried to facilitate trade by negotiating bilateral agreements on investment promotion and protection, double taxation and air services. The Foreign Minister of Mexico and I agreed to commence an Australia-Mexico Joint Experts Group later this year. The idea is to look at all aspects of the economic relationship, including a possible FTA at some stage in the future.

I mentioned investment into Chile; Chile is a growing base for Australian business in the region. Political ties are strengthening too. President Bachelet has a long association with Australia having stayed here briefly in exile and visiting when she was Defence Minister in 2004. Prime Minister Howard was there for APEC in 2004 and former President Lagos visited Australia in 2005.

We hope that beating Uruguay in the Word Cup qualifiers won't undermine cooperation on illegal fishing or in the Cairns Group…

… just as upsetting Brazil in the opening round (we hope) shouldn't do us any damage - would you believe that Brazil is our fastest growing market for overseas students; growing faster than China, albeit from a lower base?

I'm sure many of you know the story of the Argentinean company - INVAP - building a replacement nuclear reactor at Lucas Heights in Sydney with John Holland and Evans Deakin. And the huge Alumbrera mine in Argentina is still managed from Xstrata Copper's headquarters in Brisbane, as is Xstrata Copper's $1 billion worth of investment in Peru.

I should say that it's not just mining and energy that's moving forward. Australian businesses are also making in-roads in niche areas such as recruitment, agri-business, financial services, IT, and manufacturing. For example, the Australian technology for making polymer bank notes (Securency technology) has been introduced in Mexico and Chile and trialled in Brazil. You can get Coopers beer and Australian cheese in Chile these days.

Austrade has an office now in Mendoza to promote Australian winemaking expertise and technology.

Education is another success story. Last year there were over ten thousand Latin American students in Australia, up 35 per cent on the year before. The Department of Education Science and Training has decided to expand its presence in the region and we have signed MOUs on education with five countries.

Role of Business

So, with investment and trade taking the new lead in the relationship with Latin America, it's natural that we rely a great deal on the private sector. COALAR, is supporting government efforts to broaden out our cooperation across four "pillars" - education, tourism, culture and business.

This is an important second track to our relations - building links outside the federal and state government umbrella, such as those with academics, journalists, arts festival directors, the general public and of course the business community.

My impression from my visits is that Australia enjoys a tremendous amount of goodwill in the region. We should convert this goodwill into tangible benefits whether it's business, tourism or people-to-people links.

Summary

To conclude, it's probably appropriate to say a few words about the future.

I think the future of our relations with the region will increasingly be driven by the agenda that COALAR is following.

Australia's strategic and security interests in Asia will always tend to draw attention from Latin America. That is simply a reality. But it would be a mistake for the Government and for the private sector to ignore the opportunities that Latin America offers… and the importance of strong ties with a region of some 500 million people and some of the world's biggest economies.

We have a framework in place now to develop relations where they have the greatest potential - in investment, trade, education, tourism and in greater understanding and information exchange.

I also want to encourage Latin American Businesses to see Australia as a base for doing business in Asia… so our competing economies in a way become more complementary.

This is where business needs to step up to the plate, building the foundation of the relationship in trade and investment, dollars and cents. And judging from the past few years and the attendance today, I'd say that you're already very much at the plate now.

Thank you

ENDS