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LEIGH SALES: A short time ago, the Foreign Minister Stephen Smith joined us from our Parliament House studio.

Minister, thanks for being with us.

STEPHEN SMITH: Pleasure, Leigh.

LEIGH SALES: We've heard about an Indonesian police raid on the house of a senior terrorist. What can you tell us about that?

STEPHEN SMITH: The advice I have is that there was a police raid, two consecutive raids. My understanding is that three terrorist suspects have been killed and Indonesian authorities are currently going through a process of identification.

We've had in the past speculation of terrorists in Indonesia being captured and/or killed and people have jumped the gun and not waited for the official Indonesian confirmation, so we are in this respect in the hands of the Indonesian authorities.

But there is a suggestion publicly that one of the deceased is a leading Jemaah Islamiah leader who has been suspected for a long time of having been involved in the Bali bombings.

LEIGH SALES: But you can't confirm or deny that he is one of the people that's been killed?

STEPHEN SMITH: I can't confirm that and I won't confirm that until we receive that advice from the Indonesian authorities and that may take some time.

LEIGH SALES: Minister, as we've heard, the Indonesian President will be addressing the Parliament tomorrow.

What initiatives will you be jointly announcing on people smuggling to stem the increasing number of arrivals in Australia?

STEPHEN SMITH: Any formal announcements will be done by the joint statement, which the President and the Prime Minister will release tomorrow at the conclusion of their formal talks. But it won't come as any surprise to people following the President's visit and following the Australia-Indonesia relationship that we are looking to formalising a framework of cooperation on people smuggling and people movement.

Today when I had my meeting with Foreign Minister Marty Natalegawa, he and I essentially signed off on the proposed framework agreement. That will be formally considered by the President and the Prime Minister tomorrow, and that's a good thing. Our formal cooperation is of course done under both the Lombok Treaty and also the Bali Process, which is our regional organisational institution for people smuggling and people movement matters.

But we'll be very pleased tomorrow to see the President and the Prime Minister sign off on a formal cooperation agreement between Australia and Indonesia.

LEIGH SALES: And Minister, is there going to be anything new in that agreement or is it simply a formalisation of the cooperation that's already in place?

STEPHEN SMITH: It will formalise aspects of our cooperation, but it will also go to further cooperation on disruption and prevention, and as a consequence of that, I wouldn't be proceeding on the basis that the agreement will be made public.

It does go to both operational matters and also to prevention and disruption, and the organisational arrangements. But it's a good thing to do because it does formalise our arrangements. As I say, it makes the point pursuant to both the Treaty we have with Indonesia which sets the framework for the modern Australia-Indonesia relationship, the Lombok Treaty, but also the Bali process. It sets it under those two arrangements and formalises the cooperation between us.

We know we're facing a very difficult problem for Australia, for Indonesia, but also for our region.

LEIGH SALES: And Minister, what do you mean by disruption? How will that occur?

STEPHEN SMITH: Well as it does now, seeking to prevent people smugglers from illegally moving people from one jurisdiction to another.

LEIGH SALES: But how? Can we expect to see more patrols, or more resources directed towards that?

STEPHEN SMITH: Disruption in Indonesia of course occurs by Indonesian authorities, but in that respect there's been cooperation and assistance between our police and border protection and border control authorities and that will continue.

LEIGH SALES: Has Indonesia guaranteed that it will criminalise people smuggling?

STEPHEN SMITH: That's of course a matter for Indonesian domestic law and for Indonesia to make public remarks about. I of course have had discussions in the past, not just with Foreign Minister Natalegawa but with his predecessor, Hassan Wirajuda, and we await patiently for Indonesia to make judgments about the configuration of its domestic law, and we'll leave that for Indonesia to make remarks about.

LEIGH SALES: How far can the partnership with Indonesia go on this matter as long as Indonesia's not a signatory to the UN Convention on Refugees?

STEPHEN SMITH: We cooperate very fully with Indonesia. We both established together as effectively co-conveners or co-chairs the Bali process, which we now see throughout our region, 40 countries and international and regional institutions are party to that.

Last year we had, for the first time in a half a dozen years, a very successful Ministerial level meeting of the Bali process. Whether Indonesia at some stage in the future signs up for the Refugee Convention is of course a matter for it.

But, whether it's people smuggling or people moving or people trafficking it is just one of the very many features of the very close relationship that we have with Indonesia, and part of the President's visit here, I think, reflects the ever-increasing enmeshment of the Australia-Indonesia relationship.

LEIGH SALES: On that relationship I'd like to ask about the economic aspect of it and a possible Free Trade Agreement. Australia has for example had a Free Trade Agreement with the United States now for many years. How is it that we still don't have one with our nearest neighbour, particularly given the economic potential of Indonesia?

STEPHEN SMITH: I think if I could just comment on your last point, the economic potential is of course enormous. We're a country of 23 million people and Indonesia's a country of 230 million people.

LEIGH SALES: Well shouldn't we be doing more to capitalise on it then?

STEPHEN SMITH: We are, but I think we've only just tapped the potential of that economic and investment relationship. But very many Australian entrepreneurs have for a number of decades had their sights set on Indonesia.

Minerals resources is one activity, renewable energy these days is another, and educational exports through the large number of Indonesian students here is yet another. But we have underway with Indonesia a free trade agreement feasibility study and we're looking in the near future to bring that to a conclusion to then contemplate formal negotiations for a Free Trade Agreement.

LEIGH SALES: And how near is the near future?

STEPHEN SMITH: I won't put a timetable on it. We're not expecting that to be resolved in the course of this visit. There was never any realistic expectation of that.

In the meantime of course, I think there has been a very important regional Free Trade Agreement that both Australia and Indonesia are a party to, and that's the ASEAN Australia-New Zealand Free Trade Agreement which we struck up last year.

That's a very significant agreement, so far as we're concerned. But we are looking forward to pursuing that Free Trade Agreement feasibility study with Indonesia. We do think, and this is a view I think shared by Indonesia, that the economic trade and investment potential of the relationship has not yet been fully tapped.

LEIGH SALES: You mention that many Indonesians study in Australia, as do many students from India, from, where you've just returned.

The former government minister Bruce Baird released his report today into the international education sector and it was less than glowing.

Obviously, the violence against Indians in Australia has played a big role in the loss of reputation, but would you agree that the collapse of some colleges has been as damaging?

STEPHEN SMITH: I think what the Indian students safety issue did was that it really caused us, and when I say us, I mean the Australian Government, but also the Indian Government, both through its High Commission here and its Government and officials in New Delhi, to really focus on the integrity of the overseas educational system and the rigor.

And it became clear to us that there had been rorting in the past, that either unscrupulous immigration agents or unscrupulous education agents were effectively duping young Indians into believing that an educational opportunity in Australia could effectively become a backdoor migration or a backdoor employment operation.

LEIGH SALES: And how serious is the damage from that?

STEPHEN SMITH: I've made it clear that I think on the student safety issue, our reputation and standing in India has been damaged.

LEIGH SALES: What about on the colleges issue?

STEPHEN SMITH: I think on the collapse of the colleges and the focus on integrity, we will see a drop in the number of Indian students coming to Australia, I think for three reasons: one, the safety issue; two, the general adverse consequences of the global financial crisis, and three, the integrity or quality issues.

LEIGH SALES: And how significant do you think that that drop will be?

STEPHEN SMITH: Again, I'm not proposing to put an estimate on it. But I don't think that comment would come as any surprise to anyone in the industry either here or in India.

LEIGH SALES: But I guess they might be interested to know your views as the minister as to whether that decrease is going to be something that only has a minimal impact or whether it could have quite a devastating impact on a sector which has been quite lucrative for Australia.

STEPHEN SMITH: I think the changes that we've already made through Immigration Minister Evans in terms of visa changes, the skills requirements required to enter Australia under a skills regime, and these changes recommended by Bruce Baird, which the Deputy Prime Minister and Education Minister Julia Gillard will now put out essentially for consultation with the States and the Territories, I think both of these sets of changes will add rigour and integrity to the system and improve its quality. Now I think that's a good thing. And in the long term, in the longer term, that is obviously much better for Australia, much better for India and much better for respective students, irrespective of where they come from.

There will of course be some short term transition and some short term adjustment, and I think one of those adjustments will be a drop in the numbers, but I don't expect that to be a permanent thing. I expect the rigour which is instilled will be in the long term a much better quality outcome.

LEIGH SALES: Minister, if we can turn to Afghanistan. The Coalition's military commander there, Stanley McChrystal, has reportedly warned that the Rudd Government's refusal to allow Australian troops to take the fight to the Taliban was impairing the US-led war effort. Why is Australia so reluctant to allow its troops to play a greater role?

STEPHEN SMITH: I've seen reports of that conversation. I'm not privy to such a conversation. Can I simply say that in the conversations I have with my counterparts, whether it's Secretary of State Clinton or her predecessor Secretary of State Rice, or indeed Secretary of Defence Gates with whom I have conversations on a regular basis, that is not the view that they have put or share so far as Australia's contribution in Afghanistan is concerned.

We are the largest non-NATO contributor, we're in the top 10, and in April of last year we increased our contribution in Oruzgan Province from 1,100 to 1,550. But the purpose of — for the purpose of training …

LEIGH SALES: But even so, Minister. Sorry, Minister to interrupt. Even so — that may be the case — but even so, every signal from the United States from president Barack Obama down is that they want their allies and partners to contribute more to Afghanistan. Why would Australia be magically exempt from that?

STEPHEN SMITH: Every signal from President Obama and every signal from Secretary of State Clinton and every signal from Secretary of Defence Gates has been that Australia has increased its contribution. As I was putting to you, we increased our contribution in March of last year from 1,100 to 1,550.

LEIGH SALES: But doesn't necessarily mean they don't want more.

STEPHEN SMITH: That was warmly welcomed at a time when other countries were indicating a downsizing or a withdrawal. And in the context of the Afghanistan Conference in London earlier this year, I announced a further contribution on our diplomatic civilian capacity building development assistance front. So, we are in the top 10 contributors.

LEIGH SALES: Doesn't mean they don't want more.

STEPHEN SMITH: Well we have not received a request from the United States to increase our contribution since we made our increased contribution of nearly 40 per cent in April - March, April, May of last year.

And we are well recognised and regarded as being amongst the most effective not just fighters, but amongst the most effective contributors in Afghanistan through the work we do in Oruzgan Province.

LEIGH SALES: Let me ask you to respond to the suggestion that the level of our commitment in Afghanistan is mostly about retaining our credibility as a US alliance partner at minimum risk and cost, which are the words of Defence analyst Hugh White.

STEPHEN SMITH: If it was at minimum risk and cost, then we would not have increased the number of people we have there from 1,100 to 1,550 in the face of casualties. If it was about minimum risk and cost, I would not have recently announced a further contribution to enhance our diplomatic and our civilian presence in Uruzgan Province. We are there because …

LEIGH SALES: But maybe that's the minimum that you can contribute given that the US is saying that it wants all its partners to do more.

STEPHEN SMITH: We are there because we believe that the Afghanistan-Pakistan border area is the current hotbed of international terrorism, the breeding ground for international terrorism and we want to reduce or eliminate that.

And we very strongly agree with the Obama strategy, which is that it can't just be a military strategy alone; it needs to carry with it a political strategy, a civil reconstruction strategy and ultimately a reintegration and reconciliation strategy. That's been our policy approach and you've seen that reflected by the substantial contribution that we make.

I really have to say that the naysayers who try to suggest that our contribution is not a substantial one should just look at the facts. We remain the largest non-NATO contributor, we are in the top 10 contributors.

LEIGH SALES: OK. Alright, we've made that point. Finally, Minister, we learned today of a fourth Australian passport that's been allegedly used in the assassination of a Hamas operative.

Can you rule out further false Australian passports showing up in relation to this case?

STEPHEN SMITH: Well, just as I wasn't proposing to be drawn on this one until the matter became public and it was appropriate for operational and privacy reasons to confirm the details, I'm not proposing to be drawn on any further possibilities.

I've confirmed in the course of today that we have a fourth Australian whose passport we are of the view has been used fraudulently, and he, Mr Krycer, falls into the same category as the three that we've previously identified and I'm not proposing to allude to any further possibility.

LEIGH SALES: OK. Alright, well we'll put aside possibility, let's just talk about reality. Are you aware right now of any other Australian passports that have been used in addition to those four?

STEPHEN SMITH: I'm not proposing to be drawn on any such matters or commentary because it goes directly to operational matters: firstly, the investigation which the United Arab Emirates and Dubai authorities are conducting in the United Arab Emirates, with which we are cooperating; secondly, also potentially goes to the investigation which the Australian Federal Police has commenced, which the Government asked them to do.

They recently sent an investigative team to Israel. That has recently left Israel and are returning to Australia. So for those very sensible operational reasons, I'm not proposing to speculate on such matters.

LEIGH SALES: Minister, how would you characterise Israel's cooperation with the investigation so far?

STEPHEN SMITH: Well, again, I've made clear I'm not proposing to give a running commentary. I will wait until I receive the Australian Federal Police report.

It is an operational matter for them. They may well have more work to do as a result of the fourth example. I simply make the point that I made publicly at the time and made to the Israeli Ambassador, that lack of cooperation would only and could only carry with it adverse consequences. But I'll wait until I receive the report before I come to any conclusions about the matter.

LEIGH SALES: And have you had a follow-up meeting with the Israeli ambassador since your six-minute meeting on February 25th?

STEPHEN SMITH: No, I haven't had cause to do that. And in the normal course of events, of course, as with Ambassadors and High Commissioners from many countries, I see them on a regular basis. But there's been neither reason nor cause to see the Ambassador since that time.

LEIGH SALES: And do you stand by your statement that if Israel is found to have sponsored or condoned the passport fraud that that would not be considered the act of a friend?

STEPHEN SMITH: Well it is the Australian Government's very strong view that we would not regard that as the act of a friend.

LEIGH SALES: Stephen Smith, we're out of time. Thank you very much for joining us tonight.

STEPHEN SMITH: Thanks, Leigh. Thanks very much.