Interview with Trade Minister Don Farrell MP
You can read our companion Australian trade policy explainer here.
Transcript edited for length and clarity.
Richard Maude: How should Australian businesses think about trading with China in an era of de-risking?
Don Farrell: You start from the proposition that China is our largest trading partner – larger than our next three largest goods trading partners combined – Japan, Korea and the United States. Two-way goods and services trade last year with China was almost $300 billion.
Our strategy isn't to decouple from China. We want to continue selling products, high-quality Australian products, into China. In fact, part of my job over the last 15 months has been to get the roughly $20 billion dollars-worth of products that had been subjected to impediments back into the Chinese market.
So, we are not in any sense decoupling. What we are doing is diversifying, so that we have more countries to trade with. And rather than dividing the pie up in a smaller way, we want a bigger pie, we want to do more.
One of the reasons the Albanese government is on the path to a surplus of $19 billion for 2022-23, rather than the $78 billion deficit that was predicted early last year, was because we are selling more, and we're selling more at a higher price. In my lifetime, Australia’s terms of trade, have never been as good as they are at the moment (Asia Society Australia: high export prices helped Australia to a $11.2 billion trade surplus in April 2023).
So, I think we can continue to stabilise our relationship with China, continue to sell our products into the Chinese market, but take some insurance out by expanding our trading relationships with other countries.
Richard Maude: Staying with China, does the dropping of punitive trade measures on Australian barley offer a model for a similar outcome on wine? How confident are you?
Don Farrell: We want to deal with wine in the same way that we dealt with barley.
One complication is that when we were dealing with barley, we had the support of the Chinese importers, who were very keen to get Australian barley, particularly for beer production, back into the China market.
With wine, for a range of reasons the Chinese winemakers have had some difficulties.
The Chinese commerce minister went through some of these with me, including the closure of local vineyards and wine producers.
All of those companies struggled during COVID. The Chinese drink wine when they go out for a meal. And of course, for two years, the place was pretty much locked down. So that's affected the domestic wine production market.
So, wine is more difficult. But, we have a WTO [World Trade Organization] case which will be coming to finalisation in the near future. We think there's an opportunity for us to do what we did with barley, which is suspend the case and give them a chance to review the tariffs.
As we've said all along, we'd prefer not to have to go to court to resolve these issues – they are better off being resolved by discussion.
Richard Maude: How are Australian exporters viewing the China market these days. Are they bullish, cautious or even feeling burned?
Don Farrell: Probably all three, sometimes at the same time.
But let's go back a step. Two-way trade is $300 billion. So, overwhelmingly, we are still exporting our products to China.
Whether it's beer, whether it's meat, whether it's dairy, even wine, it’s on the shelves in China. And we have a terrific spread of citrus and stone fruits.
I don't hear any voices saying we don't want to continue selling into China, including those companies that have been affected by the impediments. But they will probably be a bit more cautious about how much product they sell into the China market.
If they've managed to find alternative markets, then China will just be one in the mix and probably won't go back to where it was. Unfortunately, with products like wine, there haven't been alternative markets found. I think the winemakers would be one group that, if we can get the tariffs removed, will want to go back.
So, it's horses for courses.
Richard Maude: Back to diversification. What are the prospects for the Southeast Asia Economic Strategy, comprehensive economic cooperation agreement with India, and the FTA with the European Union?
Don Farrell: If we're going to diversify our trading relationship, then Southeast Asia presents, I think, the most immediate and direct opportunities. We’re underdone in Indonesia; we're underdone in the Philippines.
Things are going really well with Vietnam but could be even better. More Vietnamese are coming to Australia than pre-COVID. We've got, I think, four airlines flying tourists in and out of Australia.
I launched the new VietJet service from Ho Chi Minh City into Brisbane while I was up there, and they're contemplating coming to Adelaide and Perth.
Thailand, well, again, we could do better there.
And Malaysia and Singapore. Singapore continues to want to have a really strong trade relationship with us.
Young, growing populations present opportunities. We’ve just got to be a bit more ambitious.
Richard Maude: And India? Agriculture is very sensitive. How optimistic should we be about landing the comprehensive agreement?
Don Farrell: Our Prime Minister and India’s Prime Minister want that to happen.
But it isn’t easy. If it had been easy, somebody else would have done it already.
We just got to keep working at it and see just how far we can go.
For example, the tariff rate on wine dropped [in the current agreement] from 150 percent to around 70 percent. But it is still too high. We need to get it down to zero. We’d like better access for chickpeas.
India wants a good relationship with Australia. India is now our largest source of migrants. They're one of our largest sources of students and tourists.
So, everything's pointing in the right direction, the government just has to give a little bit more of a push.
A lot of businesses say that doing business in India is hard. And I say, well, look, 30 years ago, it was hard to do business in China, but somebody had to do it, to get those breakthroughs. We will have to have to put in some effort.
The government can set up the framework, but then businesses have to put some of their own resources into building the relationships and finding the opportunities. The government can’t sell these products for them.
Richard Maude: Speaking of agriculture and giving things a push, you have been pushing the European Union on the FTA.
Don Farrell: Well, look, they seem to think that we were simply going to go roll over. I've tried to communicate with them as often as I can, and to say that they're offering too little and asking too much.
They want us to make all these concessions. But EU protectionist policies in respect of agriculture make it very difficult for Australian businesses to be comfortable with the offers that are on the table at the moment.
I think we will get there. We're continuing to negotiate and hopefully sometime in the next week or two I can talk again with [European Commissioner for Trade] Dombrovskis.
I think Commissioner Dombrovkis and European Commission President Ursula von der Leyen do want agreement. But we're not going to sign an agreement just for the sake of saying we've got an FTA.
We want real, meaningful benefits, particularly for our agricultural producers.
Richard Maude: How important is the US-led Indo-Pacific Economic Framework (IPEF) to Australia’s trade agenda?
Don Farrell: IPEF is important because it's the mechanism by which America re engages economically in our region.
It's not a standard trade agreement by any means. But it presents us with the best opportunity of getting America to engage.
I don't think there's any prospect of the Americans joining CPTPP [Comprehensive and Progressive Agreement for Trans-Pacific Partnership]. Both the Republicans and the Democrats have rejected the agreement.
We've got further discussions in San Francisco, in November, where I think we will settle another IPEF pillar. So, we've settled one pillar [Asia Society Australia: Pillar 2: Supply Chains] and have three pillars to go [Asia Society Australia: IPEF has four pillars: trade, supply chains, clean energy and decarbonisation, and tax and anti-corruption].
Both the US Trade Representative, Ambassador Katherine Tai, and the Commerce Secretary, Gina Raimondo, are heavy hitters in the American system. And both are keen to make some breakthroughs.
I think we'll get there, and I think there'll ultimately be good outcomes, including on new trade areas like the green economy and digital trade.
Richard Maude: You have said in the past that diversification is not just about where we trade but what we trade. How much should Australia follow the US and EU down the industrial strategy path?
Don Farrell: How much do we spend? That’s a really difficult question. But, as the Prime Minister has stated, we want to build things in this country again.
We need to focus on those things that we're good at.
We’re very good at producing minerals. If we can go up the value chain, and have a commercially viable product, then that's obviously one thing we should be focusing on.
We are good at producing food. With a population of 26 million, we produce enough food to feed about 70 million people.
So, there’s an opportunity to build on our strengths. If we are going to spend money, then it ought to be on those things we are already good at.
I'm not as pessimistic as others about the United States Inflation Reduction Act. That's not to say, it doesn't present some problems for Australia, because it does.
But in respect of critical minerals, it is fantastic piece of legislation for Australia. Starting at 40 percent and moving to 80 percent, it mandates that the critical minerals that go into American electric vehicle batteries have to come from either the United States or countries with a free trade agreement with the United States. Australia is only one of a handful of countries that meets that criterion and has the supply.
And when you marry that with developments such as the decision by California to ban the sale of new fossil fuel cars by 2035, I think we're on the cusp of a golden age in terms of our critical minerals.
And if our policy can be not only digging the minerals out of the ground, but also then going downstream in terms of the processing, then even better. You get much better value for the processed product.
There is also a great opportunity to use Australian produced hydrogen and go up the value chain with our minerals, like pelletized iron ore.
Some of the big steel makers are contemplating shifting their operations to Australia. Why would you do that? Well, one reason is because nobody's really found a successful way of exporting hydrogen.
At the moment, you can export natural gas at minus 150 degrees Celsius. With hydrogen, you've got to get to minus 250 degrees. So, there are technological impediments.