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The steady growth and persistent asymmetry of

Australia-EU business A paper by John Tinney Introduction

The business relationship between Australia and the European Union is unbalanced in several ways. The total value of two-way transactions is consistently two-to-one in the EU’s favour, EU business in Australia exhibits a much healthier diversity than Australian business in Europe, the overall trade and investment flows are relatively much more important to Australia than they are to the EU and Australia’s business with the United Kingdom is worth far more than its business with any of the other comparable economies of the European Union. The overall value and the intertwining of Australia-EU business linkages continue to improve steadily but Australia’s long-standing dependence on a few primary commodity and energy exports and its business community’s disproportionate focus on the UK marketplace are causes for concern. On the one hand, the situation is partly attributable to Australian governments’ ongoing preoccupation with Europe’s agricultural trade policies and practices and the distorted perception they (and the often UK-centric Australian media) have thereby conveyed to Australian business people of the EU as a protectionist, unresponsive marketplace. On the other hand, it is a logical consequence of Australian business’s Anglo-Saxon heritage. Despite the lack of an Australia-EU trade agreement, recent bilateral agreements on mutual recognition of standards and on wine are facilitating business in certain sectors. At the same time, Australian business is increasingly attuned to the realities of the global market and capable of rising to the challenge of dealing with linguistically and culturally diverse partners. These positive elements should allow Australian business to improve its position in the EU but progress in that direction will depend essentially on business people themselves, given the Australian government’s frustration with the EU and the priority it accords to improving the business relationship with Asia and the United States rather than with Europe.

1. The value of Australia-EU business today

The value of business between Australia and the European Union is generally calculated by amalgamating three types of measurable transactions in the bilateral balance of payments: merchandise trade, trade in services and investment flows. A useful summary

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table of these three components, plus transfers, has been published by the European Commission’s Delegation in Canberra, drawing on Australian statistics (Figure 1) (European Commission’s Delegation, 2003).

Figure 1

Australia’s largest business partner: a relationship worth $A67.6 billion This amalgamation puts the total value of Australia-EU transactions in financial year 2001-02 at $A67.7 billion, or 18.6% of all Australian overseas transactions, making the European Union, as a single entity, Australia’s largest economic partner – a position it has occupied for many years.

Merchandise trade is about 2:1 in the EU’s favour Trade in goods (“merchandise trade”) constitutes the largest component (56%) of total two-way transactions and is the measure most commonly employed for quick snapshots of the relationship. A feature of the two-way merchandise trade is the consistency of the trade balance, which for many years has been almost 2:1 in the EU’s favour (Figure 2).

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Figure 2

This trade matters much more to Australia than to the EU Equally significant, from Australia’s viewpoint, is the fact that the economic relationship matters much more to Australia than it does to the European Union. In 2002, Australia took 1.7% of the EU’s total merchandise exports to third countries and supplied 0.9% of the EU’s imports from the rest of the world. In contrast, in fiscal year 2003, 13.7% of Australia’s merchandise exports went to the EU and 23.6% of her imports came from the EU. (DFAT EU Fact Sheet, 2003). Such disparities are inevitable given the unequal size of the partners. In the same way, Australia’s trade with the United States and Japan matters much more to Australia than it does to those countries.

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Australia’s exports to the EU are still mainly primary commodities There has been some diversification in Australia’s export mix in the last decade (Figure 3), although the growth in the share of manufactures appears to have stalled between 1997 and 2001 (Figure 4).

Figure 3 (STMs: simply transformed manufactures; ETMs: elaborately transformed

manufactures)

Figure 4

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There is much more robust diversity in the composition of the EU’s exports to

Australia In contrast, the EU’s sales in Australia are very diversified, covering a very wide range of products, mostly elaborately transformed manufactures for both industry and the consumer market (Figure 5).

Figure 5

Trade in services: a growing and more balanced relationship Global trade in services is growing more rapidly than merchandise trade and this trend is reflected in the Australia-EU trading pattern. The overall balance in this sector is also much healthier, from Australia’s perspective. Australian services exports to the EU have doubled in ten years and are almost as valuable as imports of similar services from the European Union (DFAT, 2003. Figure 6). However, it will be seen later that the two-way trade in services is dominated by the UK.

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Figure 6

The EU is also a major two-way investment partner for Australia The EU is Australia’s largest source of foreign investment, with accumulated investments accounting for about a third of Australia’s total inward investment and worth $294.4 billion at 30 June 2002. The EU is the second largest foreign destination after the United States for Australian investors, receiving approximately 24% of Australia’s total outward investment. Australian investment in the EU totalled $127 billion at 30 June 2002 (DFAT, 2003). In both directions, portfolio investment is a larger component of the total than foreign direct investment (FDI). 2. How Australia-EU business is changing

The Australia-Europe trading relationship retains many of the characteristics it had fifty or even one hundred years ago, in that Australia is still largely a supplier of primary products to a much more powerful “northern” partner from whom it imports mainly capital equipment and consumer goods – an economic relationship resembling many “north-south” trading patterns and sometimes described as “colonial”.

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During the 1970s the oil crisis caused a short-lived redefinition of this basic proposition. Canberra largely embraced the concept that resources and energy trade would ensure the nation’s future wealth and Australia’s trade commissioners were briefed accordingly1. Europe’s main attraction then was its need for minerals, coal and uranium.

The 1980s ushered in flourishing new Australian exports to Europe The emphasis on resources diplomacy was soon adjusted again as the global high-technology revolution of the early 1980s opened up exciting new employment and international business opportunities for Australian firms, even quite small companies, particularly in industrially developed countries. A diverse array of Australian innovations found niche markets in Europe, including heart pacemakers, advanced surveillance systems (installed for example in the Louvre museum in Paris), the world’s first 16-bit laptop computers, plasma and vaccines, gas chromatography and atomic absorption spectrophotometry equipment, cochlear ear implants, leading edge catamaran car ferries, numerically controlled machine tools used in the manufacture of Rolls-Royce jet aircraft engines, plastic moulding software for the automotive and whitegoods industries, suspension equipment for Alfa-Romeo and Mercedes Benz sports cars and a range of similarly advanced service industries. Meanwhile other Australian firms have benefited increasingly from the romantic outback and leisure images of Australia in Europe. They have marketed bush icons like broad-brimmed hats, workboots and oilskin rainwear in the fashion centres of Europe, or have become leading sportswear brands in fashionable beach and ski resorts. Many have captured lucrative markets for film, television and music rights. At the same time, the pressure of global competition has meant that many “old” Australian manufactures and services have disappeared from the European market (for example, Victa mowers, Sabco carpet sweepers, Repco car parts) or have been taken over by European or other conglomerates (for example Aspro analgesics, Kiwi shoe polish, Speedo swimwear, TNT transport services, ANZ’s Grindlay’s Bank, Pioneer Concrete). While the contribution of manufactured exports is still not large, it represents a doubling of the share of elaborately transformed manufactures and services in Australia’s exports to the EU since 1990 (Figures 3 and 4). If the Australian Trade Commission (Austrade) and associated programs are able to achieve the government’s present ambitious goal of doubling the number of Australian exporters by 2006, this share is likely to grow further, marking an enduring improvement in the diversification of Australia’s business with Europe.

1 At a trade commissioners’ briefing conference in Canberra in November 1979, participants were told that their main task now was to understand the vital importance of resources and energy trade and in particular the nuclear fuel cycle. The world’s money was flowing to the Middle East and Australia’s trade focus was now on that region, along with south east Asia (writer’s personal notes).

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From the simple export of goods to a deeper engagement with the European

marketplace The activities of Australian firms in Europe are no longer characterised solely by the simple shipment of goods in response to export orders, but by more complex ways of consolidating their presence in the EU marketplace. Charles O’Hanlon, head of Austrade’s European operations from 1998 to mid-2003, described the new reality in these terms:

"The paradigm is changing; international business is no longer about putting boxes on ships, or selling your technology and getting royalties or a licence fee. It is now about enmeshing yourself in the markets of industrialised countries, such as those represented in most of Europe" (Harcourt, 2001)

Globalisation has led to many examples of such “enmeshing”. They include major public companies like Brambles and Amcor with huge operations in Europe. They have also included smaller firms like Quiksilver, which started as a Torquay-based surfwear exporter in the 1980s and quickly became a substantial European manufacturer and marketer in the south-west of France. The European operation was acquired by the group’s United States licensee in 1991 and is now part of a globally integrated company, Quiksilver Inc. It is still run by its Australian founder and is currently expanding its European presence with financial support from three levels of officialdom: the French local government département of Pyrénées Atlantiques, the administrative région of Aquitaine and EU structural funds from Brussels. In the other direction, there has been a similar but more pronounced evolution in the business activities of EU-based companies in Australia, “enmeshing” themselves in the market to a much greater extent than before. Examples are to be found in insurance (Axa), banking (ING), transport (Connex, Alstom, Yarra Trams), hotel chains (Accor group: Sofitel, Novotel, Mercure, All Seasons, Ibis, Formule 1), telecommunications (Siemens), petroleum products (Shell) and many other sectors of the Australian economy. In some cases, competing industries on both sides are now collaborating through investment, joint ventures and shared marketing channels. For example a number of leading French wine groups are now active in the Australian industry and Australian winemakers are involved in enhancing production in some regions of France. 3. The continuing dominance of the UK in Australia’s business with the European

Union

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The UK is Australia’s largest merchandise trade partner in the EU The UK has always been Australia’s largest economic partner in Europe, although its share of Australia’s total export trade has declined progressively from over 50% in 1901 to 33% in 1950-51 to under 4% in 2000-01. Belgium-Luxembourg, Italy, France and Germany were also among Australia’s top eight export markets up to the 1950s but no longer rank in the top eight (Figure 7).

Figure 7 Source: DFAT, One Hundred Years of Trade, 2002

Thirty years after Britain’s accession to the Europe of the Six, it still enjoys the lion’s share of Australia’s total trade and investment transactions with the EU of fifteen member states, despite the fact that the economies of Germany, France and Italy are comparable with if not stronger than the UK economy.

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In the case of Australia’s merchandise exports, the UK is particularly significant, representing almost half of Australian sales of goods to the EU in 2002-2003 (Figure 8).

Figure 8 Source: DFAT economy fact sheets, 2003

The pattern of Australia’s imports of EU goods more closely reflects the relative strengths of the British and German economies, but the UK’s share remains substantially greater than that of the comparably sized economies of France and Italy (Figure 9).

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Figure 9 Source: DFT economy fact sheets, 2003

The UK is even more dominant in Australia-EU trade in services The relatively balanced overall Australia-EU trade in services mentioned earlier is in fact far from evenly balanced in respect of the relative shares of individual member states. Here the position of the UK, as both an exporter and importer of services, is even more disproportionate than in the case of Australia-EU merchandise trade (Figure 10).

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Figure 10 Source: DFAT economy fact sheets, 2003

The UK is the main source of EU direct and other foreign investment in Australia The investment flows between Australia and the EU exhibit a similar pattern, with the UK supplying three-quarters of the total stock of EU investment in Australia as at 30 June 2002 (Figure 11). The foreign direct investment (FDI) component of those flows shows a somewhat better position for other member states but the UK still accounts for more than half the total of EU FDI into Australia (Figure 12).

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Figure 11 Source: ABS, 2003

Figure 12 Source: ABS, 2003

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The UK is also the preferred destination for Australian investment in the EU, including

direct investment

A similar pattern emerges when the levels of Australian investment in the EU are analysed. The UK is by far the main destination for total Australian investment and particularly for direct investment by Australian companies (Figures 13 and 14).

Figure 13 Source: ABS, 2003

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Figure 14 Source: ABS, 2003

4. How can the continued predominance of the UK be explained?

The UK’s membership of the European Union dates from 1973 and means that there are no longer any tariff or other preferences for former Commonwealth trading partners like Australia. The EU’s common external tariff and non-tariff barriers, including those imposed by the Common Agricultural Policy, are identical at every external border of the Union and Australian goods and services marketed in one member state may circulate freely throughout the EU. As far as the import regime is concerned, the internal market of the EU has been for decades a level playing field for third countries like Australia. A number of factors have been advanced to account for the ongoing preponderance of the UK in Australia’s trade and investment relations with the European Union. Most of these

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elements have probably played a part and may provide a key to assessing what the future could hold for Australia-EU business. The “Commonwealth effect”

There are clearly business advantages inherent in the many linkages that a shared Commonwealth history has engendered. The Commonwealth Policy Studies Unit (CPSU) has described a 1997 report, commissioned by the Commonwealth Secretariat, which concluded that:

“… there would be a 10-15% advantage accruing to Commonwealth-based organisations that invest in or trade with Commonwealth partners. This advantage is brought about by commonalties [sic] in language, infrastructure, legislation and regulatory frameworks. The 1997 study indicated that a ‘Commonwealth Effect’ exists both in trade and investment, with the magnitude being more pronounced in the case of foreign direct investment. The share of intra Commonwealth investment was found to be as high as 58%. In the case of trade, the share averages at 39% for imports and 35% for export in the last 25 years. Overall, the results suggest that the Commonwealth can indeed be thought of as a de facto trade and investment network.” (CPSU, 2003)

However, there are still significant differences in the influence of Commonwealth ties, and particularly British ties, in various countries. Canada’s exports to the UK represented only 1.2% of her total exports in 2001, compared with her exports to the United States, which comprised 87.5% of total Canadian exports. 5.1% of India’s exports in 2002 went to the UK, but she also had exports to Germany making up 4.3% of total exports. South Africa is quite dependent on the British market (12.9% of South African exports in 2002) but also has substantial exports to other EU member states (9.1% to Germany and 5.6% to Italy in the same year). It can be concluded that a common language, a similar legal framework and a similar way of doing business go a long way towards explaining the favoured position of the UK. Numerous studies by Hofstede and others of national business cultures (described for example by Mercado et al) have analysed the common business environments, structures and attitudes of countries in the “Anglo” or “Anglo-Saxon” cultural cluster: short-term orientation, shareholder orientation, trading and finance orientation, high turnover of managers, greater liberalism towards foreigners, more management freedom in relation to employees and government, more direct interpersonal relationships and so on. But other questions remain. For example, is there something inherently attractive about the business environment of the UK that makes it generally a favoured partner for third countries, whether or not they form part of the Anglo cluster?

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The UK is the favoured destination for all foreign investment in Europe In the field of direct investment, the UK certainly rates more highly than its EU partners as a destination. A study by Ernst and Young analysed business location decisions in Europe in 2002 and found that, as in the previous two years, the UK came ahead of all other European countries as a preferred investment destination (Figure 15).

Figure 15 Source: Ernst and Young, European Investment Monitor

The British lead may well be attributable to the fact that the UK economy has undergone more profound re-structuring than the other major EU member states and is accordingly a more “business-friendly” environment. Hugh Morgan, head of the Business Council of Australia, has stressed the relative attractiveness of the UK compared with the EU as a whole (Taylor, November 2003). Nevertheless, if Australia’s preferred destinations in Europe were like those of third countries generally, its investment levels in continental Europe, particularly in France and Germany, would be much greater than is reflected in Figure 14.

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Does the strong UK orientation reflect linguistic and cultural shortcomings in

Australia’s business community? Those of us who would like to see Australia more active in the large and open markets of continental Europe are sometimes inclined to attribute the imbalance to weaknesses in the language and other cross-cultural skills of the Australian business world. It is true that the teaching of languages other than English (LOTE) is non-existent in many Australian schools today. For example, the Victorian Department of Education and Training has reported that only 50% of Victorian secondary colleges offer LOTE and that only 7.8% of the state’s year 12 students studied a second language in 2001 (The Age education supplement, October 2003). It is equally true that Australians conduct the vast majority of their international business communications in English. There is also the striking reality that most Australian companies with a strong presence in the UK do not use that base to launch business elsewhere in Europe. Charles O’Hanlon has referred to this phenomenon as “ ‘Channel Fever,’ whereby Australian companies located in Britain are sometimes reluctant to cross the English Channel to tackle continental European markets” (Harcourt, 2001). This reluctance persists despite the success British exporters have achieved across the Channel. Over 50% of total UK exports of goods in 2002 were to the other fourteen EU member states. However, Australian companies have shown a great ability to handle cross-cultural business in other parts of the world where the linguistic and cultural gap equals or exceeds that in continental Europe. The flourishing of Australia’s exports and investments in markets like China suggests that Australian business people can and will bridge the cross-cultural gap when they perceive the opportunities and rewards to be worth it and to be compatible with corporate strategies. Australian executives today are generally attuned to the global market and by no means mono-cultural in outlook as their predecessors may have been. They have often included very successful business people originally from continental Europe, for instance Sir Arvi Parbo (Estonia), Sir Peter Abeles (Hungary via Italy), Walter Heine (Germany) and Italo-Australians like Carlo Valmorbida, Carlo Saltieri and Sir Tristan Antico. In passing it can be noted that such ethnic links have not translated into close business relationships with the executives’ countries of origin. Decisions on business destinations are taken on hard-nosed commercial grounds and there is no evidence that Australia’s multicultural population has had any significant effect on the direction of its trade and investment flows – with the notable exception of the British connection. In rare cases Australian business norms and practices may prove incompatible with

those in some European countries

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Australian business’s ethical, accounting and auditing standards are generally rated internationally as high, on a similar level to those in the UK although lower than in several northern European nations (Transparency International, August 2003). On rare occasions, Australian companies have felt unable to pursue business in some European markets because local practices were seen as incompatible with their corporate standards. For example, in 1987 Sir Tristan Antico withdrew Pioneer Concrete’s operations from his native Italy after twenty-three years in that market. His reason was reported at the time in these terms:

‘ “The Italian way of doing business is not quite the Anglo-Saxon way,” he said ruefully. “A lot of business in Italy is done in cash with a bit going to dad, mum, uncles, aunts, brothers, sisters and cousins. But being a public company with Anglo-Saxon auditors we simply couldn’t work that way against a lot of small family-owned suppliers.” So the black economy forced him to say “arrivederci” ’ (The Bulletin, April 1987)

To balance the ledger it should be mentioned that in 1998 the Italian fiscal police found that a very large Australian-owned wool-scouring venture in Italy had committed a major fraud. The operation has now been abandoned (The 7.30 Report, 11 November 2003).

The Pioneer experience aside, no evidence has been found that incompatible business standards or practices have inhibited Australian business initiatives in continental Europe. We must look elsewhere for factors that have discouraged Australian companies from engaging with the EU, especially when we recall that Germany, Italy, France and Belgium-Luxembourg no longer rank in Australia’s top eight export markets as they did in 1950-51. Canberra’s “demonisation” of Europe since the 1950s may explain many Australian

business people’s negative perceptions of the EU market

Ever since the establishment of the EEC in 1958, successive Australian governments have seen Europe’s trade policies and opportunities largely through agrarian eyes. Because of its farm support system, the EEC/EC/EU has been portrayed by Canberra as protectionist at home and as competing unfairly on world markets through massive subsidisation of its domestic production. The official bilateral trade relationship has been dominated by Australia’s unhappiness with the common agricultural policy (CAP) and by its endeavours through bilateral and multilateral negotiations to have the policy eliminated or substantially reformed. Initially the emphasis was on salvaging at least part of the traditional British market for Australian foodstuffs through seeking (unsuccessfully) major concessions at the time of UK accession to the EC in 1973 but gradually the emphasis shifted mainly to the distortion of world markets caused by Europe’s export subsidies. From Australia’s perspective the farm sectors most damaged by the CAP included beef, lamb, sugar, dairy products and canned fruit.

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In July 1977, John Howard was appointed to the newly created position of Minister for Special Trade Negotiations with the EC, a role largely dedicated to articulating Australia’s CAP concerns in the member states. It was a frustrating experience as he recalled twenty-two years later: “I was trying to get a better trade deal for Australian produce in what was then the European common market and I got pretty lean pickings just about everywhere I went to every capital” (Howard, 1999). Victor Garland succeeded him in this role in 1978 and fared no better. At the GATT Ministerial Meeting in Geneva in November 1982, the European Community’s unwillingness to negotiate significant changes to the CAP led to an unprecedented walkout by the Australian delegation, headed by the Trade Minister, Doug Anthony. Australia was the only country to dissociate itself from the results of that meeting. In 1985 Canberra’s respected Bureau of Agricultural Economics produced a major study on the impact of the CAP on European consumer prices and its director, Dr Andrew Stoeckel, undertook a series of visits to EC capitals to promote awareness of the findings. While he met some receptive people in member states that were not significant beneficiaries of the CAP, his work was not well received elsewhere, particularly in Paris and Brussels. As recently stated by the Chairman of the Australian Productivity Commission:

“One avenue that Australia has already tried is to sponsor research on the costs of protection to our trading partners. An important early effort in that vein was the Red Book on the domestic costs of the CAP, which you may remember was produced by the Bureau of Agricultural Economics back in 1985. It had an impact but its influence on Europe suffered from its association with a foreign interested party, namely us.” (Banks, 2002)

In 1986 Australia’s trade minister John Dawkins led the establishment of the Cairns Group of seventeen agricultural exporting nations to reinforce efforts in the WTO to liberalise agricultural trade, the main targets being the EU policies, along with United States and Japanese farm protectionism. Annual Cairns Group ministerial meetings are still chaired by the Australian trade minister. Australia’s persistent campaigning against the CAP particularly irritates France, the main defender and beneficiary of that policy. 2

2 It is worth noting in passing that Jacques Chirac was the French minister for agriculture and later prime minister in the early 1970s, and again prime minister in the 1980s. He became president of the Republic in 1995 when Australian anti-French feeling was high over nuclear tests in the Pacific and when Paris was concerned about Australia’s intentions regarding New Caledonia. In April 2003, Prime Minister Howard suggested that France should lose its permanent seat on the UN Security Council. It would be interesting to have Chirac’s private perception of Australia, which he is scheduled to visit in 2004!

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The CAP and associated disputes continue to loom large in the bilateral relationship. Here are the headlines of a leading European online business magazine when it was searched in October 2003 for stories about Australia:

• US and Europe attack Australia over "unfair" trade barriers

• EU protests to WTO over Australian food import restrictions

• Australia cool to EU-US trade proposal

• WTO panel to study dispute by US, Australia with EU over home grown brands

• EU protests to WTO over Australian food quarantine measures

• Europe steps up pressure on Australia to save Kyoto climate plan

• Australia blames Europe and Japan for stalled agriculture trade talks

• EU trade reforms a small first step: Australia

• WTO talks on farm trade at "critical stage": Australia

• Australia, Thailand to complain to WTO over EU sugar dumping

• Australia warns EU it must unite against terrorism and rogue states

• Australia lashes EU over lack of action on Iraq crisis

• EU team off to Australia, Japan on Kyoto mission (eubusiness.com, October 2003)

In the past two decades both sides have made efforts to highlight positive aspects of the Australia-EU economic relationship and despite the absence of a bilateral trade agreement they have concluded several arrangements of real potential value to business on both sides, notably the Mutual Recognition Agreement (MRA) and the Wine Agreement. Through the MRA, the European Union and Australia extend to each other the internal EU concession of mutual recognition of each other’s standards and certification, which represents a great saving of effort and expense for exporters of a wide range of manufactured products. The previous need for re-testing and certification in each member state was costly, time-consuming and a disincentive to many firms. The Wine Agreement involves mutual concessions and facilitates wine sales in both directions. However, old perceptions take time to adjust to new realities and Austrade’s experience is that many Australian business people still have a conscious or sub-conscious image of the EU as “Fortress Europe”, protectionist and inward-looking and not as attractive to Australia as other developed market economies – with the exception of the UK. Charles O’Hanlon expresses this persuasively:

“… the Australian Government has been so successful in demonising the EU because of its Common Agricultural Policy that it is now a widely held belief among Australians -- and, unfortunately, especially business people -- that the EU is highly protected ... across all sectors. As a result, in selecting markets to which to export, many Australian businesses first look elsewhere, even when the EU might be ideal for that product ... put another way, the old problem of outdated perceptions still exists, especially when dealing with markets of continental

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Europe. This, of course, is one of the reasons (along with the ‘cultural’ ones) for the continued predominance of the UK among our EU partners” (O’Hanlon, October 2003)

Correspondingly outdated, negative perceptions are disseminated in Europe (as the eubusiness.com headlines attest), along with other images of the Australian market as being too difficult. One encounters French business people who still think of Australia as a British private hunting ground or chasse gardée and many Europeans simply see Australia as “too far away” (some may consider going to as far as Singapore but see Sydney as one extra flight too many). However, the “enmeshing” of so many continental EU firms in Australia and the associated trade and investment statistics indicate that the negative attitudes of European business practitioners are breaking down more quickly than those of Australia’s business community. The UK bias of Australia’s media tends to reinforce unbalanced perceptions of the EU in Australia. When Australian print and audio-visual organisations do have their own Europe-based journalists they are generally in the UK and when news feed is drawn from European sources, it comes predominantly from British rather than French, German or Italian wire services. European newspaper opinion pieces reprinted in the Australian press are mainly of British origin. The Australian state governments are also UK-oriented, with their European trade and investment promotion staff based in the UK. Only Victoria also has an office on the continent. The main Australia-Europe business organisation, ABIE (Australian Business in Europe), is UK-based with a much smaller presence in some other EU countries. It might be argued that when all the historical, cultural, political and structural factors are taken into account, the strong bias towards the United Kingdom is appropriate, and that indeed Australian governments and firms should continue to build on the strengths of the British market rather than devote resources to improving business with the other member states of the European Union. A survey of the many hundreds of Australian companies active in the UK could test this proposition by analysing their reasons for not often venturing across the English Channel. The results of the survey might confirm that continental Europe is indeed too hard. Alternatively, it could reveal that the Australian business community is not fully aware of the openness and opportunities to be found in the integrated EU marketplace today.

5. Future prospects for Australia-EU business We cannot expect the “new Europe” of 25 or even 28 member states to make a dramatic difference to Australian business achievements in the EU. The acceding states, even after

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the inclusion of the second largest economy, Turkey, will add relatively little to the overall wealth and opportunities offered by the existing EU of 15 (Figure 16). Nor have previous enlargements of the EEC/EU led to significant changes in the pattern of Australia’s business with the acceding countries.

Figure 16 Source: World Bank

So the essential question is whether or not Australian business will develop a more positive perception of trade and investment opportunities in the continental European Union generally. If so, it can be expected to act accordingly, as it does elsewhere where it believes prospects justify the necessary commitment of human and financial resources. There is little reason to hope that the CAP-engendered negative perceptions will dissipate very quickly, given the ongoing and very public tension and frustration in the official trade relationship, particularly in the context of the WTO negotiations.

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In Canberra the European Union is seen as “difficult” and its trade policies as “unacceptable”. In June 2003, the head of the Department of Foreign Affairs and Trade, Dr Ashton Calvert, was reported as telling a New Zealand audience that Australia was in no hurry to enter into any more FTAs [free trade agreements] after current free trade negotiations with other partners were concluded. He reportedly went on to say that Australia was unlikely to seek an FTA with the European Union. The report continued:

‘ “In terms of potentiality we recognise the significance of the whole EU market to Australia's interests,” he said. But there were two big obstacles to an FTA with the EU. The biggest was that the EU was unwilling to talk to Australia about any liberalisation of agriculture. No Australian government was likely to engage in talks that excluded agriculture because the bargaining leverage that Australia gained from that sector would be denied right away. “The other difficulty with the EU, frankly, is so self-absorbed is the EU (in) its own decision-making processes that it's a very hard animal to deal with and a hard animal to negotiate with,” Calvert said. “So even if the agendas were clearer than they are, it is not a straight-forward thing to join in such a process.” Calvert said Australia's prime focus in trade was on the World Trade Organisation. “As for the WTO, it remains a priority of primacy in our trade policy,” he said. “This is not rhetoric. The bigger, more worthwhile lasting gains for Australia in trade organisation will always come from a multilateral system. However, it’s very slow-moving.” Calvert said that thanks to the Europeans, the WTO agenda was very broad and complex. “Every damn thing you can think of is in there: animal rights, all sorts of health issues, environment - all these things piled into the agenda,” he said.’ (Nzoom, June 2003)

In the same vein, Prime Minister Howard attacked the European Union’s agricultural trade policies, its supra-national organisations and its bureaucrats when speaking to an Australian business audience during his visit to the UK in November 2003.

“… notwithstanding the unacceptably restrictive policies of the European Union when it comes to our exports in the agricultural area, we have been able to achieve a remarkable penetration, particularly of the British market, with one of our great export success products over the last few years, and that is Australian wine. And just think what we could achieve if the mandarins of Brussels had a more accommodating view of the justice of our cause in that area. … I’d have to say that it is an inevitable consequence of creating a supra-national bureaucracy that you get this [increasing EU business regulation] occurring because bureaucracies of that kind have to do something to justify their existence and they generate new rules. I mean I think it is harmful … it [affects] Australia …

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… I mentioned the wine industry earlier. We have had some unwelcome evidence already of the determination of the European Union to use all sorts of requirements strictly unrelated to the product to influence patterns of trade and there are suggestions in the wings that other regulations might be invoked. … Well that will cause a very strong reaction from a major wine exporter such as Australia, but I think it’s a function of supra-national organisations and bureaucracies and it’s a challenge that they will face particularly with the expansion of the European Union … You give regulation-making authority to a supra-national bureaucracy which is effectively accountable to nobody [and] you get a lot of extra regulations…” (Howard, November 2003)

Reporting on this speech and the Prime Minister’s approach to the EU generally, Lenore Taylor of the Australian Financial Review described Europe as “Howard’s blind spot”. Her assessment was that Europe was “not on Howard’s radar” and that “John Howard’s attack on the European Union highlighted a confrontational attitude that perplexes politicians and businessmen in Britain and Europe” (Taylor, November 2003). A more constructive approach is found in the relatively new Australia-EU agreements referred to earlier. For some Australian companies these are clearly facilitating business in Europe. The Department of Industry, Tourism and Resources has published several case studies illustrating company successes due to the Mutual Recognition Agreement (DITR, October 2003) and the growing inter-relationships in the wine sector illustrate the business “enmeshing” referred to by Austrade’s former European head. There is also the encouraging progress in Australian exports of services to the EU, although that business is overwhelmingly with the UK. Even more promise lies in the increasingly global outlook of Australian business, bringing with it a growing readiness and ability to engage with new international partners. Those Australian companies already successfully “enmeshed” in Europe are pursuing their business with little or no regard to the negative stereotypes projected by agricultural trade policy differences and more firms in all sectors can be expected to move in a similar direction as part of their growing integration into the global marketplace. What is lacking is the political will to encourage more Australian firms to emulate such moves by focusing the wider business community’s attention on the attractiveness of the EU as an open market and as a major world buyer, innovator, manufacturer, investor and joint venturer in virtually every non-CAP sector, particularly in leading edge technology and associated services. Australian governments have consistently promoted the business opportunities in Asia since at least 1957, when the then Minister for Trade, John McEwen, signed the trade agreement with Japan. Currently the emphasis is on concluding trade agreements with the

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United States and China. In the absence of any commensurate initiatives in relation to the European market – and in the face of the government’s continuing strident attacks on the EU – Australia’s position in the world’s largest marketplace will remain below its potential and progress will depend essentially on Australian business itself.

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References

Australian Bureau of Statistics (ABS), International Investment Position, Australia: Supplementary Country Statistics 2001–02 No. 5352.0. 17 February 2003. Canberra Banks, G. R., Chairman, Productivity Commission. Evidence given to the Trade subcommittee of the Australian Parliament’s Joint Standing Committee on Foreign Affairs and Trade, Reference: Scrutiny of the World Trade Organisation. CANBERRA. Official Committee Hansard, 23 August 2002. Canberra CPSU (Commonwealth Policy Studies Unit), Institute of Commonwealth Studies, University of London, E-commerce Commonwealth Business Factor, 2002. London. Downloaded on 30 September 2003 from: http://www.cpsu.org.uk/projects/ECOM.HTM Department of Foreign Affairs and Trade (DFAT), Australia’s Trade with the European Union 2002. Canberra. Downloaded on 22 October 2003 from: http://www.dfat.gov.au/publications/stats-pubs/eu.pdf Department of Foreign Affairs and Trade, Direction of Trade Time Series 2000-01 One Hundred Years of Trade, February 2002. Canberra Department of Foreign Affairs and Trade, Economy Fact Sheets. Canberra. Downloaded on 22 October 2003 from: http://www.dfat.gov.au/geo/ Department of Industry, Tourism and Resources (DITR): European Community - Australia Mutual Recognition Agreement (EC-MRA) - Case Studies. Canberra. Accessed on 21 October 2003 from: http://www.industry.gov.au/content/itrinternet/cmscontent.cfm?objectID=7F3E9E77-53AC-4792-B0C5518ED217650E DFAT: see Department of Foreign Affairs and Trade DITR: see Department of Industry, Tourism and Resources Ernst and Young, European Investment Monitor, 2003 Report. July 2003. London. Downloaded on 30 September 2003 from: http://www.stockholm.se/files/46000-46099/file_46076.pdf EuBusiness.com. London. http://www.eubusiness.com/search?SearchableText=australia searched on 3 October 2003 European Commission’s Delegation to Australia, September 2003: EU – Australia Economic Relations 2001-02. Canberra. Downloaded on 22 October 2003 from: http://www.ecdel.org.au/eu_and_australia/2001-02EconomicRelationship.htm

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Harcourt, T., British ties can build a bridge into Europe, in the Australian Financial Review, 28 February 2001. Sydney Howard, J., Prime Minister of Australia, Transcript of the Prime Minister, The Hon John Howard MP, Address at Irish Australian Chamber of Commerce St Patrick’s Day

breakfast, Melbourne. 17 March 1999. Downloaded on 13 November 2003 from: http://www.pm.gov.au/news/speeches/1999/StPatricks.htm Howard, J., Prime Minister of Australia, Transcript of the Prime Minister, The Hon John Howard MP, Address to the Australian Business Investment [sic] in Europe (ABIE) breakfast, Savoy Hotel, London. 12 November 2003. Downloaded on 13 November 2003 from: http://www.pm.gov.au/news/speeches/speech571.html Mercado, S, Welford, R and Prescott, K, European Business. Chapters 8-9. Pearson Education Ltd. London. 1 December 2001 Nzoom, Aussie slows FTA moves, 6 June 2003. Auckland. Downloaded on 6 June 2003 from: http://onebusiness.nzoom.com/onebusiness_detail/0,1245,195718-3-167,00.html. The full text is no longer available on that website but a very abbreviated version of the report was downloaded on 23 October 2003 from: http://groups.yahoo.com/group/wto_forum/message/713 O’Hanlon, C., former head of Austrade’s European operations, Re: “Australia and the EU – Partners or Adversaries”. Canberra. E-mail dated 7 October 2003 Taylor, L., Europe: Howard’s blind spot, in the Weekend Australian Financial Review, 15-16 November 2003, pages 30-31. Sydney The 7.30 Report, CPH under spotlight over former executive's fraud, 11 November 2003. Sydney. Transcript downloaded on 13 November 2003 from: http://www.abc.net.au/7.30/content/2003/s987029.htm The Age Educational Supplement, Learning the lingo, pages 6-7, 20 October 2003. Melbourne The Bulletin, Why Pioneer bid Italy arrivederci, 14 April 1987. Page 118. Sydney Transparency International, Corruption Surveys, http://www.transparency.org/ downloaded in August 2003. Berlin World Bank, World Development Indicators database: Total GDP 2002. July 2003. New York. Downloaded on 16 November 2003 from: http://www.worldbank.org/data/databytopic/GDP.pdf