H.E. Ambassador David Daly,

Head of Delegation of the European Union to Australia

speech to

the European Chambers in Australia

Sydney, 26 August 2010

Revisiting Europe: Trade opportunities for the EU and Australia

Check against delivery

Thank you for inviting me to speak at this Business Luncheon today. It is indeed a privilege to be here, among representatives from the European Chambers – having addressed your Melbourne colleagues just last month – and alongside Australia's own 'Airport Economist' (Tim Harcourt).

This event allows me the chance to emphasise Europe's significant role in Australia's trade relations and inform that the European Union's pursuance of both internal and external reforms leaves both partners well positioned to take advantage of future trade opportunities. I therefore have three thoughts to (hopefully) entertain you with; firstly that while domestic attention being very much drawn towards Asia, the substance of Australia's overall trade and investment data is still very much about Europe; secondly, that with its single market, the European economy is important, resilient and is bouncing back; and thirdly, that the EU-Australia trade relationship is expected to benefit from the EU's responses to future challenges though Europe 2020 and other forward-thinking strategies.

The EU is still Australia's largest economic partner

The EU is still Australia's largest single economic partner in terms of combined trade and investment, with combined two-way trade and investments exceeding A$1 trillion for the first time last year (A$1,083 billion).

According to Australian data, the EU accounted for 15 per cent of Australia's trade in goods and services in 2009, or A$77 billion. Admittedly, this was down some 15 per cent from the previous year amid the effects of the global financial crisis, but it places the EU as Australia 's second-largest trading partner after China.

In the latest year to June 2010, the EU supplied 19 per cent of Australia's merchandise imports, and was the market for 8 per cent of Australia's exports. Furthermore, EU-Australia merchandise trade is diverse, with products as varied as medicines, coal, motor vehicles, aircraft, and alcoholic beverages featuring in the top five traded goods last year. This is somewhat different from Australia's trade with some of its Asian partners where single commodities account for the bulk of Australia's exports – last year coal represented more than two-fifths of the value of Australia's merchandise exports to Japan; iron ore accounted for one-half of Australia's exports to China.

However, the breadth of the economic relationship is not only reflected in the importance our bilateral trade in merchandise goods but also in services – which accounts for over one-quarter of two–way bilateral trade, where the EU is Australia's largest partner, being the largest supplier of services to Australia and the largest destination for Australian services exports in 2009. Trade in services is growing in importance and in many respects represents the future for advanced economies like the EU and Australia.

Then for investment, we are again Australia's largest partner.

EU investment in Australia last year amounted to A$44 billion, bringing the total stock of EU foreign investment here to A$659 billion, almost 13 per cent up on 2008. While China may be the focus of attention, its stock of investment at the end of 2009 was less than 1 per cent of foreign investment in Australia. This compares with 5 per cent for Japan and 27 per cent for the US ; while EU investment amounts to almost 35 per cent of total foreign investment in Australia (and a similar proportion of foreign direct investment). Moreover, this investment is estimated to account for around 500,000 Australian jobs directly, and a total of 1.4 million jobs directly and indirectly; in other words some 12 per cent of the Australian workforce are directly or indirectly reliant on EU investment.

Naturally this cuts both ways; Australian investment in Europe is also important for jobs in the EU.

As I said in my introduction, the talk in Australia is all about Asia but the overall data are still very much about Europe.

Having bombarded you with statistics and rankings (perhaps reflective of a heightened interest in the outcome of my footy tips as we approach the end of the AFL home and away season this weekend), I nonetheless must echo the sentiments expressed last year by my fellow speaker Tim Harcourt, who stated that focussing too much on who out ranks who misses out other key points. The interconnectedness of international trade and global supply chains cannot be overlooked. A singular focus on one region ignores its interdependent relationship with other trading partners. To this end, permit me one further ranking of relevance to Australia – who is China's largest trading partner? The European Union.

The EU economy is resilient, based on its economy of 500 million citizens

As I recently advised your chamber colleagues in Melbourne, there is too much pessimism going around in some quarters about Europe and the euro. I am reminded of that character from Australian poetry – Mr. Hanrahan – who, no matter the circumstances, would repeat, “We'll all be rooned, before the year is out”. I reject such pessimism.

The European economy is bouncing back – the latest figures show this in terms of the decisive measures being taken, the growth forecasts and the latest bond offerings by certain Member States.

Europe has taken hard decisions in the face of the economic crisis; a €100 billion deal was reached on Greece; a €500 billion (€750 billion when including the IMF component) stabilisation mechanism was agreed for others – if they need it; tough measures are being taken by many Member States to bring their fiscal situations back into line.

These tough measures are working; the EU's latest annual growth rates are up considerably on the previous figures (+1.7 per cent compared with the second quarter of 2009, against +0.5 per cent in the previous quarter); recent bond offerings by countries such as Spain, Portugal and Italy have been well subscribed by the markets, who are much less jittery on Europe than they were only two months ago; EU banks have passed, albeit some have failed, the stress tests published last month.

You know that the creation of the EU's single market has taken many years and is still a work in progress in certain areas. We can be rightly proud of what we have achieved in a single economic space across 27 countries and comprising 500 million consumers. Recalling a statement by Margaret Thatcher in 1987, "What we need are strengths which we can only find together … We must have the full benefit of a single large market."

Benefits of the single market

The benefits of this Europe without borders are enormous for companies operating there according to a single rulebook. Likewise, the single EU market is easier for third country businesses to navigate – a single legal framework and less red tape. Third country businesses, established in one Member State can operate easily in the 26 other Member States. The single market is a very competitive space which forces EU companies to be global in their search for competitive inputs and forces EU suppliers to sharpen up their product.

The statistics I flagged at the outset, describing the strength of the EU-Australia trade relationship, reinforces why the EU single market matters to Australia . You know this better than I, as your companies benefit from the internal market on a daily basis, and it is your firms which are contributing to this relationship.

Ensuring the single market delivers on its full potential

The single market has been described as the cornerstone of Europe 's integration and sustainable growth. However, as the recent crisis has shown there remain underlying pressures working against the realisation of the full potential of the internal market.

There is no room for complacency; the Single Market needs attention and is receiving it.

Professor Mario Monti, former European Commissioner, has recently presented a report to European Commission President José Manuel Barroso on how the Single Market can be strengthened.

Professor Monti recommends that more needs to be done to build a better functioning, stronger Single Market; a stronger consensus for that stronger Single Market, and better tools for a relaunch of the Single Market.

The Commission is studying the Monti report but it is clear that completing the "missing links" of the Single Market is a priority of the second Barroso Commission.

Amidst these challenges, efforts are ongoing in realising the ambition of the single market. Addressing new sectors of the economy, Member States are presently engaged in the implementation of the Services Directive, further opening up what is a crucial sector for future growth. Work continues towards the development of a future EU Patent, while addressing barriers to electronic commerce and other emerging new services remains a particular focus. In addition, Europe's single energy market is viewed as a key asset in drawing future benefits from the low carbon economy. This is the direction that Europe is working in. The signposts are there and the economy is already moving very clearly down this route for smart and sustainable growth.

The EU economy needs ongoing reform

The economic crisis has clearly shown the need for many reforms, some of which have been evident for a while, as indicated by the Commission's Europe 2020 strategy endorsed by the European Council in June, which sets out a vision of Europe 's social market economy for the 21st century. It shows how the EU can come out stronger from the economic crisis and how it can be turned into a smart, sustainable and inclusive economy delivering high levels of employment, productivity and social cohesion.

Europe 2020 is the Commission's response to the structural weaknesses in Europe's economy that have been exposed by the crisis. While the immediate priority remains moving out of the crisis, there are fundamental challenges which can no longer be ignored, including Europe 's comparatively low structural economic growth, low employment levels and acceleration of demographic ageing. The strategy also aims to tackle the ongoing challenges associated with globalisation and climate change.

In setting out the three priority themes of smart, sustainable and inclusive growth, Europe 2020 has selected headline targets which provide an overall view of where Europe wants to be by 2020. In support of these targets, the Commission has put forward a number of flagship initiatives, committing the EU and the Member States to progress under each priority theme. The single market I spoke of earlier features prominently throughout these initiatives and the strategy separately calls for a renewed political commitment to re-launch the Single Market through their adoption.

A new trade policy

To help deliver the ambition of Europe 2020, the Commission is also developing a new trade policy, building upon the 2006 Global Europe trade strategy. This will reaffirm multilateral trade liberalisation and a conclusion of the WTO's Doha Round as the EU's top trade priority, and set out an ambitious bilateral agenda, including, like Australia, a strong focus on Asia. A new area under EU trade policy will be investment, as the Lisbon Treaty provides the EU with new powers to develop investment policy at the European level, helping to ensure that the EU remains the world's top destination for Foreign Direct Investment. Communications on these policies are already being adopted by the Commission. Together with the relaunch of the internal market, these reforms will enhance the depth and quality of the EU's relationship with its trading partners, including Australia.

Conclusion

So, before I hand over to Tim for his observations, I would like to thank the European Chambers in Australia for organising this event and for promoting discussion on the European-Australian trade relationship – perhaps the core component of our bilateral engagement.

Europe has been, and I suspect will continue to be, a major trade focus for Australia. While Australia continues to pursue the obvious business opportunities on offer in Asia (as indeed does Europe ), it can expect to derive renewed economic benefits from the EU's enhanced Single Market and sustained focus on economic reform, of which our Europe 2020 strategy and upcoming new policy communications are but the latest components.

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This page updated August 26, 2010