Australia and the European Union.

The European Union remains Australia's largest economic partner when one takes into account trade in goods, services, investment and transfers. Traditionally it has enjoyed a substantial trade surplus with Australia. But one country's trade surplus with a trading partner gives a somewhat truncated and static picture that does not tell the whole story.

Let me first take a short space to highlight the European Union's place in the world, since its importance as a player in the global economy is not always properly appreciated:

1. The European Union is a huge single market currently consisting of 376 million affluent and discerning consumers. It is composed of fifteen member States. With Enlargement (expected in 2004), the European Union will expand eastwards and to the south to include up to thirteen new Member States, with a total additional population of 171 million.

2. The European Union constitutes the world's second largest single market (just after the United States.). It was worth $A13 trillion in 1999, which represents twenty-one times the size of the Australian economy. (Incidentally, it should be noted that it was then the largest single market, but due to movements in exchange rates, the United States is now valued at $A13.7 trillion)

3. The European Union is a world-leading trader, accounting for $A3.5 trillion of trade or 19 per cent of the world two-way trade in 2001. It is the world's largest exporter, and second largest importer. Its two-way trade (excluding intra-European Union trade) is more than double that of Japan and fourteen times that of Australia.

When we reflect on the bilateral relationship between Australia and the European Union, we can observe, with some degree of satisfaction, the strength of our links. We have built an excellent working relationship, which stems from something much deeper than pure trade concerns. In fact, there are strong similarities between the European Union and Australia, since our societies spring from similar roots.

We share a common attachment to freedom, democracy, the rule of law and human rights, and Australia's special relationship with the United Kingdom, in terms of governance, trade and economic links and traditional kinship, needs no elaboration.

Nor does the fact that Australia's ties with Europe deepened and widened in the years following World War II by way of migration, and by way of trade and investment with other Member States, following the United Kingdom's accession to the European Union.

The importance of the European Union to Australia is often not properly recognised: by referring to economic and trade relationship with separate Member States, and not to the entire European Union markets, there is a tendency to belittle the reality.

Let me provide you with some brief statistics:

* The European Union has been Australia's largest economic partner for the past ten years. By economic partner, is meant the total of all international transactions, which involves trade in goods, trade in services and investment and transfer payments, measured on a two-way trade basis. For 1999-2000 (the latest statistics available), the overall E.U.-Australia economic relationship grew by five per cent to reach $A64.2 billion and accounted for a 20 per cent share of all Australian overseas transactions (the United States' share was 19 per cent, Japan's 13 per cent and A.S.E.A.N.'s 12 per cent);

* The European Union is Australia's largest merchandise trading partner (a status it has held since 1995-96), with two-way trade amounting to $A36.8 billion in 1999-00 or 17.7 per cent of the total (Japan's share was 17 per cent, the United States 16 per cent and A.S.E.A.N. 13 per cent);

* The European Union remains Australia's largest partner for trade in services, being both the largest export market for Australia (increasing by 8.5 per cent in 1999-00 to $A5.7 billion) and the largest supplier of services to Australia (increasing by 8.9 per cent to $A7.0 billion);

* Total two-way trade in services between the European Union and Australia was worth $A12.7 billion in 199900 or 22.0 per cent of the total trade (the United States' share was 19 per cent, A.S.E.A.N.'s 14 per cent and Japan's 9 per cent);

* The European Union remains Australia's leading investor, with an accumulated investment of about $A235 billion at the end of June 2000 or 33 per cent of total foreign investment in Australia (the United States' share was 30 per cent, Japan's 7 per cent and A.S.E.A.N.'s 3.3 per cent);

* Importantly, investment by the European Union has created many jobs in Australia, estimated (in 1999) to total 350,000;

* Australians working in European Union companies find salaries are better than in equivalent Australian companies (for instance, for Information Technology companies in 1989-99, they were 38 per cent higher);

* The European Union is the second major investment location for Australian funds invested overseas, reaching $A102 billion or 27 per cent of the total by June 2000 (as destinations, the United States' share was 42 per cent, Japan's 6 per cent and A.S.E.A.N.'s 4 per cent).

We have also bilateral agreements that enhance the relationship:

* There is the Joint Declaration on E.U.-Australia relations signed in 1997, which provides the overall framework for the formal government-to-government relationship.

* There is the Wine Agreement signed in 1994, which is still being worked on. It assists in the development of wine trade by addressing the necessary regulatory issues required for this product. (The growth in exports in wine is an outstanding success story for Australia. Australia has become the number one supplier to the European Union of wine, with over $A1 billion of wine exported to the European Union last year. For Australia, the expansion of the wine industry provides opportunities for greater employment in rural areas. Addressing rural development and rural employment is common challenge faced by Australia and the European Union alike, and one where there should be greater cooperation and sharing of experiences.)

* There is a Science & Technology Agreement, which was signed in 1994 and expanded in 1999, which facilitates mutually beneficial research co-operation between Australia and the European Union and since 1999 has involved over $100 million of joint research across a range of topics including health, global environment, transport, manufacturing, agriculture and importantly the new economy sectors of the information society and biotechnology. (As post-industrial economies, both Australia and the European Union must take full advantage of these new technologies to maintain our place in the world and the living standards of our citizens. While our traditional industries will remain important, we must look to these new industries for our growth.)

* There is also the Mutual Recognition Agreement on Conformity Assessment signed in 1999, which, in short, reduces technical barriers to trade and facilitates trade by allowing conformity assessment (testing, inspection and certification) of products traded between Australia and the European Union to be undertaken in the exporting country rather than having them carried out at destination. (In the case of Australian exporters, this means compliance with the requirements of the relevant European Directives (or Regulations), which can be completed in Australia, as well as European markings that can be applied to products prior to export. In this way the product can be placed on the European Union market with no further intervention by European authorities.)

It is also important to reflect on just how the European Union has evolved during this time:

* From 1950: A Coal & Steel Community

* 1957: The integration of coal and steel was so successful that the European Union was integrated to include all fields of economic activity.

* 1968: The customs union was completed with all tariff barriers between Member States removed.

* To 1973: The first enlargement and probably the most dramatic for Australia, with the inclusion of the United Kingdom, Ireland and Denmark.

* 1981: The inclusion of Greece, and then, in 1986, of Spain and Portugal, gave a total of twelve Member States.

* Mid-80s: Also at this time a work plan towards completion of the Single Market was devised--there were over 300 pieces of legislation to remove all remaining non-tariff barriers to trade to allow for the four basic freedoms first envisaged in the 1957 Treaty of Rome: the free movement of goods, services, capital and people.

* 1987: The political arm of the Union started to take shape with the Single European Act of 1987, bringing political cooperation into the system of E.C. treaties.

* 1992: The Single Market Programme largely completed the benefits of a single market: the same set of rules and equal treatment.

* 1992: Also of great interest to Australia, the MacSharry Reforms to the Common Agricultural Policy--significant because for the first time, support for agriculture was not only cut but support was also de-linked from production.

* 1992: The Maastricht Treaty (Treaty on European Union) spelt out the objectives for a C.F.S.P.; the E.M.U. criteria were spelt out.

* 1995: The third enlargement, with Sweden, Finland and Austria--giving a total of fifteen Member States--a market of some 380 million.

* 1997: The Treaty of Amsterdam took C.F.S.P. a long way forward by identifying ways in which these objectives are to be pursued.

* 1999: High Representative (Javier Solana) for C.F.S.P. took office.

* 1999: The single currency was effectively launched by having participating Member State exchange rates irrevocably fixed.

* 2002: Euro notes and coins went into circulation in the eurozone--with twelve Member States and 300 million people.

* 2004?: A further enlargement--up to thirteen countries from Central and Eastern Europe and the Mediterranean expected to join.

* 2004?: Convention devising new elements of the institutional set-up.

In regard to future trade prospects, by 2005 the conclusion of the new Doha Round of W.T.O. negotiations is expected. In the international arena, the European Union and Australia share a similar approach to the challenges of globalisation. Both believe in the benefits of a more liberalised global economy--but not at any cost. Care must be taken of those that are disadvantaged, and there is the need to ensure that the benefits of globalisation are shared more equitably. Both recognise that wild globalisation risks bringing about dangerous imbalances and growing inequality within countries, and between countries.

In the European view, the continuing development of the multilateral trade system is a vital part of the struggle to keep markets open, and to maintain the pace of liberalisation.

But the multilateral system is about much more than that, as of course is the European Union's single market. The W.T.O contributes directly to international stability and peace, not least because it ensures that the same basic rights and obligations apply equally to all members, north and south, rich and poor, large and small. It embodies two of the core values of the current international system in the National Treatment and Most Favoured Nation clauses: it helps to prevent unilateralism.

Trade liberalisation is generally extremely beneficial and multilateral liberalisation on the M.F.N. basis is generally recognised to be the most efficient mechanism for spreading its advantages.

No doubt, one of the objectives Australia will be striving for is increased market access into the E.U. for its agricultural products. But this is not in itself sufficient to get everybody on board in a negotiation. So a Round is needed which does more than just tackle market access. In the Doha Round it is necessary to update the W.T.O. rule-book, and to tackle questions such as the framework of rules governing foreign direct investment and competition, and to look at the interface between trade rules and rules agreed in mulilateral environment agreements. A Round is needed which addresses the concerns of civil society: only when the W.T.O. is clearly transparent, clearly legitimate, clearly responsive to the environment agenda, the social agenda and the consumer agenda, will public support start to increase again.

And perhaps most important of all, a Round is needed that is much more directly about development. The W.T.O. has not helped all countries equally, though of course it would be wrong to pretend that this is just the W.T.O.'s fault. While a number of middle-income developing countries are becoming successful participants in world trade, nearly 80 developing and transitional economies are left behind. So a Round is needed that is better balanced, and better perceived to be balanced, so that all participants can gain--a Round in which all members, and not just the major players, have set the agenda: a Round which really takes forward sustainable development.

That means inclusiveness of approach. The European Union and Australia know that the new Round will only be satisfactorily concluded if all W.T.O. members have a stake in the result. There must be a global approach to negotiations, and a single undertaking.

The W.T.O. is necessary but not sufficient.

It must be acknowledged that the W.T.O. alone should not be asked to bear the entire burden of this difficult work. Issues tied up with globalisation face us in every international organisation in which we work together, and indeed in our bilateral cooperation, from action on drug trafficking to regulatory cooperation, from our development aid programmes to joint efforts to combat illegal immigration and people smuggling, money laundering and epidemics such as A.I.D.S.

From a relationship that is already substantial, the European Union and Australia can look to the future with optimism: Why?

First: The European Union's own development and integration as a single market continues to gather pace with on-going internal reforms. The successful launch of the Euro will further add to this process: and the inclusion of the United Kingdom, Sweden and Denmark appears to be only a matter of time.

Secondly: Enlargement of the European Union will bring the single market to some 500 million affluent consumers--all dealing with the same set of rules, and all having a single currency.

Thirdly: Enlargement will bring with it continued reform and evolution of the C.A.P. (the Common Agricultural Policy). The C.A.P. was radically reformed in 1992 when support for farmers was de-linked from production. The Agenda 2000 reforms brought the C.A.P. into line with our Uruguay obligations and also in line with the internal budgetary constraints of the European Union. A continued reform to the C.A.P. is necessary to ensure the sustainability of the C.A.P. to cater for the new members of the European Union.

Fourthly: The Doha Round will see further trade liberalisation, a better set of trading rules preventing damaging unilateral initiatives, better market access and stricter rules for agricultural support and for food aid.

Finally: The E.U.-Australia bilateral relationship will continue to grow at the political level and through a bilateral framework, through which business can be enhanced. Recently, three senior Australian Ministers (Messrs. Anderson, Downer and Ruddock) travelled to Brussels for the annual ministerial discussions. This is a clear sign of the increasing importance Australia is attaching to our relationship.

While governments can set up the framework, it is up to the business sector and the entrepreneurs to take up the opportunities created. During the Asian financial crisis, Australian exporters turned to Europe, and Australia's trade with the European Union soared. This disproves the myth that the European Union is closed, too far or too difficult. The real evidence supports the idea that co-operation is mainly a matter of will.

HIS EXCELLENCY PIERGIORGIO MAZZOCCHI is the Ambassador in Australia for the European Union.