COSTELLO AND OTHERS ON NEXT STEPS FOR

C O N F I D E N T I A L MELBOURNE 000037


NOFORN
SIPDIS

DEPARTMENT FOR EEB, EAP, EAP/EP AND EAP/ANP
WHITE HOUSE FOR NEC
TREASURY FOR SOBEL AND WINSHIP

E.O. 12958: DECL: 03/10/2019
TAGS: EFIN ECON AS
SUBJECT: COSTELLO AND OTHERS ON NEXT STEPS FOR
US/AUSTRALIAN RELATIONS

REF: CANBERRA 203

Classified By: Michael E. Thurston for reason 1.4 (b)

Summary
--------------


1. (C/NF) Consul General hosted former Treasurer Peter
Costello and other prominent Victorians at the first of a
series of focus group lunches on the future of
U.S./Australian relations. Participants agreed that the
United States' credentials as a center for world finance had
been damaged and that increased regulation would help.
April's G-20 meeting will be a watershed event and
participants expressed concern that unless solid progress is
made, European pressure to hold more exclusive G-7 summits
may win the day, cutting out other significant economies.
Other steps the new administration can take to improve ties
include sharing lessons learned in the global slowdown,
revisiting the U.S./Australian FTA and invigorating people
and culture swaps. Participants agreed that Australian
motivation to improve ties with the United States has rarely
been stronger, and "the time to act is now." End Summary.

Damaged Financial Credibility?
--------------


2. (C/NF) During a March 4 luncheon with several prominent
Victorians, participants observed that the global financial
crisis has damaged the United States' credibility as a center
for global finance. Peter Costello, Liberal Party MP, and
John Roskam, Executive Director of the Institute for Public
Affairs (a right-leaning think tank) said that stepped up
prudential regulation in the United States would help restore
some of this lost credibility. Costello, who served as
Australia's Treasurer for more than 11 years during the
previous Howard administration, suggested Australia could
offer the United States guidance on implementing stricter
prudential and financial regulations.


3. (C/NF) Costello commented that Australia has been somewhat
insulated from the global downturn due to its decision not to
relax credit standards, to prohibit its four major banks from
merging, and to create the Australian Prudential Regulation
Authority (APRA),which he described as a regulator to watch
all financial institutions. (Comment: Many business leaders
in Melbourne would disagree with Costello's statement and
believe that the full force of the coming "economic tsunami"
has not yet fully hit Australia. End comment.) Costello
added that exchanges of regulators and legislators might
benefit both countries.

G-20, FTA and Beyond
--------------


4. (C/NF) Costello, who took credit for being one of the
architects of the G-20, noted that the Bush administration's
decision to use the organization to confront the global
financial crisis helped to cement it as a premier
organization. William Fisher, Director of the Victoria
office of the Department of Foreign Affairs and Trade (DFAT)
and former Australian Ambassador to Canada and France, said
however that the future of the G-20 is not assured.
According to Fisher, some Australians are worried that
European pressure to confront the global slowdown via a
smaller, G-7 configuration may derail the G-20's current
momentum. Fisher flagged his concern over the number of
disparate proposals submitted for the April G-20 meeting that
will not be able to be successfully harmonized during the
short time in London. Fisher and Costello both agreed that
in order to institutionalize the G-20, a follow up meeting in
Korea or Japan should be announced at the conclusion of the
London summit.


5. (C/NF) Turning to the U.S./Australian free trade agreement
(FTA),Costello argued for amending the accord to facilitate
the free movement of people between the two countries as a
logical next step. Nick Economou, Professor of Politics at
Monash University, agreed with Costello, observing that
recognition of professional qualifications across borders
would encourage deeper ties between the United States and
Australia. John Roskam said many Australians see the FTA as
a fait accompli, but finding new ways to expand it would only
require a small amount of political capital on either side.
Bill Fisher noted senior American officials such as Rich
Armitage and Robert Zoellick who had been strong supporters
and champions of Australia had served the bilateral alliance
well. He expressed hope that individual relationships with
senior officials in the current administration would continue
to deepen.

Australian Troops to Afghanistan?
--------------


6. (C/NF) On the question of whether Australia would agree to
a request by the United States to send additional Australian
troops to Afghanistan, participants were split. Costello,
Roskam and Economou responded Australia likely would say yes.
William Fisher, however, added the caveat that Australia
would not respond favorably unless NATO increased its
commitment to Afghanistan.

U.S. and Asian Regional Architecture
--------------


7. (C/NF) Participants agreed that the United States should
play a greater role in Asia Pacific, including in regional
architecture, but differed on which forum provided the best
opportunity. Alluding to Secretary Clinton's February 18
remarks in Jakarta on greater U.S. engagement with Asia,
including plans to pursue accession to the ASEAN Treaty of
Amity and Cooperation, William Fisher urged the U.S. should
next consider participation in the East Asia Summit (EAS).
According to Fisher, APEC is not a sufficient forum most
because it does not include a security dimension. Taiwan's
presence in APEC, Fisher said, precludes that organization
from developing the comprehensive scope that some Asian
leaders (including the Rudd government) are seeking.
Alluding to PM Rudd's vision for an Asia-Pacific Community
(APC) by 2020, he insisted that a "new architecture" was
necessary and that senior level (read: head of government)
participation would be required.


8. (C/NF) Peter Costello disagreed with Fisher's conclusion
that a new architecture is necessary. According to Costello,
Asia Pacific countries should focus on making the numerous
existing agreements work better, rather than adding another
organization to the "tangle" of pacific architectures. John
Roskam noted that Australia needs the United States to be
engaged in the Asia Pacific not as a strategic counterbalance
to China, but rather because the United States is a
democratic and free-market economy with a legacy of
involvement in the region.

People and Culture Swaps
--------------


9. (C/NF) All four participants agreed that the
U.S./Australian relationship would benefit by encouraging
more Australians to visit the United States. William Fisher
praised the "working holiday" program which allows Australian
students to spend an extended period of time in the United
States, but lamented over the "cumbersome" DHS requirements.
He said that many Australian students are opting to go to
Europe instead of the United States because of DHS
requirements of being a "student" and being "sponsored."
Nick Economou added that a combination of prohibitively high
college tuitions and the United States' many commonalities
with Australia also make it a less desirable destination for
a growing number of his students.

Comment
--------------


10. (C/NF) The starting point for most of our official
conversations with our Australian counterparts almost always
revolves around how sound U.S./Australian relations continue
to be. We were struck this time, however, by how keen these
prominent interlocutors were to continue to build upon that
base. All four participants noted that the time to make real
strides in the U.S./Australian alliance is now because
"Aussies are in love with Obama" and Prime Minister Rudd is
"keen" to show his willingness to work closely with the
President.


THURSTON