Raising awareness of FTAs and SMEs’ trade opportunities
4.1
Mr Warren Cross, the Senior Legal Counsel at Cross & Co Lawyers believes more SMEs, especially those involved in services, need greater awareness of the trade opportunities.
I think knowledge is power. We have to increase the ability of SMEs to know what the opportunities are. I think that's the great challenge. They simply don't know, other than in the commodity space. I don't work in that space, but I know it's well publicised in that space. But in services, which are the area that I think we've got our big opportunities in Asia, we've got to have knowledge being passed to them about what the opportunity is and how they can execute.
4.2
Australia’s national centre for assisting businesses to develop their Asian capabilities, Asialink Business, submitted that a “residual lack of awareness about FTAs amongst certain segments of the FTA market is an ongoing barrier to FTA utilisation”.
4.3
While Asialink Business believed the Government’s trade agenda of recent years is helping to address this challenge, “significant knowledge gaps remain, including amongst regional and rural business”.
These gaps include (but are not limited to); how to access the benefits of particular FTAs, access and utilise tariff reductions and other benefits, and what publicly available tools are available to assist. Initiatives such as the FTA Portal have helped expand the pool of available resources for SMEs, but the level of awareness about these tools remains mixed.
4.4
The Managing Director, Eco Energy Group Ltd, Mr Lionel Barden, warned more that more needed to be done by Government to encourage smaller exporters to utilise FTAs.
If you as a government, on behalf of Australia, are spending so much time and effort on free trade agreements, we should spend the same amount of time nurturing small business to turn towards exporting. I think it's really, really important, and we don't do it. Even the policies don't fit small business.
4.5
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) remains concerned that SMEs continue to lack understanding of FTAs to their benefit.
In particular, SMEs need a greater understanding of the differences between the various FTAs, rules and associated certification requirements across multiple agreements. This issue has been raised in previous reviews and inquiries with little progress made to date.
4.6
ASBFEO outlined the current tools available to raise FTAs awareness are complex and focus on the DFAT outreach programme and the online FTA portal.
Considering that SMEs tend to lag behind larger businesses in their use of technology, we recommend using alternative modes of delivery of information to meet SMEs needs: e.g. small business agencies, chambers of commerce, and industry association networks.
In addition, we also encourage increasing SMEs awareness of all ten FTAs (bilateral and multilateral), as the DFAT's outreach programme focuses mainly on the North Asia FTAs (Korea, Japan and China).
4.7
ASBFEO submitted concern that considering Australia's 2.2 million SMEs contribute to around a third of our GDP, this is not reflected in SMEs' participation in international trade.
SMEs account for 14 per cent of Australian goods' exports, in comparison to G7 nations where they account for 25 per cent and in the EU 35 per cent. SMEs need more support to grow their business and access international markets, particularly those supported by an increasing number of FTAs.
4.8
The Australian Small Business and Family Enterprise Ombudsman Ms Kate Carnell admitted while small and medium businesses are the engine room of Australia’s economy, too many don’t know enough about FTAs or find the agreements too complex to pursue export opportunities.
In the area of free trade agreements, the great dilemma is the complexity of the space… it's not even as simple as understanding that there's a free trade agreement with Malaysia; you've got to understand that there are five of them…So, one of the challenges here is the fact that every new agreement sits on top of current agreements.
There are as you know a range of bilateral agreements, which is good, and now increasingly multilateral agreements that sit on top of the range of bilateral agreements, so for small businesses to actually get their head around what that looks like—how to comply, what the opportunities are and so on—is extraordinarily difficult. These documents, as you would know, are thousands of pages long.
4.9
Ms Carnell pointed out a recent survey by the SME Growth Index that showed many people involved with running SMEs are often working 70 to 80 hours a week.
What we see is there are still a very large percentage of small and medium businesses that simply don't know what the opportunities are. When they try to find out, it looks all too difficult…Then they’re struck with a huge amount of extra information to get their head around, and, in many cases, they don't even know what questions to ask. So, they decide it's just too difficult.
4.10
Mr Bryan Clark, Director, Trade and International Affairs, Australian Chamber of Commerce and Industry highlighted that businesses or exporters rarely will ever read the complex contents of a trade agreement.
The most fundamental thing we find is that, in terms of trade agreements, businesses don't read them, so businesses don't understand them. While they might be deeply interesting at a technical level to the people who do the negotiations and to perhaps people like me, who are in a role that means that we need to be familiar with them, the business community doesn't read them. The business community thinks that the trade agreements and their terms are automatic and apply directly, when that's not the case. So there is then quite a compliance arrangement which goes with them. So our recommendation has been to consider the removing of historic agreements so that the red tape and the complexity are removed as we do new and better improved agreements.
4.11
Ms Olga Kostic, an Export Adviser at Business SA, believes many SMEs need one on one advice about utilising FTAs to trade goods or services.
I'm involved in the very hands-on approach of working with the exporters. Certainly, what I would like for them, to step them through the benefits so they can clearly see the competitive advantage that is offered by an FTA before and after, is a very clear description.
4.12
The Australian Government, according to DFAT, accepts that trading can be a complex and challenging journey for SMEs, particularly for those looking to export or import for the first time.
To become “trade ready” and position itself to benefit from FTAs, an SME needs to take a number of steps, including:
identify which of its goods or services is able to compete internationally;
consider what imports could make its goods and services competitive domestically and internationally;
research potential markets for that product or service;
establish links with traders/customers in target markets;
make financial, legal and logistical arrangements;
understand how to access FTA benefits; and
ensure compliance with regulatory requirements.
4.13
The Council of Small Business Organisations of Australia (COSBOSA) submitted while larger businesses are already capitalising on many offerings through free trade agreements (FTAs), “SMEs have an increased opportunity to consider how they might be able to offer goods and services to international customers, particularly with the projection for a rising middle-class in Asia”.
SMEs in Australia have benefitted from increased access to international markets through FTAs; however, many small businesses have struggled to build the expertise needed to develop an effective export arm for their business. While exporting to any nation requires significant effort and information gathering on the part of the small business operator, FTAs are also complex and require expert knowledge to interpret.
4.14
For many businesses, according to COSBOSA, understanding the differences in rules between different bilateral FTAs, along with new multilateral FTAs, is challenging.
Individual rules, requirements for authentication or certification, and specific market access is often too complex for time-poor SMEs.
4.15
According to academic and free trade expert, Professor Gabriele Suder, access to FTA advantages for SMEs are:
highly dependent on (ex-ante) FTA negotiations that strive to remove the barriers to trade, given the significant impact this has on SME participation in both intermediate (GVC) and finished goods and services trade;
and highly dependent on ex-Post impact survey, evaluation and action planning to support training and advice.
4.16
Professor Suder submitted that governmental and public-private support and training initiatives are strongly encouraged. Also Professor Suder noted that SME support platforms have been experimented with successfully abroad, especially the Euro Info Centres, for example, that help SMEs in Europe adapt to threats and opportunities, to find partners, and provide information about prevalent legislation.
The Enterprise Europe Network establishes the world's largest support network specifically for internationalising SMEs. The EU reports that “it has 3,000 experts across 600 member organisations in more than 60 countries.” They are located at EU member states’ chambers of commerce, Eurochambers (comprehensively representing EU business interests), and various organisations.
4.17
Mr Heath Baker, Head of Policy, Export Council of Australia, suggested the Government needed to encourage more business into exporting.
…if you want to increase access to FTAs and if you want to increase FTA utilisation then don't look at it as a proportion of businesses that are trading. Look at it as a proportion of all businesses. That should be your goal: get more businesses into trade. More businesses into trade will mean more businesses accessing these agreements.
4.18
The Director of Corporate Affairs, Alibaba Group Australia and New Zealand, Mr James Hudson, pointed out despite Australian governments offering a range of government resources to help SMEs, including grants and finance opportunities, “many businesses are either unaware of or fail to understand the landscape and the support available”.
Understanding the application of the FTAs is part of this, but only one part. We believe there is further room to improve the integration and cooperation of the different resources provided by Austrade, the Department of Industry, state governments, Efic and others, making it easier for SMEs to access information and reach their full potential.
4.19
Mr Hudson believed technological advancements, despite the pace of change, create opportunities for expansion into global markets for sectors of the population who, in the past, have been excluded from more traditional trade mechanisms.
Alibaba does what it can to promote SMEs and their access to new markets but we are just one company. Government-to-government frameworks liberalising trade, whether bilateral or multilateral, create new opportunities for Australian businesses. It is in this context that we need to ensure that FTAs keep up-to-date with these emerging challenges.
4.20
Mr Hudson outlined that Australian SMEs need assistance to understand and find which one of about 20 or 30 different marketplaces Alibaba has opened that will serve their commercial interest bests.
For example, alibaba.com is available in English. It's a wholesale trading platform. Businesses generally join alibaba.com, list their products and then take inquiries from around the world to sell those products in a wholesale A to B manner.
4.21
Generally for business to consumer, Mr Hudson shared that the journey for an SME could be one of two paths.
The first path would be that they meet an intermediary who operates a store on one of our marketplaces, and they would then work with that SME to import their products into China, list them on their e-commerce store and sell them into that market.
4.22
Mr Hudson explained that cross-border e-commerce is something quite unique in China where the items are essentially posted or sent to a warehouse in a free trade zone and those items are classified as personal goods.
Essentially, the consumer takes the risk of purchasing that product. So, for a snack food company selling cross-border where they're actually posting the items, there's limited documentation required. However, there are various de minimis and thresholds for those products.
4.23
Mr Hudson outlined these products would be shipped to the warehouse in China, and then, once the consumers place their orders, those products are then packed and posted to the consumer. He believed country-of-origin certificates are still required and here are reduced tariffs and reduced inspections on those shipments.
4.24
The Department of Industry Innovation and Science’s representative in regional NSW, Ms Nicola James, recalls the concerns of exporters about the risks involved and confidence in their supply chain.
The people who I speak to across the region say that the barriers to export are quite high and that the risk factor is very high, particularly when you're just dipping your toe into the market. If there was a way for the government to try and help with those risks to make it a little bit more easier in that regard, I think you might see a lot more people take that initial step.
A lot of those first-time exporters are just very nervous about those risks, and there are a lot of risks, particularly in that fresh market. You obviously want to know that your product is getting to market in as good a fashion as when it left. Confidence in the supply chain, I think, would be helpful.
4.25
While there is general coverage in national media, the Sunshine Coast Council believed the focus and attention on FTAs and the benefits that they can leverage for local businesses in regional centres is not comparable to that of the state capitals.
4.26
The Sunshine Coast Council contends that further consideration should be given to how this coverage of FTAs, and associated support for business, can be enhanced.
There is a clear opportunity for regionally based businesses to grow their capability and performance and generate new employment by being able to access the markets to which the FTAs apply. However this cannot, and does not, occur when regional level businesses have little to no awareness of the FTAs or how to position themselves to leverage the opportunities that these agreements afford.
4.27
The Sunshine Coast Council stressed small and medium enterprises (SMEs) would benefit from greater information on the technicalities of free trade and the related FTAs through targeted, relevant information campaigns. Issues including, but not limited to, how small businesses are able to prepare and source relevant documentation and how or when tariff reductions are applied during the export process should be “more clearly and consistently communicated to small businesses”.
Businesses often ignore free trade opportunities because there is not a clear understanding about who bears the tariff burden. At the end of the day, tariff costs are paid by the final consumer. It is therefore important to demonstrate that the removal of tariffs will result in cheaper prices and/or greater exports. Council would welcome all efforts to better inform business operators of the free trade landscape and how they can participate.
4.28
The Chief Executive Officer of the Global Trade Professionals Alliance, Ms Lisa McAuley, believes most SMEs would welcome sound business advice from recognised and credible advisers on trade issues.
First is building the knowledge of service providers to provide the right support to businesses, because most small to medium enterprises are time poor with limited resources and they are often focused on driving and running the business, so they rely on third-party advice. It is imperative that those providers of that advice—the service providers in international trade—have the right technical knowledge and skills necessary to be able to offer accurate and practical assistance to exporters. This could assist with furthering the educational outreach and the right support to MSMEs. This is particularly important to support their utilisation of FTAs, as it often requires very technical knowledge—including understanding how to correctly classify their products, understanding Certificates of Origin, country specific information of how and when to talk to the right freight forwarder/customs broker about free trade agreements, and how to take advantage of these.
4.29
Ms McAuley highlights in the case of utilising an FTA, most of the time it is about the importer or the buyer being aware of the benefits that they can receive.
…a lot of the education of small to medium enterprises has missed the fact of how to educate them in terms of promoting the benefits to their potential buyer or importer.
4.30
The Ai Group’s Ms McGrath outlined some the cultural challenges of doing business in different parts of Asia that SMEs need to understand and adapt to.
So what works in the Australian market doesn't necessarily work more broadly. I find—again, this is anecdotal—that family owned businesses are more successful in Asia than companies with boards, because family owned companies are taking a risk on themselves and so are more likely to back themselves. Also, when they find a partnership with shared values with another family owned business in Asia, it's far more successful. You can't work in Asia if you're just making assessments based on bank risk assessments and numbers. It's people-to-people contacts.
4.31
The Manager of a trading company based in Hong Kong that imports Australian food, Luckypole Limited, Mr Brian Mallyon, submitted that FTA’s do “reduce barriers to entry, but are by no means the only way, and in many cases are not even the most important way for small/medium business to enter foreign markets”.
Often it requires a combination of not only (or necessarily) financial provisions, but access to knowledgeable and experienced operators who can navigate the various local requirements, from laws and regulations, to developing relationships with the right people.
4.32
The Export Council of Australia outlined while FTAs are just one aspect of doing business internationally, helping businesses and particularly SMEs understand how to utilise them is important.
For too long the government demonstrated a ‘set and forget’ mentality towards FTAs. Once an FTA came into force, there was very little follow-up to help SMEs understand how to use them. FTAs are complex legal documents, which are virtually impenetrable to SMEs.
4.33
The ECA claimed it has long campaigned for the Government to increase the support it provided SMEs to help them to better utilise FTAs.
We applaud the government’s focus over the last few years on increasing utilisation including through the FTA seminars and the excellent FTA Portal.
4.34
In May 2018, the Australian Dental Industry Association (ADIA) outlined the results of a survey of SMEs in the dental industry with respect to their views of the impacts of FTAs on their businesses. Twenty-Four SMEs responded to the ADIA survey which canvassed both importers and exporters.
4.35
The ADIA survey found that 20 per cent of respondents were confident about their knowledge of the scope and benefits of Australia’s FTAs. Conversely, half were only somewhat aware, while 30 per cent were completely unaware.
The survey results demonstrate that there is scope for the Australian Government to improve SME’s understanding of the benefits of FTAs.
4.36
With respect to the Comprehensive and Progressive Agreement for Trans- Pacific Partnership (CPTPP) that was signed in March 2018 by the Australian Government, ADIA’s survey found 35 per cent of respondents expected to benefit from the agreement that came into force on 30 December 2018.
The most important feature of FTAs to SMEs in the dental industry was the removal of technical barriers to trade, with almost 90 per cent of respondents valuing harmonisation with different product regulations between countries. Similarly, 85 per cent found the removal of technical barriers to trade very important.
4.37
Taken as a whole, the survey results according to ADIA suggest that while SMEs in the dental industry “value FTAs and their benefits on a conceptual level, the majority do not understand the specific content of Australia’s FTAs and how to leverage their benefits”.
4.38
Australian Industry Defence Network Victoria believed its Defence SMEs tend to be unaware of the applicability of FTAs to their business, and largely view FTAs as trade vehicles which apply to much larger businesses such as industry primes and multinationals.
4.39
The Network asked what resources is the Australian Government intending to devote to assisting the SME community in “understanding, in layman’s terms, the benefits and possible detriments of participating in FTAs and specifically, how this positively or negatively applies to the SME community”.
4.40
The Defence Teaming Centre’s SME members viewed FTAs were not aimed at SMEs.
In order to change this misconception, Government might like to consider allocating additional resources to assist the SME community to understand the benefits and challenges of participating in FTAs.
More effectively measuring SMEs utilisation of FTAs
4.41
Trade consultants KPMG submitted measuring the utilisation of FTAs by Australian exporters is challenging because it remains unclear what it is the Australian government should be measuring to form an accurate view of utilisation and utility.
4.42
KPMG outlined how complex the task was monitoring the use of FTAs with over 400 regional trade agreements currently recorded by the World Trade Organization, and recently more than 100 have been registered since 2012.
It is not surprising that the effectiveness of FTAs in achieving negotiated positions and the utilisation of FTAs by Australian traders has been scrutinised from various perspectives and makes for a reasonably dense and colourful patchwork.
4.43
While KPMG regarded survey instruments as useful diagnostic tools, it feared surveys are also limited by the size of their distribution groups, user uptake and subsequent sample set, methodology and differing levels of understanding and potential user error. KPMG also believed a greater outsourcing by SME level traders of trade compliance functions to customs brokers for example could distort levels of understanding of the benefits of FTAs.
What is currently missing from our approach to FTA usage for export trade is the availability of mechanisms at the border to collect, aggregate and analyse data regarding Australian exports at the transactional level, including the identification of FTA documentation.
4.44
Dr Abrie Swanepoel, Manager, Insights and Evaluation Branch at the Department of Industry, Innovation and Science admitted there was still a lot that the Government does not know about exporting behaviour: the superstars, in terms of exporters, and so on, and the barriers to exporting.
So I would say that there is still a way to go in terms of rich, firm-level data on exports—at the firm level—that can help us to generate results and that would provide insights that can feed into policy.
4.45
Dr Swanepoel said there are already initiatives like the Data Integration Partnership for Australia and a lot of Customs data that's not integrated into other ABS data, like taxation data or survey data.
4.46
Dr Anthea Bill, Lead Economist, Hunter Research Foundation Centre, The University of Newcastle conceded it’s a “real challenge in regional Australia, getting good data” about businesses, export and FTA usage.
It's become more and more challenging for us as an organisation to fund that primary data collection. But that's what we've done. For instance, in relation to advanced manufacturing, we spoke to 54 Hunter manufacturers several years ago. We did in-depth interviews with those manufacturers, talking to them about the challenges around the changes in the sector, business models that they were operating, staffing, their exposure to global markets and a whole manner of things.
In terms of publicly available data, we're relying on the Labour Force Survey. This doesn't drill down into business size or things like the ATO data around small business creation, which is available annually. We haven't used it extensively in the past but we're starting to use it now. But it doesn't have a lot of detail around things like free trade agreements. So if we were wanting to do a dedicated piece of work on free trade agreements we would be looking to source funding, to do that research, within the region and it would be a primary data collection exercise.
4.47
Professor Will Rifkin, Director and Chair in Applied Regional Economics, Hunter Research Foundation Centre, The University of Newcastle, admitted an obvious challenge in collecting better data is an unwillingness to discuss how profits are generated.
One of the challenges is it’s very un-Australian to talk about financial success. And as a small business it’s your job to hide your profits from the tax man. So even digging into the box of small businesses it’ll be very hard to tell what the profits are that are being generated by specific free trade agreements.
4.48
COSBOSA submitted it wants the Government invest time in further consulting specific SMEs which are currently exporting using FTAs, to “learn what is working and what is not”.
We also believe the government should specifically consult SMES that have struggled to engage with FTAs, or found complexity a barrier.
4.49
Mr Evan Holley, Director, Deregulation and Small Business Branch, Small Business and Economic Strategy Group, Department of Jobs and Small Business admitted Governments don't know a lot about the business dynamics at the firm level.
That might be something in the future that could shed some light on when a successful, very small business, takes that step, and on what the business dynamics are around making that sort of investment. But, having said that, a strong economy and a good, rules-based and easy-to-access trading environment where any barriers to entry are lowered will always encourage more smaller companies to look at the opportunity.
4.50
Ms Rose Verspaandonk, Branch Manager, Deregulation and Small Business Branch, Small Business and Economic Strategy Group, Department of Jobs and Small Business believes a greater understanding of business dynamics would be very useful for targeting any government action.
…the main thing is getting the fundamentals right so that small businesses can just thrive and then set their sights a bit more ambitiously.
4.51
In evaluating an FTA, economist Associate Professor Mark Melatos submitted that a careful and explicit accounting must be undertaken not just of the benefits of enhanced market access, but also of the costs (especially for SMEs) of complying with associated Rules of Origin.
4.52
Associate Professor Melatos believed the fundamental aim of any FTA should be to make trade less costly for domestic firms – exporters and importers – to do business with customers and suppliers overseas:
This means that FTA design must be led by the needs of domestic firms.
Given their comparative lack of resources, it is important to integrate SME concerns directly into FTA negotiations.
4.53
Associate Professor Melatos found FTA negotiations too often over-emphasise market access ‘paper’ gains for exporters at the expense of demonstrating real reductions in the costs associated with exporting:
The price of preferential treatment and enhanced market access in an FTA is costly Rules of Origin (RoO).
Ultimately, it is the net benefit (or cost) of enhanced market access that will determine whether or not firms can exploit any market access gains that have been negotiated.
Net benefit of market access gains after measuring the cost of adhering to associated Rules of Origin.
4.54
Associate Professor Melatos gave an example:
…while a trade partner may agree to levy preferential tariff rates on imports of a particular product or service (i.e. a gain in market access), the RoO required to access these preferences may impose prohibitive costs on the exporter. As such, the cost of exporting may actually rise under the FTA leading exporters to prefer trade on an MFN basis outside the FTA.
4.55
To better gauge the worth of FTAs to different exporters of all sizes, Associate Professor Melatos recommended Government adopt a broader, more meaningful, definition of FTA “utilisation” should be adopted.
The utilisation (i.e. accessibility) of an FTA is usually measured as the proportion of trade using the associated preferences defined by the agreement.
This measure is inadequate as it fails to account for the potentially different impact of the agreement on different types of firms. In particular, the standard definition of utilisation fails to distinguish between:
Changes at the intensive margin: Are existing exporters (importers) exporting (importing) more or less ex post? and
Changes at the extensive margin: Are firms exporting (importing) ex post the formation of the FTA that were not exporting (importing) ex ante? and
“Latent” utilisation: Are there firms (most likely SMEs) that choose not to trade at all within the FTA area but which might with an appropriately designed FTA?
4.56
To improve understanding of the utilisation of FTAs, Associate Professor Melatos wants Chambers of Commerce and other issuers of Certificates of Origin to be required to maintain a centralised database which records the details of each consignment for which a CoO has been obtained.
Access to Certificates of Origin data would allow researchers and policymakers to identify individual firms that choose to start (and stop) accessing FTA trade preferences. It would then be possible to find out why they have done so and, in this way, identify and address possible FTA design concerns; e.g. with Rules of Origin.
4.57
The Australian Chamber of Commerce and Industry conducted its own study in 2018 and submitted its findings largely confirm previous responses, that in a broad sense “business doesn’t understand our trade agreements and their impact on individual businesses is low”.
4.58
The ACCI queried a PwC report into utilisation of trade agreements commissioned by DFAT because the study drew upon figures from foreign governments related to preferential entry.
It is important that the inquiry understands that such figures reflect the understanding of importers about seeking lower taxes and who have compliance liability in the country of import, rather than the knowledge and active participation of the producers in the country of origin… The DFAT / PwC study doesn’t include any economic analysis of the impacts of the trade agreement.
4.59
The Victorian Government submitted that a recent business survey it conducts on barriers to export growth suggests that understanding FTAs ranks as a relatively minor issue for 100 SME high growth exporters, with 80 per cent of firms reporting that 'understanding FTAs' is either only a minor issue or not an issue at all.
This may indicate that firms already understand and/or utilise FTAs, or that firms have decided not to use an FTA because the costs are greater than any benefits for their business. Clearly, much more needs to be understood about which small businesses are using FTAs, in which markets and for what benefit and cost.
4.60
The Victorian Government believes there is a need for more comprehensive data about utilisation of FTAs by firm size, sector, market and location of business.
At present, there is very little evidence based understanding of which firms are utilising FTAs in specific markets and to what extent. Much more evidence is needed on the impact of FTAs, including which firms are using and benefitting from FTAs, to inform promotional efforts, future FTA negotiations and a comprehensive evaluation of agreements already in force.
4.61
The Acting Deputy Secretary of Trade Victoria, Ms Ylva Carosone, believes state governments have a role in gathering feedback from SMEs and also promoting the benefits of FTAs.
…better data and evidence to inform policy—I think that's critical—but tying that together to leverage all of those partners that can play a role in implementing the benefits of FTAs. DFAT has a fantastic FTA portal, but working with industry associations and actually having a sector-based approach to the benefits of FTAs and using those different partners to deliver that messaging through to SMEs is a practical outcome that would be greatly assisted, and Austrade and DFAT both have a role in that, with state governments.
4.62
Ms Nicole Andrews, Trade Victoria’s Regional Specialist, North East Asia, believes governments need more information on which businesses and SMEs are utilising FTAs.
…there needs to be better understanding of who is actually using the FTAs to better inform how and who we help.
4.63
Dr David Treisman from the Monash Business School, Monash University, supports gathering data from SMEs about their FTA experiences.
It would also be adding to the point about the collection of data but very much asking the correct question. Instead of just looking at utilisation in terms of quantity of law, we'd recommend that they would actually question it in terms of productivity and profitability of underlying small and medium enterprises.
4.64
The Export Council of Australia submitted that FTA utilisation rates are difficult to measure, particularly if looking just at SMEs.
Customs data (where available) indicate overall utilisation rates for goods exports are high. But these data are based on the number of consignments, and given a small number of very large companies dominate Australia’s exports, the data do not infer high utilisation by SMEs. The Australia’s International Business Survey, Australia’s largest survey of SME exporters, indicates SMEs do not understand FTAs well.
4.65
Many studies have been done into FTA utilisation, according to the ECA, and it believes each yields a different answer. In February 2018, PwC released a study on FTA utilisation using international data sources to determine FTA utilisation rates in 2016 for FTAs with China (83 per cent utilisation), Japan (95 per cent), Republic of Korea (Korea, 80 per cent) and the United States (US, 88 per cent).
4.66
This ECA understands this was calculated by taking the number of consignments imported into that country under an FTA tariff. This number was divided by the overall number of consignments imported into that country from Australia minus the number of consignments that went into the country under a zero tariff or other mechanisms for tariff relief.
4.67
However the ECA believes those PwC findings are contradicted by the 2017 Australia’s International Business Survey (AIBS), a survey of 941 internationally active businesses. The AIBS was published by the University of Technology Sydney and commissioned by the ECA with support from Austrade and the Export Finance and Insurance Corporation.
4.68
The survey found a relatively low proportion of respondents saw benefits from FTAs, according to the ECA: 40 per cent for China, 22 per cent for Japan, 32 per cent for South Korea and 20 per cent for the US. It also found that a large proportion of goods exporters did not provide the documentation necessary to utilise FTAs: 55 per cent for China, 71 per cent for Japan, 60 per cent for Korea and 72 per cent for the US.
4.69
The ECA noted a difference between the studies was the respondents for the ABIS, 88 per cent were SMEs, while the PwC’s was based on all consignments.
In 2015-16, Australian businesses with total exports over $100 million accounted for 82 per cent of goods export transactions, and it is highly likely a large proportion of the consignments utilising FTAs were exports by large businesses. In addition, smaller businesses are likely to use the services of a consolidator, which could mean multiple exporters per consignment. Where this occurs, what is counted in the utilisation figures as one consignment will be counted in the AIBS as many exporters.
4.70
The ACCI, as an advocate for free trade, believes the rationale for trade agreements is to generate net economic benefits and an increase in aggregate trade flows between countries. But the ACCI warned objective economic analysis, independent of the negotiating parties, “needs to be conducted to provide confidence to both the Parliament and the public that the range of agreement in place and being pursued, is of benefit to the Australian economy”.
The private sector, the main provider of jobs, creator of jobs and payer of taxes in Australia, wants to be assured that taxpayers’ monies are spent wisely in the pursuit of trade agreements.
PwC study of the utilisation of FTAs by SMEs
4.71
In 2017, DFAT commissioned PricewaterhouseCoopers Australia (PwC) to undertake a comprehensive, independent analysis of FTA utilisation. DFAT believed the study confirmed high rates of utilisation and awareness of FTAs, and it was not surprised by the finding that SMEs lag behind larger enterprises in their awareness of and utilisation of FTAs.
Government agencies are well aware SMEs are at a resource and capability disadvantage vis-a-vis large enterprises, which may affect their ability to understand and utilise FTAs. This is why we have initiated programs to increase awareness of and understanding of FTAs, specifically targeting SMEs. As mentioned elsewhere in this paper, business feedback on the FTA roadshows, FTA Portal and other initiatives has been very positive.
4.72
DFAT stated these programs are making a positive contribution to SME awareness of and utilisation of Australia’s FTAs.
4.73
The Victorian Government welcomed the PwC FTA Utilisation Study, which surveyed 530 businesses in Australia, stating it made a contribution to the shared understanding of utilisation of the North Asian FTAs.
The inclusion of services firms in the survey cohort is especially welcomed, as this sector includes a significant number of high value SMEs which have not always been included in past studies.
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The Victorian Government agreed the results of the PwC work and other studies are suggesting the utilisation rates among eligible firms are moderate to high, as is awareness of FTAs in the business community, and that the North Asian FTAs contribute positively to business confidence and business activity.
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The independent PwC research, commissioned by DFAT, looked into business utilisation of Australia’s FTAs and the wider impact of FTAs on Australian business activity. The study covered all of Australia’s existing FTAs, with an emphasis on those with China, Japan and Korea.
The study found high overall awareness of FTAs among the Australian business community, and high utilisation of preferential tariff rates under Australia’s North Asia FTAs. The report found Australian businesses view FTAs favourably, and FTAs are influencing business activity, confidence and expansion planning. FTAs also provide greater regulatory certainty for Australian service providers and investors in partner markets, according to the report.
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The report found 95 per cent (by value) of Australia’s eligible goods exports to Japan entered under a Japan-Australia Economic Partnership Agreement (JAEPA) preference. The FTA preference utilisation rate was 85 per cent for Australia’s exports to China, and over 80 per cent for Australia’s exports to Korea.
In terms of individual businesses, the report found 62 per cent of surveyed Australian exporters use FTAs. It also found SMEs lag behind larger enterprises in using FTAs, with 55 per cent of exporting SMEs using FTAs, compared to 77 per cent for large enterprises.
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PwC’s report also found “understandably, appreciation of the detailed requirements of FTAs…varies among businesses, especially at the SME level”.
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According to DFAT, the PwC report cited DFAT’s FTA Portal and Austrade programs as significant aids assisting businesses to understand FTAs, and highlighted further education and advocacy, particularly for SMEs, among ways to optimise business utilisation of FTAs. The report also highlighted the important shared role of trade intermediaries, industry associations and business groups, along with Australian Government agencies, in assisting businesses to understand and utilise Australia’s FTAs.
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PwC’s report also identified other options to optimise utilisation of FTAs, including streamlining origin documentation, reducing compliance costs, digitising forms, improving understanding of services and investment commitments in FTAs, and using existing review mechanisms in FTAs to enhance and align their benefits.
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DFAT provided some technical explanations as to why the use of FTAs may differ between SMEs and larger enterprises, including trade liberalisation resulting in a large proportion of international trade enjoying zero duties under Most Favoured Nation (MFN) arrangements. Many exporters, including SMEs, do not use FTAs if their product(s) are already entering export markets duty free.
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DFAT highlighted the higher documentation costs faced by SMEs when exporting.
Transport, and administrative costs associated with origin certification and export documentation, may represent a greater proportion of smaller, lower value shipments for some FTA markets.
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DFAT also outlined other deterrents for SMEs to pursuing export markets, such as:
Competitiveness and lack of economies of scale may prevent export growth; and
Lack of capacity to navigate customs, quarantine and other regulatory processes in other countries.
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The study also included consideration of the indirect benefits of FTAs, which the Victorian Government believed supported feedback from its departmental client managers that there may be a "door opening' effect and a reputational benefit to having an FTA with another country.
These benefits can be particularly important to SMEs seeking to enter highly competitive international markets such as China.
FTAs are complex evolving instruments
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Trade consultants KPMG submitted that Australia's recent North Asian FTAs and the CPTPP are “illustrative of the scale and complexity associated with negotiating principles of economic integration”.
The agreements are written in a very detailed, legal style and are accompanied by volumes of technically complex schedules. They require teams of negotiators, policy makers and lawyers to develop over many years. It can sometimes feel like a similar concentration of effort is required to dissect, digest and interpret the practical implications of FTAs for particular industries and particular supply chains.
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KPMG pointed out that FTAs are not static documents as the agreements are designed to mature and change as particular negotiated benefits enter force and as a result of ongoing dialogue between parties.
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The Export Council of Australia (ECA) observed that SMEs have too many reasons to put FTAs in the ‘too hard basket’ and not use them. ECA suggested there are several things the Government can do to enable more SMEs to use FTAs.
[Government] has done a good job in raising awareness of specific FTAs, but it does not have the resources or expertise to give SMEs the next layer of information to make the most out of FTAs. SMEs simply do not understand many fundamentals of using FTAs, such as how to assess their goods against Rules of Origin or what process to go through to realise access to service markets opened by FTAs.
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ECA pointed out that FTAs also contain many trade facilitating provisions that SMEs simply are not aware of, such as Certificates of Origin that cover long time periods, advance rulings or dispute resolution mechanisms.
Challenges for SMEs when utilising FTAs for exports
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The consultations by departments of Industry, Innovation & Science and of Jobs & Small Business have revealed a number of consistent themes and challenges regarding business experiences with FTAs.
These themes are similar for businesses of all sizes. However, smaller businesses can disproportionally feel this burden because they tend to have fewer resources and expertise (both human and financial) available to overcome the difficulties they face when using FTAs. This is particularly notable considering the overwhelming majority of SMEs are non-employing, or only have 1-4 employees.
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Some of the most common challenges identified by SMEs according to DIIS and DJSB drawing upon the PwC study and Export Council of Australia’s recommendations with regard to using FTAs include:
a lack of awareness or information about the opportunities available under FTAs;
navigating the complexity and length of FTA documents;
interpreting and understanding how to use FTAs, including technical requirements such as product-specific Rules of Origin and tariff codes;
the cost of understanding and complying with foreign and domestic regulations, and the general operating environment in international markets; and
dealing with different rules among overlapping bilateral, regional and multilateral agreements.
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The Victorian Government acknowledged the challenges faced in promoting FTA use by SMEs, including that firms may be time and resource poor and potentially not trading the goods or services for which FTAs deliver the greatest benefits.
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The Managing Director of Natural Pharmaceuticals Australia Pty Ltd, Mr Jack Sun, recalled he required plenty of support from the Queensland chamber of commerce when trying to export to Malaysia back in the late 1990s. Mr Sun had a lot of meetings with the Queensland chamber of commerce seeking assistance because a lot of export documents were required and all needed to be stamped.
So for small and medium companies we very much need information being given. A lot of people go knocking on door, asking the wrong people and wasting months. I've been through that and finally we found the right ones. We're still having trouble trying to get stamps. Some countries require documents, but we will find a way…because we would need to export our products. The market is a lot bigger outside Australia.
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In trade consultants KPMG’s experience, most SMEs that are currently exporting or are exploring potential export markets are aware of Australia's FTAs and particularly those with Australia’s North Asian trading partners. These businesses generally have a basic understanding that the agreements have negotiated preferential benefits that can differentiate Australian products from goods produced by third countries or by domestic producers.
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Based on experience in supporting Victorian businesses on trade related matters, the Victorian Chamber identified the following key challenges for SMEs in establishing and building trade with Australia’s leading trading partners.
Understanding the Rules of Origin
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The Victorian Chamber regards the most common barrier for businesses using FTAs is understanding the ‘Rules of Origin’ (RoO) requirements for their products, and hence proving that they qualify to access the FTA benefits. RoOs are incredibly complex and often differ between trade agreements. Determining whether a product meets RoO requirements can be time consuming, costly and frustrating for business. The complexity of RoO requirements and the barrier they pose to assessing the benefits of trade agreements.
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ASBFEO noted the recent Australia's International Business Survey demonstrated that 35 per cent of businesses did not use Certificates of Origin, “primarily because of a lack of understanding of their benefits”.
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Mr Bryan Clark, Director, Trade and International Affairs, Australian Chamber of Commerce and Industry highlighted the importance of the Certificates of Origin system to the managing of preferential trade agreements.
…origin is one of the most fundamental pieces of international trade, and it's used for trade statistics, sanctions management, antidumping management and preferential treatment management. People don't recognise what has to happen in order for you to comply and how you go through the process for that. Understanding that process and making sure we get it the right way round are really important.
Deciphering which trade agreement suits best
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Progress in achieving bilateral and multilateral FTAs (such as the Comprehensive and Progressive Trans-Pacific Partnership agreement) offers businesses many benefits, according to the Victorian Chamber. However, where multiple FTAs apply, deciphering which agreement offers the best conditions for trade can be complex and time consuming for SMEs, especially without clear and accessible information.
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The Australian Small Business and Family Enterprise Ombudsman submitted concerns about the confusion for SMEs created by Australia having multiple FTAs for a single market.
For instance, Australia currently has five separate market entry arrangements for Malaysia, three for China and four for Thailand. Gaining full understanding of the relevant arrangements is challenging for SMEs, who have limited resources, capacity and capability.
Overcoming non-tariff barriers
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The Victorian Chamber welcomes the significant progress of FTAs in removing tariffs, making it more cost effective for Victorian exporters to expand into international markets. However, a number of constraints and non-tariff barriers still exist that are preventing many businesses from accessing export opportunities. These trade barriers include:
Challenges identifying and developing relationships with distributors and customers.
Difficulties navigating local languages, cultures, customs and business practices.
Costs and uncertainty around the protection of intellectual property.
Difficulties complying with local laws and regulation (in particular labour and tax laws).
Restrictions or delays in the repatriation of funds to Australia.
Resource intensive in-country product testing and validation requirements, some of which may be inconsistent with Australian requirements and practices.
Export quotas and SPS measures restrict trade
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The Victorian Chamber outlined export quotas as well as sanitary and phytosanitary (SPS) measures also pose restrictions on trade, particularly for exports of agri-food products. These measures can significantly limit market access, regardless of whether an FTA is in place.
Understanding how to use FTAs
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KPMG believes that some SMEs also appreciate that benefits do not apply automatically and that they must comply with specific administrative processes to qualify their goods for the preferential treatment enabled by the FTA.
However, based on our experience and observations, many still do not understand how they can use FTAs and a large proportion feel that they don't have a voice in FTA negotiations. As a consequence, they do not see the connection between an FTA and their commercial activities…there is a significant and meaningful difference between understanding and use when it comes to FTAs.
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KPMG believes that two issues are at the heart of inconsistent FTA usage by SMEs:
The mechanics of FTA utilisation - the administrative processes for claiming preference and the associated transactional cost of FTA use; and
The recognition of using the FTA as a value driver - many SME exporters lack the capability to understand how negotiated FTA benefits apply to their commercial activities and export goals and how to incorporate this into an effective market engagement strategy, brand proposition and pricing strategy.
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The departments of Industry, Innovation & Science and of Jobs & Small Business have observed due to the significant diversity amongst SMEs, including their geographic spread and business models, “broader economic and business management factors can also challenge an SME’s ability to leverage FTAs.”
Cash flow and a lack of time (particularly for sole operators or small operators) can also contribute to limiting the capacities of an SME that might seek to internationalise. The SME may not have the time to develop, or financial capacity to access the broader business management skills and strategies required to manage the process of internationalisation.
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Asialink Business highlighted the inherent complexity of FTAs as a deterrent for SMEs.
Within smaller businesses, internal trade and export knowledge and skills are often limited, with many employees and business owners expected to cover a number roles and functions that may be specialised in larger organisations. Even allocating time and resources to attend a short course or FTA seminar can be challenging for small businesses.
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According to the DIIS and DJSB submission, the Government undertakes a number of initiatives to create a conducive environment for SMEs to leverage FTAs.
For example, the Australian Trade and Investment Commission (Austrade) is the key Australian Government agency responsible for gathering information and insights about international market opportunities for Australian business. Austrade’s work and gathered intelligence can be an important input for domestic policymakers in creating an optimal business environment for SMEs seeking to take advantage of FTAs.
Developing new business strategies for FTA markets
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In the work KPMG does with clients, KPMG submitted that making some clients make adjustments in internal processes and operational behaviours of their businesses was what is required first to make FTA use part of 'business as usual' activities.
However, this is often not top of mind for the employees responsible for export sales and operations. Additionally, whilst some grants are available to SME exporters to develop their markets, there is a transactional cost associated with documenting the origin of goods and managing FTA compliance.
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KPMG advised any SMEs wanting an effective and sustainable use of FTAs must also make it part of a “holistic export development strategy”.
This is reflected in our work with SME exporters, which is focused on the design and deployment of practical solutions at all phases of the agreed strategy of their go-to-market journey. This includes:
helping SMEs to refine commercial strategy and assess the commercial viability of export markets;
optimising supply chain management processes and critically evaluating their readiness to export as well as assisting their engagement with counterparties in export markets;
advising SMEs on how to stay on top of their international trade compliance responsibilities and manage risk effectively.
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KPMG believes that this type of strategic work with SMEs benefits from support and resources made available by government, and is “most effective and efficient when delivered in conjunction with professional services providers”.
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Chief Executive Officer, Global Trade Professionals Alliance, Ms Lisa McAuley, supports improving the access for businesses to advice on FTAs.
…what we really need to do now is look at getting the right support for businesses to help them navigate free trade agreements, and that is only going to happen if they can access the right third-party advice.
FTA seminars and workshops
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Trade consultants KPMG welcomed the availability of a host of workshops, webinars, seminars and one-on-one advice in relation to benefits of Australian FTAs and how to access them provided by a broad range of industry associations and business chambers and educational providers, including the Export Council of Australia, Australian Chamber of Commerce and Industry and Australia China Business Council.
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The Export Council of Australia believed the Government could do more to facilitate educating SMEs about FTAs, including partnering with private sector providers to develop an online training program that was freely available to businesses.
This training program could reinforce the content of the FTA roadshow seminars, as well as providing much more detail on the technical questions about using FTAs.
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Ms Kelly Ralston, the Chief Client Officer at the Australian Trade and Investment Commission said Austrade has some very specific initiatives that have been put in place such as the seminar series across Australia in partnership with DFAT, Efic, and AusIndustry to focus largely around that awareness-raising aspect and the educative aspect of understanding how to take advantage of and utilise free trade agreements.
Since 2015, there've been some 100 seminars run around the country, reaching some 4,000 individuals and companies who've attended those seminars to learn about the opportunities arising from the free trade agreements; to hear from companies that have taken advantage of opportunities in some other countries where there are free trade agreements in place; to learn some of the pitfalls; to talk to each other; and to discuss with experts on how to take those steps even further.
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Austrade stated between March 2015 and August 2018, 76 seminars have been conducted in regional Australia and 32 in metropolitan areas.
Attendance has been very strong, as I said, in terms of numbers but also in terms of the feedback from people who've attended those seminars. They have indicated that their awareness and their understanding of how to utilise free trade agreements has increased.
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The Australian Small Business and Family Enterprise Ombudsman Ms Kate Carnell believes one of the hardest things to do is communicate to small and medium businesses, because they’re all really different.
They're working 70 to 80 hours a week on their businesses. It's very hard to get them to come to an event or a meeting. So, in terms of refocussing information about free trade agreements, Efic and other opportunities that exist, it should be done through mechanisms that small businesses are already engaged with—and that could be their local chamber of commerce, their local business group or whatever—because they're already engaged with those people.
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Ms Carnell doubts too many SMEs have the time or motivation to attend Government-run meetings, workshops or seminars on trade issues.
My experience is that small businesses very rarely have time during the day to go to a meeting put together by a government entity. They just don't have time. They're also not really confident that it's going to be of great benefit or relevance to them. So getting information out about free trade agreements, simplifying the mechanism…We have to understand that, if we want SMEs to be part of that, this much paperwork isn't the way to go.
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Ms Carnell said ASBFEO shares the communications challenge faced by Austrade, DFAT, Efic and other agencies dealing with SMEs.
It was about how you get information to small businesses. We find that meetings during business hours are useless, because they simply can't get away from their businesses. But there are other methods of interfacing with small businesses. We use social media a lot. But we also use conduits like chambers, business associations and BECs and all those organisations that are on the ground and are interfacing with small business already, every day.
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Ms Sally Phillips, Manager of the Free Trade Agreement Program, Australian Trade and Investment Commission, said the focus of the seminars has been on North Asia trade partners.
When we're promoting the seminars, to date the seminars have focused on Korea, Japan and China, so that has been our remit through an NPP program. We would speak with our colleagues in the regions and say: 'Who's likely to come? Who should we partner with? How do we promote these seminars?'
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Ms Phillips explained the seminars were only one element of raising awareness of FTAs and the seminars will include the export strengths of a regional area.
They are at a macro level. If we look at the people who attend the seminars, about 50 per cent are exporting. About 25 per cent have never exported but are interested. So we are not necessarily going to a very granular level. Our role is to raise awareness, promote the benefits and give them some case studies. But if we knew in Toowoomba, for example, or in Mildura that there are opportunities in the citrus industry for Korea then we would work with Citrus Australia to deliver roundtables or seminars or bring buyers from Korea around that particular sector specifically.
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Ms Phillips outlined how Austrade seeks to attract existing or potential exporters to a seminar and uses peak bodies for example to target the right people.
Our TradeStart network would say to us: 'There's interest in Mildura. We've got X number of exporters. We know there are wins.' We would talk to the peak body. We would speak to our overseas network as well. So we collate a lot of data and insights to understand where we best target our programs and how we would get the best number of people to attend. Generally speaking, it has been run through a roundtable or a seminar in addition to our seminar series… We would have a case study speaker or we would have information on peers in their industry who have had wins, and we would demonstrate that there is a supply role and there is a demand role to free trade agreements.
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Ms Phillips stressed the importance of outlining the role of importers of Australian goods and services.
So the importers still have to do work on the other side. They're the ones who do the paperwork. Without them submitting the paperwork, there is no FTA win. So our people in market in Korea will be working with the importers. For example, from time to time we've brought importers or buyers to particular regions and had growers in the room to facilitate those discussions.
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Sales and Marketing Director of Griffith exporter Flavourtech, Mr Leon Skaliotis, wants more knowledge about the impact of FTAs on exports so he can more accurately offer price advantages to potential customers seeking to take advantage of an FTA.
We can't control when customers will buy, and we can't control other markets or the markets that we sell to. For me, the things we can control are communication and education. It's certainly something that we try and do with all our customers. In this particular case, there are free trade agreements. I think one of the things that needs to be done for all exporters is: communication of those free trade agreements and what it means to us and how we can use it in our negotiations and our discussions with our customers.
We quite often get asked for discounts. They say, 'I'm buying this much; give me a price,' or: 'What if I buy that much? Give me a price.' Well, if we understand the free trade agreements and what that means to our end customers and how we can use that, we can actually provide these discounts or use these in our negotiation agreements and say: 'If you purchase this year, this is what's happening. If you purchase next year, and if you want to hang on—you can give us a deposit or say that you're coming on and give us the contract—you can have it at the price that you're after.'
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Mr Skaliotis welcomes the Government providing the education that's required by SMEs to improve on exporters’ capabilities to negotiate better agreements with the countries that they are going into.
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Ms Phillips claimed the seminars also provide opportunities for exporters to discuss possible solutions with experts or business networks for any trade problems or barriers.
There are probably three ways in which we solicit inquiries or find out about problems. When people wish to attend our events, they have the opportunity to register and put in a question or raise an issue, which we then take on board and try to answer through our presentations or through the one-on-one opportunity that we have through the panel. People will come up to us at networking or they will raise their hand. Some people are less likely to put their hand up in a large room but will come and seek one of us in the room to let us know what the issue is or will provide it during the feedback process.
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Ms Phillips detailed one of the most common questions Austrade would hear at seminars is in regards to the Certificates of Origin and the paperwork required for export.
Many exporters are aware of FTAs, but some of them believe that it happens automatically and don't understand that there is a paperwork process that has to happen on the supply—the Australian exporter—side but also on the importer demand side of the equation. That's where we have a lot of questions around Rules of Origin, the process and who they go to to get help navigating that technical aspect.
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Mr Lachlan Crews, Assistant Secretary—Trade and Investment Advocacy Branch, DFAT, outlined how important the seminars are for small SMEs in regional areas facing agricultural market access issues and needing advice from experts.
Because many of the seminars are held in regional areas and they do have that SME focus—they're designed for companies that don't have an in-house legal team or a government relations area; they are quite small operations that have heard about the FTA and are curious about how to get into it—the other big question that often comes up is this technical market access. If someone says, 'I want to export kangaroo meat to China. There's a tariff cut in the Australia-China FTA for kangaroo, but I'm told that we're not allowed to export kangaroo meat to China at the moment,' that's an outside-the-FTA thing where the two agriculture ministries of the countries have to agree on a technical market access protocol before any trade in that product is allowed to commence. People will often come to hear about the FTA, but the questions at the end of the seminar are, 'How do I get my blueberries into China?' 'How do I get my crocodile meat into Korea?' or, 'How do I get my rockmelons into Japan?'—whatever the question might be.
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Mr Crews said some queries can be dealt with straight away if DFAT or Austrade is familiar with the agricultural product or otherwise a general answer is provided.
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NORTH Link representing businesses in northern Melbourne stated there were several Austrade road shows regarding the China FTA that were well attended across Melbourne, including one in Melbourne’s north.
In essence, most businesses can see the benefits of FTAs and those already exporting were happy as they see it as an opportunity to increase export sales. Businesses not exporting were excited to see the reductions in trade barriers and some looked to progress with exporting.
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The Director of The Gluten Free Food Co. Ms Monica Topliss, admitted to only having a vague idea about free trade agreements and would welcome any opportunities within her hectic schedule to better understand how to utilise FTAs.
But now, as somebody in my position starting off and having consulted with Austrade s few months ago, I was given all the information of who to contact, which bodies and it was actually mind boggling, just the amount of information. Realistically, we are all so time poor. There was never enough time in the day to actually go and investigate all these contacts.
I know if, such a thing were available, it would make a huge difference to be able to go and do some sort of one-week course or something like that, where people in our position starting off can go to and actually take a whole week off work, to set aside that time, to have, if you like, a crash course…but it's a struggle having to rely on other people to pay or other people to do all the things that you can't do. If there's some scope somewhere for somebody to make it available, instead of fumbling from the very beginning trying to learn as much as you can or avoid disasters. At least have some form of—I don't know—teaching for people like myself. I'm a chef; I'm not a business person as such.
Improving resources for regional exporters
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Whilst most exports come from regional areas, there are less support structures for exporters in regional areas than in city areas, according to the Sunshine Coast Council. The Council has found some exporters outside of major capital cities can struggle to maximise export potential and often fail to understand the FTA environment due to the lack of information or supporting structures for their business.
Economic activity and export capability is underpinned by the quality and accessibility of infrastructure. The movement of physical goods to target markets and the ease of movement of human capital to and from the region is fundamental to ensure local small and medium enterprises have the best possible chance at being globally competitive. It is vital to ensure that localised industry and logistics hubs, as well as new knowledge hubs (such as the new Maroochydore CBD), have reliable, efficient links to major transportation infrastructure.
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Mr Nicholas Alford, an Export Consultant with the Buying Project would welcome more opportunities for regional SMEs to be better informed about how to utilise the export opportunities with FTAs and assistance to understand which trade agreements would be the most suitable.
I would say education support and looking at the granularity of what the particular FTAs will attach themselves to, the particular products.
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Mr Michael Kopittke, Board Manager, Townsville Chamber of Commerce, regards Townsville as possibly the most successful regional city for start-ups.
SafetyCulture started in Townsville. JESI started in Townsville. Our young connect product was developed here. These products are now international. The federal government's been very generous in research and development support. One of the frustrating things is that we have an incubator hub here in Townsville, but we receive no funding from the Townsville City Council or the state government.
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Mr Kopittke believes these SMEs need regional funding.
If we're going to get these start-ups going, we need these incubator hubs because they are the nucleus. We're starting companies there with one person developing to seven, moving out to their own operations and then starting on export. We need to regionalise support staff from the federal government.
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Mr Kopittke has experience in state government development in areas like Hong Kong, Singapore, Shanghai and India.
There are some pretty good support bases out there, but we really do need some funding regionally, especially for these start-ups, because they are where these guys can link in. There's just no reason. I know there's a company in Emerald that is now looking at exporting some of its product, but we just need help—that's all we need—and some support.
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Mr Michael McMillan, Director, Policy and Investment, Townsville Enterprise Ltd described the northern Australia development agenda as very much focused on driving the development of the north and building capacity and capability in the north so the north can realise its true ambitions and its capabilities but SME exporters can play a significant role.
…it's through the incubation and development phase that we really need support. I think FTAs represent a good opportunity through that process to see legitimate and extensive engagement with those industry sectors to define exactly what FTAs can deliver in a true sense.
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Mr McMillian believes North Queensland SMEs need support to plan and develop their business.
I think in many instances we see businesses in the north and particularly in regional centres as being accidental exporters. We need to change that process and make sure that it's part of their business plan for the long, medium and short term. That requires engagement at the early stage to make sure that these are not only fruitful but relevant to regional Australia.
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Managing Director of Calabria Family Wines, Mr Bill Calabria, AM, believes governments need to provide more assistance for making regional areas like the Riverina, NSW, stronger and attracting workers to grow industries.
…the government knows we have problems in the major cities where they're overcrowded and they want to move people out, so it's a good opportunity for the government to try and assist these people who are putting their hard-earned into these regions, which are a little bit isolated. There should be some assistance in part to help continue the growth that is here. We've got the land, and we've got the opportunity to do a lot more than what we're already doing. All we need is a bit of support, which helps it grow and encourages people to come here.
Like we said before, we have trouble with getting workers to this region for a number of reasons, but it doesn't take much to turn it around. We don't expect government to come out and give us bucketloads of money. We just want some support so that we can continue to do what we're doing as family companies. We'd like to think that we can even entice corporate companies to come to these regions.
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The Sunshine Coast Council believed one of the most helpful means to increase accessibility and uptake of FTAs is to break down the negative perceptions associated with them.
This can be achieved using case studies and testimonials at a local level, which highlight easy to understand solutions for small business owners.
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The Council submitted that a regional area such as the Sunshine Coast would benefit from seminars and workshops promoting FTAs and direct advice and support about market access and market promotion.
Previous experience with workshops has been that they are too theoretical and discussion is in the “billions” of dollars or for categories that are too broad or generic such as “dairy”. Often the examples provided are not matched to the export profile of the region. There would be greater benefit if Commonwealth Government presentations matched FTA opportunities to the host region and provided case studies/scenarios that resonate with local exporters.
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A consultant at the University of the Sunshine Coast, Mr Jason Valusaga, would welcome DFAT and Austrade improving their promotion of FTAs to businesses in regional Australia.
I would say definitely raising more awareness and understanding of FTAs for SMEs outside big cities, so more regional.
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The Committee recommends that the Australian Government trials a grant programme in selected regional areas for clusters of businesses that wish to collaborate in pursuit of export opportunities, anchored to either geographical provenance or specific sectors.
Chamber of Commerce and Industry of WA workshops
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The Chamber of Commerce and Industry of Western Australia (CCI), which was contracted by Austrade to run FTA training workshops across WA in 2017 and 2018, claimed its events provide detailed and tailored insights to address relevant sectors in attendance. Some of the benefits businesses have reported from attending CCI's FTA events, according to CCI, include:
Building awareness of and clarifying FTAs for businesses.
Clarifying roles of various parties so exporters have a better understanding of their responsibilities under FTAs (For example: CCI believes it is often incorrectly assumed that importers and freight forwarders will automatically inform the exporters of how best to take advantage of the FTA).
Building awareness of the DFAT FTA Portal as a tool for understanding FTAs for importing/exporting and for mapping tariffs. CCI states many companies were unaware of this portal prior to attendance at CCI’s FTA events.
Understanding the benefits of FTAs in terms of tariff reductions, both current and anticipated.
When FTAs drop/lower tariffs there is an immediate benefit. CCI believes businesses are not always made aware of these changes and the cost advantage they offer.
For example CCI highlighted that by 2029, under the China Free Trade Agreement (ChaFTA, 97.9 per cent of Australia's goods exported to China will enter duty free. Tariffs on beef of 12 to 25 per cent will be eliminated by 2024 and wine tariffs of 14 to 20 per cent will be eliminated by 2019.
Better understanding of the indirect benefits of FTAs to exporters.
Underutilisation of FTAs ultimately leads to a loss of market share, according to CCI, as importers will seek to use exporters who are using FTAs (and therefore will benefit them). This situation of not utilising the FTAs also leads to difficulties in negotiating such contracts.
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The Chamber of Commerce and Industry of Western Australia (CCI) recommends the Australian Government continue to run workshops and that Austrade continues to contract organisations such as CCI to conduct FTA events, including those in relation to new trade agreements.
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Through the delivery of its FTA workshops with Austrade, CCI submits it has had the opportunity to assist business to “overcome some of the difficulties in accessing these agreements”.
However, there are still barriers preventing SMEs from fully understanding and utilising the benefits of FTAs. These barriers should be considered when formulating future FTAs, with a focus on simplifying processes for RoOs, continuing to accommodate independently verified Certificates of Origin and working to make business aware of the direct and indirect benefits of using FTAs.