Communicating the benefits of FTAs to SMEs
6.1
Communicating the benefits of the agreements – and how to use them – is important to maximising the benefits to Australian businesses, and our economy, according to DFAT.
6.2
DFAT submitted that PwC’s Free Trade Agreement Utilisation Study reveals that businesses obtain information and advice about FTAs primarily from Government websites, industry associations, customs brokers and freight forwarders, Government-run seminars and trade newspapers.
6.3
Professor Will Rifkin, the Director and Chair in Applied Regional Economics, Hunter Research Foundation Centre, University of Newcastle, for many “small to medium-sized enterprises, export opportunities are a learning process”.
So they [SMEs] need information, they need relationships with other companies that they can learn from, and they need motivation through free trade agreements. Tax things could be another, but I'm also hearing the notion of capacity—port capacity. So I guess the one thing would be for the government to look at a more holistic way. There's an economic system with individual actors who need to learn to do new things, but they also need the capacity to be able to do those things—infrastructure capacity.
6.4
DFAT stated the Government’s ongoing FTA outreach activities largely focus on helping SMEs and other businesses to understand and take advantage of Australia’s FTAs, particularly our FTAs with Korea, Japan and China.
The role of Austrade in supporting exporters
6.5
Austrade is the key Australian Government agency responsible for gathering information and insights about international market opportunities for Australian business.
6.6
Austrade submitted that in 2017-18, it provided over 12,000 services to more than 4,800 Australian organisations, helping them to identify export opportunities or partnerships in overseas markets. In the same year Austrade helped facilitate 113 inward investment outcomes worth almost $4.8 billion.
In 2017-18 Austrade completed its organisational capability assessment and is implementing a transformation plan that puts our clients at the centre of everything we do, building on stronger digital services and partnership and collaboration across governments and industry.
Table 6.1: Austrade’s appropriation, 2015-16 to 2021-22 ($ 000)
|
|
|
|
|
|
|
|
|
|
Total Dept.
|
229,942
|
213,957
|
204,442
|
217,222
|
209,459
|
209,578
|
210,042
|
|
Operat.
|
215,275
|
198,436
|
188,166
|
201,686
|
194,781
|
194,873
|
195,737
|
|
Dept. Capital Budget
|
14,160
|
14,526
|
15,176
|
14,135
|
14,178
|
14,205
|
14,305
|
|
Equity
|
507
|
995
|
1,100
|
1,401
|
500
|
500
|
0
|
|
Admin.
|
140,897
|
140,113
|
140,518
|
140,871
|
138,650
|
137,900
|
137,900
|
Source: Australian Trade and Investment Commission, Submission 12.2
6.7
Austrade claimed it “continues to deliver results for Australian exporters and international investors through our global network, commercial connections and expert market-specific advice”.
6.8
Austrade stated it has managed the efficiency dividend requirement of its current $217 million annual budget with nearly $141 million spent on administration by looking “carefully at how to implement savings in a way which limits the impact on service delivery, and ensures Austrade can continue to meet its corporate performance measures”.
Client satisfaction with Austrade services has increased from 87 per cent in 2015-16 to 89 per cent in 2016-17 and 2017-18.
6.9
KPMG welcomed a variety of initiatives administered by Austrade, including assistance provided to SME exporters via the TradeStart network and 'FTA Toolkit' resources to support outreach, promotion and presentations in relation to Australia's FTAs.
6.10
Executive Chairman of the Advitech Group, Mr Larry Platt, agreed that negotiating FTAs were an achievement but the challenge was making more businesses use them to become exporters.
All I have to say is that achieving an FTA is one thing but recognising the opportunity and publicising the opportunities to SMEs who may not already be in the market would be a very good thing. Currently that’s Austrade. But to me there's a big gulf between getting an FTA and actually taking advantage of it.
6.11
The South Australian Government declared Austrade's FTA outreach education program and web-based FTA portal, instituted in the wake of the conclusion of the major North Asian FTAs in 2014 and 2015, have been useful in bringing export opportunities to SMEs' attention but warned against any reduction in programs due to a belief that most SMEs have been made aware of FTAs.
However, resourcing needs to be maintained and, preferably, increased, not reduced on the assumption that the several years for which those agreements have been in place has made their content well known. There is considerable churn in the SME export community. Up to half of all small business exporters drop out of, or into, export markets every year, according to Austrade.
6.12
Mr Michael Kopittke, Board Manager, Townsville Chamber of Commerce believes decentralisation would help drive interest in exporting.
We've got the ports in Townsville, Cairns, Darwin and Gladstone. We need resources out of Canberra, or wherever they are, to these marketplaces to fast-track and take advantage of these FTAs. You've done a great job getting the FTAs; now we've just got to get the back end.
6.13
Executive Director of NORTH Link Mr Chris James wants increased resources for Austrade to help lift their trade advisers’ expertise.
…if there were one thing at the federal level that we'd suggest, it would be beefing up Austrade. I think Austrade is very good at giving general advice on what to look out for in certain jurisdictions, and they do have some very good people in country. However, their performance, according to my members, is mixed in terms of direct assistance to exporters in finding buyers.
I understand that they can't do due diligence on potential foreign partners and distributors. They are prohibited from doing that. I think that'd be a very useful service for them to undertake. If that prohibition could be removed and they were able to undertake that, I think that'd be quite useful for some of our businesses in Melbourne's north.
6.14
Chair and Founder of Newcastle start-up Eighteen04 Inc. and BlueZone Group, Dr Gunilla Burrowes, sees merit in Government developing a one stop shop.
…my one-stop shop idea where SMEs and start-ups can communicate with an individual about their specific problem and get some support and advice on a free and timely basis.
6.15
Project Director at HunterNet Mr Wayne Diemar believes SMEs would welcome a one-stop shop to assist exporters.
We had something similar here at Wharf Road. We have a lot of government departments all together and all the industry associations as well. I think something like that again—almost like a tourist information centre—would be a real bonus to the region.
6.16
COSBOSA believed that the Government has a responsibility to support SMEs who don’t have the resources to invest time in developing a deep understanding of FTAs.
6.17
COSBOSA submitted that DFAT and Austrade must invest “more staff resources and time into local initiatives that support Australian SMEs in gaining access to international markets, particularly in Asia where cultural and linguistic differences can cause more difficulties”.
6.18
Mr Troy Williams, Chief Executive Officer, Australian Dental Industry Association referred to an ADIA survey of its members on where businesses get their information on FTAs from – 60 per cent was from the ADIA and 23 per cent from Austrade.
There was no real surprise. Sixty per cent got it from us, from ADIA. That's the traditional role of an industry association…About 50 per cent of businesses relied on third-party consultancy firms. The problem is, of course, that, when you're an SME, deciding whether or not an FTA is of value—spending $150 or $250 an hour—is just cost prohibitive if you're only going on a fishing exercise to figure out if there’s any value [in exporting].
And when we asked them what advice they got from Austrade, it was about 23 per cent. So they got support from Austrade…But the challenge [for Austrade] is that even when they try and create them into industry groupings, such as manufacturing, within manufacturing you've got everything from heavy manufacturing through to medtech, through to pharma and through a whole range of sectors. As noble as Austrade's efforts have been, it has been very difficult for them to create specialty.
6.19
Mr John Chapman, the Small Business Commissioner for South Australia believes there remains a need for governments to work together and to maintain the “ongoing and expanded support for TradeStart and the education aspects to help small business” access export and the trade opportunities.
[SMEs] often don't know what they don't know. Having the ability at that state level, with support from the Commonwealth, to do that opens up a whole range of opportunities, not just through the FTAs.
6.20
The Ai Group outlined that an important element in the success of converting opportunities from free trade agreements into commercial outcomes is the role of Austrade, as well as state trade mission agency staff, operating in market and advising companies in Australia.
6.21
The Ai Group conceded such commitments are expensive and resource-intensive, but the significant investment by the Government has made in negotiating these agreements − $350 million according to the Productivity Commission Report into Bilateral and Regional Trade Agreements –warrants a significant investment post implementation to ensure that Australian companies benefit from the gains secured by DFAT.
As a consequence of successive years of efficiency targets, the frontline presence of business capacity building agencies such as Austrade have diminished to unacceptable levels, and inconsistency across Australia.
Availability of Austrade’s TradeStart advisors
6.22
Using ABS data and the published tender documents for Austrade’s national frontline service, TradeStart, Ai Group has decided that there is one TradeStart Advisor for 400 existing exporters in Tasmania whereas in Victoria the ratio is 1 export advisor for 5120 existing exporters.
We make the distinction on existing exporters, as with those ratios, it is difficult for potential or emerging exporters to access services in Victoria to transition to established exporters. For example, in Melbourne there is one TradeStart Advisor with a contracted portfolio of 80 clients.
6.23
Austrade outlined there was 29 TradeStart advisers in 28 offices:
Seven are based in metropolitan as in the mainland capital cities and Gold Coast;
There are 21 offices across regional Australia.
6.24
These TradeStart advisers handle about 1,400 clients per year with a client split of 650 clients in metro and 750 in regional areas.
6.25
Of Austrade’s 100 FTA seminars, Ai Group noted two of the largest were held in Melbourne, with 25 per cent of attendees self-identifying as “intending to export”. On those numbers alone, Ai Group believes the available support under TradeStart would be expired mid-year.
Opening markets through FTAs is only one element of creating a successful exporter. Companies, particularly SME’s require additional coaching to ensure that they export efficiently and successfully. TradeStart has been an important partnership program for Austrade to deliver export coaching services across the country.
6.26
The National Manager, Business and International Advisory Services, Ai Group, Ms McGrath believes Austrade is short-staffed in Melbourne.
We find with the cutbacks to Austrade, and in particular their on-the-ground service TradeStart, there is a huge gap in what companies can access to get into export. Not so many years ago there were five TradeStart advisers in Melbourne, now there is one TradeStart advisor who has 80 clients on his roster each year.
6.27
Chief Executive of Bioaction Pty Ltd, Mr Larry Botham, would welcome one on one advice about trade issues as required similar to the Government’s Entrepreneurs Program.
As a small business, it would be nice if we had the situation where you had a business adviser coming to your business and working through those layers within this. The free trade agreement's only one part of it, which is obvious from today’s conversation. We benefit from AusIndustry through the Entrepreneurs’ Programme and Growth Services, where we have a business manager who sits with us, not on an overly regular basis but certainly who works with us around business and understands our needs.
Availability and cost of Austrade assistance
6.28
In the food space, NORTH Link representing businesses in northern Melbourne, believes Australian food exporters have a strong story to sell when supported by Austrade, of clean, healthy supply chains and being considered a “safe” country of origin. However, NORTH Link warns the route to market and the impacts on cash flow, selling in new markets, and labelling and custom requirements become difficult to navigate.
Austrade excels in giving general advice on what to look out for, but a mixed performance is reported on direct assistance to exporters. Notwithstanding this, there is also some positive feedback about introductions to buyers.
6.29
Some long-time exporters have indicated to NORTH Link that there is less free direct assistance from Austrade than there used to be.
Smaller SME manufacturers inform NORTH Link that they need advice and options and do not want to pay huge amounts for it.
6.30
NORTH Link led a food and beverage delegation to China in 2017 and it welcomed Austrade representatives turning up to the meeting to lend weight to delegation’s standing and presence.
6.31
NORTH Link described the information technology capability of Austrade as somewhat limited.
Customer Relationship Management systems need to integrate other data sources like AusIndustry activity etc to have whole of business life intelligence available so they have analytic ability rather than just internal reporting.
Austrade could also have more pro-active social media communications and a greater presence outside capital city CBDs e.g. regular events.
6.32
NORTH Link believes the critical factor in most export success is quality overseas partners.
However, we understand Austrade are also not legally allowed to do due diligence on potential foreign partners but can only provide an exporter a list of potential partners and leave the room.
6.33
The South Australian Government believes since a significant problem for exporters is the difficulty in clarifying benefits for individual companies shipping specific products to specific markets, more practical assistance should be considered by Austrade at this level of individual companies and shipments, especially in mature markets like the United States of America.
Austrade's decision to cease providing trade facilitation assistance in some markets - especially, in the FTA context, the United States of America- needs reconsidering.
6.34
The South Australian Government considered Austrade’s inflexible charging practices a “disincentive to accessing its in-market support”.
Its charges per hour are the same regardless of volume of business. This has been an issue with South Australia’s business missions, mostly to markets with which FTAs are in place and involving almost entirely SMEs, and their follow up.
6.35
The South Australian Government believes these state missions generate consistent large volumes of work for Austrade, introduce it to many new client businesses, and support its strategic objectives.
It is South Australia’s position that some form of tiered pricing structure should be considered.
6.36
Chairman and Owner of GJR Technologies Pty Ltd trading as Grabba International, Mr Ross McKinnon, welcomed the level of support by Austrade and other agencies.
I actually think we're generally well supported by the government. There are lots of little avenues all over the place, from Austrade through to Efic and everything…there are a lot of opportunities.
Supporting trade delegations to or from overseas markets
6.37
Badge of government is an excellent 'door opener' according to KPMG for Australian SMEs to explore opportunities in many of Australia's top and emerging trade partners.
In our experience, government-to-government links can result in meetings between businesses and domestic organisations and agencies that can be integral to effective market entry and success. It is also important to note that these benefits can be realised on smaller missions, with or without a Minister present.
6.38
KPMG outlined that historically the federal, state and territory governments have provided the majority of trade mission support, though local governments and councils are becoming increasingly active.
Where multiple governments are involved in supporting a trade activity (e.g. a presence at an international trade show) it is important that activities and support are coordinated and that any in-market presence is one of 'Team Australia'.
6.39
NORTH Link, which is the umbrella business networking body promoting the economic development of Melbourne’s north, started its Melbourne’s North Food Group (MNFG) project in early 2018 has used international trade shows to assist food and beverage manufacturers and their supply chain to grow and become export ready.
6.40
The food and beverage industry profile in Melbourne’s north is strong, according to NORTH Link, in dairy, cheese making, meat and smallgoods, coffee, craft beer, wine, health foods, pastry products, biscuits and chocolates.
Most manufacturers in Melbourne’s North are not exporters but most of these do have an aspiration to export. Notwithstanding this, there are a number of exporters of great scale.
6.41
In early international work, MNFG has taken members to trade shows in Thailand, Dubai and NORTH Link have also hosted an inbound delegation from Chongqing and Beijing.
NORTH Link also led a food and beverage delegation to Chongqing in May 2017. NORTH Link and MNFG have also developed relationships with local Chinese traders who trade goods back to China as well as through Chinese business networks locally.
6.42
KPMG noted many trade missions include a series of networking events and targeted roundtable meetings for mission participants and their hosts.
These, when done well, foster formal and informal links between Australian and foreign businesses and policy makers. This not only creates opportunities for new business to be done but facilitates the flow of ideas and information between the two (or more) economies.
6.43
KPMG highlighted the importance of trade missions and related engagement activities at providing government officials with “opportunities to understand the prospects and challenges facing Australian businesses in an increasingly globalised world”.
This information and these links can be used to support policy development and improve the effectiveness of future trade development activities supported by government.
Expanding the Export Market Development Grants scheme
6.44
The Export Market Development Grants scheme (EMDG), administered by Austrade, is a financial assistance program for export-ready SMEs. DFAT claims it encourages businesses to increase international marketing and promotion expenditure to boost international sales.
6.45
The funding and forward estimates for the EMDG scheme last year 2017-18 and in 2018-19 was/is $138.9 million per year.
The payout factor in 2017-18, for those eligible for more than $40,000 of reimbursement of promotional expenses, was 29 cents in the dollar. So the maximum level of reimbursement payable was $72,000 rather than $150,000 as provided for by the EMDG Act.
6.46
The Australian Industry Group submitted that the EMDG scheme plays an important role in encouraging small and medium businesses to export new products and services, and to access new markets. Ai Group supported the review of the EMDG scheme by Mr Michael Lee that showed a strong return for the money invested in the scheme.
KPMG found that each EMDG dollar generates an economic benefit of $7.03 when industry spillovers and productivity gains are taken into account. The scheme effectively redistributes productive resources from Australian taxpayers (including firms) to new and emerging exporters.
6.47
The Ai Group encouraged the Government to continue funding the program so that it remains a viable program where the benefits to applicants outweigh the costs of applying.
6.48
Owing to the success of the EMDG scheme, the Ai Group recommended the Government “Progressively increase the budget allocation for EMDG by $12.4 million per year over the next three years to $175 million”.
6.49
Managing Partner of Cross & Co Lawyers, Mr Warren Cross, feared that due to a lack of funding for the EMDG scheme compared to applicants, the “certainty of rebate is no longer present”.
The proven effectiveness of the Scheme is under dire threat. In my experience, access to finance is the greatest impediment to SME’s capitalizing on free trade agreements. In the past, a fully funded Export Grant Scheme has successfully filled this gap.
6.50
Cross & Co Lawyers’ submission submitted the “Export Market Development Grant Scheme must have an annual budget increase of $35 million to restore certainty of rebate”.
It is certainty of rebate which has been the cornerstone of the Scheme’s success in developing global niche players across a wide diversity of industries. Atlassian credits export grant support, as vital to its early international success. Notably they applied at a time when the level of rebate was known, prior to export promotion funds being committed.
6.51
Cross & Co Lawyers’ claimed that Austrade estimates a 50 per cent shortfall in the second Export Grant tranche rebate in 2018 (up from 34 per cent in 2017).
SME’s do not know the level of export promotion rebate they will receive going forward. This is undermining the stated objective of the Scheme, which is to increase the level of export promotion. The shortfall is directly attributable to changes made to the Scheme in 2014 by the [Government], changes which were not adequately funded.
6.52
Mr Warren Cross, Senior Legal Counsel, Cross & Co Lawyers outlined that the export grants scheme is a very tightly run scheme and nothing like the R&D scheme where applicants may fill out a tax return and get money back from their tax outlay.
Every export grant application is fully audited. Every item has to be audited through invoice and bank statement. So these companies have been put through that audit process to receive an after-tax rebate of 10 cents in the dollar. But more importantly, their cashflow has been knocked to smithereens because they were logically expecting that if a government advertises its scheme will pay a rebate of up to $150,000 dollars then somewhere around that mark would be paid.
6.53
To illustrate Mr Cross detailed an Austrade notice of determination from a client dated 27 June 2018. The client was in their third year of export.
They've generated $2.6 million in export earnings. They spent $245,000. They were entitled to a rebate of $120,000. They got $40,000, and then the second payment, instead of being $80,000, was $23,479. So instead of getting $80,000 they got $23,000. The main problem is that they were informed about the shortfall in June 2018, which is in respect of money that they spent for the year ending June 2017. That means they are now confronting the fact that the money they spent in good faith in the 2017-18 grant year is likely to be subject to the same shortfall.
6.54
Mr Cross admitted he cannot predict what clients may receive back from the government’s EMDG scheme.
You either make the scheme fit the budget or you make the budget fit the scheme. At the moment we're doing neither. We've basically got to the point where, when I go out and advise clients what they will get back under the export grants scheme, I have to say to them in good faith, 'I have no idea.' Why I have no idea is because the first tranche, that is the amount that you're guaranteed, is determined in the July after the financial year in which the company has spent the money. That first tranche can slide up or down. It's been as high as $90,000; it's been as low as $27,000; It's currently $40,000. But it can slide and it's determined after the event.
6.55
The one thing Mr Troy Williams, Chief Executive Officer, Australian Dental Industry Association would introduce to the EMDG scheme is a “degree of predictability” for members wanting to market Australian products at international trade shows.
When we go to them and say, 'You're going to be at a trade show in Cologne and there will be 120,000 dentists who are going to buy your product and 13,000 wholesalers who want to take up your product and introduce it to the market.' We need to be able to go to them with a fair degree of certainty and say, 'The cost is $13,000. The Australian Dental Industry Association will chip in $4,000 and through the Export Market Development Grants scheme you'll get another $2,500.' Then they can make a decision. It's that not knowing whether they'll get $250 or $2,500 that's the challenge.
6.56
Cross & Co Lawyers’ noted the Singapore Government spends six times more per capita on SME export support, than the Australian Government.
[Singapore’s] direct export grants are more than double those of Australia. It recognises SME internationalisation is the key to lifting national productivity. As a high cost country in a low cost region, it realises it must move higher up the value added tree to maintain its standard of living.
6.57
The Chief Executive Officer of Trisco Foods Pty Ltd, Mr Michael Tristram, supported an expansion of the EMDG system.
…you've already got a footprint there, so I think that would be the fastest, easiest and best method for push factors. You can't really build the burning platform for organisations; if they're not willing to get out there and give it a go, there's not much you can do for them. But any kind of incentivising for them to look beyond the shores of Australia will help significantly, through either EMDG or some kind of tax code change where exports are a little bit more incentivised.
6.58
The Director of Arfoods Group Mr Pietro Pace wants greater support for longer from a better funded Austrade.
…provide longer financial support because my understanding is, with Austrade, the first year you can claim 50c in the dollar. In the second year, it goes into a sliding scale; it goes less than that. I think longer term financial support would help establish those Australian products in those overseas markets. I think provide longer support and more financial support, because, at the end of the day, we're trying to create more jobs here, which will help not only ourselves personally and our businesses but the whole Australian economy.
6.59
Mr Paul Pearsall, Managing Director of Australian Grain Link Pty Ltd wants to see “better resourcing, if not greater resourcing, of the Austrade officers”.
6.60
Mr Gary Dawes, the Senior Trade Consultant, International Trade, at the NSW Business Chamber also called for the Australian Government to provide “more funding for the export market development grants”.
6.61
Senior Consultant with EMDG Consulting, Mr John Reeves Taylor, believed any SMEs willing to target exporting to new FTA markets should be able to re-apply for EMDG, even when they may have already exhausted their allocation from the grant scheme some years beforehand.
On the assumption that the EMDG scheme were adequately funded and on the assumption that there were no changes to the current rules, there would be merit in the committee considering making a recommendation that those applicants who wish to tackle new markets which are described by the free trade agreements we've entered into—that is, over and above those claim years they've already had—would have merit.
6.62
The Australian Dental Industry Association (ADIA), as the peak business organisation representing manufacturers and suppliers of innovative dental products, submitted the Australian Government should commit to a long-term increase in funding for the Export Market Development Grant (EMDG) scheme to give SMEs the financial means and confidence to expand into markets opened up by Australia’s FTAs.
The Export Market Development Grants Scheme (EMDG) is the key Australian Government assistance programme for aspiring and current exporters. SMEs across the dental sector rely on it to take full advantage of the FTAs that the Australian Government negotiates. However, the lack of a long-term funding commitment to maintain the scheme in the future makes it difficult for SMEs seeking to develop medium to long-term plans to take advantage of FTAs.
6.63
ADIA strongly supported the Australian Government’s continued funding of the EMDG scheme for 2018-19 and the inclusion of funding for forward estimates until FY2021-22.
However, the allocation of $137.9 million for the scheme in the FY2018-19 budget is still lower than the $150.4 million allocated ten years ago in the FY2008-9 budget.
Further, the funding of $137.9 million per year projected for the next four year means that in 2020, based on the way in which grants are payed, grant entitlements above $40,000 will only be paid out in the order of only 20 per cent of what is owing.
6.64
In KPMG’s experience, the EMDG is an effective support mechanism and does help recipients accelerate their growth in new markets. For those with queries about making applications, KPMG believed Austrade continues to provide good support to applicants through its EMDG Hotline.
In our experience and based on observations, payment processing times are now increasing, which is significantly eroding the benefit of the grant to SMEs. There has also been a decline in the final grant amount received in the second tranche payment, owing to an increase in claims received per grant year (3,771 claims in 2017 compared with 2,715 in 2013) without a corresponding increase in the budget.
6.65
KPMG outlined there can be a substantial administrative burden associated with applying for this EMDG program, though changes, such as the per diem allowance for travel, have greatly reduced the number of receipts required in some areas.
Despite this move, we note high levels of audit activity and (in some cases), the rejection of applications for reasons not supported by Austrade's guidelines and the EMDG legislation. The ongoing audit activity is coupled with increasingly slow responses from Austrade and delays in the finalisation of audits (when compared with previous years).
6.66
KPMG also raised awareness of circumstances where Austrade had not provided the applicant with an “opportunity to respond to queries before finalising an audit”.
6.67
KPMG believes the EMDG’s administrative burden and increasingly strict approach to audits risks reducing the effectiveness of the grant and Austrade needs to consider a review of the technology it uses to improve the application process.
…the use of existing digital solutions to make it easier for applicants to collate and authenticate expense claims and for Austrade to access information and streamline assessment processes.
Letters of credit as a funding alternative to the EMDG scheme
6.68
The Managing Director of Eco Energy Group, Mr Lionel Barden, described funding as the single biggest barrier to SMEs’ export participation and proposed a funding alternative to the $138.9 million Export Market Development Grant scheme.
Banks have trouble lending to small business due to the large reserve required for small business lending. This is why banks use property (the lowest reserve) to lend against instead of banking the business.
6.69
Mr Barden stated the Export Market Development Grant scheme is the key Australian Government financial assistance program for aspiring and current exporters.
The funds are restricted and come far too late.
6.70
Mr Barden believed money would be more accessible with a reduction in the reserve on legitimate irrevocable Letters of Credit on export orders. Instead of providing grants the Government should offset this funding by providing insurance over loans against Letters of Credit which could then allow the Reserve Bank to reduce the reserve on Letters of Credit. The banks would then be in a position to offer loans against Letters of Credit.
This is not a new idea. The Singapore Government has built a huge, highly successful export business through this model.
6.71
Mr Barden proposed the Australian Government should consider supporting Letters of Credit as security because of his belief that each Letter of Credit:
has greater substance than property
is safeguarded by a bank to bank transaction.
is a short term arrangement on an order by order basis.
amount loaned would be the cost of production or milestone of an order.
funding transaction Is completed when the product is delivered and the total payment transferred between banks.
6.72
The company could grow quickly using funding against Letter of Credit as a Rolling Line of Credit.
An irrevocable letter of credit is common in export trade and provides the "irrevocable" security against the financing. All it takes is a shift in mindset. Companies will follow the easier money and Australia’s focus would soon become export oriented, led by SMEs who will react quickest.
6.73
Mr Barden described the benefits as:
With the correct due diligence SMEs could access funding on a rolling line of credit
Banks would be less exposed than on property
There would be greater confidence by SMEs with growth in profits
This would increase employment
There would be a direct focus on export supporting the balance of trade
SMEs, Government and Australia would prosper
This is a cost neutral policy change.
Innovation and Science Australia supports increasing size of EMDG
6.74
Innovation and Science Australia (ISA) submitted that governments can strengthen export activity by entering into new trade agreements and better capitalising on existing ones.
ISA welcomes the Australian Government's continuing efforts to grow and strengthen its FTAs, including recently negotiated agreements with China, Japan and South Korea, along with continuing engagement with India and the efforts underway to establish new agreements with the European Union and the United Kingdom.
6.75
ISA has an independent statutory board with responsibility for providing strategic wholeof-government advice on all science, research and innovation matters. In January 2018, ISA released a strategic plan Australia 2030: prosperity through innovation for the Australian innovation, science and research system to 2030 for consideration by Government.
The 2030 Strategic Plan emphasises the importance of exporting to innovation in the national economy, noting the strong links between export activity and innovation at the firm level.
6.76
The ISA highlighted its research for the 2030 Strategic Plan and identified the important role played in the innovation system by the Export Market Development Grants scheme. The EMDG scheme provides financial assistance for SMEs to increase international marketing and promotion expenditure to achieve more sustainable international sales and encourage businesses to enter and embed themselves in global value chains.
EMDG recipients include many of Australia's best known exporters and the vast majority of funding recipients report the scheme is invaluable in helping them to access new markets and develop better international business and cultural understanding.
6.77
ISA’s analysis of a sample of EMDG recipients found that 45 percent of the firms increased their employee numbers by at least 73 percent - equivalent to a threshold of 20 percent growth compounded over three years. Furthermore, 52 percent of the firms analysed by the ISA increased their turnover in excess of the same threshold.
High growth rates such as these are a sign of a healthy innovation system, and ISA therefore believes further policy support is appropriate.
6.78
In light of this, ISA made a recommendation in its 2030 Strategic Plan calling for the Australian Government to significantly increase funding support to export focussed SMEs through the EMDG scheme to further drive the success of Australian SMEs in export markets. ISA also proposes that a methodology be established to better target this funding support towards high-growth businesses.
6.79
The Committee recommends that the Australian Government review the resourcing of agencies and programmes to assist Australian small and medium enterprises (SMEs) trade internationally as follows by:
Reviewing the current funding arrangement for the Australian Trade and Investment Commission with a view to ensuring it is adequately funded to continue to deliver high quality services and in line with the recommendations of the report;
Assessing the current funding arrangements for the Export Market Development Grant (EMDG) scheme to ensure it meets the growing demand and maintains the real value of individual grants under the EMDG scheme, including investigating strategies to better target the scheme towards high-growth SMEs; and
Evaluating the potential for using improved digital technology to reduce the administrative burden of the Export Market Development Grants scheme for applicants.
Department of Industry, Innovation and Science role
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To complement its specific role in advising on FTAs, the Department of Industry, Innovation and Science also works with Austrade to further assist in SME uptake of global opportunities.
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In April 2014, DIIS signed a revised Partnership Agreement with Austrade. Under the Agreement, the two agencies have committed to strengthening their collaboration to deliver economic benefits for the Australian economy. The Agreement sets out overarching principles for the relationship and key strategic priorities.
It also facilitates the coordination and collaboration of a range of activities, providing practical support and outcomes for Australian businesses.
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In January 2016 a Memorandum of Understanding (MOU) was concluded between DIIS and Austrade setting out the general principles for the provision of shared services.
How DIIS assists SMEs become export ready
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Research by DIIS’ Office of the Chief Economist shows that innovation and export behaviour of Australian SMEs are interrelated.
The results show that innovative Australian SMEs are 4-8 per cent more likely to be exporters, while SME exporters are 7-10 per cent more likely to be innovators (introducing new or significantly improved products and/or processes).
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DIIS submitted these 2016 results suggest that exporting induces selection into innovative activity given competition and learning associated with foreign market participation.
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DIIS administers a range of programs and policy initiatives which form part of (or supplement) the Australian Government’s National Innovation and Science Agenda. Several of these initiatives are aimed at building business capability and helping SMEs become ‘export ready’, and thus play an important role in helping SMEs leverage the benefits of Australia’s FTAs.
DIIS’s SME Export Hubs Initiative
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The SME Export Hubs Initiative managed by DIIS will fund successful applicants to develop local and regional export hubs that will assist participating SMEs improve their capabilities, increase exports and create jobs.
There is nothing in the guidelines precluding establishment of virtual export hubs, however an applicant must be able to specify the location where projects will be located.
Export hubs will help groups of small businesses to help break down the barriers they face when they start exporting by increasing information and resource sharing.
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According to DIIS, export hubs will:
deliver improved local capability to increase exports, encourage growth and create jobs
develop and implement export strategies to build on local competitive strengths and innovation potential, and are aligned with the national strategies of the Growth Centres
provide market intelligence about export opportunities
help small business access primary buyers and supply chains through export networking and supply chain events.
highlight international market opportunities and identify opportunities for firms in different sectors to work together (e.g. between packaging, food, biotechnology and transport firms)
support skills development through training and seminars.
Export hubs may use grant funding to deliver the above activities and services, and to pay for licensing fees to deliver third party services and tools to improve firm’s competitiveness and export capability. Grant funding may not be used to pay Australian Government entities for their services.
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Eligible activities under the initiative can include:
activities associated with establishment and operation of an export hub that assists participating SMEs to improve their capabilities, increase exports and create jobs
developing and delivering workshops, training, seminars and other events for participating SMEs in the areas of business management, workforce skills development, collaboration, innovation and export market development
developing and implementing an export strategy focused on current or future global opportunities, building on identified competitive strengths and innovation potential of participating SMEs
identifying emerging needs of export markets to inform and facilitate commercially focussed industry-research collaboration to address those needs
providing market intelligence about export opportunities and facilitation of opportunities for participating SMEs to access global supply chains.
Victorian Chamber’s role in encouraging exporters
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The Victorian Chamber outlined its extensive experience in supporting Victorian businesses to grow their presence in export markets. As part of this, the Chamber delivers a number of export development programs and services, including a training program to assist businesses access FTAs.
FTA Export Pathway Program (includes FTA Training workshops, FTA Advice Line, FTA one-on-one coaching, and Online Knowledge Centre).
Since the launch of the program, the Victorian Chamber has supported more than 1,800 businesses to access the three new FTAs.
Overwhelmingly, the strongest interest from business relates to the Chinese-Australia FTA.
Asia Gateway Voucher Program - The Victorian Chamber is a registered provider for the Asia Gateway Voucher Program, a Victorian Government program offering funding of up to $50,000 on a one-to-one co-contribution basis, to support Victorian businesses develop and implement market development plans to increase export and business activities with Victoria’s top Asian trading partners.
Export documentation services - The Victorian Chamber helps businesses with all of their international customs and export documentation needs and is the only body in Victoria that is authorised to issue both Certificates of Origin and ATA Carnets. Having an independent third-party certify the origin of a good and manage compliance provides certainty and important protections to business exporters.
Migration services - The Victorian Chamber’s migration and visa service provides consulting for corporate and individual immigration and visa matters.
Victoria Jiangsu Business Placement Program (VJBPP) - First launched in 2014, the Victorian Chamber’s VJBPP has conducted four successful delegations to China. The structured program helps Victorian businesses develop new links and mutually productive trade and investment opportunities by placing participants with carefully selected Jiangsu business hosts. Participants benefit from training and coaching from leading Chinese professors and educators on the fundamentals of doing business with China. Other benefits include pre-qualified introductions to potential business partners or investors, introductions to key industry leaders and high level government officials, and participation in strategic networking events.
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The Manager of Economics and Industry Policy, Victorian Chamber of Commerce and Industry, Mr Hugh Horsfall, believes business chambers and associations are well placed to assist Governments to educate and promote the benefits and pitfalls of FTAs.
Finally, I highlight the need for an increased level of programs and support to help small businesses navigate the complex environment of trade agreements and to leverage the strengths of industry associations, like the Victorian Chamber, who've got really close links with businesses and who are trusted advisers, as a useful tool in delivering that advice and assistance.
Asialink Business’ role in helping SMEs export to Asia
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In its capacity as the national centre for Asia capability, Asialink Business outlined its extensive experience in supporting SMEs to expand or enter new export markets or expand their existing interests in Asian markets.
Asialink Business does this through a number of different channels. These are tailored to meet the diverse needs of SMEs, at all stages of the export journey, from exploration to market entry and expansion.
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Asialink Business through its partnership with the Department of Industry, Innovation and Science, submitted it has a national mandate to build Asian capabilities across all sectors of the Australian workforce.
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Since its inception in 2013, Asialink Business claimed it has supported thousands of organisations around Australia, spanning large listed businesses, small and medium enterprises, industry bodies, agribusiness, local councils, state and federal government departments, and the education and not-for-profit sectors.
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Asialink Business’ support includes assisting organisations to develop an “increased awareness of business opportunities with Asian markets, knowledge to assess opportunities appropriately and build capabilities to execute opportunities effectively”.
For instance, in 2017 alone, over 8000 individuals and organisations participated in Asialink Business’ capability development programs or business forums, and many more accessed our practical research products.
Capability development by Asialink Business
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Asialink Business outlined it offers short courses, open programs and customised training programs to build Asia capability, training and upskilling SMEs in Asia-capabilities in real and practical ways. Asialink Business uses learning and development experts, with a strong background in program management, instructional design and facilitation, and also subject matter experts with deep Asian knowledge and practical business experience.
The City of Sydney
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The City of Sydney engaged Asialink Business to design and deliver a series of Asia Insights Workshops, aimed at helping SMEs looking to enter markets in Asia, expand existing networks and drive future success. The workshops focus on increasing local companies’ knowledge and understanding of Asian markets across a range of relevant themes covering business and cultural considerations, including:
doing business with China and India;
how to enter and expand into Asian markets; and
conducting negotiations in Asia.
Government of NSW
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Asialink Business also worked with the NSW’s government departments to roll out a series of three half-day workshops with an ASEAN Export Focus to rural and regional clients in Byron Bay, Newcastle, Wagga Wagga, Tamworth and Wollongong.
Practical Asia market information: Country Starter Packs
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Asialink Business highlighted it has 16 different Country Starter Packs on its website https://asialinkbusiness.com.au/country-starterpacks which provide a comprehensive source of information and insights on how to capture opportunities in evolving and complex markets. The Country Starter Packs cover some of largest economies in Asia, as well as providing guides on key ASEAN markets.
Specifically targeted at SMEs, these starter packs are a go-to guide that provides a practical and comprehensive roadmap to understand opportunities and navigate different business cultures and practicalities. For example, the China Country Starter Pack provides an overview of the China-Australia Free Trade Agreement (ChAFTA), what benefits it provides for Australian services firms and what tariffs/import dues there are under ChAFTA.
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Asialink Business claimed more than 12,000 Country Starter Packs have been downloaded from its website and shareable app since 2015.
Asialink’s profiling of practical case studies
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The General Manager of Bravo Charlie, Mr Philip Bateman, believes the Governments needs to get more successful SMEs to tell their export stories to encourage others.
I ask government to encourage SMEs to capture and share their stories with the world—not so much their products but who they are as people and who they are as a business, their processes, how they ship things and how they export. It is our fundamental and only competitive advantage. So it's about taking that and spending more time focusing on it.
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Asialink Business seeks to profile Australian businesses engaging successfully with Asia, as a way to motivate, inspire and support SMEs who may also be thinking about entering Asian markets. Businesses profiled in the case studies share their challenges, tips and stories and are available on the Asialink Business website.
Each case study has key learnings from the profiled business and a specific story which practically narrates the successes and failures. The case studies often highlight how the business used and benefited from free trade agreements in their journey to success.
The Truffle & Wine Co.
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Asialink Business highlighted The Truffle & Wine Co. as one of its case studies.
While success was not instantaneous for The Truffle & Wine Co., a farm based in Manjimup, 300 kilometres south of Perth, the company’s focus on building product awareness, strong local relationships and smart negotiation over several years enabled it to grow Hong Kong into one of its largest export markets.
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Asialink Business attributed the support that FTAs with some of Australia’s largest trading partners – China (ChAFTA), Japan (JAEPA) and the Republic of Korea (KAFTA) was helping drive exports for The Truffle & Wine Co.
Fibre King Oryx Automation
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Another Asialink Business case study showcases Fibre King Oryx Automation’s journey as it looked at expanding its manufacturing overseas to escape the effects of the global financial crisis and a strong Australian dollar. It was the Thailand-Australia Free Trade Agreement (TAFTA) that helped Fibre King Oryx Automation settle on Thailand ahead of Malaysia or southern China.
The case study highlights the importance of FTAs, and how leveraging the benefits of TAFTA allowed Fibre King Oryx Automation to become a success.
Market development planning
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Asialink Business observed SMEs often require additional support in preparing cost-effective and highly impactful market entry strategies in order to extract maximum value from FTAs. In one example, Asialink Business partnered with a cosmeceuticals business to develop their international strategy, focusing on the market opportunity for their cosmeceuticals in Singapore, Hong Kong, China and Indonesia.
This included a comprehensive analysis of market structures, industry size, consumer segments, supply chain and logistics issues, as well as insight and information on the regulatory environment.
In-market support for SMEs
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Local councils have engaged Asialink Business to provide practical insights, guidance and support to SMEs who are looking to pilot exports to Asia. Services have included; one-on-one guidance and support workshops to assist businesses in the implementation of market development strategies, profiling and screening of potential in-market partners, guidance on distribution channels, pricing and branding strategy, and support with in-market visits and negotiations with potential in-market partners, agents of distributors.
Asialink Business’s role in Asia Gateway Voucher Program
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Asialink Business is a registered provider for the Victorian Government’s Asia Gateway Voucher Program, a state program that helps small and medium Victorian businesses and organisations build their Asia capabilities and grow their export and market development skills.
The program offers up to $50,000 in funding (on a co-contribution basis) to assist SMEs to enter new export markets, develop and implement market development plans, and optimise and secure new growth opportunities. This innovative program is a best-practice model that may be suitable for rollout on a national scale.
Public outreach and events
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Asialink Business has an active agenda of public events and business forums to raise awareness about the opportunities and the skills, tools and capabilities needed to harness trade opportunities in Asia. In March 2018, it undertook seminars and events on topics such as ‘Understanding the changing ASEAN consumer’ or ‘Innovation and the Digital Economy’.
As part of these forums, SMEs shared their experiences and tips in accessing FTAs such as the AANZFTA, SAFTA, MAFTA and TAFTA. These forums were livestreamed around Australia and Asia, attracting nearly 3000 participants.
The role of the Department of Home Affairs in exports
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According to the Department of Home Affairs, a licence is not required to export goods from Australia, however, a permit is required for some goods.
The export of goods from Australia is controlled by laws and Government policies to:
1
prohibit the export of certain goods either absolutely or conditionally
2
adequately record Australia's international trade
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Goods that are conditionally prohibited from export may not be exported unless all necessary export permits are obtained from the relevant permit issuing agency/agencies.
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The Australian Chamber of Commerce and Industry raised its concerns about the Department of Home Affairs implementing a “Trusted Trader” (TT) scheme and that currently around 150 companies have become “Trusted Traders” and the Department wants to dramatically increase this level of participation.
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The Australian Chamber supports the intent of this scheme but questions the design as the scheme and the benefits on offer. In relation to this the ACCI makes the following points:
While “trusted” traders may be part of this scheme, it automatically places those not in the scheme into the “untrusted” group, even though they don’t pose any participate risks.
The scheme adds costs and compliance to companies that prior to the scheme, in general, already complied in terms of safety and regulatory compliance. Hence, it adds costs and red tape to otherwise compliant companies.
The ACCI have argued that the design would be better if it assumed compliance for all company until they demonstrate non-compliance. That is, a demerits based scheme rather than a merits based scheme. Such a scheme in other places means points are removed from full compliance based on indiscretions rather than needing to demonstrate compliance in the first instance. Such a scheme would mean all traders were “trusted” until proven otherwise – an approach consistent with common law.
The ACCI have also offered that the existing Certificate of Origin registration process and engagement, provides the basis for the “know your client” components necessary to create the foundations for such a scheme. The ACCI stated it would be delighted to work with the Department to improve the TT scheme – particularly for SMEs.
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The ACCI submitted it is hearing “anecdotally that international buying companies are beginning to enforce TT compliance as a requirement for commercial dealings”.
This means it is becoming a barrier to trade.
Export declarations
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The Department of Home Affairs defined an Export Declaration as a statement made by the exporter (owner of the goods), or their agent, to the Department providing information concerning the goods and the export transaction.
Once an Export Declaration is lodged with the Department, an Export Declaration Number (EDN) is provided. Goods may not be exported, or loaded on a ship or aircraft for export, unless they have been entered for export (some exemptions apply) and the Department has given approval to export by means of a cleared status.
Export data
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An Australian Harmonised Export Commodity Classification (AHECC) is an eight digit code used to classify goods for export. The AHECC is maintained by the Australian Bureau of Statistics (ABS) and can be accessed from its website.
Accurate export data is highly important to the Government and the private sector for various reasons, for example:
We use export entry data when risk assessing outbound cargo to ensure that relevant border controls are maintained and that government revenue is protected.
Australian and overseas investors use export statistics to conduct market research and identify business opportunities.
Export statistics are used to monitor and assess market share and trading patterns.
The Department of Agriculture and Water Resources’ role
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Mr Simon Smalley, Assistant Secretary, Strategic Trade Policy Branch, Trade and Market Access Division, Department of Agriculture and Water Resources explained that in trade, particularly agricultural and food trade, it is the importing countries that set the rules.
The regulation that we undertake is to ensure that product that is going into a market meets the rules that they are setting. In establishing trade for any particular commodities, we as a department negotiate protocols under which goods can go into those countries.
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Mr Smalley believes DAWR does not have the kind of trade development focus that other agencies have, particularly Austrade, and some of the marketing arms of the commodity groups, et cetera.
I describe us as about enabling commodities to get into countries, and agencies like Austrade as about getting them onto retail shelves and into shopping baskets. So facilitating trade and developing trade in the market is less of our function. We're about getting it in through the regulatory pathways.
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Ms Barbara Cooper, Assistant Secretary, Meat Exports Branch, Exports Division, Department of Agriculture and Water Resources said the Department seeks out opinions from industry on how red meat exports are handled in FTAs.
With the red meat—we deal through the Export Meat Industry Advisory Committee. Under that, the Australian Meat Industry Council is the representative group that we predominantly deal with…At those meetings, we have been working with the industry to try to establish what their priorities are, because they change from time to time. We would be reliant in that through the department, through Trade and Market Access.
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Ms Cooper explains the Department’s own Export Standards Branch is responsible for negotiating more of the technical aspects of trade.
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Mr John Kaus, Managing Director of Karumba Livestock Exports, and the Chairman of South East Asia Livestock Services, as a live cattle exporter based in Darwin and Brisbane, he raised concerns about the charges by the Department of Agriculture and Water Resources (DAWR). Karumba Livestock Exports is an export depot and wharf in Karumba.
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Mr Kaus said SEALS, which supplies live cattle all throughout South East Asia, now pays for an independent observer to be on board each ship for each voyage into Malaysia, Indonesia, Brunei, Sabah, Sarawak, Thailand and the Philippines.
But unfortunately…the Minister for Agriculture imposed another burden for the importers and also the producers and the exporters by putting into place independent observers on ships. We operate three small ships that carry about 2,000 head at a time. The cost of these independent observers is probably about $25,000 for one voyage, which is a huge cost to small operators like us. It's great to see the trade going, but then, on the other hand, they put a big burden on the industry, and it will fall back to the producers, because someone's got to pay for it. The producers will be affected and so will the importers.
Development of a single window for trade
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Trade consultants KPMG admitted one of the great challenges facing SMEs is ascertaining which of the raft of trade information, products and support services available will provide them with the “greatest benefit and best advice to suit their export goals”.
In our view…simply expanding the volume of education provided will not overcome this challenge. Rather, a co-ordinated 'single trade window' approach by governments, industry associations and professional advisors, supported by advanced technology, will provide greater benefit to SMEs' ability to access FTAs.
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Looking to the future, the Department of Foreign Affairs and Trade submitted that it is also working with the Department of Home Affairs to progress the development of a single window for trade. DFAT stated that SMEs are being consulted as part of the single window design process.
A single window would transform the Australian international trade environment and allow for seamless and integrated interaction between Government and SMEs by creating a single point of contact with all regulatory agencies involved in trade.
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The Australian Chamber of Commerce and Industry submitted it is heartened by the effort of the Australian Government to provide $10.5 million in 2018 -19 to the Department of Home Affairs to “transform and modernise Australia’s international trade supply chain to deliver more efficient and secure trade processing”.
This will be dedicated in large part to the completion of an initial business case to provide a ‘single window’ for international trade documentation, creating a system that is seamless, digital, automated and user - friendly.
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However, the ACCI outlined that it is important that the ‘single-window’ approach is developed with the assistance of peak bodies and industry members, so as to ensure that the functional aspects of the program does not obstruct current practice. ACCI would welcome further collaboration to develop and promote simple online tools for SMEs wishing to take advantage of FTAs.
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The Business Manager at Queensland mineral water supplier Jacob's Well Noosa, Mrs Natalie Skrepetis, admitted as a relatively new SME, she was welcoming any information or guidance about potential export opportunities.
…we need some sort of a centralised information system where you can look up each country. Simplification: is that at all possible? Especially for people like me, it's very complicated.
Export Finance and Insurance Corporation’s role in trade
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Export Finance and Insurance Corporation (Efic) submitted that legislative changes enacted in September 2017 enable Efic to lend directly to a wider range of SMEs, including tourism operators, online businesses, exporters of intellectual property and other related rights, and businesses engaged in overseas direct investment.
Efic has purpose-built lending facilities for SMEs, including an online portal – EficDirect – for applications, giving Australian SME exporters quick and easy access to trade finance. Efic provides financial support across all SME sectors and to multiple export destinations. Since 2014, Efic has supported 353 Australian SMEs with exports worth over $2.9 billion to 77 countries.
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Efic and its staff of about 100 have helped 91 companies export to the FTA markets in Japan, Korea, China and the ASEAN economies since 2014, with contracts amounting to $488 million in value.
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Mr John Pacey, Efic’s Chief Credit Officer, highlighted Efic only enters where there are gaps in the financing market, especially for SMEs; and it won't compete with the banks.
SMEs often are very time poor. They often lack the management depth or resources of a big company. We find banks have certain expectations around preparation of financial information, and that can be a challenge for SMEs to deliver and to meet…Often our clients will have a bank relationship, and a good bank relationship, but the bank may not be prepared to give them that additional finance they need to complete an export contract. Or they may like to bank the domestic business but are finding that going to a particular emerging market is a little bit challenging for them. So that might be where we step in. And there are other customers who we deal with who don't have any bank relationship at all. Efic is effectively their introduction to having a relationship with a financial institution. We try to get them to a point where the bank will replace Efic—whether that is in six months or 18 months.
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Mr John Hopkins, Efic’s Chief Operating Officer, and General Counsel, explained Efic’s approach to risk and how it charges its clients.
…obviously we base our charge on the risk we are taking, like any financial institution would. So our rate might not be the most competitive compared to the banks, but it is the rate that is appropriate for the financing that the customer is looking for. Unfortunately, you won't find many of our customers coming to you saying Efic is a cheap source of funds. That is not our role. Our role is to provide financing when others won't. We don't charge credit card rates; we are very appropriate and we are very conscious to maintain rates that are both commercially sensitive…
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Mr Ross McKinnon, Chairman and Owner, GJR Technologies Pty Ltd trading as Grabba International, outlined the company’s disappointment with Efic not being able to support its multi-million dollar export to the United Arab Emirates with a million dollar letter of credit due to Efic’s concerns about UAE law and a termination clause in the contract.
We approached Efic and Efic turned us down because they didn't understand the UAE law. We engaged an English [law] firm and we paid US$50,000 to make sure the contract was really good…With the termination clause they could terminate for any reason, but that still meant they [the UAE importer] were obligated to pay…If we could have gotten a letter of credit a lot easier, we could have funded those component purchases using our letter of credit, made the goods, shipped them and then been paid. We've received money from the UAE from that, so Efic's fears were unfounded.
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Mr Pacey denied Efic was too risk averse detailing the UAE was an export market that Efic have been “very active in over a number of years”.
…so we do have a risk appetite for transactions in that market. Sometimes we see unusual wording in bonding transactions, and we have to make judgement calls about whether that wording is something we can accept. For example, a contract may have termination for convenience. We will then look at that clause and see whether our customer is going to be compensated for that or it is so one-sided that it is probably not a risk that should be taken…So we don't just say no to something. Often there is negotiation between our customer and their customer as to the bond wording, and we try to find a solution wherever we can.
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Efic outlined that its loans fall under three broad categories and their requirements:
Small Business Export Loan (SBEL) – A fast and easy online application process for businesses which need funds for export transaction[s]. The loan can be from $20,000-$350,000, and is available to businesses with an annual turnover of between $250,000 and $10 million.
Export Contract Loan (ECL) – A flexible loan structure aligned to business cashflow that can be drawn for export-related transaction[s]. The loan can be upwards of $100,000, and is available to businesses with an annual turnover of over $250,000.
Export Line of Credit (ELOC) – A line of credit that can be drawn and repaid multiple times for export-related transaction[s] during the loan term. The loan can be upwards of $100,000, and is available to businesses with an annual turnover of over $250,000.
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Efic also described the range of bonds, which typically take the form of performance bonds and warranty bonds:
Performance Bonds give the buyer of a product or service assurance that if the exporter doesn’t meet their obligations under a contract the buyer can call on the bond to reduce its losses.
Warranty Bonds protect a buyer from loss if the exporter doesn’t meet their contractual warranty obligations after the contract is completed.
Efic can also offer Advance Payment Bonds, which provide a buyer with security for their advance payment under an export-related contract.
Bonds are available for businesses with an annual turnover of over $250,000, and can be upwards of $100,000.
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Efic offered details on its guarantees that generally fall under three product categories and can be upwards of $100,000 and are available to businesses with an annual turnover of over $250,000:
Export Finance Guarantee (EFG) – This can be provided to a bank to guarantee a loan to an overseas buyer to help them with the purchase of capital equipment or services from an Australian exporter. Efic’s export finance guarantees can complement loans or guarantees provided by commercial banks, other export credit agencies and multilateral agencies for large overseas projects.
Documentary Credit Guarantee (DCG) – If a bank is unwilling to take on the risk of non-payment by providing a letter of credit to an exporter, Efic’s documentary credit guarantee can help the exporter protect their export revenue and finance new export activity, by assuming the credit risk for the transaction.
Working Capital Guarantee (WCG) – A working capital guarantee can be provided to an exporter’s bank if the exporter doesn’t have the assets that are required as security to approve further working capital finance.
Our guarantee provides security to the exporter’s bank, allowing them to lend the exporter the additional working capital they need to finance an export contract, multiple export contracts with different buyers or to finance their involvement in an export related global supply chain.
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Efic detailed that by volume, its most commonly provided product in financial year 2017-18 was the Small Business Export Loan (SBEL). The products that accounted for the most value in financial year 2017-18 were the various forms of bonds that Efic offers.
Our SBEL is an unsecured loan solution with an easy online application and fast approvals for businesses with a turnover of more than $250,000.
If a business needs finance to support its export transactions, and its bank is unable to help, the loan could provide the company with the necessary funds to satisfy cashflow needs.
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A business must have a turnover of between $250,000 and $10 million, according to Efic, and have been trading for at least two years to be eligible for a SBEL.
On a client basis, 45.6 per cent of Efic’s clients in FY17-18 received SBELs. In terms of transactions, which can occur multiple times for the same client in a year if they apply or draw down on a facility more than once, SBELs accounted for 32.7 per cent of the transactions processed by Efic in FY17-18.
Table 6.2: Efic Products Offered to SMEs in FY2017-18
|
|
|
|
|
|
|
|
|
Bond
|
0
|
21
|
0
|
81
|
$0
|
$76,381,773
|
|
DCG
|
0
|
1
|
0
|
1
|
$0
|
$2,055,362
|
|
Direct Loan
|
1
|
0
|
1
|
0
|
$9,936,589
|
$0
|
|
ECL
|
0
|
35
|
0
|
38
|
$0
|
$39,196,956
|
|
ELOC
|
0
|
25
|
0
|
27
|
$27
|
$22,953,680
|
|
EWCG
|
0
|
15
|
0
|
17
|
$0
|
$18,811,910
|
|
ODI**
|
0
|
1
|
0
|
1
|
$0
|
$1,000,000
|
|
SBEL
|
0
|
73
|
0
|
83
|
$0
|
$11,614,604
|
|
RPA#
|
1
|
1
|
4
|
1
|
$9,205,716
|
$85,921
|
|
Total##
|
2
|
172
|
5
|
249
|
$19,142,305
|
$175,100,196
|
Source: Export Finance and Insurance Corporation, Supplementary to submission 12.1, Appendix, p. 8. *CSPF is Corporate, Sovereign & Project Finance. ** ODI is Overseas Direct Investment. #RPA is Risk Participation Agreement. ##Total clients supported for CSPF and SME is 160 but adds up to 174 in table above because a client may use multiple products or in the case of ADB be a client of both CSPF and SME.
Case study of Lee Mathews’ use of Efic’s SBEL to export
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Efic detailed a case study of how Efic’s Small Business Export Loan (SBEL) had assisted Ms Lee Matthews become a clothes fashion exporter. Ms Matthews had grown her business from a small store in Newport in 2000, to eight stores across Australia and an online store.
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According to Efic, a director at the company Mr Stephen Rae, explained that domestic growth was slow so the business took their first step to global growth, by taking their collection to Paris Fashion Week, to showcase their collection.
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The first international sale was to a UK department store, which then leads to further sales in Japan, according to Efic. Mr Rae said the initial exports were at a level that the business could finance itself but in a short period of time, exports were heading towards becoming 30 per cent of the business and required extra finance to support this growth.
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Mr Rae explained historically the business did not have financial support through the banks owing to the challenge that many banks require security which adds a level of complexity. Mr Rae stated banks tend to focus solely on balance sheet, and if you’re a business that is growing and always reinvesting its money in the business and growth, then the balance sheet isn’t the best reflection of the business’ growth cycle.
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Mr Rae then met with Efic about finance support for a significant increase in orders from two of the largest international online clothing stores. Initially, the business applied to Efic for a Small Business Export Loan which was approved against two purchase orders pre-shipment that supported the order delivery.
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With extremely positive sales growth projected over the next year, Mr Rae worked with Efic to set up a $500,000 line of credit which he described, according to Efic, as a game changer and an essential factor in the business’ export success.
Case study of Cassegrain’s use of an Efic Export Contract Loan
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A company able to utilise Australia’s network of FTAs, according to Efic, was Cassegrain, a multi-award winning winemaking company based in Port Macquarie, NSW.
In response to higher demand, Cassegrain wanted to increase its sales to Japan and China. In order to realise this potential growth, however, Cassegrain needed working capital to pay suppliers and keep production running smoothly.
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Efic provided the business with a $500,000 Export Contract Loan to help deliver on growing export contracts and to invest in its manufacturing capacity. An Export Contract Loan is a direct loan available to SME exporters to provide working capital finance for a specific export-related contract.
Faced with growing demand from buyers in Japan and China, Cassegrain was worried about matching product supply to the purchase orders it was receiving.
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According to the Sole Director of Cassegrain, Mr John Cassegrain, the wine industry has a significant lag phase, as the harvest cycle doesn’t necessarily align with demand for product and the lead time from production to supply can vary significantly.
For the higher quality wines, the grapes mature in barrels prior to bottling and distribution, meaning a longer lead time on the product supply. This means that Cassegrain has to invest in manufacturing its wines before receiving orders, to have sufficient product to fulfil a contract when it comes in.
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In order to realise its potential growth in Japan and China, Cassegrain needed working capital from Efic to pay suppliers and keep production running smoothly.
SME’s awareness of Efic’s financial services
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The Relationship Manager of the ANZ Business Bank on the Sunshine Coast, Queensland, Mr Michael Clauson, sees room for improvement in mainstream banks’ relationships and information sharing with Efic and the time it takes the export credit agency to provide guarantees or loan approvals.
We are obviously doing our own credit assessment on the client. I know that there is some information sharing between the Clean Energy Finance Corporation and the bank and getting them to a mainstream bank. If that could happen on the Efic from as well it should help speed up the process.
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The Sunshine Coast Council submitted whilst many large businesses and established exporters would be familiar with the work of Efic, as Australia’s main export credit agency, and the financial assistance programs it offers, many small and medium businesses would have trouble identifying the organisation or be unfamiliar with its work.
For small business, Efic has a Small Business Export Loan. By providing this unsecured government-backed loan to SMEs with a gross turnover of more than $250K, businesses have additional access to credit that they would not have otherwise been able to acquire.
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The Mayor of Hume City Council in northern Melbourne, Councillor Geoff Porter, believes Efic should utilise the close business connections local councils have to help promote their financial services to SMEs.
My ears pricked at Efic. I've never heard of them, and I'm just wondering whether that's something where you might recommend that Efic get this information out to, particularly from my point of view, local councils, because our economic development team are great distributors of information to the local businesses, particularly with organisations such as NorthLink and La Trobe, really big hubs, trying to promote all the good things that are happening not just in food and beverage but in systems manufacturing… If we could get that information, council would certainly make sure that it gets distributed to the local industries, and they can take it from there as well.
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The Australian Small Business and Family Enterprise Ombudsman Ms Kate Carnell is surprised by the lack of awareness by SMEs of Efic’s financial services from the research done by ASBFEO into a range of areas.
We recently released an export-to-capital report on small and medium businesses and their problems getting access to capital to expand their businesses. We were pretty surprised how few of them knew who Efic was. It wasn't just really little businesses. Even quite larger, family-sized businesses that were looking for capital to help with export didn’t have a clue who Efic was, which is a problem…we need to have another look at how we get information to small and medium businesses in Australia.
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The Sunshine Coast Council believes Efic needs to raise the awareness of its services to SMEs.
A broader understanding of the role that Efic plays within export financing could significantly impact the decision-making of small and medium-sized enterprises, knowing that government-backed loans could alleviate much of the potential cash-flow and financial risks associated with starting export operations.
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Mr John Hopkins, Chief Operating Officer, and General Counsel, of the Export Finance and Insurance Corporation detailed that Efic have an origination team, “a sales team, who go out and actively canvass for opportunities” to provide finance on commercial terms.
We obviously have a database of contacts of businesses who have expressed interest in receiving finance, and we go through—our marketing plan contains outreach programs, via emails and other ways of communication, to reach out to those businesses. We prepare communications to those businesses about export finance opportunities.
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Mr Hopkins explained how these services are promoted to exporters on a state and territory level.
At an individual state level, our individual originators within states have relationships with chambers of commerce in the various areas. They also have relationships with state government. So, for example, here in New South Wales, we've got a relationship with Jobs for New South Wales, and we work closely with the various agencies within the various states to make people aware of Efic's offering and ensure that they have the opportunity to come to us if they need to.
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A HSBC study Exporting for growth, the SME perspective cited by the Sunshine Coast Council concluded that amongst surveyed SME’s, 75 per cent of the businesses who considered exporting would be further encouraged to do so if they could access additional financial incentives/capital.
Efic could play a greater role working alongside Austrade, as well as establishing closer partnerships with established financial institutions in helping businesses gain the capital required to hedge many of the risks associated with export operations.
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The Committee recommends that the Australian Government makes its free trade agreements (FTA) more user-friendly for Australian small and medium enterprises (SMEs) by:
Developing closer linkages between the Export Finance and Insurance Corporation (Efic) and municipal councils and local chambers of commerce so their networks can help promote Efic’s services to Australian SMEs; and
Establishing a 'single trade window' for SME exporters to guide them to education, products and services that meet their needs, and improve the access of SMEs to a centralised source of trade resources, from government agencies such as the Department of Foreign Affairs and Trade, Australian Trade and Investment Commission, Department of Home Affairs, Department of Agriculture and Water Resources, Export Finance and Insurance Corporation, Department of Industry, Innovation and Science, and the Department of Jobs and Small Business.
Private sector trade finance
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Trade consultants KPMG praised the efforts of ANZ Banking Group in the range of advice and assistance provided by various leading Australian banks on the financial aspects of export trade and considerations that support an assessment of whether an SME is ready to export. The ANZ’s advice is accessible at https://betradeready.anz.com/.
In particular, we note the work of ANZ in this area and, specifically, the development in partnership with the Export Council of Australia of its free 'Be Trade Ready' digital tool.
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Mr Michael Clauson, Relationship Manager, ANZ Business Bank on the Sunshine Coast outlined that the bank will promote new FTAs to its clients, especially as the ANZ has got representation throughout Asia.
…it was promoted, saying: 'These are available to clients. Here's some information about them.' We shared that with our client base—ANZ clients and potential new clients. I generally play in small to medium business—$10 million turnover or less—on the Sunshine Coast. I've had clients who could take advantage of them, but I haven't had a client who has.
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Mr Clauson indicated the bank will take into consideration the skills and experience of the people running the business when seeking finance to support their export ambitions.
We have to make a judgement call on whether they have the capability to execute their plan. Obviously security helps, but that's not the main reason we lend money. Firstly, they've got to be able to execute. Secondly, do they have a track record? If they want to export, they have to understand that it's hard. It's clearly hard, from the experience in this room. So for a small business to start doing it is going to be very difficult. We have to help them along that journey. As a bank, we are there to say, 'These are the challenges you are going to face.' …We definitely lend to these kinds of businesses. We will lend to businesses in Australia. There is the Efic branch as well, which also helps the banks get more money out the door to help these businesses.
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Mr Peter Petersen, the Senior Business Banking Manager, at National Australia Bank, said regional Australia was important for the NAB.
…from a bank perspective, rural and agriculture is a big part of our business, and we are certainly putting a lot of resources in it, as I'm sure a lot of the other banks are as well. We are lending a lot of resources in rural and provincial town and actually putting the horse power behind it as well, in terms of decision-making capacity around funding requirements. So we're certainly here for the long haul.
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Mr Petersen reflected on some of the deals he has done in North Queensland over the past 10 years in towns like Bundaberg, Gladstone, Rockhampton and Mackay, and on how the support from Trade and Investment Queensland for exporters has helped with finance.
…a lot of people who are looking to get into the export market are looking for financial assistance. Some feedback in terms of Trade and Investment Queensland: for the people that have gone to Trade and Investment Queensland and used those resources and then come to a financier, it has certainly expedited those transactions; it's helped the whole process along. So I'm a big advocate for TIQ.
Government’s FTA information seminars
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One component of the Government’s outreach is the FTA information seminar series. Between March 2015 and April 2018, around 4,000 business representatives attended one of 100 FTA information seminars delivered by Austrade and DFAT. Austrade ran its 109th and 110th FTA seminar in early December 2018.
Many of the attendees were SME representatives. These seminars have been held in all states and territories, often in regional locations, and are continuing. Austrade and DFAT state and territory offices support the FTA promotion activities of the state and territory governments, as well as draw on their networks of business-related contacts to identify local case study speakers and promote the Australian Government’s seminars and other outreach activities.
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Mr Todd Miller, the General Manager of International Trade, at the Department of Trade, Tourism and Investment, South Australia, had welcomed the eight FTA seminars held across South Australia. According to Austrade, 261 people attended those seminars in Adelaide, Renmark, Kadina, Port Lincoln, Mount Gambier and Murray Bridge.
In terms of one thing for FTAs and SMEs, there's been an awful lot of work done at the Australian end with the FTA seminars that have been around Australia.
There are probably a couple areas of gap that we could talk to the FTA seminar people about in reference to the regions.
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DFAT’s analysis of the FTA seminars delivered in 2016-17 showed satisfaction with the seminar series across all audience segments. Attendees report an increased awareness and understanding of North Asia FTAs after attending the seminars. In a survey of participants at the seminars held in 2016–17, 85 per cent of respondents agreed that all (41 per cent) or most (44 per cent) of their objectives were met by attending a seminar. This was an increase from 73 percent in 2015–16. Over 47 per cent of respondents said they would recommend the seminar to a peer or colleague, achieving a Net Promoter Score, which is a management tool used to gauge the loyalty of client relationships, of +32, up from +26 in 2015–16, which DFAT regarded as a strong result.
Furthermore, Austrade closely engages industry associations about FTAs, including leveraging their networks to raise awareness and utilisation of Australia’s trade agreements.
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Austrade and DFAT also engage in third-party FTA outreach activities, such as keynote or panel speakers at industry events. For instance, Austrade and DFAT representatives presented at several professional development events for customs brokers and freight forwarders held around Australia in 2017.
In-market activities by Government
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To stimulate offshore demand, Austrade and DFAT deliver in-market activities to inform customers of Australian products of the benefits of the FTAs. Examples include Australia’s largest-ever trade mission – Australia Week in China – led by then Trade Minister Steven Ciobo MP in April 2016 and the Access China delegation by then Assistant Trade Minister Keith Pitt MP in October 2016.
Government hotlines and mailboxes for exporters
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DFAT’s North Asia FTA Helpdesk offers a phone hotline and email service where SMEs and members of the public, including those exporting for the first time, can contact FTA experts with specific questions or issues. DFAT works with businesses, national and state chambers of commerce and peak bodies to improve understanding and utilisation of these FTAs and ensure the public receives consistent and accurate advice.
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Ms Barbara Cooper, Assistant Secretary, Meat Exports Branch, Exports Division, Department of Agriculture and Water Resources explained the best departmental contacts for businesses or exporters seeking information or assistance would be through the department’s website.
Our websites provide contacts. You would get telephone numbers et cetera. There's not a hotline for exporters. There is a generic number for potential clients or for queries coming through the department. They would be triaged and then referred to the appropriate party.
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Mr Simon Smalley, Assistant Secretary, Strategic Trade Policy Branch, Trade and Market Access Division, Department of Agriculture and Water Resources outlined how the department ensures exporters can speak with the people most able to assist with queries.
There is a client contact phone number and a service that we provide as a consolidated service that triages the calls and then passes them to the various divisions.
Government’s publications and online resources
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The Government has established several online platforms provide additional FTA-related information:
DFAT’s principal FTA website (www.fta.gov.au) contains information on Australia’s existing FTAs and current FTA negotiations to assist businesses and the Australian community to understand these agreements and their implications. The website also provides information on how interested members of the public and stakeholders can make submissions on current and prospective negotiations.
The Austrade website (www.austrade.gov.au/fta) features factsheets, guides and videos of companies succeeding in FTA markets as well as broader information to further support for Australian exporters, including useful links to FTA seminars, relevant DFAT sites and the FTA Portal. Additionally, the Austrade Toolkit (toolkit.fta.gov.au) houses easily downloadable FTA presentations, and information and educational tools.
The FTA Portal is a website specifically developed by DFAT to assist SMEs in understanding the benefits and requirements of FTAs.
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The Export Council of Australia suggested some concrete steps the Government could do with linking its online information on trade from various departments would improve FTA utilisation.
Better linking government systems would enable technology-based solutions. Linking the Department of Foreign Affairs and Trade’s (DFAT) FTA Portal with the Department of Home Affairs’ (Home Affairs) and Department of Agriculture and Water Resources’ (DAWR) systems could make it easier for Australian businesses to understand they may be entitled to preferential tariffs.
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The Director of a meat exporter, Cory Johnston (Aust) Pty Ltd, Mr Peter Shearer, believed more work could be done to make government websites with trade information easier to navigate.
Regarding the resources on websites for FTA agreements, at the end of last week I was looking for the Philippines [ASEAN-Australia-New Zealand Free Trade Agreement], because we're trying to deal with a couple of guys there. The websites are not that intuitive. What I find a lot with government websites in particular is that they just they don't flow. You don't seem to be able to get where you want to go easily. It's just not useful. It's not user friendly.
FTA Portal
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The FTA Portal (ftaportal.dfat.gov.au), according to DFAT, promotes utilisation of Australia’s FTAs by enabling prospective and existing importers and exporters to explore how they can benefit from Australia’s FTAs.
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Mr Todd Mercer, Assistant Secretary—FTA Policy and Implementation Branch, DFAT explained the department was very proud of the FTA portal, which is a website about FTAs launched in 2016 and attracting more than 2000 users each week.
It's something which continues to grow. It's essentially a resource for business people to check, for example, which tariff would apply if there was a preference. We've expanded it to the point where all of our FTAs are up there. It has a comparison function. One of the issues which come up occasionally is that there can be confusion about competing FTAs… The last thing I'd say about the portal is that initially it focused on goods trade, but we're in the middle of expanding it to cover all services aspects of all our FTAs.
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KPMG welcomed the FTA Portal for enabling exporters and importers to access free information regarding tariffs under Australia's FTAs and a step-bystep system to assess whether particular products are likely to satisfy the requirements of particular FTAs.
It features a sophisticated tariff finder that shows the reduction in tariffs over time, a step by-step guide to determine whether exports or imports meet a given FTA’s rules of origin, trade data on individual markets, and relevant links to help businesses make trade decisions. The Portal helps SMEs overcome the so-called ‘noodle bowl’ effect of overlapping FTAs with a tool that allows them to compare FTAs and choose the one that offers the greatest benefits. New FTAs will be added to the Portal as they enter into force.
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The Australian Chamber of Commerce and Industry submitted it welcomed the efforts by the Australian Government to support increased understanding of Preferential Trade Agreement content.
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The ACCI highlights how the DFAT ‘FTA Portal’ is a good example of collaboration between government and industry to develop a widely accessible tool that improves the accessibility of the PTA benefits to businesses.
The success of this tool indicates that improving education (particularly amongst SMEs) with respect to PTA’s, is a viable method of reducing Non-Tariff Barriers.
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The departments of Industry, Innovation & Science (DIIS) and of Jobs & Small Business (DJSB) also acknowledged and support the expansion of DFAT’s Free Trade Agreement Portal as a tool for SMEs to navigate Australia’s existing FTAs.
The Portal provides up-to-date information on preferential tariff opportunities available to Australian importers and exporters under all of Australia’s existing FTAs. The Portal also includes detailed information regarding applicable product-specific rules of origin and accompanying documentation requirements, in addition to ‘market snapshots’ for a growing number of products.
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DFAT submitted in response to calls from businesses, the Portal was expanded in April 2018 to include services commitments made by Australia’s FTA partners, in addition to commitments on goods.
Information on services explains how businesses can export their services across borders, travel to overseas markets to supply their services, or establish a presence overseas to supply services. DFAT specifically targeted SMEs in its user testing of this enhancement of the Portal to ensure they are able to use it effectively.
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The Portal is being utilised very well with DFAT stating it has attracted around 220,000 unique users since its launch until November 2018, with 2,600 users per week on average. The latter figure has increased steadily since the Portal’s launch.
The services expansion of the Portal is largely complete. Further expansions to include goods and services under are the TPP-11, PAFTA, Hong Kong, and IA-CEPA will be concluded as soon as possible after entry into force of these agreements.
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At a demonstration of the Portal at the ASEAN Special Summit 17-18 March 2018, over 30 SME and business representatives learnt about how the Portal could assist their businesses in taking advantage of export opportunities.
Real Dairy, which has facilities in New South Wales, Victoria and Queensland, is looking to export cheese and dairy products to new markets in Asia. Alexander Lederer, a representative from the company who participated in the demonstration, said the Portal was “very useful in providing details of tariffs and safeguards.”
Improved infrastructure for regional traders
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The Sunshine Coast Council outlined in the context of the Sunshine Coast, growing exports can benefit from improving infrastructure to include reliable heavy passenger and freight rail services along the North Coast Rail Line, as well as a safe and efficient Bruce Highway to Brisbane and to the north of Queensland.
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Sunshine Coast Council is also supportive of the Australian Government providing unrestricted access for foreign airlines flying into Australia’s major primary and secondary airports, including the Sunshine Coast Airport.
This would greatly facilitate the more effective movement of goods and human capital.
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The Council submitted improved digital infrastructure is of crucial significance to the growing knowledge-based workforce within the Sunshine Coast region.
General connectivity to the National Broadband Network remains a concern for many SMEs within the region. As the digital demands of local businesses continue to grow over time, demand will grow for a range of digital infrastructure solutions including cloud computing, mobile telecommunications, Internet of Things, as well as larger more capable network infrastructure systems including Wi-Fi.
State government trade resources and ‘Team Australia’
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The Manager of Luckypole Limited, a trading company based in Hong Kong that imports Australian food into Asia, Mr Brian Mallyon, warned how the many different levels of Australian government will often compete against one another.
Each state is independent of the others, which is understandable given such things as funding and the need to promote constituents. What this does however is fragment the market and dilute the “Brand Australia” message.
It is the diversity of what Australia offers and the Australian lifestyle that is our brand - wine from WA, paired with fish from Tas. and vegetables from Vic, for example.
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Managing Director of Eco Energy Group Ltd, Mr Lionel Barden, expressed concern about the confusion created in international markets by competing interests of state and territory governments from Australia, as well as the federal government.
…to have state governments competing with federal government using funds from both sources to go to export just is bullshit. You've got only so much money in Australia, and we need to spend it in the right way. So at the next COAG meeting it should be on the agenda to say we don't spend money outside our plan—not six, seven or eight different plans where one is taking people overseas on a jaunt and someone else is following them up a month later. It's a real problem.
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Ms Megan Antcliff, the Deputy Chief Executive of the Department of Trade, Tourism and Investment, South Australia, outlined the “need for more data or better clarity around specific products into specific markets and how those opportunities might be leveraged”.
I think clarity on some of those technical questions will also, as a 'team Australia' approach, help us better target trade and inward investment activities for those investors looking to establish operations in Australia to then trade into the region. I acknowledge there are efforts in this…But I think that would be something that would be beneficial to all the states and indeed to the 'team Australia' approach.
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Even with FTAs, Luckypole stated the target market for Australian small business is where the more sophisticated shoppers are, because Australian products can rarely compete on price alone. Those more desired shoppers for Australia are those who are:
consider quality, consistency and continuity of supply
care about the origin of products and their environmental impact
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Australia is not the only exporting nation in this space, according to Luckypole Limited, so it then it becomes a matter of how Australian SMEs distinguish themselves from the rest.
New Zealand has done a good job of getting small business on the radar by hosting small events that promote New Zealand foods. They hold events catering to those in the relevant industry and are extremely well attended.
Government of South Australia
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The South Australian Minister for Trade, Tourism and Investment, Hon David Ridgway MLC, believes better coordination in Austrade's program with its state business education programs would help it make more SA businesses aware of international trade opportunities.
There have been occasions, for example, when Austrade events in South Australia have been poorly attended, when a minor shift of timing or location would have ensured greater engagement. There also seems to be, at times, a degree of East Coast centricity in scheduling events.
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Business SA outlined in states such as South Australia with an ageing population and low population growth, expanding export markets is critical to economic growth and such expansion will need to include SMEs.
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Business SA recalled that in 2004, the previous State Government established a $25 billion export target by the year 2014.
With exports only reaching $13.36 billion by 2011, the target deadline was postponed until 2020. By 2014 with exports still well below the 2020 target, the target was revised to $18 billion, with a new target date of 2017.
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Business SA stated for 2016/17 and based on chain volume data which accords with the previous target benchmark, South Australia's export trade consisted of $12.9 billion in goods and $2.72 billion in services for a total of $15.62 billion.
Based on South Australia’s current population share of exports, 7.02 percent, exports would be $23.66 billion for 2016/17, $8.04 billion more than our current level of exports. If the same formula were applied to every year since the GFC, South Australian export revenues over that period would have been $75.66 billion higher.
Business SA’s Export Ready workshops
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Business SA pioneered and is delivering South Australia’s only export ready program to develop the ability of SME businesses to export.
Consequently, we need trade agreements which can harness this additional potential now and into the future.
Government of Victoria
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The Victorian Government submitted that its Department of Economic Development, Jobs, Transport and Resources (DEDJTR) is tasked with working closely with SMEs to support them to increase their international business.
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Since November 2014, the Victorian Government has committed $125 million to programs that boost Victoria's international engagement, positioning Victorian businesses to be globally successful and drive exports and jobs. The DEDJTR manages extensive trade mission programs, export capability initiatives and the Victorian Government Trade and Investment network, the largest of any state or territory, have been critical for Victoria's successful engagement in the global economy and plans for continued prosperity.
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According to the Victorian Government, SMEs are a vital part of the Victorian economy and export base, accounting for the majority of the 12,777 Victorian companies that export goods. Small businesses generate around a third of Victoria's output and more than 40 per cent of all private sector jobs. There are more than 576,000 small businesses in Victoria making up over 95 per cent of all firms.
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The DEDJTR works closely with SMEs, through Trade Victoria, Invest Victoria and Small Business Victoria, to provide support to increase their international business. The Victorian Government recognises that it is incumbent on all governments to assist SMEs to overcome barriers to international engagement.
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The Victorian Minister for Trade and Investment, Hon Philip Dalidakis MP, outlined that the department continues to progress the state government’s commitment to eliminate impediments to business growth, including achieving a commitment to cut red tape by 25 per cent and the commencement of the Small Business Regulation Review (SBRR).
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The Victorian Government shared the Productivity Commission’s recommendations from 2010 that there should be more transparent and rigorous assessments of FTAs that should encompass two elements:
to ensure agreements are in Australia's interest, before negotiations commence, modelling should include realistic scenarios and be overseen by an independent body;
after negotiations have concluded and prior to signing of the agreement, a full and public assessment should be undertaken covering all of the actual negotiated provisions.
Government of NSW
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The NSW government's provides resources and assistance such as a detailed 'Export Accelerator Toolkit' and a range of practical workshops and resources made available to exporters across NSW via the 'Export Capability Building' and 'Export Labs' programs or accessible at https://www.industry.nsw.gov.au/export-from-nsw/export-assistance/ export-capability-building-program.
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The Committee recommends that the Australian Government strengthen its Team Australia approach in target markets by:
Supporting an increase in the number of smaller, non-Ministerial, industry-focused trade delegations with an emphasis on one-on-one business meetings to achieve more tangible trade outcomes; and
Undertaking a joint study with state and territory governments of Australia’s trade promotion efforts internationally, with a view to pursuing reforms that will ensure a better coordinated, unified and coherent approach for businesses, including SMEs, to better engage with all tiers of Australian government promoting Australia’s commercial interests.
Role of customs brokers in helping SMEs utilise FTAs
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The peak body for Australia’s international trade and logistics sectors, Freight & Trade Alliance (FTA), outlined that freight forwarders and international trade service providers facilitate approximately 70 per cent of Australia's inbound goods trade and 40 per cent of Australia's outbound goods trade.
They are often the first port of call for SME importer and exporters, responsible for advice and guidance in areas including documentation requirements at origin and destination, non-tariff barriers to Trade, tariff regimes and accessing free trade agreements.
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The FTA highlighted that customs brokers are the licensed professionals that understand tariff classification. The quality of brokers’ service is assured, according to FTA, with a rigorous licensing system overseen by the Department of Home Affairs and the National Customs Broker Licensing Advisory Committee (NCBLAC) which is a statutory body under the Customs Act 1901.
FTA is accredited with the Department of Home Affairs to provide Continuing Professional Development (CPD) training for licensed Customs Brokers and is one of only two organisations accredited by the Department of Agriculture and Water Resources (DAWR) to provide Continued Biosecurity Competency (CBC) training for international trade professionals.
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The FTA outlined that freight forwarders and international trade service providers facilitate approximately 70 per cent of Australia's inbound goods trade and 40 per cent of Australia's outbound goods trade.
They are often the first port of call for SME importer and exporters, responsible for advice and guidance in areas including documentation requirements at origin and destination, Non-Tariff Barriers to Trade, tariff regimes and accessing Free Trade Agreements.
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Mr Travis Brooks-Garrett, the Director of the Freight and Trade Alliance; and Secretariat of the Australian Peak Shippers Association, believes more can be done to match SMES with trade professionals such as Customs agents.
…we've already got over a thousand individually-licensed customs brokers and trade professionals, who, for nine or 10 hours a day, are working through the different schedules, and understanding the working tariff, and reading AAT decisions around tariff classification. And they already exist; they're regulated by the government; they go through a rigorous licensing process. They are very, very well utilised on imports, and they are completely under-utilised on exports. If we were able to match these trade professionals with SMEs in order to help them come up with real operational strategies to get their goods to market and apply the correct rule of origin and the right classification, I think that would very well address many of the other submissions that have been provided around the complexities of free trade agreements.
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Mr Russell Wiese, the General Counsel of the Freight and Trade Alliance; and Principal of Hunt and Hunt Lawyers, explains it's not just about getting the service provider, the broker and forwarder involved.
Once the decision to export has been made, it's getting them involved when they're considering the cost-benefit analysis of exporting to help exporters understand how these FTAs can help. Sometimes the difference is 20 to 30 per cent in tariffs, so that will be the factor that makes it viable to export. We need to be connecting trade professionals with people who are umming and ahing about exporting not just at the time they're ready to export.
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Ms Sally Phillips, Manager Free Trade Agreement Program, Austrade, said the Government was working with the Customs Brokers and Forwarders Council of Australia and with the Australian Peak Shippers Association and has delivered information sessions to more than 1,200 attendees.
With the Customs Brokers and Forwarders Council, we developed a module that fit into their continuing professional development program. They gained or obtained two points for attending our session: listening to what the issues are around utilisation, why SMEs perhaps aren't utilising free trade agreements and what their role is. They're the last people to touch the paperwork, so they have a very important and unique role in assisting and facilitating the utilisation of free trade agreements. We were trying to equip them with skills so that they could be better placed.
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Business SA believed government support for SMEs could help them enjoy greater success as exporters.
Determining the particular criterion that relates to eligibility for FTAs such as the China-Australia FTA can still require SMEs to access expert assistance and the Federal Government should consider how it can better promote the range of businesses from customer brokers to freight forwarders which are well placed to provide this information at low cost.
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In general, Business SA highlighted how difficult it can be for SMEs to understand the specifics of how they use certain FTAs like China’s, for example which HS Code to use and what Origin Criterion.
Notwithstanding, this type of information can be accessed from freight forwarders, customs brokers and the like, and while it may come at some minor or indirect cost, if anything the Government could promote the range of companies which offer such a service, for example through the DFAT FTA portal.
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The Committee recommends that the Australian Government adopts a more holistic approach to encouraging Australian small and medium enterprises (SMEs) to trade internationally and utilise free trade agreements (FTA) by:
Targeting service delivery of FTA awareness and education programmes to SMEs based in regional areas by matching the content of seminars and workshops to the specific economic profile of the regions, drawing upon local success stories and providing direct advice about market access and promotion relevant to the key industries of those regions;
Inviting the active participation of industry representative bodies, such as those representing customs agents and freight forwarders, in FTA awareness and education programs to educate SMEs about the export services their members provide;
Strengthening capacity development of SMEs so they become more import/export ready, including knowing how to assess destinations and business partners, and using technology to support international engagement and trading activities; and
Adopting a tiered pricing structure for service delivery by the Australian Trade and Investment Commission and the departments of Agriculture and Water Resources and Home Affairs that takes into account business size and export volumes.
Wine Australia and the regional wine support package
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In 2017 the Winemakers’ Federation of Australia welcomed the Australian Government’s $50 million Export and Regional Wine Support Package to support the wine industry capitalise on export and tourism opportunities.
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The Package, according to the WFA, has a very strong focus on marketing and promotion in export markets, assisting existing exporters and developing capabilities for new exporters in China and/or other free trade agreement (FTA) markets.
This funding will be delivered over three years commencing in 2018 and will be vital in assisting industry’s SMEs to capitalise on their existing export success or enter the export market.
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The Chief Executive of the WFA, Mr Anthony Battaglene, supported the marketing of Australian wine by Wine Australia paid for by a levy.
Everyone who exports and all producers pay a levy and it goes to Wine Australia, which is the marketing body. That's roughly $3 million a year and then there's user pays where you can pay to participate in events—so they will organise events. A large amount of that money comes from the large companies, because they export more, but the benefit goes to all.
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The Managing Director of wine exporter Inland Trading Company, Mr Greg Corra, raised some concerns about the use of the $35,000 in levies he pays on exports to the marketing and research agency Wine Australia. Mr Corra outlined that Inland Trading was not a “little company”, as it exports around 1.8 per cent of all Australian wine exports on behalf of 75 wineries to currently 58 international markets.
We export to markets where people normally would not be. We pay Wine Australia a levy of approximately $35,000 a year. Much of that levy is not spent in the markets where we want to be, which are not where they want to promote. Unfortunately most of the levies are controlled by the bigger companies. The emerging markets are still there and continue to emerge. That is where we should be spending our promotion dollars. Forget the US. The US is a basket case for Australia. It's been declining and will continue to decline…What does Wine Australia do? Spend money there. China is now a developed market. China grew at a rate of 44 per cent last year. Why now do we want to spend more money in China, when the market's already verging on maturity? It's already at a stage where I don't think the Chinese will take a lot more. It will continue to grow as incomes rise, but there are markets out there that are way better to diversify to for the Australian wine producer.
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Mr Battaglene welcomed the benefits from the $50 million that has come to the wine industry following reforms and the wine equalisation tax or WET.
A lot of that is now being spent on getting smaller producers export ready, so they understand how to get into the markets, and also a lot more events in China and the US, in particular, where we're trying to get higher value product, where they can come and participate.
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Mr Battaglene believes the package is helping make more smaller and medium sized winemakers export ready.
…training programs and that sort of thing so that people can understand what they need to get into markets…It's pretty exciting stuff. As part of that we're also giving people money back for attending events. So if you want to invest and go to ProWine in China, for example, which is on in November, you'll be able to get your money back for your investment to attend that. Large companies are not able to access that. That's for a finite time; we're just looking to extend that for another year because it's been very good.
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The WET is a concern for Mr Corra after he was shown a form on a New Zealand internal revenue site allowing New Zealand winemakers to claim back the Australian rebate.
This document allows the New Zealanders to claim back WET rebates for products they sell in our country. As a taxpayer, I'm aghast that we allow that to happen. As a businessman, all I can say is that it's also creating more competition for Australian producers. Why the hell should we pay a WET rebate to our competitors, New Zealanders, and allow them to enter this market?
Establishing an SMEs’ council to represent SMEs
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Mr Philip Marley, a Director at the Export Council of Australia in South Australia believes the Council has recommended that there should be a body representing SMEs in Australia.
An SME council that can look after the interests of SMEs, not just with respect to free trade agreements but more broadly within the Australian business community. I guess that emphasis is really on micro-SMEs—very small businesses. They'll need help with not only understanding FTAs—they understand them at a high level—but the detail of how you actually benefit from them; that’s harder.
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Mrs Nancy Emil, Manager of Migration and Trade at Business SA sees merit in SMEs establishing their own representative body to assist with expertise on FTAs and exporting.
I do agree that SMEs would need an expert body or an expert hub where they can get advice on the different aspects of the FTAs, as well as the non-tariff barriers. That body would help them understand and learn on the curve of what's required to export to the different markets.
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Mr Andrew McKenna, a Senior Policy Adviser at Business SA, believes there may already be enough business representative bodies covering the issues faced by their membership that are SMEs.
And, first, just in terms of the other bodies, consider the landscape of existing national bodies in the SME business membership space.