Negotiation process for FTAs
Trade consultants KPMG outlined that much has changed in the three decades that have passed since Australia’s first FTA was negotiated with New Zealand. KPMG argued how a comparison with some of Australia’s more recent agreements, such as the ChAFTA and the CPTPP, reflect the maturity and diversity of Australia's domestic markets, its global trade relationships and the “complexities of economic integration in fluid geo-political climates”.
Simply put, our policy makers and negotiators needed to think about more than base commodities, and are doing a commendable job.
According to DFAT, FTA negotiations are guided by Cabinet-approved whole-of-Government negotiating mandates that take into account Australia’s national interests. Australia pursues high quality, comprehensive agreements with Australia’s negotiating partners. In goods trade, Australia seeks liberalisation of all tariff lines within the shortest possible timeframe.
While this is not always achievable, Australia seeks to limit exclusions to the least number of tariff lines possible. Australia enters negotiations looking to agree on rules and procedures that facilitate trade, for example, aiming for Declarations, rather than Certificates, of Origin.
Mr Todd Mercer, Assistant Secretary—FTA Policy and Implementation Branch, at DFAT, explained the Department’s approach to “negotiating FTAs is to consult widely, including with SMEs, at all stages of the negotiations.”
…before the negotiations commence, during the negotiations themselves and in the implementation phase. We do that to ensure that the outcome reflects, as much as it can, the interests of all stakeholders and the full spectrum of Australian businesses.
Mr Mercer outlined why FTAs can help SMEs expand their business.
In terms of what FTAs can deliver for SMEs, we believe that SMEs can benefit by creating a competitive edge for their goods and services exports, including through ecommerce channels, providing access to a wider range of more-competitively priced imports and deepening their engagement with global value chains. FTAs also have a role in safeguarding against protectionist tendencies in other countries, which is particularly pertinent at the moment, given the current climate. They can also improve access to overseas investment capital and new technologies and, as a result of all of this, provide new growth and, importantly, employment opportunities.
Mr Mercer reiterated that the Government’s negotiation team examines trade issues surrounding FTAs such as rules of origin and others during the process.
We try to ensure through the negotiations that issues such as rules of origin, which I notice in a number of submissions has been quite a focus, and other elements of FTAs that they're as facilitative as possible. One point which I think will come out and is important to make is that these agreements are by definition a negotiation between two or more parties and represent a balance of interests across the breadth of the agreement.
Mr Simon Smalley, Assistant Secretary, Strategic Trade Policy Branch, Trade and Market Access Division, Department of Agriculture and Water Resources described DFAT’s focus is largely about trade policy.
…so [DFAT] are the lead negotiators around the free trade agreements. But, as an agency, I wouldn't expect to see them working very often in the way of facilitating or developing a market. That role I see as being one that is Austrade’s. And also in the agriculture space, because there are a number of industry groups that have, at a peak-body level, marketing arms themselves, they tend to be in-market and working to develop the markets themselves. In the meat example, it’s Meat & Livestock Australia.
Mr Smalley believed DFAT, like the Department of Agriculture and Water Resources, remained somewhat independent of the individual exporters.
They're working at the trade policy level, which is about the arrangements for tariffs and quotas in particular and the rules that are set in the free trade agreement for what is described as Australian produce versus non-Australian produce.
Mr Mercer outlined the limitations of FTAs in opening up trade.
One of the things that we need to be clear on is that FTAs aren't silver bullets. They can address certain things, but there are things that they don't address. For example, tax is not something that is addressed in a free trade agreement.
Mr Mercer described how sensitive market access or non-tariff measures are for governments when negotiating trade deals.
We have a very robust quarantine system of our own. It's not something that you could generally negotiate in the context of a free trade agreement. What the free trade agreements do provide is another avenue to pursue some of these issues. We have existing bilateral mechanisms with most of our trading partners—certainly our important trading partners.
Mr Mercer raised how Australia has opportunities to pursue certain issues through other multilateral organisations such as the WTO. He said Australia has arrangements to discuss trade issues with China after ChAFTA was signed.
We have a number of committees [with China] where we have an opportunity to raise concerns to try and find a resolution to these issues. Last year we had meetings of the trading goods committee. We raised a number of very specific NTMs—non-tariff measures—which were of concern to industry. We raised them again at the vice minister level at the joint commission meeting in March of last year. It's another string to our bow. It's another forum at which we can try and pursue these issues, but trying to address them in the context of a free trade agreement negotiation is difficult.
Mr Mercer emphasised the complexity of trade negotiations and how a health protocol on a certain product may be necessary alongside an FTA to open up trade in that product.
What is often necessary is…a health protocol. That's a separate negotiation which needs to happen. When we're negotiating a free trade agreement—for example, at the moment, we're negotiating with the Pacific Alliance—if we had from industry a particular interest, say, in beef to Mexico and we could see those negotiations are progressing, in parallel with that, we can try and set up or pursue a negotiation to agree on a health protocol to allow that trade to happen. At the time the FTA enters into force, you would have the tariff preference plus the health protocol in place. These things are complex, and having served overseas myself and been subject to complaints from Chileans and Mexicans about their products not being allowed in [to Australia], it underlines just how difficult it can be. The bottom line is: there are limits to what FTAs can do, but it does give us another opportunity to try and pursue some of these issues.
The Head of Economic Development at the Sunshine Coast Council, Mr Paul Martins, advised DFAT, Austrade and trade negotiators to look more closer at the what regions in Australia may be better suited to providing goods and services for FTAs.
I would say for DFAT and others not to look at just the composition of trade statistics between countries but actually look at the make-up of our regions and our centres that we're trying to encourage more exporters from to ensure that they are aligned with the tariff reductions they are negotiating.
The Sunshine Coast Council suggested that FTA negotiation teams have a rethink and consider a new approach.
FTA negotiators typically start with the largest export items and work from there to identify FTA negotiation items. It would be useful if they started from understanding the priority industries of small business and those with the capacity to increase jobs – and then focus on these as the priorities.
As important as the big industries (eg, dairy, coal, wheat) are to Australian exports, the Commonwealth Government also has an opportunity to focus on the products/services of SMEs and further contextualise the specific products/services (and companies) that will benefit from an FTA.
The Sunshine Coast Council highlights it also important that small business be given a voice in government-led trade negotiations.
Specifically, an SME export advisory committee would give the government practical, implementable advice when considering or undertaking complex FTA negotiations.
The Manager of Economics and Industry Policy, Victorian Chamber of Commerce and Industry, Mr Hugh Horsfall, wants the Government to be aware of how complicated FTAs can appear to many SMEs and business people and to look continually for ways and methods to simplify them.
In terms of forward-looking approaches to the negotiation of new free trade agreements and the renegotiation of agreements to have an increased focus on simplicity, there is implementation and ease of use by business—especially small business—seeking to be mindful of how complex rules will impact business on the ground and how they will actually apply those and then building on that to, in the negotiation of new agreements, specifically seek to address known non-tariff barriers where they can be in scope.
The National Manager, Business and International Advisory Services, Australian Industry Group, Ms Louise McGrath, wants all free trade agreements to be closely monitored so as to be refined, simplified and improved.
I would say that free trade agreements cannot be 'set and forget'. Once they are signed it doesn't mean they should just be moved onto the next agreement. They should be constantly monitored. The world changes, markets change and industries change, and FTAs need to be able to be modernised as we go forward.
Mr David Blackstock, General Manager, Policy, for the Department of Trade, Tourism and Investment, South Australia, emphasised the work required beyond the signing of an FTA.
FTAs only address barriers at the border. They need a lot of work to follow up at the Commonwealth level to address-behind-the-border barriers, regulatory impacts, non-tariff barriers, health regulations, mutual recognition of qualifications and standards et cetera. That work needs to be followed through.
Managing Director and Senior Partner, Roberts Gray Lawyers Mr Rhys Roberts, cautioned the Australian Government, negotiators and interest groups to always err on the side of caution when raising issues or disagreements in the media about those being negotiated with.
The No. 1 thing, to my mind, is having a good relationship, government to government, and, if you're going to have disagreements, don't have them in the media. Don't embarrass the other side. In a WeChat group we hosted, for example, 24 lawyers, law firm leaders, from Jiangsu province. They were doing a course at Victoria University.
I spoke to them and our office helped host them and we had one of them at our office. Then, in the WeChat group that I'm in with them, there were messages asking: 'Are our Chinese students being raped at your universities? It's not safe for our students to go to university.' That is just nonsense. I said, 'No, that's not correct.' The relationship is everything in China because the legal system is hard to navigate and it's hard to enforce agreements.
People rely on relationships. That's why family owned companies tend to do better. It's because of the relationships. It's hard to be negotiating a business agreement when the newspapers are saying negative things, government to government.
Ms Ivana Manwin of Roberts Gray Lawyers shared the concerns about playing out disagreements in the public arena.
I believe that our system here is quite transparent and when information and news comes out it is all over the media, and that information is sent globally. That can definitely affect the relationship between Australia and, say, China.
The Director of the Evertang Group, Mr Nick Tang, believed it is important to move beyond disagreements on non-tariff barriers and focus on building closer relationships between trading partners.
Today we talked a lot about barriers in free trade agreements, such as regulations, policies, language and culture. But what's fundamental between countries, I think, is building trust, building trust from eastern to western and building trust from country to country.
Ms Glenys Schuntner, Chief Executive Officer of Regional Development Australia Townsville and North West Queensland Inc. expressed she is very keen on anything in free trade agreements that can help SMEs in regional Australia.
…with a comprehensive view of what's good for Australia but what's good for the regions in the deals that are done—so that is for all commodities and all services and products to be as broad as possible in being encapsulated into those free trade agreements.
Mr Warren Males, Head, Economics, CANEGROWERS wants greater compliance by the Government with the rules in FTAs by countries that flaunt the rules.
Let's not call them free trade agreements, because we all know they've got things in them other than freedom, so negotiate comprehensive free trade agreements and enforce those trade rules. Don’t be shy. Stand up for Australia's interests both at the negotiating table and then at the referee's chair. Going forward we need a Team Australia approach. If there need to be more resources into this process, in my view, it needs to be both on the negotiation side and on the enforcement side to make sure that the rules are there, because if we don't enforce the bloody rules—pardon my French—what’s the point in having the rules in the first place?
Mr Michael McMillan, Director, Policy and Investment, Townsville Enterprise Ltd would encourage earlier discussions between DFAT, industry and peak bodies about proposed FTAs.
It is absolutely that early and legitimate engagement with industry and peak bodies to discuss exactly the interests of SMEs and determining, as I suggested, a long-term developmental plan that is affixed to and aligns with the FTA.
Importance of economic evaluations of FTAs
When commissioning economic evaluations of FTAs, economist Associate Professor Mark Melatos, submitted that DFAT should explicitly require an evaluation of the potential costs of rules of origin compliance on different stakeholders, such as SMEs, and its likely impact on the realisation of market access gains.
Associate Professor Melatos believed FTA negotiators should be required to clearly report, for a representative sample of companies (e.g. large, SME, product exporter, service exporter, from a selection of industries):
The estimated costs of complying with associated rules of origin for each firm type.
The estimated net benefit (or cost) of enhanced market access (as defined above) for each firm type.
This information will: (i) help firms determine whether or not trading within the FTA is in their interest and (ii) concentrate the minds of FTA negotiators to ensure that the net (rather than gross) benefit of market access gains, forms the basis on which negotiations take place.
FTA negotiators should consider making individual firms the fundamental ‘unit of account’ in FTA negotiations, according to Associate Professor Melatos.
This approach requires trade negotiators to design FTAs that:
Recognise that firms have already optimised their production and distribution networks based on the existing trade environment.
Enhance market access with minimal impact on existing firm operations.
Signatories to an FTA can create a list of ‘accredited’ firm-product pairs that is approved by all parties and incorporated into the agreement at the time it is signed. Thereafter, accredited firms are free to trade these products subject to the FTA’s preferences without having to demonstrate compliance, once again, with the RoO [Rules of Origin]. They are pre-approved.
The accreditation list can be developed as a ‘living’ document, in the sense that new exporters can seek accreditation and existing exporters can amend (or rescind) their accreditation as circumstances change (e.g. suppliers change, new products are developed for export etc).
In this way, Associate Professor Melatos expected the costs of RoO compliance to be a one-time event for firms who thereafter are only required to update their government of any changes to their circumstances that require their accreditation status to be amended.
FTA prioritisation for advanced technology and services
KPMG outlined how ensuring that Australia’s more recent and future trade agreements effectively cater for the rapid pace of innovation in Australian markets and new and emerging categories of merchandise is a challenging task.
It relies upon an effective conduit to carry the voices of SMEs to Australia's FTA negotiators, which may be lacking or (in the case of agribusiness) 'crowded out' by too many industry representative voices.
While Australia's large agricultural producers have access to, and are accessing FTA benefits, KPMG is also aware there is a vibrant, growing community of SME producers of organic products and other smallbatch production. These smaller producers also need to be considered in the frameworks of negotiated FTA benefits and in targeted commitments to identify and reduce Technical Barriers to Trade.
Our SME producers need to be aware that FTAs are also meant to provide benefit for them and not just for the "big end of town".
The Australian Industry Defence Network Victoria outlined that certain sectors, such as Defence; cyber; high technology; telecommunications; and advanced manufacturing; are largely unable to benefit from FTAs with certain “high risk” export nations.
For SMEs this can prove to be a point of confusion, as there is an assumption that if Government is engaging in the FTA, the risks have been mitigated.
The Defence Teaming Centre (DTC), which is supporting Australian industry to develop capabilities and their overall competitiveness for opportunities in the Defence market both in Australia and the global market, submitted that defence businesses unable to export to certain “high risk” nations were those in the cyber, high technology, telecommunications, and advanced manufacturing sectors.
The Government might like to consider how it factors the overall economic benefit of these agreements when certain businesses are automatically excluded from trading, but could be interpreted generically as being included in the terms of FTAs?
Further advice on how Government manages inclusion and prioritisation of these sectors and weights the potential economic benefits and losses would be of value.
Ms Claire S Willette, CEO of the Australian Industry and Defence Network, wants more consultation with the Defence industry ahead of negotiations.
…engaging in a consultative process with industry bodies, with state government—with any of the relevant players, whoever they may be—is important, because it's easier to do that at the front end of policy-building than it is to retroactively go back and unpick things.
More specifically—and representing a community of users that have more specific constraints bounding how they operate and what markets they operate in—I would ask maybe that there is consideration as to how we look at the cross-pollination of government policy and where government initiatives are driving. If we are spending two per cent of GDP to focus on creating a defence export market, do we have the trade agreements and measures in place to help promote that in the right countries?
Strengthening intellectual property protections in FTAs
The Winemakers’ Federation of Australia submitted while it is a business’ responsibility to protect its intellectual property (IP), WFA believes free trade agreements can assist in this protection more broadly.
In order to support this, Australia’s FTA negotiations should give greater consideration to how IP is addressed in FTA negotiations. Current agreements provide limited protection and could be strengthened to support the needs of SMEs.
The WFA wants the protection of grape varieties names and Geographical Indication is therefore another significant aspect of Australia’s FTA negotiations for wine.
A huge trend amongst wine producers at the moment, in particular the SMEs, is the use of ‘alternate varieties’ which are not as common to the varieties commonly known to consumers such as shiraz or chardonnay. Alternate varieties provide an innovative point of difference for SMEs for which they can typically seek higher price points as they capture niche or exclusive markets. The main issue which effects industry in relation to these varieties is related to countries claiming these alternate varieties as GIs and protecting them across markets in their own FTA negotiations.
The WFA outlined how in recent years, the EU has made significant efforts to protect a range of GIs in their FTA negotiations.
The lists of hundreds of GIs for protection are being agreed between the EU and their trading partners and within those lists more and more grape varieties are being included for protection.
The WFA submitted that Australia’s own FTA negotiations therefore need to support SME winemakers to produce and export these key valuable varieties by “implementing stronger wording which prevents the protection of grape varieties as GIs” with Australia’s trading partners.
Not only this but our own FTA negotiations with the EU should ensure that grape variety names are not traded off as it only seeks to stifle innovation and reduce competitiveness of our industry.
Accommodating the growth in e-commerce
KPMG declared it is critically important that future FTAs negotiated by the Australian Government to recognise the increasing importance of e-commerce trade for the growth and development of the world economy and economic integration between Australia and its key trading partners.
This should include specific commitments in relation to the facilitation of digital trade by enabling the free movement of goods transacted via e-commerce channels.
Trade in services
Australian Chamber of Commerce and Industry submitted older agreements focussed largely on goods trade, however more recent agreements have a wider scope and include issues aimed to liberalising services trade.
Goods trade is relatively easy to measure because of the intervention of border agencies, but services lack the same statistical collect and so it is less easily analysed.
Services delivery is via four modes described in Article I:2, of the WTO General Agreement on Trade in services (GATS) as:
from the territory of one Member into the territory of any other Member (Mode 1 — Cross border trade);
in the territory of one Member to the service consumer of any other Member (Mode 2 — Consumption abroad);
by a service supplier of one Member, through commercial presence, in the territory of any other Member (Mode 3 — Commercial presence); and
by a service supplier of one Member, through the presence of natural persons of a Member in the territory of any other Member (Mode 4 — Presence of natural persons).
The ACCI outlined these modes often manifest in trade agreements chapters on investment, movement of people and issues such as cross border data management and flows, standards and IP protections.
From a regional Australia perspective, the Sunshine Coast Council submitted it is strongly supportive of taking advantage of FTAs to enhance service sector exports.
The Sunshine Coast is home to many service-based small businesses, start-ups, and innovation hubs that provide services across the broader region. Whilst FTAs have helped service sector exports to some degree, there is considerable scope to grow the services sector exports, especially from a small business perspective.
The Sunshine Coast Council also wants Austrade to also provide further support domestically to small start-up and knowledge-based SMEs in Australia that have a desire to travel overseas, before making the initial leap to Austrade’s ‘Landing Pad’ network.
Recently Austrade fintech and innovation-specialised trade and investment advisors have been based within start up incubators. This is a very valuable and welcomed initiative.
According to KPMG, another key dimension of Australia's modern FTAs is the inclusion of commitments that recognise the growing importance of trade in services to the economic integration of Australia and its FTA partners - which have featured in specific chapters of each FTA since the ThailandAustralia FTA entered into force in 2005.
The recently concluded TPP-11 includes perhaps the most comprehensive and detailed agreements on trade in services of any FTA to date.
The South Australian Government warned FTAs do not address behind-the-border issues.
Follow-up agreements in some markets, for example, on mutual recognition of standards, are needed. This particularly is an issue in the services sector...
KPMG notes Australia is playing a lead role in the ongoing negotiations of the Trade in Services Agreement (TiSA) that seeks to address barriers to international services trade between a subset of WTO member economies which collectively account for 70 percent of global services trade.
In short, it is clear that the relevance of trade in services in the context of facilitating trade is now front of mind to policy makers...
The Victorian Government submitted a key interest for Victoria is it wanted greater access for its services exporters into overseas markets. The Victorian Government believes that FTAs have improved market access for a range of services exporters to some of Victoria's largest export markets. China is Victoria's top export market for international education and tourism.
At a basic level, according to KPMG, to facilitate increased cross-border trade in services, parties must agree to implement rules and processes that enable foreign service providers from FTA partner countries to engage effectively with domestic markets, establish a commercial presence and do business within their borders on more or less the same terms as domestic providers.
The ways in which domestic regulatory regimes may unintentionally establish barriers to successful market entry for foreign service providers is not always clear - making the design and negotiation of services commitments a much more challenging task than is the case with merchandise trade.
KPMG welcomed the efforts made by the Government to ensure Australia’s FTAs effectively tackle unnecessary administrative red tape and other barriers to entry for Australia’s services exporters. Examples of these efforts were reflected in the updates to the Singapore-Australia Free Trade Agreement (SAFTA) that allowed greater access for education, legal, financial and other professional services.
Our experience working with SME services exporters suggests that further action is needed to ensure that FTA instruments are as effective in reducing barriers to service exports as they are in relation to helping merchandise exporters 'go global'.
The Victorian Government pointed to the 2010 Productivity Commission (PC) study into Bilateral and Regional Trade Agreements (BRTAs) that found although Australia's BRTAs contain some provisions addressing trade in services, these “do not necessarily lead to significant reductions to services barriers in partner countries”.
This finding is particularly important for any consideration of SME utilisation of FTAs, with smaller firms potentially accounting for more services compared to goods exporters. FTAs that primarily provide increased market access through reduced tariffs could be providing greater benefits to larger goods exporters compared to SMEs with less turnover and perhaps a more services focus.
Victorian Government welcomes FTAs with a broader scope that includes providing greater international market access for smaller services exporters.
To deliver this, it is important that FTA negotiators understand what may be impeding services firms and investors from growing their business in overseas markets. This understanding requires regular consultation with services sector representatives and state governments that have extensive local business and industry contacts.
Financial services providers
On services and investment, DFAT stated Australia seeks to lock in the broadest possible market access. Wherever there is an identified need or opportunity, DFAT will also negotiate issue-specific chapters, such as on financial services, for example.
Inevitably, the outcomes reflect that FTAs are negotiated agreements between Australia and its trading partners who each pursue their national interests. It is also often a compromise between Australia’s open trade and investment regulatory and legislative arrangements, and negotiating countries’ equivalent arrangements.
KPMG highlighted the challenges faced by Australia’s medium-sized financial services providers that have traditionally been more focused on their domestic markets than markets overseas. Regulatory constraints are a significant barrier to greater international engagement by these providers.
For example, Australia's funds management industry is one of the most respected and best performing in the world yet many SME fund management companies have been unable to expand into Asia due to the complexity and cost of entering a new market.
Given the growth in Australian service industries, KPMG wants the inclusion of tangible and measurable actions and associated mechanisms in future FTAs that will help Australian SME services providers to understand and take advantage of services commitments.
The Managing Director of Hedweld Group of Companies, Mr Ian Hedley, explained tariffs were why he wants the Government to pursue a trade agreement with Brazil.
…a free trade agreement with Brazil would be wonderful! Our products, literally, double in price when they go to Brazil. It's a huge opportunity there for us, but we're really battling. That's why we manufacture some parts there in Brazil.
Tariffs and quotas on Australian sugar
The Australian Sugar Milling Council (ASMC) submitted it is looking for the Government to continue negotiating preferential trade agreements that reduce tariff and non-tariff barriers to trade and provide for expanded quota access for Australian sugar, to open up new, and consolidate existing trade market.
The ASMC represents six milling companies who collectively own and operate 20 sugar mills in Queensland. These ASMC members account for over 95 per cent of national raw sugar production and produce more than 99 per cent of Australia’s raw sugar exports.
With a relatively small domestic market, access to the export market and buoyant, market driven global prices to sell the remaining 3-4 million tonnes of raw sugar production is vital. Despite around 180 million tonnes of raw sugar consumption globally, Australia competes in a relatively small traded market of around 65 million tonnes per year.
ASMC outlined Australia competes for market share against countries like Brazil, Thailand, Guatemala, India and Mexico.
With the exception of Thailand who produces lower pol raw sugar, on a like-for-like (quality or pol) basis, Australian raw sugar shipping costs are lower into Asia when compared to these competing suppliers.
ASMC’s stated its priorities are to consolidate relationships with Australia’s loyal trading partners (Japan, Indonesia and Korea) as well as diversify risk and gain access to additional, premium earning markets.
The United States (3 mt pa requirement), China (5.3 mt pa requirement) and the European Union (and UK) (2.5 mt pa requirement) are examples of markets Australia has been servicing for many years but new, improved policy settings are sought.
The Australian sugar industry failed, according to the ASMC, through the Aus-US FTA and more recently through TPP-12 negotiations to achieve improved market access to the highly lucrative US market.
In the US, where the federal government implements a number of complex domestic and import supply controls, the raw sugar price is around US25c/lb or AU$765/tonne. This is more than double the current global export price of AU$367/tonne. Currently supplying around 100,000 tonnes per year, or 3 per cent of US total raw sugar import needs, Australia continues to look for opportunities to increase our duty free access to the US market.
The ASMC believed further opportunities for the Australian Government trade officials include the upcoming review of the China-Australia FTA, the EU-27-Australia FTA and a post BREXIT deal with the UK. Under World Trade Organisation (WTO) rules, Australia is allowed to export a very low, and non-commercial volume of 9,925 tonnes to the EU-28 (EU-27 plus UK) at a prohibitive €98 per tonne duty.
The EU-27’s total raw sugar import requirement is currently close to 1 million tonnes. The upcoming EU-27 FTA negotiations presents an opportunity for Australia to improve the quantum of duty free access. Australia’s access to China is also limited and we compete for around 2 million tonnes of access and a tariff currently set at 95 per cent.
The ASMC outlined another issue that needs to be resolved is the continuing risk that Australian raw sugar exports to Japan can exceed allowable pol limits and incur additional costs from Australian sugar producers needing to prepare special cargoes for the Japanese market, reducing efficiencies, limiting optionality and raising costs.
Under the Japan-Australia Economic Partnership Agreement (JAEPA), Japan provided a number of tariff concessions to support raw sugar imports less than 99.3 dry polarisation. If imports exceed 99.3 dry polarisation very high customs duty and tariff penalties are applied (~AUD $220/t). The issue is that despite the raw sugar being tested in Australia as consistently below 99.3 under universally accepted testing protocols, Japanese Customs on a number of occasions have determined the sugar to be in excess of 99.3.
The ASMC submitted it wants the Australian Government to:
actively re-negotiate access opportunities into China and the US and an ambitious duty-free quota into the EU-27 and the UK post BREXIT; and
to work with the Australian sugar industry as it develops its Industry Trade Strategy over the coming 12 months. The strategy will use quantitative and qualitative analysis to identify market opportunities most likely to maximise export revenues over the coming five years.
Mr Warren Males, the Head of Economics, CANEGROWERS believes the best way to ensure businesses, of whatever size, can benefit from trade agreements is to make sure those trade agreements are “comprehensive, that they include all products and services and contain no exclusions”.
For us the TPP agreement, while it included the US, would have seen a modest increase in tonnage sold, Australian sugar sold, to the US market. Of course, with the US withdrawal from that agreement that opportunity is one that I won't say is lost but is a little further down the track than we'd like to see it.
Enforcing compliance with the rules of trade agreements
Mr Males of the CANEGROWERS believes it’s important to bear in mind that “trade rules work, whether they are trade rules in the multilateral environment, through the World Trade Organization, or trade rules on a bilateral arrangement through an FTA or a regional trade agreement”.
Mr Males detailed how in 2003 Australia took the Europeans to the courts in the WTO and Australia had a significant win in arguing for the removal of Europe’s sugar export subsidies.
We're in a similar situation now where we're very concerned about subsidies that India is providing to its sugar producers domestically. That, in turn, has the world market jittering, if that's an appropriate term, and concerned about exports that will flow from India of maybe five million tonnes of sugar or perhaps more, so we have seen a significant collapse in the world sugar market over the last 12 to 14 months.
Mr Males wants Australia to negotiate firm rules of trade into agreements and not shy from pursuing any breaches of these rules.
So we'd like to see Australia, as it's going forward, make sure that we enter trade agreements that are comprehensive, that have solid rules associated with them and, importantly, not be afraid to exercise our rights under the relevant terms of those agreements, whether they are bilateral, regional or multilateral…but there's no point in having trade rules if they're not enforced.
Mr David Rynne, the Director of Policy, Economics and Trade, at the Australian Sugar Milling Council wants to stress the importance of ensuring countries don’t breach their trade agreements rules or WTO obligations.
I can't underscore enough the heavy lifting that Australia has to do in working with like-minded countries to hold countries to account on their WTO obligations. It's absolutely critical. The world is putting up its barriers; it isn't reducing its barriers. We need to do the heavy lifting in the international fora in that regard.
Lowering tariffs on Australian wine exports
Winemakers’ Federation of Australia submitted the reduction of tariffs can have an undeniable effect in supporting SMEs as is evidenced by the China market where a 14 per cent tariff will be reduced to zero by 2019. The WFA believes high tariffs can effectively lock SMEs out of markets.
For example - India a market with huge future potential is virtually [unavailable] to SMEs due to high tariffs of 150 per cent on imported wine. For this reason, schedules for tariff reduction or removal should be prioritised in FTA negotiations to improve access for SMEs.
Accessing Certificates and Declarations of Origin
DFAT explained the differences between a Certificate of Origin to a Declaration of Origin.
A Certificate of Origin typically needs to be obtained (for a fee) from an authorised body, such as the Australian Chamber of Commerce and Industry. A Declaration of Origin, or self-certification, is usually provided by the manufacturer or exporter.
DIIS submitted it takes an active role in negotiating product-specific rules of origin (for industrial and resources goods) and also the certification requirements under FTAs.
In this role, DIIS seeks to negotiate simple, trade-facilitative and consistent product-specific rules across all FTAs. Reflecting consultation with many industry stakeholders, DIIS also advocates for a dual certification system, allowing traders to choose to provide either a Certificate of Origin (completed by an authorised body) or Declaration of Origin (self-declaration by the importer, exporter or producer), when importing goods under an FTA.
The Chamber of Commerce and Industry of Western Australia (CCI) warns that self-certification may not be the solution to the challenges faced by exporters as they may well face further scrutiny from importing countries.
Inquiries have been made into the use of self-certification within free trade agreements, with some arguing that a selfcertification approach will streamline the trade process. However, self-certification would likely put exporters at risk as they are generally not aware, or do not consider, that the burden of proof for rules of origin is usually placed on the importer.
CCI believes such scrutiny is particularly the case under trade agreements (including the Australia-United States FTA, Malaysia-Australia FTA and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) where the Australian Government has “agreed that the authorities of the importing country can undertake direct investigation of the supply chain in Australia”.
Such arrangements expose exporters to scrutiny from foreign governments and can prove to be costly and time consuming. In addition to costs associated with hiring customs consultants and legal representation to defend their claims, such cases can also negatively affect a company's share price and reputation if the investigation becomes public knowledge.
CCI submitted it was aware of such instances where foreign governments have requested confirmation of details surrounding the provided Certificate of Origin.
In such instances, it has been CCI's experience, that as an authorised third-party, confirmation of the details supplied in the Certificate of Origin has sufficed. CCI therefore considers Certificates of Origin to be a crucial tool for mitigating risk and facilitating trade for Australian exporters using FTAs.
National Manager of the Ai Group, Ms McGrath, confirmed that Ai Group is one of the two authorised bodies to issue certificates of origin under a free trade agreement.
Some free trade agreements—the China FTA, the ASEAN FTA and the Thailand FTA—have mandatory certificates of origin. That means that in order to access the benefits of the free trade agreement, a company must come to either Ai Group or one of the state chambers and apply for a certificate of origin. There's obviously a charge associated with that. Ai Group have always advocated that these should not be mandatory, because we see them as red tape…All we are doing is stamping a document confirming information we've already established.
As part of Australia’s trade negotiations, the Winemakers’ Federation of Australia, wants the Australian Government to seek agreement from current and future trading partners that existing certificates issued by Wine Australia, as the regulatory compliance authority, are accepted and additional certification should not be required.
A specific issue which occurs currently with some FTA partners is how we should deal with Certificates of Origins (CoO). WFA strongly supports the right of exporters to provide self-certification certificates of origin.
The current requirement under certain FTAs that only Chambers of Commerce can provide certificates of origin adds cost and complexity for export.
The WFA outlined how for certain free trade agreements there is a requirement for exporters to obtain a Certificate of Origin (CoO) from an authorized body to confirm that the goods being exported comply with the relevant Rules of Origin (RoO) requirements.
For example, CoOs are required under Australia's existing Free Trade Agreements with Thailand and Singapore and under the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA).
In order to streamline the process for SMEs, if there are requirements for CoO with Australia’s trading partners, WFA, strongly recommend that Wine Australia be the Authorized Body to issue CoO under Australia’s FTAs.
In addition to the CoO themselves, the WFA wants rules of origin requirements to be flexible enough to allow wine to be sent to a single point and then marketed onwards. The WFA highlighted the Korea–Australia Free Trade Agreement providing a good example of market friendly RoOs.
DFAT submitted that Australia aims to address non-tariff measures (NTMs) wherever they cause trade restrictions, but recognises the rights of trading partners to impose their own standards, quarantine procedures and other regulations.
Despite the preferentially reduced tariffs for qualifying goods in certain markets under various Preferential Trade Agreements, increasingly the ACCI warned it was hearing from its business members that “non-tariff barriers (NTBs) are becoming a higher concern”.
Of particular concern about the global rise in NTBs to the business community, according to the ACCI, are the non-tariff barriers related to localisation measures, state-owned enterprises and public procurement.
The ACCI identified NTBs preventing many businesses from accessing export opportunities include:
Challenges identifying and developing relationships with distributors and customers.
Difficulties navigating local languages, cultures, customs and business practices.
Costs and uncertainty around the protection of intellectual property.
Difficulties complying with local laws and regulation (in particular labour and tax laws).
Restrictions or delays in the repatriation of funds to Australia.
Resource intensive in-country product testing and validation requirements, some of which may be inconsistent with Australian requirements and practices.
Non-tariff barriers, particularly in China, remain a concern according to Business SA and this seems to be across a wide range of goods, particularly in food and agriculture.
Perhaps the Australian Government could do more to reduce the impacts of these barriers instead of pursuing FTAs alone. For example, working with the Chinese Government to reduce administrative processes to better facilitate Australian products into market.
Mr Scott Kompo-Harms, Chief of Staff for the Minister for Trade, Tourism and Investment, South Australia, told a roundtable public hearing of the work required by the Commonwealth after an FTA is signed so its Department of Agriculture and Water Resources is better able to focus on overcoming non-tariff barriers and protocol negotiations.
I think FTAs in and of themselves are only one plank in trade liberalisation, so we need to make sure that, as FTAs are negotiated, other Commonwealth agencies—in particular, say, the Department of Agriculture—are sufficiently resourced to address non-tariff barriers and that protocol negotiations, for example, are progressed. Obviously you're dependent on resourcing in the importing countries as well, but we should make sure that the Commonwealth effort is not just devoted to the trade negotiations and then it finishes. There's a whole heap of other work that needs to be done after an FTA is negotiated, to make it fully useful. I think we need to have a greater attention and a greater focus put on things like protocol negotiations and continuous addressing of non-tariff barriers.
Mr Lino Strangis, the Executive Director of International Engagement, for the Department of Trade, Tourism and Investment, South Australia, applauds the work of the Australian Government negotiating trade agreements but warns of the shortcoming in ensuring some trade partners comply.
…it's important to make sure there is compliance. We can do the wonderful negotiation and come up with a document that looks good from both sides, but then the other party needs to stick to it. That's where we need to focus our energy, because often those willing to sign up to these things—and I won't cite any specific economies around the world; we probably know which ones they are; but, even with others that we're quite comfortable with, often you'll find that, in practice, a lot of barriers…remain.
Our leaders, our foreign ministers and our trade ministers need to have frank conversations with their counterparts to make sure that companies are complying with the spirit of the agreement—not just the letter of it but the spirit of it as well.
If the Australian Government would like to encourage SMEs to export, then Business SA believes it should focus on these types of barriers which can be quite costly.
…therefore larger companies, think Blackmores, Swisse etc, have much more financial capacity to pursue them.
It is all about addressing non-tariff barriers, according to Mr Simon Woolmer, the Government Relations Manager, Australia and New Zealand, for Swisse Wellness.
…the headline is often about the tariff reduction and that's great, particularly for certain sectors. That’s been a massive competitive advantage dealt with. But I think going forward—and non-tariff barriers won't be the same for every free trade agreement—there need to be much stronger mechanisms in place to address them post FTA. Often you don't know that they’re coming up until 12 months or two years down the track. ChAFTA has those mechanisms. I think they need to be strengthened going forward into new FTAs, particularly the EU one, so there is recourse for addressing them.
Purchasing and Procurement Manager, DSI Underground, Mr Murray Drake, wants the Government to stay on top of the non-tariff measures that hinder exporters.
…for our business we'd ask that the government consider the non-tariff-related barriers when you're negotiating FTAs. It's not obvious until you start doing it, and then you realise that the tariff is just one small part and the barriers to entry are significant.
Non-tariff measures impacting on grain growers
GrainGrowers outlined that distortionary non-tariff measures (NTMs) are increasing and have become the priority trade policy issue for the grains industry. The recently released Grains NTM Report identified:
54 NTMs impacting the grains sector across 15 markets, including Australia’s major grains export markets.
35 per cent of the identified NTMs result in either nil or very restricted market access.
50 per cent of the identified NTMs result in either increased compliance costs or compliance risks.
GrainGrowers encouraged the Australian Government to support preferential trade agreements with capacity building initiatives that assist in creating opportunities and capturing more value for Australian grain exporters.
China’s demand for animal testing on imported cosmetics
Ego Pharmaceuticals submitted its concerns about the requirement by the Chinese Federal Drug Administration (CFDA) that cosmetic products made overseas be tested on animals undermines one of the core strengths of Ego Pharmaceuticals.
Ego Pharmaceuticals described the measure as a non-tariff barrier to trade and restated its commitment to using the “best science to develop its products”.
In addition to being archaic and unethical, this requirement creates a non-tariff barrier to trade and is a risk to exports not only to China but to New Zealand and the EU where animal testing for cosmetics has already been banned.
Ego Pharmaceuticals main point of concern are the CFDA's requirement that cosmetic products made overseas be tested on animals but not a requirement of cosmetic products made in China because it “completely removes access to any free trade agreement for companies like Ego that do not test their products on animals”.
In 2013 the CFDA removed compulsory animal testing for nonspecial use cosmetics produced in China. Why are locally-produced cosmetics deemed safe without animal testing yet products produced overseas, in Australia for example, not? For a free trade agreement to work between countries there needs to be a level playing field.
Harmonisation of NTBs impacting on SME wine exporters
The WFA conceded while tariffs are a key priority for all exporters, it is the “non-tariff barriers that can very often prove more costly for Australian wine exports than the tariffs, especially for SMEs”.
Wine regulation is complex and, in particular, differing rules for wine composition and labelling between markets are difficult to navigate for small businesses.
Wine production is a highly technical business across the supply chain, according to the WFA. It is extremely challenging for winemakers to manage and navigate varying export compliance issues, according to the WFA, especially for those trading with multiple markets which all have different requirements.
For this reason harmonisation of technical requirements is of the greatest importance to wine industry SMEs. If producers can utilise the same technical production methods, have the same labelling, chemicals and additives requirements as on the domestic market trade becomes significantly easier and a less costly experience.
The WFA highlighted the complex testing and certification requirements for wine as another significant issue for small winemaking businesses.
These can prevent small businesses exporting to some markets. Therefore, addressing technical barriers to trade in FTA negotiations should be a key priority of Australia’s trade negotiations to assist SMEs.
The WFA outlined it is a strong advocate for harmonisation of wine technical requirements in support of trade facilitation.
This is of particular importance in emerging markets and countries where wine is not traditionally produced. Wine is a highly complex and technical product throughout the supply chain and imposed technical requirements can sometimes result in unnecessary cost or barriers to trade of wine.
The WFA believed essentially that food and agriculture non-tariff barriers fall in four categories:
Compositional issues – including Maximum residue limits
Analytical and testing requirements
WFA showed how differing requirements for these NBTs cause cost and trade disruptions for wine exporters. These issues are normally dealt with bilaterally on a case-by-case basis or by using a number of international institutions that establish specific guidelines to try and reduce trade barriers in these areas.
Failure to deal with these at the systems level leads to expensive and resource intensive approaches with limited success. FTAs need to look at a systems based approach to non-tariff barriers.
The WFA believed the harmonization of the Maximum Residue Limit (MRL) for pesticides would have important trade facilitation outcomes and result in cost savings in the millions of dollars. APEC is currently running a pilot program through the APEC Food Safety Cooperation Forum.
WFA Chief Executive Mr Anthony Battaglene agreed that the testing of maximum residue limits is one of the biggest problems for wine exporters.
And how we look at testing methods to make sure that we've all got harmonised testing methods or whether we use them for regulatory purposes. These are just examples, but it's the systems that we need to be able to solve, not individual situations of wine into Japan. It's about all products going in and how they deal with the issues.
According to the WFA this work has gained agreement on the following broad principles:
participation in the development of MRLs in Codex Alimentarius (Codex) via the Codex Committee on Pesticide Residues (CCRP) that is hosted by China;
adoption of Codex MRLs in domestic legislation and trade;
work sharing, or exchanging data to support the establishment of pesticide MRLs by member economies, in cases where there is no domestic equivalent for a member economy; and
develop unilateral “recognition”, or “import tolerances” where practical and appropriate, in domestic regulation of specific pesticide/commodity MRLs of trading partners on a case-by-case basis.
The WFA believes free trade agreements could endorse these principles and adopt the guideline developed under APEC.
This would greatly enhance the ability to harmonise MRLs and facilitate trade. This approach recognises that there is no single system, but establishes a guideline for each economy to use when a request for an import MRL is received. Efforts to harmonise MRL requirements could significantly assist SMEs to facilitate trade and reduce costs.
Certification and conformity assessment for wine
The WFA submitted that many countries have differing requirements for certification and conformity assessment on the import of wine. These typically include one or more of the following:
certificate of free sale;
certificate of conformity;
WFA disclosed each certificate imposes financial cost on wine exporters and administration cost in the importing country.
Bearing in mind the low-risk nature of wine, these costs may be seen as unnecessary in many instances.
Chemical analysis is the most costly form of certification. There is an added risk to exporters with chemical analysis where wines are not analysed by internationally accredited laboratories or do not use recognised methods of analysis which may potentially result in inaccurate or unreliable analyses.
The ACCI believed export quotas as well as sanitary and phytosanitary (SPS) measures pose restrictions on trade, particularly for exports of agri-food products.
These measures can significantly limit market access, regardless of whether an FTA is in place.
It is of considerable concern that nations that espouse “free trade” and sign agreements to this effect, also seek to create and implement new, novel and often much less transparent protectionist measures to support their local industries.
Mr Battaglene shared one of the things that the WFA have been really heartened by is that both the Department of Foreign Affairs and Trade and also the Agriculture Department have now realised they should use free trade agreements to address non-tariff measures.
[The departments] have set up some groups to look at non-tariff measures. There are currently consultants out doing some work for DFAT on NTMs.
Mr Battaglene outlined that the WFA have been doing a lot of work to try and influence the outcomes in FTAs, by including an annex on wine.
We're starting to do it in annexes. We had it in the TPP-11, for example. There was annex on wine. But we've suggested that, perhaps, they should try and do a food annex which deals with the broader cross-cutting issues. We've modified that annex and we're proposing the Pacific Alliance negotiations. That's a good one for us because we've got some friends in Mexico and Chile who can help support those. Once you get a template forward and some precedence, it becomes easier for negotiators to move down that route. We're leading the charge on it because we see it's really important, but, once you level the playing field, everyone wins.
Industry, Innovation & Science Department role in FTAs
The Department of Industry, Innovation & Science (DIIS) submitted it plays a key role in the development, negotiation, implementation and review of Australia’s trade policy agenda, both in the multilateral trading system and through FTAs. The Portfolio stated it works closely with the Department of Foreign Affairs and Trade (DFAT), in their role as lead negotiators, and alongside other Australian Government agencies as a key advisor in trade negotiations.
DIIS advises DFAT on the negotiation of new market access opportunities for industrial and resources goods exports; reciprocal industrial tariff elimination with appropriate transitional arrangements; consistent and trade facilitative rules of origin; mechanisms to deal with non-tariff and other technical barriers to trade; commitments on trade remedies which maintain the integrity of Australia’s domestic anti-dumping, countervailing and global safeguard regimes; and the development of internationally-consistent and trade-facilitative rules for digital trade and electronic commerce.
DIIS continues to play a role in FTA implementation and review following the completion of negotiations, particularly through participation in FTA committees. For example, DIIS is responsible for implementing Australia’s FTA obligations regarding technical barriers to trade and translating those obligations into practical initiatives that facilitate trade.
Jobs and Small Business Department advice on FTAs
The Department of Jobs and Small Business (DJSB) advises DFAT on small business policy chapters within FTAs affecting the small business policy environment.
This is in addition to a broader range of labour market and workplace relations related policies such as commitments on the movement of natural persons, mutual recognition, government procurement, labour market impacts of tariff measures and labour chapters (where included).
Consultation on FTAs with business community
DFAT outlined that the inclusion of particular elements in FTAs is guided by consultations with stakeholders. As an example of its consultation process, DFAT highlighted it received more than “260 submissions before and during the China-Australia FTA (ChAFTA) negotiations, and held direct consultations and discussions with over 1,000 stakeholders”.
The FTA process – from inception to implementation – typically involves, according to DFAT, consultation with businesses, including SMEs, at the following stages:
seeking submissions and conducting face-to-face meetings before negotiations begin to identify priorities and sensitivities, so negotiators are well-placed to deliver the outcomes businesses, including SMEs, are looking for;
ongoing and intensive consultations during negotiations to update businesses and industry bodies on progress and seek their views on specific offers from trading partners;
encouraging businesses to provide submissions and testimony to the Joint Standing Committee on Treaties whenever it conducts hearings on proposed FTAs;
outreach and advocacy to businesses following entry into force of the FTA to ensure they understand the benefits and requirements of the FTA, and how to take advantage of them;
addressing any FTA implementation concerns raised by businesses in relevant meetings of committees established under each FTA, such as meetings of ChAFTA’s Sanitary and Phytosanitary Committee have previously discussed a range of export protocols for agricultural exports to China; and
seeking further submissions as Australia and its trading partners undertake mandated periodic reviews of FTAs.
Trade consultants KPMG submitted that since the main users of FTAs are business entities, including SMEs, then it is important the government agencies involved with FTAs need to consult and engage with the business community.
It is paramount that government negotiators and other decisionmakers receive advice and information from a wide range of experts, stakeholders and other interested parties in order to develop evidence-based policy, drawing on international bestpractice, to help to open markets and break down behind-the-border barriers to trade.
The Project Manager for Maritime/Ship Repair at Thales Australia in Newcastle, Mr Greg Gocher, observed many businesses at the roundtable public hearing were unaware of consultation opportunities with the Government on FTAs ahead of and during negotiations. He believed Government negotiators need to hear more examples of how various trade issues may impact on trade.
I think if that were more transparent, out into industry, whether you chose the top 10 organisations in each of those fields that were going to be most affected by these free trade agreements and they got to sit at the table before you went into negotiation, and how you select those top 10 or 20 or whatever it might be, one of the questions would be: who is this going to most affect? They would need to be involved, I would think. They could give you some good case examples or case studies that would make sure we ticked all those boxes of some the issues the guys are facing or the industry's facing at the moment.
Marketing and Product Development at Naturally Good Products Pty Ltd, Mrs Connie Manglaviti, recommends Government strive to keep trade agreements lean and simple to get the best outcome for everybody.
For small business, it is keeping it as simple as possible and as lean as possible so that we can access things more quickly and respond more quickly. I know that for us in manufacturing it's all about lean manufacturing and being quick to market. You've got to be innovative. But somehow the process could be simpler. I don't know how you'd do that, but it would be keeping it lean and simpler for people coming in. I think food businesses come from all different angles, so we don't always have large departments that can go through all the different parts of it.
General Manager of the Commercial Fishermen's Cooperative Ltd in Newcastle, NSW, Mr Robert Gauta, believe governments need to listen to the business users of FTAs.
I think the most important thing in our industry is to consult with the real world. Get the stakeholders involved when making decisions in bureaucracy.
The Managing Director of Robotic Systems, Mr Adam Amos, thinks most SMEs would welcome good export advice, not just the rules of trade, from Government-funded advisors experienced in business, exporting and the trade issues at hand.
The people who are available to give consultative advice are very important for small companies like ours. What we're looking for in the person who's giving advice though is somebody who has 20-plus years of practical experience in dealing with your industry in the country you want to deal with. If somebody's going to come out and read us the rules, it's really not helpful—because we can do that—but practical advice, we're looking for. If it's not necessarily a person within the government maybe it's the government contracting-in a specialist, in that industry, who's maybe even of semi-retired status. That would be extremely valuable for new players.
Mr David Rynne, Director, Policy, Economics and Trade, Australian Sugar Milling Council believes Government must definitely engage with industry early to identify opportunities in regions that an FTA might take shape in.
Industry will, at times, need assistance to do those opportunity assessments. Maybe it's small grants to do an opportunity assessment in terms of what the benefits statement actually looks like times. The sugar industry will sell its product when the opportunity arises, so we don't need assistance there. It's just scoping what the opportunity statement looks like. Where we can maximise our tonnes of sugar is what we need assistance with, and the sugar industry is about to do that process.
As critical as the offensive, FTA proactive stuff is the defence of keeping countries to account to their WTO obligations. Australia is going to have to do some very heavy lifting there to protect its interests over the next 10 years.
The Australian Industry Defence Network Victoria insisted greater involvement of business in the development of FTAs - during both pre and post-negotiation stages will ensure commercial realities and wants or needs are accounted for.
For SMEs there are unique challenges and concerns which are not represented by Industry Primes. The Government needs to identify ways in which to “better engage SME industry peak bodies in soliciting inputs from the SME community in the development of FTAs”.
According to KPMG, export-ready Australian businesses must engage proactively with key stakeholders to ensure that trade rules are pragmatically beneficial to their commercial interests. KPMG identified the key stakeholders as:
Australian Government trade departments/agencies (Department of Foreign Affairs and Trade (DFAT), Austrade and state and territory government trade and investment offices);
Professional advisors and industry representatives (industry associations/ chambers of commerce); and
Diplomatic networks within Australia and abroad (Embassies and consulates, Missions to the WTO, Trade Support Institutions etc.)
KPMG sees a role for professional trade consultants such as itself alongside Austrade to raise greater awareness and understanding of the benefits of FTAs, especially for SMEs.
Once FTAs enter into force, the role of trade support institutions and professional advisors and institutions, such as Austrade and KPMG, becomes essential in raising awareness of and explaining the functioning of often complex rules. This is particularly evident with regard to SMEs, which generally lack the necessary in-house technical expertise and systems to utilise FTAs effectively.
Feedback from businesses in Queensland
The President of the Australian Taiwanese Chamber of Commerce (QLD); Mr Simon Yeh, said it is good idea to get the associations and chambers of commerce to pass on the message about FTAs to SMEs. Mr Yeh said what's important for SMEs to understand is that there is a “policy in place for certain countries and what the rules are, so the opportunity is presented to them”.
Whether or not they take it, obviously that's their job. But what we as a chamber of commerce would like is to have someone from government come to us and maybe have a chat about this agreement so that, if anyone wants to do business in that area, at least they know where to seek help.
The Founder and Chief Executive Officer of the Small Business Association of Australia, Mrs Anne Nalder, said she would like to see more consultations on trade agreements between government and businesses take place more frequently.
…so we can start keeping an eye out and then be able to present and discuss how we can improve, because it is important to increase the number of SMEs in the export market.
Figure 3.1: Participants in parliamentary roundtable in Sunnybank
Committee members and participants in a parliamentary roundtable in Sunnybank, Queensland
Consultation on FTAs by other government departments
The DIIS and DJSB portfolio states it consults broadly with Australian industry to provide considered and appropriate advice throughout the negotiation, implementation and review of FTAs.
In doing so, it aims to ensure that FTAs are as simple as possible for all Australian businesses to use and that SMEs are aware and able to take advantage of the positive outcomes available to them under FTAs.
In particular, the DIIS and DJSB portfolio is working to encourage greater utilisation of FTAs among SMEs by:
consulting with industry to provide informed technical advice on tariffs and non-tariff barriers, rules of origin, trade remedies and electronic commerce provisions throughout the negotiation, implementation and review of FTAs;
engaging with Austrade to ensure that knowledge of Australian industry capability and information about international opportunities are effectively linked to inform policy development and program delivery; and
administering initiatives which form part of (or supplement) the Australian Government’s National Innovation and Science Agenda to build business capability and help SMEs become ‘export ready’.
Harmonising Australia’s free trade agreements
The Australian Government has advocated for the development of bilateral agreements with major trading partners as “stepping stones” towards a final World Trade Organisation agreement, according to the Australian Chamber of Commerce and Industry. As each free trade agreement is different, the ACCI notes the challenge will be how will these disparate agreements can come together and be harmonised.
The ACCI submitted as the number of Preferential Trade Agreements (PTA) available to Australian SMEs grows, so does the confusion and inconsistency for exporters within the overlapping agreements.
The “noodle bowl” continues to grow, and this can be seen as a significant barrier to trade amongst Australian SMEs. While there are benefits to having both bilateral and multilateral PTA’s in place, ensuring that there is a consistent approach across all agreements is important. The Australian Chamber has previously expressed concerns with respect to the harmonisation of the disparate agreements. However, as the noodle bowl deepens, as does the complexity of harmonisation.
In addition to the overlapping agreements, the ACCI outlines there are agreements in places that are unnecessarily complicated. An example of this according to the ACCI is the ASEAN-Australia-New Zealand Free Trade Agreement. ASEAN member Indonesia has not yet implemented the ‘First Protocol’ Certificate of Origin Template, despite the adoption from all other member nations.
Such basic challenges provide unnecessary pitfalls for uneducated SMEs, and restrict access to the FTA. In this case, the Federal Government should continue to work to promote Indonesia’s alignment to the First Protocol.
The ACCI believes the development of wider regional agreements, should make it possible to review and reconsider the value of the superseded bilateral agreements.
The Government can significantly reduce the “noodle bowl” issues by commencing a programme of withdrawal from historic bilateral trade agreements that have been superseded by the newer regional agreements. The Government has already begun this task in terms of investment treaties and should now expand this to trade agreements.
Ideally having consistency between FTAs is important, according Business SA, and “while it can be hard to go back, all efforts should be made to ensure any future EU or British FTA is as consistent as possible with previous agreements”.
For example, rules around shipping through third party countries and what is, and is not, permissible to maintain Australian origin eligibility in the importing country should be made consistent.
There are already a range of variants within existing FTAs and Business SA wants the Australian Government to be looking at “how to accommodate increasingly sophisticated global supply chains while ensuring that in as many circumstances as is reasonable, Australian goods can be exported duty free”.
It is already challenging enough for SMEs to understand the eligibility of products under each FTA and if the Federal Government wants to encourage more SME exports, it needs to ensure future rules it agrees to are not prohibitively complex.
Mr David Blackstock, General Manager, Policy, for the Department of Trade, Tourism and Investment, South Australia, wants DFAT’s trade negotiators to find more consistency across upcoming free trade agreements.
…the Commonwealth could also, in addressing future FTA negotiations and reviewing the FTAs that are in place, make more of an effort to keep the FTAs consistent. FTAs are by their nature bilateral arrangements and there will never be full consistency, but some of the problems that SMEs have are clearly a result of the complexity of some of the FTAs and the wide variety of conditions that are contained in them. A little more consistency would certainly help.
Addressing the needs of SMEs in FTAs
DFAT submitted the Australian Government’s approach to negotiating FTAs is to consult widely, including with SMEs, before, during and after the negotiation process, to ensure FTAs deliver benefits to the full spectrum of Australian businesses of all sizes with respect to goods, services and investment.
Australian negotiators strive to ensure that rules of origin and other elements of FTAs are as trade facilitative as possible – though FTAs by definition involve other countries, with different approaches to regulation.
The focus on trade facilitative approaches is one reason, according to DFAT, why the CPTPP and the Peru-Australia FTA both features dedicated SME chapters, which encourages SME participation in government procurement opportunities in all TPP countries. The chapter dedicated to SMEs in the TPP-11 creates common and transparent trade and investment rules among TPP-11 parties.
As for older FTAs such as the US FTA which operates on a self-certified basis, there are generally not so many issues understanding them, according to Business SA.
Japan, Sth Korea, NZ and other FTAs also seem to be working well. China FTA issues are possibly exacerbated by the way in which the Chinese Government manages the process and how stringent (or rigid) they are – i.e. these issues are magnified because of a less flexible approach from the importing country.
With each FTA negotiation, DFAT outlined it welcomed submissions and feedback from all stakeholders, although the views of SMEs often reach the Government through peak bodies and business groups, such as the Australian Chamber of Commerce and Industry or Australian Industry Group.
For example, representations by industry stakeholders contributed to JAEPA outcomes, particularly improved export market access for horticultural products such as natural honey and walnuts.
DFAT outlined it is constantly reassessing how the Government to liaise best with SMEs.
In the Pacific Alliance negotiations, to reach more mining equipment technology services (METS) suppliers, many of whom are SMEs, DFAT developed an online survey about their trade needs and patterns.
Ms Alison Airey, Chief Executive Officer of the New South Wales Branch, Australia China Business Council believes Government needs to host forums with business representatives and exporters after FTAs have been signed and in operation to iron out any issues in future negotiations.
…government should involve businesses more in the follow-up and the implementation of free trade agreements to ensure that they're working as effectively as possible in a practical sense.
According to DFAT, Australia’s FTAs increasingly include chapters that address the needs of SMEs.
The approach taken in these chapters is to focus on transparency of trade obligations and cooperation, with a view to improving SME trade within the FTA. The transparency obligations require the publication of information relevant to SMEs to assist them in benefitting from the opportunities created by the FTA.
DFAT highlighted the emphasis on SMEs in its Peru–Australia Free Trade Agreement concluded in February 2018 and its stated obligations regarding cooperation between the trading partners to grow and promote SME trade.
This includes nominating contact points on SMEs that will:
identify ways to assist SMEs to take advantage of FTAs;
exchange experiences on best practices to support SME exporters;
explore opportunities for capacity building opportunities to enhance SME export counselling, assistance and training programs; and
facilitate the development of programs to assist SMEs to participate in, and contribute to, global supply chains.
Mr Todd Mercer, Assistant Secretary—FTA Policy and Implementation Branch, at DFAT, highlighted the shared perceived need across the membership of those negotiations was that the interests of SMEs needed to be taken account of.
So there was a commitment from the beginning that there would be attention given to the interests of SMEs…Government procurement is just an example. In terms of government procurement, all of our FTA government procurement chapters include a carve-out, an exception in our schedule, which allows us to implement policies which preference SMEs. So we've always had that in there. It's something we've insisted on.
DFAT regarded the use of contact points will enable the Government’s support to SMEs to evolve as the needs of SMEs change. PAFTA’s contained a SME-specific chapter as outlined below.
Chapter on SMEs in the Peru–Australia Free Trade Agreement
Peru-Australia FTA Article 23.3: Activities and Contact Points on SMEs:
Each Party shall designate and notify a contact point on SMEs, to facilitate communications between the Parties on any matter covered by this Chapter.
Where appropriate, the contact points shall facilitate the coordination of meetings between government representatives of each Party to address any matter covered by this Chapter.
The Parties shall, to the extent possible:
discuss ways to assist SMEs of the Parties to take advantage of the commercial opportunities under this Agreement, including but not limited to, considering ways to develop mechanisms in order to foster partnerships and the development of productive chains;
exchange and discuss each Party’s experiences and best practices in supporting and assisting SME exporters with respect to, among other things, training programmes, trade education, trade finance, identifying commercial partners between the Parties and establishing good business credentials;
facilitate access to trade promotion networks, business fora, business cooperation instruments, and any other relevant information for SME exporters;
promote seminars, workshops or other activities to inform SMEs of the benefits available to them under this Agreement;
explore opportunities for capacity building to assist each Party in developing and enhancing SME export counselling, assistance and training programmes;
explore opportunities for the development of programmes to assist SMEs to participate and integrate effectively into the global supply chain;
exchange information to assist in monitoring the implementation of this Agreement as it relates to SMEs;
facilitate provision of recommendations to the Joint Commission; and
consider any other matter pertaining to SMEs, including any issues raised by SMEs regarding their ability to benefit from this Agreement.
The Parties may seek to collaborate with appropriate experts and international donor organisations in carrying out their programmes and activities.
The Committee recommends that the Australian Government seek to make free trade agreements (FTA) more relevant to Australian small and medium enterprises (SMEs) by:
Including specific SME chapters or specific obligations to assist SMEs to access trade opportunities in future FTAs;
Improving consistency between overlapping FTAs to reduce complexity for business users where the same exported product, for example, may receive different treatment depending on which trade agreement is applied; and
Strengthening support for a robust system of Certificates of Origin that are accepted globally and for other reputable bodies to issue Certificates of Origin, as long as standards are not compromised.
Market access protocols for food in FTAs
Australian Pork Ltd submitted the East Asian region contains several large, prosperous markets, with very strong demand for pork but the Australian pork industry struggles to reliably deliver the large quantities expected by major importers.
Despite supply issues, Australian Pork Ltd admitted some of Australia’s FTAs do offer meaningful international market access advantages to Australian pork producers. Under the Japan-Australian Economic Partnership Agreement, Australian pork enjoys tariff treatment superior to any of Japan’s other trading partners.
However, there are instances where pork producers are unable to access FTAs due to non-tariff barriers in the target market. These affect all producers, large and small.
The China-Australia FTA offers significant advantages for Australian pork, according to Australian Pork, with tariffs up to 20 percent phased out by next year. APL considered these tariff advantages are hypothetical only, as “Australia is yet to secure a market access protocol with Chinese authorities to allow the importation of Australian pork”.
The failure is not in the FTA, or in the surrounding regulation, but in the limited resources and capabilities of the Department of Agriculture and Water Resources, and demand on these limited resources from exporters across multiple commodities to access China. The Department has been unable to negotiate a protocol, despite initially lodging an application with Chinese authorities more than ten years ago.
The Chamber of Commerce and Industry of Western Australia (CCI) warned it can take several years for a food species to be approved and added to a market access protocol.
Such long approval times for a species to be added to a FTA creates a substantial barrier to SMEs wanting to gain access to markets, such as those for meat, fresh food and dairy.
The CCI stressed the importance of having a food species such as Haas avocados added to a FTA.
…is highlighted by successful negotiations that resulted in Australia's ability to export avocados (hard, mature Hass avocados from areas not affected by Queensland fruit fly) to Japan from 26 January 2018. This is viewed as a significant opportunity for WA avocado farmers.
Victoria wants improved access for agriculture
The Victorian Government submitted a key interest for Victoria is it wanted improved market access for agricultural products.
The Victorian Government conceded that FTAs have improved market access for a range of products to some of Victoria's largest export markets. In 2017, Victoria's goods exports to current FTA partners were worth $18 billion (or 69 per cent of total goods exports), a 15 per cent annual increase. China alone receives over 27 per cent of goods exports.
However, while FTAs may complement and provide momentum to wider, national trade objectives, we also encourage the Commonwealth Government to prioritise multilateral liberalisation through the World Trade Organisation (WTO) and keep it at the forefront of Australia's trade policy agenda.
Some states’ food produce is excluded by some FTAs
However the CCI cautioned how a product appearing on the import list of a FTA does not necessarily benefit all states.
For example CCI submitted that due to quarantine laws, the Korean-Australia Free Trade Agreement (KAFTA) does not allow the following products to be imported from certain states in Australia:
Potatoes (except from WA and Victoria)
Carrots (only from Tasmania)
Cherries (only from Tasmania)
Seeking an economic partnership with Taiwan
The Australia-Taiwan Business Council Ltd submitted that on economic grounds, the Australian Government should pursue an FTA with Taiwan as Taiwan is Australia’s seventh largest export market.
The direct benefits of a proposed FTA with Taiwan seem heavily weighted in Australia’s favour. Australia exports A$8,756 million to Taiwan and received imports of A$4,662 million, meaning the duty revenue forgone for the agreement will likely be outweighed by the increased revenue for Australian exporters.
The ATBC insisted that Australian exporters are missing out on trade opportunities despite the One China Policy enforced by the People’s Republic of China and acknowledged by Australia, because “Taiwan is excluded from the benefits of the China-Australia Free Trade Agreement”.
Consequently, all imports into Taiwan from Australia are subject to high tariffs. These extra costs result in Australian exporters losing market share in Taiwan, mainly to New Zealand, which has had an FTA in place with Taiwan since 2013. These Australian exporters lament the loss of opportunity, loss of market share and lack of level playing field in the absence of an FTA.
The ATBC believed that strategically, Australia pursuing a free trade agreement with Taiwan is consistent with its liberalisation approach to foreign trade and relations with economies in the Asia Pacific region.
A Director at the ATBC, Mr Mark Hardy, sees many positives from an FTA.
A free trade agreement with Taiwan would seem to be very beneficial to several sectors in the Australian economy in making our exports more competitive.
The ATBC pointed out that Taiwan has entered two FTAs with nations it does not maintain diplomatic relations with and one of them, New Zealand, makes for a good case study for Australia into the successful implementation of an FTA with Taiwan as New Zealand markets many of the same products to Taiwan as Australia.
Notable commonalities between Australia and New Zealand’s exports are horticultural and agricultural products, including beef, dairy products, fresh produce, and wine. The first two years of the agreement saw New Zealand’s exports to Taiwan rise by 22 per cent, therefore similar outcomes can be expected for Australia.
Considering Singapore also has a trade agreement with China, the ATBC questioned the Australian Government’s underlying rationale for not implementing an FTA with Taiwan was a desire not to upset diplomatic relations with China, despite New Zealand and Singapore both being “examples of successful agreements which do not impinge on China’s One China Policy”.
The ATBC suggested Australian Government can take great care to protect relations with China by maintaining an ”appearance of abiding by the One China Policy”.
The ATBC explained how New Zealand and Singapore achieved their agreements by formally recognising Taiwan as Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; creating agreements as trading markets as opposed to nations.
New Zealand carefully titled their FTA: “The Agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic Cooperation (ANZTEC)”; and Singapore: “The Agreement between Singapore and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Partnership (ASTEP)”.
While the ATBC expressed concerns that several of the bilateral free trade agreements negotiated by Australia have been “done in haste” and over-sold, there remained benefits from FTAs.
The ATBC also believes that even the best FTAs are not as important in opening markets as the ingenuity and resourcefulness of the best Australian exporters.
Considerations for the FTA with the European Union
Common rulebook for trade between Australia and the EU
Anecdotal evidence from the members of the German Australian Business Council (GABC) believed the “opportunities to export products without additional approval requirements and with a common rule book are a major incentive to encouraging exports”.
We believe that the establishment of a common rule book with mutually agreed standards and the acceptance of approvals from other member states is a major incentive to encouraging SMEs to take advantage of a free trade agreement. SMEs do not have the connections in other countries to monitor new regulations and to arrange for approvals.
It should be the aim of Australia in any free trade agreement, according to the GABC, with its partners to establish a common rule book to simplify export of products and to provide for mutual recognition of approvals.
Labour mobility between the EU and Australia
German Australian Business Council (GABC) submitted that one of the most difficult areas to address in free trade agreements is that of labour mobility.
It is generally thought that the EU’s principle of Freedom of Movement was one of the major factors that led to the majority in the UK’s referendum choosing to vote to leave the European Union, according to the GABC.
We have heard from some companies who have noted that the changes to Australia’s visa regulations have complicated the movement of staff. Larger companies employ their own HR or expert staff to manage the movement of employees between countries (and/or they have sufficient funds to engage agencies). SMEs, however, rely on their own, often limited resources and experience in such context.
The GABC noted the current Australian business visa allows SME employees to market their products and services into Australia but moving key personnel to Australia is apparently more difficult. The GABC supported the provisions of Comprehensive Economic and Trade Agreement between the EU and Canada, under which key personnel can be given a visa for up to three years seem to be a reasonable basis.
On the other hand, we know of a number of Australians who have come to Germany to support their businesses and have found little difficulty in obtaining the necessary visas. One of our contacts, for example, in Munich has received significant help from the Bavarian state government. The state government sees a benefit in encouraging a subsidiary of an Australian company to set up in the state and also provides some funding to help the company.
The GABC raised a number of other issues associated with labour mobility, including employment of life partners (spouses), health insurance and recognition of pension contributions that impede labour mobility and will need to be addressed during negotiations.
Some agreements are in place, such as the double taxation and social security agreements between Australia and some countries, but we understand that these need to be updated in several cases.
Mining equipment, technology and services sector in FTAs
General Manager of International Markets for METS Ignited Australia Ltd, Mrs Clare Sykes, believed there was merit in including the METS acronym for mining equipment, technology and services sector within an FTA.
…the inclusion of the acronym 'METS' in free trade agreements would be a positive outcome. It's creating that linkage to SMEs, whether that's through assessing the education piece and ensuring that the accessibility of the education piece is optimised, or through physical seminars and educational webinars or other platforms.
The Newcastle-headquartered manufacturer of strata reinforcement and support products for the underground mining, DSI Underground, submitted that Australian companies or exporters would benefit from knowing more about the Government’s process for identifying what “products and services get included and prioritised” in FTAs.
DSI Underground indicated more knowledge of the process would allow it to highlight to DFAT any issues it faces at its operation in Indonesia during the trade negotiations with Indonesia.
…to support the activities performed at this operation [in Indonesia], DSI import raw materials, specialised tools and equipment from Australia as required. In the past DSI have been required to pay various import tariff amounts ranging from 5 – 50 per cent in some cases for goods not available from Indonesia.
DSI Underground outlined a belief that more consideration should be given to the impact on growth in the domestic market when negotiating a FTA. The recent acquisition by DSI of a business from the HILTI group provided DSI with the opportunity to consolidate and relocate existing manufacturing operations in China back to Australia.
When considering the relocation DSI enquired with various government and industry bodies regarding financial assistance to support the relocation. With little to no positive feedback DSI made the decision to consolidate and relocate the existing operations to a coastal city close to a sea port in China. Key to the decision by DSI was the zero import tariff applicable under ChAFTA, and the significant export incentive offered by the Chinese Government to the local Chinese manufacturer.
DSI Underground also raised issues about the difference between Anti-Dumping and FTAs and what support exists for SME’s to “effectively manage collateral damage to existing domestic operations”.
Due to the reliance on Australian steel producers for its raw material and the successful anti-dumping action by the Australian steel producers covering those raw materials, DSI finds itself in a position where it makes commercial sense to export Australian made raw material to its Indonesian manufacturing operation for processing then import those value added finished goods back into Australia.