SMEs’ experiences with FTAs and most targeted markets
The Department of Industry, Innovation & Science (DIIS) drew on ABS data to show that Australia’s Free Trade Agreement (FTA) network covers most of the markets that are targeted by Australian exporters.
Data on the number of exporters by export market shows that Australia:
has in force FTAs with nine of the top fifteen export markets for goods by number of exporters;
has a concluded but not yet in force FTA with an additional one of the top fifteen export markets;
has trade and economic cooperation agreements with an additional two of the top fifteen export markets; and,
is undertaking FTA negotiations with the three remaining countries (see Figure 2.1 for more details).
Figure 2.1: Top 15 export markets for goods in 2016-17: By number of exporters
Sources: Dept. of Industry, Innovation & Science, Supplementary submission 31.2, p. 3 & ABS.
Australian exporters’ most targeted markets
Australia’s FTA network not only covers the key markets that are most targeted by Australian exporters, but also covers the majority of Australia’s largest markets by value of exports. ABS data shows that Australia:
has in force FTAs with ten of the top fifteen of export markets by value of Australian exports;
has a concluded but not yet in force FTA with an additional one of the top fifteen export markets; and,
is undertaking FTA negotiations with three of the remaining countries (see Figure 2.2).
Figure 2.2: Top 15 export markets for goods in 2016-17: By value of exports
Sources: Dept. of Industry, Innovation & Science, Supplementary submission 31.2, p. 4 & ABS.
DIIS submitted that ABS data shows that Australia’s FTA network covers countries to which Australia exported AU $207 billion in goods in 2016-17, which equates to 71.21 per cent of Australia’s total global exports for that year.
The Australian Government is committed to expanding our network of agreements to ensure that by 2020 we have FTAs with countries that account for over 80 per cent of Australia’s trade . Key priorities include concluding the Indonesia-Australia Comprehensive Economic Partnership (IA-CEPA) and negotiating an ambitious FTA with the European Union (the EU-FTA), the world’s second-largest economy as a bloc.
Even for businesses which do not necessarily understand all the nuances of Australia’s FTAs, Business SA submitted they do appreciate at a high level that FTAs “help with marketing their products and making them available at a cheaper price than some competitors”.
The overwhelming feedback to Business SA is that FTAs have been positive for Australia, particularly the China FTA and especially in sectors such as wine which is now South Australia’s largest single product export.
The departments of Industry, Innovation & Science (DIIS) and of Jobs & Small Business (DJSB) jointly submitted that since Australia is traditionally a small market, then some entrepreneurs with high growth aspirations will make exporting crucial to their growth plans.
The increased fragmentation of production has fuelled the growth in global value chains, characterised by increasing trade in intermediate goods. This has opened up opportunities for specialising in different tasks within vertically integrated global industries.
Trade consultants KPMG submitted that free trade agreements have the potential to impact very positively on Australian exporters, industries and regions in terms of both trade market access and foreign investment. Recent FTAs, according to KPMG, have been a catalyst for greater interest in international engagement from the Australian SME community and have “already delivered tangible benefits to our exporters and importers”.
In particular, we have seen an increase in client awareness and confidence in relation to the opportunities that Asian markets offer, a more strategic approach to determining where our clients will play and how they will win, and a greater ambition in approach to international engagement.
Figure 2.3: Total number of Australia exporters to selected FTA partner countries, 2012-2016.
Sources: Dr Di Lieto & Dr Treisman, Submission 7 & ABS Characteristics of Australian Exporters, 2011-13 and 2015-16, Total number of Australia exporters to selected FTA partner countries, 2012-2016
Figure 2.4: Total number of Australia export transactions to selected FTA partner countries, 2012-2016
Sources: Dr Di Lieto & Dr Treisman, Submission 7 & ABS Characteristics of Australian Exporters, 2011-13 and 2015-16, Total number of Australia export transactions to selected FTA partner countries, 2012-2016
KPMG noted how the gradual reduction of historic tariff barriers following an FTA, coupled with increasing Asian upper-middle class consumer brand awareness of high quality Australian exports has “unlocked a latent demand for Australian products across the region”.
Despite this, we are now witnessing that non-tariff barriers are having a greater impact and are constraining SMEs’ abilities to meet demand in Asian markets. Resolving non-tariff barriers appears to be one of the greatest current challenges and therefore priorities for government to address.
The Managing Director of Yumbah Aquaculture, Mr Jonathan Lillie, submitted that the FTA’s have been a great benefit to Yumbah’s business, which is a medium to large land-based abalone farming enterprise with farms located in Victoria, South Australia and Tasmania. Yumbah Aquaculture currently produces more than 650 tonnes of whole weight abalone valued at around $26-28 million, and employs 50 full-time and 30 part-time staff.
Our abalone is sold both domestically and internationally with the majority around 80 per cent exported. Key countries we trade with are Japan, USA, Canada, China , Hong Kong, Singapore, Taiwan. We sell whole frozen abalone, frozen abalone meat, canned and retort vacuum packs. Frozen abalone is our specialty with only small trade in live abalone on the domestic market.
In most cases we try to sell our abalone in our own branded packs. We were one of the first to market a 1 kg retail/wholesale packs of whole frozen abalone.
Yumbah Aquaculture admitted the tariff reductions had helped in the Japan market but other hurdles remain in other Asian markets such as Korea and China.
Japan where we sell up to 150 tonnes whole weight of abalone per annum now has a zero tariff. The effect of this tariff reduction on sales has been somewhat muted due the ongoing slow economic conditions Japan continues to face.
We see a big opportunities in South Korea with a massive reduction (20 per cent) in the frozen abalone tariff. Due to lack of product available we have been unable to develop business in this market…China has been and is still by far the most challenging country for us to develop the abalone business.
As with Rock Lobster from Australia, Yumbah Aquaculture claimed that abalone has predominantly been imported into China through the “grey channel” to avoid the Value Added Tax and duty on import.
Grey channels, which are neither clearly legal nor clearly illegal, are commonly relied on by international firms as a means of accessing Chinese markets. Firms report that they use unauthorised grey channels to avoid China’s high import tariffs, difficult regulatory hurdles, and inefficient distribution networks. For food products, grey channels also involve risks such as unreliability in delivery and inadequate cool chain management.
With the advent of the FTA the 10-14 per cent duty on abalone will be phased out by 2019 which should allow increased volumes at a more competitive rate to be traded directly in China. Historically we have mostly sold our products into Hong Kong (duty free) where it is either used internally or smuggled into Mainland China to avoid Duty/Vat.
As a result of the grey channel import process and lowish prices in Hong Kong, China has not been a key target for market development as we have been able to develop excellent markets by targeting Asian residents living within Western countries.
Now with the FTA in place Yumbah Aquaculture stated it looks forward to developing direct relationships with the Mainland China market.
Managing Director of Murray Cod Australia, Mr Mathew Ryan, warned the level and the cost of red tape and getting initial approvals … are probably “not a big impost on bigger companies, but they are for smaller companies”.
At the moment we're looking at moving all of our processing from a third-party processor to here. We've got the site already, and we're going through our export approvals. But, by the time we do it, we'll tear up 50 grand, probably, in approved arrangements and food safety stuff. It's all documentation that, rightly, we probably should have. I don't disagree with having it, but it does become quite expensive just to get. If we wanted to dip our toe in the water with small volumes, it makes it pretty tough. Then there is the flow-on…you're adding these costs onto your product, which makes you look less competitive into an export market.
The Trade Manager of the Korea Trade-Investment Promotion Agency, Ms Jenny Kang, was concerned by media reports that “Australian SMEs don't go to overseas markets because they are scared and they don't know what is in the market”.
…it’s really important to understand each other and also educate those Australian businesses about cultures and markets so they can go overseas confidently.
Figure 2.5: Manufacturing exports by sector from 2007 to Nov 2017.
Sources: Ai Group, Submission 34 & ABS International Trade in Goods and Services - Manufacturing exports by sector from 2007 to Nov 2017
KPMG highlighted the challenges of regulatory compliance for SME exporters that require:
the collection of production documentation;
identifying and applying complex Rules of Origin to determine whether their product qualifies for FTA benefits;
completion of Certificate of Origin templates; and
getting certificates 'rubber stamped' by an industry body for $30 to $50, which can take days to arrive and are in hard copy.
National Manager of Business and International Advisory Services, Australian Industry Group, Ms Louise McGrath outlined that many of AI Group's membership do use FTAs for import and export.
However, many exporters do not…The reasons for not engaging with FTAs are as varied and complex as the reasons for exporting in the first place. However, they include low levels of understanding of how FTAs work, difficulty in accessing information, non-tariff barriers that have a great impact on manufactured goods, and FTAs not meeting exporters needs. However, we also contend that the use of FTAs is not an end in itself. Rather, they should be seen as one element in the wider support infrastructure that is needed to help SMEs internationalise.
The Export Council of Australia supports the Australian Government’s FTA agenda, but submitted there must be realism about what FTAs can help SMEs achieve in their target markets.
FTAs can address a few, specific barriers. There is much that FTAs do not do. They rarely create a market for Australian goods or services. They don’t address sanitary or phytosanitary issues or eliminate differences in regulations. SMEs still need to go through the long, hard work of building relationships and brands.
The ECA believes if a market is a priority for the Australian Government, then there must be a multifaceted approach to facilitating trade with that market.
An FTA should be just one element of the government’s support in-market. The government must ensure its focus is helping SMEs internationalise and find the markets that are the right strategic fit for them, with FTAs just one aspect of this.
Buderim Group Limited’s Chief Executive Officer, Mr Andrew Bond, welcomed the frank discussions at the roundtable at Buderim Group’s Ginger Factory on the Sunshine Coast about the challenges that businesses face when seeking or working in export markets.
So my recommendation would be that the inquiry give the feedback that free trade agreements are part of the bigger puzzle and we need all the pieces of the puzzle to work together in order to be successful.
The South Australian Government submitted that it supported the approach taken by the Australian Government in recent years to open up overseas markets to Australian exporters through a series of FTAs. These have delivered measurable benefits to South Australian businesses, including SMEs, according to the SA Government.
To take one example, in a sector very important to this State, our wine exports to China soared from $155m in 2014-15 to $391m in 2016-17, as tariffs fell from 14 per cent prior to the ChinaAustralia Free Trade Agreement (ChAFTA) to 5.6 per cent in early 2017. Many of our wine exporters are SMEs.
Business SA outlined the impact that ChAFTA had on opening the wine market up for South Australian winemakers.
Australia’s FTAs, particularly the China-Australia FTA, have done a considerable job in improving the competitiveness of local SME exporters which has been of particular benefit for South Australia’s wine sector.
According to a 2016 DIIS report on global production sharing and Australian manufacturing, Australia is starting to reap the benefits from global production sharing with global production network products now accounting for nearly half of the total manufacturing exports from Australia.
The DIIS study found Australia has a competitive edge in parts and components specialisation in several product categories including aircraft parts and associated equipment, parts and earth moving and mineral processing machines, and specialised automotive parts. Australia also has a competitive edge in final assembly products such as medical and surgical equipment, light aircraft, measuring and scientific equipment, and instruments for chemical analysis.
Importantly, relative price competitiveness does not appear to be an important determinant of these exports from Australia because they are based on long-term supplier-producer relationships.
ABS data from the Counts of Australian Business outlined that more than 61 per cent of Australia’s SMEs are non-employing, a further 27 per cent of SMEs employ only 1-4 employees, and an additional nine per cent employ 5-19 employees.
A significant number of SMEs are primarily motivated by a lifestyle choice; with little intent to expand their business significantly or internationalise. In addition, a number of SMEs may see little net benefit (due to additional time/compliance/costs) to internationalise and become export-orientated.
The Committee recommends that the Australian Government continues to embrace an ambitious free trade agenda with an expanding network of high quality free trade agreements (FTAs), while acknowledging that FTAs are only one way of enabling international trade for Australian businesses.
Impact of trade liberalisation on Victoria businesses
The Victorian Government regarded FTAs as an important part of the suite of government interventions to help firms penetrate international markets, increase exports and source capital from foreign investors.
They are also an important driver of domestic based reform, such as the reduction of tariffs in Australia, which have benefits to consumers as well as importers and exporters participating in global supply chains.
Trade Victoria recently commissioned the Centre of International Economics (CIE) to build on this by undertaking a state-based quantitative study into the impacts of Australia's domestic trade liberalisation efforts over the last three decades.
Trade Victoria believed the Victorian study, was the first to ever consider the impact on states of liberalisation of trade in goods, services and investment in Australia, and makes a valuable contribution to the evidence base about the specific benefits of trade liberalisation.
The Victorian Government stated its study found that there have been significant gains to economic growth and employment in Victoria as a result of the removal of barriers to trade and investment between 1986-2016, including 184,000 additional jobs in Victoria.
Other findings include that Victoria has gained more than the rest of Australia from reduced goods and services trade barriers, due to the high value of services exports such as international education in Victoria. This highlights the benefits of addressing services and investment barriers as part of the Commonwealth Government's FTA negotiations as well as in the development of any national industry reform agenda.
The Victorian Chamber of Commerce and Industry shared that it works closely with over 5,000 exporters, of which more than 3,500 are registered under Australia’s various free trade agreements.
The Victorian Chamber recognises that international engagement is at the core of Victoria’s economy, generating output and contributing vital income, investment and jobs.
The Victorian Chamber outlined that Victoria’s trade performance is strong. Victoria now accounts for 9.4 per cent of Australia’s goods exports ($27 billion) and is the second largest contributor to the nation’s service exports, representing 25.6 per cent.
Major goods exports include meat ($2.45 billion), dairy products ($1.75 billion), wool ($1.79 billion), and wheat ($1.81 billion). Important service exports include education ($9.09 billion), tourism and travel ($5.17 billion), and professional services and management consulting ($1.32 billion).
Although traditional markets such as Europe, the USA and the Middle East remain important to Victoria, merchandise exports to Asia now account for over 50 per cent of Victoria’s exports, according to the Chamber. The share is even larger when the value of service exports is added.
Professor Gabriele Suder, appearing in a private capacity, highlighted the recent changes to the liberalisation of world trade.
The United States is doing certain things; the European Union is doing things; but there are a lot of new players on the world scene that we need to pay attention to in this discussion. For example, TPP-11 went ahead without the United States of America. Also, I think the world's largest free trade agreement has been signed in March on the African continent. So there are also structures that go ahead in different ways without what we assumed to be the future of world leadership. There are a lot of dynamics that are changing there as well, and that needs to be part of the discussion.
The Australian Industry Defence Network Victoria (AIDN VIC), which represents 300 Victorian SMEs who work across the Defence and dual-use industries, submitted its members are global exporters of commercial and dual-use goods and technologies who look to emerging export markets as key sources of revenue.
Australia’s newly established free trade and Preferential Trade Agreements with China, Japan and Korea mean Victoria’s SMEs have gained an additional avenue to facilitate trade and commerce into these regional markets. At the same time, we recognize that for many SMEs, navigating the complexities of FTAs proves to be a complicated process.
Australia’s growing wine exports into Asia
Executive Director of the Wine Economics Research Centre, Professor Kym Anderson, submitted the dramatic changes in export markets for Australian wine. Australia’s wine exports in the 1980s and 1990s were mostly directed to just four English language markets: the UK, US, Canada and New Zealand.
Then in the most-recent decade, Professor Anderson highlights how the importance of both Europe and North America in Australia’s wine exports has been eclipsed by the growth in sales to East Asia, most notably China and especially in value terms.
The redirection to Asia is not surprising, given the huge growth in wine consumption there – although it is concentrated in the more affluent countries of East Asia, most notably China.
Figure 2.6: Asian wine consumption volume, 1995 to 2016 (ML)
Source: Professor Kym Anderson - Wine Economics Research Centre, Submission 11.
Professor Anderson expects that concentration is projected to continue, helped by the free trade agreements Australia recently signed with China, Korea and Japan, which have helped to divert wine imports from Chile and New Zealand – who preceded Australia in signing bilateral FTAs with those Northeast Asian countries.
Thus the fastest-growing markets for Australian wine in the next few years will be in East Asia. These markets are less familiar to SME producers who have previously sold only in English-speaking countries. Without assistance in getting started in those markets, smaller SMEs may decide they cannot afford the high up-front costs of building the necessary business links to succeed in Asia.
Figure 2.7: Various attributes of Australian wineries, 2000, 2010 and 2016 (as a percentage)
Source: Professor Kym Anderson - Wine Economics Research Centre, Submission 11.
The Australian wine industry is made up of small, medium and large businesses, according to the Winemakers’ Federation of Australia (WFA).
The WFA submitted there are five large businesses that produce a large volume of the wine, and then there is an extremely long tail of SMEs which make up the remaining industry of 2500 producers and also 6,000 grapegrowers.
These smaller businesses are commonly family owned and support regional communities across 65 designated Geographical Indication (GI) wine regions.
Figure 2.8: Share of Australian wineries by crush, 1978, 1996, 2016 (%)
Source: Professor Kym Anderson - Wine Economics Research Centre, Submission 11.
Figure 2.9: Number of Australian wineries by tonnes crushed, 1998 to 2016
Source: Professor Kym Anderson - Wine Economics Research Centre, Submission 11.
The WFA admitted international trade is of vital importance to the Australian wine sector. Around 60 per cent of sales are exported, highlighting the wine industry’s reliance on exports and the importance of free trade agreements (FTAs), according to the WFA.
According to the Wine Australia Export Report (December 2017) during 2017 there were 2210 active Australian wine exporters who shipped wine to 126 different overseas destinations. Australian wine exports are currently booming and have been steadily rising in both volume and value since 2014.
The WFA stated Australian wine exports increased by 15 per cent to $2.56 billion in the 12 months ending December 2017 with the WFA crediting much of this demand to increased exports to China.
An undeniable factor in the rise of Australian wine exports has been the industry’s success in China. Australia has risen to become the second largest importer of wine into China in both volume and value, up 63 percent in value to $848million in 2017. The export figures for 2017 suggest Australia is well-placed for this trend to continue.
FTAs raise awareness of Australian wine in new markets
The WFA credited the implementation of the China-Australia Free Trade Agreement in 2015 with providing the “true impetus for the extraordinary growth in this market over the last few years”.
The Chief Executive of the Winemakers’ Federation of Australia, Mr Anthony Battaglene, explained why he regards the lowering of tariffs as the “least important thing in most free trade agreements”.
They are the most visible, but the important thing about free trade agreements is the awareness they raise and the fact that people suddenly realise that there is a potential market both for the exporter and for the importer and that the awareness is raised on both sides.
Mr Battaglene reaffirmed the lowering and removal of tariffs on exports of Australian wine into China as a positive though.
I'm not trying to belittle the efforts—this reduction is fantastic—but the big thing here has been the awareness raising. We are already seeing it. In China, the top four companies have about 40 to 50 per cent of our exports. Normally, they have 70 to 80 per cent. There are 1,500 exporters to China. That is much more than any other country. So what we are seeing are small companies and entrepreneurs getting into the market. We are already seeing that. China is a market where we are seeing the small players play a large role. They are able to get in on that growth, which is fantastic.
The Managing Director of wine exporter Inland Trading Company, Mr Greg Corra, who exports product on behalf of 75 wineries to currently 58 international markets, outlined the main benefits of tariff reductions on Australian wine has been “experienced in fact by our importers, who have been able to reduce the level of tariffs and duties they pay”.
Take, for example, the Chinese market. We will soon be zero. We're down now to 2.8 per cent. Remember that other people were already at zero, so we've caught up with the Chileans and with the New Zealanders. We're almost on an equal playing field…But remember that the only thing from the free trade agreements is a reduction in the import duties. All the other components still exist. So the free trade agreement has resulted in some reduction. That level of reduction obviously has benefited our importers, but one thing we've seen a greater benefit from is the massive reduction we've seen in the exchange rates for Australia. Right now the benefits are greater from exchange rate reductions than from free trade agreements.
Figure 2.10: Average price of wine exports, Australia and the world, 1986 to 2017 (current US$-litre)
Source: Professor Kym Anderson - Wine Economics Research Centre, Submission 11.
Mr Battaglene explained how the 150 per cent tariff and other barriers placed on Australian wine by Indian authorities is discouraging most smaller winemakers from exporting to India.
If you're small or medium, you just don’t go to India. It's just too hard. It's not just the tariff; they've also got a lot of restrictions—on labelling and composition in particular. We've worked through that and overcome some of those to make it possible. But it's a very difficult market to break into and certainly not one I would recommend to small producers. Some of the big companies are in there. Whether they're making any money, I'm not sure… If I was recommending something to any small winemaker, I would be saying: 'Forget about it. Go for a better market.'
Grape variety and Geographical Indication protection
Geographical indications (GIs) are recognised and protected as intellectual property in the WTO Agreement on Trade Related Aspects of Intellectual Property (TRIP), according to the Winemakers’ Federation of Australia. However the WFA believes it is possible for geographical indications to become obstacles to trade where their protection exceeds the requirements of TRIPs, for example where:
geographical indications are protected without a reasonable opportunity for opposition by interested parties;
geographical indications are given greater rights than prior existing trade marks;
additional rights are attached to geographical indications, such as the right to use common descriptive terms (sometime called “traditional terms”) in such a way as to exclude other legitimate users;
where geographical indications contain or consist of a generic element such as a grape variety name, the generic element is reserved exclusively for the owners of the geographical indication.
The WFA points out these trade barriers are not currently encountered in many economies but are generally encountered within the European Union (EU). However, the WFA warns of the attempts of the EU to export its ‘TRIPs-plus’ approach to geographical indications in the context of free trade agreements means that there is a need to pro-actively ensure that existing IP rights and the ability to use common vocabulary is protected.
The EU has run a very aggressive campaign on GI protection and protection of traditional terms. We would appreciate clarification in the negotiations that common English words can continued to be used to describe or present a wine even if they are similar or identical to a GI or Traditional Term from Europe.
The WFA will be seeking wording in the IP Chapter of FTAs to ensure that in the case of a trade agreement with the European Union, that wine GIs are protected according to the TRIPs obligations of the parties.
Specifically, that Australia will be permitted to continue to use our wine GIs if they contain a word or are the same as a European GI and that grape variety names that are the same as a European GI can continue to be used (for example Prosecco).
Figure 2.11: National shares of value of global wine exports, Australia and other New World countries, 1990 to 2016.
Source: Professor Kym Anderson - Wine Economics Research Centre, Submission 11.
The Chief Executive of the WFA, Mr Anthony Battaglene, explained Australian winemakers have lived under a geographical indication system since the early nineties because Australia created a system with the European Union.
We have lived quite happily under it. Since that time, the EU has very cynically tried to reinvent the wheel a little bit. For example, they have abolished the use of 'Prosecco' as a grape variety—which it always was, and it was in our original wine agreement. They now called it Glera under legislation, and they've created a region called 'Prosecco'. So, not only can't we sell Prosecco to the EU anymore, but they try and register these GIs. These are principally GIs that have Italian grape varieties in them, so there's a fairly small subset but it's growing, and they will go around and individually register these in different countries around the world as a GI. Once these countries do an agreement with Europe, part of that agreement is, 'You will register our GIs,' and that prevents us using that term at all. So we are seeing them pick us off one by one. For example, we can no longer export Prosecco to Japan; we would have to call it something else.
Mr Battaglene outlined how Prosecco was always a grape variety and it was indigenous to a large area around Conegliano and Valdobbiadene, near Venice.
So Prosecco was sold and it was a sparkling wine, described as a grape variety, like we do in Australia—very successful. Then, as other countries started planting that grape variety, the Italians got nervous that other countries would compete with them on the market. You can't stop other people using it; you can just protect the name for yourselves, and then you do wine agreements and trade agreements.
Mr Battaglene detailed that the second biggest producers of Prosecco in the world are Brazil, and then Australia, and this EU manoeuvre was mainly aimed at Brazil and Australia.
It's very cynical, because there's room for us all, in our view.
Challenges for SME exporters to utilise FTAs
Figure 2.12: Most problematic factors for Australia, importing & exporting, 2015
Source: Ai Group, Submission 34, Most problematic factors for Australia, importing & exporting-2015.
Ms Leigh Bryant the Principal at Scorpion International believes Australia’s future is bilateral trade.
We've got to stop thinking about supporting our exporters only. We've got to think about all those little SMEs that are starting up…We will import. We will continue to import. We import massive amounts of consumables that we don't even think about. With the daily loaf of bread, 82 per cent of it is actually export. We export the wheat. It's turned into something or other. It comes back. We are huge importers. Let's stop creating barriers for global trade, and let's continue to do the things that open up trade for us as a country and make people a lot more aware of their opportunities in being part of the global marketplace.
Australian pork exporters
The Australian pork industry employs more than 36,000 people across an estimated 1100 pig producers producing around five million pigs annually Australian Pork Ltd submitted. About 95 per cent of the pig producers are SMEs in an industry contributes approximately $5.3 billion in gross domestic product to the Australian economy. Although a high number of piggeries have expressed interest in exporting, Australian Pork admitted most are unable to do so due to costs.
Approximately ten percent of Australia’s pork production is exported, and this mostly comes from a handful of larger exporters. Typically, SMEs struggle to meet stringent domestic and importing country requirements to export meat. The requirements are administratively complex and expensive to implement.
Australian Pork Ltd outlined satisfying Australia’s domestic regulation, as set out in the Export Control (Meat and Meat Products) Orders 2005, requires establishment accreditation, approved arrangements, permits, certificates, inspectors, quality assurance systems, product traceability, official marks, regular audits, trade descriptions, chemical withholding periods, export slaughter intervals, and more.
The tangle of compliance measures is difficult to unravel, particularly for SMEs. Then there is the cost. A small domestic processor looking to become export eligible for uncooked pig meat faces initial costs upwards of $100,000, including registration, external training, inspectors, and initial audits.
Australian Pork Ltd admitted the requirements for exports of processed meat are more forgiving and make exporting more appealing.
Many small and medium-sized pork processors have found success in overseas markets. For example, boutique smallgoods-maker Pialligo Estate exports fresh, artisanal bacon from Canberra to Singapore via airfreight. Under the Singapore-Australia FTA, import tariffs on pork are bound at zero.
Australian Pork Ltd administers the Australian Pork Quality Assurance Program, APIQ at the farm level, and “demonstrating compliance with the Export Control Orders is sometimes required explicitly by export markets”.
Australian Pork Ltd submitted it has made efforts to simplify the process for small-holders (businesses with 20 sows or fewer), with “less burdensome requirements that also meet minimum domestic and export standards”.
Despite this, only about 10 percent of small and medium sized pig farms are APIQ accredited, with the remaining 90 per cent remaining essentially ineligible for exports. Many SME producers simply do not wish the cost and impost of establishing and maintaining a quality assurance system, nor paying for the cost of independent auditing.
Apart from the challenging regulatory environment, Australian Pork Ltd conceded another export challenge for the Australian pig industry is the inability to supply overseas customers with consistently large volumes.
Ninety percent of domestic pork production is consumed locally, with limited volume available for large overseas shipments.
Government fees and charges on medical device exports
The Australian Dental Industry Association (ADIA) questioned the Australian Government’s imposition of a range of fees, charges, and taxes on SMEs that seek to import and export medical devices.
Further, foreign governments with which Australia has entered into FTAs continue to impose additional cost burdens on SMEs through the refusal to accept Australian Government documentation without additional notarisation.
ADIA agreed that FTAs are of great value to SMEs that manufacture and supply dental products as they eliminate formal tariffs and other barriers to trade that make it difficult for them to compete internationally.
However, Australian SMEs in the dental sector must contend with fees and charges imposed on them by the Australian Government and foreign governments alike which undermine their ability to attain the full benefits of FTAs.
Mr Troy Williams, the Chief Executive Officer of the Australian Dental Industry Association believes from the perspective of the manufacturers and suppliers of dental products, the key would be to help Australian government departments which have oversight of product and services regulation to understand what their commitments in FTAs are.
That would go a long way to reducing the red tape that those businesses face. It's great to have the FTAs, but … if governments are writing regulatory standards in an environment almost where they've got no idea what their expectations are that creates challenges. From where we sit, in terms of regulatory harmonisation and red-tape reduction, helping the Australia Government understand, through all levels, what it signed up to would be of great benefit, which would help the SME sector.
ADIA outlined the range of Therapeutic Goods Administration (TGA) costs to apply to have a ‘high-risk’ medical device, also known as ‘Class III’ using the regulatory descriptor, placed on the ARTG for lawful import or export, the TGA charges a $1,290 one-off application fee. Then, the business must also pay a $1,140 annual charge to maintain this ARTG entry each year. High-risk devices typically also require a business to pay an ‘application audit assessment fee’ of either $3,760 or $6,900. On top of these fees, to export the product a business must also pay $170 for an ‘export certificate’ or ‘certificate of free trade.
The business, according to the ADIA, then needs the Department of Foreign Affairs and Trade (DFAT) to issue its ‘seal’ on the certificate which typically costs $80 though can be higher if the document contains more pages.
There appears to be no logical justification for the requirement to have DFAT affix a ‘seal’ on an export certification document prepared and issued by the Australian Government itself.
Therefore the ADIA points out the cumulative Australian Government-imposed cost burden for an SME to export a high-risk medical device can be as high as $8,440 up-front and $1,140 annually going forward.
It is important to stress that these are the cost burdens imposed on SMEs by the Australian Government before the product is even exported.
The ADIA submitted of great concern to SMEs that import and export dental products is the TGA’s proposal to impose for the first time, from 1 July 2018, a new $530 fee to apply to have low-risk medical devices added to the Australian Register of Therapeutic Goods (ARTG).
Finding customers for Australian exports
Ai Group’s Ms McGrath believes one of the main areas identified by its members, in terms of increasing exports, is simply finding customers.
We think, with the amount of information that's accessible on the internet today, that finding customers should be quite simple; however, really the basic principles of export have not changed. You still need to do your due diligence in finding the right customers with the right channel to market for your product and for your company. That is the biggest barrier we find amongst our companies, particularly SMEs.
The President of the Australia China Business Council Victoria, Hon. Ken Smith, AM, warns Australians have to better understand their market and especially how China is developing closer trading linkages across the globe.
…and we've just got to educate people more. I think there's a bigger threat coming up, which is the Belt and Road Initiative, where the Chinese government is opening up a huge market in Asia, in Africa and also in Europe that will be competing against our products in Australia. So we're going to have to work harder but understand the market before we start pushing over there because, if you don't understand the market, you're going to be very sad and out of money by the time you're finished.
Managing Director of Agricultural Tours Riverina, Mr John Collins, believes support for translations of promotional material into foreign languages would assist his Asian ambitions.
…but one of the ways in which I could make my business much more noticeable to people in countries with which we have free trade agreements is some way of quickly financing translations of prospectuses and brochures suddenly into Cantonese or suddenly into Korean. I recently had one page translated into 10 different European and Asian languages, and it cost me about $5,000. That's one page—that's not the website...
Capabilities required by Australian exporters
Trade consultants KPMG submitted that it is working with many medium-sized Australian companies using its Access Asia trade consulting services initiative across a wide range of industries - including agriculture, food and beverage, branded consumables, advanced manufacturing, technology and services.
We work with small cap listed and private companies to develop Asian and international market entry and growth strategies, to find the right supply chain and distribution partners inmarket, to take advantage of various government grants and incentives on offer and to make the best use of FTAs for lower foreign taxes and greater market access.
Australia’s national centre for assisting businesses to develop their Asian capabilities, Asialink Business, submitted that while FTAs can increase Australia’s competitive trading advantage, “businesses need a wide range of capabilities to succeed in international markets”.
For our Asian FTA partners, a high-level of Asia capability – a mix of critical skills, knowledge and networks – is required to achieve results and capture maximum value from free trade agreements.
The Asialink Taskforce observed for an Asia Capable Workforce that “capability issues are among the greatest impediments to planned expenditure or expansion into Asia for Australian businesses”.
Many Australian businesses are seeking information, resources and training to help them export goods and services. The lack of Asia capability can create barriers for Australian SMEs in accessing and utilising FTAs, limiting the ability to design and execute an effective Asia market strategy, a pre-requisite for the successful utilisation of the trade agreements.
Asialink Business highlighted the common capability challenges as:
Identifying market opportunities, market entry strategies and appropriate distribution channels;
Cultural understanding and basic business customs; and
Navigating the regulatory environment.
KPMG warned of the significant challenges for SMEs to understand how much the culture of doing business can vary across Asia and between its regions with that of doing business in Australia.
SMEs struggle to understand language differences and certain practices within Asian business, such as saving 'face', engaging in 'Guan Xi' and other business practices that simply remain illegal for Australian companies.
Though FTAs assist businesses with getting their goods and services into a market, they do not overcome the complex people, language and culture factors that are common in transactions and business relationships between Australia, Asia and other developing markets.
The Botanical Food Company’s Head of Sales Asia, Mr Craig Smith, described the challenges of exporting as an SME or any business as successful as theirs in exporting Gourmet Garden packaged herbs can be puzzle.
Trying to make that easier is going to be better for everyone. Right now it is quite complicated and understanding what the free trade agreements really mean for those individual small businesses can be a bit of a minefield. So just simplifying the process of knowledge.
Asialink Business is working across the “SME spectrum to provide tools, capability development and deep market insights to SMEs to help bridge these gaps”.
Leadership and management skills for exporting
Global Trade Professionals Alliance submitted that Micro, Small and Medium sized Enterprises are often established by entrepreneurs and led by owner-managers who may possess certain specialised skillsets to develop their business, but who may lack general management competencies such as “financial literacy, business development skills or other core capabilities, particularly relating to global trade development”.
It is increasingly common today for a start-up to “go international” on day one of operations, either through online channels, on the basis of unsolicited orders, or as part of a conscious management decision. Opportunity abounds, but at the same time, the luxury of honing competencies in a familiar domestic market is no longer a given, and the need for business to shield an established, viable going concern in domestic markets from risk and exposure in international commercial pursuit, is no longer necessarily a matter of specific focus.
The GTPA believed innovators and creators are “often not the best placed to lead a company into global expansion”, they should be able to rely on a trusted network to support their expansion into global markets.
Capacity and competency required by SMEs to export
The GTPA acknowledges MSMEs are often time-poor especially when driving growth and international expansion.
They often lack sufficient scale to economically justify the full-time employment of appropriate skills for international business and rely on either external providers or an energetic and multi-tasked executive to deliver the required competencies to drive global growth.
For most MSMEs navigating the complexity of doing business globally and maintaining a competitive edge requires the development of new skills and knowledge, as well as the ability to draw on a trusted network of skilled professionals with the required competencies to support their business to grow through global trade.
The South Australian Government shared feedback from SA businesses to its TradeStart advisers that there is evidence that many SMEs, when exporting, do not avail themselves of the full benefits available under FTAs.
The problem appears to be the general complexity of FTAs and the wide differences amongst them, especially in relation to rules of origin (RoO). Small businesses with few resources and little expertise in this area may not feel, particularly for small shipments, that it is worthwhile to spend the time required to clarify potential benefits.
Protection of intellectual property
Mr Warren Cross, Senior Legal Counsel, Cross & Co Lawyers highlighted the concerns of SMEs about intellectual property (IP) protection of their exports and the costs involved.
…the cost of patenting a product around the world is horrendously expensive. I've seen clients spend a million dollars on a patent and then run out of money and can't promote it. One of the things about copyright is that copyright is subject to an international convention, and so, once I express something in material form by writing it down, I have international protection around the world. Unfortunately, with trademarks, copyrights and designs, each has to be registered in a separate country, and each—say, Japan or countries like that—can be very, very expensive.
So for SMEs, according to Mr Cross, IP protection is a big problem because it's “very, very expensive”.
I've seen SMEs who have had to effectively pick the markets where they're going to get protection because they simply can't afford to go into the other markets…They used to be supported under the export grants scheme; they no longer are—well, they are, but only to $50,000, which, to be honest, doesn't get you a long way.
Chief Executive Officer of COYO, that produces exports dairy-free products such as coconut yoghurt, Mr Andrew Eves-Brown, raised concerns Australian companies might have about protecting their IP under FTAs.
Another one would be the ability to have trusted information sharing between the countries with the free trade agreements without companies having to disclose all their IP.
The NORTH Link representing businesses in northern Melbourne submitted that the intellectual property clauses in FTAs certainly have had a positive impact where DFAT has “effectively negotiates improved IP protection policies that definitely stop the copying of products and counterfeiting”.
This works more effectively in some jurisdictions rather than others.
There is a reported use by companies of misleading packaging, naming, advertising and design to suggest a product comes from another country such that implies a certain authenticity or tradition to the product, but it is misleading to the consumer because the product is not of the implied origin at all – this applies in-country and overseas.
Mr Chris James, Executive Director, NORTH Link provided some feedback about the concerns the members of the business network had expressed about IP clauses in free trade agreements.
I understand in some [FTAs] they are stronger than others. The view is that it's very important to have IP protection written into the free trade agreements to stop counterfeiting and copying.
Winemakers’ Federation of Australia highlighted intellectual property or IP as another important aspect which needs to be strengthened and considered more closely in order to assist with the protections of the wine industry’s SMEs.
Smaller businesses don’t always have the resource or knowledge to navigate the complexities of protecting their IP across the breadth of export markets. The industry has experienced significant challenges with trademark squatting and adaptation to trademark regulations in export markets.
The Sunshine Coast Council highlighted that intellectual property (IP) concerns continue to play a large-role in the decision-making, or even export aversion, of many businesses. The Council believes potential exporters, including small and medium enterprises can be apprehensive about IP-related issues.
This apprehension is exacerbated in more complex markets, where many of the lodgement and enforcement mechanisms are vastly different to Australia. Council would welcome the Commonwealth Government providing more tailored solutions for small and medium sized enterprises to help navigate complicated frameworks surrounding IP in overseas markets.
The Sunshine Coast Council wants the Government to include more proactive advisory-based assistance from IP Australia, and greater collaboration with industry bodies and relevant IP agencies in Australia, along with additional IP counsellors located in overseas markets.
Organisations including, but not limited to, IP Australia can adopt a more proactive advisory mandate and work closer with relevant industry groups who can help provide member services on IP-related issues for small and medium sized enterprises.
The Committee recommends that the Australian Government seek to minimise non-tariff barriers to trade by identifying and addressing the range of non-tariff barriers that adversely affect trade outcomes for Australian small and medium enterprises (SMEs), and by:
Providing more tailored advice from IP Australia, and business chambers or other qualified advisers, to SMEs to help them navigate complicated frameworks protecting intellectual property (IP) in overseas markets; and
Assessing the level of disclosure required for compliance purposes across different FTA jurisdictions with a view to helping SMEs avoid unnecessary IP disclosures and mitigate risks of IP leakage and theft.
Tariff market access and rules of origin
The peak body for Australia’s international trade and logistics sectors, Freight & Trade Alliance (FTA), believed the biggest challenge for SME exporters seeking to take advantage of a free trade agreement was tariff classification.
FTA identifies the number one problem for small business and free trade agreement utilisation is that to apply a free trade agreement you must understand tariff classification.
This is because you need to know the tariff class to assess the general rate, the rate under the Free Trade Agreement, find any product specific rule of origin and apply the change in tariff class rule.
Trade consultants KPMG cautioned that these complex Rules of Origin requirements presented an administrative challenge for SMEs to comply with trade regulations and also in coping with the number of complex processes involved.
KPMG noted the challenges presented by the classifications of goods and definitions differing between countries and various overlapping FTAs.
SMEs often struggle with properly noting the value, tariff classification and related elements, to ensure they are accessing the appropriate rules of the FTA.
GrainGrowers, which is a grain farmer representative organisation with more than 17,000 members across Australia, outlined trade and market access as a key policy focus. Australian grain farmers annually grow some 48.9 million tonnes of grains, oilseeds and pulses which at the farm gate alone is worth $14.6 billion.
Over 70 per cent of Australia’s grain production is exported, earning some $12.2 billion in export earnings annually, and accounting for more than a quarter of all agricultural export earnings.
GrainGrowers outlined where there are opportunities to engage in agreements which assist the competitiveness of Australian grains in international markets, it is imperative Australia does so.
New trade agreements must be commercially meaningful and they must complement and build upon the agreements that preceded them.
To deliver real benefits for Australian grain exporters, including SMEs, preferential trade agreements must not only deliver traditional market access improvements through tariff reductions or expanded quota access, but they must also deliver meaningful provisions for addressing non-tariff barriers to trade.
Figure 2.13: Import compliance by cost in TPP 11 nations-2016.
Sources: Ai Group & World Bank, Import compliance by cost in TPP 11 nations, 2016.
Figure 2.14: Import compliance by hours in TPP 11 nations-2016.
Sources: Ai Group & World Bank, Import compliance by hour in TPP 11 nations, 2016.
Figure 2.15: Burden of customs procedures in TPP 11 nations-2017
Source: Ai Group, Submission 34, Burden of customs procedures in TPP 11 nations-2017.
The Department of Industry, Innovation and Science submitted that tariff market access outcomes are often the most visible and widely reported elements of FTAs. DIIS claimed it plays an active role in negotiating improved market access for Australia’s industrial and resources exports under all existing FTAs, including the recent bilateral agreements with China, Japan and South Korea.
On 1 January 2018, DIIS outlined that thousands of tariffs were cut under the China-Australia FTA (ChAFTA) and the Korea-Australia FTA (KAFTA), while thousands more were cut under the Japan-Australia Economic Partnership Agreement (JAEPA) on 1 April 2018.
These significant tariff reductions will provide Australian SMEs new opportunities to increase trade with our three leading North Asian trading partners, contributing to new jobs and economic growth.
Importantly according to DIIS, tariff elimination under Australia’s implemented FTAs also provides benefits to SMEs by facilitating cheaper imports, including input materials, and an improved ability to participate in global value chains.
Research by DIIS’ Office of the Chief Economist showed that importing is also a “strong, positive determinant of exporting, as businesses use imported inputs for export production”. Results for Australian SMEs show that relative to non-importers, importers are around 19 per cent more likely to be exporters.
Export documents such as Rules of Origin and Certificates of Origin
The ACCI outlined that Rules of Origin are a non-tariff trade barrier created and maintained by Governments around the world – including Australia.
The ACCI states Rules of Origin are used to support the gathering of trade statistics, administration of tariffs and anti-dumping regimes along with preferential access to trade agreements.
The ACCI believes implementation of Rule of Origin also bring with them administrative costs and liability upon industry with penalties for false and misleading statements for non-compliance.
To assist with these issues, in the 1890’s Governments of exporting nations created a globally recognised system to “certify” goods as a statement between Governments attesting to the origin authenticity of the goods in question. This system continues to be the predominant system used by Governments around the world. It is an essential component of international trade and needs to be more deeply understood.
Identifying the origin of goods, according to the ACCI, has allowed governments to apply border controls and generate revenue through taxation of goods moving across the frontier between nations.
It has also allowed a mechanism for the application of differential and preferential treatment of goods from allies and commercial partners, as well as the exclusion or application of penalties to goods from less favoured nations…
Asialink Business submitted how understanding the complex documentation requirement around ‘Rules of Origin’ (RoOs) can be “especially cumbersome, time-consuming and a costly exercise for SMEs” and that these “documentation requirements deters them from seeking to apply a lower tariff rate on their exports as negotiated under an FTA”.
While Australia’s FTAs offer opportunities for SMEs to access preferential tariffs in key markets, as well as the ability to source cheaper products from FTA partners, both DIIS and DJSB acknowledge that SMEs may have difficulty accessing these benefits.
In particular, SMEs have indicated difficulty with understanding and complying with rules of origin and certification requirements under FTAs.
Mr Doug Ferguson, Partner in Charge, Asia and International Markets, and Deals Advisory Partner, KPMG, advises that the Government needs to centralise the trade education process and simplify the paperwork required of exporters.
It is centralise and simplify the education process online and simplify the documentation process for Certificates of Origin and trade paperwork. This enables companies to do what they do best. They need to be able to find information quickly. It needs to be in plain English and easy to access. They need to complete online documentation that doesn't have all of the manual issues that come with technical defaults.
The Managing Director of wine exporter Inland Trading Company, Mr Greg Corra, outlined how arduous the paperwork was for his business to manage the export of product on behalf of 75 wineries, currently to 58 international markets.
We're participating in every one of the markets with a free trade agreement…The complexities have taken our office to the level where we have one person who only does compliance with free trade agreements; that's all they do. Even when you think you've complied, if you don't dot an i or cross a t, they can reject your documents. Not only can they reject them, but the cost to redo your documentation is immense.
Mr Corra spoke of an “amazing incident” recently when one the customs areas checking the documents did not like the numbers that Inland Trading Co. produced in China.
Why? Because one of the numbers was a four. They did not like the numbers on the documents. That's absurd, to say the least, but when you see it happen—it cost our importer RMB28,000 [about AUD$5,490] to get it fixed. Not only did it cost them; it also delayed our shipment and, clearly, delayed our payments.
Mr Corra revealed at the public hearing a pile of more than 50 pages of paper documents required to support an export of wine to South Korea.
Just so you're aware, this level of documentation is for one market—South Korea—for one export. Every document here has to be provided to them, and in hard copy. Not only do we have to produce all of these documents, but we can't send those documents to them in soft copy; they have to be in hard copy. They will not be accepted in soft copy. Some of the documents in here cost my company money every time they're generated.
It costs us not only physical money but also staff time. So the implications of free trade agreements for our company—whilst we've seen our business grow, our business most certainly has seen increased costs, and the level of costs that we're experiencing varies each time. We have moving goalposts. Sometimes, particularly in China, we'll think we've got all the documents that are needed, then they'll move the goalpost. With that moving goalpost, there's obviously a delay.
The Victorian Government points to the various business surveys, including the Australian International Business Survey (AIBS) undertaken by Austrade, that have contributed to the understanding of the impediments facing SMEs in international markets and issues which may hinder their use of FTAs. For example, firms have reported in the survey of the high perceived compliance costs associated with “inconsistent rules of origin (RoO) requirements as a disincentive to using FTAs”.
We welcome the efforts of DFAT to establish more consistent RoO requirements to minimise the costs facing businesses, however negotiators must be vigilant in future FTAs to ensure compliance rules and requirements are consistent across all agreements.
Rules of Origin
A key part of Australian FTAs, according to the Chamber of Commerce and Industry of Western Australia, is a preferential treatment such as the reduction or elimination of tariffs on goods being available for exporters that satisfy the Rules of Origin (RoO) required under each FTA.
RoOs are very complex and difficult to understand and businesses need help to understand how to implement them, especially at SME level as they often do not have the resources or time to investigate these options. RoOs also differ between some FTAs, therefore requiring business to investigate all options to determine which FTA is best suited to them.
Certificates of Origin
Certificates of Origin, according to the Chamber of Commerce and Industry of Western Australia (CCI), are issued to exporters by an authorised third-party and are important for demonstrating compliance with RoO requirements.
The burden of proof for demonstrating the origin of goods lies with the importer as it is their responsibility to identify the origin of the supply chain to be able to access preferential treatment.
In Australia, as in many jurisdictions, the signatory to the 1923 Geneva Convention Relating to the Simplification of Customs Formalities, the Australian Government’s authority to scrutinise exporter’s claims and issue Certificates of Origin has been delegated to the ACCI and the Australian Industry Group (AiG). Both of these groups are in turn required to maintain accreditation currency scrutinised by the Joint Accreditation Scheme for Australian and New Zealand.
The Australian Government has also mandated the use of ISO 17020:1998 standards in relation to ACCI and AiG’s issuance of Certificates of Origin.
This is an extremely costly but worthwhile standard of documentary issuance, which is mandatorily audited by the Joint Accreditation System of Australia and New Zealand. This accreditation provides the necessary confidence in the third party issuing system so that PTA parties can accept the certification process related to conferring concessions under Preferential Trade Agreements.
The WFA Chief Executive, Mr Anthony Battaglene, believed a growing workload combined with a relatively new Chineses Customs bureaucracy at ports may have been behind the delays clearing Certificates of Origin for wine exports earlier in 2018.
But what did happen back in March was that the Chinese bureaucracy underwent a massive restructure and so the group that was responsible for imports, AQSIQ, no longer existed. It was absorbed into the bigger general administration of China customs. So we had a lot of people with different cultures in charge of imports and regulation at the border.
Mr Battaglene recalled the issue was mostly around Certificates of Origin.
You get Certificates of Origin when you have got a free trade agreement. It shows that all your product comes from Australia; therefore, you can get the preferential tariff rate, and there are requirements where you can verify those in market of course by the authorities. Normally you would get 10 per cent to 20 per cent verification. Under the new regime, it was increased to 60 per cent, 70 per cent, 80 per cent. That was a massive increase, so we got massive delays at the border…But also the massive increase of exports mean that there's a lot more product going in. There’s still the same number of staff that they've got to administer it...
The ACCI submitted, on a weekly basis, it provides support to Australian exporters and the corresponding importers (often in the horticultural field, but also minerals, processed foods, soft commodities, livestock and manufactured products) that are being investigated by foreign government authorities about their claims of satisfying the preference conferring criteria under the terms of Australian trade agreements.
Both ACCI and Ai Group have maintained this standard and continue to meet the audits, and as a result according to the ACCI, Australia has a “world-class system of issuance of these trade documents”.
While we appreciate the arguments of other groups in terms of wanting to remove what could be regarded as unnecessary paperwork by those that do not have a strong understanding of the system, we would also like to point out some examples of what happens when things go wrong… the globally established certificate of origin system is trade facilitating because it is an accepted and trusted system that reduced costs to exporters as well as providing them with legal defences when things go wrong.
Non-tariff barriers and SMEs
The departments of Industry, Innovation & Science (DIIS) and of Jobs & Small Business (DJSB) submitted that as tariff barriers have fallen, non-tariff barriers have become increasingly visible as impediments to international trade. As a consequence, Australia seeks to negotiate outcomes which address non-tariff measures in FTAs, such as on standards, technical regulations and conformity assessment procedures, and improved commitments on cooperation and transparency around trade.
For example, all three North Asian FTAs offer advanced rulings to exporters as to whether their goods meet the tariff classifications and rule of origin requirements. Advanced rulings can provide certainty to businesses and reduce risks of delays at the border. However, the impact of these commitments for businesses, and how they can access the benefits, appears to be less widely reported and understood.
Despite expanded market access for service providers, Asialink Business observed there are a number of non-tariff barriers that continue to prevent many SMEs from accessing FTA-related export opportunities.
Business SA submitted the challenges in North Asia beyond FTAs for its members that are exporters.
While FTAs are very important for improving the competitiveness of Australian exporters, the reality in countries such as China is that barriers beyond the border are still effective in restricting market access, particularly for SMEs.
KPMG highlighted the challenges for small and medium exporters to overcome documentary and technical non-tariff barriers which require SMEs to navigate “excessive paperwork and in-country legal requirements (often in foreign languages), such as licensing and labelling laws, in order to access the markets to which they propose to export”.
NORTH Link, representing northern Melbourne businesses, especially those in the food sector, warned that non-tariff barriers and quarantine and biosecurity laws have been used to block Australian products, as well as changing rules around paperwork.
There is also concern from some local manufacturers that an FTA with the European Union (EU) could lead to a flood of cheap, heavily subsidised European dairy products into Australia although others pointed out that products such as olive oil might gain easier access to the EU.
Mr Alan Oppenheim, the Managing Director of Ego Pharmaceuticals Pty Ltd outlined his challenges with some “ludicrous” non-tariff barriers in the European Union and United Kingdom ahead of any FTA.
It would be good if the government could help reduce the non-tariff barriers, as Simon said. In particular, pharmaceuticals and cosmetics are two big areas. Australia is big in both of those boxes, not just to China but to the UK and Europe. There are non-tariff barriers in those boxes to Europe and the UK right now and that's all kind of splitting based on whatever is happening with Brexit. The fact that when we export pharmaceuticals to the EU and the UK we have to get a qualified pharmacist to sign them off in the EU is ludicrous. Pharmaceuticals made in Australia have to be labelled 'made in the EU' by EU law, which is ludicrous and misleading.
Compliance and export inspections
Ms Barbara Cooper, Assistant Secretary, Meat Exports Branch, Exports Division, Department of Agriculture and Water Resources explained that auditing is one of the assurance activities that the department does. Ms Cooper admitted to much less authority in regards to how auditing may work for citrus and horticulture exports, but explained how the audit process for meat exports works.
[The department] over the last 20 years or so moved to what we refer to as a verification or assurance model where we have removed inspectors from the system but now, to enable us to assure that we're meeting importing country requirements, use audits. The audits will then be on the basis of the importing country requirement or the risk associated with that product. So the products are all different in the meat space. We have staff on plant at an abattoir. We audit the system separately as well. Each commodity does it differently based on the risk.
Harmonisation codes for exports
Ms Barbara Cooper, an Assistant Secretary from the Department of Agriculture and Water Resources provided some hope in regard to the manual documentation processes.
With regard to the harmonisation codes, as I understand it, the first six digits of that are internationally harmonised. It's a World Customs Organization code set. The those six digits, however, are so high level that they're actually not useful for most countries to do any form of risk assessment by using those that code set, because the first six digits will basically just identify that it's edible meat. You might have different risks applied to that. In fact, Australia has a version called the AHC. The first six digits of that will be the harmonised standard code from the WCO, and then we add to it so that we can identify more detail in the product.
The Australian harmonised code set, which Ms Cooper explained is largely managed by Customs or now Border Force, is used predominately by the Bureau of Statistics for reporting purposes.
Australia has its version using those six digits, and then Japan, China and the US will have their own version of that in their countries. We only need to use the Australian harmonised code for product when we're exporting. We provide that as a data field to the Australian Border Force. But, if we're providing it for the purposes of risk accessing or identifying product with another country, we may have to modify it to their system.
Growing cost of documentation
Ms Barbara Cooper, an Assistant Secretary from the Department of Agriculture and Water Resources outlined the complexity of the documentation process due to the need for a whole series of commercial documents required by meat exporters besides Certificates of Origin.
Certificate of Origin, I think, in Australia is largely issued by the chambers of commerce or under some accreditation arrangement. The exporter declaration is in order to get the product out of Australia to pass the Australian customs requirements. The export certificate that we issue is actually to get the product into the importing country. But we do issue an export permit for a lot of commodities where there is a requirement for it to meet a certain set of conditions.
Ms Cooper said the Department of Agriculture and Water Resources was doing some work, predominantly with the Australian Border Force, to simplify the process and hopefully eliminate the need for postage or in person visits to collect required export documents. Exporters have been able to access documents direct from Customs or the Australian Border Force since 1998 if they wish, and many do, according Ms Cooper, go direct if it is much more efficient.
For a lot of our exports now, you can apply using the same data that you provide to us with a couple of additional pieces of data. We will then go to Border Force and seek the export declaration, so it's actually all done in one message through one set of data that's coming in. There are some improvements. Some of our commodities would be largely automated. We do have a set of food groups now where a lot of countries are introducing certification for low-risk foods. That is an emerging issue for us. It's not something that we have been on the front foot for in terms of providing. Recently, we introduced a system where the remaining manual documentation that we have will be available through an electronic system. That, hopefully, will provide greater advantage and benefit for those exporters, because a lot of them in those commodities are what you would probably describe as SMEs. We are doing some work to try to improve that and using, wherever we can, automation to eliminate the need for postage or to visit the office. We'll be able to print the certificate in their office.
Ms Cooper said the Department of Agriculture and Water Resources was aware of the documentation challenges for exporters away from capital cities.
We have documentation offices in the capital cities. But if you are in Dubbo, for instance, you would have to get your documents delivered from our regional office to your establishment or head office.
Mr Simon Smalley, Assistant Secretary, Strategic Trade Policy Branch, Trade and Market Access Division, Department of Agriculture and Water Resources outlined the greater acceptance of digital documentation for exports by trading partners but he warned progress is slow.
Another part of our ongoing attempts to improve the world for exporters is in trying to move a range of these things towards electronic exchanges with trading partner countries. That is happening at a global level for plant products. It is happening bilaterally from us and through the department. But those kinds of things take a long time. In some circumstances, we have to provide both an electronic certificate on food safety and the hard-copy one. So these are things that are just taking a little bit of time to move. But, again, it's something that Australia has been pressing very hard on in international forums and bilaterally.
Figure 2.16: Examples of non-tariff measures & FTAs by country
Source: Ai Group, Submission 34, Examples of non-tariff measures & FTAs by country
Australia’s standards and conformance infrastructure
DIIS has policy oversight of Australia’s standards and conformance infrastructure, and manages the Government’s relationship with Australia’s Technical Infrastructure Alliance (TIA), consisting of Standards Australia (SA), the National Association of Testing Authorities (NATA), the Joint Accreditation System of Australia and New Zealand (JAS-ANZ) and the National Measurement Institute (NMI).
Ensuring a high quality standards and conformance infrastructure is pivotal to the safety and wellbeing of Australians, as well as breaking down non-tariff barriers to trade, according to DIIS. DIIS has an ongoing and productive working relationship with each of Australia’s peak standards and conformance bodies which is to the benefit of industry and government alike.
Everyday commercial transactions and international trade are underpinned by the support of a standards and conformance infrastructure – from using a credit card, clipping in a seatbelt, to using a bicycle helmet. The maintenance of a world class, internationally-recognised technical infrastructure supports the internationalisation of the Australian economy by aligning with international standards and promoting the acceptance of conformity assessment data thereby helping to facilitate trade.
To support Australia’s standards and conformance infrastructure, DIIS delivers the Support for Industry Service Organisations (SISO) Programme which provides funding for international representation and national interest activities undertaken by Australia’s two peak standards and conformance bodies: Standards Australia and the National Association of Testing Authorities.
This funding allows Australian businesses to influence and keep pace with international standard-setting, which can pave the way for greater alignment of standards between Australia and our current and/or future FTA partners.
The Australian Government has adopted the principle that ‘if a system, service or product has been approved under a trusted International Standard or risk assessment, Australian regulators should not impose any additional requirements unless it can be demonstrated that there is a good reason to do so.’
This complements the efforts undertaken to achieve greater regulatory alignment in FTAs and reduce costs and delays for exporting Australian businesses.
DIIS outlined its engagement in a range of regional fora to support Australia’s standards and conformance infrastructure and pursue trade liberalisation and facilitation with key trading partners. DIIS also represents Australia on the APEC Sub-Committee on Standards and Conformance (SCSC).
APEC SCSC helps to reduce the negative effects that countries’ differing technical standards and conformance arrangements have on trade and investment flows in the Asia-Pacific region.
DIIS supports DFAT through the negotiation and implementation of Chapters relating to Technical Barriers to Trade, which is a mechanism that supports Parties to uphold obligations of the WTO TBT Agreement – ensuring that technical regulations, standards and conformity assessment procedures do no create unnecessary barriers to trade.
The importance of reducing non-tariff barriers to trade is gaining increasing importance through FTAs.
Reducing ‘behind the border’ costs in APEC economies
DFAT highlighted that Australia is working to reduce ‘behind the border’ costs in APEC economies and to help integrate SMEs into global value chains.
The latter involves strengthening SMEs’ export capabilities and capacity to internationalise business operations. Capacity building activities offered by APEC and supported by Australia help economies to develop and adopt policies that encourage SME firms to compete in international markets.
APEC also sponsors business engagement events and workshops to assist SMEs to build networks and partnerships that facilitate trading across borders.
Opportunities for SMEs with FTAs
Impact of preferential tariffs on pricing and competition
The Export Council of Australia submitted that the removal or lowering of tariffs by FTAs impacts on the price of Australian exports. Depending on the FTAs and what a partner market already has in place, the ECA explained how an FTA with Australia can give Australian exporters a price advantage or reduce the price advantage competitors have in that market (or a combination of both).
Lower prices can have indirect benefits in-market for the exporter, especially where the tariff cut is substantial. Where lower prices lead to higher volumes, these higher volumes mean the exporter can enjoy economies of scale and negotiate lower freight and logistics costs. This means that not only does the exporter enjoy increased sales, but also increased margins on those sales.
But the ECA warned it is important to bear in mind that for most products, tariffs are historically low and therefore lessening the benefits an FTA may have on lowering prices.
For Australian exporters, who generally have to compete on value rather than price, the tariff reductions on many product lines will be welcomed but not transformative. And for those sectors that do gain a significant price advantage due to an FTA, it is important to remember that advantage will inevitably be time-limited.
Figure 2.17: Total number of Australia exporters by size of business, 2012-2016.
Sources: Dr Di Lieto & Dr Treisman, Submission 7 & ABS Characteristics of Australian Exporters, 2011-13 and 2015-16, Total number of Australia exporters by size of business, 2012-2016.
Digital opportunities for SME exporters
The departments of Industry, Innovation & Science (DIIS) and of Jobs & Small Business (DJSB) submitted the proliferation of online tools and digital platforms is creating new opportunities for SMEs to participate in the global economy.
Critically, digital platforms can assist SMEs to establish a virtual international presence, provide improved access to support services and market intelligence, and the opportunity to sell products internationally through established online marketplaces like eBay and Alibaba.
The growth of these digital platforms, according to DIIS and DJSB, means that even the smallest companies have the potential to access, compete and export goods and services to global markets alongside the largest multinationals.
In addition, digital technologies are providing the capability for SMEs to participate in global value chains by supplying a single component rather than designing, building and distributing the whole product or service.
The Government agencies predict more opportunities will emerge provided by new and emerging digital technologies, as well as through global data flows, have the potential to provide further significant benefits to SMEs which will assist them to better leverage Australia’s FTAs.
The Government has acknowledged the importance of digital technologies to the future of the global economy and trade flows through its Digital Economy Strategy. Critically, this Strategy will benefit SMEs by maximising access to data and digital services, reducing barriers to exports of digital products and services, and addressing regulatory barriers on data flows.
Cross & Co Lawyers submitted advice from American entrepreneur, venture capitalist, Mr Peter Theil, who founded PayPal, suggesting SMEs “start small, find a niche, then scale up”.
This vital point must be carefully considered. Australia SMEs in the technology space who fail to internationalise, will put at risk their domestic markets and their very existence…The many Australian SMEs who have become global niche players bears evidence to what is possible. In a globally connected world, internationalisation is the catalyst for SME productivity growth. This in turn will create higher paid, higher value employment.
The Chief Executive Officer of Global Trade Professionals Alliance, Ms Lisa McAuley, insists Australian businesses need to be aware that the context of global trade is changing rapidly.
I think the most important thing to think about here is increasingly, new services and e-commerce offerings will be digital and born global—that is, companies will be global from day one, particularly MSMEs. This provides significant opportunities for Australian businesses to engage in international trade markets, yet our understanding of digital services and ecommerce offerings in a policy landscape needs to catch up with where businesses are going and the future opportunities that this presents them.
According to DIIS, the Government is developing a Digital Economy Strategy (the Strategy), which will set out how government, business and the community can work together to maximise the opportunities of the new technologies offer Australia’s industries, workforce and communities.
The Strategy sets out a forward plan to ensure Australia has an open, competitive and digitally enabled economy that is responsive to rapid technological change.
Digital trade and e-commerce
Trade consultants KPMG submitted how important the significant role that e-commerce plays in Australia's SME export story. KPMG highlighted the exponential growth in consumers' utilisation of e-commerce platforms, particularly in the use of mobile devices.
To give a sense of the scale of this growth, Asia Pacific mobile internet penetration is currently estimated at 41 per cent and is expected to rise to 63 per cent by 2025, whilst three of the top five smartphone markets are Asian.
KPMG noted an increasing number of Australian SMEs view e-commerce channels as a quick, simple way to engage with customers in Asian markets and distribute bulk volumes of goods at a much lower cost than traditional sales channels.
In our experience, SME e-commerce exporters encounter a range of unique challenges. This includes reduced oversight and control of the foreign market supply chain (including last mile logistics), engagement with local customers and potential damage to their brand and reputation (through tampering, delays or failed order deliveries).
KPMG sees a role for Government and private sector advisors to make a real impact in tackling some of these issues by educating ecommerce exporters to understand the practical implications of domestic market dynamics and develop sustainable relationships with viable in-country partners.
According to Melbourne academic with expertise on the impact of FTAs on corporations, Professor Gabriele Suder, submitted that FTA negotiations and the preceding and following support initiatives need to be designed and strengthened to serve SMEs in the e-commerce space.
SMEs that are increasingly using the Internet as a channel for doing business, accompanying the increasing preference to use the Internet and e-commerce to make online web purchases. They may also specifically consider the varying operation models of the growing number of e-commerce platforms and marketplaces.
Professor Suder highlighted an EU example as a benchmark, of a common European e-payment scheme that allows any merchant or SME present on the Internet to receive payments from consumers securely and efficiently. These benefits, according to Professor Suder, are available to all companies conducting cross-border business or operating locally.
Professor Suder highlighted the rise of the ‘Born Globals’ high tech firms that are often SMEs in size.
“Early and rapidly internationalized structures can be found in Born Globals, that is, firms that are international by ‘birth’, such as global start-ups or instantly globalizing high-technology firms, online services and IT (information technology) security solutions.
These corporations, often of SME size, rely heavily on their network structure and the diversity of the value added of each component of this structure: advantages in the use of resources, procurement, distribution and cross-border sales characterize this form of diversification and corporate risk reduction.
At the same time, Born Globals need to be run with a global vision, according to Professor Suder, and a network relying on the ‘know your customer, your supplier and your distributor’ principles more than traditionally internationalizing firms.
…given entrepreneurs’ increasing awareness of the value creation that is possible through harmonized networks of transportation and communications, of market expertise through the proximity of European markets, and cross-cultural competencies.
More than 2000 Australian brands retailing on Alibaba
The Director of Corporate Affairs, Alibaba Group Australia and New Zealand, Mr James Hudson, introduced the growth of e-commerce giant Alibaba from its beginnings in founder Jack Ma’s apartment with 17 co-founders into 1990 to an online retail platform with more than 627 million mobile monthly active users on its 20 to 30 different retail marketplaces in China.
…in 24 hours alone, during the 11.11 Global Shopping Festival, or Singles Day, the 140,000 participating merchants from around the world generated more than US$25.3 billion in gross merchandise volume.
Mr Hudson shared Jack Ma’s speech about the changing face of world trade at a WTO public forum in Geneva.
…in the past, global trade has traditionally been dominated by multinationals, which has benefited only certain countries and industry sectors, but the future of world trade is going to be about the small businesses enabled by e-commerce. E-commerce has changed the landscape to allow more inclusive trade opportunities for SMEs.
Mr Hudson believes online retail marketplaces such as Alibaba have enabled small businesses to be part of international trade like never before—in some cases, eliminating the need to have a physical presence in the new markets they are testing and mitigating some of the challenges, risks and expenses they may face by a traditional trade.
There's no doubt Australian products continue to grow in popularity with China's consumers, who value Australia's strong country brand and a reputation for high-quality products, particularly in the healthcare, wine, snack foods, mother and baby, natural cosmetics and, increasingly, fresh food categories.
Mr Hudson shared the biggest-selling Australian products on Alibaba are: healthcare products and mother and baby products, which includes infant formula. He said snack foods are popular even though the public in China requires high levels of trust.
Wine is popular. Wine Australia have a store in our marketplace selling mostly Australian-brand wine—SME-brand wine, small boutique wineries.
On our marketplaces, those particular product categories require a significant level of trust from the consumer that the products are safe. The Tmall marketplace enables the consumers to actually interface with the businesses directly because they're running the flagship stores. So there is a level of trust from the consumer in the marketplace that they're getting authentic products from the brand that is supplying those products.
Inspired by this growth, Jack Ma opened Alibaba’s regional headquarters in Australia in February 2016, Mr Hudson shared as evidence of Alibaba's commitment to support and nurture the growth of Australian SMEs in their pursuit of global opportunities.
Since then, sales of Australian products on Timor Global have increased significantly. The growing demand has lifted Australia's ranking from fifth to third place in just two years in terms of the products going into the China market. Today, around 2,000 Australian brands, many of which are SMEs, are selling via our Timor and Timor Global business to consumer channels. This represents an increase of over 50 per cent in the number of Australian businesses selling via us in just the last 24 months.
Mr Hudson outlined that helping facilitate the growth of SMEs via online marketplaces does not come without its challenges. One of the most significant challenges for SMEs who wish to start selling to China via Alibaba’s marketplaces is understanding the opportunity and where to start.
Alibaba Group Australia and New Zealand believe awareness and understanding is the biggest barrier for SMEs.
For this reason, educating businesses has been at the core of our local team's activities. Since launching our local offices, Alibaba has hosted over 50 workshops and seminars to educate SMEs across Australia, including across regional Australia, such as in the Gippsland, Cairns, Gold Coast, Sunshine Coast and Launceston areas. We have reached and provided information to thousands of SMEs through these workshops, often held in conjunction with Austrade, with whom we have an MOU, various state governments and in partnership with a number of not-for-profits and peak bodies.
The next biggest challenge Australian SMEs will face in e-commerce, according to Mr Hudson, is meeting and connecting with buyers who can help facilitate their access to Alibaba's e-commerce channels, which are not always easy to use for people who do not speak Chinese.
We've addressed this by creating opportunities for face-to-face interaction between businesses, buyers and distributors. An example of this is the Alibaba E-Commerce Expo we held in Sydney a couple of weeks ago, and this week we'll hold the event for a second year in Melbourne. We bring together thousands of distributors, buyers, brands, social media influencers and celebrities to over 300 exhibiting Australian and New Zealand SME brands across the two events. The annual expo and SME conference also allows Alibaba and its partners to help companies understand how they can utilise different services to make cross-border e-commerce easier and more profitable through innovative web based sales, payments, logistics and data-driven digital marketing solutions.
Mr Hudson explained there will always be a place for face-to-face retail shopping in China and elsewhere. The Alibaba Group actually sees the world of online and offline retail merging together into something that founder Jack Ma has coined as 'new retail'.
Basically new retail is just that: online and offline merging together with payments, entertainment, live streamed video, instore, online—all of these things coming together. It's a big movement in China and it's the direction of retail right now.
Mr Hudson outlined Alibaba Group also have a chain of new retail supermarkets called HermaFresh combining online and offline.
We've opened 60 in the past couple of years and there are plans to open another 1,000 over the next five years. They're supermarkets where you can go in and buy the products instore or you can buy them with the app and scan the QR codes and have them delivered to your house. You can also buy them within the app. Sixty per cent of sales are bought within the app, and 40 per cent are bought instore.
So really we see that these worlds are merging, and a lot of the technologies that Alibaba has focused on developing are to support the offline retail sector, because there are a lot of sensory experiences with offline retail that at least for now, and probably for some time, online retail is going to struggle to compete with, particularly in fashion and fresh foods. There is a joy or an experience in going and feeling those products out. But we don't believe online retail will replace offline retail.
DIIS submitted that trade issues, particularly digitally-enabled trade, and a regulatory environment that facilitates the free flow of goods, services and data across borders, will be important components of the Strategy.
Technology is changing the global economy and creating opportunities for businesses to access international markets. It is giving Australian businesses opportunities to design concepts, provide raw materials, develop products, and/or undertake marketing and distribution as part of global value chains (GVCs).
DIIS believes this potential extends even to small businesses which would not previously have had the capacity to develop overseas markets.
In particular, digital technologies are providing the capability for SMEs to participate in GVCs by supplying a single component rather than designing, building and distributing the whole product or service. The growth of platforms such as Amazon and Alibaba means that even the smallest companies have the potential to access, compete and export goods and services to global markets alongside the largest multinationals.
However, DIIS believes not enough Australian businesses are contributing to GVCs and benefiting from the opportunities on offer.
To encourage businesses to participate in and benefit from GVCs, government needs to work with industry to ensure Australia has the right enabling environment, including consistent, flexible and fit-for-purpose regulatory frameworks.
International standards for digital trade
In a globalised trading environment where interoperability between different national systems is essential, DIIS is promoting international standards needing to be a relatively light-touch and also flexible form of regulation that can evolve quickly to adapt to changing circumstances. DIIS claims the Government will continue to take a leadership role to influence international rules and standards to support growth sectors and help businesses capitalise on their competitive strengths.
The international rules and standards governing digital trade are still being developed as regulators grapple with the challenges that digital trade presents.
DIIS outlined several current examples of the Government’s developing standards to help Australian businesses participate in the global digital economy.
The Government is developing a standards-based approach to e-invoicing to digitise and automate the exchange and processing of invoice related documents between suppliers and buyers. Widespread adoption of e-invoicing could save Australian businesses between $7 and $10 billion each year, with significant benefits for SMEs.
The Digital Business Council estimated this figure [of between $7 and $10 billion each year], suggesting that savings would occur through reduced costs in using paper (including posting) as well as the reduction of administration errors and time outputs. Further information can be found on the Digital Business Council website…
DIIS submitted the Government is supporting Standards Australia to lead the development of international standards for blockchain technologies. In addition, the Government has convened the Prime Minister's Industry 4.0 Taskforce, which is a collaboration between the governments of Australia and Germany to develop global Industry 4.0 standards.
ASEAN-Australia Digital Trade Standards initiative
On 16 March 2018, the Prime Minister announced the launch of the ASEAN-Australia Digital Trade Standards initiative. DFAT submitted this initiative will provide a framework to support the development, adoption and use of international digital trade standards, helping SMEs to benefit from digital trade with the dynamic ASEAN region.
The ASEAN-Australia Digital Standards Cooperation Initiative is a joint DIIS and Standards Australia project to develop a framework for Australia and ASEAN Member States to cooperate in developing international standards that promote digital trade.
Growing trade for Australian SMEs in the EU, France and Germany
Australia and the European Union have started negotiations on a free trade agreement and the German Australian Business Council (GABC) submitted its assumption that this agreement will be successfully negotiated and ratified by Australia, the European Union and its member states where required.
The European Union is one of the most successful free trade areas in the world…The most significant revision – at least as far as trade between the member countries is concerned – was the so-called Maastricht Agreement of 1992 which established the current internal market.
The European Union has concluded a Comprehensive and Economic Trade Agreement (CETA) with Canada which the GABC believed should serve as a model for the EU Australia agreement.
Australian Business in Europe-France (ABIE-France), that represents nearly 100 corporate, business and individual members, submitted that for Australian SME exporters of goods and services to succeed in France, even under a proposed EU-Australia FTA, many will need support beyond the framework of a typical FTA.
ABIE-France acknowledged the work of Austrade and DFAT in assisting Australian businesses to succeed abroad.
It also noted that the Australian federal and state governments provide trade assistance to Australian companies in Europe through the Export Market Development Grants scheme, ad hoc referrals and trade delegations. Nevertheless, the number of Australian SMEs exporting goods and services to France remains small.
German-Australian Chamber of Industry and Commerce (GACIC) submitted it is the official representative of German business in Australia and represents over 900 companies active in bilateral business relationships. These companies represent a variety of industry sectors and are particularly small to medium-sized enterprises (SMEs) and medium-sized German companies ("Mittelstand"), according to GACIC.
The GACIC supports a free trade and investment environment and is committed to deepening economic links and business exchanges between Australia, Germany and the European Union as well as the wider Indo-Pacific region.
FTA's can be an important instrument to increase trade and investment for the benefit of all involved. They can remove tariff and non-tariff trade barriers facing market participants and they help to unlock the full potential of a bilateral or multilateral trade and investment relationship.
Challenges for Defence industry exports
Ms Mel Woon, Executive Officer of the Australian Industry and Defence Network-Queensland, explains many of its members export to places like the UK, the UAE, France, Germany, Canada, USA, Indonesia and New Zealand.
Essentially, what it comes down to is that Australia has quality products and services over other countries, and we are doing a lot of work in the defence supply chain for those countries as well.
While Australia may not have free trade agreements with all of those countries, Ms Woon explained some of the barriers to exporting to the USA, that Australia does have an FTA with.
When it comes to dealing with the USA and supplying the USA, we do have a roadblock. It essentially comes down to China. If any part of your product comes from China, you are unable to supply to defence in the USA. So you need to be able to trace back every single supplier and make sure that every tiny little aspect, including every bolt and every nut, does not come back as manufactured in China. That is one of the bigger things that have been a huge change in our industry over the last couple of years, where Donald Trump is basically saying: 'You're doing business in China? You're doing any sort of business with China? We will not do business with you.'