On New Years Day, while many of us were recovering from the night before, doors of opportunity were opening for small business all over the country.
Tim Harcourt looks at how free trade opportunities will benefit Australian exporters.
On January 1 this year, the Australia-United States Free Trade Agreement (AUSFTA) came into effect. AUSFTA has been described by the Minister for Trade, Mark Vaile, as the commercial equivalent of the ANZUS treaty.
"We have entered into a closer economic partnership with the most dynamic economy in the world—the largest importer, the largest consumer of goods and services and the largest investor," he says. "Independent analysis suggests that AUSFTA will generate around $A6 billion in economic benefit to Australia, and see the creation of over 30,000 jobs for Australian workers."
AUSFTA joins the growing list of free trade agreements that Australia has, along with the Singapore Australia Free Trade Agreement (SAFTA, effective from July 2003), the Thailand Australia Free Trade Agreement (TAFTA, effective January 1, 2005) and, of course, the 21-year-old Trans Tasman accord signed with our Kiwi cousins, known as the Closer Economic Relations (CER).
The recent agreements with our neighbours are a possible forerunner to agreements with Malaysia and a possible overarching agreement between Australia, New Zealand and the Association of South East Asian Nations (ASEAN). In fact, Australia is proving to be a pacesetter in terms of bilateral and regional agreements, following on our traditional reputation for leadership—particularly in agricultural issues—in multilateral negotiations in the World Trade Organisation (WTO) and its predecessor the General Agreement on Tariffs and Trade (GATT).
While there’s plenty of fanfare and celebration with the free trade agreements (FTAs), where are the opportunities coming from? And which businesses are set to be the winners?
Sector Analysis
Increasingly, export action is high in small and medium businesses. According to the Australian Bureau of Statistics (ABS), almost 87 percent of exporters have a turnover of less than $1million a year. Fortunately, if you look at the details, there is something for everyone in the agreements. The range of opportunity is apparent for many of Australia’s 31,000 exporters, both large and small and in city and regional areas.
For instance, in the AUSFTA, everyone from tuna processors in Port Lincoln to the larger car companies in Adelaide and Melbourne will benefit. From January 1, over 97 percent of exports to the United States, worth over A$5.8 billion last year, became duty free. This means canned tuna no longer has a 35 percent tariff and Australian light commercial vehicles (such as utes or ‘pick-ups’) no longer have a 25 percent tariff.
The expected growth in demand for vehicles will also help Australia’s car component industry, which is the backbone of manufacturing in Adelaide and south eastern Melbourne and is worth over A$310 million in exports. This will help many small businesses in the auto parts sector as there will also be a pull-through effect from smaller exporters riding on the coat-tails of the large car companies as part of the industry’s global supply chain.
AUSFTA also provides expanded access to the enormous government procurement market of the US—worth an estimated $A200 billion. Other key industry sectors to gain include dairy, beef, seafood, wine, cut flowers and jewellery as well as manufacturing and knowledge-based services.
In the case of TAFTA, both primary industry and manufacturing exporters will benefit. For instance, as dairy tariffs on powdered milk and yoghurt fall under TAFTA, dairy farmers will benefit. In addition, ice cream manufacturers down stream will also do well as tariffs on processed foods such as ice cream fall by 30 percent. In fact, a whole range of agricultural products—wheat, lamb, fruit and vegetables, horticulture and fresh and frozen fish—are now tariff-free under TAFTA. In addition, Thailand’s steep steel tariffs (50 percent) have gone, along with car industry protection.
In addition to manufacturing, Australian service exporters—in areas such as consulting and engineering services—will have a lot to gain from TAFTA. An example is Port Adelaide’s Australian Submarine Corporation. According to Graham Storah, head of the company’s Bangkok office, "there are so many opportunities for Australian companies in this country—our engineering skills and know-how are greatly respected and Aussies are well liked by the Thais".
Services exporters are also key winners to the agreement between Australia and Singapore. In the case of SAFTA, professional service firms such as architects, dentists, environmental consultants and medical specialists will gain from mutual recognition, easier registration, and protection of intellectual property. For instance, Woodhead International, a Sydney-based architectural firm won the contract to design the interiors at Changi Airport’s Terminal 3 and Singapore’s National Library (together they are worth around $A1.6 billion, or $A1. 5 billion).
Industries such as telecommunications and education are also being more closely integrated under SAFTA with institutions like the University of New South Wales and Macquarie University setting up Asia Pacific campuses in Singapore. This will provide flow-on effects for smaller educational publishing companies and education consultants.
In short, for all the trade agreements, the opportunities for small business are there, ready for the picking. But how have exporters themselves responded so far?
The early evidence shows that it’s a case of so far, so good. For instance, the recent DHL Export Barometer showed that exporters surveyed are responding positively to AUSFTA, TAFTA (and to a potential free trade agreement with China).
According to the survey, exporters are warming to the AUSFTA; 14 percent of exporters who currently export to the US are now ‘very positive’ towards the FTA (up from 8 percent last May) and around 38 percent were positive overall (up from 31 percent). Only 5 percent were negative.
In the case of Thailand, 21 percent of exporters thought the impact would be positive, while 75 percent were neutral and 4 percent negative. About one third of exporters are more likely to service Thailand as a result of the FTA. In short, the survey results show that as exporters learn more about the agreements, they become more positive about the opportunities available.
In conclusion, celebrations are indeed in order as the agreements provide great opportunities for exporters—particularly small business—who are fast becoming the engine room of the Australian exporter community. Even before the agreements were passed, there were almost 8,000 Australian businesses exporting to the US, over 6,300 to Singapore and 2,300 to Thailand (on top of the 13,700-strong venturing across the Tasman) and so the agreements are very important for small business exporter growth.
Of course, market access is just part of the story. Exporters can also get help in terms of export market development grants (EMDGs), export coaching, market opportunities, intelligence, and the full benefit of Austrade’s network of 117 global locations. From January 1, Australian small businesses really have been given the chance to reap rewards of opportunities delivered through the free trade agreements.
* Tim Harcourt is chief economist with Austrade (www.austrade.gov.au/economistscorner). Thanks also to Jemima Lohse, Ian Smith and Hala Shash for comments and assistance with this article.
