Australian exporters have a curious blindness when it comes to Europe, a consumer market now bigger than Japan, Canada, and the US combined.
Tim Harcourt examines this mysterious affliction and comes up with some eye-opening reasons for putting this forgotten continent back on our trade map.
What’s the problem, why do we put Europe in the too-hard basket? With its expansion last May to 25 members, the European Union (EU) has grown from a market of over 378 million people to more than 455 million. But apart from the UK and Germany, they might as well be invisible so far as our export action is concerned.
Enlargement created an enormous consumer market, larger than Japan, Canada, and the US combined, and yet Europe is hardly on our export radar. What are the reasons for this apparent Europhobia? Is it the complexity of the EU market, false perceptions about trade barriers or is the pull of other markets just too great? Of the top 20 destinations for Australian exporters, only two are European nations: the UK and Germany, with large modern economies like France and Italy mysteriously absent.
Is it that old tyranny of distance bogey? Some figures support this—New Zealand, Papua New Guinea, and Fiji are prominent in Australia’s top 20, along with five of the 10 ‘neighbouring’ ASEAN states. But this doesn’t explain the heavy prominence of the UK and the US as destinations for Australian exports.
The second possible explanation for Australia’s reluctance to trade with some EU countries is the fact we, by and large, only speak English. English-speaking nations dominate our exporter list, with many commentators describing Australian exporters’ propensity to test the export waters in Britain before heading to ‘the Continent’ as ‘channel fever’.
Crunching Numbers
The UK attracts 4,808 Australian exporters each year, and is in first place by a mile, with Germany light-years behind in second place with 2,507. It is not just language, however, as many Australian companies focus on Britain and other English-speaking economies because they are also more comfortable with the business culture, rule of law, and other institutional characteristics.
But there is clearly an economic explanation for this phenomenon as well. Countries that are English-speaking and have British institutions have, in recent years, been stronger economies. So for a lot of Australian exporters, heading straight for the UK is merely going to where the economic action is.
When it comes to economic action, 11 out of the top 20 Australian exporter destinations are in Asia. In 1989-90 three European countries—France, Italy, and the Netherlands—were in this top 20, while in 2003-04 these markets were replaced by India, the United Arab Emirates and (you guessed it) China. In fact, Asia makes up five of the top 10. All the fuss made of Asia has made it difficult for Europe to establish a profile in the Australian press. As one European observer said to me after the simultaneous visits of President Bush and Chinese President Hu to Canberra, "Australia is having a mÈnage a trois with Asia and America, and Europe can’t even get into the bedroom!"
There is also the possibility that Australian businesses perceive Europe as an impenetrable fortress. The Common Agricultural Policy (CAP), for example. But are overall trade barriers too high and is the EU too inwardly focused? Not so, says the European Central Bank (ECB) in Frankfurt, with bank research showing that since the implementation of the common currency and the single market, trade between ‘Euroland’ and the rest of the world is actually increasing, not decreasing and turning inward. Peter Mandelson, the EU’s new trade head honcho (a former UK Cabinet Minister and close ally of Tony Blair), is leading a raft of reforms in Brussels and is keen to expand trade and wean European producers off trade-distorting subsidies.
Despite all these hurdles, there are still some good signs for Australian-European trade.
Developing Markets
It is important to remember that the EU is, in its own right, very important in terms of trade and investment. The EU-Australia trading relationship is still worth AU$62.3 billion (compared with AU$40.7 billion for the US). The EU accounts for 11 percent of total Australian goods exports and provides nearly 24 percent of our goods imported. The EU also accounts for some 22 percent of our services exports and 24 percent of services imports. The EU is Australia’s leading investor, providing an accumulated AU$341 billion or 35 percent of total investment in Australia.
The EU enlargement process has helped Australian businesses by expanding the consumer base and potentially improving living standards in Europe. The EU has a good track record and the enlargement processes in the past have helped many nations to become affluent. Think of Portugal in the 1970s, or even Spain or Greece. These countries had weak economies and were struggling with the establishment of democracy. Since then they’ve gone from strength to strength. As Elisa Ferreira, a Portuguese member of the European Parliament (MEP) said to me in Brussels: "Joining the EU really saved us. It gave us an economic boost after the collapse of our colonies and many tough years of dictatorship."
Ireland is another case in point. After years of poverty and agrarian under-development, EU membership has done a lot for Ireland. Along with smart investment in human capital and FDI attraction, European membership provides the backbone for the story of the ‘Celtic Tiger’.
With the 10 recent central, southern, and eastern European members which have joined the EU, similar increases in living standards are underway. EU efforts to streamline business standards in the internal market are welcome. The common currency, for instance, is already making it simpler for Australian businesses to cross borders when doing business on the continent.
If the EU can do more of this type of reform, then talk of ‘Europhobia’ will be a thing of the past for Australian exporters.
* This is an edited excerpt from EU News. Tim Harcourt is chief economist for Austrade and has recently returned from Europe as a participant on the EU Visitors Program (EUVP). To find out more about the EUVP, go to the delegation’s website http://www.delaus.cec.eu.int/employment/EUVP.htm
EU Market Survey
Australian Business Limited’s Alyson Warnock offers a nutshell overview of the strengths of this huge market.
Since its most recent expansion on May 1 this year, the European Union has become the world’s largest trading bloc. With a collective population of 455 million, it’s Australia’s largest economic partner.
• A strong market
The European Union is a very stable business environment. The market has little incidence of corruption, there is high transparency, and well established investment security. Our bilateral trade relationship is more diversified than that of other partners, with primary products much less important. High disposable income levels means the population can afford Australian retail products including high-end food and beverages, personal care and leisure products, and expensive and niche technologies.
• A common market
The Common External Tariff (CET) system, and common currency of all European Union nations, allows Australian companies to access a large population without having to negotiate varied and complicated business regulations.
• A compatible market
English is the predominant business language among European Union nations, enabling ease of communication. Culturally, though diverse, European Union nations are similar to Australia, reducing the need to gain an understanding of cultural issues.
• Established Relationships
Strong business relationships already exist between Australia and European Union nations. Companies should seek the assistance of export specialists to take a
dvantage of these established trade channels.
Europe Ezine
With the success of many businesses already in the European market, Austrade have launched a free monthly online magazine for Australian businesses interested in expanding into the region.
Look! Central and South East Europe highlights opportunities, news and events, providing an easy-to-use resource for existing and potential exporters.
"Central Europe in particular has a number of ‘right-sized’ markets for Australian companies," said Senator Sandy Macdonald at the launch of the magazine in September. "There are markets big enough to offer significant opportunities to larger Australian companies while small enough to offer excellent access for small and medium sized businesses."
To subscribe to Look! Central and South East Europe visit http://www.austrade.gov.au/centraleurope
