Australian merchandise exporters who underutilise FTAs will miss out on at least $14 billion of potential export trade revenue over the next five years, according to new analysis by KPMG Australia. And this admittedly conservative figure would rise dramatically if trade in services and forgone productivity gains were added. In 2015 alone, Australia’s services exports internationally were worth an estimated $57.4 billion, and are continuing to grow.
KPMG economic modelling found that while ten FTAs are currently available to Australian companies, the bulk of lost export revenue for Australia is concentrated among countries with recently concluded agreements – namely China, Japan and Korea. Benefits from the ‘Asian Trifecta of FTA’s’ could increase exports by more than 11 percent, and generate a cumulative GDP increase of more than $24 billion in present value terms between 2016 and 2035.
Notably, KPMG found that almost all lost export revenue across Australia’s FTA partners related to manufactured exports – showing a need to better engage Australian manufacturing businesses.
“Successfully negotiating Free Trade Agreements is tough going for governments, but the deals are only of commercial value if businesses know how to get access to the concessions gained, and take action,” said report author, Doug Ferguson, Head of Asia & International Markets at KPMG Australia, who today launched a new comprehensive range of services to support Australian exporters, KPMG Access Asia.
“Australian governments have negotiated some of the most favourable FTAs in the world, however our FTA usage is very low by world standards. Many businesses don’t know how and whether an FTA would apply to their business, and a lot don’t seem to know the FTA exists at all. It’s clear that action is needed to engage businesses to make the most of new opportunities and improve their market access,” he said.
In addition to examining how much trade is being missed, KPMG’s research examined reasons for Australia’s low FTA take-up, identifying nine key barriers.
Lack of awareness of FTA benefits was the number one obstacle, followed by widespread confusion around the technical understanding of FTAs, both in Australia and foreign markets.
Other barriers were opaque trade regulations in Asian markets; IT infrastructure challenges; market access difficulties and non-tariff barriers; multi-jurisdictional supply chain challenges; internal capability limitations, especially for SMEs; increasing services (rather than product) export to Asia; and lack of comprehensive, affordable FTA advisory services.
“Australia’s FTAs are normally underpinned by years of very detailed negotiations on product-specific rules of origin which lead to confusion by both importers and exporters in the post FTA implementation phases. Clearly when governments have difficulty negotiating and summarising the minute detail of FTAs, it’s no surprise that companies have great difficulty in understanding and then implementing processes to access FTA benefits,” said Mr Ferguson.
However, Mr Ferguson argues that an FTA is just one part of the international trade puzzle for Australian companies.
“Taking a step back from the practical challenges of implementing FTAs, it’s critically important for Australian companies to revisit their strategy for Asian market export growth, supply chain solutions and outbound investment,” he said.
From a geographic perspective, KPMG found that the focus of many Australian companies has been China and how to take advantage of the China Australia Free Trade Agreement (ChAFTA) within a 12-18 month window – ahead of companies from other countries who have yet to establish similar trade access agreements with China.
“Historically, China was the prime market within our region for many Australian businesses to establish offshore operations to directly manufacture and source goods and industrial products at a very low cost. Now, we are seeing the shift from China to ASEAN countries – and specifically Indonesia - where regional FTAs are in place and bilateral FTAs are being negotiated,” said Mr Ferguson.
KPMG concludes there is no one-stop-shop for FTA trade facilitation.
“In order to accurately assess FTA entitlements, Australian companies need specialist advice. Turning an Asian investment into a profitable business venture takes careful planning, a disciplined approach and specialist knowledge,” said Mr Ferguson.
Based on interviews with senior executives from Australian companies already succeeding in Asia, KPMG identified six critical elements for Asian trade success:
KPMG notes that Australian companies looking to trade in Asia should consider how to take advantage of the booming online confidence of these markets.
“Cross-border shopping is now more accessible through smart technology and ecommerce. The overseas ecommerce spend is growing rapidly throughout Asia. Consumers are becoming very discerning and focused on the best-in-the-world quality and value. This means transparency is high and competition is incredibly tough,” said Mr Ferguson. “Australian exporters can’t just expect their product to sell online without ensuring their product is world class and marketed in a manner that meets local consumers’ tastes and expectations.”
The report concludes that while numerous FTA deals have been done and media announcements made, a lot of work is required to capture and maximise the benefits.
“The Turnbull Government is pursuing an ambitious trade agenda, with agreements under negotiation including India and Indonesia. These can be expected to create more opportunities for Australian businesses to grow their exports, strengthen their import supply chains, and ultimately drive much needed economic growth and create more Australian jobs,” said Mr Ferguson.
Head of Communications, KPMG
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