FTA utilisation – 2018 submission

The ECA believes that Australia’s long-run economic prosperity can only be achieved through international trade. We strongly support Free Trade Agreements (FTAs) as a means of growing Australia’s international trade. But FTAs are only one means of growing trade and should not be pursued in isolation. If the goal is increasing Australia’s economic prosperity, FTAs are only part of the solution. There is much to be done to facilitate Australian businesses—particularly SMEs—to enter and grow in international markets, including addressing the ‘before the border’ challenges they face within Australia.

The ECA supports the government’s FTA agenda, but 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. Similarly, if a market is a priority for the Australian Government, 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.

FTA utilisation rates are difficult to measure, particularly if looking just at SMEs. Customs data (where available) indicate overall utilisation rates for goods exports are high. But these data are based on the number of consignments, and given a small number of very large companies dominate Australia’s exports, the data do not infer high utilisation by SMEs. The Australia’s International Business Survey, Australia’s largest survey of SME exporters, indicates SMEs do not understand FTAs well.

SMEs have too many reasons to put FTAs in the ‘too hard basket’ and not use them. There are several things the government can do to enable more SMEs to use FTAs. It has done a good job in raising awareness of specific FTAs, but it does not have the resources or expertise to give SMEs the next layer of information to make the most out of FTAs. SMEs simply do not understand many fundamentals of using FTAs, such as how to assess their goods against rules of origin or what process to go through to realise access to service markets opened by FTAs. FTAs also contain many trade facilitating provisions that SMEs simply are not aware of, such as certificates of origin that cover long time periods, advance rulings or dispute resolution mechanisms.

The government could do more to facilitate educating SMEs about FTAs, including partnering with private sector providers to develop an online training program that was freely available to businesses. This training program could reinforce the content of the FTA roadshow seminars, as well as providing much more detail on the technical questions about using FTAs.

In addition, there are some concrete steps the government could do to improve FTA utilisation. Better linking government systems would enable technology-based solutions. Linking the Department of Foreign Affairs and Trade’s (DFAT) FTA Portal with the Department of Home Affairs’ (Home Affairs) and Department of Agriculture and Water Resources’ (DAWR) systems could make it easier for Australian businesses to understand they may be entitled to preferential tariffs.

The ECA recommends the Committee:

  1. Recommend that that the government take a more holistic perspective to trade: FTAs are only part of the answer to enhancing Australia’s economic prosperity through international trade and there are many other things that should be done to facilitate trade, both in Australia and overseas
  2. Recommend that the government’s outreach to SMEs on trade should focus on helping SMEs internationalise and find the right market, with FTA promotion just one aspect of this
  3. Note that while headline utilisation rates for Australian goods exports may be high, FTA utilisation by SME exporters (of both goods and services) is unclear
  4. Recommend that the government continue to help SMEs understand how to utilise FTAs
  5. Recommend the government partner with private sector organisations to provide training to SMEs on how to better utilise FTAs
  6. Recommend the Australian Government invest in technology-based solutions to make it easier for SMEs to claim preferential tariffs.

FTA utilisation—2018 submission