HSBC has released new research, based on surveys of 800 companies across Asia, to gauge the take-up and usefulness of free trade agreements (FTAs) to Australian businesses, and found that only around 1-in-5 exporters are utilising them:
Australian exporters have been slow to take advantage of the business benefits of FTAs. On average each FTA signed by Australia is used only by 19% of Australian exporters, compared to an average of 26% among Asian exporters using their respective markets’ FTAs.
The research also found half of the Australian respondents had limited or no understanding of one or more of Australia’s FTAs, citing complexity of trade terms, a lack of understanding of benefits, and deals with non-strategic markets being the key factors behind the subdued uptake…
Amongst the Australian companies who use an FTA as part of their business strategy, 75% have experienced export growth with the main competitive advantages being access to new markets (nominated by 40%), access to a wider client base (39%) and the creation of new business opportunities (37%).
Hogan concluded: “Australian exporters that invest the time and resources to understand FTAs and imbed them within their business strategy are seeing clear business benefits. However, greater focus in making FTAs more accessible to Australian businesses – particularly amongst smaller and resource-constrained businesses – is also key.”
HSBC’s research follows a damning rebuke of Australia’s FTAs by the Australian Chamber of Commerce and Industry (ACCI), which earlier this year claimed that many FTAs are so poorly drafted and complex that they are next to useless in a commercial sense:
[ACCI] said that some FTAs were so poorly drafted that most Australian firms selling goods to those countries did not even claim preferences to which they were entitled, because of the cost and delays involved. He said the Korean FTA was the worst…
…unless technical elements of the Korean deal are redrafted before it is formally ratified, it will become “unworkable in a commercial sense”, as will the Japanese deal if its compliance clauses are not drafted in a business-friendly way…
In a recent survey, most Australian exporters told the ACCI the technicalities precluded them from understanding Australia’s FTAs to date…
In a different survey of companies Asia-wide cited by the chamber, fewer than 30 per cent of the firms responding used the concessions available to them under FTAs.
Business’ concerns are similar to those raised frequently by me that complex ‘rules of origin’ (ROO) attached to FTAs raise administrative costs for businesses (including complying with paperwork requirements) and custom services in administering and auditing the ROO, undermining the benefits from the FTA. I have also argued that the costs associated with ROOs will be greatest where there is a large number of FTAs each with different requirements, resulting in a ‘spaghetti bowl effect’ of increasing complexity.
When viewed alongside the fact that most of Australia’s FTAs contain big carve-outs of agriculture, it’s hard not to view FTA negotiations as mostly political, rather than based on economic considerations.
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