Back in 2014, HSBC released 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.
HSBC’s research followed a damning rebuke of Australia’s FTAs by the Australian Chamber of Commerce and Industry, which claimed that many FTAs are so poorly drafted and complex that they are next to useless in a commercial sense.
Earlier this week, KPMG cautioned that many Australian small and medium-sized businesses are not utilising FTAs because they are far too complicated. From The Australian:
Leonie Ferretter, KPMG trade and customs director, said government programs aiming to increase the number of small and medium-sized businesses using trade agreements were not working.
“You’d like to think that, year on year, you’d be seeing a much greater use of free-trade agreements in place, yet we’re not seeing any exponential growth in the use of free-trade agreements. For me that’s a big standout,” she said.
KPMG and Thomson Reuters survey 1700 companies each year across 30 countries. In 2016, just 23 per cent of those businesses used all applicable free-trade agreements, the survey found.
It was very common for KPMG to consult with businesses that had realised they could have used a free-trade deal, Ms Ferretter said.
“My next call is with a business which has been manufacturing and exporting into the ASEAN region for four years and they didn’t realise that they could have taken advantage of a FTA. So their product has basically paid duty going into the ASEAN region when in fact they could have had a much better bottom line, and competitive advantage when they were going into tender processes.’…
“I have been in free-trade agreement training sessions with clients, and their main job is not to navigate 42 acts of parliament to try and interpret how that free-trade agreement applies to them,” she said.
“I think it needs a re-think because Joe Bloggs producing five or six products is not going to sit there and wade through all of the legislation that applies to a FTA. It’s too complicated.”
Ms Ferretter said many businesses were overwhelmed by the “burdens of navigating FTAs” and had to outsource the tariff classification of goods, valuations and the determination of origin of goods to other brokers.
“If you look at manufactured goods, they have very complicated rules of origin and then if you have organisations which are dealing with multiple free-trade agreements, none of those free-trade agreements are the same,” she said.
“So if you pick one product, you have five free-trade agreement sets of rules that you need to review and apply to your product.”
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.
