Wheat exports blooming to ASEAN countries

03.10.2016

In the three years following Australia's 2010 trade deal with Southeast Asia, Australian wheat exports to those countries grew by an average of 19 per cent a year which was more than double the growth of the region's overall wheat imports.

The industry organisation Grain Growers Ltd is reluctant to attribute this bonanza entirely to the tariff reductions in the relatively low-profile trade deal given Australia's freight advantages and dietary changes in the fast emerging regional middle class.

But Grain Growers manager of trade & economics Cheryl Kalisch Gordon says: "Does it make it easier for us to capitalise and grow? Absolutely." And she notes things get even better this year as Australian wheat can now be traded tariff-free around most regional countries.

However, when the Australian Chamber of Commerce and Industry (ACCI) polled its members last year about the value of the multiplying number of trade deals in this region they got a quite different response.

Fifty-seven per cent of respondents said they did not understand that 2010 ASEAN-Australia-New Zealand Free Trade Agreement (ANZFTA) and did not use it, which was actually a better result than for some other FTAs.

"Companies don't know what they [are] doing with these agreements," observes ACCI international director Bryan Clark.

Somewhere between these experiences lies the answer to an increasingly important question of how much business is taking up the growing range of trade deals from the past decade.

Southeast Asia is arguably the key to answering the question because it is a major source of alternative Asian growth as China slows and is closer to Australia. It also contains the largest number of deals.

Take, for example, Malaysia. If the US-led Trans-Pacific Partnership (TPP), which is now hamstrung by presidential election politics, survives and the Regional Comprehensive Economic Partnership (RCEP) goes ahead next year, Australian businesses wanting to operate in Malaysia will actually have five separate trade preference choices.

Export Council of Australia chief executive Lisa McAuley concedes that "many Australian businesses, especially SMEs, do not have a practical understanding of the benefits of FTAs."

However she also argues: "Quite often FTA's remove barriers and companies are not even aware that they now do business because the FTA opened up the opportunity."

Australia now has three bilateral deals: with Singapore (agreed in 2003 but recently extended into standards and people movement), Thailand (2005) and Malaysia (2012). Then there's the regional wide ANZFTA.

On top of this there is potentially the TPP which includes Singapore, Malaysia, Vietnam and Brunei with some other regional countries wanting to join and the RCEP which includes most of east Asia and India.

Then there is evidence of quite significant sectoral variations in the use of agreements. The  Austrade/ECA Australian International Business Survey polling on use of ANZFTA, for example, shows it was used by 43 per cent of agriculture exporters and 29 per cent of manufacturers.

But 29 per cent of wholesale traders and 23 per cent of professional services said they exported to this region without using it. And 69 per cent of training businesses and 59 per of IT businesses said they were uncertain whether the agreement would even apply to them.

On the import side government figures show that about 11 per cent of imports from ASEAN countries come into Australia under the ANZFTA deal and about 25 per cent under the three bilateral deals with Singapore, Thailand and Malaysia. Much of the remainder would enter with no tariff given Australia's relatively low tariffs.

On top of this the Southeast Asian countries have their own relatively new ASEAN Economic Community (AEC) with a target of an integrated market by 2025.

But it says something about the uncertainty over the implementation of this agreement that one Australian trade expert says there are cases of indigenous Southeast Asian companies using the Australian-negotiated ANZFTA to trade across their own borders rather than the AEC.

Nevertheless confusion in Australia about which trade deal to use is a problem when the federal government often promotes the deals done on its watch as its single biggest achievement but its policy adviser the Productivity Commission continues to criticise the value of bilateral agreements.

In a new paper on the evolution of economic engagement with Southeast Asia the Department of Foreign Affairs and Trade is quite frank about the opportunistic approach to developing these deals: "Australian policy has been pragmatic in seeking to provide more commercial opportunities for Australian business.

"Bilateral FTAs add value by focusing more intensively on particular market access issues and other priorities than is possible in regional or plurilateral negotiations.

"The scope for Australia to engage intensively is dependent on the prevailing context and varies among ASEAN member states. Therefore the emphasis given to bilateral and regional approaches tends to vary over time."

Speaking at the launch of the HSBC Asean Connected report last month special trade negotiator Michael Mugliston, who has played a key part in many of these deals, argued they were not static and their diversity provided business with a range of opportunities.

But government strategists argue that the contacts built up through the negotiation of these deals means that Australia is much more familiar with the emerging debates on the regulatory and standards issues which are increasingly important to businesses wanting to enter regional supply chains and export services.

Indeed the DFAT paper says candidly: "Australia has not only become part of ASEAN's policy engagement, but embedded within ASEAN structures both formally and informally. It is a story driven by the reasoning that a stronger, more prosperous ASEAN is in Australia's interest."

While ACCI's polling reveals business uncertainty, some business strategists are more supportive of the government's opportunistic approach rather than waiting for an over-arching deal.

"You are exporting to a market not to a trade deal. You do need to compare these deals," says Ai Group international advisory services national manager Louise McGrath.

She says the trade negotiators' long involvement in the changing regional policy landscape has helped pave the way for early and sustained business involvement in the RCEP negotiations which should eventually produce a business friendly deal.

While the TPP has tended to overshadow the RCEP, McGrath says the RCEP is potentially more important to Australian business because it covers the entire landscape of the new supply chains.

"It's hard to find a member who doesn't have a supply chain coming or going to China (which is in the RCEP but not the TPP)," she says.

Grain Growers' Kalisch Gordon likewise says her members will benefit from the way the RCEP would expand the beneficial access they already have under the ANZFTA.

Melbourne cutting tool machine manufacturer ANCA moved part of its production to Thailand 10 years ago, taking advantage of the free component movement under the Thai FTA.

But now as China has emerged as its biggest export market it has discovered that the Chinese tariff on exports from the Thai factory are lower than from Australia even though Australia has a newer China FTA. The RCEP could fix these sort of intra-regional complexities.

HSBC global trade and receivables finance head Rohit Garg says that while business needs more help understanding trade deals the growth of them really shows a desire to find new trade paths.

He says a deal like RCEP which covers the entire supply chain is potentially more beneficial than the bilateral deal with China because a supply chain to or from China might run through a country such as Indonesia or Vietnam.

"Clients are focusing on emerging supply chains and how to make their own more efficient," he says.

He says most Australian businesses still regard Southeast Asia as a series of individual country business opportunities due to the disparities between the countries. But the search for new growth means neighbouring countries soon come into consideration for expansion.


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