Advice on the Opportunities and Challenges Facing Small and Medium Australian Export-Oriented Businesses that Seek to Leverage Free Trade Agreements for the Export of Goods and Services

Abstract

This submission draws on empirical evidence (see appendix) to consider the terms of the inquiry in relation to the nine key barriers to free trade agreement (FTA) utilisation outlined in the 2016 KPMG report on leveraging FTAs for Australian trade growth, including: lack of awareness of FTA benefits; IT infrastructure challenges; internal capability limitations; complex rules of origin for each FTA; opaque trade regulations in Asian markets; multi-jurisdictional supply chain challenges; market access difficulties and non-tariff barriers; increasing services export to Asia (not products); lack of comprehensive, affordable FTA advisory services. The empirical evidence demonstrates that small and medium enterprises (SMEs): • Display sufficient productivity and profitability levels to fully benefit from Australia’s comparative advantage in key FTA partner countries. • Do have access, but largely underutilise FTAs relative to their contribution to the domestic economy. • Pay lower wages than large exporting enterprises on average. This indicates that under-utilisation of, and not access to FTAs is the fundamental cause of the low levels of exports and below average wages in SMEs. Furthermore, the empirical evidence refutes the existence of all but two of the key barriers identified in the KPMG report, namely: • Opaque trade regulations. • Multi-jurisdictional supply chain challenges. In order to overcome these two barriers, this submission recommends the introduction of targeted trade adjustment measures. Accordingly, the following sections seek to demonstrate how the implementation of one such measure, a destination-based cash flow border adjustment tax (BAT), can lead to greater leverage of FTAs by Australia’s small and medium export-oriented businesses.