How to take advantage of FTAs
Free trade agreements are the darling of any economic relationship, but what are their limitations, and how can you maximise the benefits they bring?
Earlier this year, the Australian Industry Group (Ai Group) released results from a survey they conducted among small to large exporters on the benefits of free trade agreements. The survey found that in more than half of all cases, for all countries with which Australia has a bilateral FTA, businesses reported no benefits.
Far from saying that FTAs were a waste of time, the survey results indicated that agreements were just the beginning and that businesses need more than signatures to succeed, says Innes Willox, director of International and Government Relations at Ai Group. “What industry is saying is there needs to be more follow-through to help take advantage of opportunities that might arise from an FTA.”
He confirms that while “industry basically welcomes the concept of free trade because of the potential market access, the FTAs alone guarantee nothing. It doesn’t mean the floodgates open and the market is suddenly wholly accessible,” he explains.
Parliamentary Secretary for Trade Anthony Byrne sees an FTA as a symbol of a “global commitment to an open international trade and investment system”, particularly in the wake of the global financial crisis, when protectionism threatened world trade. Therefore, regional agreements such as the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), which came into force at the beginning of this year, sends a clear message against protectionism, he says.
The breadth of the agreement, covering goods and services, investment, intellectual property, e-commerce, business travel, competition policy and capacity building, provides opportunities for exporters across the board. “One key feature of AANZFTA is that, even if it does not deliver perfect market access right now, over time the barriers will fall for most products,” Byrne notes. “FTAs are not panaceas for exporters, but they are steps forward on the road to greater market access and require a bit of faith to work.”
Living documents
“The benefits come over a period of time,” agrees Cameron MacMillan, former trade commissioner and current executive director of International Business at global business advisory BDO (QLD). “They are living documents and there are regular negotiation points where our government can go to the American government or the Chilean government or whoever and say ‘we’d like a review of the situation’. Prior to the FTA, we never had that opportunity.”
MacMillan believes FTAs are a great way to understand issues between markets, starting from the negotiation phase. “You never get a better opportunity to put your dirty laundry on the table, so to speak. If you have an issue with a country, it’s the most appropriate time to bring it up and negotiate. It takes the relationship to a whole new level,” he says.
This then paves the way for a priority trade relationship, one that enables Australia to more easily change aspects of the agreement as the economic environment evolves, he says. “The fact that it is a living document means you can go back at agreed intervals and say ‘this isn’t working for me’, whereas prior to that there was no foundation for negotiation, you just fought battle-by-battle and it wasn’t a relationship.”
An FTA “opens up discussion”, says MacMillan. “It focuses people on the outstanding issues and endeavours to make the operating environment more transparent.”
Doing business
While negotiation is an important aspect of an FTA, exporters are understandably more interested in the benefits to be gained after the parties have signed the agreement. MacMillan points out that an FTA merely lays the groundwork for open business, so it is unlikely that everyone will see benefits from day one. “FTAs don’t do business for people, they just set environments,” he says. “It doesn’t mean exporters can relax, but it does mean they need to do more research.”
Willox says exporters need to understand this crucial point about FTAs—while the agreement may open a market, a business still needs to make it work. “There are the issues of making contact, developing business proposals, developing your credibility, marketing,” he explains. “It takes a long time to build up credibility, and that would be the case if there was an FTA or not. There are a whole lot of other factors at play. The FTA is not the whole answer.”
He believes government and industry need to work together to achieve the trade results expected when parties sign an FTA. “Governments are quite rightly proud of having an FTA, they’re not easy things to negotiate, but there’s a feeling that industry is not taking advantage of it,” Willox observes. “Industry is a little bit reticent to jump fully into the pool of a new market without some sort of help. FTAs do present opportunities, but it takes a long time.”
In short, although exporters need to be aware of the access to a market allowed by an FTA, they also need to select the market on its own merits, not just because Australia has an FTA with a party.
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