How to take advantage of FTAs
Benefits for goods exporters
The most direct benefit enjoyed by businesses under an FTA is the reduction or elimination of tariffs.
Further to that, under AANZFTA in particular, changes to the rules of origin may well be the most empowering aspect for goods exporters, enabling Australian businesses to work supply chains around South East Asia. “It means the small guys get to play. They may not be big in themselves, but they might control a key element. They can get bigger people to play around with them because they now have these access channels,” explains Rod Morehouse, senior trade commissioner to ASEAN. “We stay in the top in skill set; we don’t get locked lower down in the skill set where we’re not terribly competitive. And then there’s the servicing of that; the financing, the management, the marketing, the packaging, the design of it can all be up to us.”
Other benefits will come from commonalities, which Morehouse believes will develop over time. This means Australian exporters will only need to meet one set of specifications to reach a market of 600 million people. “They are already looking at standards, labelling, quarantine, copyrighting, and they are looking at trying to harmonise,” he says. “One side is tariffs, but the other side is the specification and regulatory side.”
Benefits for service exporters
Service exporters can also take advantage of FTAs through greater recognition of education and competency standards, and the ability to travel and work more freely in other markets. “The government has negotiated us to a point where you can have more flexible operating arrangements in countries. That’s going to make operating in the environment so much easier,” says MacMillan.
And, as Morehouse remarked, the rules of origin changes under AANZFTA will allow service exporters such as those in the finance, management, marketing and design sectors to have a hand in supply chains that they may not have been able to access previously.
Benefits for investors
“Investment has always been a feature of FTAs. Most of them have tried to set up a framework that allows for a more transparent, less risky environment,” says MacMillan. Benefits include guarantees about investments, from adequate and timely compensation in the event of nationalisation of an asset, to legal protection.
For exporters that plan to set up operations in a country, any change in taxation laws under an FTA will be of interest. However, don’t take this part for granted as not all FTAs address this issue. The Australia-Chile FTA, for example, did not include a tax treaty until more than a year after it came into force. Exporters need to review a market and look at what the FTA does in terms of tax, but understand there’s may be more to tax than just the bilateral tax treaty, which may or may not suit the business.