Australia has recently concluded trade agreements with Asia’s three biggest economies – China, Japan and Korea – and Australia’s three largest export markets.
These agreements are expected to provide new opportunities for Australian companies doing business in Asia.
But they have also added new layers of complexity, says Bruce Gosper, CEO Austrade.
In a recent speech to industry leaders in Sydney, Mr Gosper said Asia is not one market but many, each with its own unique characteristics.
“It is one thing to appreciate the scale of opportunity on offer (with the new FTAs), quite another to know how to act on it,” he said.
A recent survey undertaken by Austrade in conjunction with EFIC, the Export Council of Australia and the University of Sydney, Australia’s International Business Survey (AIBS) has come up with some interesting initial findings.
One of these is that companies are unsure how FTAs can benefit their business, even when they might already be operating in that market.
Mr Gosper said most agreements are much more than just tariff reductions.
The Australian Trade Commission (Austrade) is well-equipped to assist Australian exporters to grow their business in the region, he said.
Mr Gosper explained how exporters can benefit from the new FTAs:
Of the three, China is probably the one undergoing the greatest change as it continues to re-balance away from dependence on investment and export-led development.
China is seeking new sources of growth through domestic consumption and more open markets.
It is looking increasingly like a modern, developed economy, where consumption and services make up a larger proportion of GDP.
Demographic changes are also having an impact.
As prosperity spreads and the middle class grows, so too does the number of people aged over 60, which is forecast to rise from 180 million today, to 487 million by 2050 – more than a third of the entire population.
The China-Australia Free Trade Agreement, ChAFTA, reflects some of these changed circumstances and priorities, providing the best market access any foreign country has achieved so far.
This access extends beyond industries such as food, agriculture and resources to include several of Sydney’s key industries such as financial and professional services and education.
Australian banks, insurers and securities firms in particular will be allowed deeper participation in the Chinese market.
ChAFTA will give them up to 49 per cent Australian ownership in joint ventures, for example.
And Australian financial institutions, including superannuation funds, will be allowed to invest RMB in China’s onshore securities markets.
Australia is just the fourth country in Asia to be granted this status through the RMB Qualified Foreign Institutional Investor program.
It means millions of superannuation holders in Australia will have access to shares in Chinese firms and Australian superannuation funds will be able facilitate this.
As China’s population ages, so too does its pool of private retirement savings.
This is important because, under ChAFTA, Australian brokerage and advisory firms will be able to provide financial advice and portfolio management services to private Chinese investors, as well as trading accounts in securities. This could change the mix of China’s international financial assets to include more actively invested private wealth assets and savings in higher-yielding assets.
ChAFTA will help Australian superannuation funds provide alternatives to the limited range of options currently available in China.
Meanwhile, the recent opening of an RMB trading hub in Sydney will make transactions between Chinese and Australian firms much simpler, contributing to an overall strengthening of trade, including financial services, and smoother bilateral investment flows.
Income growth in China is also driving increased Chinese visitor numbers.
Tourism will benefit further from a new air services agreement signed last month, tripling the number of seats airlines will be allowed to provide between China’s largest cities and Sydney.
Chinese visitors are now spending around $5 billion in Australia annually, more than those from any other market, and their interests are increasingly varied.
These range from traditional package tours to more adventurous solo travel that embraces just the kind of diverse experiences Sydney’s vibrant urban landscape can provide.
Among those experiences, of course, is eating out.
All three of our new FTAs deliver significant gains for agriculture and Australia’s food and beverage producers.
ChAFTA, for example, will eventually eliminate tariffs on a whole range of Australian exports including beef, lamb, dairy, wine and many others.
Under ChAFTA, our industry will benefit from the elimination of tariffs on manufactured goods such as medical devices and pharmaceuticals.
With increased ease of travel to Australia, our capacity to treat private patients from places such as China will naturally grow.
Under ChAFTA, though, Australian providers will also be able to treat patients in China itself, thanks to a provision, which allows for wholly Australian-owned, profit-making hospitals and aged care facilities to be established.
As China’s population ages, such facilities will become increasingly important.
ChAFTA also provides some significant opportunities for Sydney’s education providers.
Within one year of entry into force, an additional 77 Australian institutions will be added to China’s official Ministry of Education website, joining 105 already granted this status.
This is hugely significant because the vast majority of Chinese higher education students studying in Australia – almost 90 per cent in 2013 – choose an institution listed on the site due to the quality and fraud assurance it provides to both students and employers.
China has agreed to ongoing discussions about listing more Australian institutions on the site, as well as increasing the marketing and recruitment opportunities for Australian education providers in China and expanding the number of teacher and student exchanges.
And, in conjunction with the FTA process, Australia and China have moved towards greater mutual recognition of qualifications, leading to increased mobility of students, academics and researchers.
The education sector already exports over $4 billion in services to China but now has a chance to build on one of its key markets.
Education is also an important area of opportunity from the Japan-Australia Economic Partnership Agreement or JAEPA.
The number of Japanese students studying in Australia is already increasing on the back of profound changes in the Japanese Education system.
Policy makers there are pursuing the formation of what they call “global human capital”, or the internationalisation of training.
Japanese companies are increasingly aware that internationally capable graduates and staff are essential if they are to maintain their business and investment drive across the Asian region, particularly in ASEAN member countries.
In response, the Japanese Government has set a goal of doubling the number of study abroad students from 60,000 to 120,000 by 2020, and increased funding for study abroad to $90 million.
Its Top Global Universities Program is transforming Japanese universities from domestically focused institutions to internationally focused education businesses.
This is creating huge opportunities for Australian universities to develop genuine partnerships involving joint degree programs, joint pan-Asian campuses, staff and faculty development services, and institutional R&D linkages.
Importantly, JAEPA broadens the opportunities by extending eligibility for Japan’s JASSO overseas scholarships to a broader range of TAFE institutions, provided they have a partnership agreement with a Japanese university.
The only requirement is that students must undertake study overseas as part of their degree at the home institution.
In financial services JAEPA guarantees cross-border access for Australian funds managers providing investment advice and portfolio management, and allows Australian financial services providers to participate in wholesale securities transactions with financial institutions in Japan, without necessarily having a presence on the ground.
It also permits off-shore processing of financial data.
Japan committed to enhanced transparency of financial services regulation as well as improved review mechanisms for licensing of suppliers and financial products and services.
Like China, it has an ageing population and need for high yield investments to fund future pension requirements are driving investment towards higher-yield products such as managed investment trusts, thus representing an opportunity for Australian fund management firms.
Currently only 20 per cent of Japanese-held financial assets are managed by asset management firms, with the majority invested in conservative options such as bank deposits and government bonds.
So there are great opportunities for sophisticated and internationally competitive Sydney funds management firms with extensive experience in managing institutional investor mandates across a range of asset classes to win business in Japan, and to attract Japanese investment mandates.
Other service sectors also benefit from JAEPA. Lawyers wanting to practice as foreign lawyers in Japan, for example, will be entitled to expedited registration procedures. A guaranteed 90-day processing period lifts the uncertainty that previously existed around delays.
Australian law firms will also have the flexibility of being able to form Legal Professional Corporations under Japanese law.
More broadly, professional services will benefit from guaranteed visa access arrangements, including for spouse and dependents. This removes as an issue regarding inconsistent processing times.
Japan has also committed to encouraging efforts towards enhanced mutual recognition of professional qualifications.
We understand that engineers are already actively working to secure qualification recognition and therefore increased mobility ahead of the 2020 Olympics and 2019 World Cup.
Australian telecoms providers will benefit from guaranteed non-discriminatory treatment, competitive safeguards and fair and reasonable access to telecommunications networks.
There will also be enhanced regulatory transparency and mechanisms for review of licensing applications.
Korea shares some of the characteristics of its North Asian neighbours but also has its own distinctive features.
Korea, for example, has had relatively high rates of youth unemployment and a
highly competitive labour market – one factor behind the large number of Korean students in Sydney.
There are also growing opportunities for education services delivered locally and the Korea-Australia Free Trade Agreement, or KAFTA, guarantees Australian providers access to Korea’s adult education market.
Towards the other end of the age spectrum, Korea, like China and Japan, also has an ageing population – the second-highest rate of aging in the OECD, in fact.
Pension funds seeking higher growth are emerging alongside a more outward-looking financial services sector, driving increased interest in potential partnerships with firms in overseas financial centres such as Sydney.
Access for Australian law firms
The Korea-Australia Free Trade Agreement comes at the right time for this, allowing providers in Australia to supply specified services on a “cross-border” basis.
This includes investment advice and portfolio management for investment funds, as well as a range of insurance and insurance-related services.
KAFTA allows Australian law firms access to Korea's legal consulting services market for the first time by permitting Australian firms to establish representative offices in Korea, and allows Australian lawyers to advise on Australian and public international law.
Within two years of KAFTA entering into force, Australian firms will be permitted to enter into cooperative agreements with local law firms, and within five years to establish joint ventures, and hire local lawyers.
This is very significant – at present the only “Australian” law firm in Korea has set up as a UK firm under the EU-Korea FTA.
Recognition of professional qualifications
More broadly, visa arrangements for Australians have been liberalised, including for dependents to enter Korea and there is ongoing progress towards mutual recognition of professional qualifications.
In the Arts, Korean film and music production is flourishing and an Audio-visual Co-production Agreement will deliver commercial opportunities for production houses here to collaborate.
“It’s important to stress, however, that Korea, Japan and China can be challenging places to do business, said Mr Gosper.
“These are competitive markets with idiosyncrasies that aren’t always obvious to new market entrants.”
Mr Gosper urged exporters to undertake careful preparation before entering into new agreements.
“Austrade can be an important part of this process,” he said.
“Our posts in China, Japan and Korea offer a range of useful services for new and experienced operators alike.
“I would encourage you all to make use of them.”