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Services shine as FTAs deliver for exporters

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Long the poor cousin of goods exports, services continued their rise in 2015 on the back of lower trade barriers in Asia.

For the Turnbull government, the latest data makes happy reading in its push to transition the economy from the former mining boom to the so-called “ideas boom.”

According to the Department of Foreign Affairs and Trade (DFAT), services exports expanded by more than 9 percent to nearly $63 billion in fiscal 2015, contrasting with a fall in the value of goods exports, particularly minerals and fuels.

Strong growth was recorded in the nation’s top three services exports markets, with China up nearly 18 percent to around $9 billion, the United States up over 10 percent to $7 billion and Britain rising by 19 percent to nearly $5 billion.

According to DFAT, services exports to China have risen by 9.2 percent a year since fiscal 2010, with a 6.8 percent annual gain for US exports and 4.2 percent for Britain.

Among the services sectors, education stood out, with international student expenditure growing by 14.5 per cent to a record of more than $18 billion. For calendar 2015, the sector is estimated to have racked up more than $19 billion in exports, with education currently the top services export and the third largest overall behind coal and top-ranked iron ore.

Exports of business services rose by nearly 11 per cent to around $17 billion, with financial services increasing by 25 percent to $3.5 billion and telecommunications and information services posting a 36 percent gain to $2.7 billion.

Tourism boom

The tourism sector also benefitted, with short-term international visitors to Australia rising by nearly 7 per cent to 7.1 million, and expenditure on personal travel other than education growing by 6 percent to almost $15 billion. The largest sources of visitors were New Zealand with 1.26 million tourists, China with 927,700 and Britain with 666,200.

Commenting on the latest data, Trade Minister Steven Ciobo said expanding services exports “is a key trade policy focus for the government.”

“As the economy transitions from the mining boom to the ideas boom, services will be a central element of Australia’s transition to a broader-based growth model, one that delivers more diversified sources of growth, higher levels of productivity and job creation,” he said.

Scope for growth

“There is tremendous scope for growth in our services exports, given services account for around 70 percent of our economy yet represent only about 20 per cent of our total exports.”

While Australia’s relative geographic isolation “makes it harder to deliver services compared to countries that border other nations,” DFAT argued that traditional measures underestimate the contribution of Australia’s services industries to total exports.

According to DFAT, services’ contribution to exports on a value-added basis exceeds 40 percent. The figure may be even greater when considering that two-thirds of Australian services provided to the world are delivered by Australian foreign affiliates abroad instead of via direct export, the department said.

FTA push

The trade minister said recent free trade agreements (FTAs) with North Asian trading partners had opened up further opportunities for services exporters, with a further lowering of trade barriers eyed.

“Following the entry into force of the China, Japan and Korea FTAs, Australia is pursuing early ratification of the Trans-Pacific Partnership Agreement,” Mr Ciobo said.

“We are also actively participating in negotiations to secure a WTO-plus Trade in Services Agreement, which involve 50 economies.”

However, Australian businesses have been urged to take advantage of the competitive gains from the FTAs, or risk losing an edge to rival exporters.

Underutilisation of FTAs

According to HSBC, only 19 per cent of Australian exporters are using FTAs, compared to 26 per cent of Asian competitors. Another study, AIBS 2015, showed that around 20 per cent of Australian exporters consider FTAs useful to their business, but nearly half were uncertain about whether such deals are applicable.

With China engaged in 22 current or planned FTAs, Japan in 24, South Korea with 23 and India in 28, Australia’s underutilisation of FTAs could put exporters at a commercial disadvantage.

Typical reasons given for such lack of use include a lack of understanding of FTAs and their benefits, a lack of awareness of the Rules of Origin requirements, compliance issues and a belief that accessing the benefits is “too costly and burdensome.” 

In a bid to ensure Australian exporters benefit, DFAT and Austrade have rolled out a series of information seminars across the nation on the latest North Asian FTAs, including a promotional campaign and grants for industry trainers.

For details of the latest seminars, visit: http://www.austrade.gov.au/Australian/Export/Trade-Agreements/seminars

With the mining boom now a distant memory, Australia’s services exports are crucial in ensuring the nation continues its record-breaking run of economic growth. For services exporters, it could be the start of what the government has proclaimed in its innovation agenda as “the most exciting time in Australia’s history.”Services_AnthonyFensom

Anthony Fensom is an experienced business writer and communication consultant with more than a decade’s experience in the financial and media industries of Australia and Asia. 

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