Australian exporters: Gaining a competitive advantage through digital trade innovation

Around the world, Governments lowered barriers to cross-border digital trade as part of the overarching policy response to the COVID-19 pandemic.

More digital facilitation measures were introduced than in previous years, helping remote working and online business operations. These new developments are in contrast with the build-up of restrictions applied to digital trade over the last few years and the restrictions that continue to apply in certain sectors, such as computer and telecommunications services.

Previous delays in Australia ’s implementation of digitalisation of trade documentary requirements has meant a loss in competitiveness, as reflected in Australia ’s poor ranking of 106 in the World Bank’s Trading Across Border index.

As far back as 2015, a paper by the Export Council of Australia (ECA), KPMG Australia and the Australian Digital Commerce Association (ADCA merged with Blockchain Australia in July 2019) presented the combined vision for a digitally facilitated international trade value chain by 2025. The paper highlighted the possible benefits to all participants in the international trade value chain based on a digital trading platform. It identifies some of the steps needed to make it happen and outlines why the planning should be based on blockchain as the technology behind this platform.

Our shared vision was for a simpler, lower-cost international trading system, enabled by the trust and confidence that comes from a secure digital platform.

In 2021 the ECA is continuing to advocate that greater digital trade and data flows are crucial for Australian exporters to compete in international markets. A two-pronged approach is required to move forward:

• Industry leaders to push for the adoption of greater digital delivery of services. (The digitalisation of services has become part of our everyday use since the Covid virus emerged).
• The Australian Government to continue to build on their 2020 budget priorities to provide a single window of trade for goods and services that utilises Blockchain technology.
• This approach will ensure that the value of services trade is more visible and will reduce ambiguity around what market access applies to what country and industry as well as highlight what procurement opportunities are available. Additionally, it will also open greater opportunities for Australian services businesses, especially B2B.

Trade in Services

During 2020 and even earlier the Australian Government ’s Department of Foreign Affairs and Trade has been working with peak Industry bodies on a Services Export Action Plan (SEAP) (see box below left).

In 2016, services made up 21.6 per cent of Australia ’s total exports. When the value that Australian services add to goods exports is also taken into account, services represent around 40 per cent of our export earnings.”However, while managing these opportunities, we must also consider the intellectual property, sovereignty and cyber security concerns of these activities.

The Export Council of Australia collaborated with IP Australia in 2019 and 2020 to research and produce a paper into the experience of Australian firms enforcing their intellectual property rights in Asia .

Regarding the trade of services, the study highlighted the following issues for services:

• From case studies, it was clear that in the ASEAN market, the strength of their legal advice helped the service providers stay protected.
• Breaches in IP came in the form of IP infringement because of the first to file regime rather than the first to use regime.
• IP was creatively protected by some companies by embedding codes in IP that would ensure that licenses could not be used multiple times.

Why build on the strength of trade in service?

According to Western Union, services now account for over two-thirds (68%) of global GDP and nearly half (49%) of all employment. Pronounced in developed economies where such jobs represent around 75 per cent of total employment. By making the value of services more visible and collecting quantifiable service trade data, we need to focus on upskilling businesses to meet the needs of further digitalisation.

We can capitalise on Australia ’s service capabilities and expertise by ensuring that it is written into the architecture of current and future FTAs and aligning this with our trading partners.

The Western Union Report also highlights, “Based on official statistics, the share of services in total trade has risen to 24 per cent in 2019 from 19 per cent in 1995. Yet official data also likely understate, by a large percentage, the true contribution of services to trade flows. This is because the value assigned to the production of agricultural and manufactured products, for example, also includes significant amounts of underlying service activities, like Research & Development, accounting and legal services, as well as marketing and distribution services. After-sales support services such as training and maintenance/repair may also be included in the value of goods.”

Trade agreements: Digital traffic flows and protection

A positive suggestion from our study and other research activities for trade in services is how digital trade flows and digital protection in trade agreements has been pursued, such as the Australia Singapore Digital Agreement (DEA). DEA entered into force on 8 December 2020. The DEA breaks new ground. It sets new global benchmarks for trade rules, and a range of practical cooperation initiatives, to reduce barriers to digital trade and build an environment in which Australian businesses and consumers are able to participate and benefit from digital trade and the digitalisation of the economy.

The DEA upgrades the digital trade arrangements between Australia and Singapore under the Comprehensive and Progressive Agreement on the Trans-Pacific Partnership and the Singapore-Australia Free Trade Agreement which are already among some of the most ambitious globally.

For example, it delivers more robust rules that ensure businesses, including in the financial sector, can transfer data across borders and will not be required to build or use data storage centres in either jurisdiction; improves protections for source code; establishes new commitments on compatible e-invoicing and e-payment frameworks; and delivers new benchmarks for improving safety and consumer experiences online.

The DEA also delivers a range of new trade rules, and a comprehensive framework for bilateral cooperation, to help businesses and consumers capitalise on the digital economy. Australia and Singapore have negotiated cutting-edge new rules and signed a series of MoUs on areas including data innovation, artificial intelligence, einvoicing, e-certification for agricultural exports and imports, trade facilitation, personal data protection, and digital identity.(www.dfat.gov.au/trade/services-and-digital-trade/australia-singapore-di…)

Many of our FTAs offer insights as to how to manage the digital trade in services in the future. The agreements that have led the way include:

• Pacific Agreement on Closer Economic Relations (PACER) Plus
• Trans-Pacific Partnership (CPTPP)
• Australia-Hong Kong FTA (A-HKFTAA)
• Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA)

Further reference is also made to the Western Union report: The Global Services Trade Revolution Report: Fuelling post pandemic economic recovery and growth.

This report commissioned from Oxford Economics for Western Union is a timely reminder of the opportunities available for Australian service providers now and into the future. “The report captures many of the current aspects regarding the positioning of Australian Services export. The Report identifies Australia and NZ as hotspots for knowledge intensive service industries and also predicts that with adoption of new technology and digitisation of working practices it is likely to further fuel post-pandemic economic recovery and growth of cross border trade in services.

The report provides clear and researched data that suggests in reaction to the COVID-19 pandemic and into the future, cross border trade in modern digital services with the support of further policy liberalisation and investment in ICT infrastructure, will enhance growth, strength and continued economic benefits to the broader Australian economy.

Service industries are a large and growing share of the Australian economy and world trade. While services account for approximately 70 per cent of the Australian economy, they are a much smaller proportion of Australia ’s total exports indicating there is scope for significant growth. Some service industries are subject to extensive regulation and barriers to entry. The Government and its agencies continue to advocate freer global markets for services, but reducing barriers is more complex than it is for trade in goods. Barriers encountered by Australian service exporters include foreign equity limitations, harmonisation and standards, lack of recognition of qualifications, restrictions on the issue of licences, various restrictions on commercial presence such as the number and location of branches.

The Digital Trade Opportunity for Australia infographic

Text version

Value of Digital Trade for Australia’s Domestic Economy

Digital trade currently enables up to A$43 billion of economic value in Australia’s domestic economy.

By 2030, digital trade will enable an estimated A$192 billion of economic value in Australia’s domestic economy.

Potential benefits of digital trade are spread across all sectors of Australian economy, but particularly relevant in up to A$43 billion.

Value of Digital Trade for Australia’s Exports

Australia ranks 2nd amoung 10 leading APAC coun- tries in terms of number of paid apps (developed by Australians) donwloaded from abroad.

If digital goods and services were a sector, it would be the 4th largest export sector for Australia.

By 2030, Australia’s digital exports re estimated to grow by 210%.

Three Imperatives for Capturing Opportunity

1. Ensuring Open Data Flows
2. Building Flexibility Into Copyright And Intermedi- ary Liability Regulations
3. Minimising Border Frictions

Going forward

The Export Council of Australia works both with our members and stakeholders as well as Government to examine domestic and international barriers to Australian service exports, with a focus on tourism, education, financial, professional, information technology and tech services. We advocate with the Australian Government on possible steps to reduce barriers to service exports, with priority given to domestic policy reform that promotes competition and provides incentives for firms to innovate and lift their productivity.

Some additional but notable considerations when thinking about services and digital trade are:

• Services capability and capacity places Australia as a potential leader for the region in digital trade.
• As highlighted by Western Union ’s report, “Knowledge intensive, ICT enabled services tend to be exported by countries with the proper supporting infrastructure and high levels of educational attainment. This gives advanced economies a natural comparative advantage.”
• Australia and New Zealand have been investing into and supporting the Pacific Region ’s digital capabilities, with the Coral Sea Cable System Project and the Solomon Islands Domestic Network.
• To promote and strengthen digital trade across the region, Less Developed Countries will require international support in the development of infrastructure and policy responses.

Conclusion: The future is bright for services

The ECA ’s priority messages are:

• modernising and digitising trade processes and support services will boost the efficiency of goods trade.
• mutual recognition of qualifications and movement of people/visas continue to be the key issues of concern for exporters.
• encouraging open markets on services exports will enhance this sector ’s contribution to the broader economy.
• expanding the opportunities within the new FTAs (e.g. EU and UK) being negotiated.
• encourage industries with potential for Australia, such as consulting/expertise in environmental technologies and alternative energy, agri-food and AI.

On the global stage, Australia has championed the liberalisation of trade in services — in the World Trade Organization (WTO), in our bilateral and regional trade agreements, and in our support for services liberalisation and economic cooperation in forums such as APEC.

Australia has worked to encourage services trade through open markets and non-discriminatory treatment as a means to create more jobs and increase incomes. In recent years, coordinated whole-of-government and industry strategies have helped to grow and develop the tourism and international education sectors.

We must continue to do this for all services for the future and benefit of all Australians.