DEPARTMENT OF FOREIGN AFFAIRS AND TRADE SEPTEMBER | 2015
Business Envoy

IN THIS ISSUE

Opportunities for Australia
in services

Australian Ambassador to the Republic of Korea:Bill Paterson

Australia’s future prosperity will increasingly be driven by the services sector. Australia’s final services exports increased to $63 billion in 2014-15, comprising approximately 20 per cent of total Australian exports. This is a significant contribution to economic growth in its own right, but when combined with services in value-added terms, it contributes to over 40 per cent of Australia’s exports. Australian businesses in the services sector are already demonstrating global competitiveness. This edition of Business Envoy examines the growing role of services in Australia’s trade relations and considers opportunities for business in the region and beyond. Let us know your views and experiences by emailing us at business@dfat.gov.au


Global perspectives
from Australia's diplomatic network

From Jakarta: Permits, prices and policies for the live cattle trade

President Widodo convened urgent meetings in August to respond to rising beef prices and a widespread strike by beef traders in Jakarta and West Java. Constraints on beef supply, in part by lower import permits, have pushed prices up approximately 40 per cent to $13-$14 per kilogram, squeezing the profit margin of traders. The Indonesian government has announced a short-term fix by releasing additional import permits for 50,000 head of slaughter cattle until December. It is also reviewing the policy settings around the live cattle trade, likely increasing the role for government and state-owned enterprises. BULOG, a state-owned enterprise responsible for rice distribution and price stabilisation in Indonesia, has been tasked with reviewing the beef supply chain from Australian farmers to Indonesian beef traders. Australia is currently Indonesia’s sole supplier of beef. However, Indonesia is reportedly considering India and Brazil as potential cattle suppliers once quarantine issues are resolved.

From Paris: France sets its sights on Tehran

Following the conclusion of nuclear negotiations with Iran, French companies are looking to secure their place in the Iranian market. Before the imposition of sanctions, Iran was France’s largest market in the Middle East and France was Iran’s second largest trading partner after Germany. In 2004, France’s trade with Iran reached €3.7 billion, which dropped to €0.5 billion by 2013 under sanctions. French businesses have been poised for re-entry for some time. In July 2014, the French National Assembly Finance Committee encouraged companies to ‘pre-negotiate’ contracts in preparation for the lifting of sanctions. The French government has planned a trade delegation to Iran in September with around 80 CEOs. While concerns have been raised about re-entering the market, including the possible implementation of ‘snap-back mechanisms’ in the nuclear agreement, France is not alone. Germany sent a trade delegation to Iran five days after the signing of the accord in Vienna and Italy’s Foreign Minister visited Tehran on 4 August to seek closer trade ties. Although Australia still administers sanctions against Iran, businesses can apply for trade permits with Iran through the Online Sanctions Administration System. See www.dfat.gov.au/sanctions for more information.

From Manila: A market ripe for horticultural exports

The Philippines, one of the fastest growing economies in our region in the past five years, is hungry for fresh quality produce. With a growing middle class, and consumption representing around 70 per cent of economic activity, the retail sector is set to enjoy growing opportunities. Revised import regulations in 2013 in the Philippines saw the volume of Australian fresh fruit, including citrus and table grapes, rise 400 per cent in 2014. Australian grape imports rose from $5,000 in 2010-11 to $8.3 million in 2014-15 and citrus rose from zero in 2011-12 to $4.4 million in 2014-15. Discussions will soon start with key regulatory agencies on developing air-freight and ‘in-transit’ cold treatment arrangements for fresh fruit. Australian producers and exporters can capitalise on this growth and cater for the Philippines’ growing middle class looking for premium produce.

From Harare: Zambia’s power shortages affect Australian mining interests

Zambia’s recent power shortages have had a significant impact across the economy. There is an estimated 560 megawatt deficit in meeting Zambia’s demand. Shortages have been largely caused by poor rainfall, lowering the water flows along the Zambezi River and Kafue River that service Zambia’s largest hydroelectric power plants. The mining sector accounts for almost half of Zambia’s power consumption. Some mining companies have moved their production and refinery activity to ‘care and maintenance’ until dependable power is restored. Australian companies are among those that have halted production. The costs associated with power shortages come on the back of recent mining taxation hikes, presenting further financial pressures. The agricultural sector has struggled with its dependence on power for irrigation and poultry production. These economic issues appear set to influence both the elections in 12 months and the preceding period.

From Cairo: The ‘new’ Suez Canal

The ‘new’ Suez Canal is the flagship national project of the Sisi administration. It now includes a 35 kilometre bypass and a deepened waterway to allow ships with a draught of up to 66 feet to navigate the entirety of the canal. The Egyptian government believes that the project will make a tangible contribution to global trade. The Suez Canal Authority projects the canal’s daily capacity will increase from an average of 49 ship crossings today to an average of 97 daily crossings by 2023 and generate over US$100 billion over the next seven years. Some observers are more sceptical. Overall traffic in the canal will be governed by macroeconomic trends in global trade outside Egypt’s control. Even at the height of traffic in 2008, the canal had only 59 daily transits on average. However, the canal offers more than just economic returns. It has contributed to a wide sense of national pride and reflected well on President Sisi’s leadership. The fact that the canal extension was finished on time may also give investors greater confidence in the Egyptian government’s ability to achieve its economic goals.

From Washington: Rethinking the model of globalisation

Companies in the United States are increasingly reassessing the merits of offshoring production. Over the past two decades, many companies moved their operations to lower-cost centres, particularly in Asia. However, rising costs in Asia and the lower price of energy and modest productivity improvements in the United States now have executives pursuing ‘right-shoring’—that is, finding the right combination of international operations to optimise their global footprint and value creation. Some US petrochemical and plastics companies with heavy energy demands are ‘on-shoring’ operations to take advantage of cheaper energy. Other companies are debating the merits of ‘near-shoring’, such as moving operations to Mexico, not only to service the United States more efficiently but to leverage market access opportunities in Latin America. The US example highlights the importance of low energy costs and productivity to company operational decisions. Australian manufacturing companies are also reviewing cost and quality differentials in the region to optimise their operations in global supply chains.

From Shanghai: A growing senior living market

By 2025, China’s population aged over 65 will reach approximately 200 million. For Shanghai, this equates to one in every six people. Policy makers, conscious of the strain the ageing population will place on social services, are encouraging private investors to develop commercial facilities for seniors. In 2005, Shanghai authorities announced the “90-7-3” policy. Officials expected that 90 per cent of Shanghai’s seniors would age at home using assisted living services, 7 per cent would age in serviced commercial facilities and 3 per cent of seniors would age in government-subsidised facilities. China’s changing demography will bring opportunities for Australian businesses in providing healthcare as well as associated technology such as electrical adjustable beds, landscape and design services and assisted living equipment. Although the regulatory environment remains underdeveloped with no specific standards or overarching authority, this is expected to change as the sector expands. Some Australian companies have had success through local partnerships to navigate official processes.

From Islamabad: A systemic power challenge

The IMF described Pakistan’s power sector as a “key bottleneck for growth and a drain on public resources”. On average, Pakistan endures 8-10 hours of outages per day in urban areas. It is estimated to cost two to five per cent of Pakistan’s GDP. The sector has struggled since 2007 with systemic challenges in supply and distribution. Approximately 25 per cent of power is lost during transmission and distribution. The industry is dependent on government subsidies because energy companies only recover around 89 per cent of costs from consumers. The Pakistan government has announced plans to establish new power sources with assistance from Russia and China. Energy projects worth over US$15.5 billion have been planned for the China-Pakistan Economic Corridor and Russia plans to invest in a US$2.2 billion gas pipeline. There are opportunities for Australian business as Pakistan modernises the energy sector, particularly in energy policy consulting, mining equipment, technology and services, and solar, wind and biomass energy development.

From London: Faster UK passage for Australians

Last year the UK opened its electronic passport gates to Australians, making us one of only five non-EU countries to enjoy faster and more hassle-free passage at major UK airports and the Eurostar terminal. Access to the e-gates can save 30 minutes or more at Heathrow or Gatwick. In 2014, Australians made approximately 61,200 business trips to the UK, up from 57,300 in 2013. The new arrangement supports the strong people-to-people links between the UK and Australia and is reciprocated for UK citizens visiting Australia. Some 3,506 Australians have joined the UK’s registered traveller’s scheme so far, with 465 new Australian applications in July 2015. A £20 application fee and an ongoing £50 annual fee apply. In addition to business and skilled worker visa holders, the scheme is now open to holders of spouse or dependant, student, diplomatic and ancestry visas. Visit www.gov.uk/registered-traveller for more information.

From New Delhi: Milking opportunities in India’s dairy industry

As the world’s largest producer and consumer of milk, India has the potential to be a significant market for premium Australian dairy products and to benefit from Australian expertise in improving the yields from dairy cows. Milk consumption in India has risen on average by over six per cent per year. Demand is expected to reach 200 million tonnes by 2021 with India’s population increasing by 20 million people per year, rising urbanisation and an expanding middle class. Given Australia is ranked 23rd for dairy imports into India by value, there is room for improvement. Current Australian exports to India comprise mainly dairy fats and oils and dairy food preparations. Opportunities exist for exporters in retail ready products such as cheeses, flavoured yoghurt and liquid milk. Indian consumers have demonstrated a strong preference for branded consumer-ready foods.

From Kuala Lumpur: Spotlight on sports diplomacy

Malaysia is hoping to capitalise on Australia’s experience and sporting culture to promote healthy living and help tackle rising rates of obesity and diabetes among young Malaysians. Australia will be sharing information about its experience in delivering healthy living campaigns, developing sports infrastructure and inspiring people to live active lifestyles, including through hosting international sporting events. The Malaysian government is embarking on initiatives like a National Sports Day and the FitMalaysia campaign to encourage healthy and active lifestyles. Malaysia is also seeking to maximise the spill-over benefits of hosting the Southeast Asian Games in 2017 by developing a new “Sports City” in Kuala Lumpur, worth over $320 million, and nurturing elite football, badminton and hockey talent. These initiatives present potential opportunities for Australian firms in the sport and fitness sectors.

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Tradecraft

Trade in Services Agreement negotiations

Australia is negotiating the Trade in Services Agreement (TiSA) with 52 WTO members that collectively account for 70 per cent of world services trade.

The services sector is growing faster than any other industry, reflecting the high level of professional expertise in Australia. It accounts for around 17 per cent of Australia’s total exports. The outlook for our exporters is bright, driven by global growth and a rising middle class in the region.

Our objective in the negotiations is to secure a level playing field for Australian service providers in international markets. We are pushing for better access and conditions for Australian businesses in areas where we have an edge, including financial services, legal and accounting services, education, telecommunications and electronic commerce. We are also seeking to expand opportunities for Australian businesses in mining and energy-related services, environmental services and construction.

We are negotiating the TiSA with a view to supporting the international trade rules in the WTO, and will look for ways to bring TiSA outcomes back to the multilateral system. The negotiations bring together some of Australia’s most important services markets—the United States, EU and Japan—and expanding markets like Colombia and Turkey. Countries involved in negotiations include key services markets where Australia does not have free trade agreements, including the EU, Switzerland, Hong Kong, Taiwan and Israel.

Discussions reached an important milestone in July 2015 as parties agreed steps towards the conclusion of the negotiations, including deadlines for outstanding offers. The United States will chair the thirteenth round of negotiations in Geneva in October 2015.

For more information, including on how to lodge a submission, visit the TiSA section at fta.gov.au

Financial services and the Trans-Pacific Partnership Agreement negotiations

Trade The Trans-Pacific Partnership Agreement (TPP) negotiations involve Australia and 11 other Asia-Pacific countries that account for 24 per cent of global trade in services.

Australia’s exports of financial services are growing strongly—from $1.0 billion in 2010 to over $3.3 billion in 2014. Australian financial services exports to TPP countries accounted for 31 per cent of this 2014 total. Cross-border exports are only a portion of Australia’s financial services trade. The majority of financial services supplied by Australian-owned firms to clients in other countries are provided by branches and subsidiaries established in host countries. The TPP will benefit Australian financial services exporters and businesses operating in, or seeking to operate in, TPP countries by:

  • Liberalising key barriers in TPP countries, including by increasing or removing foreign equity caps on investments in financial institutions and ensuring portfolio management services can be provided to collective investment schemes on a cross-border basis;

  • Providing a more transparent, predictable and integrated commercial operating environment in TPP countries. For example, it seeks to ensure Australian firms in TPP countries are consulted and afforded opportunities to provide input when a regulatory change is being introduced; and

  • Providing more certainty that Australian financial institutions will be able to transfer managerial and specialist staff to offshore branches and offices for extended periods.

The TPP will safeguard Australia’s right to introduce and maintain measures for prudential reasons, including to protect depositors and policy holders, and to ensure the stability of the financial system.

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Korea’s services sector:
poor cousin no longer?

Ambassador to the Republic of Korea: Bill Paterson

AMBASSADOR'S CORNER
//
Bill Paterson
Australian Ambassador to the Republic of Korea

Often Australian business people are surprised to find out just how important the Korean economy is to our own. As our third largest export market, and fourth largest two-way trading partner, Korea really matters to Australia.

Australia has built a strong reputation in Korea as a reliable supplier of essential resources, like iron ore and coal, which have helped to fuel Korea’s export-led growth for the past 30 years. Agricultural exports are another important aspect of the trade relationship. Australian beef can be found on almost every restaurant menu; it has an unparalleled reputation for being “clean and safe”.

However, there is still significant growth potential in the bilateral economic relationship thanks to the entry into force of the Korea-Australia Free Trade Agreement (KAFTA) in December 2014. While there have been some early wins under KAFTA for Australian agricultural exports as a result of tariff reductions, in the longer term, there are real opportunities to boost service trade and investment.

Korea’s services sector has been the poor cousin to manufacturing. It is relatively small and has been largely protected from international competition. But this is slowly changing, and the Korean government, concerned that its export-led economic growth model has run its course, now says it is focused on building Korea’s services capacity.

The Korean economy is at an inflexion point, with GDP growth slipping from the 5 per cent range in the early 2000s to below 3 per cent today. Korea’s manufacturing sector is exposed to competition from China’s rapid ascent up the value chain at the same time as Japanese companies enjoy new‑found cost competitiveness. Korea’s shipbuilders, car manufacturers and electronics companies are all feeling the squeeze.

The Korean economy also faces long-term structural challenges. Next year Korea’s labour force will peak before commencing a decline at an even steeper gradient than Japan’s, owing to a fertility rate of just 1.2 children per woman. Labour market reforms are proving politically difficult for the government. Rising household debt, coinciding with increasing savings for retirement, is a wet blanket on domestic consumption.

It is clear that Korea needs new sources of economic growth, and services are part of the answer. Accordingly, the Korean government has started pursuing services sector reform and promoting services investment. Australian business needs to be alert to this opportunity.

Unlike Korea’s manufacturing champions, Korean services companies have not had to compete on the international stage. They have enjoyed considerable protection, which has held back Korea’s services potential. At present, services account for 59 per cent of Korea’s GDP, compared to over 80 per cent in Australia. Services labour in Korea is half as productive as manufacturing and only 24 per cent as productive as other developed economies like the United States, Germany and Japan.

Korea has produced a number of globally competitive companies like Samsung Electronics and Hyundai Motors but has no equivalents in services. While it had 17 Fortune 500 companies as of 2013, only two of these were predominantly services companies.

KAFTA has been successful in delivering new market access for suppliers of legal, accounting and telecommunications services, and guaranteeing access across a broad range of other services. However, obstacles remain, such as regulatory consistency and harmonisation, cultural differences and language barriers.

As part of our active economic diplomacy efforts, the Australian Embassy in Seoul is helping Australian business to address these barriers. For example, this year we have been working closely with the Korean government to share experiences in best practice regulation, including by successfully hosting a workshop in Seoul which brought together Korean and Australian officials, business groups and OECD regulatory experts. The annual Korea-Australia Services Sector Promotion Forum (SSPF), which will be held this year in Sydney on 1 October, allows business, including peak bodies, to discuss challenges and opportunities in the services sector and to make policy recommendations to both governments.

We continue to be actively engaged—along with our EU, UK, US, and Canadian colleagues—in
advocating to the Korean government the liberalisation of legal services consistent with the spirit of Korea’s FTA obligations. The Australian Government supports this services agenda more broadly by constructively addressing regulatory issues through a range of economic cooperation fora, including the G20, APEC and the OECD.

Despite the challenges of operating in Korea, some Australian companies have done well here. Macquarie Group’s reputation places it in the top tier of financial companies in Korea. Pepper Savings Bank, a more recent arrival, has built a strong business in just two years and recently won a Presidential award for job creation. ANZ and Hastings are also building a Korean portfolio. Australia’s strengths in asset management and infrastructure financing are acknowledged, and with big pools of Korean pension funds, growth in this niche is highly prospective.

In the legal sector, Anglo-Australian law firm Herbert Smith Freehills (HSF) is starting to gain traction in the Korean market. Its Korean clients, including KOGAS and Samsung, have come to appreciate the high standard of legal service which HSF is able to offer.

Looking ahead, financial services remains the most promising sector for Australian companies considering establishing a presence in Korea. Health care will also be increasingly in demand, given Korea’s rapidly ageing society. Australia’s high-quality vocational education and training (VET) could do well in Korea as many workers seek to reskill to keep up with the changing Korean economy. In this regard, TAFE NSW has been active in the market.

Korea faces economic uncertainties ahead, but risks bring opportunities. Services liberalisation, while incremental, is heading in the right direction and being driven by the forces of globalisation. Australian services providers with world’s best practice and a long-term commitment to the Korean market can do well.

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Opportunities for Australia
in services

ECONOMIC ASSESSMENT
//
Investment & Economics Branch

Australia’s economic prosperity has recently benefited from the mining sector’s record levels of capital expenditure and elevated prices. This has flowed through to the broader Australian economy through increased employment, tax receipts and a higher terms of trade. However, some observers view the Australian economy only through the narrow prism of the contribution made by the mining sector. These observers do not take into consideration the significant and growing role of services in the Australian economy.

As the contribution of the resources sector to the Australian economy comes off its peak, Australia’s future prosperity will increasingly be driven by the services sector. In 2014, the services sector accounted for 73 per cent of Australia’s GDP and 87 per cent of Australia’s employment. The share of services as final exports in proportion to Australia’s total exports has increased to 20 per cent. The value of Australia’s final services exports increased from $51 billion in 2010-11 to $63 billion in 2014-15. In investment, the share of services in Australia’s outward foreign direct investment (FDI) stocks rose to 37 per cent in 2014.

Australian businesses providing services in education, tourism, finance and banking, mining technology, civil infrastructure and health and aged care are already demonstrating their global competitiveness.

Services contribute to income generation in three ways:

  • Final services or final outputs are services that can be consumed by the end user that does not require further processing. For example, the sale of software, the provision of legal or financial services, tourism-related services in Australia or education services to international students in Australia.

  • Embodied inputs are those services that are not sold as a finished product but enable other goods or services to be developed and traded. For example, services provided to a hotel enable that hotel to export services to international guests. Services associated with transporting agricultural products are not exported but support the export of that agricultural product. Embodied services (including managerial, communication, transportation, logistics, financial, legal, technical and marketing services) are particularly important because they are considered to be the glue that holds global value chains together.

  • Sales by foreign affiliates are those services provided by an Australian company through a branch or franchise in another country. For example, an overseas branch of an Australian bank that provides services in that market. Current data is not available but the ABS estimates that in 2009-10, financial and insurance services provided through Australian affiliates were valued at $38.9 billion, dwarfing Australian exports of these services valued at $1.3 billion.

Asia’s services markets: barriers and opportunities

As Asian emerging market economies develop, Asian consumers are increasingly demanding high-quality services including in aged and health care, education, design, architecture, project management and travel. Asian business and consumer demand in specialised professional legal, financial and ICT services is also increasing. These are industries where Australia has already demonstrated a globally competitive record.

Current trade patterns highlight significant growth potential for Australia’s services exports to Asia. In value added terms, which includes final services and embedded services, services comprise just 34 per cent of Australia’s exports to Asia compared to 54 per cent of exports to non-Asian markets. Given growth in services trade often follows rising trade in goods between economies, Australia’s trade in services with Asian economies should grow.

However, Asian economies have greater scope for liberalisation and reform. Australian service sector companies face a range of barriers at the border and beyond the border in Asia. These can include regulatory requirements such as long, and at times complex, licensing processes, nationality and residency requirements, recognition of qualifications and equity limits on foreign investment. Without addressing these barriers and inefficiencies, regional trade in services will not reach its potential.

Asian economies are liberalising their service sectors at different paces. Bilateral and regional free trade agreements (FTAs), and multilateral initiatives are providing additional opportunities to reduce barriers to trade and investment in services. The recently signed China, Korea and Japan FTAs included provisions to lower barriers to entry for Australian services in these markets. These FTAs also guarantee Australian companies most-favoured-nation treatment.

Regional negotiations with services provisions include the Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership and the Trade in Services Agreement.

CHART: Australia's total twi-way trade in services in 2004, 2009 and 2014. Includes data for USA, UK, China, Singapore, New Zealand, Japan, Hong Kong, India, Indonesia and Malaysia.

Asia Pacific Economic Cooperation promotes unilateral liberalisation and reform of services trade and investment regimes in the Asia-Pacific. The APEC Business Advisory Council (ABAC) encourages business to engage and make their views known on issues affecting the regional economy. ABAC makes recommendations that are communicated at the APEC Leaders’ Summit and through the APEC Senior Officials’ Meetings. For more information on how to engage with ABAC, visit www.apec.org.au. A number of G20 members are unilaterally liberalising services sectors as part of their comprehensive G20 country growth strategies. Businesses can engage in the G20 agenda through the Business 20 (B20). For more information on the 2015 B20 visit b20turkey.org.

Mining services case study

With limited national mine closure regulations or guidelines in Laos, Oxiana Resources Ltd (now OZ Minerals) contracted Australian environmental and social consulting firm Earth Systems to develop a Mine Closure Plan for Oxiana’s Sepon copper and gold project. Earth Systems drew on their expertise in site rehabilitation and closure planning developed while operating under Australia’s environmental management frameworks.

Opportunities for Australian business in the region

With a variety of markets at different stages of development and income, Asia offers a range of opportunities for Australian services providers. The following country snapshots draw on DFAT’s reporting in the region.

Japan is Australia’s second largest trading partner, with a wealthy but ageing population. Service opportunities include those associated with health and aged care, pharmaceuticals project and property management and tourism. The commencement of the Japan-Australia Economic Partnership Agreement (JAPEPA) will guarantee Australian service providers access to Japanese legal, financial, education and telecommunication markets. Under the JAPEPA, both governments have committed to work towards mutual recognition of professional services qualifications.

South Korea’s relatively underdeveloped services sector contains opportunities in financial, legal, technical and vocational education and training and health care provision—areas in which Australian businesses are competitive and highly regarded internationally. There will also be increased export opportunities for the Australian film and television industry through collaboration under the Korea-Australia Free Trade Agreement.

Mining services and exploration

  • 596 Australian companies allocated $1.84 billion in 2014 for exploration
    (17% of worldwide total).
  • In 2014, 49% of this budget was allocated to exploration overseas
    (up from 37% in the mid-1990s)
  • Capital is typically accessed through the ASX

Hong Kong is seeking to become a hub for start-ups and entrepreneurship which will create export opportunities for Australian suppliers of financial services (financial technology and e-commerce), ICT, creative and performing arts and maritime services.

Mining services case study

Rio Tinto’s Remote Operations Centre in Perth, which controls operations in 15 mines, four port terminals, and 1600km of railway infrastructure, was developed in partnership with Australian and international mining and technology service providers:

  • Atlas Capco
  • Komatsu
  • Schneider Electric
  • Metso
  • CISA
  • JKTech
  • University of Sydney
  • Imperial College London

The technology developed by collaboration in Australia presents opportunities for global competitiveness in mining equipment, technology and services.

Indonesia’s large and growing consumer class of around 50 million people continues to underpin opportunities for Australian retail financial service providers, including insurance and banking. Australia also has a strong presence in mining equipment, technology and services with Indonesia being the largest export destination for Australian companies in these areas. In Indonesia’s second tier cities, increasing urbanisation will create export and investment opportunities for professional services in ICT—including enabling services for e-commerce—health, education, transport and logistics and services related to agriculture and energy distribution.

Opportunities in Malaysia are underpinned by its oil and gas, and ecotourism sectors. Malaysia is committed to becoming a global hub for Islamic finance and the halal industry as well as a regional logistics and trade facilitation services hub. These ambitions align well with Australian business capability, particularly given Australian producers’ experience exporting to other Islamic markets and opportunities for long-term investment in Australia’s five priority sectors. The establishment of an ASEAN Economic Community will enhance Malaysia’s role as a gateway to ASEAN. Another area of interest is renewable energy. Bustech recently announced a $170 million joint venture to develop electric buses in Malaysia to export globally.

INFOGRAPHIC: Mining and Services: Australia's Mining Equipment, Technology and Services Sector. Mining Financing by Region: January 2013-March 2015. Key Statistics: Australia's METS Sector: Diversifying and Securing New Business Opportunities. Services Rich: Selected Services in the Life Cycle of a Mine.

Why ASEAN and why now?

On 14 August, Trade and Investment Minister Andrew Robb launched the joint DFAT-Austrade publication Why ASEAN and Why Now?

Why ASEAN and Why Now? is designed to promote investment and trade opportunities in ASEAN for Australian business. It comes ahead of the launch of the ASEAN Economic Community in late 2015.

The publication includes case studies of Australian companies successfully doing business in ASEAN and Austrade-commissioned research on regional perceptions of Australia. It outlines how business can take advantage of bilateral and regional free trade agreements. A summary version for senior business leaders and a longer version for analysts are available at www.dfat.gov.au/about-us/publications.

More than 130 representatives from Australian business attended the launch hosted by PwC. The launch included a panel involving Minister Robb, PwC, ANZ, Blackmores and Asialink that discussed the challenges and opportunities for Australian business in ASEAN.

The movement of natural persons and the China-Australia Free Trade Agreement (CHAFTA)

ChAFTA was signed in June 2015 and is currently being considered by Australia’s Parliament as part of Australia’s treaty making process. ChAFTA commitments on temporary labour mobility are designed to support increased trade and investment between both countries, within the context of existing immigration and employment frameworks.

ChAFTA will provide improved access for a range of Australian and Chinese skilled service providers, investors and business visitors, thereby providing business with certainty; building upon the respective commitments made by both countries in the World Trade Organization. In ChAFTA Australia and China have also made specific commitments for certain categories of natural persons.

To better facilitate the temporary entry of workers associated with trade and investment, Australia and China will also increase cooperation on skills recognition and licensing, including through encouraging the streamlining of relevant licensing procedures and improving access to skills assessments.

The Memorandum of Understanding on Investment Facilitation Arrangements (IFA MOU) was negotiated in parallel to ChAFTA but does not form part of the formal treaty. It is designed to promote Chinese investment in major infrastructure development projects in Australia by providing greater certainty in workforce planning.

The Department of Immigration and Border Protection’s (DIBP) Project Agreement programme, established in 2015, will be used as the basis for implementation of the IFA MOU. Project Agreements allow Australian registered businesses of major infrastructure or resource projects experiencing genuine skills or labour shortages access to skilled temporary overseas workers through labour agreements.

In requesting a project labour agreement under an IFA Project Agreement, employers must demonstrate to DIBP that there is a labour market need, Australians have been given the first opportunity (through evidence of domestic recruitment activity such as labour market testing) and there are no suitably qualified Australians.

More information

DFAT resources:

www.dfat.gov.au/trade/agreements/chafta/fact-sheets/Pages/fact-sheet-movement-of-natural-persons.aspx

www.dfat.gov.au/trade/agreements/chafta/news/Pages/information-note-on-movement-of-natural-persons-provisions.aspx

www.dfat.gov.au/trade/agreements/chafta/fact-sheets/Pages/chafta-myths-versus-realities.aspx

DIBP resources:

www.border.gov.au/Trav/Work/Empl/Labour-agreements

Red hot Chile peppers the world with FTAs and innovation

Guest contributor: Tim Harcourt

Chile, the ‘Jaguar economy’ of South America, has always been a bit of a free trade enthusiast with 25 free trade agreements which, according to its innovative trade agency Pro Chile, provide access to “80 per cent of the world”.

However, you can only open up your economy once. So now that Chile has forged free trade agreements with almost everybody, the nation is concentrating on investment, innovation and renewable energy.

First, there’s innovation. There are two institutions fostering an entrepreneurial culture in Chile. Fundación Chile was formed back in 1976 when it was thought that Chile was “strong in research but weak in innovation”. It acts as a “do tank not a think tank”, providing seed investment in industries as diverse as food and agriculture, solar energy and human capital. Start-up Chile was founded in 2010 to provide seed capital to young entrepreneurs starting companies in areas like tourism, software and social entrepreneurship. Approximately US$40,000 is provided in free equity and open to an entrepreneur from anywhere in the world provided that they base themselves in Santiago whilst gestating their idea.

Australia has been involved in Chile’s innovation revolution. Around 120 Australian companies are based in Chile (mainly in Santiago); of which, 55 are providing solutions through mining equipment, technology and services. Companies like Rio Tinto, BHP Billiton, Orica and WorleyParsons are big players in Chile and the CSIRO has set up a centre of excellence in mining and mineral processing in Santiago. CSIRO is now providing learning opportunities across the continent. For instance, in northern Chile, post graduate students from Peru study at the University of Antofagasta and travel to Australia for courses and internships at the CSIRO, helping human capital investment in all three countries.

Second, there’s investment. Chile has been a major destination of foreign direct investment (FDI) for some time, attracting $5 billion in FDI from Australia. Australia’s total investment in Chile since 2010 reached over $13.6 billion and there were over 4,000 business trips to Chile in 2014. Chile also has a successful pension system with a large proportion of pension funds looking for global investment opportunities. Chile’s three largest pension funds had a total of US$121.5 billion in assets in 2013 and Chile’s entire Public Pension Reserve Fund portfolio was invested abroad in 2013.

Third, there’s renewable energy. Chile has one of the most diversified power mixes in Latin America including natural gas, hydropower, fuel, oil, coal, wind and biomass sources. The policy settings encourage investment with high energy demand growth, high electricity prices and a liberalised power market. Chile’s potential has attracted the third highest levels of investment in renewable energy behind Brazil and Mexico, with over US$6 billion invested in biomass, wind, small hydro, geothermal and solar energy from 2006 to 2012.

Chile’s diverse geography with desert in the north and glaciers in the south makes it an excellent market for both solar energy and water management. SunEdison recently started construction on a 110-megawatt solar power plan in Santiago, which will make it the largest solar project in Latin America and power 117,000 homes. The Chilean General Water Directorate and the CSIRO Chile Research Foundation are developing an integrated management plan for the Copiapo Basin, located in the world’s driest desert. Australian companies such as Pacific Hydro are showing leadership in the renewables space in Chile and right across South America.

The famous Chilean political scientist Robert Funk said “Michelle Bachelet did us a favour by getting us into the OECD. Now, instead of being the top ranking economy in Latin America and emerging markets, we’re one of the lowest ranking in the OECD.” Being in the big league with a tougher benchmark is ultimately a nicer problem for the Jaguar of South America to have.

Tim Harcourt is the JW Nevile Fellow in Economics at UNSW Australia and author of The Airport Economist and Trading Places.

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Economic highlights

The past two months have seen significant volatility across global financial, currency and commodity markets. Much of the volatility stems from concerns associated with the rate of growth of China’s economy and expectations around the timing of US interest rate increases.
  • China’s stock market has plunged over the past several weeks against the backdrop of a slowing economy. The stock market correction led to a dramatic intervention by Chinese authorities in July and has caused jitters through world stock markets. The direct spill over to the broader Chinese economy is likely to be limited by the relatively low breadth of market participation, but the negative impacts on confidence are still to be played out.

  • The continuing slowdown of the Chinese economy was also the trigger for falling global commodity prices. China posted a 7 per cent GDP growth for the second quarter but independent forecasters estimated actual growth was closer to 5 per cent. Chinese authorities have sought to put a floor under the country’s slowdown through spending, tax breaks, interest rate cuts (five since November 2014), and a currency devaluation of 3.5 per cent in August against the US dollar. The market is still digesting the impact of these measures but in the long run, Australia’s economy is set to continue to benefit from an expanding trade and investment relationship with the world’s second biggest market.

  • Uncertainty about interest rate rises in the United States has caused instability in US stock markets. Minutes from the US Federal Reserve meeting in August dampened expectations of a rate rise in September. However, subsequent economic data has shifted sentiment causing the US dollar to appreciate, including against the Australian dollar. A weaker Australian dollar is a positive for Australian exporters but raises the cost of imports.

Key Statistics. Australian Economic Statistics including Top Export and Import Countries or Regions, Australia's Trade by Broad Sector, Tope Exports and Imporrts, and Australia's International Investment Position.


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