Overview of Australia’s trade and investment
1.1
Australia is an ‘export nation’, with exports reaching almost $470 billion in 2018-19, or 24.1 per cent of Gross Domestic Product (GDP). The growth of Australia’s exports has been strong, with export volumes increasing by 4.8 per cent on average in the ten years to 2018. This surpassed the growth rate of world trade over the same period (3.4 per cent).
1.2
Foreign investment in Australia is also ‘essential to Australia’s economy’, and totalled $3.3 trillion at the end of 2017. Australia’s largest international investor ‘by a wide margin’ was the United States of America (US), with other major two-way investment partners including the United Kingdom (UK), Belgium, Hong Kong and Japan.
1.3
Over 54 000 Australian businesses engage in the export of goods and services. Of these, the majority of goods exporters are small businesses (50 per cent) which together contribute one per cent of the overall value of goods exports. In contrast, 296 businesses accounted for 85 per cent of the total value of goods exports. In 2018-19, the value of goods exports totalled approximately $373 billion, and services exports grew to almost $97 billion.
1.4
More than 75 per cent of Australia’s exports go to its top ten export markets. China is Australia’s largest export market, receiving 32.6 per cent of Australia’s total exports in 2018-19. Other significant markets include Japan, the Republic of Korea, the US, India, New Zealand, Singapore, Taiwan, the UK and Malaysia.
1.5
Australia’s major export industries include resources, services, agriculture, and manufacturing. In 2018-19, Australia’s top five exports were:
Iron ore and concentrates (16.4 per cent);
Natural gas (10.6 per cent);
Education related travel services (8 per cent); and
Personal travel (excluding education) services (4.8 per cent).
1.6
Resource and energy exports are particularly strong, with the resources sector making up 58 per cent of Australia’s goods and services exports and 14 per cent of private capital investment in the Australian economy. Australia is the ‘world’s largest exporter of iron ore and metallurgical coal, the second largest exporter of thermal coal and liquefied natural gas, and the third largest producer of uranium.’
1.7
Service exports are also predominant and accounted for a fifth of Australia’s exports in 2018-19. Education related travel services and personal travel (excluding education) are Australia’s largest service exports, with other areas including professional and financial services.
1.8
Australia is one of the world’s largest agricultural exporters. Beef is Australia’s biggest agricultural export, with other major agricultural exports including wheat, sugar and dairy products.Australia’s agricultural industry is highly trade-dependent, with approximately 70 per cent of production being exported.
1.9
Australia’s exports of manufactures made up 11.5 per cent of total exports in 2018-19, with the major exports being machinery and equipment manufacturing and fabricated metal product manufacturing.
Box 1.1: Australia’s Free Trade Agreements
Free Trade Agreements (FTAs) are ‘treaties between two or more countries designed to reduce or eliminate certain barriers to trade and investment, and to facilitate stronger trade and commercial ties between participating countries.’ The Australian Government has a goal of ‘ensuring that around 90 per cent of Australia’s two-way trade is covered by FTAs by 2022.’
Australia currently has 13 FTAs in force (listed with entry-into-force date):
1
Australia–New Zealand, 1 January 1983
2
Singapore–Australia, 28 July 2003
3
Australia–US, 1 January 2005
4
Thailand–Australia, 1 January 2005
5
Australia–Chile, 6 March 2009
6
Association of Southeast Asian Nations–Australia–New Zealand, 1 January 2010-2012
7
Malaysia–Australia, 1 January 2013
8
Korea–Australia, 12 December 2014
9
Japan–Australia, 15 January 2015
10
China–Australia, 20 December 2015
11
Comprehensive and Progressive Agreement for Trans-Pacific Partnership, 30 December 2018
12
Australia–Hong Kong, 17 January 2020
13
Peru–Australia, 11 February 2020
Australia also has two FTAs which have been concluded but have not yet entered into force:
Indonesia-Australia Comprehensive Economic Partnership Agreement; and
Pacific Agreement on Closer Economic Relations Plus.
There are an additional seven FTAs under negotiation, and prospective FTA negotiations are underway with the UK.
International challenges
1.10
The global trade context is characterised by rising protectionism and trade tensions. The Productivity Commission elaborated:
The world trading system is under greater strain than at any time since the 1930s. The trade tensions between the US and China and in turn between the [European Union (EU)], US and China have led to the imposition of tariffs and counter-tariffs. This has global effects on GDP, which affects demand for Australian exports, and we may too be caught up in the imposition of measures that protect other countries’ import-competing industries. So far we have largely escaped this contagion risk. Another, dynamic concern is that for businesses making long-lasting investments, there is considerable uncertainty about where the trading system will go given policy volatility.
1.11
Despite these tensions, the Department of Foreign Affairs and Trade (DFAT) advised that in January 2020, the US and China announced the first phase of a trade deal. DFAT stated that ‘any level of greater certainty about a trade deal between these two major economic powerhouses can only lift economic confidence across the globe.’
1.12
Another recent international development was the withdrawal of the UK from the EU in January 2020. This may impact on Australian businesses trading with the UK, but may also open up new trade opportunities for Australia, including through FTAs.
1.13
Late 2019 also saw the emergence of a number of crises that had flow-on effects to Australia’s trade and investment. In Australia, the ‘bushfire crisis’ which occurred in the summer of 2019-20 particularly impacted the tourism sector. DFAT advised that it was working with the Australian Trade and Investment Commission (Austrade) to ‘reassure our international partners that Australia remains a safe place to visit to trade, to study and to invest with.’
COVID-19
1.14
Internationally, countries are responding to a coronavirus disease outbreak, which was first reported from Wuhan, China, on 31 December 2019. In February 2020, DFAT advised that the long term impacts on Australian industry were ‘hard to determine’, as they will depend on the longevity and severity of the outbreak. DFAT outlined the steps it was taking in response and stated that:
… there is a major effort underway across DFAT and Austrade to support the government's response to the coronavirus. In addition to the very significant consular and crisis response, we're closely monitoring the economic impact of the outbreak and travel restrictions on tourism operators, on … education providers and on our exporters, particularly in the agriculture, aquaculture, and resources and energy sectors.
1.15
Austrade added that it had already seen the implications of the coronavirus outbreak for Australia’s sectors that export to China, particularly agriculture (especially fresh seafood), education and tourism.
1.16
In the months since the evidence to this inquiry was received, the international economic outlook has continued to worsen as the coronavirus has spread. Measures implemented in Australia and other countries to control the spread of the virus (such as border controls, travel restrictions and social distancing measures), have had negative effects on economies.
1.17
The Federal, State and Territory governments have introduced measures to help businesses and individuals through these economic difficulties. This includes the Australian Government’s economic support package of $320 billion over the forward estimates. Support for export industries that has been announced includes additional funding for the Export Market Development Grants scheme and the establishment of a COVID-19 Export Capital Facility to provide loans to export businesses.
Government support for trade and investment
1.18
International efforts to support trade and attract investment are led by DFAT and Austrade. Together, these agencies aim to:
… bolster Australia’s reputation as an attractive investment destination and trusted supplier, address barriers faced by exporters in overseas markets, promote opportunities including those created by FTAs, and advocate for the global rules-based trade system.
1.19
The Australian Border Force is responsible for regulating the export of goods from Australia. Some products are subject to additional regulation by other agencies — agricultural exports, for example, are controlled by the Department of Agriculture, Water and the Environment, and the export of defence and strategic goods and technologies is regulated by Defence Export Controls.
1.20
Foreign investment in Australia operates in accordance with the Foreign Investment Framework. This framework comprises the Foreign Acquisitions and Takeovers Act 1975, related regulations, and Australia’s Foreign Investment Policy.
1.21
Policy departments contribute to exports and investment through supporting industry development, providing policy expertise and leadership, and contributing to broader international efforts. States and territories also develop and implement strategies, targets and programs to maximise trade and investment opportunities within their jurisdiction.
1.22
The Australian Government collaborates with state and territory governments in order to ‘set investment priorities, facilitate investment opportunities, and identify and address investment impediments’. This collaboration is overseen by the biannual Trade and Investment Ministers’ Meeting.
1.23
Austrade also ‘administers an overseas co-location program with states and territories whereby staff are engaged on behalf of state or territory governments’ for trade and investment promotion. In addition, some states choose to have their own ‘dedicated investment commissioners’ and overseas offices, all of which ‘work closely with DFAT and Austrade.’
About the inquiry
Objectives and scope
1.24
On 31 July 2019, the Minister for Trade, Tourism and Investment, Senator the Hon Simon Birmingham, referred the Inquiry into Supporting Australia's Exports and Attracting Investment (the inquiry) to the Joint Standing Committee on Trade and Investment Growth (the Committee).
1.25
As part of its inquiry, the Committee considered:
opportunities for, and ambition of, Australia businesses looking to grow via export and attract investment (particularly in new and rapidly growing areas of export);
barriers these businesses face in Australia when looking to export or expand their offerings internationally; and
best practice regulation and key government actions that could boost export and investment growth in a sustainable manner.
Inquiry conduct
1.26
The Committee launched the inquiry via media release on 12 August 2019 and called for submissions addressing the terms of reference by 23 September 2019. The Committee also invited submissions from relevant government agencies, export businesses, peak bodies and business groups.
1.27
The Committee received 46 submissions and 13 exhibits. These are listed at Appendix A and B respectively.
1.28
The Committee also held four public hearings in Canberra and one public hearing in Sydney, the details of which are listed at Appendix C.
Report structure
1.29
Chapter 2 examines how businesses attract investment, the policy settings that underpin investment and innovation, and the support available for start-ups and small business to enter export markets.
1.30
Chapter 3 looks at Australia’s regulatory environment for exports, including government assistance, free trade agreements, and potential regulatory challenges. Chapter 3 also presents possible future export opportunities for Australia across a range of industry sectors.