International trade is vital to Australia’s economy. It represents 44% of our gross domestic product (GDP) and generates one in five Australian jobs.
These statistics really bring home how essential international market access and favourable trading conditions are for Australia’s prosperity. Trade agreements are an important aspect of improving market access across all industries in Australia.
While international trade opens significant opportunities for business growth, it can be a little daunting to know where to start. We’ve put together this overview of Australia’s international trade and the trade agreements we have with other countries to help your company reap the benefits.
The benefits of international trade for Australian businesses
Australia’s domestic market is relatively small compared to other countries. International trade allows Australian goods exporters to reach larger and more diverse consumer (and business) markets than they would domestically.
To put Australia’s economy in perspective, our national GDP represents only 1.7% of global GDP. In contrast, rapid growth in Asia is forecast to represent 44% of global GDP by 2026.
Overseas market access is particularly important for Australia’s agricultural and resource commodities. For example, 65% of Australia’s exports in 2020 were primary products.
What’s more, 8 of the top 10 Australian goods and services exported in 2020 were primary products.
Similarly, international trade offers access to a much broader client base for Australian service providers. In fact, services represented over 45% of Australian exports in 2020.
The Department of Foreign Affairs and Trade (DFAT) has prioritised the following sectors to improve “market access in global services trade reform efforts”:
- Professional services
- Education and tourism
- Financial services
- Energy and mining services
- Environmental services
- Financial technology
International trade also attracts foreign investment. Australian businesses benefit from extra capital injections that support new industries, strengthen existing industries and finance additional infrastructure.
Ultimately, whether it’s goods, services or investment, international trade helps to maintain and stimulate the competitiveness of Australian firms by encouraging:
- innovation from the introduction of new technologies, services and ways of doing business
- productivity via increased competition in the marketplace
How Aussie consumers benefit from international trade too
It’s not just Australian businesses that can benefit from international trade, but consumers too.
By boosting our GDP, international trade helps raise the income of everyday Australians and promotes economic growth. DFAT stated that in 2020 trade as a whole was equivalent to 45 per cent of Australian GDP and directly responsible for one in five Australian jobs.
Australian consumers also benefit from international trade by gaining access to a much wider range of goods and services. And businesses have greater choice of suppliers.
Greater choice encourages competition, which can make products cheaper for consumers. For example, small electrical appliances in Australia were 11.5% cheaper in the 2017–18 financial year than they were ten years prior.
Taking advantage of Australia’s international trade agreements
Like many countries, a key component of Australia’s international trade strategy is the negotiation of free trade agreements (FTAs). Essentially, FTAs benefit importers and exporters by reducing and eliminating tariffs and other trade barriers such as quotas and licences.
Australia has 16 FTAs currently in force, three FTAs not yet in force (including the Australia-India Economic Cooperation and Trade Agreement) and seven FTAs under negotiation.
Here’s a quick overview of Australia’s FTAs currently in force:
|Free trade agreement
||Key benefits for Australian companies
|Australia-New Zealand (ANZCERTA or CER)
- Free trade in services, with mutual recognition of goods and occupations.
|ASEAN-Australia-New Zealand (AANZFTA)
- Extensive tariff reduction and greater certainty for services suppliers and investors.
- Increased market access for Australian exporters of services.
|Australia-United States (AUSFTA)
- Local companies now have access to federal government procurement in the US.
- Eliminated the majority of tariffs and quotas on Australian exports.
- Removal of 92% of tariff lines
- Creation of a liberalised investment and services system.
- Tariff-free treatment for 97% of Australian exports.
- All tariffs eliminated for Malaysian goods imported into Australia.
- Provides tariff elimination on nearly all Australia’s current exports by value once fully implemented.
- Provides Australian services exporters with treatment equivalent to the best Japan has agreed with any other trading partner.
- China eliminated or rapidly reduced tariffs on several key Australian exports.
|Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam (CPTPP)
- Eliminated 98% of tariffs in the free trade area for Australian goods exports.
- Improved market access for Australian services exporters.
|Australia-Hong Kong (A-HKFTA) and associated Investment Agreement (IA)
- Locks in continued access to the Hong Kong market for Australian exporters of education, financial and professional services.
- Gives Australian service providers a more transparent and predictable operating environment in Peru.
- 99% of Australian goods exports by value are duty-free or have significantly improved preferential arrangements.
|Pacific Agreement on Closer Economic Relations (PACER Plus)
- Supports Pacific Island countries to become more active partners in, and benefit from, regional and global trade.
The potential economic benefits of the Quad
The Quad, formally known as the Quadrilateral Security Dialogue, is a collaboration that was established between the US, Japan, India and Australia in response to the 2014 Indian Ocean tsunami.
The Australian Financial Review recently described the Quad as “a co-ordinating body for joint efforts to win friends and influence other Indo-Pacific nations …”
DFAT officially described the Quad as “a diplomatic network of four countries committed to supporting a free and open Indo-Pacific that is inclusive and resilient.”
Given that 70% of Australia’s international trade is with Asia-Pacific countries, closer diplomatic ties with Quad members could have important economic implications for our economy.
For example, the Quad has announced its intention to form a green-shipping network to encourage the greening and decarbonisation of the shipping value chain. For Australia, it means that Sydney may be included in two or three “low-emission or zero-emission shipping corridors by 2030.” The other Quad ports nominated for involvement include Los Angeles, Mumbai and Yokohama.
Australia’s economy could also benefit from the establishment of a clean hydrogen partnership proposed by the Quad. The partnership could involve initiatives such as:
- technology development
- identifying and developing delivery infrastructure
- stimulating market demand among the Quad countries
If the clean hydrogen partnership proceeds, it could help to realise the Federal Government’s National Hydrogen Strategy and position Australia “as a world-leading supplier of clean hydrogen.”
How Octet can help you leverage global opportunities
Effective international trade management in Australia is crucial for local companies wanting to enter overseas markets. It means streamlining your entire supply chain, from ordering processes and logistics to making international payments. And the end result is a healthier cash flow with increased operational efficiency.
Octet can help streamline your supply chain by:
- Centralising your documentation. Our Supply Chain Management Platform lets you store all the relevant documentation and correspondence together with each transaction to reduce confusion and achieve full visibility.
- Eliminating the language barrier. With multilingual capabilities, our Supply Chain Management Platform allows you to communicate in your preferred language, while your supplier chooses their preferred language too.
- Increasing payment flexibility. Octet gives you the power to pay your suppliers in the way that best suits your business using our Digital Wallet, with added Trade Finance and Debtor Finance solutions.
- Making cross-border payments easy. We take care of the hard work for you with one-click payments. Just click, and we pay your suppliers the same day, in their choice of up to 15 currencies.
Expand your business globally
Whether you want to start importing from China or become a services supplier in Korea, Octet can help.
Get in touch with one of our international finance specialists today to discover how we can power your business to expand globally.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.