All the way but with which FTA? Australian Exporters by Destination

All the way but with which FTA? Australian exporters by destination.

Tim Harcourt*
After a long lull, free trade agreements are back in vogue. Australian Trade Minister Andrew Robb announced he would get three up with South Korea, Japan and China within 12 months. Before the West Australian AFL commentator Dennis Cometti could say “That’s ambitious”, Robb got two – South Korea and Japan – on the scoreboard. Now he only has China to go, probably by the end of this year, before claiming a unique free trade ‘hat trick or trifecta’. In some ways Andrew Robb has been one of Australia’s most energetic Trade Ministers, in the tradition of John ‘Black Jack’ McEwen, John Dawkins or Tim Fischer. Whilst former Trade Minister Simon Crean negotiated Chile and the complex pact AANZFTA (between Australia, New Zealand and ASEAN), Craig Emerson preferred to “put Doha first” and preferred the multilateral system to what he considered to be ‘preferential’ bilateral agreements. Unfortunately, the WTO has been as “Dead as a Doha” for some time hence the pragmatism of FTAs and even regional partnerships, like the Trans Pacific Partnership (TPP).

In 2005, Australia signed agreements with Thailand and the USA, 2 years after Singapore. Then we had the Global Financial Crisis (GFC) of 2008 which savagely took its toll on the North Atlantic Economies. And for Australians we realised how we well have managed our own economy – with a well targeted and timed – stimulus package, and how important our economic ties with Asia and the emerging world have become. Now in the new age of FTAs, what do we know about exporters – especially small and medium sized enterprises (SMEs) – and where they go? And can we compare the two different eras of FTAs? Especially with a GFC in the middle of the period?

Fortunately, courtesy of some new research from the Australian Bureau of Statistics (ABS) we now are getting a better handle on some of these questions. When I was at Austrade I asked the ABS to start collecting this data because when it came to trade most data was concentrated on the top end of town and less so on SMEs. And most trade news tends to be ‘big picture’ whether about the Doha round in the World Trade Organisation (WTO), G20 summits and APEC.

However, whilst these big developments are important, their focus is mainly on export revenue and the gains at the top. But what about the exporting companies then? How many are there and where are they heading?

New data gives us a good feel of how exporters have fared between the days of the Thailand and USA FTAs, and the new agreements with Japan and South Korea.

According to the ABS, the total number of exporters of goods and services was 45,056 in 2012-13, There was an increase in the number service exporters, up 386 (13%) to 3,323. The number of goods exporters decreased slightly, by 35 to 43,045.
The increase in the number of service exporters was largely due to a rise in the number of exporters with exports valued at ‘Less than $1m’, up 291 (14%) to 2,367. Although it should be emphasised that the count excludes in-bound services (like tourism and education) that are also important to the national export effort.
The exporter community can be broken down by market destination for goods as well and the results make some pretty interesting reading.

First of all, as always, our Trans-Tasman cousins, New Zealand are top of the pops, with 16,217 Australian businesses having exported to the shaky isles in 2012-13. This indicates that many exporters traditionally find exporting ‘across the ditch’ relatively easy and that Kiwiland is a good ‘nursery’ to start with when learning the craft of exporting.

However when you compare to the pre-GFC days where there were 17,817 exporters to NZ, there has been a slump of 1600 exporters. This may indicated that the kick-start given to exporting from the Australian New Zealand Closer Economic Relationship (CER) is a long way in the past and the Australians and Kiwis need to think beyond trade to breathe new life into Trans Tasman economic reform. It may also be that both Kiwi and Aussie businesses have squeezed all they can out of the bilateral relationship and are now heading towards third markets thanks to the deal we have together with the ASEAN states or across the Pacific to Chile. Is also noted that NZ has had an FTA with China for some time whilst Australia hasn’t had that pact yet but may by the end of 2014.

The United States is second, with 8909 exporters.  Many small and medium businesses get their start in the USA as they are attracted by the size of the market.  But the numbers have actually fallen to the USA over the past 6 years with the sub-prime crisis taken its toll. Did the Howard Government’s much heralded FTA with the USA do much? It’s doesn’t look like it on these figures – Austrade in fact had to close a number of USA posts – but in some ways the FTA was more about two way investment than trade.

Singapore is in third place with 6125 exporters. Singapore is a mature market and more of an investment destination than an old fashioned export market. It may also be that the improvement in other ASEAN economies may have taken some business away from Singapore. After all we have had a FTA there for over a decade.

The big story of course is China with 5638 exporters, a gain of over 1300 in 6 years and now in 4th place and close to medal contention. China has not only overtaken Hong Kong in the exporter stakes, it has also taken over the UK. The data shows a weakening in ‘entrepot’ economies like Singapore and Hong Kong who traditionally tend to have lots of wholesale trading houses and act as a hub port for exporters (and importers). For instance, Singapore has played the role of a gateway port for South East Asia, whilst in the past; Hong Kong has played a similar role in the North East Asia – particularly before China opened up more to international trade and commerce.
But now exporters can go straight to China, and they do. China’s position supports the Sensis survey that showed many SMEs looking to the Middle Kingdom as an export destination – joining the larger Australian blue chip corporates such as Rio Tinto, ANZ, AMP, Elders, BHP Billiton and Woodside who have been in Beijing for some time. China is a happy hunting ground for Australian SMEs who too are learning to ‘hug the Panda’.

After Hong Kong on 4977 comes Papua New Guinea on 4959 exporters a gain just over 970 over 6 years. The data shows the importance of our near neighbours to small business exporters with three Pacific destinations in the top twenty.

Next comes the UK 4559 which has slipped behind China, HK and PNG as the Empire slowly loses its crown. The GFC has clearly weakened the UK as an exporter destination. However, in the UK’s case, the UK is still light years ahead of any other European country, indicating that many Australian exporters (like our pop-stars) head to Britain (because of cultural and historical links etc) and have use the UK as a base to expand into Europe and the rest of the world. A phenomenon known as ‘The Kylie Effect’.

The Eurozone crisis hasn’t helped matters, thanks to the Greek Crisis (see the forthcoming movie ‘My Big Fat Greek Debt’) there are only 141 Australian exporters selling goods to Greece to the value of only $10m. Our export trade to Christmas Island is more valuable than to Greece (five times as valuable) and there are more Australian exporters in Colombia, an up and coming economy in South America than to Greece.

Then comes ASEAN neighbour Malaysia on 3659, and Japan on 3053. ‘Abeconomics’ is reviving Japan’s fortunes but still very few Australian businesses set up in Japan, so the FTA could make  a lot of impact. Thailand is on 2851, ahead of Fiji on 2694, but coups aren’t good for business.

The ‘second top ten’ is still heavily focussed in Asia but includes both mature and emerging markets. Germany attracts 2541 exporters followed by Indonesia on 2500 then comes another FTA market South Korea on 2272, Canada on 2258, UAE on 2118, and Taiwan on 1997. After suffering some sharp falls, South Africa, Australia’s key African entrepot in Africa is on 1922, India in 1908, and another ASEAN state, the Philippines, on 1697 rounds out the top 20.

It should be noted in the analysis that many exporters have multiple destinations, so they may be counted twice in terms of country though not in the region. The analysis of company numbers is also not necessarily a reflection of value. For instance, whilst New Zealand attracts over 16,200 exporters and Japan only around 3,053, the value of those exports to Japan was over $46 billion, whilst New Zealand’s was worth just over $7.3 billion.

Does the data change over the years? From the limited data available, the top 20 remains pretty stable with a few countries changing positions. However, if you look at longer term snapshots, you see a bit more movement. For example, a comparison of the 1989-90 rankings with the present shows – you guessed it – China charging up the table. And even in five years China has leap frogged Hong Kong and the UK.

In conclusion, in terms of exporters, we have an exporter base in Australia that is spread far and wide across the globe but concentrated enough in the bigger markets to get a good bang for their buck. And exporting seems to be delivering to all Australian exporters – both large and small. UNSW research shows that exporters, on average, grow faster, are more profitable, more innovation and pay higher wages than non-exporters. It will be interesting to see what impact Andrew Robb’s FTAs with Japan, South Korea and (potentially) China make to this picture in a few years’ time.
*Tim Harcourt is the JW Nevile Fellow in Economics at the Australian School of Business (ASB) UNSW and author of The Airport Economist: www.theairporteconomist.com