Speech

Address by: Peter O'Byrne, CEO, Austrade
Event: Finance and Treasury Association Trade Finance Conference 2006, "Frontiers and Opportunities in Trade Finance".
Location: Four Seasons Hotel, Sydney
Date: 11 August 2006

As the Chief Executive of the Australian Government’s principal export promotion agency Austrade, I am pleased to be speaking about the trading environment as it is emerging for Australian businesses.

The Australian Government is working to create favourable trading conditions for exporters. To help businesses take advantage of the opportunities, Austrade has export specialists in more than 140 overseas locations in over 60 countries. In Australia, Austrade has 18 offices and 54 TradeStart offices – including 8 Export Hubs where we partner with AusIndustry.

Austrade also works very closely with its portfolio partners, the Department of Foreign Affairs and Trade and the Export Finance and insurance Corporation, EFIC, of whose Board I am a Director.

The New Millennium – Trade and Investment Opportunities

There can be no questioning the importance of international trade in Australia’s economic history. Historically, many of our most prominent entrepreneurs have made internationalisation a central part of their business, delivering enormous benefits to our economic growth and enhancing Australia’s global business profile in the process.

Closer integration with the international market is becoming essential for an increasing number of companies, of all sizes, and across all sectors of the Australian business community.

Exporting gives businesses an opportunity to spread risk over a number of markets – as peaks in one market coincide with troughs in another. Trading opportunity and risk management are the themes of this conference.

The Australian Government is growing opportunities for exporters on both the multilateral and bilateral levels – the Australian Government continues to pursue an ambitious trade policy agenda aimed at increasing economic activity and improving access to markets to bring about freer trade.

DOHA Round

As Deputy Prime Minister Vaile stated this week, the Doha round of WTO negotiations has been suspended, essentially because of disagreements about how far agricultural trade should be freed up.

While the future of the Doha Round is now uncertain the Government is taking a hard-headed look at where things stand, and doing everything within its power to pursue a successful outcome.

Australia’s commitment to the Doha Round remains strong because a comprehensive WTO Round is the best way to deal with the key distortions to world trade, particularly the subsidies and access barriers that beset agriculture.

Australia will also be looking over the coming months to discuss the Doha Round, including 20th anniversary Cairns Group ministerial meeting to be held in Cairns in September, and the annual APEC meetings to be held in Vietnam later this year.

These will be important early opportunities to reaffirm Australia’s commitment to the Doha Round and to discuss how to revive the negotiations.

Deputy Prime Minister Vaile has also flagged the importance of looking to other strategies to pursue after the round. There might be value, for example, in thinking about what could be agreed between groups of more ambitious countries on specific issues, which could then be extended on a most favoured nation basis to all WTO members.

Free Trade Agreements

In the absence of a consensus multilaterally, a lot of countries are negotiating bilateral or regional trade agreements – which can deliver faster results. More than half of world trade is now conducted under such trade agreements – 197 agreements in force have been notified to the WTO. [WTO press release, 10 July 2006]

Australia now has comprehensive agreements with four of our strategically important markets – the US, NZ, Singapore and Thailand and a spread of others under preparation.

The Government is currently negotiating for greater access to several key markets – China, Malaysia, the Gulf Cooperation Council and, together with New Zealand, ASEAN. This will continue to change the trading landscape for Australia, as countries increasingly focus on their areas of competitive advantage.

Let me illustrate a few examples of how this is working for businesses.

Australia-United States Free Trade Agreement (AUSFTA)

Since the conclusion of the Australian US Free Trade Agreement over eighteen months ago, the Government has enabled Austrade to provides expanded support for Australian exporters in the US market. Exporters can draw upon representation in 18 US cities and a dedicated network of USA Export Advisers around Australia.

Australians are capitalising on our new access to the US Federal Government and 30 state governments. In 2005-06, Australian companies achieved sales to US governments totalling around $95 million with Austrade’s help, in sectors such as transit, surveillance and navigational equipment.

Victoria-based Sealite has just finished a large contract for the Florida state government – providing lighting for the Sunshine Skyway Bridge, one of the largest cable-stayed concrete bridges in the US. Sealite benefited under the AUSFTA from vastly increased access to the government procurement.

Port Lincoln Tuna Processors recently launched Australian canned tuna in US supermarkets, following the elimination under the AUSFTA of the 35 per cent tariff on canned tuna. With assistance from Austrade, Florida-based importer Aussie Imports has partnered with Port Lincoln Tuna Processors to import and market the tuna in the US under the G’Day Gourmet brand.

The AUSFTA also maintains a forward agenda of review and discussion between Australia and the US regarding various services sectors such as telecommunications, financial services and professional services.

In line with these additional opportunities, Austrade has expanded its presence in the United States by 23 additional staff, including introducing two new teams, Agriculture and Selling to Government, and expanding its Services team.

Thailand Australia Free Trade Agreement (TAFTA)

In Thailand, Austrade is helping Australian businesses to capitalise on the new opportunities created by the TAFTA through targeted initiatives such as trade shows, buyer missions and business matching with Thai customers.

During the first year under TAFTA Austrade helped 177 companies to export to Thailand, an increase of 35% over the year before.

For twenty-six years, Altona-based family business, Borgcraft has been selling Maltese pastries.  Today the company’s product lines includes frozen pastries and pizza bases which they are successfully exporting to markets in Asia, including Thailand where their products have experienced a 5% tariff drop following the introduction of TAFTA.

Singapore Australia Free Trade Agreement (SAFTA)

The Singapore-Australia Free Trade Agreement has guaranteed Australian companies in many service sectors open market access and national treatment into Singapore. There are also gains in telecommunications, competition policy, intellectual property, e-commerce, customs procedures and business travel.

Beer Importers and Distributors – who sell premium beers into Singapore and South East Asia – have gained a significant tariff advantage over other importers thanks to SAFTA. The tariff gain represents about a SGD$0.80 per litre advantage. The company say this is a significant boost to their competitiveness and potential profitability in Singapore.

Forward Bilateral Trade Agenda

The Government is currently negotiating for greater access to other key markets:

An FTA with China would be an historic opportunity to set the terms of a more diversified trade relationship with China, which is now Australia’s 2nd largest export market.

The FTA negotiations offer the potential to secure substantial tariff reductions on Australian exports to China. China’s tariffs on agricultural products average 15.3 per cent, and a number of our major agricultural exports face tariff rate quotas. China’s tariffs on our manufactured goods can be as high as 45 per cent.

The Government is pursuing an FTA with Japan – our largest export market, as well as Korea – our 3rd largest export market.

It is also negotiating FTAs with Malaysia and ASEAN, and considering an FTA with the Gulf Cooperation Council.

Risk Management in the International Market

I’ve been talking about the trade agenda which creates the environment and opportunities for this millennium.

While the Government  is working to ensure that Australian businesses have increased opportunities and the best possible access to international markets, businesses need to be conscious of the risks and how they can be managed.

In a volatile world, attention to country risk assessment and advice from those on the ground is essential both to understand political risk and manage commercial/cultural related issues. You will be hearing from experts on the assessment and management of political and commercial risk during this conference. I note Roger Donnelly, EFIC’s Chief Economist will speak to you later.

Austrade and DFAT through our people on the ground in most key markets can help to understand the political, cultural and commercial environment in which you wish to operate.

DFAT provides current information on risks of visiting markets. They also prepare overviews of the countries in which they are located.

Austrade has a deep network in key markets like the US, where we have opened 18 points of presence – including representation in Charlotte, Austin and Miami; in China we have 15 offices, including in the new growth areas Nanjing, Chengdu and Kunming; and India where the Government recently expanded Austrade’s resources to extend our footprint to five offices and more local staff for promotion. These resources can be invaluable in understanding the cultural and commercial environment of trade and investment.

For example, while the popular perception is that Papua New Guinea is a high risk environment, in terms of companies to market, PNG was the 9th most popular destination for Australian exporters, with 3000 Australian companies actively trading into the region.

So, whatever security obstacles may exist, Australian companies are finding ways to trade into even the most remote or troubled regions of the world, where perceptions of risk can run high.

There are many tools for the management of political and commercial risk. Exporters have myriad services in the commercial arena, from banks, export credit insurers, trade financiers and from the Australian Government’s own export finance agency EFIC. You will hear from representatives of these sectors during the conference.

Accessing Finance as Part of Your Trade Strategy

Another issue that the conference will address is the issue of access to finance as either an impediment, or tool of growth.

As a representative of the Australian Government, I will focus on the some of the services provided by EFIC, and the Export Market Development Grants scheme, that Austrade administers.

As research commissioned by EFIC shows, one of the major concerns of SMEs looking to expand their international business is access to flexible and appropriate financing tools to address their unique needs.

However, bricks and mortar security is still the credit gateway for SMEs – and they often don’t have the track record or the asset backing to meet these traditional lending guidelines.

There is an alternative solution for smaller companies – if they’re working with a global bank and selling to well-known brand names overseas.

But EFIC research shows that almost a quarter of SMEs shelve their growth plans because of being turned down for a loan.

EFIC supports the growth of Australian businesses internationally by filling the market gap where the private market lacks capacity or willingness. It provides structured finance and insurance solutions, and risk management services.

The international opportunities that draw Australian companies are often in markets that present challenges for gaining trade finance.

For example, EFIC was able to assist Peakhurst-based Bronx International to win a $12 million contract to design and supply a coil-strip paint line to Zincacero, one of Mexico's leading galvanised steel sheet and coil manufacturers. When a European company offered project financing to Zincacero in a bid to secure the deal, Bronx were left competitively exposed. EFIC were able to provide a financing package which enabled Bronx to win the contract.

Bronx International is also currently working to build on their success with the support of Austrade’s Latin American team, who have provided the company with research, in-market intelligence and advice to assist Bronx in their next stage of growth in the Mexican market.

EFIC Headway

To expand their product offering, EFIC has recently launched a new product – EFIC Headway – to help SME exporters who have reached their maximum loan capacity and need to extend their existing lending facilities with their bank. EFIC Headway is a guarantee to the bank by the Government for the additional amount. It increases access to working capital for SMEs by up to 20 per cent.

One of the first businesses to use EFIC Headway is Sykes Group – a Newcastle SME that manufactures and supplies automatic prime pumping equipment to the mining, quarrying, construction and engineering industries. Its products were used in draining New Orleans after Hurricane Katrina. It has also established offices internationally in the United Arab Emirates, the United Kingdom, Indonesia and New Zealand, and is using local distributors in other markets.

For Sykes Group, the bank arranging EFIC Headway funding was HSBC. The additional funds enabled the company to invest in holding stock of its latest product – so it can fulfil orders from the United States within the fast delivery timeframes expected in the US.

Sykes Group participated in an Austrade mining mission to India in November 2004, exhibiting at the Australian Pavilion at the IMME Mining Expo in Kolkata. This has led to export and overseas investment deals worth a total of $1.5 million. It has also made use of the Export Market Development Grants scheme to help fund its export promotion.

Export Market Development Grants (EMDG) scheme

As well as trade finance, businesses need finance to promote their goods and services into new markets.

Austrade manages the EMDG scheme, which is an Australian Government grants program that helps exporters by reimbursing up to 50% of export promotion costs above a threshold of $15,000.

It helps with costs such as overseas representatives, marketing consultants, advertising, free product samples, and visits to export markets.

In January 2006, Minister Vaile announced the continuation of the scheme for a further five years, until the end of 2010-11.

One company that has used EMDG is a small business that produces a natural skincare range for babies called Aromababy. Inspired by the founder’s own baby, the products are now sold in pharmacies and department stores in Korea, Singapore, Taiwan and Hong Kong, and parts of Europe, the UK and the US.

In developing their overseas markets, the company has used the EMDG scheme to reimburse some of the costs of promoting Aromababy internationally… They then reinvest the money back into expanding their markets.

A tourism operator benefiting from EMDG support is Paronella Park, located in the rainforest beside Mena Creek Falls, 100km south of Cairns. As a ‘standalone’ tourist attraction, it was impossible for Paronella Park to co-operatively market – a common practice for smaller, clustered, tourism SMEs. As a result Paronella are forced to meet the costs of international marketing on their own. The company received its first EMDG grant several years ago, which enabled them to market in Japan and Germany. The Park now features five tour bus visits each day!

Conclusion

Austrade seeks to work with the providers of allied services both in government and the private sector to increase access to Austrade’s international network and knowledge. We do this through contracted provider arrangements, such as through the TradeStart program that the Government has recently extended. This program delivers joint services provided by Austrade and the service provider to businesses predominantly in rural and regional Australia. Many of these providers are State and local governments and also industry associations, such as the Australian Institute of Export.

A recent new program we have developed is Corporate Partnerships.

By working with local financiers and international banks and insurance companies in the Australian market together we have expanded the options available to their clients with new approaches and products for both funding and protecting export sales.

I recently signed partnership agreements with HSBC, Westpac and Bendigo Bank, and we are also working with the Commonwealth Bank (also Australian Export Awards sponsor).

Austrade and HSBC are already actively working together to promote the opportunities and services available to business. We have started joint activities for our clients in China, India, Latin America and Iran… and around Australia in Perth, Melbourne, Adelaide and Brisbane.

With the knowledge and support of public and private sector organisations such as those represented here today, we can help businesses realise their growth aspirations by accessing finance and opportunities and managing risk. I look forward to learning of the outcomes of the conference.