Exploring firm responses to the question of FTA benefits

21 Dec 2017

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  • Divya Skene
  • AIBS 2017

One of the limitations of surveys is that headline responses about firm decisions may not clearly reflect the underlying context under which these decisions are made. For example, in earlier unpublished Austrade analysis, Mark Thirlwell explored reasons why broad surveys of executives tend to convey low levels of awareness of the benefits of free trade agreements (FTAs).

Generally, broad industry surveys asking about the benefit of FTAs target a wider range of firms than those that actually use FTAs - so findings often do not accurately measure FTA utilisation. Surveys weighted by firm also don't reflect the value of exports and so may not reflect overall export benefits. Broad surveys may also capture the perceptions of executives that do not have direct responsibility within the firm for international revenue or business development with FTA markets.

AIBS 2017 sought to learn about firm awareness of the benefits of FTAs as applied across Australia's sixteen FTA markets. The survey also explored other aspects of firm behaviour around FTAs, such as the use of FTA documentation, which allows us to look at the relationship between FTA appreciation and undertaking the associated paperwork.

On the issue of goods exporter awareness of FTA benefits, AIBS results show some variation by market. Forty per cent of respondents who are exporting to China and 31 per cent who are exporting to Thailand were aware that the company's export sales benefited from the FTA. This contrasts to a smaller share of 12-16 per cent for Malaysia, Singapore and New Zealand.

AIBS - Awareness of FTA benefits and FTA documentation practices

Importantly, Figure 1 also shows that most firms that report they 'do not gain export sales benefit' from an FTA also report that they are not filling out paperwork to claim a benefit - and in many cases firms do not need to do so. For example, the high rate of firms not filling out FTA documentation for New Zealand, Malaysia and Singapore (and conversely the lower rates of awareness of FTA benefits) may be more likely to reflect the wide range of zero or low applied tariffs in these markets rather than exporter ignorance of or disdain for any trading benefits associated with the respective FTA.

Further, many respondents that report that they 'don't know' whether they receive an export sales benefit from an FTA, also report that they are outsourcing their FTA documentation (between 47 and 69 per cent across major FTA markets). This could suggest that outsourcing documentation influences firm awareness of the benefits of FTAs - but note that other survey findings also show firms outsourcing their documentation are in fact more likely to be aware of export sales benefits arising from FTAs.

Outsourcing documentation is a popular endeavour with two-thirds of all goods exporters to FTA markets use a trade services provider or third party to handle FTA export paperwork.

While the exact details of the relationship between FTA appreciation, utilisation and paperwork requires more detailed analysis, it is clear from these AIBS findings that FTAs apply very differently across markets and at the firm level, as does the approach to documentation, and that these differences mean that headline surveys that ask only about FTA benefits may have a limited ability to measure utilisation and benefits.

Finally, it’s worth noting that as well as additional export sales, survey respondents also recognised other FTA benefits such as 'making sales not previously permitted' and 'recognising Australian standards'.