ARTICLES:

TARIFF REDUCTION - HAS IT MADE AUSTRALIA’S EXPORT CULTURE MORE VIABLE??

Alister Robertson (Managing Director) of TPJ International Pty Ltd challenges these views and looks at this Industry Policy platform in a different light - particularly for Australian exporters over the last few decades since the early 1970’s.

TPJ is well placed to raise these issues as a leading Australian import/export consultant that works with a client base that includes both the “big end of town” and many small to medium enterprises (SME) – including the rural sector. Our core business has always been import tariff consultancy, which has been directly affected by Federal government trade policies and the reduction of import tariffs to negligible levels.

Our firm has diversified away from relying solely on tariff consultancy practices into far broader global trade advisory services. Given the reduction of tariff levels to NIL and the implementation or introduction of the freetrade agreements (FTA's - see "Global Trading with Australia" on this website). The need for tariff concessions becomes redundant. With no tariffs, who needs a tariff consultant – even a damn good one!!!

The small and specialised TPJ group, has expanded to become an importer/exporter of services in a variety of business sectors. Our growing global network is identifying some amazing business potential for Australian SME’s and it is from that viewpoint that this article has been produced. It comprises some interesting views on the subject of Australia’s apparent lack of export passion – primarily in the SME sector against the backdrop of reducing tariff protection that is meant to be achieving more competitive industries.

WELL, WE HAVE GOT IT!! The answer that is – not necessarily the solution!!!

Let us review the question again in a different light – Why are we (as a Nation) not creating a more viable and sustainable export culture?

I know there will be those that will immediately dispute this statement, with figures that reflect increasing export revenue. However, be very careful about the statistics we are given. They do not reflect the true position in the SME sector and it is that sector, which is the driving force of any nation on this globe and should be the major recipients of benefits from a country’s Industry Trade policies.

TPJ does not believe that situation is yet occurring in Australia, despite the years and years of so-called economic rationalism – by both sides of the political fence.

Of course, one of the major platforms of the economic rationalists and/or “free trade” protagonists is that, ”…reducing tariffs gains access to cheaper goods, making our businesses more productive and dynamic so that our exports are more competitive.” [Business Queensland July 28, 2000, quoting Matt Crowe in his article supporting tariff reduction and free trade]. This affirms all those in Government and Opposition political circles (since, in essence, both have the same global policy, along with the economic purists and free trade protagonists) about how “free trade” is good for Australia.

TPJ is not espousing a return to the protectionism of the past. Our concerns are expressed further below and the truth is a little more subtle comprising more reality than the “text book stuff” we see from the so-called expert commentators and recent policy framers.

The counter argument to Mr Crowe’s purely theoretical position was Mr Paul Orton as the policy manager of the Australian Business Limited, which contained far more commonsense and a significant amount of experience from the “real-world”. Afterall, Mr Orton was indeed quoting the actual business owners out there who are indeed the recipients and end-users (or sufferers) of the industry policy platform. When is someone going to listen?

There is not a shred of direct evidence that indicates a “nil or minimal import tariff regime”, per se, helps Australia’s manufacturers export more. Yes, some will suggest that their import value-adding manufacturing allows a more competitive export business. However, those Firms would achieve the same result through the Drawback and/or Tradex schemes (already in existence) irrespective of tariff levels for their imported raw materials.

The actual question should be - what about those SME manufacturers that produce fro Australian raw materials who have to compete against the cheaper imports? See answer later.

Granted, our tariff levels were far too high (in the 60’s to 80’s) whereby Australia was in effect using such mechanisms more for revenue collection than what their true nature is meant to be – domestic industry protection. That has been a feature of Australia’s tariff policy since Federation. Still, since WW2 and the subsequent formation of the General Agreement on Tariffs and Trade (GATT), now administered by the World Trade Organisation (WTO), it has been recognised that, should a member nation need to be providing some sort of protection to their domestic industries, then tariffs are THE ONLY mechanism which are sanctioned by the rules.

Yet, which member nations (now in excess of 145, including Australia) are playing the same game??? We all know (but not prepared to admit publicly, officially or politically) that it is far from being a “level playing field” out there and that “protectionism” is not such a dirty word in many countries - not the least the largest capitalist country in the world – USA – and they and others are not just using tariffs (the sanctioned mechanism) for support to their industries!!!

Australia has, endeavoured to play by the rules, however, we have put the “bat and ball” (tariffs and a balanced industry policy) back into our bags and are playing in a local park on our own. Meanwhile, the others have stayed in the stadium, with the main game. The best we can do is climb the pylons and watch from the sidelines. The main game is going on without us. Yes, we are trying to be the leader or referee (the Cairns Group, combined with other “bench players”), but are being pushed aside in the mellee!!!

A new strategy is absolutely vital for Australia and it is going to take a brave political stance to bring about a change of direction. Our future rests on a new revolution in global trade policy for this country.

There are many Australian SME firms, like our own, that are working very hard in overseas trading, yet we still question the reasons behind our Country’s declining balance of trade. There is indeed no valid argument, which should suggest that Australia could not retain its rightful place amongst the top five developed Nations on this globe.

This is NOT the cry of a whining small business operator. Indeed, TPJ has made significant inroads in terms of our own export development through very difficult diversification and transitional times in our business, as a direct result of Federal Government tariff reductions over recent times – as explained above.

Like all other Firms who were impacted by the lower tariff barriers, TPJ, in line with these changing times, made a concerted effort to adjust to these so-called necessary reforms. We are however, only a small business ourselves and can possibly adjust to those changes more easily, yet, we continually evidence the decimation of some of Australia’s manufacturing organisations that are not able to make the adjustments to the new-world level playing field of economic rationalism. Why??

For those who take an interest in our Country’s well-being, one only needs to evidence our economic standing as just making the ‘top half’ of OECD countries, to begin to appreciate our fall from the heights of being No 1 at the beginning of the 20th Century to No. 5 by mid-century to No. 20 or thereabouts at the start of this new millenium.

That is not a good track record. Why??

The rhetoric then becomes that it is a rapidly changing world out there and how it is more competitive and that more countries now, than at the start of the 20th Century, are going global, or that we are only a small nation amongst the big guys of this world, and that we have to change our management practices to be world-competitive…..etc. etc. etc.
Whilst those arguments may have some place in another debate, there is absolutely no doubt that Australia could and should be ahead of most of the rest in GDP per capita – but, sadly we are not. Why??

What has created this inwardly focussed and stagnant import/export industry policy framework at the beginning of 21st Century Australia??

There is, in truth, a myriad of reasons and while TPJ believes “economic rationalism” has gone mad in this country, there are other aspects that require scrutiny and rational policy decisions.

Therefore, we need to stay with our recent history to discover what we believe to be the absolute truth and logical reasons for our Export problem (or challenge) that faces us at the start of this new Century.

The fact is, even considering various contingencies (positive or negative) that occur from time to time and evidenced in quarterly trade statistics (such as the sale of submarines or purchase of new military or commercial airplanes and the like or Asset sales or the manna from heaven from telecommunications revenue), Imports continue to outstrip our Exports – particularly in the (SME) sector. The Current Account deficit ‘trend’ increases with every passing year.

The “banana republic” statement still rings in our ear – almost 20 years after it was uttered, despite the enormous, albeit well-meaning, incentives implemented by successive Governments since the 1970’s.

The various Australian Governments (current included) have failed to come to grips with the position that Australia’s import/export ratio has shown little improvement over recent decades. This is so, despite significant economic reform (including tariff reduction) that has occurred during this time and the almost total disregard to the correct identification in numerous formal Reports or Industry Commission findings as to where we need to be directing our energies.

We have all heard and adhered to the pleas by Governments, since the 70’s to “come out from behind our mother’s apron strings” and face the world. That is, it has been continually stated that we cannot continue to hide behind protection walls or rely on our traditional comparative advantages – raw materials and semi-manufactured processing.

These sentiments still eminate from Canberra and it seems, from many economic do-gooders! In other words, we often hear "that to survive in the global arena, we must be world competitive…” and so on and so on. We have heard it all before. Someone should tell the Canberra clan (and the free trade purists) that we know and understand these issues – possibly better than they!!!! Afterall, commercial enterprises are in business not them – or are they!!!

Therein lies part of our dilemma and where we are coming closer to the real facts – not statistics that can be altered, hidden and adjusted to suit a particular agenda. We will identify that “the truth is out there…”. In addition, the answer is found in a series of misplaced Export incentives that have proceeded out of the well-meaning sectorial policy framework over some 25 years or so.

Taking the first point, too often we see Governments competing with Business. TPJ can identify many instances in Australian corridors of power, where Departments, responsible for the administration of policy directions, are in fact competing with business for targeted commercial outcomes. TPJ has a philosophical argument with this trend that has been allowed to develop in Australia and is a factor, we believe, in the cynical nature of the SME sector in not maximising Government networking incentives – specifically for exports.

Governments of all flavours (in Australia) have to address this issue – not business. Business on the other hand has to deal with the implications of the misplaced Government export facilitation process.

That is, secondly, take any Export incentive scheme – Drawback, Tradex, TCF Import Credits, Motor Vehicle Export Facilitation (now the ACIS) and even to a certain extent the value-adding framework offered by the Tariff Concession Scheme or Project By-Law System and so on. All of these are actually rewarding Firms for exporting through cheaper imports.

That is, imports are encouraged through these lower tariff schemes so that transactions between Australian firms are compromised, resulting in gaps of production chains and lower technology composition for the remaining Australian manufacturing sector. That is the counter argument to economic rationalism – and probably closer to the “truth” as against the text book theories that are espoused by the free trade clan.

Building a “clever country” on the policy foundations of the 70’s, 80’s and 90’s is, in reality, not so clever after all. It has polarised our exporting industries and not realised the absolutely huge potential that is present in Australian SME businesses. The outcomes we are experiencing as a nation are reflected in our current global slippage.

The Import/Export Industry policy framework in this country is fragmented. There is no real integration of Government, Education and Business in Australia – like there is in some overseas regions such as, the USA, Malaysia and some European countries. Despite the diverse cultural differences in these three countries or regions, each have found that Governments are there to govern, education institutions are there to educate and business is there to do commerce.

It is now up to business themselves. We MUST not wait for Government to implement policies for us – we must drive policy – bottom-up driven not the top-down approach that has been a function of Australia in the latter half of the 20th Century and now into the 21st. While we understand that the “big end of town” appears to be the major recipients of the existing policy directives, the undeniable truth is that the SME sector is the growth-engine of most nations on this earth and it is no different in Australia.

While this appears rather simplistic, it can only be achieved if it is facilitated by an effective Industry policy framework that encourages and supports business to do what it does best – maximise and optimise offshore opportunities at the –
Firm level
Regional level
State level
National level

There is a real need to have a co-ordinated approach to our global efforts at each of these stages and in that order – not the reverse as exists in Australia.

As TPJ travels this beautiful bountiful land (not speaking here of just the physical, but the incredible intellectual proprietary expertise that resides in MANY of our businesses), it is staggering to appreciate the enormous potential for our SME sector – services and product manufacturers alike.

From fresh produce growers/processors, through manufacturers of unique or innovative products and design processes in almost any field one chooses, into the dynamic Services sector, Australia leads the world in “how to do things properly” – across the broad framework of business. Our shortfall is not having the resources (financial and human) to take it to the world – or our lack of effective Government directives to develop those opportunities.

For instance, the almost universal enquiry from the marketplace is “what mechanisms exist to increase access to capital for SME innovative firms?” There are nil.

Again, before we get knocked down in the stampede from representatives of the DITR and their R&D programs, or Austrade with their Export Market Development Grant (EMDG), we are speaking here of “working capital” not “venture capital”. The R&D and EMDG programs (and similar State or Industry Association programs, for which there are many) and even free tariffs, DO NOT meet the immediate needs of the majority of the marketplace – being the SME’s spoken about above.

Let us assure the powers that be in Canberra and elsewhere, that our Australian firms are almost falling over themselves to access development funds to take them to the next level of their product/business cycle – that is, to export - (import tariffs do not even rate a mention in their business plans). The criteria to access the existing export schemes are so strict or inflexible and beyond the reach of the majority of the SME sector, or have, like the tariff regime, been dismantled over a period of time, that most give it away before pursuing. The financial benefits, in real terms, of these schemes do not warrant the effort.

Further, the existing breed of incentive programs confuses, rather than infuses a mentality of business development. Australia’s potential goes “begging”.

The businesses however, do not and will not come begging for “handouts”. That is not what they want. They want market intelligence, effective market entry strategies, export assistance and are prepared to pay for it – NOT on a fee for service basis, or on a long-winded so-called grant scheme which is available only after 12 months to two years of front-end expenditure, paper-shuffling and stringent justification of their Company integrity. This methodology simply stifles growth and limits a Firm’s entry point into exporting.

Rather, Firms could be provided with these necessary ingredients through low-interest loans or credit facilities that does not impede their growth strategies and encourages their efforts in the initial stages of offshore development to realise their huge potential. There is the key.

The huge profits generated by the Banks could be re-channelled back into an innovative scheme between the government and banks working together to address this vital issue.

The repayments of the loans could be offset against a Firms entitlement into the various schemes. No one loses and the protection of the revenue is assured.

Firms need working capital NOW, not next year. If they have to await next year, they will not expend the necessary $$$ for export – and most have not the financial resources anyway, which at this time, would be exhausted in Government or Industry Association expensive and unwarranted “fee-for-service” programs.

We need to realise the potential of Australian businesses and we will have this country back where it belongs. They are out there – let me assure you. It is not “rocket science” – simply better managment of our resources – rather than dislocating those resources in misdirected sectorial policies that have not produced the outcomes we require to address the overall problem of our trade imbalance.

Regional (as against sectorial) policies is the “vessel” that could inject the export drive so necessary in inter-firm networking, that may just be the panacea for Australia’s international trade growth. This is the “bottom-up driven” approach from regional businesses as against top-down policy decisions driven by sectorial interests which have no real benefit to the long-term growth-engine of business development – the SME sector.

Governments need to listen to the marketplace and develop some real industry policy platforms, in conjunction with business. Integration not dis-integration, collaboration not dislocation.

If commitment and co-operation to these objectives can be achieved, we WILL rediscover, redefine and find our “lost” Export culture. A balanced tariff policy can assist the process amongst other selective incentives that encourages ALL firms to view exports as an extension to their business, rather than “a no option alternative”, unsupported by an outdated or ineffective Industry policy platform.