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Free trade: Time to take your partners

Brisbane Courier Mail

15 January 2005

Free trade: Time to take your partners

Queensland could reap $1b a year from the Free Trade Agreement with the US, but it’s not going to be easy, writes Liliana Molina

UNDERWOOD, a rather grey suburb on the southern outskirts of Brisbane, is not where you would expect to find the cutting edge of free trade with the United States.

But from a non-descript suburban office, the developers behind a world-first document shredder always knew getting into the US market would make a world of difference to their business.

After all, its government buys $200 billion of goods and services a year, more than any other market in the world and who else is more obsessed about security?

To even be considered by government procurement officers, Biomash Equipment had to get listed on the Goods and Services Administration Schedule, from which the US Government, plus a number of state administrations, buy their goods. The three-man company, which manufactures in Australia and the US, firstly had to get approval from the National Security Agency for their equipment.

They then had to work through the complex 150-plus pages of the Goods and Services Administration Schedule tender package and most likely would have had to pay a specialist to untangle the legalese.

But they were lucky because their product was picked up by a US-based dealer with a GSA schedule who added their products to his list.

"If we hadn’t found the dealer (through Austrade) we would have had to go to the NSA and convince them we had equipment they wanted," sales and marketing manager Malcolm Battock said.

"Because of the FTA coming in, everyone was aware of it and prepared to work with us."

This is the same procurement market the Federal Government has been trumpeting as a key opportunity for Australian business, especially smaller companies, because of the new US free trade agreement.

The message from industry bodies and even Austrade is this: don’t expect a massive change in company balance sheets because of the two FTAs with the US and Thailand that came into force on January 1.

It’s been well documented which sectors have got opportunities from the two FTAs - dairy, lamb, beef and wine as well as IT and biotechnology - and the sectors that face threats from easier access of foreign goods and services - entertainment, clothing manufacturers and sugar producers who were left out.

Now that the ink is well dry and the framework is in place, what is actually happening to convert these opportunities into more work for Australian companies?

The central agency co-ordinating the flow of information has been the Government’s trade marketing arm Austrade and senior trade commissioner in Washington Geoff Gray recognised it was a slow path in the US.

"The questions we’re getting from business are what have been the changes, what are the tariffs, the regulations, and is there a change in business attitude?" Mr Gray said.

"We don’t expect the big commodity items to do well, where the opportunities are is in IT and security.

"The government procurement market has targeted security and IT and their attitude is that they’re willing to look at ideas from around the world if it makes America safer."

A series of seminars on selling to government held last year attracted about 400 people Australia-wide and 80 in Brisbane.

Manufacturing was pinning its hopes on getting into the government procurement market but there were risks in exporting, said Australian Industry Group international executive director Leigh Purnell.

He said manufacturers, especially emerging businesses, needed more help from government programs such as the Export Market Development Grants scheme to fund getting on the GSA Schedule.

"There are different industrial standards that may keep Australian products out of the US," Mr Purnell said. "The most important thing the FTA has done is set up relationships. But we won’t get $1 of the government procurement market unless we’re co-ordinated."

"Manufacturers have to deal with the balance of trade deficit and the high Australian dollar," he said. "More funds are needed for these programs, like the base for eligibility needs to be broadened. But nothing will really come of itself unless we work at it."

Queensland University of Technology international business senior lecturer Mark McGovern warned the signing of the agreement did not mean it was a done deal as the way elements were interpreted would affect the way Australian companies could do business.

Mr Purnell said AIG had run seminars, advised on rules of origin and worked with the National Association of Manufacturers in the US as part of its strategy to help members.

"It’s too early for actual activity. But interest from companies about registering for their certificate of origin for Thailand has been quite high and seminars have been well attended. We’ve certainly had a lot of hits on the website.

"But the first essential step will depend on sectors and individual companies themselves."

Which comes back to the crux of the whole trade liberalisation argument, letting market activity rule the economy.

"Companies have to be the proactive ones especially if we want a market-based economy and to encourage entrepreneurship," said Macquarie Bank chief economist Richard Gibbs, who prepared a number of reports on Australian companies’ attitudes to the US FTA for US congressional groups.

"There’s probably more opportunities for US companies than Australian ones because it’s relatively easier for US companies to invest and do business in Australia."

He expected winners in the procurement market to be transport, communications, security systems, logistic management and other software-based sectors.

But Open Source Industry Australia director Con Zymaris, who heads the advocacy group of 200-plus mostly small software developers, said his members stood in a legal minefield as the US’s intellectual property laws came down very heavily on duplication of coding.

But he argued in 50,000 lines of coding it was impossible to check if there was duplication and developing new software was dependent on being able to intermesh with existing software.

"Our perspective is that there are potential negatives because of the open-worded nature of the FTA," he said. "Anyway there was no real sense that we had any impediments (to exporting to the US) before the FTA."

One industry that has been active is the dairy industry with 52 companies ranging from big milk suppliers to boutique cheese makers applying for a part of the increased quota for the US.

Australian Dairy Farmers president Allan Burgess, who also heads the National Farmers Federation’s trade committee, said the quota to the US had been quadrupled in milk equivalent units and would rise by 5 per cent every year.

"The first year calculations are that for the average dairy farmer with 180 cows, the bottom line will increase by $2000 to $3000," Mr Burgess said. "If we’d waited until January 1 to do some work then we wouldn’t have been ready.

"In the case of dairy companies who already have been working in Thailand, they’ve been increasing their activity and in the US developing relationships."

Another sector expected to benefit from both FTAs is the burgeoning Queensland wine industry, but Winemakers Federation of Australia international and regulatory affairs director Tony Battaglene said tariff reductions were a long-term change.

"With the Thai FTA we’ll have an immediate reduction from 54 to 40 per cent and down to zero by 2015," he said. "But we export bugger-all there at the moment. We have an opportunity in niche markets through big hotel chains and we’re looking 10 years down the track."