Cutting red tape is an important step towards facilitating Australian trade, writes Ian Murray, executive director of the Australian Institute of Export.
At a breakfast held recently on the Federal Government’s Export Policy and Programs Review, CEO of Tradegate Peter Blanchard asked the panel of exporters about its experience and opinion on Australia’s trade facilitation capability. His question addressed not just cost issues and productivity, but those relating to the enormous impact that our complex trade facilitation regime has on our environment.
There are a number of definitions for ‘trade facilitation’. APEC defines it as “the simplification and rationalisation of customs and other administrative procedures that, hinder, delay or increase the cost of goods across international borders”, or as the APEC Committee on Trade and Investment put it, “cutting red tape at the border for importers and exporters so that goods are delivered in the most efficient and cost effective way”.
From a business perspective, trade facilitation involves all the activities, practices and formalities involved in collecting, presenting, communicating and processing required for the movement of goods and services across international borders. While it affects all sizes of organisation, its impact is undoubtedly greater on SMEs. The more complex it is, the greater the cost and impact on a sector that already struggles to compete in the international marketplace.
It’s obviously difficult to calculate the cost of trade facilitation. The OECD estimated that trade transaction costs range between one percent and 15 percent of the value of goods traded when both import and export procedures are taken into account. On average, they found that trade transactions go through 27 to 30 parties, including brokers, vendors, banks, carriers and freight forwarders, needing at least 40 documents, not only for government agencies but also for related businesses. Over 200 data elements are typically required, of which 60 to 70 percent are re-keyed at least once with 15 percent being typed up to 30 times.
Closer to home, Australian Customs estimated that there are 41 Commonwealth and State government agencies involved in the collection of data about international trade. These agencies use 275 forms to collect over 7,640 data elements. Customs further estimated that there are 637 core data elements required. Agribusiness products generally incur greater trade transaction costs than OECD estimates—up to 50 percent higher than for manufactured products.
The effect on the SME sector was highlighted in a study conducted in the late 1980s, which concluded that EU companies with fewer than 250 employees incur transaction costs 30–45 percent higher per consignment than larger firms.
With traders estimating these costs at between US$75–US$125 per transaction, and the Department of Foreign Affairs and Trade (DFAT) calculating that savings are “highest for small shipments than large”, the impact on the SME sector is significant. Assuming DFAT’s numbers are accurate, Australian exporters face paper trade transaction costs of over US$75 million per annum.
Using the World Bank’s Doing Business 2008 Report, Australia’s overall performance in trade facilitation ranks at 34, compared to Singapore (1) and the United Kingdom (27). While it’s fair to say that Australia has done much to improve customs procedures, no overall trade facilitation strategy exists apart from agreeing to APEC targets. Nor is there a plan to simplify the procedure for the SME sector or to address the impact this largely paper-based process has on the environment.
Simply put, trade facilitation must become a priority of the new government: it must focus on setting targets and milestones for progressing to a fully paperless system and it must be orchestrated by one body, with government and industry working together to achieve a positive outcome. Done effectively, it will have a very positive competitive impact on Australian business while achieving positive environmental outcomes.
Ian Murray, executive director of the Australian Institute of Export (www.aiex.com.au)
