World ranking slides for Australia’s International Competitiveness

“The fall in Australia’s competitiveness ranking should be taken very seriously by Government & Industry,” said Ian Murray Executive Director of the Export Council of Australia. Today’s announcement in the Australian Financial Review has Australia’s world ranking falling to fifteen, ten places lower than it was two years ago.

Mr. Murray said that “the report by the Committee for Economic Development in Australia (CEDA) and the comments expressed by CEDA Chief Executive Professor the Hon Stephen Martin reflect what the council has seen emerging in export now for the last two years.”

 “Australia’s exports”, he said “are being strangled by the high cost of labour, red tape upon red tape, duplication of Government regulation, the GFC and of course the high Aussie dollar.”

Quoting a recent paper prepared by the Export Council of Australia, where it argued that while resources are booming there was clear evidence that even that sector was being hamstrung by unnecessary regulation, high taxes and massive difficulties in securing labour. The debate on ‘guest labour’ is but another issue that if not handled properly will result in the slowdown of projects vital to Australia’s wellbeing.

“The issue on whether the resources sector will continue to boom while important it is not the only issue on the table. Diversity of exports was a key factor,” Mr Murray said in “assisting Australia handle the GFC and it will continue to be a factor in the future. Those countries that concentrated on the services industry for example were really hurt during the crisis.”

Australia, Mr Murray said “needed to have a strongly balanced portfolio and focus attention on high value high technology sectors.”

“The Export Council,” he said “strongly supported the comments expressed by Professor Martin particularly those relating to the need for an increased investment in skills, particularly in science, research and technology. Despite the high dollar Australian companies in high-tech manufacturing and services to the resources sector, to name just two, remain quite strong.” Mr Murray said.

“On the issue of what should be done,” Mr Murray said “they had no argument at all with Professor Martin. Government needs to promote skills development, focus on skilled migration, including those under Enterprise Migration Agreements as well as promote R&D and most importantly attack over-regulation and trade facilitation costs. Companies must focus on innovation driven by excellence in R&D that will strengthen their competitive advantage and enhance their margins.”

“Being number fifteen is simply not good enough in a country blessed with resources, good education and natural ability.  Australia cannot afford to be apathetic. Government and business,” Mr Murray said “need to work together to realise the potential we have sitting right at our feet even if that means making decisions that some sectors won’t like.”

Ian C Murray AM
Executive Director
Export Council of Australia

Resources….an opportunity of a lifetime, let’s not let it slip

Every time I visit Western Australia I’m reminded of the line from the Aussie movie ‘The Castle’: “It’s the vibe...it’s the vibe” and there certainly is a vibe. All Australian’s are aware of the resources boom, but I’m not sure if everyone really knows what this means to Australia in terms of employment, advances in technology and the impact on companies that service and build infrastructure for the sector. It can, in my view, only be described as a once in a lifetime opportunity which if managed well, will be of enormous benefit to all Australian’s but if managed badly will simply be a wasted opportunity.

In late May, Perth hosted a “Careers in Mining and Resources forum” which was reported in a special feature for “The Western Australian”. One only has to flick though the pages to see its magnitude and the impact it is having on the State and to our export earnings. The Chamber of Mining and Energy of Western Australia (CME) is quoted as saying “Currently the sector has total export income of more than $100 billion and produces a royalty for the WA Government of $4.9 billion”. In 2010/11 the WA resources sector accounted for 95 per cent of the state and 46 per cent of Australia’s merchandise export income and direct employment of over 100,000 people in mining, oil and gas. A Department of Mining and Petroleum report claims there are over $180 billion worth of projects committed or under consideration which will create more than 57,000 construction jobs and 18,000 permanent jobs. When you look at the sheer scope of what’s happening and the impact it is having, you have to wonder why the unions are trying to create havoc for Hancock Prospecting for planning to engage 1700 guest workers when their Roy Hill project is reported to employ 6000 Australians.

The feature also puts a personal touch to this massive industry and tells the story of Christopher Turland, a dump truck driver with Fortescue Metals Group who wanted to become a train driver.  Christopher decided to take advantage of the opportunity and after completing a fifteen month traineeship become Fortescue’s first qualified Indigenous train driver. He is not alone, in May 2012, Aboriginal people comprised 10 per cent of Fortescue’s workforce and the company has awarded $580 million in contracts to Aboriginal businesses across its operations and growth projects. Nobody could argue that this anything but a fabulous outcome and I am sure there are more.

Opportunities of course can be realised and opportunities, even those of a lifetime, can also be wasted. Gina Rinehart, one of our Australian Export Heroes, in her article in Australian Resources and Investment draws comparisons between Australia and Singapore and highlights some clear differences between the two. “Despite the country’s small size, low population and lack of resources and local water supply, Singaporeans benefit significantly from the country’s policies”. “Its neighbour Australia,” she says, “is the complete opposite despite wealth generated from vast resources”. Australian’s, Ms Rinehart says “drown in red and green tape, taxes and government costs that make us less competitive.”  Singapore she says on the other hand “makes a real effort to minimise red tape, has lower tax rates, enables guest labour and has no debt”.  This view is reinforced by a World Bank study which placed Australia as the 34th easiest economy for trade access. Singapore, I understand tops the list.

There are enormous opportunities flowing from the resources boom for all Australian’s. They will not be realised unless we lift our game in cleaning up our act in terms trade facilitation and processes, reducing not increasing taxes and charges, having duplication and waste eliminated and encouraging not discouraging our entrepreneurs. Undertaking these fundamental disciplines will also have positive impact on the other side of the economy that is facing great hardship in this two speed economy.  Failure to address these issues will simply mean the once in lifetime opportunity will be wasted while those exporters in the ‘slower lane’ will be sacrificed.

- Ian Murray, Executive Director- Export Council of Australia

New Directions in Exporting

I had the pleasure to provide a “Getting Started in Export” workshop to a group of current and intending exporters last Friday on the northern beaches, working with the Trade & Investment team from NSW State Government.

There were two case study presenters at the workshop, who in their own way, indicate where export is heading for at least some Australian exporters.  The first presenter was Christelle Damiens, the MD of Exportia.   Chistelle’s focus is on helping Australian companies enter the European markets of France and Germany.  Having this country focus allows Exportia to tailor a strategy for each client, with a strong understanding of the language and business culture and any local barriers in mind. This can, and has helped many companies with the transition into what might otherwise be daunting new markets.

That understanding of how things work on the ground is imperative, and with the change in focus by Austrade in Europe, companies like Exportia are filling the gap and providing that advice and guidance that new entrants really need.

The second presenter was Paul Waddy, CEO of Antoine+Stanley.  Antoine+Stanley are primarily shoe retailers, however have combined the best of shopfront (using David Jones as a stockist) as well as their own on-line site, and listings on sites such as ASOS, The Iconic and Styletread.

There remains the need to develop a brand and following, but using a variety of distribution methods allows greater reach and different audiences. Of course, managing all the logistics is not without problems, and Paul seems to have these sorted.

With the world becoming more of a global village, and speed to market being essential in the fashion industry, the on-line shopping capability in different markets is certainly a good model to follow.

The key point for me with these two stories, is that in most industries now, a company (exporter) often can’t efficiently take on all parts of the process themselves. Managing the bits that really represent the “IP” in the business is vital, and then looking at avenues and partners to take care of the other pieces allows a company to conserve capital, move quickly, and hopefully adapt quickly to continue to grow.

So perhaps it’s time to evaluate the various parts of your business and see what parts may be holding you back, and whether those parts could be better provided by a specialist third party.

- Peter Mace, General Manager- Australian Institute of Export/ Export Council of Australia

Malaysian Free Trade Agreement

The Export Council of Australia welcomes the signing today of the Malaysian Free Trade Agreement and congratulates the Government and the Department of Foreign Affairs in bringing it to fruition.

Mr Murray, Executive Director of the Council said today ‘’the timing of the agreement was particularly good. Exporters are having a tough run given the Global Financial Crisis still hovers above our heads and the high Australian dollar has had a detrimental impact on margins, which usually results in the loss of jobs.”  Asia is Australia’s biggest trading partner and Malaysia is the eighth biggest in the region.

“Complacency,” Mr Murray said “must not creep onto the agenda. As the USA, the UK and many other European governments are putting substantial resources behind their export drive into Asia. This agreement and those to follow, including the Trans Pacific Partnership are vital to Australia’s wellbeing. They demonstrate not only Australia’s commitment to the region but its recognition of being part of the Asian Century.”

There are two areas of great importance in this agreement. Firstly, the opportunity for service exports including education, telecommunications and professional services and secondly the new arrangement for Australian equity in Malaysian companies.  Australian Senior Management will also now find it easier to work in Malaysia.

Mr Murray said “Overall, this is good step for exporters and the Export Council of Australia looks forward to seeing further progress made on agreements with our Asian neighbours and trading partners, including the long anticipated China and Japan agreements.”

Ian Murray
Executive Director
Export Council of Australia

Export Council of Australia- a new voice for Australia's exporters

This month heralds a major change for the Australian Institute of Export. Following extensive research the Institute after fifty five years officially on the 28th May will reposition its events and advocacy activities under the name Export Council of Australia while retaining the Australian Institute of Export for the delivery of education and training in international trade.

With a new contemporary look the Council, which represents predominantly SME exporters, will tackle the wide range of issues affecting this important sector of the Australian economy. At the same time under the banner of the Australian Institute of Export, the council will continue to provide first class skills development programs for exporters, importers, service providers and especially those new to international trade who need the process demystified.

While this change has been brought about for a range of reasons, the primary purpose is to create a body that can represent exporters and work with other sector specific organisations to effectively engage with Government. At the same time the Council will continue to run seminars, workshops and awards programs, represent the Export Consultants Group and provide exporters with advice and information aimed at enhancing their capability and international trade performance.

Another key activity of the Council will be research. Working with universities, Government agencies and other associations, the Council aims to undertake research on issues that focus on providing input to enhance the export process and Australia’s competitiveness in international markets. The Council too will provide a vehicle for research work undertaken by other associations to expand their reach and influence to Government.

Prioritising issues is always a key factor. To address this, the Council will form working groups for key industry sectors to provide advice, prioritise projects and address key issues, particularly that of competitiveness, particularly that of competitiveness.  At same the time, given the diversity of export activity between various states, local committees will be formed to address each state’s specific needs and to ensure their issues get onto the Councils national agenda.

While the Council’s activities will evolve over time, the immediate priorities will be building membership, forming the Council and developing relationships with other bodies and associations that share common goals. High on its list will be researching the cost of trade facilitation in Australia and making recommendations to Government on what issues need to be addressed to both enhance Australia’s competitiveness and streamline the process of doing business offshore. High on the agenda too will be suggested modification to the Export Market Development Grants Scheme, Trade Finance issues concerning SME exporters and promoting an all of Government/Industry approach to “pitching” for major international projects particularly in the services sector.

At the same time the importance of continued improvement in the content and delivery of education and training will remain an important Council agenda item. Free of all the other programs the Australian Institute of Export will focus on its core activity of skills development which is where it all began fifty five years ago. In 2013 the Institute will launch a program under the banner “Certified Trade Professional”. Aimed at both companies and service providers, this comprehensive on-line program will allow participants to gain certification for the levels achieved and build skills over time via a disciplined professional development program. While CTP will form an important element of the Institutes activities, face to face public and in-house courses will continue so too the accredited distance delivered Advanced Diploma, Graduate Certificate and Graduate Diploma of International Business Management.

This is a new beginning for what has been one of Australia’s longest serving associations. It comes at a time when Australia’s export activity is experiencing severe change led by a resources boom, a high dollar and a persistent Global Financial Crisis. Our manufacturing, education and tourism sectors to name just three are experiencing great difficulty and the light at the end of the tunnel seems quite some distance away. This is the time when we need to assess and address issues that impact on our competitiveness.  The Council looks forward to working with Government, its members, sponsors and allies to address these issues and achieve outcomes that will benefit Australia’s wellbeing.
For further information regarding the Export Council of Australia please contact either:

Ian Murray, Executive Director- Export Council of Australia on 02 8243 7410 or ianmurray@export.org.au

Lisa McAuley, National Manager- Export Council of Australia on 02 8243 7400 or lisamcauley@export.org.au

DHL Export Barometer

Given the importance of International Trade to the Australia economy and the role export in particular plays employment, research & development, innovation and building our nations competitiveness,  researching trends and behaviours in global business is critical and therefore major priority of the Export Council of Australia. As such we would like to invite you to take part in the DHL Export Barometer.

The DHL Barometer surveys exporters around Australia each year about their views on the exchange rate, share market, skill shortages and other important issues that impact on their global business prospects.

The DHL Export Barometer is used by the Reserve Bank of Australia, other economic policy institutions and reported widely throughout the Australian media.
Your views as a current exporter would be highly appreciated and will help DHL to provide a more accurate snapshot of the experience and views of Australian exporters in the current global economic environment.

If you are an Australian company selling goods or services overseas, please take a few minutes to complete the survey, please use the following link:  http://www.informinsights.com/InformEVMStatic/Documents/6140/intro.html

The online multiple-choice survey takes less than 10 minutes to complete and you will be responding directly to DHL. Please note that the survey is open only to Australian exporters only.

Should you decide to participate, a copy of the DHL Export Barometer executive summary will be emailed to you in late July 2012, giving you a head start on identifying key international business trends and planning your export strategies for the coming year.

Lisa McAuley
National Manager
Export Council of Australia

Australian FTA with Malaysia to be signed today

According to media reports, the Australian Trade Minister is to sign a free trade agreement with Malaysia later today.

As many would be aware, Australia and New Zealand already have a free trade agreement with the ASEAN group of nations ("ASEAN FTA") which includes Malaysia.  Accordingly, the separate FTA with Malaysia ("MAFTA") will constitute an enhancement to the existing ASEAN FTA.

According to the media report, the MAFTA intends to guarantee tariff-free entry of 97.6% for all Australian goods, rising to 99% by 2017.  The MAFTA will only be Australia's 6th bilateral FTA and its completion will represent the welcome completion of a deal at the same time of slow progress on negotiations on other FTA with China, South Korea and Japan.  The hope is that it may expedite those deals.

According to media reports, the MAFTA will have the following additional benefits:

•  The services sector (including universities, schools, banks, telecommunications companies and professional services firms) have won increased access to the market including the ability to become majority owners in Malaysian businesses.
•  Most companies will be able to own up to 70% of Malaysian firms and Australian managers will find it easier to work in Malaysia as their spouses and dependants are able to obtain automatic visas.
•  Australia has agreed to accelerate the removal of tariffs.  This was due to happen in 2020 under the ASEAN FTA but will now happen immediately for goods from Malaysia.
• Australia has promised enhanced economic and technical co-operation in sectors such as the automotive industry, agriculture, tourism and clean-coal technology.
• MAFTA also provides a framework for the mutual recognition of qualifications.

Those in industry will look forward to additional details of the MAFTA including relevant rules of origin for goods to qualify for preferential treatment under the MAFTA, what manner of certificates of origin (or other documentation) will be required to claim preferential tariff treatment on goods and the provisions governing the ability to "tranship" and "further manage" the goods before entry into Australia.

Hunt & Hunt will be well placed to assist with the MAFTA through resources here and of our Interlaw (www.interlaw.org) colleagues firm Lee Hishammuddin Allen & Gledhill (www.lh-ag.com) I recently met with them at our Interlaw regional meeting with Seoul and we look forward to being of assistance.

Further details of the MAFTA will be the subject of further releases as soon as they become available and the details of the MAFTA will be a significant topic of discussions during the forthcoming CBFCA Member Forums.

Andrew Hudson

Partner- Hunt & Hunt Lawyers

Director- Export Council of Australia

How secure are your contracts? Managing bribery and corruption risk in foreign markets

The bribery and corruption landscape is changing – the legislation is getting tougher, the prosecutions more frequent and the penalties more severe.  Australian exporters who continue to deny that bribery and corruption may impact them are leaving their businesses exposed.  The payment of bribes to secure contracts in foreign markets has not been regarded as an acceptable way to do business and governments around the world are responding.     

The changing regulatory landscape

In 1997, the Organisation for Economic Co-operation and Development (“OECD”) Anti-Bribery Convention (“the OECD Convention”), a global anti-corruption initiative, criminalised foreign bribery in countries that represent over75% of world exports. The OECD Convention was borne out of the principle that bribery of foreign government officials in international business transactions poses a serious threat to the export industry; it undermines economic development and distorts international competition. Since 1997, we have seen legislation and regulators driving change.

The last two years has seen sweeping changes with the launch of the UK Bribery Act (2010), tougher penalties and sanctions under the Australian Criminal Code and an increase in the USA’s Foreign Corrupt Practices Act (FCPA) prosecutions.  In addition, in November 2011 a discussion paper was launched by Mr Brendan O’Connor (the Minister for Justice) proposing the removal of the facilitation payments defence from Australia’s bribery laws.   

Recent Australian enforcement activity

We have also seen an unprecedented level of investigation in our own backyard:    

Date	Issue	Why the bribes were allegedly paid?
July 2010	The Australian Federal Police (AFP) charged two Reserve Bank of Australia subsidiaries (Securency International and Note Printing Australia) over alleged bribes paid to public officials in Indonesia, Malaysia and Vietnam.	The allegations relate to the payment of bribes to secure polymer banknote contracts in the regions.
March 2012	The AFP launched an investigation into two former employees of Tenix Contracting (a major defence contractor) over claims that bribes were paid to government officials in the Philippines, Indonesia and other parts of Asia.	The allegations relate to the payment of bribes to win shipbuilding and other military contracts in Asia.
March 2012	Leightons Holdings self-reported to the AFP allegations that one of its subsidiaries had allegedly paid bribes to an official within Iraq’s largest state-owned oil company.	The allegations relate to the payment of bribes to secure contracts in Southern Iraq

In each case bribes have allegedly been paid by individuals acting on behalf of reputable entities in order to secure contracts in overseas markets.  So what are exporters to do?  Working with foreign agents to secure contracts is often required to set up and grow an export business. Relying on local knowledge is key to securing contracts, and the making of such payments is “just how business gets done” in certain countries, isn’t it? 

The new reality is this – the legislation has global reach, the regulators are going to be relentless in prosecuting matters and in the case of the UK Bribery Act the financial penalties have no limit and actions can be brought against those who fail to adequately manage the risk. Australian exporters must respond and that starts with identifying the risks and proactively managing them, at times in countries where corruption is considered more likely to occur. 

Key legislative requirements

From an Australian export perspective, there are three key pieces of legislation exporters should familiarise themselves with - the Australian Criminal Code Act (Cth), the US FCPA and the recently enacted UK Bribery Act (2010). The extra-territorial reach of both the FCPA and the UK Bribery Act means that Australian companies could be captured not only by our own legislation, but by US and UK laws and the local laws governing the country (or counties) where they operate.  Exporters that are of the view that ‘it couldn’t happen to us’ may want to rethink their position.

Case Study – FCPA in action

What happened?

+ Panalpina World Transport (Holding) Ltd (“PWT”) was headquartered in Switzerland and provided freight and logistic services for customers within the oil and gas industry. 

+ PWT operated in countries including Nigeria, Angola, Azerbaijan, Brazil, Russia and Kazakhstan. 

+ Between 2002 and 2007 PWT’s subsidiaries and affiliates engaged in improper payments and bribes to foreign officials.  

How it happened?

+ Payments were made on behalf of PWT customers (as defined in the FCPA) in order to avoid the customs process, reduce tariffs payable and avoid the assessment of proper duties,  avoid penalties for items that had been improperly exported and to secure logistics contracts from overseas government entities.  In many instances PWT’s customers knew of the bribes.

+ The bribes were paid to officials in order to cause officials to overlook insufficient, incorrect or false documents and in certain instances to circumvent local laws all together. 

Why it happened?

+ PWT had an inadequate compliance structure to deal with such issues

+ A culture (within PWT and in some cases their customers) that tolerated/encouraged such behaviours as a means of ‘getting things done’ quickly and efficiently

+ The establishment of subsidiaries all around the world, acting as agents for PWT led to wide spread systemic corruption issues

Outcomes

+ PWT as well as 5 oil and gas companies (customers of PWT) have been the subject of investigations under the FCPA, the Department of Justice and the US Securities and Exchange Commission.

+ The companies agreed to pay over US$156million in criminal penalties. 

+ Each company is required to implement and adhere to a set of enhanced corporate compliance and reporting obligations.

+ The Nigerian operations of PWT were shut-down and numerous senior executives (in various countries) lost their positions.

What is the risk for exporters?

All Australian exporters face significant challenges in setting up business in overseas markets – unfamiliar legislation, diverse cultures, different local business customs, and foreign languages can all present significant barriers to securing contracts – as a result Australian businesses are often heavily reliant on local partners or agents to guide them through the process and this is often when problems can arise.  Without appropriate safeguards Australian exporters can be left vulnerable by relying on the advice and services of their local agents, JV partners or third party contractors.  

The new UK Bribery Act (2010) prescribes that not only are there severe penalties for bribes being made but organisations can also be penalised for not doing enough to manage the risk.  The legislation makes reference to organisations needing to ensure ‘adequate procedures’ are in place to mitigate the risk.  So what can you do as an exporter?  Listed below are the ‘11 must-do’s’ that exporters need to put on their ‘to do list’, to manage the risk and protect their business if or when the regulator comes knocking…

What should exporters do to manage the risk? The 11 must do’s

1.     Understand the legislation and how it applies to your business – obtain legal advice if necessary

2.     Top level Commitment – a commitment that begins at the board level and makes its clear your business has “zero tolerance” when it comes to the payment of bribes or corrupt behaviour

3.     Ensure you have strong and well communicated policies in place; policies that all employees, suppliers, contractors, agents and JV partners are aware of and understand

4.     Identify the key risk areas in your export supply chain and prioritise these on the basis of perceived likelihood or risk

5.     Conduct background checks on all organisations and individuals that you deal with – suppliers, contractors, agents and JV partners

6.     Obtain a legal review of all contracts and agreements before signing

7.     Ensure your business has strong financial controls and robust contract management procedures - if something appears too good to be true, it probably is

8.     Ensure milestones of contracts are met and attend relevant meetings with suppliers, contractors, agents and JV partners

9.     Ensure independent quality audits of suppliers, contractors, agents and JV partners premises are scheduled and completed

10.  Provide ongoing training and management of staff sent overseas to secure contracts, employ personnel or engage in negotiations on your behalf

11.  Establish a system for reporting suspicious behaviour.

Where to from here

One thing is certain, combating bribery and corruption should be at the forefront of all Australian exporters’ minds.  The risks are real and the consequences can be devastating. Foreign bribery distorts competitive markets; undermines good governance and it has the potential to put Australia’s reputation as an exporter at risk.   Australian exporters who understand and proactively manage the risk will go a long way in protecting themselves and the markets into which they export.  Getting it right can have benefits that extend far beyond just ticking the right boxes to satisfy a regulator; the future of your export business can depend on it. 

Avoiding the unwanted investigative costs and reputational damage caused by a bribery and corruption scandal through proper risk management processes is well worth the investment.   But should the unthinkable happen, knowing who to turn to and how to manage the issue can be just as important.  Having safeguarded your business from the risks, you and your advisers will be in a much better position to deal with what ensues. 

If you need any further information in relation to any of the issues discussed above or any other advice in relation to protecting your export business from the risks of bribery corruption please contact us.  Our national team has undertaken investigations into bribery and corruptions allegations in Australia and around the world, we are well placed to understand how issues can arise and how best to manage the risks.

Matt Fehon                  
Partner, Forensic                 
t: +61 2 9338 2680
e: mfehon@mcgrathnicol.com
o: Sydney

Sara Deady                  
Manager, Forensic                               
t: +61 2 9248 9943
e: sdeady@mcgrathnicol.com
o: Sydney

Website: http://www.mcgrathnicol.com