Mexico Market Update

By Stacey Mills, Export Council of Australia

Snapshot

Population: 114.8 million
Nominal GDP: US $1.16 trillion
Nominal GDP p/c:  US $10,146
GDP Growth:   3.9% (2011); 3.8% (2012)
Inflation:   4% (2012)
Unemployment: 4.85% (Feb 2013)
Exchange rate:   AU $1 = 12.93 Pesos (March 2013)
Major industries: construction, metallic products, food and beverages.


Bilateral Trade Relationship

Australia and Mexico share a strong relationship following years of cooperation and collaboration on various foreign affairs and trade matters. In particular, the two countries have worked together multilaterally on forums including APEC, the G20 and the WTO. In 2004, Australia and Mexico signed a Double Taxation Agreement, which aids trade facilitation by clarifying the taxation rights of the two countries and introducing measures to avoid double taxation and prevent fiscal evasion.

Becoming a member of the Organisation for Economic Co-operation and Development (OECD) in 1994, Mexico is one of only two Latin American countries, the other being Chile, to be admitted.

Australia and Mexico’s two-way trade relationship is valued at AUD $2.9 billion. In 2011/12 Mexico was Australia's largest merchandise trading partner in Latin America, with exports to Mexico valued at $1.03 billion and consisting mostly of coal, aluminium and medicaments. In terms of the export of services, education related travel is Australia’s key export to Mexico, valued at $42 million.

Mexico’s imports into Australia are valued at $1.8 billion and consist predominantly of lead ores and concentrates, telecommunications equipment and parts, fertilisers, and passenger motor vehicles. While the countries major service import into Australia is personal travel, valued at $33 million.

Australian foreign direct investment (FDI) into Mexico sits at $3.13 billion, while Mexico’s FDI into Australia is valued at $42 million.

Trade Agreements
Australia does not have a Free Trade Agreement (FTA) with Mexico however, in 2006, Mexico and Australia formed a Joint Experts Group (JEG) which published a report recommending that that Ministers revitalise the Joint Trade and Investment Commission (JTIC). Ministerial meetings of the JTIC were subsequently held in April 2010 and in February 2012. In October 2012 Mexico officially joined the Trans Pacific Partnership (TPP) negotiations which Australia is involved in.

Mexico is one of the WTO members with the highest number of FTAs. It currently has a network of 12 FTAs that cover 44 different countries. One of Mexico’s most significant FTAs is the North American FTA (NAFTA), which includes the USA, Canada and Mexico.

Economic Overview
Mexico came close to economic collapse during the Mexican Peso crisis in 1994/95. Since then however, the country recovered and has gained a reputation for credible macroeconomic policy management, which has led to prolonged economic growth and stable inflation. This can be largely attributed to the high level of integration with its northern neighbours, the USA and Canada, through the introduction of the NAFTA which was signed in 1994.  Over the past few decades Mexico has moved from being highly protected, to engaging in widespread trade liberalisation and welcoming FDI.

Mexico was hard hit by the GFC in 2009 with the decline in industrial production directly impacting on the manufacturing sector. The economy is continuing to recover thanks to renewed, albeit slow, growth in the USA and the rest of the world, and strong domestic demand.

In terms of future economic growth, Mexico faces some longer-term structural challenges including:

• Political structure adverse to reform, particularly referring to reforms needed in the labour and product markets
• Persistent violent organised crime – a widely reported problem
• Business cycles risk, which is strongly linked to the business cycles in the USA
• Corruption–Mexico ranks 105 out of 176 countries in Transparency International’s Corruption Perception Index
• Rule of law, particularly contract enforcement 
• Currency risk

Doing business in Mexico
Mexico has been known to be a difficult place to do business in the past because of the politicised nature of the business environment, the prevalence of large conglomerates and the lack of a robust legal framework. However, the story is not all doom and gloom; both the public and private sector have adopted a more global outlook driven by competition and export opportunities stemming from its wide FTA network. Moreover, the investment environment has been improved by the introduction of more simplified procedures, higher ceilings on foreign equity and great impetus put on the protection of intellectual property.

When it comes to conducting business in Mexico, it is important to be aware of the differences in culture and business practices.  Mexicans are very amiable but are inclined to be more formal than Australians when it comes to doing business.  It is worthwhile to also take note of the following:

• It is likely that accomplishing tasks and completing businesses deals in Mexico will take more time than you initially envisage. 
• Mexican business and social structures are highly hierarchical. All decisions are made by the CEO, or the very top executives of the company, therefore the decision making process can be delayed if they are otherwise engaged. Even in urgent situations, the CEO often still has to make the final decision.
• Mexican business partners appreciate being able to communicate in their native tongue, Spanish, even if they do speak English. For this reason, if you don’t speak Spanish, or only have limited proficiency, it is advisable to use a translator.
• Networking and personal relations are crucial. It is most likely that personal relationships determine business deals, rather than the quality of products or services. 
• Even if it seems obvious, respect for a person is central to business relations. Unintended insignificant actions can damage business relations.  
• Business commonly takes place over meals, often lunch but also breakfast. If you invite someone for a meeting over a meal it is expected that you will be footing the bill.
• Cancelled meetings are common. Err on the side of caution and re-confirm your meeting several times, including on the day of the meeting.
• It is always suggested to arrive on time for meetings, but note that they seldom begin on time. All procedures take longer than expected. It is not polite to look at your watch or appear impatient.   
• In an introductory meeting, it is common and expected to shake hands with the same and opposite genders. People from the opposite gender that know each other already, generally exchange cheek kisses.    
• Industry in Mexico can often be more political than in Australia and the State Government are very influential in regional industries, especially agribusiness. Therefore, an introduction to key officials is beneficial and this is an area where Austrade will be able to assist you.

Opportunities for Australian Exporters
Currently Mexico is actively pursuing a strategy to reduce its reliance on the USA as a trading partner. Moreover, given Mexico’s advancing economy and the rise of its middle class, demand for certain agricultural products, fast moving consumer goods, processed foods etc., is set to increase thus presenting significant opportunities for Australian exporters.

There are two factors, however, that will constrain Australian exports to Mexico, and hence our ability to take full advantage of the current and future opportunities presented by the market. The first is the high transport costs to export goods to Mexico. The second, and perhaps more significant, is  attributed to the tariff advantage which the United States, Canada and countries in the EU and Latin America have against Australian products given they have FTAs with Mexico. Both of these factors affect the competitiveness of Australian products and services but do not discount the fact that Australian businesses can and have successfully done business in Mexico.

Business Opportunities:

 

AEROSPACE

• Engine, electronic and landing system components, plastic injection, heat exchangers, precision machining, airfoil repairs, audio and in video systems, fuselage insulation and interior parts.
• Engineering design and aeronautical components for military and civil applications.
• Machining parts, vacuum heat treatment and chemical processing.
• There is low availability of aerospace grade materials for structural welding.
• Sheet metal fabricators of super alloys, major sub-assembly companies, structure manufacturers, tooling companies and casting companies.
• Special chemical processes and non-destructive testing.
• Environmental solutions for reducing emissions including noise emissions.
• Maintenance, repair and overhaul services.
• Development of commercial and military projects related to high dual technology.

AUTOMOTIVE

• Demand for raw materials used in the manufacture of spare parts and components.
• Components (engineered parts for diagnostic and assembly equipment): Braking systems, electrical components, transmission and engine components, molded plastic section, stamped steel parts steering assemblies, interior trims and light weight alternative metals.
• Opportunities for tier one & two suppliers: OEM parts and components, hybrid vehicle components, materials, stampings, electronic components, equipment and specialised tooling.
• High tech components and the mainstream application of motor sport technology and high-end manufacturing and design automotive engineering.
• Supplies to the automotive after-market with an increasing emphasis on high technology.

CONSUMER GOODS

• Growing demand for designer furniture and interior design goods
• High-fashion merchandise

CREATIVE INDUSTRIES

• Design Consultancy on products and packaging.
• Consultancy on branding and marketing.
• Mexican companies are demanding interactive and marketing content.
• There is a growing cinematographic industry which is demanding consultancy on development and production financing.
• Publications and books written in English.

EDUCATION AND TRAINING

• Export of educational equipment and services.
• Vocational training models. 
• Programme to strengthen higher education institutions.
• Private sector training possibilities -mainly for on-line courses (principally language training, but also other niche sectors and distance learning at an academic level for MBAs)
• English language training (mainly business English) continues to offer serious opportunities.

FINANCIAL SERVICES

• PPP’s consultants/operators. 
• Consortium managers. 
• Contract management specialists. 
• Arbitration. 

ENVIRONMENT

• Waste management and recycling 
• Water on control 
• Air pollution control 
• Contaminated land remediation 
• Environmental monitoring equipment and consultancy
• Energy efficiency 
• Greenhouse gas capture and storage 
• Carbon trading

FOOD AND DRINK

• Niche products such as delicatessen, gourmet, and organic foods. Including natural and dietary products.
• Food and drink products reflecting health concerns, weight loss and a healthy way of living.
• Food and drink products that address the needs of an ageing population including calcium rich and energy specific products.
• Ready to drink beverages and beer. 
• Specialised food and packaging machinery given the need for many companies to renovate existing machinery to satisfy health and safety standards.
• Dairy products and services including refrigeration, packaging and advertising.
• With a young population (the average age in Mexico is 26) and a spread of convenience stores around the country are the two main driving forces creating the growth in the confectionery Mexican market. 32 per cent of Mexican confectionery consumption is imported.

HEALTHCARE

• PPPs (Private and Public Partnerships). 
• Biomedical products. 
• Investment and supply of pharmaceuticals.
• Medical equipment.
• Healthcare promotion. 
• Training in PPP hospital management. 
• Training in geriatrics. 
• Consultancy and training for nurses. 
• Consultancy in institutional reform. 
• Quality assessment and management.
• Accountability. 
• Telemedicine. 
• Medical informatics. 
• GP training in prescribing team building, management.
• Primary healthcare and paramedics. 
• Patient safety. 

INFRASTRUCTURE

• Consulting engineers. 
• Facilities managers 
• PPP specialists.
• Equipment and machinery suppliers. 
• Roads, ports, airports and railways security consultants.
• Sustainable technologies

MINING AND STEEL

Mining

• Mexico has major opportunities in mineral exploration
• Mexico has eleven giant deposits of silver, three of copper, two of molybdenum, five of zinc, one of lead, one of manganese and one of fluorite. These deposits represent opportunities for exploration, machinery, tools, consultancy and new technology.
• Companies with expertise in feasibility studies have also big opportunities in the mining sector in Mexico.

Steel

• The iron and steel industry in Mexico is experiencing intellectual challenges.
• Companies are open to R&D that can provide the know-how and knowledge in different fields such as new technologies, composites material, new applications, demand and price forecasting, among others.
• In the next five years, the ironworks sector in Mexico will invest about US$10,000 million to grow and diversify their products, replacing imports.
• Home supplies such as stoves and refrigerators continue to grow in demand; therefore materials such as steel and copper are being required much more.

OIL AND GAS

• Off shore and onshore platform design and construction
• Decommissioning of productions facilities 
• Design construction, installation and commissioning of pipelines
• Receiving terminals and production facilities
• Exploration and appraisal drilling
• Production operations
• Environmental control
• Regional geographical studies 
• Reservoir appraisal and exploration techniques
• Training and education
• Deep water technologies
• Develop heavy and extra heavy oil recovery technology.

POWER AND RENEWABLE ENERGY

• Combined cycle plants maintenance and reconfiguration.
• Plants modernisation and maintenance.
• Hydroplants reconfiguration. 
• Metering.
• Interconnection projects. 
• Transmission and distribution infrastructure.
• Cogeneration projects 
• Renewable energies (small and large hydro, solar, wind, geothermal, biofuels, wave and tidal)
• Financing and carbon markets. 

Source: UKTI

Tariffs and Taxes

Tariff is based on the Harmonised System. You can obtain tariff rates (approximate rates) for most products from the APEC Tariff Database.

Most duties are ad valorem, assessed on the FOB or CIF value or at specific rates, whichever is the greater.

The General Import Tax Law of Mexico sets out specific, general and mixed tariff rates. The general rates (ad valorem) are mainly 3 per cent, 8 per cent, 13 per cent, 18 per cent, 23 per cent and 35 per cent, while the specific rates are established according to unit of merchandise. Mixed rates are part ad valorem and part specific rates and are applied to some products from sensitive sectors, such as sugar.

Australian Federal Trade Representation

Austrade Mexico City

Australian Embassy  

Ruben Dario #55, Esquina Campos Eliseos 

Col Polanco DF 11580 Mexico

Tel:+52 55 1101 2267 or +52 55 1101 2200  Fax:+52 55 5728 6459

Vietnam is rapidly becoming one of the fastest growing economies in Asia, are you looking at the market opportunities?

One of the fastest-growing economies in Asia, Vietnam is a dynamic and vibrant place to do business. Vietnam is the 13^thmost populous country in the world with a population close to 90 million; 60% of whom are under the age of 35. Over the past ten years, economic growth has been second only to China, averaging about 7.5 per cent per year since 2001. Vietnam’s GDP has been doubling every ten years since 1986!

Vietnam is one of Australia’s top 10 trading partners in Asia with two-way trade valued at A$6.2 billion in 2009-10. Vietnam presents significant market opportunities for Australian Exporters. Some of the key business opportunities for Australian companies are in:

• Building and construction
• Clean energy
• Health expertise
• Goods and services
• ICT 

Interestingly, Vietnam is the world’s second fastest growing ICT market, with growth estimated at 20-25 per cent annually!

The international business projects, managed by the Discipline of International Business at the University of Sydney Business School in conjunction with the Export Council of Australia can give you the opportunity to engage with a postgraduate student to undertake rigorous market research into the opportunities for your business to expand into the Vietnamese market.

If you are interested in looking at this rapidly growing market and you are a member of the ECA, do not miss out on this fabulous opportunity.  Please contact Lisa McAuley by the end of April and put your company forward to receive a tailored market research project.

If you are a business member of the Export Council of Australia and are interested in participating in the 2013 program, please e-mail Lisa McAuley on lisamcauley@export.org.au and provide the following information:

• Company name:

• Contact details:
• Market project:
• Company overview:

 Thank you!

Australia’s Asian Century – Business Can Turn Vision Into Reality

- Cynthia Dearrin- Dearin & Associates

Last October, the Government released a much-anticipated ‘White Paper’ setting out its vision for how Australia can “tak[e] advantage of the opportunities offered by the Asian Century” (footnote 1 -http://www.pm.gov.au/press-office/australia-asian-century-white-paper-australias-roadmap-navigating-asian-century). This vision was the outcome of more than a year of work by an advisory panel chaired by the former Secretary of the federal Treasury, Ken Henry.

Given the broad sweep of developments across the vast and diverse region that comprises Asia, the document is correspondingly broad-ranging, touching upon everything from the implications of security tensions among emerging powers to the growing people-to-people links that have come about through migration, education links, cultural connections and diplomatic ties. However, not surprising given the composition of the advisory panel and the rapid rise in the economic importance of the region to Australia, the White Paper had a sharp focus on economic developments, business ties and trade relations.

White Papers of this kind are by their nature an attempt to set out a profound shift in long-held assumptions and long-term strategies on a particular topic. In a pragmatic country like Australia, such papers are therefore often criticised for being too “airy fairy” and lacking in specifics and key performance indicators that anyone can measure.

This White Paper was different. It came with a set of 25 “national objectives” and included “pathways” to achieving those objectives. (footnote 2 - http://asiancentury.dpmc.gov.au/white-paper/executive-summary/25-national-objectives) Some of those objectives are inward-looking, that is, what practices Australia needs to adopt internally to be better-prepared for the global transformation that is occuring. These include investing more in world-class infrastructure such as roads and ports and broadband infrastructure; ensuring our education system provides the skills needed to prosper in these changing times; and adopting sound principles of economic management to help our economy continue to be resilient in the face of the uncertainty this transformation is likely to produce.

Other objectives are more outward focussed and consider what can be done to improve Australia’s economic, security and cultural ties with the countries of the region.

What does this mean for business?

Almost inevitably, there have already been rumblings that the Asian Century initiative was too much spin and too little action and that the implementation of the national objectives has been far too slow. (footnote 3 - http://www.smh.com.au/national/asian-century-stillborn-as-activity-stalls-20130222-2ex94.html) Whatever truth there may be to these concerns, it has to be acknowledged that the transformation envisioned in the White Paper is not the stuff of instant gratification. In addition, many of the so-called pathways are an extension of existing government policies and continue to be implemented as such – see for example the continuing focus on improving education standards, rolling out the national broadband network and deepening our ties with China.

It was also explicit in the White Paper that achievement of the vision could not be left to government alone and government departments appear to have been genuine in their commitment to engaging with all sectors of the community.

The latest such initiative relates to the development of individual “country strategies” with the most important countries in the region – China, Japan, India, South Korea and Indonesia. (footnote 4 - http://dfat.gov.au/issues/asian-century/). The Department of Foreign Affairs and Trade (DFAT) is seeking input into the drafting of these strategies and is particularly looking to hear about the challenges to trading with, investing in and generally doing business with these countries and any proposals on what can be done to improve relations in these fields.

Dearin & Associates believes that it is vitally important for businesses and anyone else with a stake in these profound developments affecting the future of our country to engage in good faith with this and other opportunities for consultation. If a strong signal is not sent to government that all sectors of the community share in the vision for an Australia better connected to the rapidly-changing world around it, and is willing to do their share in achieving it, then we can hardly be surprised if governments take their eye off the ball. This is especially important with the impending national election. Will future governments continue the momentum for change or will the whole idea quietly fade into memory as governments come and go and short-term political scandals capture the headlines?

How can Dearin & Associates help you engage with the White Paper process?

D&A can help your business bring its perspectives and priorities to the attention of leaders in government.

If your business will be affected by Australia’s developing relationship with Asia, we can help you engage with DFAT in the development of their “country strategies”. We can assist in the preparation of submissions and connect you directly with the key people. If there are things that government can do to assist your business to work with these countries, then this is the opportunity to let them know. Even if you do not have “problems” that need to be resolved, it is important that the government hears about the broad range of businesses that are successfully transforming the way they interact with markets, suppliers and business partners in the region. We particularly encourage small and medium enterprises in emerging sectors to consider engaging in this process to ensure that their views and concerns are not drowned out by bigger companies in traditional sectors.

To talk to us about the various ways in which we can assist your business or industry group to work with government, contact us at (02) 8003 75 83 or at info@dearinassociates.com.

Top 10 Tips for New Exporters by the Australian Institute of Export

1. Do your research! Don’t build an export strategy into your business plan before you
   
   know which markets would be suitable markets for the product or service you want to target.
2. Formulate a basic export strategy which is guided by the knowledge you have gained through research.
3. Be informed - speak to people who have been there and done that. This involves plugging in to export groups, either online or through various networking events and seminars held by government and industry.  By undertaking your research first and then developing a basic export strategy, you will have a better idea of where your knowledge gaps are and what you need to ask people. 
4. Consider the appropriate training. Think about who in your company should be trained on export procedures, or whether you may need to recruit someone with experience in the area. There is no such thing as too much knowledge.
5. Visit your market/s of interest and see first-hand what is happening. If you’re ready, perhaps pre-arrange some business meetings to gauge interest and gain a better understanding of the market.
6. Don’t forget risk management! Re-visit your export strategy and ensure that you have the appropriate risk management tools in place (IP protection, currency risk hedging etc..)
   
   
7. Prepare your product/service for export. Find out exactly what the requirements are for exporting your good/service. Things like packaging and marketing material may need to be created specifically for your export market. This could involve translation of product and promotional material into the relevant language, and making adjustment as to adhere to customs regulations in that market.
8. Do your due diligence. When engaging with potential buyers or distributors, at the very least do a basic search to see if they are legitimate and trustworthy.  
9. Use government and industry association’s services, especially when it comes to being connected with potential buyers/agents/distributors or necessary service providers in your target market. Remember that you can claim legitimate marketing expenses through the EMDG scheme.
10. Be patient and never give up!

If you are a new exporter and you need assistance in any of the above, then the AIEx can assist you. Established in 1957, the Australian Institute of Export (AIEx) is the education arm of the Export Council of Australia. AIEx collaborates with the export and import community to ensure that Australian companies receive the education and support they need to successfully compete on the international stage.  The AIEx delivers courses and publications on:

• Export Procedures & Documentation
• Import Procedures & Documentation
• Understanding Documentary Credits
• Online Import and Export courses
• International Trade Law & IP
• Accredited Trade Courses
• Australian Export/ Import Handbooks & International Trade Procedures Guidelines

AIEx possesses a wide range of training modules which allow business to develop in-house training programs in International Trade that fit with their specific needs. 

For further information, please visit: www.aiex.com.au or email education@export.org.au

Adjustments to Growth Forecasts by the WTO

On April 10 the World Trade Organisation (WTO) cut growth projections for 2013 from 4.5 per cent to 3.3 per cent on the back of slow economic growth exhibited by advanced economies, high unemployment figures and the continuing Eurozone crisis. “This year looks to be a near repeat of 2012 with both world trade and output forecast to expand slowly and below historical trends and averages” said Pascal Lamy, Director-General of the WTO, at the recent Trade Negotiation Committee meeting.

Lamy, stressed that while the Governments of developed countries are struggling to find a balance between short-term growth and restrictive fiscal constraints, resorting to protectionist measures is neither a wise nor sustainable course of action. History has very clearly taught us that over the past century.

The WTO’s Ninth Ministerial Conference, which is to be held in Bali in December 2013, is being labelled one of the best opportunities to achieve progress on multilateral trade issues since the troubled Doha negotiations. “Against this uncertain backdrop, the stakes for Bali are high,” Lamy said, “And this is why for the first time since 2008, there is political consensus that the Ministerial meeting in Bali should be about deliverables in trade facilitation, agriculture and S&D/LDC issues.”

Thankfully, longer-term forecasts indicate that stronger growth is expected in 2014, at approximately 5.2 per cent, which is closer to the long-term average.

VIDEO: AUSTRALIA, CHINA TO LAUCH DIRECT CURRENCY TRADE CCTV News - CNTV English

VIDEO: AUSTRALIA, CHINA TO LAUCH DIRECT CURRENCY TRADE CCTV News - CNTV English

Senate Enquiry into 457 visas: What does it mean for Australian exporters?

Author: Cynthia Dearin, Managing Director, Dearin & Associates

Temporary skilled migration into Australia is the hot topic of the moment.

On 23 February, the Minister for Immigration and Citizenship, The Hon. Brendan O’Connor MP announced proposed changes to the Subclass 457 Temporary Worker (Skilled) visa program in response to the changing needs of the Australian economy and domestic employment market. 

On 14 March, Prime Minister Julia Gillard gave a speech to the ACTU Community Summit On Creating Secure Jobs And A Better Society, during which she claimed that temporary overseas work was growing much faster than employment was growing and that there was clear evidence that in some growing sectors, importing workers on 457 visas was a substitute for spreading important economic opportunity to Australian working people.

On 20 March, the Senate launched an enquiry into 457 visas and other skilled migration programs.

The proposed changes to the 457 visa scheme have generated concern in the business community, particularly among manufacturers who rely on highly skilled foreign workers to produce the products they export to the rest of the world. 

So what’s it all about?

The Temporary Business (Long Stay) (Subclass 457) visa is one of many of visa categories which are part of the national migration program. It is a temporary visa that allows Australian businesses to sponsor skilled workers to fill vacancies that cannot be filled locally.

Introduced in 1996 by the Coalition government, the 457 visa scheme was designed to respond rapidly to skilled labour shortages identified by employers, by attracting more skilled workers to Australia. The scheme was supposed to give the domestic training system a breathing space to catch up with the demand for qualified employees. The idea was that skills gaps would be plugged with temporary foreign workers while locals were trained to fill the positions in the longer term.

However, as Peter Mares points out in a recent article, things have worked out differently. The 457 visa has expanded into something much more significant – an essential component of a fundamentally changed approach to selecting skilled migrants. Many Australian businesses, including exporters rely on the skills of 457 visa holders to keep their enterprises running.

The 457 visa has a number of major restrictions. It is confined to highly skilled workers and minimum salary requirements apply so that foreign workers cannot be used to undercut Australian workers.  Their stay is restricted to four years, after which time they may apply for permanent residency and eventually, citizenship.

Most 457 visa holders are professionals or technicians and trade workers, taking up jobs in sectors like construction, health care, IT and other services around the country. A significant number also work in the manufacturing sector, in companies that export their products abroad. The scheme has been especially effective in recruiting skilled workers to regional and remote areas where there has been great difficulty in recruiting Australians, especially in medical services, engineering and specialised skilled trades.

What changes are proposed to the 457 scheme?

Last month, Minister O'Connor indicated that the proposed changes to the 457 scheme would include:

An obligation on employers to demonstrate that they are not nominating positions where a genuine shortage does not exist – this may indicate a strengthening of the current requirement to show that the position is genuine.

• Stricter English language requirements for certain positions in line with the English language thresholds for permanent employer sponsored visas such as the Subclass 186 Employer Nomination Scheme Visa. 
• Improved enforceability of existing training requirements for employers that use the program and further strengthening of the current sponsorship obligations to ensure that the working conditions of 457 workers are in line with Australian standards.
• Increase in the market salary exemption from $180 000 to $250 000 - currently, employers are not required to demonstrate that they are paying ‘market rate’ for positions offering $180,000 per annum or more.
• On-hire arrangements of 457 visa workers to be restricted.
• Strengthening of compliance and enforcement powers to deter employers who have routinely abused the system.
• Stakeholder consultation to ensure market rate provisions more effectively protect local employment.

In the media release announcing the changes, the Minister said that while the 457 scheme played a vital role in ensuring that Australian businesses were able to source the skilled workers they needed where they were unable to find suitably skilled labour in the domestic employment market, it had become clear that the growth in the scheme was out of step with current skills shortages. He went on to say that the government had evidence that some employers were using 457 visas to discriminate against locals. 

The proposed changes are expected to come into effect on 1 July 2013 with further details to be released before this date.

What is the purpose of the Senate Enquiry?

The purpose of the Senate Enquiry is to seek a range of views on the 457  (and similar) visa schemes and the proposed changes to them. The Enquiry’s Terms of Reference are broad and include an examination of:

• The effectiveness of 457 visas in filling areas of identified skill shortages and the extent to which they may result in a decline in Australia's national training effort, with particular reference to apprenticeships; 
• The accessibility of 457 visas and the criteria against which applications are assessed, including whether stringent labour market testing can or should be applied to the application process; 
• The process of granting 457 visas and the monitoring of these processes;
• The adequacy of the tests that apply to the granting of 457 visas and their impact on local employment opportunities; 
• The economic benefits of the 457 and related schemes and the economic and social impact of such agreements; 
• Whether better long-term forecasting of workforce needs, and the associated skills training required, would reduce the extent of the current reliance on such visas; 
• The impact of the recent changes announced by the Government on the above points; 

Complete Terms of Reference are available here:
http://aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=legcon_ctte/457_visas/info.htm
and submissions should be received by 26 April 2013. The reporting date is 03 June 2013.

What does this mean for Australian exporters?

The proposed reforms announced by Mr O’Connor and subsequent enquiry have prompted a wide-ranging debate about whether changes to the 457 visa are warranted and what their impact on Australian business is likely to be. Business groups and private enterprise have spoken out strongly in favour of the existing 457 visa scheme. 

Mr Ian Murray, Executive Director of the Export Council of Australia says “research clearly shows that Australia’s International competitiveness has declined in recent years. The high dollar, high labour costs and high interest rates have all contributed to this. In the manufacturing and IT sectors Australia as an exporter competes at the premium end where high level skills are an absolute necessity.”

Evidence clearly shows that without the support of the 457 Visa program the IT export sector, a shining light in Australia’s recent export performance, would simply not have occurred. Mr. Murray said  “The reasons behind making these changes now, when the export sector, is struggling, is difficult to comprehend. Australia is going to fall behind internationally as a result and the opportunity to capture the innovation that comes with the development of these industries will never be realised.”

Mr Innes Wilcox, CEO of the Australian Industry Group has queried the Prime Minister’s assertion that temporary overseas work is growing much faster than employment is growing or that there is clear evidence that in some growing sectors, importing workers on 457 visas is a substitute for spreading important economic opportunity to Australian working people.

Mr Wilcox points out that much has been made of the purported growth of 457 visa holders in a slowing economy and argues that in this economic climate the number of applications from employers should have fallen, not risen. He says that in fact that is exactly what has happened, citing a recent Department of Immigration and Citizenship report which states that the number of subclass 457 primary visa applications continued to decline in January 2013, having declined for five consecutive 
months.

Business Council of Australia Chief Executive Ms Jennifer Westacott has said that the proposed changes to 457 visa arrangements are a classic regulatory overreach that risks damaging the competitiveness and viability of important projects and businesses.



“Less than a month after the Department of Immigration reported that the 457 visa program was responding well to economic needs and demand was declining in recent months the minister has claimed the program was being abused by some employers at the expense of local jobs,” Ms Westacott said.

Holding Redlich partner Maria Jockel has described its recent politicisation of the 457 scheme and the move to further tighten visa requirements as a worrying concern for individuals and employers who rely on the 457 visa. 

ANU demographer, Peter McDonald, has questioned whether tightening of the rules is really necessary, estimating that only ‘about 2 or 3 per cent of employers’ are ‘rorting’ the system. 

Individual exporters have also expressed concern about that restrictions to the 457 scheme would negatively affect their businesses.

Inflatable Packers International commercial director Howard Kenworthy said his company had for years hired a combination of local tradesmen, local apprentices and 457 visa workers as well as working holiday visa holders.

"It's pretty tough in WA being a manufacturer trying to export and you need a first class team to survive. Good 457 employees are a very necessary part of that team," Mr Kenworthy said.

Mr Kenworthy pointed out that although the company always tried first to recruit locally, in 2012 it managed to hire one local tradesman. Two of the firm's 26 Perth employees are on 457 visas.

The Department of Immigration and Citizenship has said that the reforms will not adversely affect the vast majority of employers who are using the program appropriately.  Nonetheless, it is clear that employers will be expected to meet higher benchmarks in order to sponsor foreign workers in future.

On the other side of the coin, unions have made strong calls for the scheme to be heavily modified or scrapped altogether.

The Australian Manufacturing Workers’ Union (AMWU) is campaigning against the 457 scheme, which it describes as a disgraceful abuse of overseas workers and a means for employers to drive down wages and conditions in Australia.

The Australian Council of Trade Unions (ACTU) says that workers on 457 visas have been underpaid, abused and subjected to sub-standard conditions of work. The union claims that most cases of abuse have tended to involve trades level 457 visa holders with little or no English language skills who often lacked the technical skills they were supposed to have to be eligible for a 457 visa. 

At the same time, the ACTU says that the 457 visa program has undermined the Australian labour market by enabling employers who are unable to attract local labour as a result of offering poor wages and conditions, or who are unwilling to train workers in areas of skills needs, to sponsor workers from overseas. 

Others argue that the scheme is not tough enough in spite of significant amendments to the program in 2009. In a paper published in November 2012 by the Centre for Population and Urban Research at Monash University, the authors noted that while labour market testing may be expensive and hard to enforce, there is a need to better protect domestic workers from foreign competition. 


Getting involved in the Parliamentary process

Are you part of a business that utilises the 457 scheme? Would you like to ensure that your business is not affected by proposed changes to the scheme and that your access to skilled workers is not restricted? 

Or would your firm like to suggest ways in which the regulatory burden of the 457 process could be alleviated? 

Perhaps you own a business that is negatively affected by rorting or overuse of the program by your competitors.

If would you like to make a submission to the Senate Enquiry or have your views heard by Government, Dearin & Associates can help to bring your views to the decision makers in the most effective way. Contact us today to find out how we can assist you.

Sources

1. Chowdhury, Rita and Healey, Samantha. “Proposed changes – Subclass 457 visa – temporary work (skilled) program”. Lexology. 5 March 2013. (http://www.lexology.com/library/detail.aspx?g=6596348c-c35b-490a-98a4-3052196f369c).

2. Clancy, Ray. “Data backs up growth in 457 visa programme”. AustraliaForum.com. 12 March 2013. (http://www.australiaforum.com/information/immigration/data-backs-up-growth-in-457-visa-programme.html).

3. Clancy, Ray. “Poll backs changes to Australia 457 visa programme”. AustraliaForum.com. 22 March 2013. (http://www.australiaforum.com/information/jobs/poll-backs-changes-to-australia-457-visa-programme.html).

4. Gillard, Julia MP, Prime Minister. “Address To The ACTU Community Summit On Creating Secure Jobs And A Better Society”. Prime Minister of Australia Press Office. Thursday,  14 March 2013. (http://www.pm.gov.au/press-office/address-actu-community-summit-creating-secure-jobs-and-better-society).

5. Hugo, Graham. “Explainer: 457 Visas in Australia”. The Conversation. 14 March 2013, 9.56am AEST. (http://theconversation.com/explainer-457-visas-in-australia-12622).

6. Mares, Peter. “Temporary migration is a permanent thing”. Inside Story: Current affairs and culture from Australia and beyond. 26 March 2013. (http://inside.org.au/temporary-migration-is-a-permanent-thing/).

7. O’Connor, Brendan MP, Minister for Immigration and Citizenship. “Reforms to the temporary work (skilled) (subclass 457) program”. Brendan O’Connor, MP, Minister for Immigration and Citizenship. 23 February 2013. (http://www.minister.immi.gov.au/media/bo/2013/bo193683.htm),

8. Phillips, Janet. “Temporary skilled migration and the 457 visa”. FlagPost: Information and Research from Australia’s Commonwealth Parliamentary Library. 13 March 2013. (http://parliamentflagpost.blogspot.com.au/2013/03/temporary-skilled-migration-and-457-visa.html).

9. Phillips, Melissa. “How low can they go?”. On Line Opinion: Australia’s e-journal of social and political debate. 14 March 2013. (http://www.onlineopinion.com.au/view.asp?article=14795).

10. Quine, Stephanie. “Lawyer slams tightening of 457 visa program”. Lawyers Weekly. 14 March 2013. (http://www.lawyersweekly.com.au/news/lawyer-slams-tightening-of-457-visa-program).

11. Talor, Paige. “We're different in the west, Colin Barnett tells PM”. The Australian. 28 March 2013. (http://www.theaustralian.com.au/national-affairs/state-politics/were-different-in-the-west-colin-barnett-tells-pm/story-e6frgczx-1226608003291).

12. Thompson, Scott. “Red Tape Not the Answer on Skills”. Business Council of Australia. 23 February 2013. (http://www.bca.com.au/Content/102096.aspx).

13. Wilcox, Innes. “The debate over 457 visas has reached the bottom of the barrel”. Manufacturers’ Monthly. 15 March, 2013. (http://www.manmonthly.com.au/features/the-debate-over-457-visas-has-reached-the-bottom-o).

14. Williams, Dan and Arends, Megan. “'Fair go' for local workers - changes to the Subclass 457 temporary work visa program”. Lexology.  25 February 2013. (http://www.lexology.com/library/detail.aspx?g=5c1e0638-66e1-4fb2-906f-eecf71bd74dc).

15. “Stop visa 457 exploitation”. AMWU Campaigns. Accessed 26 March 2013. (http://www.amwu.org.au/campaigns/4/457-VISA-EXPLOITATION/).

16. “Temporary overseas workers”. Australian Council of Trade Unions. Accessed 26 March 2013. (http://www.actu.org.au/Issues/OverseasWorkers/default.aspx).

McGrathNicol - Year in Review 2012

Year in Review 2012 

1  Bribery and corruption

In 2012, Australia saw the first conviction under Australia’s Crimes Act for bribery related matters. However, an OECD report issued in October 2012 gave Australia a poor rating with regard to the levels of enforcement activity and the investigation of alleged corrupt conduct. This has increased the pressure on Australian regulatory authorities to review prosecution practices. In response, the Australian Federal Police announced in January 2013 that it will reopen several bribery and corruption cases.

The investigations of Morgan Stanley and Hercules Offshore by US authorities during 2012 have revealed the benefits to businesses of investing in robust anti-corruption compliance and training programs. US Federal authorities decided not to pursue enforcement action against both companies for violations of the Foreign Corrupt Practices Act on the basis of their strong internal control systems, amongst other things. From our experience in West Africa, the Middle East and Asia Pacific we note that the tone set by local management is a critical element in tackling the inherent bribery and corruption risk associated with operating in a high risk country.
Read more in the article:  Anti-bribery and corruption – How effective is your program? Our overseas experience

2  Investigations - risky business

In 2011, the UK Serious Fraud Office (SFO) conducted a raid on the homes of entrepreneurs, Vincent and Robert Tchenguiz, in response to the alleged funnelling of monies from an Icelandic bank only months before it collapsed. In 2012, the charges against them were dropped after it was found the SFO relied, in part, on unverified information and presented incorrect information to the UK High Court.

The Tchenguiz example highlights that even experienced investigators and legal advisors need to be cognisant of the risks associated with conducting investigations.
Read more about the tips to consider when undertaking an investigation in the article: Investigations – risky business

3  How comfortable is today’s Boardroom?

In recent times, we have seen several themes occupying an increasing amount of time on the agendas of Boards including:
+     the tone at the top - how management’s attitude and beliefs may impact on employees’ ethics and integrity;
+     risk appetite - why front line businesses need to understand their accountabilities and be supported by effective and commercial assurance solutions; and
+     corporate governance - do risk and assurance teams have clearly articulated plans and execution strategies?

How comfortable are you that the bases are covered and that all information, including the bad news, is making its way into the Boardroom? 
Read more about what actions you can take in the article:How comfortable is today’s Boardroom?

4  Risk management - volatility, uncertainty, and regulation

In 2012, further intensification of the European debt crisis and rising concerns in relation to the US “fiscal cliff” weighed on the minds of Directors and Senior Executives. Most of them recognise that world markets are likely to remain volatile, with low growth and tighter credit markets. These issues, together with increasing regulation and regulatory scrutiny, as well as greater activity from hungry class action lawyers, have refocused Directors’ attention on their ever growing obligations.

Read more about the challenges facing Australian Board members in relation to: market volatility and uncertainty; low or negative growth; access to finance markets; and increasing regulation and regulatory scrutiny in the article: Volatility, uncertainty and regulation.

5  How risk can be mitigated in the Cloud

The trend of companies moving IT processing and storage to the Cloud is growing rapidly and organisations need to give due and proper consideration to the legal, privacy and security implications of this change in the IT service model.

Rapid growth in the Cloud computing industry has resulted in more providers to choose from. The quality of service and infrastructure offered by a provider could have profound risks to the security and accessibility of your data.
Read more about possible pitfalls with storing data in the Cloud in the article: How can risk be mitigated in the Cloud?