Tuesday, June 11, 2013

Japan Market Update

Snapshot:

Population: 27.9 million
Nominal GDP: US$5.8 trillion
Nominal GDP p/c: US$45,920 (2011)
GDP Growth: -0.6% (2011); 2% (2012)
Exchange rate: AU $1 = 90.79 Yen (June 2013)
Major industries: Automobiles, consumer electronics, computers, refined petroleum and civil engineering equipment and parts
Exports to Japan: AU $ 53.1 billion (2011-2012)
Imports from Japan: AU $22.5 billion (2011-2012)

Bilateral Trade Relationship


Japan is the third largest economy in the world in terms of GDP and is characterised by a democratic, constitutional monarchy, respect for the rule of law and commitment to regional security. Japan’s large population and significant number of wealthy, highly educated citizens, makes it one of the world’s largest consumer markets in the world.

Australia and Japan share a strong bilateral relationship which is built on mutual interests, especially in the area of trade. Japan is Australia’s second largest export market. In 2011-2012 exports to Japan were valued at $53.1 billion or 16.8 per cent of Australia’s total exports. Japan sits behind the USA and the UK as Australia’s third largest foreign investor, with investments in 2011 totaling roughly $123.4 billion, of which over 40% was foreign direct investment.

In terms of merchandise trade, Australia’s key exports to Japan are coal, iron ore and concentrates, beef and copper ores and concentrates. In services, personal travel (excluding education) and transport contribute the largest amount in export value. Japan’s key imports into Australia are passenger and goods vehicles, refined petroleum and civil engineering equipment and parts.


Trade Agreements


A Free Trade Agreement (FTA) between Australia and Japan has been under negotiation since 2007. The last formal negotiating round was held from 13-15 June 2012 in Tokyo. However, significant progress has been made since that time and the finalisation of the agreement is said to be imminent.

Two key benefits of the FTA would be reduced tariff and non-tariff barriers to trade and expanded export opportunities for trade in the agricultural sector which is currently quite regulated.

In April 2013 the members of the Trans-Pacific Partnership (TPP) formally invited Japan to join negotiations. Japan will join Australia and 10 other nations already in talks on the TPP: the United States, Canada, Mexico, Peru, Chile, Vietnam, Malaysia, Singapore, Brunei and New Zealand. A deal is hoped to be reached by the end of 2013.

Japan and Australia also sit on a number of regional forums including APEC and ASEAN.

Economic Outlook


There are three key factors that could impact on Japan’s economic outlook moving forward. These include:

  • The impact of the 2011 earthquake and tsunami which severely affected Japan’s global supply chains and has left the country with power shortages. Nuclear power constituted 30% of the total energy supply.
  • Japan has an ageing population. By 2050, the population is expected to fall by 20 million from where it stands currently at 127 million. With fewer tax payers to fund the increase in expenses associated with an aging population, the government will be forced to increase taxes.
  • The weak global economy is hampering the recovery of the Japanese economy following the devastating 2011 natural disasters. 

The Government is expected to continue with monetary easing in an attempt to stimulate the economy, and have increased their target inflation rate to 2 per cent. On a positive note, the weakening Yen is increasing competitiveness and analysts expect the strengthening of global markets, coupled with resilient domestic demand, will enable Japan to emerge from recession by mid-2013. Nevertheless, the future remains uncertain as the country faces an ongoing battle with deflation.

Doing business in Japan


The Japanese are very polite, and business etiquette is extremely important. Politeness, sensitivity and good manners are the pillars of Japanese business etiquette. When doing business in Japan, also take note of the following:

  • Business cards should be printed with English on one side and Japanese on the other. It is not so important to have you address translated, more so you name and company name. Carry at least 100 cards for a one week business trip. Present your business cards with two hands and with the Japanese side facing upwards to the most senior member of the Japanese party first, bowing slightly as you do so. NEVER write notes on a Japanese business card, treat them with respect and store them away only after the meeting closes.


  • English is not widely spoken in the business world so an interpreter is normally required 
  • Japanese business attire is formal. Men should wear blue or black suits, a white shirt and subdued tie. Women should be conservatively well dressed, wearing either trousers or a longer skirt suit.
  • When it comes to attending business meetings, be sure to arrive at least 5 minutes early and call ahead if you are running late. Wait to be seated. It looks good to take a lot of notes during the meeting at it shows your interest in the matter.
  • Do not shake your hosts hand when first meeting as the Japanese seldom shake hands. Be pleasant and do not speak derogatorily about anyone, even competitors, be willing to learn and ask lots of questions (just not about their personal life).

Opportunities for Australian Exporters


Prominent sectors including energy, education, food and agribusiness, have been identified as export growth markets. However, for Australian exporters, the focus should be on higher value-added and knowledge intensive sectors such as the life sciences, information technology, nanotechnology, aerospace and environmental technologies. These sectors are seen to offer the most promising prospects for exports growth to Japan.

  • Opportunities in niche markets for exporters also exist in the following areas: 
  • biotechnology and nanotechnology
  • building materials and products
  • bloodstock and equine industry
  • creative industries including architectural design and arts
  • clean technology and renewable energy
  • education and training
  • food and agribusiness
  • health and lifestyle products and services
  • mining
  • energy infrastructure
  • finance and investment.

Tariffs and Taxes

Japan has low or zero tariffs on most industrial products but maintains tariffs and restrictions on some agricultural items. Australian products enter the country at the lowest rate notified, with the exception of preferential rates, with a ‘self-assessment’ system designed to accelerate customs clearance allowing prior calculation of duty by importers.

Monday, June 10, 2013

36th-Parallel Geopolitics & Strategic Assessments: Asia Pacific/Latin America Strategic Architecture Assessment Part 1

Executive Summary

The South Pacific is rapidly becoming an area of economic and political importance. Spanning the waters from the equator to the Southern Ocean between the West Coast of South America and the East Coast of Australia, Papua New Guinea and Indonesia, the region is characterized by great travel distances, a broad range of nation-states, a maritime orientation and previously inaccessible resources. During the last thirty years technological, economic and political change has seen the region emerge as a strategic arena in its own right, with both resident and extra-regional actors now vying for influence and wealth. In this two-part assessment 36th Parallel outlines the major features of the strategic architecture underpinning this evolution.

Part One: Introduction and Overview.  

Until the late 20th century the strategic importance of the South Pacific was only apparent during wartime. With the revolution in transportation, telecommunication, services, production and exchange that swept the world economy over the last three decades, the South Pacific has increasingly become a region of major economic importance. This includes the sea lines of communication that connect Asia to Australia, New Zealand and the West Coast of South America, as well as the increasingly exploitable natural resources above and below water in Melanesian and Polynesian island states, the open waters between them, as well as along the Eastern and Western South Pacific Rims. With trade and production trend forecasts predicting continued growth in Australasian-South American commerce, the region has assumed previously unknown prominence.

The three main legs of South Pacific strategic architecture are Trade, Politics/Diplomacy and Security.  Although intertwined and overlapped, they can be analytically distinguished from each other. These “pillars” span three distinct sub-regions: the Southeastern Pacific, which extends westwards 2500 kilometers from the South American coast line from the Equator to Chilean Patagonia; the South-central Pacific, which occupies 3000 kilometers of mostly open water between the Equator and the Southern Ocean west of Easter Island to Fiji and Rarotonga; and the Southwestern Pacific, which covers the 2000 kilometers of water and land masses extending from Australia, Indonesia and Papua New Guinea to Fiji and the Cook
Islands (distances approximate).

The pillars of the architecture can be respectively sub-divided into Production, Commerceand Services,  (with regard to trade), regime type and stability, local political culture and foreign relations (with regards to politics and diplomacy); and enforcement authority and armed force (with regard to security).

To continue reading this report please click here.

Thursday, June 6, 2013

Atradius: May Economic Outlook 2013 - Asia-Pacific Focus

Sydney, Australia 4 June 2013 – Atradius has released the Economic Outlook for May 2013. It follows from last November’s Economic Outlook which argued that we had possibly moved away from the abyss of another economic crisis. In our latest edition we have found that this is not necessarily the case.

The global economic environment has weakened over the past 6 months and we expect only modest economic growth in 2013. 2012 ended with just 2.6% global growth and a 0.5% contraction in the Eurozone. Global growth is projected to improve at the end of the year due to a better economic performance in the United States and stabilisation of the Eurozone economy. However, there is a high risk that economic growth will be even slower than pictured in this outlook.

Global growth is expected to stabilise and reach 2.6% in 2013, more or less the same rate as last year, as growth in advanced markets remains sluggish and emerging markets continue their strong performance. The global economy is forecast to gain speed at the end of the year and improve in 2014 to 3.2%. Emerging markets remain the driving force of global growth. Asia, excluding Japan, is expected to grow 6.6% this year, largely thanks to China, whose growth is projected to reach 8.2%. Asia remains the driving force of the world economy. With economic growth in Asia buoyant again, Latin America’s economic environment will receive a boost this year as the continent is an important supplier of commodities, industrial products and goods to Asian markets. Recent economic developments in Brazil have not been as positive as expected at the end of 2012, when a mild recovery to fuel a broad-based domestic upswing in 2013 was anticipated.

The weak global outlook is consistent with a stabilisation of the insolvency environment in many markets, with the aggregate insolvency frequency even improving marginally in 2013. The Eurozone shows a moderate increase in the already high level of insolvencies, while the Eurozone periphery will see a more significant increase. Conditions improve in the Asia-Pacific region and the United States because of their relatively better economic conditions. Applying our insolvency assessment framework (page 34), we expect the number of insolvencies to remain more or less stable across major markets in 2013. The insolvency environment continues to improve in the Asia-Pacific region, with Japan and New Zealand seeing insolvencies drop by 2% and 3% respectively. The insolvency matrix for 2013 indicates the insolvency situation for Australia as average but also still deteriorating with an expected insolvency growth of 3% in 2013. While the overall insolvency environment stabilises, we forecast rising insolvencies in 10 out of the 22 markets that we track. Eurozone countries in particular will see a further increase due to the ongoing weak economic conditions. In general terms, credit risk is elevated and will remain so throughout the forecast horizon.

Looking at the macroeconomic headline forecasts figures for Australia, the GDP growth is expected to decrease from 3.6% in 2012 to 2.5% in 2013. It is forecasted to increase to 2.9% in 2014. Inflation is expected to remain the same for 2014 at 2.5% as it was in 2013, and increase to 1.8% in 2012. The export growth for Australia in 2012 was 6.3%, decreasing to 4.8%, with a further decrease forecast to 2.7% in 2014.

For New Zealand, GDP growth is expected to decrease from 3% in 2012, to 2.7% in 2013, forecasted to then increase to 2.8% in 2014. Inflation is expected to increase from 1.1% in 2012 to 1.4% in 2013 with an additional increase to 2.3% expected in 2014. Export growth is expected to increase from 2.1% in 2012 to 2.6% and then decrease to 1.5% in 2014.

In terms of emerging markets the Asia Pacific (excluding Japan), is expecting a decrease in GDP growth from 6.7% in 2012 to 5.8% in 2013. It is forecasted to increase to 6.2% in 2014. Inflation is also expected to decrease from 5.6% in 2012 to 3.7% in 2013 and further decrease to 3.6% in 2014. Export growth is expected to decrease significantly from 8.9% in 2012 to 2.9% in 2013, and then increase to 4.9% in 2014.

For the full Economic Outlook report for May 2013 please click here.

About Atradius
The Atradius Group, a company of Grupo Catalana Occidente S.A., protects businesses against trade credit risks throughout the world with credit insurance, bonding, and collections services offered in 45 countries. With total revenue of EUR 1,554 million and a market share of approximately 31% of the global trade credit insurance market, Atradius’ products contribute to the growth of companies throughout the world by protecting them from the payment risks associated with selling products and services on credit. With 160 offices, Atradius has access to credit information on more than 100 million companies worldwide and makes around twenty thousand trade credit limit decisions daily.

Atradius Credit Insurance N.V. 
Level 5, 22 Pitt Street
Sydney NSW 2000
Ph: +61 (0) 2 9201 5222

Atradius: Economic Outlook May 2013

Summary

The global economic environment has weakened over the past six months and we expect only modest economic growth in 2013. Global growth is projected to improve at the end of the year due to a better economic performance in the United States and stabilisation of the Eurozone economy. However, there is a high risk that economic growth will be even slower than pictured in this outlook.

Key points

  • Global economic growth is expected to stabilise at 2.6% this year as growth in advanced markets remains sluggish and emerging markets continue their strong performance. 
  • Eurozone GDP is expected to shrink further in 2013, at a rate of -0.4%. Growth in the United States is stable at 2.1%. Asia and Latin America show strong and slightly improving growth rates. 
  • Risks to the global outlook are high: the Eurozone crisis could intensify, fiscal consolidation may derail the economic recovery in the United States and growth in emerging markets may slow. 
  • While the overall insolvency environment stabilises, we forecast rising insolvencies in 10 out of the 22 markets that we track. Eurozone countries in particular will see a further increase due to the ongoing weak economic conditions. 


Global growth is expected to reach 2.6% in 2013, more or less the same rate as last year. The global economy is forecast to gain speed at the end of the year and improve in 2014 to 3.2%. However, for this acceleration in growth to take place, a number of conditions need to be met. Firstly, the Eurozone should continue implementing banking union and make progress on fiscal and political integration. Secondly, the United States should reduce its frontloaded austerity. Thirdly, emerging markets have to maintain their rapid expansion. These assumptions are far from certain and therefore the downside risks to the outlook remain high.

Global trade grew by just 2.5% in 2012: well below the long-term average of 5.4%. We now expect slow trade growth in 2013 due to the weak global environment, credit constraints and increased protectionism. Trade between emerging markets is however expected to continue growing rapidly.

Advanced markets are characterised by a combination of fiscal consolidation and loose monetary policy. Despite the latter, bank lending conditions for both firms and households are still tough. The Eurozone will contract again this year, but may resume positive growth in 2014. Financial market conditions have improved significantly over the past six months, but this has yet to translate into better economic conditions. Unemployment in Europe has reached a record level and consumers remain pessimistic. Economic growth in the United States of 2.1% in 2013 and 2.7% in 2014 marks a relatively weak but steady recovery.

Emerging markets remain the driving force of global growth. Asia, excluding Japan, is expected to grow 6.6% this year, largely thanks to China, whose growth is projected to reach 8.2%. Latin America will benefit from this strong growth in Asia, increasing its growth to 3.4%, up from a moderate 2.7% last year. Eastern Europe is heavily influenced by the weak economic conditions in the Eurozone, but growth may pick up to reflect a better Eurozone performance in 2014. Emerging markets face risks associated with large capital inflows, as the expansionary monetary policy regimes in advanced markets seek profitable investment opportunities.

The weak global outlook is however consistent with a stabilisation of the insolvency environment in many markets, with the aggregate insolvency frequency even improving marginally in 2013. The Eurozone shows a moderate increase in the already high level of insolvencies, while the Eurozone periphery will see a more significant increase. Conditions improve in the Asia-Pacific region and the United States because of their relatively better economic conditions. In general terms, credit risk is elevated and will remain so throughout the forecast horizon.

To view the full report, please click here.


Atradius Credit Insurance N.V. 
Level 5, 22 Pitt Street
Sydney NSW 2000
Ph: +61 (0) 2 9201 5222

Trade Successfully with Indonesia - Ten Important Principles

Atradius Credit Insurance N.V. 
Level 5, 22 Pitt Street
Sydney NSW 2000
Ph: +61 (0) 2 9201 5222


10 rules that can help make your sales to Indonesian buyers successful

To call Indonesia ‘a country’seems like an understatement. It consists of over 17,000  islands, spans three time zones and covers an area of 8 million square ilometres – 80% of which is sea. Around 6,000 islands are inhabited,leading to a multiplicity of cultural influences. This fascinating mix is encapsulated in the country’s national motto ‘Bhinneka Tunggal Ika’ – ‘Unity in diversity’.

Indonesia has one of the world’s  fastest developing economies, with a burgeoning consumer market driving its economic expansion. Its growing middle class is eager for foreign goods and services, while its government is focused on vital infrastructure development. As a result, Indonesia offers a wealth of business opportunities – provided that potential suppliers approach this promising market in the right way.That’s why this report has been produced, because Indonesia, for all its opportunities, is by no means the easiest country to do business with. While some barriers to trade have been reduced by deregulation, foreign exporters can still face complex time-consuming bureaucracy. But for the forward thinking exporter, this is a market worth pursuing. It has demonstrated solid growth over recent years: a trend that is set to continue. Already the largest economy in Southeast Asia, over the next decade it is expected to figure in the world’s top ten.

1. Choose your local agent or distributor carefully. 

Foreign companies wishing to sell their products or services in Indonesia may find it useful to appoint a local agent or distributor. Such an arrangement must be registered with the Ministry of Trade (MOT), which makes a clear distinction between agents and distributors. An agent is an intermediary of the foreign principal, while a distributor acts for itself in marketing and selling the principal’s goods and services. The agency/distributorship agreement, notarised by a notary public, and a statement letter from the Attache of Trade at the Indonesian Mission in the principal’s country of origin, are among the documents that must be submitted to the MOT.

In the event of an early termination of a sole agency distributorship, the new agent/distributor may be registered with the MOT only after obtaining a ‘clean break letter’ from the previous sole agent/distributor. For that reason, care should be taken in choosing an agent that is suitable for your industry, so it is advisable to do a thorough background check on your chosen agent/distributor’s previous track record.

If you do appoint an agent, they can of course be of great help in navigating Indonesia’s cultural and legal complexities. You may want to extend your representation further by establishing an office in Indonesia.
To do so you will need to obtain a business permit from the appropriate government agency. In some cases, several of these agencies may be involved. For instance, various types of local presence are available to foreign companies:


  • A Foreign Trade Company Representative Office, approved by the Ministry of Trade (an MOT RO) is relatively simple to set up and can undertake specific activities on behalf of the foreign exporter, such as acting as an intermediary, handling promotional activity and market research. However, it can’t undertake operational activities such as accepting offers, signing contracts and distribution. 
  • A Foreign Company Representative Office from the Investment Coordinating Board – the Badan Koordinasi Penanaman Modal (a BKPM RO) can manage a foreign company’s interests and assist in establishing and developing its business in Indonesia. The activities of a BKPM RO are limited to the role of supervisor, intermediary, coordinator or manager of the foreign company’s interests but it may not participate in managing the foreign company or its branches in Indonesia or generate revenue from Indonesia, nor can it engage in agreements or transactions relating to the sale and/or purchase of goods and services in Indonesia.
  • Other types of representative office can be established: some associated with particular trade sectors, such as a Foreign Company Construction Service Provider Representative Office from the Ministry of Public Works (MPW RO). You can go further by establishing an Indonesian legal entity, the most common of which is a penanaman modal asing (PMA) company: a limited liability company subject to both Indonesian Foreign Investment Law and Indonesian Company Law. As a rule, all business sectors are open to foreign investment and foreign investors may conduct business through a 100% foreign-owned PMA company without a local Indonesian partner, unless stated otherwise in the Presidential Regulation No. 36 of 2010 - the Negative List of Foreign Investment. A 100% foreign owned PMA company is obliged to sell shares to Indonesian investors within 15 years of its inception. Each of these arrangements has its benefits, so seek independent advice on which would suit your business best.
2. Adapt your business model to suit the market


Competition for Indonesian business is strong, with companies from many other Asian nations vying for the Indonesian Rupiah. 

Study consumer preferences and competitive practices and seek advice from your appointed agent. While Indonesian consumers are price sensitive, there is also a perception that foreign goods are of a superior quality. 

Your pricing strategy should take into account warehousing, delivery and distribution, and after-sales service. Also, bear in mind that, although Indonesia’s middle class is growing fast, average incomes in Indonesia are considerably lower than in more mature markets. 

Indonesia’s distribution system is complex and its poor infrastructure is something you’ll need to take into consideration when planning to enter the market: while it is certainly one of the fastest growing economies in Southeast Asia, its infrastructure is still one of the worst. The government has announced its intention to invest more in infrastructural improvements, which is good news for foreign companies that can offer related services. However, until there is substantial improvement, those who simply want to distribute their goods within this vast country should factor this potential problem into their plans. Seeking a suitable distribution partner in Indonesia can ease the burden, especially as many of those distributors can also assist with issues such as importation and customs clearance. 

3. Make a name for yourself.

Brand recognition and loyalty are highly valued in Indonesia. Direct mail marketing is common there, for many types of product and service. Advertising in local media can be effective in those areas of concentrated purchasing power like Jakarta and West Java. Television advertising will give national cover, reaching most consumers.

But tread carefully with your advertising. Indonesia is steeped in religion and tradition, and many of its people can be sensitive to the graphic elements of advertising that would be more acceptable in other countries. Make this into consideration and arrange for your advertising to be reviewed by native Indonesians beforehand: perhaps focus groups who can give you feedback before launching an advertising campaign there.

As well as giving your brand and products a high profile, make sure that your local representatives can provide strong sales and after-sales support. Indonesians’ brand loyalty can be established and maintained only if they can rely on fast and efficient local service.

4. Protect your intellectual property

Since the mid 1990s, Indonesia’s  efforts to combat intellectual property theft have made some progress. It has reformed its laws to bring them in line with the World Trade Organisations Trade Related Intellectual Property Rights (TRIPS) agreement, which requires WTO members’ legal systems to encompass a stipulated standard of IP protection. 

However, the 2012 edition of the US Trade Representative’s annual Special 301 report still named Indonesia on its priority watch list. While praising Indonesia’s progress on intellectual property protection, with rights holders reporting good cooperation from the enforcement authorities, the report urged Indonesia to further its efforts to counter piracy and counterfeiting. All the more reason for foreign exporters to take every measure available to protect their intellectual property. 

In Indonesia, intellectual property rights can be registered for patents, trade marks, designs and copyright. This is essential, as registration in your own country won’t protect your rights in Indonesia. There are two forms of patent protection: normal patents, which have a 20 year lifespan, and simple patents, i.e if there is less inventiveness involved in the product, which have a 10 year lifespan.Trade mark registration is on a ‘first-to file’ basis, meaning that the first person to file an application will usually have priority over the use of that trade mark in Indonesia. That can cause problems as there is no requirements for owners of registered trademarks in Indonesia to prove that they are using their trademarks when registering or renewing them. 

Sometimes the system is abused as a way of blocking well known foreign trademarks from filing for registration in Indonesia. Therefore, it is advisable to apply for trademark registration before you begin to market your products in Indonesia and to make vigorous efforts to seek trademark protection in the country. To its credit, Indonesia has introduced stricter penalties for trade mark infringement. Protection of industrial designs lasts for 10 years. Copyright arises automatically once the product is created in a tangible form. While registration (with the General Register of Works at the Director General of Intellectual Property Rights of the Ministry of Law & Human Rights) is not mandatory, it is advisable, as production of the registration letter can be used as legal evidence in court if a dispute arises. 

5. Don’t forget to factor in import tariffs…

Some products, such as raw materials for pharmaceuticals and machinery related to the print industry, are free of import tariffs, while others have risen markedly: especially on luxury goods and those that may compete with locally produced goods like electronic goods and a range of agricultural products, coffee and tea. 

Most Indonesian tariffs are bound at 40%. Indonesia has preferential trade relationships with several other countries. Import duties from the ASEAN countries (The Association of Southeast Asian Nations) can in 
general range from 0% to 5%, except for products in the exclusion list. 

Indonesia also has a number of Free Trade Zones (Kawasan Perdagangan Bebas/KPB) which are exempt from import duty and excise and various import taxes such as VAT. When supplying to these zones, suppliers should seek to share in the benefits that they offer to importers. 

6 …and abide by import regulations.

These are quite extensive. You or your agent must provide pro-forma invoice, commercial invoice, certificate of origin, bill of lading, packing list and insurance certificate. In addition, certificates may also be required to ensure the required standard of products like food or pharmaceuticals. The importer must also notify Indonesian Customs before arrival of goods and submit import documentation electronically. All imported goods must meet Indonesian labelling regulations in the Indonesian language or Bahasa Indonesia. 

Also, bear in mind that, even when goods are imported to a Free Trade Zone, customs audit and penalties still apply

7. When in Rome (and Jakarta)… 

Understanding your customer’s business culture is vital, wherever you intend to trade. In Indonesia, as in many other Southeast Asian countries, businesses are very hierarchical - so entering the meeting room in order of rank will set the right impression. On the other hand, the room may be empty because, although you’ll be expected to be punctual for business meetings, your Indonesian host may not be! Always greet your host’s party with a handshake using your right hand and the words ‘Selamat Pagi’ (good morning), ‘Selamat Siang’ (good day) or ‘Selamat Malam’ (good evening). 

As elsewhere in Asia, business cards should be presented with care, again using the right hand, and received with respect. Because rank is important, ensure that yours is shown clearly on your business card.

At your first business meeting, don’t be surprised if little actual business gets done. There are two reasons. Firstly, relationship building is essential and so that first meeting is just to get to know each other. And secondly, decisions aren’t taken quickly in Indonesia: your opposite number will not want to give the impression that your proposal has not been given full consideration. That means that patience is needed – negotiations can be frustratingly prolonged. Even insisting on a written contract may be seen as questioning your customer’s trust, although they will understand that for you it’s necessary. But present it as if it’s a guideline rather than a statement of obligations.

Because of Indonesians’ innate wish to maintain harmony, their response to your proposal may be indirect: there are many words in Bahasa Indonesia that appear to say ‘Yes’ but actually mean ‘No’. Because the nuances of the language are quite subtle, it would be advisable to have a fluent Bahasa Indonesia speaker on your meeting team.

8. Resolve any disputes over payment efficiently.

Indonesian contract law is based on  the principles of ‘freedom of contract’. While there is no restriction on the parties electing a foreign governing law and foreign courts as the dispute resolution mechanism, a foreign court decision cannot be enforced in Indonesia as Indonesia is not a party to any international convention for the recognition and enforcement of foreign court judgements. 

If the Indonesian party has assets outside Indonesia, you may consider using foreign law and courts as the dispute resolution mechanism. If a foreign party were to seek the performance of an Indonesian party (in Indonesia) under a foreign court judgement, it would have to file a new lawsuit in Indonesia at the relevant Indonesian District Court and the foreign court judgement would then serve as evidence in the new case. The Indonesian judge presiding over the case would have the discretion, but not the obligation, to evaluate such a foreign court judgement. 

It is also worth noting that Indonesia’s legal system, which is based on civil law and in which judges are not bound by precedents, can be slow moving. Moreover, usually Indonesian courts do not award costs in litigation cases, and therefore each party is responsible for its own legal costs. 

There are alternatives to court proceedings, when a dispute arises over payment for goods and services. Indeed, a central feature of Indonesia’s legal system is the national ideology of Pancasila, which calls for consensus rather than confrontation. Thus, before a case goes to court, a judge must be satisfied that the parties have at least tried to resolve their dispute through some form of third party arbitration or mediation.

 Mediation must be undertaken by professional/licensed mediators under the supervision of the court. The aim is to reach an amicable settlement and disputes that are mediated are often resolved quickly – but mediation does rely on a willingness by both parties to reach a settlement.

Arbitration has more force than mediation – although the process can take longer and be more expensive - and has the advantage over court proceedings that the parties to the dispute have more say in the procedure and even in the choice of arbitrator. What’s more, while a court decision is open to appeal, an arbitration award is final and binding. 

Indonesia is a party to, and has ratified, the 1958 UN Convention on the Recognition and Enforcement of 
Foreign Arbitral Awards (the New York Convention). The existence of a valid arbitration agreement precludes the right of the parties to submit a dispute to the Indonesian courts. Enforcement of the arbitral award must be made by way of an application to the competent district court and, in the event of enforcement of an international arbitration award, to the district court of Central Jakarta. 

However, in some cases court proceedings still continue after the arbitration decision has been awarded. 

9. Don’t lose a valuable customer over a single late payment.

Customers are hard to come by and even more so in new markets. So, once you’ve invested resources in winning a contract, you’ll want your new customer to become a regular customer. If any payment problems do arise, an amicable settlement is therefore far more advisable than heavy handed recovery action. Atradius Collections can help.

Don’t assume that, if you have a retention of title clause in your sales contract, this will be acknowledged by an Indonesian court. Court action in Indonesia can be biased towads the debtor, expensive and drawn out, with no guarantee of success. Atradius Collections specialises in amicable out of court settlements wherever possible on behalf of their clients and will stay in close contact with the debtor, using proven negotiation and persuasion techniques to convince them to settle the debt: effectively helping both parties to the sales contract. Atradius Collections’ most valuable asset is its understanding of Indonesian business culture and practices.

10. Be competitive – but protect your sales.

While you may choose some form of payment security within your conditions of sale, such as Irrevocable Letter of Credit, remember that you are up against competition from other suppliers. So offering open account terms and an attractive credit period will put you at an advantage. But that will leave open the risk of not getting paid – unless you’re credit insured. 

Atradius provides protection for business-to-business open account sales to Indonesian companies. What’s more, in doing we will assess the creditworthiness of your prospective customer in Indonesia – something that you may find hard to do yourself because of the difficulty of obtaining financial information on companies there. 

Our underwriters are expert in ‘reading between the lines’ of company accounts and often visit the company they are assessing to verify the information they’ve obtained. They give particular attention to the riskier trade sectors like shipping, which is highly capital intensive; electronics, where many of the smaller distribution companies have poor liquidity; and metals, which can be vulnerable to volatile global market prices.

Many opportunities for profitable trade

Having experienced political turmoil in the late 1990s, Indonesia has now achieved stability as the world’s third largest democracy after India and the USA. In recent years, the country has seen economic growth of around 6% a year, driven largely by the rise in consumer spending by its expanding middle class and government investment in improving the infrastructure. This trend seems set to continue, with some forecasters predicting growth in household disposable income and expenditure of around 40% between now and 2020. The government of President Yudhoyono continues to take steps to liberalise foreign trade along WTO lines, although bureaucracy and corruption are still issues. Overall, provided that foreign exporters understand the characteristics of the markets and take suitable precautions to safeguard their sales, Indonesia promises many opportunities for profitable trade.

Atradius Disclaimer
This report is provided for information purposes only and is not intended as a recommendation as to particular transactions, investments or strategies in any way to any reader. Readers must make their own independent decisions, commercial or otherwise, regarding the information provided. While we have made every attempt to ensure that the information contained in this report has been obtained from reliable sources, Atradius is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this report is provided ’as is’, with no guarantee of completeness, accuracy, timeliness or of the results obtained from its use, and without warranty of any kind, express or implied. In no event will Atradius, its related partnerships or corporations, or the partners, agents or employees thereof, be liable to you or anyone else for any decision made or action taken in reliance on the information in this report or for any consequential, special or similar damages, even if advised of the possibility of such damage.

Kelly + Partners: The changing landscape of international tax

Kelly + Partners
Tax Consulting
Level 4/73 Walker Street
North Sydney
Ph: 02 9923 0800

The proposed new transfer pricing legislation and International Dealings Schedule (IDS) signals the start of a new era for businesses with cross-border transactions. We expect to see an increase in disputes with the ATO, in particular, in businesses with related party funding arrangements and restructures, and businesses experiencing low profitability or losses. These risks are increased by the action plan of the OECD in relation to multinationals' base erosion and profit shifting (BEPS). This focus on transfer pricing globally is partly lead by the Australian Government and signals governments’ willingness to review and update tax policies, tax authorities' greater compliance activities and an increased scrutiny of multinational business’ cross-border tax arrangements.

Recent changes in Australia

On 13 February 2013, the Government introduced into Parliament tax law amendments that seek to re-engineer the transfer pricing law for international business transactions and to adjust the income tax general anti-avoidance rule. The proposed new transfer pricing rules make several changes to the transfer pricing rules, but there are three features that stand out:

  • the Bill focuses on arm's length behaviour and conditions, not just transactional pricing;
  • the ATO has new broad powers that enable it to replace actual arrangements with deemed arm's length conditions, to potentially reconstruct or unwind transactions;
  • a self-assessment regime has been introduced for businesses but with stronger documentation requirements, including that businesses without contemporaneous documentation will not have a Reasonably Arguable Position (RAP), with tax penalty risks.

Further, last year the Australian Taxation Office (“ATO”) released its new International Dealings Schedule 2012 (“IDS-2012”) for all taxpayers, after trial running it with large businesses. The IDS-2012 is a new transfer pricing disclosure form that will be part of the 2012 income tax return, replacing the Schedule 25A form, thin capitalisation disclosure schedule and the Financial Services International Dealings Schedule 2011 that were previously required to be submitted along with the annual income tax return.

Australian companies, partnerships or trusts that have an aggregate amount of transactions or dealings with international related parties that is greater than $2 million will be required to complete the new IDS. In respect of transfer pricing, IDS-2012 requires taxpayers to provide more detailed disclosures of their international dealings than in previous years. It also requires the taxpayer to reveal the main transfer pricing method that is applied to each transaction, along with a disclosure as to the level of specific transfer pricing documentation held for that particular transaction or dealing. Thus the level of compliance required to complete the new IDS-2012 has risen significantly.

What does this mean for taxpayers?

The additional information provided by taxpayers in the IDS 2012 will enable the ATO to better assess the transfer pricing risk of each taxpayer and will allow the ATO to profile high risk transactions. Based on the additional data captured, we expect that the ATO will be performing increased data matching that will allow it to undertake more targeted and focused compliance activities.

Taxpayers should be preparing to update transfer pricing policies and documentation to meet the new legislative requirements. As a minimum, they should review the scope and quality of transfer pricing documentation, and the terms and conditions of all cross-border arrangements.

The international tax landscape is changing rapidly, not only here in Australia, but globally. It is critical that you stay informed of the important and far-reaching changes that are occurring in each jurisdiction as these may have a significant impact on your business’ cross-border transactions and international operations.

Monday, June 3, 2013

Australia’s National Food Plan: Tapping Into Asia’s Expansion

Cynthia Dearin
Dearin & Associates
Tel: +612 8003 7583
info@dearinassociates.com






  • Will your business be affected by the new National Food Plan?
  • Are cheap imports of fresh food affecting your competitiveness?
  • Did you know that you may be eligible to apply for financial assistance through grants under the new National Food Plan?
  • What do you see as the big issues for Australian food producers and would you like to have your voice heard?

The Federal Government has said it will help Australia’s food industry target Asia as part of its “National Food Plan” to grow the sector.

On 25 May, the Minister for Agriculture, Fisheries and Forestry released the National Food Plan, spelling out the Government’s intentions for Australia’s food industry. Based on the objectives outlined in the Australia in the Asian Century White Paper, the Plan has a strong focus on Asia and assisting Australian industry to tap into the needs of an expanding Asian middle class.

The plan also aims to help Australian industry increase exports and support a thriving food industry while ensuring Australia’s food needs are met sustainably. It sets out 16 goals in four categories – “Growing Exports”, “Thriving Industry”, “Sustainable Food” and “People” – to be reached by 2025.

What does the National Food Plan mean for business?

Under the Plan, the Government will provide about $40 million worth of funding, mostly to strengthen Australia’s position as a quality food producer for Asia.

The plan includes a $1.5 million small grants program for community food groups. Applicants will be able to apply for Federal Government grants of up to $25,000 to support projects such as farmers’ markets and “food rescue activities”, while grants of up to $10,000 will be available to people involved in smaller initiatives such as community gardens and city farms.

The Plan also sets up a Productivity Commission inquiry into cutting red tape for food manufacturing.

How has the business community reacted to the Plan?

Public reaction to the Plan has been mixed.

The Australian Made Campaign has welcomed the National Food Plan and its focus on exporting into Asia, and stressed the importance of branding Australian products in Asian marketplaces.

The National Farmers’ Federation has described the Plan as a positive step and welcomed the $28.5 million worth of grants to investigate Asian food markets.

Ausveg, Australia’s peak body for vegetable growers, has welcomed $2 million to strengthen the Australian brand in Asia, but says that doesn’t help producers compete with cheap imports.

Spokesman William Churchill says $908 million worth of fruit and vegetables were imported last year, and country of origin labelling isn’t addressed in the food plan.

Robert Pekin is the Executive Director of the Food Connect Foundation and has been heavily involved in developing community supported agriculture.

He says the plan ignores some big issues facing Australian food producers.

“It hasn’t addressed the real issues in the food system… around farmer debt, the number of farmers leaving the land, anti competitiveness in the retail sector. Or some of the huge issues coming down the road in terms of energy constraints, water constraints and financial constraints at the global level which are big issues for Australian agriculture,” Mr Pekin said.

How can Dearin & Associates help you engage with the National Food Plan?

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

If your business will be affected by the National Food Plan, particularly in light of Australia’s developing relationship with Asia, we can help you engage with the relevant government officials, assist in the preparation of submissions to government and connect you directly with the key people. 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.

We can also assist your business or association to apply for the grants available under the Plan.

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.

Sources
Best, Dean. “AUS: Canberra targets Asia in “national food plan””. Just-food. (http://www.just-food.com/news/canberra-targets-asia-in-national-food-plan_id123345.aspx).
Department of Agriculture, National Food Plan. 25 May 2013. (http://www.daff.gov.au/nationalfoodplan).
Lindberg, Rebecca and Lawrence, Mark. “National Food Plan: most Australians are food secure, but can we do more?”. The Conversation. 29 May 2013. (http://theconversation.com/national-food-plan-most-australians-are-food-secure-but-can-we-do-more-14682#comments).
Locke, Sarina. “Opposition says National Food Plan is a “con job””. ABC Rural. 29 May 2013.
(http://www.abc.net.au/news/2013-05-29/opposition-food-plan/4719736).
Rose, Nicholas and Croft, Michael. “The draft National Food Plan: putting corporate hunger first”. 20 July 2012. The Conversation. (http://theconversation.com/the-draft-national-food-plan-putting-corporate-hunger-first-8342).

Wilson, Cameron. “National Food Plan”. Radio National. 27 May 2013. (http://www.abc.net.au/radionational/programs/bushtelegraph/national-food-plan/4715298).