Reforming Australia’s trading system
Originally published in the East Asia Forum
As Australia seeks to diversify its economy, build more resilience into supply chains and improve productivity, reducing the transaction costs of both exporting and importing must be high on all governments’ policy agendas.
In June 2023, an Australian Government Taskforce published a consultation paper to advance work on a Simplified Trade System. Progress has been slow as the trade system involves federal and state cooperation, as well as a range of agencies — including Home Affairs; Agriculture, Fisheries and Forestry; the Department of Foreign Affairs and Trade; Industry, Science and Resources; and the Australian Tax Office. Change is possible, but there needs to be a concerted effort to reorient the regulatory systems that affect importers and exporters by putting business at the centre of all agencies’ regulatory efforts.
Regulation of trade is essential to manage the risks inherent with cross-border transactions. These risks include trade in illicit products, notably drugs, weapons and wildlife, biological threats from the import of products that harbour pests and diseases, and cyber security risks associated with flows of data.
Risk-based approaches to both regulation and regulatory compliance activities require a timely assessment of risk and an efficient means to intervene — ideally before shipment — to remove the source of the risk. This is easy on paper, but hard to operationalise.
It requires cooperation across countries as well as agencies to share information relevant to assessing risk in time for preventive action. Delays in clearing imports and exports adds significantly to costs of trade — including additional warehouse costs, spoilage, penalties on contracts that have delivery deadlines and bottlenecks in production lines and shipping.
Regulation of trade is also essential to provide confidence in the quality of what Australia exports and imports. This confidence relies on certification that agreed upon standards are met. For imports — which are inputs into domestic production as well as goods and services that go directly go to consumers — many products must meet Australian standards. If foreign standards are not recognised, the small size of the Australian market means that domestic firms might struggle to find a foreign supplier willing to go through an additional certification process. This limits the options for producers and raises their costs.
There may be some products where the Australian market is sufficiently different to warrant a requirement for Australian standards. But where this is not the case and the supplying country’s standards and certification system is robust, mutual recognition on an ‘if not, why not’ basis would reduce the costs for foreign suppliers, in turn improving the availability and lowering the price of imports. As with risk assessment, timely clearance of certification also saves money for both importers and exporters.
The completion of a trade agreement with the European Union, currently on hold, would bring the share of trade with countries where Australia has a bilateral or regional trade agreement to almost 90 per cent. This is not the same as the share of trade that accesses concessions in Australia’s 18 existing trade agreements. While market access quotas with tariff reductions for agricultural commodity exporters are generally used, other exporters and importers face a ‘noodle bowl’ of overlapping concessions and rules of origin.
With Australian tariffs below 5 per cent on all products, the potential for cost savings from accessing a concession is not worth the effort for many importers. The Productivity Commission recently questioned the value of the remaining tariffs, though this is not an issue that the Simplified Trade System is pursuing. But having to pay a tariff also adds to paperwork — and businesses are happy to relate stories of paperwork mistakes adding to delays in accessing shipments.
Removing the last of the tariffs would remove one reporting requirement and lower the prices on tariffed products. But even if this is a step too far, as tariffs brought in AU$1.5 billion in 2019–20, making the trading system less mistake prone and concessions easier to access would reduce costs for importers and their consumers.
Implementing a simplified trading system is a complex undertaking. It must be simple to use, providing one point of entry for all approvals so data only has to be entered once, and one unified set of requirements. The complexity lies in coordinating Australian agencies to share information and adopt regulatory technology solutions. This would allow requirements to be embedded in software and easily updated, and ensure system interoperability and the ability for simultaneous processing of approvals across agencies. All data can be protected so that it can only be used as intended.
Like the trade liberalisation of the 1980s, Australia’s investment in delivering this complex system can be an inspiration to regional neighbours to improve their trade systems. Singapore and New Zealand have done this. It would be a shame if pushback from entrenched interests or sheer inertia means that Australia does not.