New OECD Analysis on Trade Facilitation as it Applies to Australia and the World

The Organisation for Economic Co-operation and Development (OECD) recently published the results of research, undertaken to measure the relative economic and trade impacts of trade facilitation measures currently under negotiation in the World Trade Organization (WTO) on trade flows and trade costs across all WTO member countries. 

A series of Trade Facilitation Indicators (TFIs) that identify areas for action and enable the potential impact of reforms to be assessed have been identified by the OCED  to help governments improve their border procedures, reduce trade costs, boost trade flows and reap greater benefits from international trade (see list of indicators in Appendix 1).

“Trade facilitation is about easing access to the global marketplace,” OECD Secretary-General Angel Gurría said. “Complicated border processes and excess red tape raise costs, which ultimately fall on businesses, consumers and our economies. The trade facilitation negotiations offer countries a golden opportunity to reduce or eliminate these bottlenecks, cut the cost of trading, boost the flow of goods and reap greater benefits from international trade,” Mr Gurría said.

A key message from the OECD research is that a multilateral agreement to cut red tape in international trade would have a significant impact on reducing trading costs and add a much needed boost to the global economy (for details on the the progress of a multilateral agreement, see Appendix 2). 

The OECD estimate that comprehensive implementation of all measures currently being negotiated in the World Trade Organization’s Doha Development Round would reduce total trade costs by 10% in advanced economies and by 13-15.5% in developing countries.  Reducing global trade costs by 1% would increase worldwide income by more than USD $40 billion, most of which, according to the OECA, would accrue in developing countries.

TFI analysis was conducted on all WTO member countries to measure their relative trade facilitation performance and reveal areas where more can be done to improve trade flows and costs.

How did Australia rank?

Australia performed significantly better than the OECD average in the areas of appeal procedures, border agency cooperation (internal and external) and governance and impartiality. We performed slightly above the average in most other indicators but performed below average for harmonisation and simplification of documents.

The OECD’s quantitative analysis reveals that, for developed countries, the areas with the greatest impact on increasing bilateral trade flows and reducing trade costs are the following:

• information availability
• advance rulings 
• fees and charges 
• automation and streamlining of procedures 

Taking into account the OECD research, Australia would benefit from continued improvements in the following areas:

Information availability: 

• Introduce a full time hotline (24/7) for addressing reasonable enquiries to Customs.
• Publish decisions and examples of Customs classification on the Customs website.
• Publish examples of judicial decisions on the Customs website.

Advance rulings: 

• Increase the length of time for which the advance ruling is valid, as it remains lower than the OECD average.

Fees and charges: 

• Decrease the number and diversity of total fees and charges collected. Interestingly, in the recent budget announcement the Government announced they will be restructuring the Import Processing Charge (IPC) in order to recover the costs of all import related cargo and trade functions undertaken by Customs, which is obviously in contrast to the above OECD recommendation. For details on the IPC changes, please see Appendix 3.  

Formalities – Procedures:

• Improve the treatment of perishable goods with respect to the separation of release from final determination and payment of Customs duties.
• Further develop the Post-Clearance Audit program.
• Further develop the Authorised Operators program as the number of authorised operators in the total number of traders remains low compared to the OECD average.  However, what the OECD did not mention, or was perhaps unaware, was that Australia does not actually have any Authorised Operators program.
• Continue overall simplification of procedures in terms of both time and costs.

What is the ECA doing?

The ECA has long advocated for a reduction in trade facilitations costs.  In fact, the ECA is currently working on a research project which analyses the fees and charges businesses across a wide range of industries incur in order to be able to export their product overseas. The results of this research will be used to reveal to government how significant these costs in fact are and how they impede exporters and their ability to compete internationally. If you are interested in being involved in this research please contact Lisa McAuley: lisamcauley@export.org.au.   

The ECA has a five point agenda in its Trade Policy paper to be tabled in June. The paper will call on government to:

1. Address International Trade as an essential aspect of domestic economic policy
2. Incorporate International Trade in economic and physical infrastructure and investment
3. Rigorously review all aspects of regulation (both red and green tape) and increase the focus on competition policy
4. Re-evaluate policy settings in foreign trade negotiations to place greater emphasis on trade.
5. Ensure International Trade becomes a “whole of Government” issue

In addition, the ECA is involved in the Future Logistics Living Lab which provides industry and research the opportunity to work together to create innovative solutions to logistics challenges. Ultimately, the projects developed through the Lab improve trade facilitation through the increased availability of information and the automation and streamlining of procedures.

Appendices

Appendix 1
OECD Trade Facilitation Indicators:

1. Information Availability: Publication of trade information, including on internet; enquiry points.
2. Involvement of the Trade Community: Consultations with traders.
3.  Advance Rulings: Prior statements by the administration to requesting traders concerning the classification, origin, valuation method, etc., applied to specific goods at the time of importation; the rules and process applied to such statements.
4.  Appeal Procedures: The possibility and modalities to appeal administrative decisions by border agencies.
5.  Fees and Charges: Disciplines on the fees and charges imposed on imports and exports.
6. Formalities-Documents: Simplification of trade documents; harmonisation in accordance with international standards; acceptance of copies.
7. Formalities-Automation: Electronic exchange of data; automated border procedures; use of risk management.
8. Formalities-Procedures: Streamlining of border controls; single submission points for all required documentation (single windows); post-clearance audits; authorised economic operators.
9. Internal Co-operation: Co-operation between various border agencies of the country; control delegation to Customs authorities.
10. External Co-operation: Co-operation with neighbouring and third countries.
11. Governance and Impartiality: Customs structures and functions; accountability; ethics policy.

Appendix 2:

Trade facilitation refers to the simplification and harmonisation of international trade procedures to assist the movement of goods. Customs, licensing and transit formalities are areas which can involve complicated administrative processes and additional costs to business.

Negotiations on a multilateral trade facilitation agreement were launched as part of the WTO Doha Round in 2004. Nearly 9 years on there is now a draft negotiating text which is said to be a fairly accurate indication of what the final document might look like. With the Doha Round of negotiations at an impasse, it is hoped that headway on the agreement might be made at a high level meeting to be held in Bali this December.

Organisations that are involved in studying the implications of trade facilitation costs and are actively pursuing the ratification of a multilateral agreement include the WTO, the OECD, the World Bank, the EU, the World Economic Forum and other regional trade forums such as APEC, among others.

Most of the gains attributed to a multilateral trade facilitation agreement would accrue to developing nations and would lead to significant gains to world trade.

Appendix 3: Change to Import Processing Charge for full cost recovery

In the recent budget announcement the Government announced they will be restructuring the Import Processing Charge (IPC) in order to recover the costs of all import related cargo and trade functions undertaken by the Australian Customs and Border Protection Service.

The new charges will take effect on 1 January 2014 and will take effect as follows:

• For consignments valued over $10,000 the IPC for electronic sea import declarations will be increased by $102.60 to $152.60 per consignment.
• The IPC for electronic air import declarations will be increased by $81.90 to $122.10 per consignment, for consignments valued at over $10,000.
• For consignments valued over $1,000 and up to $10,000, the IPC will remain at current levels, being $50 for electronic sea import declarations and $40.20 for electronic air import declarations.
• The IPC will continue not to be applied to consignments valued at $1,000 or less.

The increase to the IPC will result in additional revenue of $674.3 million over four years and will be implemented in accordance with the Australian Government's cost recovery policy.

Author

Stacey Mills

Export Council of Australia

Ph: 02 8243 7460

Fax: 02 9251 6492

Email: StaceyMills@export.org.au

Website: http://www.export.org.au/

Education & Training: http://www.aiex.com.au

Twitter: http://twitter.com/Aussieexport

For media queries or further information on the Export Council of Australia, please contact:

Lisa McAuley

National Manager

Export Council of Australia

Ph: 02 8243 7400

Fax: 02 9251 6492

Email: lisamcauley@export.org.au

Website: www.export.org.au

Education & Training: http://www.aiex.com.au

Twitter: http://twitter.com/Aussieexport

Superheroes of Export

Even in these tough times for exporters there are some outstanding success stories to inspire the industry.

With a persistently high dollar, continuing ramifications of the GFC and increasingly high costs of doing business in Australia, it is sometimes quite refreshing to be able to focus on the positive success stories. 

On the 14^th May at Government House in Melbourne, His Excellency the Hon Alex Chernov AC QC will officially present the 2013 Australian Export Heroes Awards to seven outstanding Australians.

“There are many facets to developing our export culture in Australia. As well as adding to the growth of international trade in Australia, the Export Heroes have contributed to Australia's image as a progressive member of the international business community and are role models for future generations of Australian exporters.” Ian Murray AM, Executive Director, Export Council of Australia

Taking a company to export success, as most established exporters can testify, is no small feat and for Australian companies they have an even bigger mountain to climb, given our location. Which is why, just over ten years ago the Australian Export Heroes Awards were created by a group who believed in acknowledging the efforts of those hard working people, who often spend years building their companies and taking them to global success while also supporting Australian industry.

“People who receive an export hero award have fought and won on the international stage. Technically smart, creative and hard working they are able to show the world that Australian’s can not only do anything, but can do it as well and often better than anybody else.” Ian Murray AM, Executive Director, Export Council of Australia

We salute these individuals who have taken on the world and won:

·         Noel Carty - Starena Group

Noel Carty is the Managing Director of Starena Group, a company that commenced business operations servicing the stadium, event and indoor arena industry in Australia and New Zealand. After the successful completion of major projects for the 2000 Sydney Olympics, Noel decided to capitalise on the experience and pursue other major projects overseas. The company now has over 30 distributors worldwide and offices in Cairo, Athens and London which all report back to the head office in Gosford, NSW.

·         Michael Crouch AO – Zip Industries

When Michael took control of a small Sydney manufacturer of domestic water heaters in 1962, little did he suspect that within the next 51 years his enterprise would grow to be the world leader in a highly innovative and rapidly advancing product category – instant boiling water. Michael Crouch has been the recipient of numerous awards and accolades over the years and is described as a visionary, entrepreneur and innovator. Zip Industries products are now in use in over 65 countries worldwide.

·         Robert Dal Sasso – Ecotech

Robert Dal Sasso and his wife Judy founded Ecotech in their backyard in 1976. From this humble beginning, Robert’s passion for air quality monitoring has led him to successfully grow the company over the last 35 years to become a global player in environmental instrumentation. Ecotech today employ over 100 people and exports to over 60 countries worldwide.

• Amanda Hicks - Auto-Bake Pty Ltd

Auto-Bake was founded in 1960 by Kevin and Evelyne Hicks, Amanda’s Parents, in Hornsby on Sydney’s North Shore. Since its foundation, and largely thanks to the hard work and leadership of Amanda, Auto-Bake has evolved from a small time manufacturer in the retail food industry to an international player in the industrial ovens and baking industry, exporting ovens to over 25 countries worldwide.

·         Souhel Khanania – Industrial Engineering Technology

Souhel left high school in year 10 to start an apprenticeship with Smiths Chips, which he successfully completed in 1979. Since this time Souhel has used his intelligence, drive and determination to build himself an award winning international business, Industrial Engineering Technology. Souhel has experienced huge success exporting his industrial burners and ovens to the snack food industry in Asia and North America. His products are renowned for being reliable, excellent quality and highly efficient, saving companies hundreds of thousands of dollars.

·         David Lock – Craig Mostyn Group

David Lock became CEO of Craig Mostyn Group in 2004 and is responsible for the company’s successful restructure, making it more efficient and flexible, as well as an award winning business that competes on the international stage.  David’s leadership skills and strategic thinking, coupled with his drive and energy. The Craig Mostyn Group runs three major export divisions in: Meat & Livestock, Recycling & CM Foods, with the notable standout being the increase in pork export sales into Singapore.

·         Noel Robinson – Noel Robinson Architects 

With over 40 years’ experience in architecture, Noel Robinson has been the recipient of numerous awards and accolades. He has been recognized in Australia and overseas for setting benchmarks in innovative architecture, interior design and urban planning. Noel’s experience and expertise is demonstrated through the large number of internationally successful projects he has delivered across a broad range of disciplines and throughout all corners of the globe.  Noel Robinson Architects currently maintains offices in Brisbane, Melbourne, Muscat and Noosa, with associate offices in Shenzhen, Auckland and Townsville.

 “Whether from big established business or from the family farm or factory, they all deserve special recognition for their vision, passion and sheer hard work. We thank them for their unique contribution and we thank their families for their support in what has undoubtedly been an interesting journey.”

Media Contact

Lisa McAuley

National Manager

Export Council of Australia

T: 02 8243 7400

E: lisamcauley@export.org.au

Kelly and Partners: How the 2013 federal budget impacts cross-border activities

Author: Tony Nunes, Senior Client Director, Kelly and Partners

On 14 May 2013, the Treasurer, Wayne Swan, delivered his sixth Federal Budget. The 2013–14 Federal Budget has had to be framed to deal with the ‘perfect storm of torrid global forces and the high dollar that has smashed our budget revenues’. In his speech at the CEDA luncheon on 1 May 2013, the Treasurer identified the enduring strength of the Australian dollar as having the most impact on keeping domestic prices low and squeezing profit margins which in turn squeezes tax revenues.

While acknowledging the strength of Australia’s economy relative to the rest of the world, the Treasurer pointed out that Australia is facing some very difficult choices and a Budget that will be in deficit for longer than previously forecast. He identified the choices as being between supporting jobs and growth or driving the economy into the ground and putting tens of thousands of jobs at risk and concluded that the Budget would be crafted to support jobs and growth.

Despite this, it appears that most of the tax measures introduced in the 2013-14 Budget with respect to foreign investment both into and out of Australia are designed to discourage foreign investment in the form of:

• Reduced safe harbour limit from 3:1 to 1.5:1 on a debt to equity basis for general entities for the purposes of the thin capitalisation rules;
• Abolishing the deduction for interest on borrowings used to fund foreign investments; and
• Introduction of a 10% non-final withholding tax to apply to the disposal by foreign residents of certain taxable Australian property (which is not limited to real property).

Thin cap ratios reduced

The Government announced that it would address profit shifting by multinationals through the disproportionate allocation of debt to Australia by tightening and improving the integrity of several aspects of Australia's international tax arrangements, with effect for income years commencing on or after 1 July 2014.

The changes announced to thin capitalisation in the Budget include, amongst others:

• increasing the de minimis threshold from $250,000 to $2m of debt deductions which is designed to reduce compliance costs for small business; and
• for general entities the safe harbour limit will be reduced from 3:1 to 1.5:1 on a debt to equity basis (or 75% to 60% on a debt to total asset basis).

The proposed changes to the thin capitalisation provisions was previously announced and expected. The changes would effectively increase the effective tax rates for taxpayers going offshore and reduces Australia’s attractiveness as a destination for offshore multinationals.

Those entities that fall within the threshold levels should re-assess their thin capitalisation positions. This could be done by reducing debt or re-valuing assets. Alternatively, entities should consider re-capitalising to prevent the denial of interest expenditure.

Deduction for interest on borrowings used to fund foreign investments abolished

Under the current rules, section 25-90 of the Income Tax Assessment Act 1997, allows (in most circumstances) an entity to deduct interest when investing in offshore entities. This is despite the fact that the income that is earned, as dividends or the repatriation of branch profits, may be non-assessable, non-exempt (NANE) income. This deduction is now being abolished and the deduction will not be allowed as from Jul 2014.  This is a significant development which will affect all taxpayers using debt to expand offshore (offshore includes New Zealand!).

Prior to 2001 (when section 25-90 was introduced), Australian companies were required to trace debt to ensure interest deductibility. The abolition of section 25-90 means that the position pre-2001 is reinstated. This means that any Australian entity with a subsidiary or branch offshore would be required to distinguish between borrowings used to fund local operations and those borrowings used to fund offshore entities, otherwise potentially a portion of the interest expense incurred could be denied as a deduction.  No details are available at this stage as to how any apportionment calculation would operate, however, clearly, in response to the Budget announcement, a review and possible restructuring of debt should be considered a priority in the coming months.

Further, note that the de minimus threshold applied to thin capitalisation deductions of $2m does not apply here. Consequently, a taxpayer can be allowed a debt deduction under thin capitalisation, but denied a deduction because they are using debt to go offshore.

Foreign resident CGT withholding tax

A 10% non-final withholding tax will apply to the disposal by foreign residents of certain taxable Australian property. In such cases, the purchaser will be required to withhold and remit 10% of the proceeds from the sale. Although to be implemented in the context of CGT, it will apply equally where the disposal of the Australian real property asset by the foreign resident is likely to produce gains on revenue account - and so be taxable as ordinary income rather than as a capital gain.

Currently, withholding taxes target interest, dividends and royalties, which are easily identifiable forms of income to non-residents. This new withholding tax will only apply from 1 July 2016. The Government thus appears to be giving itself plenty of time to legislate for the new withholding tax as, we believe, there are technical and practical difficulties in identifying the source of income and determining whether or not the income should be subject to withholding tax.

So this withholding tax will be something to watch out for as it may impose more administrative burdens on anyone dealing with non-residents.

Other changes affecting international tax dealings

The other significant change announced is that the non-portfolio dividend exemption (section 23AJ of the Income Tax Assessment Act 1936) will be extended to foreign non-portfolio dividends earned by trusts and partnerships. Currently, only non-portfolio (ie a 10% or more interest in foreign companies) dividends earned by companies is treated as NANE income. We will now need to identify similar interests held by trusts and partnerships.

In relation to CFC reform, we are still in a period of uncertainty. The Government initially announced changes to the CFC rules in the 2009-10 budget.  We are now awaiting the OECD report on base erosion and profit shifting to see whether the reforms will progress further.

In general, this budget did not contain many changes to income tax issues affecting SME businesses. It was also designed not to surprise the business community. However, some fundamental changes were announced that affect any entity that operates cross-border. You should keep your eye on the ball as these proposals are debated, because if they are legislated and not taken into account, they could negatively impact your business.

Government announces increase in import processing charge and more dumping legislation in 2013/14 Budget

Author: Andrew Hudson, Partner, Hunt and Hunt Lawyers




Import Processing Charge

Within the exciting detail of last night's Budget, the Government has announced a restructure to the import processing charge ("IPC") to recover the cost of all import related cargo and trade functions undertaken by the Australian Customs and Border Protection Service ("Customs").

According to the various commentaries, the increases will be as follows.

• For consignments valued over $10,000 the IPC for electronic sea import declarations will be increased by $102.60 to $152.60 per consignment.
• For consignments over $10,000, the IPC for electronic air import declarations will be increased by $81.90 to $122.10 per consignment.
• For consignments valued over $1,000 and up to $10,000, the IPC will remain at current levels, being $50 for electronic sea import declarations and $40.20 for electronic air import declarations.
• The IPC will continue not to be applied to consignments valued at $1,000 or less.

The new charges will come into effect on 1 January 2014.

According to information from Customs, the increase to the IPC will result in additional revenue of $674.3 million over 4 years and will be implemented in accordance with cost recovery policy adopted by the Australian government.
It would appear that Government may be asserting that all its costs have not previously been recovered from importers and that new charges are necessary to recover all services provided. Alternatively, the increases would suggest that the recent reform to anti-dumping regulation and the new measures against crime in the supply chain are the cause of this significant increase in costs for all parties involved in import.

Not only will this be a significant additional impost for importers, it will also be a significant additional impost for exporters who import many of their inputs to manufacture. While there is never a good time to impose additional processing charges, given the state of the economy, these additional costs will make life very difficult for importers, exporters and their service providers who will need to pass on these charges.

The retention of the IPC at current levels for consignments between $1,000 and $10,000 and the failure to impose IPC on consignments below $1,000 may also lead to additional pressure on importers and service providers in determining the value of consignments and the associated IPC.

The next question is how the increases have been calculated and whether increased charges mean improvements to services.

We will keep you informed of developments but suggest that those of you who are service providers should pass details of this increase in charges to clients immediately so that they are aware that these are increased charges imposed by government and not by the service provider.

New Dumping legislation

The Government has also announced the proposed introduction of new legislation to "clarify the operation of the anti-dumping system". The content will be interesting given the new tranches of legislation passed recently and the commencement of the Ant-Dumping Commission on 1 July 2013. The speed of regulatory reform dos create its own problems for those affected.

As always, once the Bill is introduced we will provide commentary to readers.

Response to Australia’s position in becoming the food bowl of Asia

The Export Council of Australia (ECA) acknowledges the opportunity increasing global food demand presents to Australia and supports the Australian Government’s initiative to develop a National Food Plan, which will promote a more highly integrated approach to government food policy along the supply chain.

The ‘food system’ is shaped by many factors including population growth, economic conditions and changing food preferences. The value of world demand for food is expected to increase 77 per cent by 2050 with most of this growth occurring in Asia where demand will double. By 2030, Asia’s middle class will reach 3.2 billion people who will be demanding higher quality, protein-rich foods such as meat.

Given Australia’s advanced agriculture sector, which is characterised by cutting edge farming techniques and technologies and sophisticated biotechnology innovations, as well as our vast amounts of arable land and our proximity to Asia, Australia has the potential to be well positioned to meet Asia’s growing food demand.
That being said, the ECA believes there are still improvements that need to be made in terms of reducing red and green tape, as well as reducing the bureaucracy which inhibits companies’ ability to do business efficiently.

Moreover, the ECA encourages the Government to address the shortfalls we will inevitably face in terms of food producers access to technology, skilled labour and the construction and maintenance of important infrastructure.

While the completion of Free Trade Agreements (FTAs) with key trading partners is an important component in increasing Australia’s competitiveness, the ECA believes that significant investment also needs to be made in the following areas:

• Reducing the red and green tape that hinders Australia’s ability to facilitate trade efficiently
• Investment into improving infrastructure across Australia to facilitate trade flows
• Government support to improve areas of productivity and efficiency in Australia’s production capabilities
• Educating Australia’s food export community on how to effectively do business with Asia 
• Building awareness of cultural differences between Australia and each individual Asian market 
• Assisting companies in developing key relationships with buyers and government officials in market

In response to much of the talk about Australia’s position in becoming the food bowl of Asia, the ECA will be launching a national Agribusiness Committee to work with agribusiness exporters in putting a “Voice” to Government on realistically, how Australian can work towards the next “Food Boom.” The first committee meeting will be held in Brisbane in June 2013.

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^th most 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!