Trends in Australia-ASEAN Trade and Investment

In 2014, Australia and the Association of Southeast Asian Nations (ASEAN) celebrated forty years of diplomatic relations. In that time, bilateral trade between Australia and several ASEAN member-states have seen enormous progress, but relations with others remain surprisingly slow.
 
Australia is a signatory to the regional ASEAN-Australia-New Zealand FTA (AANZFTA), in force since 2010. The agreement is the most comprehensive FTA negotiated by ASEAN and will eliminate tariffs on 96 percent of all products by 2020.
 
ASEAN countries collectively make up Australia’s second largest trading partner, after China. Two-way trade stood at US$67.9 billion in 2013, or 14.3 percent of Australia’s total trade. However, this amount is only half the size of the US$120 billion trade with China. FDI from Australia to ASEAN was valued at US$20 Billion in 2013, making Australia ASEAN’s seventh largest FDI source.
 
RELATED: Australia-Japan FTA Enters into Force
 
Australia-Singapore Trade Snapshot
 
In 2013-2014, Australia-Singapore trade stood at US$23 billion, making Singapore Australia’s largest trading partner in Southeast Asia and fourth largest in Asia after China, Japan, and South Korea. Major Australian exports to Singapore include gold, crude petroleum, and refined petroleum. Australia is also Singapore’s second largest source of meat and meat products and its third largest source of fruit and vegetable imports. Conversely, Australia is Singapore’s eighth principal export destination and its 12th largest trading partner. Singapore is the largest foreign investor in real estate in Australia, making up 28 percent of foreign investment in the sector.
 
The 2003 Singapore-Australia FTA (SAFTA) eliminated tariffs and increased market access for services. SAFTA also eases restrictions on government procurement, e-commerce, customs procedures, and business travel. For example, long term business residents working for Australian companies are able to extend their stay for up to 14 years.
 
Despite a long standing trade relationship, challenges do exist. These include Singaporean companies being shut out of government procurement in Australian States, Singapore Airlines not being able to fly the Sydney-Los Angeles route, and some Australian universities’ law degrees not being recognized in Singapore. There has, however, been progress on the latter issue, with the number of law degrees recognized in Singapore recently rising from four to eight.
 
Australia-Thailand Trade Snapshot
 
In 2012, Australia was the seventh biggest destination for Thailand’s FDI, while Thailand was Australia’s eighth largest trading partner in 2013, second only to Singapore in the ASEAN region. Investment from Thailand to Australia totals US$6.14 billion, which has increased twenty times since 2007.
 
Starting in 2010, the Thailand-Australia FTA (TAFTA) eliminated 94 percent of Thailand’s tariffs and quota barriers on imports from Australia. The remaining tariffs will be phased out in 2015 and 2020 respectively, with quotas on skim milk powder, liquid milk and cream in place until 2025.
 
Trade between Australia and Thailand has doubled since TAFTA initially entered into force in 2005. TAFTA provides preferential rates for Australian livestock exports to Thailand compared to the U.S. or Europe.
 
Australia-Malaysia Trade Snapshot
 
Malaysia is Australia’s ninth largest trading partner overall and its third largest trading partner in ASEAN, with bilateral trade worth US$14.5 billion as of 2013. Australia is also Malaysia’s 11th largest import source and 8th largest export destination.
 
Australia ranks third for Malaysia as an investment destination, with investment valued at US$3 billion in 2013; up 76 percent from 2010. Combined, Australia-Malaysia two-way investment more than doubled over three years to become US$20 billion in 2013. The Australia-Malaysia FTA (MAFTA) entered into force in 2013 and builds on regional FTAs between Australia, New Zealand, and ASEAN.
 
When MAFTA came into effect, Australia eliminated 100 percent of its import tariffs of Malaysian goods, while 97.6 percent of Australian goods exported to Malaysia became eligible for zero tariffs. 99 percent of Australian goods exported to Malaysia are expected to be tariff-free by 2020. The goods categories susceptible to progressive tariff reductions are:
 
 - Fruits;
 - Chemical products;
 - Automotive vehicles; and,
 - Upstream iron and steel products.

MAFTA also permits Australian businesses to invest in service industries such as tourism, education, insurance, and telecommunications, with Australian equity in some sectors allowed at up to 70 percent.
 
RELATED: Export Procedures in Australia and New Zealand
 
According to the Malaysian National News Agency, bilateral trade between Malaysia and Australia increased 31 percent in the first half of 2014, compared with the same period in 2013. The Australia Malaysia Trade Ministers’ meeting, held in August 2014, identified new fields of business cooperation in auto component manufacturing, research and development, health care, green technology and agribusiness.
 
Out of the three bilateral FTAs with ASEAN countries, only MAFTA does not contain Investor-State Dispute Settlement (ISDS) provisions which allow for arbitration. However, some ISDS provisions can still be enforced under AANZFTA.
 
Australia-Indonesia Trade Snapshot
 
Australia-Indonesia trade is not as strong as one might expect for such close neighbors. Singapore and Malaysia, which are both smaller in economic and demographic terms, were among the top 10 export markets and import sources for Australia. Indonesia, however, is only Australia’s 12th largest trading partner, 11th largest export market and 19th largest investment destination. The two countries have a comprehensive Economic Partnership Agreement (IA-CEPA) in the pipeline, but negotiations stalled in 2013.
 
Indonesia and Australia have engaged in frequent trading disputes. For example, in 2011, Australia placed a moratorium on all live cattle exports to Indonesia owing to animal welfare issues without consulting Indonesia. In response, Indonesia placed a cap on live cattle imports in 2012 without consulting Australia.
 
The new Indonesian administration has signaled its intention to attract Australian investment. Joko Widodo has promised to address the concerns of Australian investors, with changes planned for licensing procedures and power plant construction, and reforms to bureaucracy.
 
ASEAN Opportunities and Challenges
 
With a population of over 600 million people and economic growth rates of 6-8 percent predicted for major  economies like Indonesia and Vietnam, ASEAN has come to be seen as a major destination for foreign investment and a strong alternative to China. For instance, in 2013 Japanese FDI to ASEAN grew 19 percent compared to its 32.5 percent drop in investment in China. However, Australian businesses are not currently following the Japanese trend. In 2013, Australian FDI to ASEAN was only 5.7 percent of total outward FDI; a share that is lower than Australian investment to the small New Zealand market.
 
Australia has yet to take full advantage of its geographic proximity to ASEAN,  as well as the economic growth and network of FTAs that the organization possesses. A 2013 survey by Austrade found that Australian businesses did not indicate a high level of awareness of the upcoming ASEAN Economic Community, and economic integration in ASEAN was not a factor driving their business planning. Another survey of 1000 Australian businesses by PwC found that only nine percent of the businesses surveyed had operations in Asia. Their concerns for investing in ASEAN, excluding Singapore, included corruption, political uncertainty, and nationalistic reactions to privatization.
 
In 2014 – early 2015, Australia made progress in bilateral relations with Asian countries beyond ASEAN. An FTA with Korea entered into force in 2014 and the Japan-Australia Comprehensive Partnership Agreement entered into force in January 2015. The Australia-China FTA was concluded in late 2014.
 
RELATED: Australia Secures Far-reaching Benefits in FTA with China
 
Despite more progress in trade with non-ASEAN Asian countries, there have been some signals of improving trade with ASEAN members as well. Indonesia and Australia may restart negotiations on IA-CEPA in 2015. Australia has removed most of its sanctions on Myanmar and has opened trade offices in the country. Trade between Australia and Vietnam is growing, with bilateral trade registering the greatest increase at 29.2 percent in 2013-14 over 2012-2013. The first protocol to the AANZFTA was also negotiated in 2014.
 
Trade Negotiations in 2015
 
This year, Australia is negotiating two large regional trading agreements that also include countries from ASEAN. First, Australia is in talks over the Trans-Pacific Partnership (TPP), a multi-regional free trade agreement that also includes a number of countries from ASEAN: Brunei, Malaysia, Singapore, and Vietnam. Although leaders from countries involved in TPP discussions expect the agreement to be reached before the end of 2015, there are various challenges remaining. One of the most recent disagreements concerns intervention in currency markets by potential TPP partners.
 
The next round of Regional Comprehensive Economic Partnership (RCEP) negotiations between ASEAN and its current FTA partners (Australia, China, India, Japan, New Zealand, and South Korea) are scheduled for February 2015 in Thailand. Australian interests in both the TPP and RCEP include market access for its agricultural and mineral commodities as well as greater liberalization of the service sector throughout the Asia-Pacific region.
 
This article was first published on Asia Briefing
 
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
 
For further details or to contact the firm, please email info@dezshira.com or visit www.dezshira.com.