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Foreign Affairs, Defence and Trade References Committee
29/10/2015
Australia's relationship with Mexico

HUDSON, Mr Andrew, Director, Export Council of Australia

MILLS-SMITH, Mrs Stacey Leigh, Trade Policy and Research Manager, Export Council of Australia

Evidence was taken via teleconference—

CHAIR: I welcome representatives from the Export Council of Australia by telephone conference. Would either or both of you like to make a brief opening statement before we got to questions?

Mr Hudson : If I may, I might like to take up that opportunity and I will then leave it open for questions from the committee. The Export Council would like to thank the committee for the opportunity to make the submission, present to the committee and for questions today. In particular, it is especially relevant given the recent announcement regarding the inclusion of the TPP negotiation which opens up a whole range of new trading opportunities, particularly with respect to Mexico. My colleague Stacey Mills-Smith has undertaken some research recently in Mexico as part of a project undertaking. I will ask her to speak briefly to it at the end of my opening comments.

As I mentioned before, I am a director of Export Council of Australia, and in that capacity I am responsible for trade policy within the board. I am assisted by Mrs Mills-Smith in that capacity. The Export Council is a membership based organisation. We are of the view that we are one of the peak industry bodies representing Australia's exporters and importers, particularly SMEs, small and medium enterprises. Although, that is not to say that we do not have representation from the larger end of town.

The Export Council has been filled with exporters of goods and, increasingly, exporters of services. We are actually finding, in recent times, there is significant additional interest in the export and, obviously, import services. When I mentioned we represent, we also recognise that exporters regularly have to import inputs to manufacture before they can export, so we, increasingly, have a focus on the import side of the transaction. In all those capacities we have a number of main roles, one of which is education, training and skills development, which is often conducted through our related organisation, the Australian Institute of Export, AIEx.

We also undertake extensive research on behalf of members or at the commissioning of external agencies, including some government agencies. We also undertake extensive trade policy work. I am responsible for that, primarily, within the board and organisation. That is predominantly but not exclusively based on the interests of SME operations. We also undertake events. I think Stacey, last night, was at the Premier's NSW Export Awards.

Mrs Mills-Smith : I was, yes.

Mr Hudson : We were involved in facilitating and arranging those. That is an example of the work we undertake. In doing all of that we engage both with our members and the broader sweep of people involved in the industry and the trade industry, which includes banks, financiers, insurers and, in particular, government itself and its agencies and various advisory committees. It means we deal with DFAT regularly, Austrade, the Department of Agriculture and Water Resources, the Department of Immigration and Border Protection—formerly Customs—the Office of Transport Security and many of the agencies, including the National Committee on Trade Facilitation and related committees run by agencies.

We also regularly make submissions to parliamentary inquiries and other inquiries undertaken by bodies such as the Productivity Council, for example. In that capacity we have made submissions to, pretty much, all of the free trade agreements of recent times, which means we have made submissions to the inquiries by the Joint Standing Committee on Treaties and have made many submissions to this committee in respect of various free trade agreements. Yesterday, for example, we put in a submission on the implementing legislation for the China-Australia Free Trade Agreement. We regularly appear before those various parliamentary inquiries. We are also deeply engaged with assisting industries implement the various free trade agreements.

Stacey, I might ask, for just a couple of minutes, to briefly outline to the committee the work she has undertaken in respect of the Mexico project.

Mrs Mills-Smith : Thank you, Andrew. The Export Council with the support of Austrade and the International Trade Development Fund are finalising a research report focusing on Mexico and the reforms and opportunities that are taking place. The report provides a practical and timely examination of the opportunities for greater engagement by Australian businesses in a reforming Mexico. It is likely to be launched some time in December.

This report examines the business environment in Mexico and Australian experience in the country. It also discusses the ongoing economic reforms and provides some clarity about what they mean for Australian businesses on a sector-by-sector basis. It also provides practical information about doing business in the market. We are also creating a mobile app, which breaks down the report into bite sized chunks of information, so exporters can access that information on the go. We will be launching the report in Brisbane.

Mr Hudson : That is an example of the research work we have undertaken. We are completing a similar project in respect of the Shanghai free trade zone, which is particularly relevant with the commencement of the China free trade agreement. We are also undertaking some work in Indonesia on similar sorts of issues and we are about to release our trade-policy recommendations that will be our third version, the recommendations for 2015-16. That will focus on recommendations we have put forward and considered over a long period as to where we think government can best take its trade policy or Australia can take its trade policy. We will make reference to works, such as this, in respect of the Mexico project.

CHAIR: Thank you very much for those opening statements. Senator Back appears to have been extraordinarily prescient when he suggested this inquiry and reference. But, from my perspective, what is happening now or what is about to happen or what is on the horizon that will elevate this abundance of information and potential to reality, in the absence of a champion in the government?

What is going on to elevate this relationship to get more attention and become more successful, to drive 'Australia week' in Mexico and to get the education qualifications sorted out and more doctors in biometrics in the place, which are some of the problems we have heard this morning?

Mrs Mills-Smith : Do you mind if I start off?

Mr Hudson : By all means, you can start with that. I can provide some additional comments, if we think it appropriate, at the end.

Mrs Mills-Smith : There are a number of factors that are important to consider. There are the reforms taking place that are opening up sectors like the oil and gas industry, which have been closed for roughly 80 years and provide significant opportunities. The President, who was inaugurated in 2012, is implementing a fairly dramatic reform agenda, which is creating new opportunities for foreign companies to engage with the commercial opportunities there. Also, opportunities in global value chains in the oil and gas sector, as I mentioned, or aerospace and the automotive sector are significant and growing.

The other key factor is the Trans-Pacific Partnership Agreement, for which negotiations have concluded. Entry into force might take some time, but it is a very substantial agreement that provides significant opportunities. Australia is currently disadvantaged by not having a trade agreement with Mexico, so the potential for the implementation of the TPP offers significant not only tariff reductions but also benefits to services and exporters.

Mr Hudson : Service is really important. We see Mexico as not just an end, of its own account, which it is, but also an ability to work in with related countries in the region. What we have tried to put in the submission are recommendations—we always try to do that—as to ways in which that can be facilitated. One of those is allocating some government resources.

A lot of the private-industry sector of it, probably more so on the large-scale entities, already have a pretty good idea about the benefits and opportunities in Mexico. Government can best leverage the opportunities of making that information available to smaller or less export oriented companies and can identify opportunities for them in that part of the world and provide that information to them. It can help educate them into the opportunities, help support them through agencies, such as Austrade—and in conjunction with us—in providing training and education on trading, in that part of the world, and how to facilitate the benefits under the TPP. Then it can keep an eye on the developments, making sure that the proposed and promised commitments are implemented.

We have tried to identify not just what the opportunities are but also the ways in which government and industry can work together, and government can lead to ensure that companies do get the best benefits in that part of the world.

Mrs Mills-Smith : To add one more thing, the fact that Mexico's policymakers are quite keen to hedge their reliance on the US by engaging more with the Indo-Pacific region is another emerging element that is part of this dialogue about the potential for strengthened bilateral ties.

CHAIR: That is fair enough. Who would be our competitors, in this space? We look at the Japan-Australia Economic Partnership and the Korean free trade agreement. Some of the breaking points, there, were not between Korea and Australia but were about maintaining our competitiveness against US beef or Chilean wine or New Zealand dairy.

Mr Hudson : Yes.

CHAIR: Are we at the front of this or are we behind the eight ball, again?

Mrs Mills-Smith : I think we are behind the eight ball, here. In the meth sector we compete mostly with Canada and the US—as well as other countries. They are, obviously, benefiting from the advantage of NAFTA. Depending on the sector, the competitors will be different. In the beef sector, it is different. In the wine sector, it is different. Our key competitors in the mining and meth space would be Canada, particularly, and the US. In beef, it is probably Brazil. In wine, as you mentioned, it is Chile. The competition is rife.

Mr Hudson : Just on that, there is also the competition of what we would call the tyranny of distance, I imagine, and our ability to bring our goods to the market. Obviously there are countries that are contiguous to Mexico or close to contiguous in the same region, so they have the natural advantage of being close. They also have the natural advantage of having worked together extensively over the years, so they have an embedded NAFTA relationship. That has given them advantages, and other countries have those logistical and geographical advantages. For us, part of the important developments, where the TPP is going to help, is to not only develop the head-turning benefits of the agreement and getting people to think about it but also facilitate the way in which the trade gets there. We will have to look at other things too, such as the ability of our service providers to get there but also the ability of our goods to get there. We are looking at aviation and sea routes into that part of the world. They will have to be improved to overcome some of the logistic and geographical disadvantages we may experience. We have to keep in mind that, as Stacey pointed out in the submission, we are a number of years behind in our commercial relationships with Mexico, because other countries have been focused on NAFTA and related activities. While we have been doing MOUs, we need to accelerate those and get ourselves back into parity position.

Senator BACK: Mrs Mills, the good news for us is that you are compiling this report. The bad news is that this committee is reporting in early December, so it is likely that your report will not have been presented by the time we conclude our inquiry.

Mrs Mills-Smith : Unfortunately, not. There is a chance that it might be ready to go by that point, but it has to go through various approvals.

Mr Hudson : What we could do, if the committee thought it of assistance, is provide some of our headline issues by then. Is that right, Stacey?

Mrs Mills-Smith : I mentioned in the submission that I am more than happy to provide the committee with the draft. It is fairly close to completion. It is just having a final polish, I suppose. I would be more than happy to provide the committee with the draft report.

Senator BACK: I think it would be useful if in our report we point to the fact that the Export Council of Australia will soon provide a report that is highly relevant to the terms of reference of this. Bear that in mind, if you would. Your submission recommends the creation of practical, user-friendly tools to assist small to medium enterprises, including service companies to understand and utilise the relationship, particularly through the TPP. Are you able to outline what you believe some of those tools are? It has come up in our discussions already during the day. I think the point was made that the bigger players are already there and can look after themselves. It is in the small to medium sector of the business community that I think we need to be allocating some time and resources.

Mr Hudson : Stacey, I might lead off on this, if that is okay. Committee, keep in mind that Stacey is in Sydney and I am in Melbourne, so we cannot see one another and we cannot do the usual hand-gesturing. When it comes to the tools, we are mindful—and this comes from our expertise, not just in research but in training and in education—that we really need a mix. It is not purely an online environment. A lot of SME exporters and importers benefit from face-to-face engagement, because a face-to-face presentation opens it up more readily for questions, a talk afterwards and the like. In my own practice, I am involved with it a lot, as is Stacey. From that perspective, we see a mix. We are developing what we call an FTA tool at the moment which is aimed at facilitating access to information through an online device, for want of a better term. It will basically be very much more a summary of the opportunities under trade or trade agreements. In other words, instead of having to go through several hundred pages of a free trade agreement—and they are all schedules, which is the sort of thing that someone like I usually deal with—they can access relevant, immediate information which will direct their interest or direct their inquiry.

We are certainly working on that tool in conjunction with our colleagues in DFAT and our colleagues in other agencies. That is one opportunity, as well as doing a lot of face-to-face education. At the moment government is doing a bit of that with the North Asia FTAs. It is getting on the road and talking to people in different areas. We certainly do that through Australia. I have done a lot of sessions for the Export Council, with the small and medium exporters and big exporters. We are just getting in front of them and giving them the opportunity to talk about not just what is going in the session or the information we are conveying but related issues that crop up. Stacey, did you want to add to that?

Mrs Mills-Smith : Yes. I think you covered most things there. Obviously, it would include the relevant information on the FTA tool. It is also beneficial once a TPP enters into force for DFAT to include that in their portal, which is complementary to what the ECA is developing. I think it adds a layer; it goes into a bit more depth, I suppose. Having those tools available will be of great assistance to SMEs. As Andrew mentioned, it is a combination of the online and the face-to-face. Reading information is one part of it, but engaging with experts is highly desirable as well. The companies learn a lot from listening to other companies that have been there and done that. The Export Council is keen to work with the government and collaborate where we can to facilitate some of those courses and information sessions.

Mr Hudson : Just on that, if I might, recently one of the joint select committees of parliament issued a report into business' utilisation of free trade agreements. It made some recommendations there about the way in which information could be given out to communicate—increasing the level of communication and using a variety of means to get the information out to traders or potential importers and exporters of our free trade agreements, not just at the beginning but as they go through. What we would often find is that sometimes they would get a lot of information or an amount of information might drop off as they moved onto the next project. So consistent information is not just at the front end of an agreement or a trade relationship. And beyond that, I know that DFAT, for example, is looking at grants in education and training in respect of the FTAs and the like. We see those as complementary. I really do not think there is one answer, other than there needs to be an investment. As you say, a lot of the private companies that are there are already heavily invested in their own operations. I think there needs to be an understanding that SMEs probably do not have the resources on their own account to access all the information. So it is trying to educate them better to give them a better depth of information where the Export Council and related agencies can assist. Obviously, without wishing to congratulate ourselves, the fact is that Stacey has done a significant amount of work in Mexico on this report, including spending some time there. I think it is a very timely exercise, as indeed is this inquiry.

Senator BACK: Yes. Can I focus on one area where you spend some time in your submission—and thank you for that—and that is the reform of the energy industry. When I was in Mexico City in January, I learned of the proposed advertising of exploration blocks et cetera and I met with several Australian companies that were there—Woodside, BHP, WorleyParsons. My understanding is that when that process went through there was not much success for new players or for multinationals—in this case, Australian companies. Is that the case and, if so, what were and what do you see as the key impediments for Australian companies wanting to participate in this reform in the energy sector in Mexico?

Mrs Mills-Smith : Thank you for the question. You are right. The first round was not hugely successful. I think they ended up only sorting two blocks. They have recently just had the second round of tenders and it was more successful—three from five was achieved. I spoke to WorleyParsons and BHP, and they are more interested—BHP specifically—in the deepwater blocks.

Senator BACK: That is correct.

Mrs Mills-Smith : Those are yet to come up for tender. They are engaged in seeing what is happening but they are waiting for the later rounds where they can bid for the deepwater blocks. My understanding is that is their key interest. I think some of them learnt a lot in that first round where it was not hugely successful and they have made some changes subsequently, which I think is reflected in the better success with round 2. So I think it is a wait-and-see situation. I am not exactly sure when the deepwater blocks become available for tender, but I think that is when we will see BHP really put in the effort.

Mr Hudson : Just in terms of resources and mining and the like, it is access to those sorts or arrangements and those sorts of opportunities, but it is also the related service opportunities. I think that is an area—such as with agricultural expertise and with mining expertise—where, with our resources boom, we have had amazing strides forward in terms of mining expertise and our ability to take that mining services expertise to those markets and provide them to not just Australian entities but local entities and other foreign owned operations in that part of the world. I think there is a really good niche there. Stacey, did you have a view on that?

Mrs Mills-Smith : Yes, I did, and I will touch on that in a second. Just while it is on my mind, I want to go back to the downstream and upstream opportunities in the oil and gas sector. Speaking to WorleyParsons, they have been doing business in Mexico for 20 years but are only just starting to put boots on the ground there now, which I think is an indication of the significance of the change that is happening and a really positive indication of the opportunity and the progress that is taking place.

Senator BACK: I think WorleyParsons is moving or has moved their Latin-American headquarters to Mexico, haven't they?

Mrs Mills-Smith : Yes, they still obviously have their offices in Chile and elsewhere. They used to service Mexico from Houston, I believe, but I know they are now setting up their office in Mexico City. It is an indication of how they view the market and the opportunities both in the upstream and downstream. I think Andrew is right that we do have good capabilities in the mining and met space as well. Hopefully, particularly when TPP enters into force, we will be able to compete with our key competitors in that space. There are companies that are looking at the market and that are interested, and I think our expertise and knowledge is really in demand. So there are a lot of opportunities there, and I think that is another area to explore.

Senator BACK: Just in the couple of minutes left, we have picked up your recommendations with regard to expanding our trade commission representation. I think the representation we have is excellent, but it needs to be if we are going to exploit these opportunities, particularly in contrast to countries like the UK and others who are making a very serious effort now in terms of forging those relationships. You also comment on direct flights. You are supporting the submission ANZMEX, the business council. How realistic do you think it is, with numbers now and potential, that we may be able to influence one of our airlines to actually pilot some direct flights from Australia to Mexico?

Mrs Mills-Smith : Thank you for that question. Just touching on your point about Austrade and resources, I think the team there are doing a fantastic job and I think if they could have more resources they could do an even better job. I think it is really essential that they have the people on the ground to meet the demands of these growing opportunities. With regard to the direct flights, I think that will have a substantial impact, and I think it is potentially viable. I cannot comment on any sort of specifics that I have. We do support ANZMEX's call for further investigation into the viability of direct flights. The direct flight with Santiago, Chile, made quite a big—

Mr Hudson : difference there. If I could just pick up on that, I have been to Mexico by air a few times for work—and, indeed, to South and Central America—and it is one of the more absolutely difficult. It is surprising; you would not have thought that a journey of that type should pose an impediment. But it is just the sheer idea of having to get on a plane and go to somewhere and then go somewhere else and then go a third place, with all the transit and visas issues. Actually getting through all those spaces can add a significant amount of time to the travel experience and the fatigue. That adds to the ability to actually conduct the business successfully, especially when you compare it to, obviously, the NAFTA people who just fly straight in and are straight off to business, as opposed to our coming from a long way away. So I think it is that ability. I presume there would be, out of the recommendations, perhaps a suggestion that some sort of feasibility be looked at as to those opportunities. I think airlines are always happy to provide services if here is enough interest. I think there is some collaborative work that may be done there and some further discussions. To start with there would not have to be a lot of flights a week, but some would provide an opportunity, which is in advance of what we have now and would certainly go some way to deal with the advantages that more contiguous countries may have.

CHAIR: Thank you, Mr Hudson and Mrs Mills-Smith, for your submission and contribution today.