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Joint Standing Committee on Trade and Investment Growth
Australia's trade system and the digital economy

COLVIN, Mr Jake, Executive Director, Global Innovation Forum, National Foreign Trade Council Foundation

Committee met at 08:34

Evidence taken via teleconference—

CHAIR ( Mr O'Dowd ): I declare open this public hearing of the Joint Standing Committee on Trade and Investment Growth for the inquiry into Australia's trade system and the digital economy. As this hearing is public, it is being broadcast and recorded by Hansard. Welcome, Mr Colvin. If you wish to have evidence heard in private, please let the committee know and we will consider your request. Although we do not require you to give evidence under oath, this hearing is a formal proceeding of parliament. Giving false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. If you object to answering any questions, let us know and the committee will consider the matter. I now invite you to make an opening statement.

Mr Colvin : Thank you very much. I want to focus my remarks today on the impact of the digital economy on small businesses and start-ups. Just by way of a brief introduction, the Global Innovation Forum is a non-profit and the non-governmental organisation based in Washington DC. We are part of a larger business association called the National Foreign Trade Council Foundation. GIF's role is to elevate the increasingly important role of global markets for start-ups and small businesses and help them articulate the challenges that they face along the way and emphasise the best practices and government policies that can help them succeed in the global marketplace. My colleague Claire Pillsbury and I have been in Australia this past week to host forums in Sydney, Melbourne and Canberra where we have connected start-ups and small businesses with technology companies and government officials to explore some of these issues.

I want to suggest at the outset a couple of public policy issues that can impact on the ability of start-ups and small businesses to succeed in the digital economy and the broader global economy. The first would be market access. Start-ups and small businesses, like businesses of other sizes, face tariffs and red tape at Customs for physical goods or barriers to delivering services. To the extent that they do so, they are not able to deliver those services and access customers abroad.

The second is the importance of access to online platforms and services. Start-ups and small businesses rely on a suite of technologies, from payment services to e-commerce and app platforms to productivity and accounting software in order to access global customers and run their businesses on a global basis. If those technologies are not available to customers and to businesses abroad then the success of start-ups and small businesses will be limited in those markets where those technologies are unavailable.

Another thing that we hear frequently from start-ups and small businesses is about the difficulty understanding regulation and rule making. Often it is difficult for these smaller and early-stage businesses to understand what regulations apply to them and what right steps they need to take to comply with those regulations as they go abroad. Developing single windows for compliance and online points of contact would help small businesses a lot.

Finally, there are issues around knowing what government and private sector resources are available. AusIndustry and Austrade, for example, provide a number of useful resources and advice to small businesses and start-ups looking to go abroad, but what we heard over the past week is that a number of the businesses that would benefit from them don't often know that they are available. We face the same problem in the United States through our Department of Commerce, and so one thing we try to do through a public-private partnership is go out and reach out to start-ups and small businesses to talk about those resources that are available.

I have one closing thought, which is that the Australian government's leadership in support of free trade has never been more important. The US government has other priorities at the moment, and it's really up to Australia to carry the flag for free trade. I was in Geneva a couple of weeks ago and called on Australia's Ambassador Lisson while I was there, and I was very pleased to see the leadership role that Australia is playing at the World Trade Organization.

In that spirit, I wanted to raise one issue, which is the issue of eliminating the GST de minimis for online transactions that the Treasury is planning from July. From a global perspective, it makes it more difficult for Australia to convince other countries to move in the opposite direction and increase their de minimis levels. If you look at New Zealand, they are already saying that they [inaudible] eliminate their de minimis threshold for GST and are using Australia's proposal as the reason. They're saying that their businesses—

Senator ABETZ: Excuse me, can I interrupt, please. Would you repeat the comment you made about GST, because the sound, sadly, broke away from us. If you would repeat it, I'd be much obliged.

Mr Colvin : Sure thing—sorry about that. The issue that I wanted to raise is Australia's proposal to eliminate the de minimis threshold for GST for online transactions as of July, which the Treasury has proposed. From an international perspective, it would make it more difficult for Australia to convince other countries to move in the opposite direction and increase their de minimis levels, which is something that would benefit Australian small businesses that are going global because, as they reach into other markets, if Australian businesses don't have to pay the tariffs and deal with the paperwork that accompanies small-dollar value transactions, that helps them. What I started to say was that New Zealand are already suggesting that they want to do the same thing that Australia is proposing from July and eliminate their GST threshold, and they're using Australia's proposal as the reason why they want to do that. New Zealand are saying that their small businesses will now have to register and collect GST in Australia and so Australian businesses who export into New Zealand should have to do the same thing. So I respectfully urge the Australian government to think about the effects of this policy on the global competitiveness of Australian businesses as they seek to sell into other markets. Thank you very much for the opportunity to appear.

CHAIR: Thank you. Other countries, like, say, England, have a VAT or similar systems to the GST. How does that work with other countries?

Mr Colvin : Every country sets its own de minimis level. We're going through NAFTA negotiations right now and so Canada's de minimis level is top of mind. It's one of the lowest in the world at $20, so, basically, you can send a postcard to Canada without paying duty and dealing with paperwork but, other than that, you ain't selling anything to Canada without filling out all those forms. In the United States, we don't have a VAT, but we do have tariffs that you have to pay and paperwork. We just raised our de minimis level from US$200 to US$800, so we're looking to demonstrate a leadership role in this area as we convince other countries to raise their de minimis levels as well. One of the things that we hear from product companies—those companies that sell products around the world—is that it's the tariffs and taxes and red tape that really prevents them from selling internationally, or it complicates their ability to sell internationally.

I also take the points that we've heard from some of your colleagues over the past couple of days about parity and level playing fields. At the same time, if you're selling from abroad, you do face other challenges as well, including distance and shipping costs. They tend to be higher and more challenging, and so, again, I would just urge you to think about the consequences.

CHAIR: Does your organisation, GIF, concentrate just on small business? Big businesses, I suppose, have the infrastructure to look after their own marketing, so are you really about small business?

Mr Colvin : The Global Innovation Forum was specifically designed to engage small businesses and start-ups in global markets. I worked for our parent organisation, the National Foreign Trade Council, for 12 years, and the NFTC represents large multinational corporations, everyone from General Electric and Siemens to Google and—I don't know—Walmart.

Senator HUME: Could I go back to that issue about the GST and potentially how technology that is already available makes small business operations easier around the world. What is out there? Surely there is software out there, or technology out there, for small businesses that accounts for international tax requirements?

Mr Colvin : There is. Actually, our chair is into [inaudible] and so we've been going around with him for the past couple of days and we have met with several vice-ministers and [inaudible] officials. What they pointed out yesterday was that they have accounting software that allows you to account for GST collection as a small business. And they are not the only [inaudible]. So there is technology out there that makes it easier [inaudible] to collect GST on their own.

Senator HUME: I think you referred briefly to a search for an international standard in duty collection—goods and services tax, VAT or whatever you want to call it—but I think those negotiations are some years away, are they not? The problem with international negotiations is that you could kick the can down the road for a very long time before you landed on an outcome. What do you know about those negotiations and where they're heading?

Mr Colvin : Negotiations over a specific level of de minimis were part of the trade facilitation negotiations under the World Trade Organization, but what resulted, the outcome in the trade facilitation agreement, did not include a specific level of de minimis. The issue is a challenge, and I think it differs country to country. I don't see any great prospects for a multilateral or large-scale agreement on de minimis in the near future. How we've taken it up in the United States has been via bilateral and regional trade agreements. I know one of the things that we're pushing Canada and Mexico to do in the NAFTA negotiations—or at least something that the National Foreign Trade Council is advocating that the United States government push Canada and Mexico to do—is to increase their level of de minimis so that it's if not on par with the United States then at least more than it is now. We'll continue to do that in international fora.

One thing that's been inspiring has been talking with other, developing, countries about how adopting a range of public policies, potentially including a higher de minimis level, is in their interests. It's in the interests of consumers and ultimately, if we can get a number of businesses to continue to think about raising it, it helps the competitiveness of all businesses.

Senator HUME: In the development of that legislation there was some contention as to how it would be applied in Australia—whether it should be applied to the logistics companies or whether it should be applied to the retailers themselves. The way it panned out was that it would be applied to the retailers and specifically to the platforms. I think that was where it got very messy. A company like Etsy, for instance, would be responsible for collecting our GST on behalf of all of those small businesses. Etsy essentially is not a retailer itself. It is simply a marketplace, as is eBay, and there was some contention from those particular platforms. Do you have any understanding as to how that compares to de minimis tax collection globally? Is that an unusual model?

Mr Colvin : It is an unusual model, and that concerns me from the perspective of putting the onus on platforms just as a broad order matter. We have concepts around limitations on intermediary liability in the United States. Mostly we apply those to things like intellectual copyright infringements and defamation, but, when you think about it more broadly, layering new requirements onto platforms ultimately can inhibit their ability to operate. You mentioned Etsy, which is an important example, Etsy is not a super-large brand in the States and they have other platforms. In Australia, we had Redbubble with us at a dinner in Melbourne. They have a platform as well and it is similar to Etsy. They make [inaudible] shipped out. Companies like Redbubble would also be caught up with this on the outbound side if, say New Zealand requires the same thing. It's going to be a little bit difficult for a company like Redbubble to comply with this.

Senator HUME: One of the reasons that the tax was applied in that way was the red-tape issue. In the UK, collection of the VAT is done by the carriers. Let's say I buy something for $500. Before I can collect my parcel from the post office, I have to pay the VAT that is appropriate at the post office. Obviously, that is a massive imposition on consumers, but particularly on small business when they're buying low-value goods. What is the model that New Zealand is considering?

Mr Colvin : I don't know.

Senator HUME: Thank you, Mr Colvin.

Senator ABETZ: Mr Colvin, is there any unanimity around the world or any move to gain unanimity in relation to a de minimis level for GST or VAT collection on goods that are exported or imported? Every country seems to have its own regime.

Mr Colvin : It does. Like I said, in the United States we have a different tax system. We raised our de minimis level for tariff collection. Our hope is that the trend is in a positive direction to increase or maintain a de minimis level that allows small business to start up without that red tape. I'm not sure that there are any short-term prospects for a worldwide level at this time.

Senator ABETZ: I'm sure that you understand the huge domestic pressure on small businesses that provide goods in Australia that have to charge the GST but compete with the businesses that are able to have, let's say, lower labour rates et cetera and then not charge the GST. It prejudices their business model over which they have no control. Whilst I understand what you're saying for our exporter potential, there are very huge and strong domestic pressures, and I'm sure that's understood. I just want to put that on the record. In relation to your organisation, how does your partnership operate with the US Department of Commerce?

Mr Colvin : We have a memorandum of understanding with the US Department of Commerce where our partners take forward a project called Startup Global. We work closely with the international trade administration, which is a subdepartment of the Department of Commerce. Essentially, we reach out to start-ups and small businesses, we incubate various associations in universities throughout the United States, we develop agendas and gather globally successful, globally engaged start-ups and small businesses to talk about the opportunities they see and provide advice from their perspective, and then we bring along government officials from the Trade Administration and the Patent and Trademark Office, the Small Business Administration, state government officials [inaudible] and some private sector voices to [inaudible] like Ebay, Amazon, FedEx and Google to talk about the public and private sector [inaudible] that are available to help start-ups and small businesses succeed globally. It's worked really well. I think it's helped to get the word out about the existing government programs that are available to help start-ups and small businesses succeed.

Senator ABETZ: Does the Department of Commerce provide you with any funding?

Mr Colvin : No, they do not—not for lack of interest. It's an unfunded mandate for us but, I think, a really important opportunity to engage with the ITA and the secretary's office and a way to advance a shared agenda.

CHAIR: I don't want to labour too much on GST, VAT, sales tax or whatever you want to call it, but in America don't you have different rates for different states? How does that blend into the picture?

Mr Colvin : We have sales tax that is—

CHAIR: Does that vary from state to state?

Mr Colvin : It does. Some states have sales tax and some states don't, and the rates vary from state to state. My understanding is that sales tax is not collected unless you have a physical presence in the United States, in that particular state. If you're an international company selling into the United States, you don't pay the sales tax.

Mr RICK WILSON: Putting aside the de minimis threshold for a moment, you've been out in Australia and you've talked to small business; what can the Australian government do to encourage and facilitate small business and start-ups here? What more can we do to facilitate those start-ups and small businesses getting a leg-up into the market?

Mr Colvin : One of the things that we heard and one of the things that's really inspiring is that there's clearly a community of start-ups here—businesses that are early stage that adapt technology from the very beginning and that are thinking globally from day one, and they already have a kind of community of resources here. We held an event in Sydney with Stone & Chalk. We held a dinner in Melbourne with Startup Victoria. There are all these resources that technologically savvy start-ups are prepared to engage, and they kind of understand the opportunity that exists to be global.

But what we heard from AusIndustry and from others is that there are another set of small businesses that have maybe been around for a lot longer that aren't always aware of either the global opportunity or the technologies that are able to be used to run their business. Someone from AusIndustry pointed out that they've got a business of not insignificant size that still does all of its accounting on a local spreadsheet on Excel that's resident on a person's computer. I think there's an opportunity for the Australian government to emphasise to small businesses that maybe are not as technology savvy and have been around a little bit longer about the technologies and the resources that are available to help put those businesses on a footing to go global.

One of the things that came out repeatedly over the past couple of days—and it's something that comes out repeatedly in the United States when we do the Startup Global events—is that there's not a single window or a one-stop shop for start-ups or small businesses to go to in the government and understand the scope of resources and funding programs and commercialisation [inaudible] and things like that [inaudible] start-ups and small businesses [inaudible] globally. I know is trying, but that sort of spectrum [inaudible] single window doesn't exist. I know from experience with the US government that bureaucracy can impede that a little bit, that in the US Department of Commerce it's even difficult to get them to align their different offices so that there are resources available on the [inaudible] administration to [inaudible] It's for some reason a really big deal, and I suspect there's probably a similar issue in—

Mr RICK WILSON: Just for the benefit of the rest of the committee, I guess what we're looking at there is that we've got the Department of Foreign Affairs and Trade; we've got Austrade, which comes under the Trade portfolio; and then we've got Science and Innovation, so there are different government departments that all contribute but they're all in separate silos at the moment. Thank you very much for raising that point.

Senator WATT: One of the other things you mentioned in your opening statement, Mr Colvin, was that there'd be some benefit in establishing a single point of contact for businesses, to clarify confusion about regulations. Could you tell us a little bit more about that, please?

Mr Colvin : We hear from start-ups and small businesses that they don't know where to turn either to comply with regulations or when things go wrong. We met a CEO of a small business in London who had her shipment stuck in customs in the United States because there was a problem with the tariff classification code. It took her—the founder at CEO level—three days to work this out simply because she didn't know who to talk to. She kept googling and finally found some poor woman at US customs who was able to help her out. [inaudible] under those kinds of top-line points of contact that are easily accessible to small businesses would be useful. I suppose from the perspective of Australian small businesses it would be really useful for the Australian government to advocate that other countries around the world establish those points of contact. One of the things that the Trade Facilitation Agreement at the World Trade Organization required was for countries [inaudible] online, which seems like a small thing, but a number of countries around the world don't do that. So I think to the extent that that is implemented it is a useful step forward. The Trade Facilitation Agreement also required countries to develop a guide for doing international business [inaudible]—

Senator WATT: You're breaking up again, Mr Colvin. Could you just repeat that.

Mr Colvin : Sure. One of the other things that the Trade Facilitation Agreement requires is that countries be required to develop a guide to doing business in their country for foreigners. So, to the extent that that is implemented, it should require those countries to develop points of contact and places to go for businesses that are regulated by industry. I would advocate that the Australian government encourage other countries, particularly those markets that are important to Australia, to develop those sorts of transparent information [inaudible] and rule-making.

CHAIR: In your opinion, small start-up companies have a much better chance if they go global. Does that apply to all start-up companies in other countries, bar Australia?

Mr Colvin : That's right. Technology has dramatically increased the opportunity for small businesses to be global. One of the things that platforms like PayPal provide is an element of trust to international transactions that couldn't exist before. You know if you are running a payment through PayPal or [inaudible] that there is a trust factor there. You know that you've already entered your credentials through PayPal. They have guarantees against the transaction. These kinds of platforms proved [inaudible] that enables business to be transacted globally. Let's look at statistics from platforms like eBay. It emphasises that about 95 per cent of the small businesses on its platform, regardless of where they are based in the world, trade internationally. So I think recognising that that opportunity is not just in the United States, it is not just in Australia, it is global is really important.

CHAIR: Do you place a big emphasis on cybersecurity with small business, or do you think it is more for big business?

Mr Colvin : Cybersecurity is one of the things that we talk about in our report. Placing an importance on cybersecurity is important for small business. Increasingly, everyone is open to cyber attacks on intellectual property rights through cyber intrusion. If you are a small business, you may not be focused on this from the very beginning but you ought to be, because small businesses are at least likely to have the kinds of resources and systems in place that would then allow for cyber hackers to get in. One of the things that we hear regularly from start-ups is: 'We can't worry about all this compliance stuff or cyber hacking or intellectual property rights protection because it's not consistent with the lean start-up model. We're just going very fast.' The point that we would make is that, whether it is writing the words 'confidential trade secrets' at the top of your documents to protect your trade secrets or implementing some very basic cybersecurity prevention measures that would protect your algorithms in the case of cyber intrusion, it is essential to your business model and needs to be thought of at the very beginning.

CHAIR: Thank you, Mr Colvin. We all appreciate your time this morning. If you have been asked to provide additional information—and I don't think you have—or if there is anything you want to provide later on, could you forward it to the secretary by 16 November. We will send you a copy of the transcript of the evidence that you have given here today. Thank you once again.

Committee adjourned at 09 : 05