Enter your email here to sign up for our monthly e-newsletter:
Publications & Films
Explore the Issues
USFTA begins to reap results
15 January 2007, Australian Financial Review, By Tracy Sutherland
While Australia's trade deficit with the US is growing, the free-trade agreement is proving to be a powerful asset for Australian companies making deals in the United States, writes Tracy Sutherland.
Stewart Rendall knows what it's like to compete against the big boys in the United States government procurement market and says it's not for the faint-hearted.
"Here's us with a bid team of two or at worst one - me - going up against Lockheed Martin and the US Department of Justice. Both scared the hell out of me," says Rendall, president of Canberra-based Compucat.
Compucat numbers among a small but growing army of Australian companies taking advantage of the Australia-US free-trade agreement, which commemorated its second anniversary on January 1.
Compucat recently won the $US8 million ($10.2 million) contract with the US Department of Justice for its communications system that controls the content of confidential data passing between government networks. Rendall describes the impact of the FTA on the negotiations as "immensely powerful".
Compucat was able to use the FTA, which was signed during the course of the negotiations, to "shoot down" doubters who targeted it as a foreign company in a new market.
"The one thing we did have was that the FTA was about to happen and by the time we got down to arm wrestling, it existed," Rendall says. "Did it make the deal? No, it didn't. Did it help? Yes."
Ironically, the deal also opened doors to government contracts at home: "Australians sometimes have a lack of belief in themselves; that we cannot develop world-class technology. Sometimes it takes other countries to recognise this before we believe it ourselves," he says.
The FTA allows Australian companies to list on the US general services administration schedule, which enables the US government to buy directly without having to go to tender.
Another government-focused software solutions company based in Canberra, RuleBurst, recently won a $US1.68 million contract with the US Inland Revenue Service. RuleBurst provides software which converts government policy into practice, facilitating the calculation of new tax assessments and child-support payments. The deal has opened doors to other contracts in countries like Denmark.
"They now see that we are a credible force in the US market," says Dominic O'Hanlon, chief executive officer of RuleBurst, who believes cracking the US market "would have been a lot more work" without the FTA .
"This is a classic example of a company that has sold to the Australian government and is then able to use the solution it's come across to help solve US government issues," says Dan Sullivan, Australia's Washington trade commissioner, who estimates Austrade has assisted in $105 million worth of sales to the government procurement market over the past two years.
There has been a marked acceleration of contract wins over the last six months and more multimillion-dollar deals are in the offing, he says.
Trade Minister Warren Truss nominates access to the US government procurement market as a major element of the FTA: "I think we'll judge [the FTA] every year; we've made some progress this year and we'd expect to build on that . . .bit by bit we make gains," he says.
The FTA deal was tipped to deliver about $6 billion a year in trade benefits within 10 years and create more than 30,000 jobs, although assessments on its merit vary depending on whether you take a short-term or long-term view.
Overall trade figures show a growing deficit: total exports to the US for 2005-06 are valued at $15.1 billion (up 4.2 per cent on the previous year), while total imports from the US also rose 6.9 per cent to $29.8 billion.
Noting the deficit with the US has increased since last year, opposition trade spokesman Simon Crean accuses the government of ineptness in its original negotiations: "This was a political fix, not a trade fix, of course they'll be looking for excuses," says Crean.
The FTA was supposed to provide gains for Australia by cutting industrial and agricultural tariffs and reducing restrictions on US foreign investment in Australia. Supporters say it must be judged in the areas that are directly affected by the FTA.
"Between 2001 and 2005 [Australian] exports declined due to slower growth in the USA (following the dotcom crash), an appreciating currency, and special factors affecting Australia's exports of oil, beef and passenger motor vehicles," says Austrade's chief economist, Tim Harcourt.
This trend is beginning to reverse, he says, given a recent small increase in Australian merchandise exports.
Harcourt notes that in sectors which receive direct tariff reductions, exports have increased. These include dairy, lamb, motorboats, medicines, space navigation equipment, unwrought aluminium and some automotive components. There has also been a rise in exports from small and medium-sized enterprises indicating a "head-turning" effect, he says.
Agricultural exporters at the coalface do report gains from the FTA.
The FTA more than doubled Australia's cheese quota and Victorian-based Murray Goulburn Co-operative - Australia's largest dairy processor - expects its business to grow as a result.
The FTA will gradually remove (by 2008) a 25 per cent tariff on processed macadamias and Queensland-based Suncoast Gold Macadamias Australia says this will make it affordable for the company to shift US processing back home.
South Australia's Riversun in 2005 saved $600,000 following the removal of a 5 per cent import duty on its orange exports.
South Australian exporter Port Lincoln Tuna Processors won a deal to supply canned tuna to the US (the FTA eliminated a 35 per cent tariff on canned tuna, which had effectively prevented Australia from accessing the US tuna market).
The government will be hoping that the third anniversary of the FTA unearths a few more success stories.