Benefits of Home Grown Products

Benefits of Home Grown Products for the Government/Economy

• Job creation and economic growth occur in the home country, leading to increased disposable income for locals.
• Locally produced products meet the health and safety standards of the home country.
• Profits generally remain in the home country, but overseas demand and government encouragement for exports have reduced this effect in Australia.
• The home country gains an international reputation for high-quality products.
• For example, despite being Australian, Milo is deeply rooted in Indonesian culture due to its positive brand image, reflecting the quality of Australian products internationally.

Benefits of Home Grown Products for Businesses

• It acts as a strong domestic foundation for overseas expansion.
• Domestic success allows businesses to establish themselves in the local market.
• Businesses can test marketing strategies, develop products, and establish distribution channels.
• For example, an Australian company with domestic success has a strong foundation for overseas ventures, potentially foregoing new business model experimentation in ASEAN countries like Indonesia.

Grants as Incentives for International Trade

• Government departments like Austrade provide financial assistance to promote export development.
• Grants reduce upfront costs for businesses aiming to expand internationally.
• This makes overseas expansion more viable.
• The Export Market Development Grant (EMDG) encourages small to medium-sized Australian businesses to develop export markets.
• It reimburses eligible export promotion expenses above a threshold, providing up to eight grants per applicant.
• Eligible expenditures include "export promotion activities" like maintaining a representative, overseas advertising, and intellectual property rights.

Taxation Incentives for International Trade

• The Australian Government reduces taxation on exports to boost the economy by making Australian goods and services more competitive globally, potentially increasing exports and jobs.
• This is achieved through schemes like the Duty Drawback Scheme, which enables exporters to obtain a refund of customs duty paid on imported goods used in goods for export.
• The Tradex Scheme provides exporters with an up-front exemption from customs duty and GST for goods imported into Australia and then exported within one year, benefiting importers intending to export goods.
• Export Finance Australia is an export credit agency that assists small/medium-sized Australian businesses expanding overseas, allowing them to operate in emerging markets by providing loans, guarantees, bonds, and insurance products.

Ethics in Outsourcing

• Outsourcing involves an organization assigning activities (manufacturing or administration) to a vendor, often a third party, in exchange for payment.
• Foreign businesses use outsourcing to take advantage of lower costs overall.
• Outsourcing also allows management to focus on core business activities.
• It avoids costly investments in technology.
• It creates lower working conditions than in the home country.
• It enables easier cost management and increased workforce flexibility to manage seasonal fluctuations.
• For example, Australian businesses may benefit from outsourcing in ASEAN countries like Indonesia due to lower costs, allowing management to focus on the home country; however, unethical practices could involve exploiting lower worker rights in ASEAN countries.

Ethics in Offshore Labour

• Offshore labour occurs when an organization relocates to a foreign country and employs foreign nationals in its offshore operations.
• Companies must be aware of the host country's workplace conditions and avoid human rights exploitation.
• Foreign businesses use offshoring to take advantage of brand awareness in foreign countries/markets and promote economic growth in the host country, increasing domestic revenue.
• Sweatshops are workplaces with long hours, low pay, and unhealthy conditions, which reduce costs and increase profits by underpaying workers.
• Disadvantages of offshore labor include decreased employment in developed countries as jobs are exported and difficulty in managing offshore staff; also, customers might dislike dealing with offshore customer service staff.
• For example, ethical offshore labor by Australian businesses can help raise brand awareness in foreign markets like Milo in Indonesia, but unethical practices include creating sweatshops in developing nations to benefit from a lack of worker rights and low salaries.

Ethics in Environmental Responsibility

• This refers to a company's duty to operate in a way that protects the environment, whether motivated by the business itself or to improve its reputation.
• Responsibilities include reducing pollution by utilizing environmentally friendly production processes, increased usage of recycling, and proper waste disposal.
• Measuring their carbon footprint and investigating ways to offset carbon emissions is also key such as carbon credits for planting trees and using renewable energy.
• Companies might abuse this system by buying carbon credits or finding loopholes to earn credits they don't deserve.

Free Trade Agreements (FTAs)

• FTAs are international treaties that reduce barriers to trade and investment.

Role of Free Trade Agreements

• They allow better Australian access to important markets.
• They improve the competitive position for Australian exports.
• They reduce import costs for Australian businesses and consumers.
• They increase the amount of two-way investment.

Features of Free Trade Agreements

• They promote free trade flows and strengthen ties with trading partners.
• They increase Australia’s productivity and contribute to higher GDP growth by allowing domestic businesses access to new technologies.
• They promote regional economic integration and build shared approaches to trade and investment through common Rules of Origin and broader acceptance of product standards.
• FTAs can enhance the competitiveness of Australia's exports and increase Australia's attractiveness as an investment destination.
• They can deliver enhanced trading opportunities that contribute to the sustainable economic growth of less developed countries.

Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA)

• This is a bilateral free trade agreement covering all trans-Tasman trade in goods & services.
• It took effect in January 1983.
• All tariffs and restrictions on import and export between the two countries are prohibited.
• Food standards are standardized.
• It minimizes government industry assistance, export subsidies, and incentives to ensure a level playing field.

ASEAN-Australia-New Zealand Trade Agreement (AANZFTA)

• A trade agreement which encompasses all South East Asian nations.
• It took effect in January 2010.
• It eliminates tariffs on 96% of Australia's exports to ASEAN nations, such as meat & livestock.
• AANZFTA-certified goods have their tariffs reduced when entering ASEAN countries.
• AANZFTA sets minimum standards for the treatment of foreign investors and their investments.
• It provides international arbitration to resolve disputes between member countries.
• Funds of an investor can be transferred freely and without delay.
• Investors may dispute alleged breaches of these rules through international arbitration.

Benefits of Free Trade Agreements to Australia

• Encourages cooperation between nations
• Increases GDP growth
• Promotes regional economic integration and trade between nations.

Benefits of Free Trade Agreements to Australian Companies

• Foster free trade flows, allowing businesses a larger consumer base resulting in more potential customers.
• For example, Indonesia has a population of 281.1m, which could be potential consumers for an expanding Australian business.
• They eliminate tariffs, making product prices more competitive against domestic products that would not otherwise be affected by the tariff.
• They increase the competitiveness of Australian products, as there can now be demand overseas.

Challenges of Free Trade Agreements to Australian Companies

• Structural Unemployment: Cheaper imports than domestic products may cause domestic businesses to fail, resulting in rising unemployment in some industries and business closures.
• Domestic Instability: Local businesses become more vulnerable to other countries' economic downturns due to reliance on global markets over domestic ones.
• For example, if an unemployment crisis happens in Indonesia, consumers may be less likely to buy overseas products, decreasing demand for Australian products.
• Difficulty in Establishing Business: It becomes harder to establish a new business in the domestic market due to competitors using both the global and domestic markets.
• Product Dumping: A country or company exports a product at a lower price in the foreign importing market than in the exporter's domestic market, which makes it harder for domestic businesses to compete, potentially leading to business closures.

Challenges of Free Trade Agreements to Australia

• Legality: Legislation in both nations needs to align for a successful FTA.
• Nations must follow the FTA or be subject to an international tribunal.
• Australia is more bound to these restrictions than global powers like America.
• Nations can be potentially sued by multi-national companies for decisions that negatively affect their business profits.
• FTAs promote large trading blocs, which only trade with each other, don't encourage trade liberalization.
• For example, BRICS is such a bloc.
• Fairness: Larger economies usually get a better deal compared to smaller economies when creating these FTAs.
• For example, the USA is able to break some of the conditions of the FTA to a certain extent due to having a strong economy.

Impact of FTAs on Specific Industries

• Milk: The Australian dairy industry earns approximately $856 million annually in exports to ASEAN countries.
• AANZFTA eliminated or reduced tariffs on dairy products in ASEAN markets to lower than 5%, benefiting the Australian dairy industry.
• Frozen Fish: The Australian fishing industry earns approximately $45 million annually in exports to ASEAN countries.
• Before the FTA, Australian fish tariffs ranged from 10% to 40%; reduced tariffs allow Australian frozen fish to become more competitive in ASEAN countries.
• Live Animals & Meat: The ASEAN market is important to Australia's meat industry, with almost 70% of animals exported to Indonesia and 60% of pig meat exported to Singapore.
• Reduced trade barriers resulted in tariffs being less than 5% which, along with quicker processing times for Australian animals, allows importers to receive products more quickly, benefiting Australian exports as the international market is more secure

Comparison of ANZCERTA and AANZFTA with Reference to Indonesia

• Both agreements aim to reduce barriers to trade and investment, including Australia reducing limits on bank lending to foreign investors.
• Both allow funds of international investors to be transferred freely and without delay between the members.
• Both aim to standardize the treatment of foreign investors, international investments, and trading procedures and simplify the trade procedures of nations in the FTAs.
• AANZFTA eliminates 96% of tariffs between ASEAN nations, while ANZCERTA removes 100% of tariffs between members.
• ANZCERTA standardizes food health and sanitary standards between members, so regulations in Australia are the same as in New Zealand (vice versa).
• AANZFTA members do not have such standardization due to diseases present in AANZFTA nations but not found in Australia.
• ANZCERTA minimizes government industry assistance, export subsidies, and incentives between members, while AANZFTA nations were not required to directly stop giving industry assistance to exporters.
• Disputes between AANZFTA members are resolved via international arbitration due to the multilateral nature of the treaty, whereas ANZCERTA is a bilateral FTA between Australia and New Zealand, so international arbitration is not really followed.

Host-Country Incentives (Indonesia) Available to Australian Businesses

• Corporate Tax: To encourage growth in specific undeveloped regions of Indonesia, foreign businesses are offered a reduced taxable income.
• Corporate tax rates cover up to 30% of the amount invested into the country in tangible fixed assets.
• Special Economic Zones: Areas in Indonesia that benefit from reduced CIT rates and exemptions from import duties, VAT, and excise taxes.
• These zones are designed to boost economic activity and are available in specific regions of Indonesia that are favorable for the nation.