Chapter 7. Policy conclusions

The analysis carried out in this report highlights the importance of services in the Australian economy. Evidence demonstrates the relative strength of Australia’s services trade and productivity performance, and the opportunities arising from Australia’s proximity to the world’s most dynamic region. The report also highlights the challenges faced by Australian services exporting firms, including the risk of losing ground in stronghold sectors such as education and tourism. Furthermore, the empirical evidence included in the report highlights how services trade restrictions in foreign countries prevent Australia from exploiting its full export potential.

In this context, there is significant potential for services to sustain productivity and enhance the global competitiveness of Australian businesses. This section delineates key factors to be considered in response to the opportunities and challenges posed by a rising degree of globalisation and a growing tradability of services. On this basis, a strategic whole-of-government approach to the performance of Australian services in the global economy can help Australians fully capitalize on the strength of its services sectors and exporters to ensure that services trade works for all.

General key findings

  • It is important to continue to promote regulatory reforms and the reduction of services trade restrictions in the applied regimes of priority markets abroad by, inter alia, advocating the potential of services reforms to drive inclusive economic growth and employment, ensuring the effective implementation of the APEC Services Competitiveness Roadmap and encouraging national and collective actions consistent with the G20 Strategy for Global Trade Growth.

  • In addition to existing FTAs, it would be beneficial to continue pursuing bilateral, plurilateral, regional and multilateral trade agreements with ambitious market access, national treatment and domestic regulation provisions for services. Besides maximising the economic benefits accruing to Australians, this would also lock applied regimes and thereby secure a predictable and rules-based environment for services trade and investment. OECD empirical analysis confirms that the legal bindings found in services trade agreements tend to have a positive effect on services trade by reducing uncertainty.

  • Continued investment in an efficient and effective visa system is desirable. The envisaged streamlining of the current visa system would be beneficial to international visitors, international students, and domestic as well as foreign businesses.

  • Consideration could be given to the relationship between the Temporary Skill Shortage (TSS) visa and the cost of recruiting highly qualified foreign workers, and the ability of some international students to apply for jobs on the list of skilled occupations (with concomitant implications for the education sector).

  • Australia ensures that data can flow freely across borders, while respecting privacy and security considerations. It is important to continue facilitating an environment that enables digital trade, through free trade agreements, harmonisation of standards and implementation of trade facilitation measures.

  • Despite efforts to improve coordination of government initiatives promoting export capability, innovation and growth, there is still some work to do to increase transparency and to improve the dialogue between the different level of government agencies and transparency. Firms find it difficult to navigate through the different programmes available to them. Also, there is a lack of co-operation between businesses and other actors, such as universities or research institutes. Hence, as recommended in the OECD Economic Surveys: Australia 2017 ,there is a need to develop a more integrated, “whole-of-government” approach to science, research and innovation and consolidate innovation support programmes. This approach could help to reduce the number of support schemes for innovative SMEs and exporters, facilitating the management and efficiency of the different schemes, allowing for more generous programmes while keeping total expenditure constant.

  • A review of the R&D Tax Incentive, a program supporting business innovation, found that smaller firms face compliance costs of up to 23% of the of the program benefits. The Government continued efforts, through the recently announced reforms of the R&D TI, to improve the integrity of the program, continue assist smaller companies and refocus support for larger companies undertaking higher intensity R&D, are commendable. However, in line with other recommendations (Ferris et al., 2016), it would be desirable to improve also the administration of the R&D TI program by reducing compliance costs. This would increase companies' accessibility and ensure a more inclusive participation.

  • Application processes for government support schemes, such as the Export Market Development Grant (EMDG) are often time consuming and unnecessarily burdensome. Many firms turn to professional consultants for these processes. Application and reporting could be simplified so that firms could reap the full amount of the incentives available.

  • The paucity of official statistical trade data, including the lack of Foreign Affiliate Trade Statistics (FATS), complicates the understanding of Australia’s strength and weaknesses in services. Improving the statistical base would allow for a more robust analysis of services trade and investment. While efforts in this direction are underway, the timely implementation of an annual survey to collect on a regular basis information on inwards, but also outwards, foreign affiliate sales and a harmonisation of the disaggregation level for the collection of trade statistics and business statistics are essential for an accurate investigation of the benefits of FTAs.

Sector-specific key findings

Air transport services

  • Air transport services could benefit from further liberalisation of the international segment, by easing the conditions for foreign airlines to participate in international traffic. The current slot allocation schemes could be further fine-tuned to enhance the level of competitiveness within the sector in existing airports. In addition, the opening of new airports, such as the Western Sydney Airport, will address capacity constraints in the largest cities.

  • Promoting open route schedules and capacity for international flights would ensure greater competition from foreign airlines, with benefits accruing to domestic and international community, including tourists, international students and professional services providers that would enjoy lower airfares and greater travel destination choice. More competition from foreign suppliers and greater access to Australian airports would also contribute to a better integration into GVCs by ensuring that goods travel more easily to and from Australia. An amendment of existing Air Service Agreements or further liberalisation of the aviation sector through new Open Skies agreements could ensure a greater degree of competition.

  • The amount of the current Passenger Movement Charge (PMC) could be reassessed so that it only reflects the true cost of the services provided by the government to the air transport sector (such as the cost of customs, immigration and quarantine processing and national aviation security). The introduction of a reduced rate for short-haul flights, as already in place in other countries, could also be considered. The benefits from such reassessment would accrue to international visitors but also to Australian passengers, by reducing airfares. Moreover, smaller charges would enhance the competitiveness of Australian professional services providers by containing their business travel costs.

Logistics

  • Logistics services in Australia are affected by a number of administrative procedures related to obtaining licenses/authorisations. A reduction of licencing fees (e.g. for customs brokerage or bonded warehouses), so that they reflect the true cost of the licensing procedure and do not function as a market entry barrier, could ensure more participation and enhance competition in the sector.

  • Establishing transparent rules for the recognition of qualifications in customs brokerage would also contribute to increase competitiveness of the logistic sector. Consideration should also be given to streamlining licenses and registration requirements for cargo-handling providers in order to lower entry barriers and ensure more open and competitive markets in ports and airports.

Professional services

  • Lack of established procedures for recognition of foreign qualifications, certificates, previous experience and licenses are still widespread around the world. These issues represent major obstacles to the mobility of foreign professionals and their ability to hold equity in local professional services firms. Most of these barriers could be lifted through domestic policy reforms that remove arbitrariness in the revalidation process and recognise foreign qualifications. This could also be pursued through the negotiation of deep and substantive MRAs or by developing best practice principles for recognition of qualifications and licensing and registration requirements agreed on international fora. Local implementation of such agreements would also imply a greater dialogue between the Commonwealth and State and Territory governments. Recognition of qualifications and licenses would ensure greater mobility for Australian professionals and allow Australian businesses to stay agile and competitive by tapping on an international pool of talents. Working with foreign governments and professional bodies to achieve full accreditation of Australian qualifications would also support Australia's education services exports.

Banking

  • Australia’s banking sector (especially retail banking) is dominated by four large banks, which are protected from takeovers among each other. Such high levels of concentration may potentially compromise competition and make Australia vulnerable to the risk of banks being “too big to fail”. Implicit guarantees for these banks represent competitive advantages over their competitors. Developing a loss absorbing and recapitalisation framework may reduce such implicit guarantees and lead to more equitable competition. The assessment of mergers and acquisitions among these banks should be made by an independent competition authority, considering the stability as well as the efficiency of the financial system.

  • The efficiency of the banking system could also be enhanced by widening the scope for foreign offshore banks to actively engage with clients in Australia, which is currently not allowed.

Insurance

  • The application process for insurance licenses could be enhanced by a maximum duration for the handling of license applications. Current ARPA Guidelines on Authorisation of General Insurers only state that “applications will be processed within a reasonable time”. Introducing an upper limit would reduce uncertainty in the process, sparking entry of young and innovative firms in the sector to the benefit of consumers and downstream businesses.

  • While branches of foreign companies established in New Zealand, the United States, Japan, Korea and the People’s Republic of China (hereafter “China”) are authorised to offer life insurance services in Australia, Part 2b of the Life Insurance Regulations requires that insurance companies from all other countries establish a commercial presence in Australia. Carefully extending this possibility to life insurance companies from a wider range of countries could bring benefits to Australian consumers. In addition, the sector lacks an established process for the recognition of foreign qualifications as actuaries.

Education

  • Demand for Australia’s on-shore education services might be boosted by efficient and well-managed student visas settings. In that respect, monitoring the effectiveness of the new Simplified Student Visa Framework and improving processing times could deliver long-term benefits. Ongoing review of Student visa policy settings should be sought to ensure student visa services continue to remain internationally competitive.

  • Australia's off-shore provision of education services might be limited by barriers to the establishment of wholly foreign-owned campuses, and therefore mandatory partnership requirements with local education providers, and temporary movement of Australian academic and teaching staff abroad. To address some of these barriers, new trade negotiations or amendment of existing agreements could pave the way for greater market access and liberalisation for Australian education providers abroad, particularly in the Asia-Pacific region.

  • The recognition of Australian qualifications delivered offshore is another barrier to Australian transnational education. While FTAs can play a role in some circumstances to overcome this barrier, decision-makers could be encouraged to work towards improved recognition arrangements through multilateral fora.

Mining services

  • Mining equipment, technology and services (METS) firms should be supported in partnering with technical institutes and universities, including in countries where they have operations. Some increased engagement is already underway through METS Ignited, which could represent a strong force for internationalization of the METS sector.

  • Recent FTAs concluded by the Australian Government have been successful in providing access rights to Australian business of METS. For example, technical consulting and field services in coal bed methane and shale gas extraction, as well as mineral resources exploitation, can be provided to China via ChAFTA. Australia should continue its successful economic diplomacy with a focus on mining countries in order to help mining firms to succeed in international markets.

Information and Communications Technology (ICT)

  • Firms in the ICT sector require fast and reliable internet connections in order to supply their services to the domestic market and overseas. Currently, many firms suffer from an insufficient broadband connectivity. Upgrade and expansion of Australia’s broadband network is essential for these firms in order to obtain higher connection speed, particularly in currently underperforming regions, such as outside of central business districts and in rural areas.

  • Moreover, ICT providers could benefit from national award programs as an effective means for the international and national promotion of innovative businesses. A strong commitment from the government, as well as the active participation of multiple stakeholders from the private sector is required in order to raise the visibility of such awards.

Tourism

  • More coordination among the Federal Government, individual states and territories and industry associations would be desirable in creating more effective marketing strategies to better sell Australia attractiveness as a tourism destination.

  • A streamlining of the visa application procedures could enhance the competitiveness of the sector. Moreover, in line with the objectives of the Tourism 2020 national strategy, there is a need for developing skilled tourism workforce and for further investment in private and public tourism-related infrastructure and facilities (particularly in regional areas), including accommodation, local attractions and transport (airports, roads, ports).

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