12 Business: Host Country Incentives for Trade & FTAs

benefits of starting a business at home

• lower risk: test business success in the home market before expanding

• cost effective: avoid large financial losses early on

•  build strong foundations:

  • develop marketing strategies

  • test and refine products

  • understand target demographics

  • establish distribution channels

•  use domestic profits to fund global expansion

requirements for a business to be successful overseas

to be successful in international markets, businesses should:

• Conduct market research (demand, competition, legal/political environment)

• Understand cultural differences and consumer behaviour

• Ensure product quality and pricing competitiveness

• Secure distribution/logistics networks

• Be financially stable and capable of handling export-related costs

• Understand international legal and compliance requirements

• Build strategic partnerships in foreign markets

Australian government incentives for international trade

• State and Federal Governments encourage international trade by providing support and incentives to Australian businesses

• they also negotiate trade agreements with other countries

• support through:

  • grants - Austrade who administers EMDG

  • tax incentives - R&D Tax Incentive

grants

• a grant is a financial contribution provided by the government to support business activities, particularly those related to export development or innovation

• grants do not need to be repaid and are designed to reduce the cost of expanding or operating in global markets

• Austrade (Australian Trade and Investment Commission) administers the Export Market Development Grant (EMDG)

Austrade (Australian Trade and Investment Commission)

• Austrade is the Aus Government’s agency responsible for promoting trade, investment and education internationally

• purpose

  • assist Australian businesses to develop international markets and attract foreign direct investment into Australia

• helps reduce the risks and complexities of going global by providing expert market intelligence and connections

• benefits

  • access to international market research, consumer trends and export regulations

  • introductions to overseas buyers, agents and distributors

  • support at international trade shows and events

  • advice on export readiness, logistics and customs requirements

  • encourages foreign companies to invest and operate in Australia by promoting Australia’s business strengths

• example

  • Merino Country, an Australian company producing wool-based activewear, partnered with Austrade to showcase their products at international trade expos

  • Austrade facilitated introductions to buyers in Europe and Asia, helping Merino Country boost its exports and build brand recognition overseas

export market development grant (EMDG)

• administered by Austrade

• grant is matched funding: businesses must spend an equal amount of their own money

• purpose

  • the EMDG scheme provides financial assistance to aspiring and existing Australian exporters to market their goods and services internationally

  • it aims to encourage more Australian businesses to explore global markets and grow their exports sustainably

• benefits

  • reimburses up to 50% of eligible export marketing and promotional expenses

  • includes expenses such as overseas travel, trade show participation, website development and free samples

  • offers a multi-tiered structure

    • tier 1: businesses new to exporting

    • tier 2: growing exporters in existing markets

    • tier 3: expanding into new key markets

    • tier 4: industry bodies supporting exporters

• example

  • an organic skincare brand based in Byron Bay used the EMDG to cover costs for attending a wellness expo in Singapore

  • as a result, they secured distribution deals in Southeast Asia and expanded into three new countries

tax incentives

• tax incentives are government-approved programs that offer tax reductions, credits or exemption to encourage specific business activities such as research and development or exporting

• they aim to stimulate economic growth, innovation, and international competitiveness

• R&D Tax Incentive

R&D tax incentive

• the R&D Tax Incentive (R&DTI) helps Australian businesses undertake eligible R&D activities by reducing the financial risk

• it encourages innovation in products, processes and services by offering tax offsets

• jointly administered by the ATO and Industry Department

• benefits

  • for small business (turnover < $20m): refundable tax offset (up to 43.5%) - can be claimed as a cash rebate

  • for larger businesses (turnover ≥ $20m): non-refundable tax offset with tiered benefits depending on R&D intensity

  • supports eligible R&D conducted domestically and, in some cases, overseas

  • helps businesses stay competitive, commercialise innovation and reduce tax liability

  • encourages collaboration with registered Research Service Providers

• example

  • an agritech start-up developing smart irrigation systems for Australian farms used the R&D tax incentive to claim expenses for prototype development and field testing

  • the tax refund helped fund additional product enhancements and expansion into new markets.

Export Finance Australia (EFA)/Export Finance and Insurance Corporation (EFIC)

•  EFA is the government’s export credit agency that provides loans, guarantees, bonds and insurance to businesses that support or contribute to Australia’s exports and overseas infrastructure development

• it is especially useful for SMEs that cannot access finance through banks

• benefits

  • provides working capital and contract financing solutions

  • offers guarantees to banks on behalf of exporters

  • supports Australian businesses involved in overseas projects, including infrastructure and supply chains

  • helps reduce risk when dealing with unfamiliar international customers

  • workers with Department of Foreign Affairs and Trade (DFAT) and private lenders to fund Indo-Pacific regional projects

• example

  • a WA-based mining equipment supplier secured a contract in Indonesia but lacked the cash flow to fulfill the order

  • EFA provided a loan that enabled the business to produce and ship the goods, helping the company grow its international footprint

summary of government incentives for global trade

Program	Purpose	Key Benefits	Example
Austrade	Supports Australian businesses in exporting	Financial grants, market research, networking	Skincare brand expanding into Asia using EMDG for trade fairs
R&D Tax Incentive	Encourages innovation and R&D investment	Tax offsets for eligible R&D activities	Biotech company using R&DTI for vaccine research
Export Finance Australia (EFIC)	Provides financial support for exporters	Loans, guarantees, political risk insurance	Mining equipment company securing funding for an African contract

global business ethics

• global business ethics refers to the moral principles and standards guiding international business conduct

• ethical considerations:

  • environmental responsibility

  • offshore labour

  • outsourcing

environmental responsibility

• the environmental responsibility of a business refers to its duty to operate in a way that protects and preserves the natural environment for future generations

• examples of eco-friendly business practices:

  • minimising carbon emissions and waste

  • using recycled/sustainable materials

  • be supporting biodiversity and clean energy

  • reporting and improving environmental performance

   

business benefits of being environmentally responsible

• cost reduction through resource efficiency

• boosts staff morale and loyalty

• enhances brand image and public relations

• competitive advantage

drawbacks of being environmentally responsible

• Higher upfront costs: Switching to sustainable materials or technology can be expensive

• Operational changes: May require new training, systems, and infrastructure

• Regulatory compliance burden: Regular audits and reporting obligations

• Potential loss of competitiveness: If competitors in less-regulated regions offer lower prices

emmission trading schemes (ETS)

• an Emissions Trading Scheme (also known as carbon trading) allows companies to buy or sell "permits" for carbon emissions

• companies with fewer emissions can sell excess allowances to polluting firms

• purpose: encourage businesses to reduce emissions and invest in cleaner technologies

---

• some countries charge carbon taxes

• ethical dilemma - expanding to countries without carbon regulations may harm the environment (eg coal seam gas, fracking)

offshore labour

• offshore labour involves hiring employees in another country, usually where wages are lower, to complete tasks such as manufacturing or customer service

• while cost-effective, it raises ethical concerns around:

  • working conditions

    • sweatshops

    • long hours

    • low pay

    • poor safety

    • no breaks 

  • labour exploitation to lower costs and increase profits

  • management receive large salaries while workers suffer

  • job losses in the domestic market

ethical approaches to using offshore labour

• collaborate with local unions to improve working conditions

• shows respect for human rights

• builds a responsible and respected global brand

benefits of offshoring

• brand exposure in new markets

• fills skills gaps in Australia

• cost-effective labour

impacts of offshoring

• reduces job opportunities in Australia

• can frustrate local customers (offshore customer service)

• harder to manage overseas staff

outsourcing

• outsourcing is when a business contracts a third party (either domestic or international) to handle specific business functions

• this allows businesses to focus on core operations but may risk loss of control and quality

• what can be outsourced:

  • manufacturing

  • market research

  • administration

  • customer service

  • IT

  • accounting

benefits of outsourcing

• lower labour and operational costs

• access to specialised skills and technology

• allows focus on core business

• avoid investing in expensive tech

• easier to manage costs (fixed pricing)

• increased workforce flexibility

drawbacks of outsourcing

• loss of control over quality, processes, or deadlines

• data security risks if sensitive information is handled externally

• communication barriers due to time zones or language differences

• negative public perception if jobs are moved offshore

• dependency on third parties for core operations

free trade agreements (FTAs)

• free trade agreements (FTAs) are international treaties between two or more countries designed to reduce or eliminate barriers to trade, such as tariffs, import quotas and export restrictions

• purpose of FTAs:

  • encourage cross-border commerce

  • improve access to markets

  • promote economic cooperation and investment

• for Australian businesses, FTAs increase competitiveness globally by reducing export costs and opening up new opportunities

features/role of FTAs

• FTAs aim to create a more open and competitive trading environment by reducing or eliminating tariffs, quotas, and other restrictions on trade in goods and services, as well as investment

• this

  • facilitates stronger trade, commercial ties, and economic growth

  • benefits exporters, importers, producers, and investors

---

• eliminate or reduce tariffs and trade barriers

• provide legal certainty and protect intellectual property

• enhance market access for Australian exports

• improve investment opportunities and service trade between member countries

• create job opportunities and strengthen global relationships

define tariff

AANZFTA

• ASEAN-Australia-New Zealand Free Trade Agreement

• ASEAN: Association of Southeast Asian Nations

  • 10 member states - Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam

---

• AANZFTA is a comprehensive agreement involving Aus, NZ and 10 ASEAN countries

• multilateral - agreement between more than 2 countries

• focuses on eliminating trade barriers and fostering investment and cooperation

• signed by Ministers from all 12 participating countries on 27 February 2009

• objectives

  • Eliminate tariffs between ASEAN nations, Australia, and NZ

  • Facilitate trade in goods and services

  • Support investment and e-commerce

  • Simplify rules of origin and promote sustainability

features of AANZFTA

core features:

• tariff reduction: by 2025, up to 90% of tariffs on traded goods will be eliminated

• regional rules of origin (ROO): define eligibility for tariff concessions, requiring a certain percentage of the products to be sourced or made in member countries

• intellectual property protections: align with WTO TRIPS (trade related aspects of intellectual property rights), ensuring protection of IP like trademarks, patents, and copyright

• movement of natural persons: ease travel for businesspeople, investors, and service suppliers between member nations

• foreign direct investment (FDI): allows businesses to freely transfer capital across borders with legal certainty and fewer restrictions

---

2024 upgrade (second protocol):

• flexible ROO accumulation rules: allow businesses to source inputs more easily from multiple member countries

• e-commerce promotion: supports digital trade through measures like recognition of e-signatures

• equal treatment: ensures foreign suppliers/investors receive the same treatment as local ones

• sustainability and labour rights: promotes environmental cooperation, labour protection and women’s economic empowerment

ANZCERTA

• Australia-New Zealand Closer Economic Relations Trade Agreement

• ANZCERTA is one of the most comprehensive FTAs globally and aims for seamless Trans-Tasman trade

• signed 28 March 1983

• bilateral - agreement between 2 countries

• objectives

  • Full tariff elimination on goods

  • Mutual recognition of standards and professional qualifications

  • Streamline food regulations

  • Enhance legal certainty for trans-Tasman investments

features of the ANZCERTA

• elimination of all tariffs: goods traded between Aus and NZ are free of tariffs and import/export quotas

• mutual recognition: standards for goods, services, and professional qualifications are accepted across both countries, simplifying cross-border trade

• food standards harmonisation: reduces regulatory compliance costs and offers consumers greater choice

• investment protocol (2013): investors face fewer restrictions, lower compliance costs, and greater certainty when investing in either country

benefits to Australian owned businesses as a result of FTAs

• the reduced trade barriers makes it easier for businesses to expand their exports of g&s into new markets

• Aus exports are cheaper and more attractive to foreign buyers

• this means businesses can expand their customer base, increase sales, improve profitability and experience growth and sustainability

---

• lower export costs due to reduced tariffs

• increased global competitiveness

• new market access for goods and services

• improved investment security

• simplified customs processes

---

• eg. BlueScope Steel

  • BlueScope Steel, an Australian steel manufacturer, has benefited from FTAs such as the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) and the China-Australia Free Trade Agreement (ChAFTA)

  • these agreements have reduced tariffs and trade barriers, allowing BlueScope to access markets in countries such as China and ASEAN nations more easily

  • as a result, BlueScope has been able to expand its exports, increasing its market share in the Asian region

  • for example, under ChAFTA, Australian steel products were given preferential treatment, making them more competitive in price compared to steel from non-FTA countries

  • this market access has been vital for BlueScope's growth and sustainability to remain competitive in a global market

challenges to Australian owned businesses as a result of FTAs

• greater competition from international companies entering the domestic market with fewer restrictions as facilitated by FTAs

• consumers are exposed to cheaper imports from countries such as Vietnam and China where production costs are lower, allowing them to offer cheaper products

• this makes it difficult for local businesses to compete, forcing them to lower prices or differentiate their products to maintain market share

• this results in reduced profit margins and sales

---

• increased competition

  • Australian businesses face cheaper imports from countries with lower production costs

• job losses

  • FTAs may lead to offshoring, resulting in reduced employment in domestic industries

• complex rules of origin (ROO) and documentation

  • complex compliance documentation (eg. certificate of origin) is needed to access benefits, which can be costly and time-consuming

• non-tariff measures (NTMs)

  • includes health standards, quotas, licenses, and biosecurity checks

  • these often cost more than tariffs and can block market entry

• not all tariffs are removed - some sectors still face trade restrictions

---

• eg. Roger David

  • Australian clothing manufacturers such as Roger David, a men's fashion retailer are exposed to cheaper imports from ASEAN countries such as Vietnam and China through ChAFTA, where production costs are lower

  • these countries had much lower production costs, allowing them to offer cheaper clothing, which undercut Australian retailers' prices

  • as a result, Roger David struggled to compete, forcing them to close their business in 2017 after declining sales and profits

  • therefore, local brands cannot keep up with lower prices alternatives from countries benefitting from FTAs

political factors that affect business operations in a global market

• government stability

  • stable political environments foster safe and predictable business operations

  • unstable countries may present risks such as nationalisation, corruption, sudden policy changes, or civil unrest

  • eg. Qantas suffered losses due to cancelled flights during Hong Kong’s civil unrest in 2019-20

• government relations with Australia

  • diplomatic relations influence trade agreements and tariff policies

  • eg. Australia’s good relationship with India helped reduce tariffs on macadamia nuts, improving exports

  • eg. Australia’s call for a COVID-19 inquiry led to trade tensions with China, resulting in an 80% tariff on barley

• other

  • trade sanctions, emerges, and political retaliation can severely restrict business access

  • in countries like Argentina, unstable governments and limited infrastructure can hinder investment and operation (eg. in mining)

  • businesses may face delays or extra compliance when entering protected or politically unstable markets