Looking offshore for domestic growth

Evidence suggests that trade liberalisation has been the main engine of growth for the world economy. This includes increases in real income, increases in income per capita and increases in capital formation.

Each country can benefit from an increase in demand for exports and rising real incomes and total imports in other countries, with the effects of growth spilling over to other countries.

There are also direct benefits for business, including increased sales and profit, spreading risk, using excess capacity, overcoming seasonal or cyclical demand, expanding skill sets and improving the ability to compete.

Tapping into the emerging and vast markets of the Asia-Pacific region is widely viewed as integral to the continued growth, not only of Australia but also of other Western nations.

The Institute of Public Accountants firmly believes that accountants, as the trusted business advisers to small businesses and small to medium-size enterprises (SMEs), should be taking advantage of this position to advise their businesses and clients of the opportunities to grow and prosper through international trade. With the signing of free trade agreements with three of our largest trading partners,

these opportunities come into sharper focus.

One of the most significant trade agreements – which has been signed (but not yet passed into legislation) – is the Trans-Pacific Partnership (TPP). This agreement, which covers 12 countries including Australia and the US, is arguably the most ambitious trade agreement negotiated in the past several years. It covers more than 36 per cent of world GDP and 26 per cent of world trade. The

IPA has members in 10 of the 12 TPP countries. It is the first trade agreement to include specific provisions to facilitate trade by small business and SMEs. However, there are major obstacles in the US, with Congress not yet convinced the TPP should be legislated.

Like countries and corporations, accounting bodies must also expand beyond the borders of a small, mature market, recognising that the accounting profession is becoming increasingly globalised. The IPA must assist members in realising the potential in trade and trade agreements by facilitating members

to become trusted business advisers in trade, export and investment. As an organisation, the IPA must grow and be recognised on the world stage if it is to compete and gain recognition for the benefit of members.

To this end, the IPA engages in several activities that promote and facilitate liberalisation in accounting and other professional services.

The IPA participated in the annual conference of the International Council for Small Business, with the theme of the United Nations Sustainable Development Goals. The IPA Deakin University Australian Small Business White Paper was presented under the heading, Boosting Small Business Productivity.

Trade, export and investment were common themes presented by people from more than 56 countries.

Another event is the annual ‘doorknock’ in Washington, DC undertaken by the Asia-Pacific Council of American Chambers of Commerce. The TPP was the priority topic on the agenda, with the main objective being to persuade congressmen of the need to pass the agreement. The door-knock also visited major US think tanks and held a roundtable with the Australian ambassador, Joe Hockey, and embassy advisers.

We heard a variety of views on how to persuade congressmen of the merits of the TPP, the world economic view, the rise of China (viewed through the lens of its activities in the South China Sea), the

role of Australia on the world stage and the US-Australia relationship.

On the TPP, we were advised to really push the angle about what the TPP means for the position of the US in the region – that is, the geopolitical aspect is very important. We heard about the need for America to write the trade rules, but also to stress job creation – that is, high paying jobs and in the right places. Wage inequality has become a huge issue in the US, as it has elsewhere. The US will be left out because other countries are going ahead with trade agreements. Trade agreements have become more critical since productivity growth in all developed countries is declining. In the US, it has gone from 2.4 per cent or 2.5 per cent to 1.2 per cent. Growing trade relative to GDP is a good way to grow productivity.

However, for some congressmen, the strategic considerations get trumped by local, employment arguments. The US would gain $127 billion per annum from the TPP while more than 100,000

employees per annum would be displaced – but with gains to the overall economy of about 10:1. Transition costs are painful but time is limited.

At the US Chamber of Commerce, we heard that Donald Trump hasn’t said he is against trade; he has said he is against some trade agreements the way they have been negotiated. It was also pointed out that he has no tax policy, just some talking points and a speech.

Along with the US Chamber of Commerce, our delegation also engaged with the US Trade Representative Office for China, Japan, Korea, APEC, Southeast Asia and the Pacific. We were advised

that the administration is working very hard to get the TPP passed and that it is fundamentally important to US interests in Asia. There was also a sense of urgency and that we can’t wait a couple of years, while it is also unlikely any country would be prepared to renegotiate.

We also engaged with the departments of commerce, state and the Treasury and heard from a range of US congressmen. We then had individual meetings with congressmen and their advisers.

Apart from trade, tax was the other major area of discussion. Business tax reform might happen next year but is there political will – especially when many see themselves as losers in tax reform?

Questions around base erosion and profit shifting (BEPS) were raised, including concern about Australia’s proposed Diverted Profits Tax.

Other themes addressed included that the next administration will be looking at ways to revitalise China. There is a willingness to be tougher but it needs to be well-informed toughness and there was also caution about precedent and the need not to make mistakes.

It comes back to the TPP and ensuring that the US is seen as reliable and credible since it was the US that initiated it and walking away from it would send the wrong signal. It is likely that if it gets through Congress, then it will be during the lame duck session – between the election and the presidential inauguration.

One interesting and possible emerging trend is protectionism: US candidates are giving protectionist speeches and of course we have now witnessed Brexit, with a desire to be sovereign and independent without falling into the hands of populists. So, there are huge headwinds with free trade and we really

need to explain the benefits in a more convincing way. Strategic issues may help with some congressmen – TPP as part of a suite of things in the China strategy. There is a need to stress that job losses are not because of trade, they are because of productivity gains.

For the first time in 50 years, trade growth is slower than growth in global GDP. Trade has become a scapegoat, but there are other problems, like corporate tax, over-regulation, structural budget deficits and so on. Now that the Brexit vote and the Australian federal election are over, we will wait and see

what happens with the US presidential vote and whether the TPP passes through Congress.