Australian mining – economic contribution and export focus
Australia’s resources sector makes a major contribution to Australia’s economic prosperity. The sector dominates Australia’s trade, accounts for a major part of inward and outward direct investment flows and has underpinned the regionalization of Australia’s trade over the past three or four decades. Mining is one of Australia’s most export-oriented industries. Exports of minerals, fuels and non-monetary gold were valued at $144.6 billion in 2015-16, making up 46.3 per cent of Australia’s total exports of goods and services and 59.2 per cent of Australia’s merchandise exports.
Mining and trade with the United Kingdom
Australia’s two-way trade with the United Kingdom (UK) was worth $26.97 billion in 2015-16, making it our fifth largest trading partner. Australia’s exports to the UK were worth $12.07 billion. Exports of all minerals and energy commodities to the UK were worth $4.94 billion in 2015-16, representing 69 per cent of all Australian merchandise exports to the UK and 41 per cent of goods and services exports to the UK. However, the UK accounted for just 3.6 per cent of Australia’s total exports of these minerals, energy and metals manufactures.
UK’s role in investment, capital and commodities markets
The UK has been a major source of foreign investment for Australia. In terms of stocks of foreign investment in Australia, the UK is the second largest source country, accounting for investments valued at $499.9 billion in 2015.
While the UK is not a major export destination for most Australian minerals and resources commodities, it is nonetheless highly important to Australia’s mineral and resources exporters because of its role as a global trading hub for gold and metals. The London bullion market facilitates wholesale over-the-counter trading of gold and silver while the London Metal Exchange is one of the world’s major centres for trading in industrial metals.
Beyond these minerals commodity trading hubs, the City of London is one of the world’s most significant financial centres, providing capital market activities and other services which are important for globally-focussed businesses such as Australian mining companies. Brexit is creating uncertainties about the future role of the City of London and the UK’s financial services sector. These uncertainties have the potential to disadvantage Australian businesses with exposure to UK financial services, capital markets and broader business law and regulation.
Importance of trade and investment liberalisation
Trade and investment boost growth, support jobs, improve living standards and forge more competitive industries. Australia has strong interests in maintaining an open global trading system, in achieving further access to export markets and in reducing the costs of moving goods and services across international borders. This requires pursuing trade liberalisation across a range of fronts.
Australia should continue negotiations for bilateral free trade agreements (FTAs). The negotiations with India and Indonesia should be given particular priority. The MCA also supports moves by Australia and the European Union (EU) to complete a scoping study and launch formal negotiations for an Australia-EU FTA. The MCA also supports moves to negotiate a UK-Australia FTA following the UK’s departure from the EU. However, the MCA believes close consideration needs to be given to the timing of any move for an FTA with the UK.
Implications of Brexit for Australia’s trade and investment relationships
Arrangements that will apply between the UK and its trading partners following the completion of Brexit are uncertain. However, the UK Government’s plans include the following key elements:
Establish UK World Trade Organization (WTO) commitments, based on EU commitments.
Negotiate an FTA with the EU.
Negotiate arrangements for continuity in the UK’s trading relationships with third countries covered by existing EU FTAs or preferential arrangements.
Negotiate FTAs with third countries not covered by existing EU agreements.
This is an ambitious agenda which will see the UK engaged in several complex negotiations during the lead-up to and after Brexit.
Where does Australia fit in the post-Brexit environment?
Australia needs to consider where it fits in this crowded policy space and to assess the potential gains that would come from an FTA with the UK compared to the trade and investment arrangements that will prevail immediately following Brexit. It also needs to consider how entering negotiations for an FTA with the UK would impact on other Australian trade priorities.
In addition to considering an FTA with the UK, the Australian Government needs to devise a strategy for ensuring continuity and certainty for Australian businesses with interests in the UK and the EU. A two-stage approach could be adopted with the first stage involving immediate issues for Australian businesses that need to be resolved due to Brexit. These priorities could include:
Working in the WTO to facilitate establishment of UK most favoured nation (MFN) tariff schedules and other commitments on terms that do not disadvantage Australian exporters.
Resolving uncertainties about migration regulation which could affect Australian businesses and Australian citizens working in the UK.
Supporting policies to allow the UK to continue functioning as a global financial hub.
Ensuring Australian businesses have access to well-regulated capital markets, financial services and commodities trading platforms in both the UK and the EU in the post-Brexit era.
The second stage would involve launching negotiations for an FTA with the UK. Such an FTA should improve market access for Australian goods and services and ensure Australian exporters are not at a competitive disadvantage under any new trading arrangements the UK enters with third countries.
Market access for minerals and energy
The UK Government’s intention is to replicate the EU’s existing MFN commitments in the form of UK schedules to WTO agreements. Market access barriers for minerals and energy products are relatively low under the EU’s existing common external tariff. The EU applies zero tariffs on imports of many major minerals commodities which Australia produces such as iron ore, coal and gold. However, there are a number of minerals products where the EU imposes tariffs ranging from around 2 to around 10 per cent. Those at the higher end of this range are on basic metals manufactures such as aluminium, ferro-alloys and a number of base metals such as titanium, zirconium and antinomy. The Australian Government should seek the removal of these tariffs in FTAs with the EU and the UK.
Movement of people
The Australian Government should take steps to maintain existing flexibilities for movement of people between Australia and the UK and between the UK and the EU following Brexit so that Australian businesses in the UK and the EU are not adversely impacted by changes to migration rules.
Given the UK’s importance as a source of investment capital for Australia, the monetary threshold which triggers Foreign Investment Review Board (FIRB) screening for proposed business investments from the UK should be increased from its present level of $252 million to the $1,094 million screening threshold applying to investors from FTA partner countries. Lifting the threshold for UK investors would be good public policy in any circumstances. It is all the more desirable given the possibility that Brexit-related uncertainties may weigh on UK capital outflows.