Love thy neighbour –ASEAN – Australia’s third engine of economic growth

In financial circles, you hear a lot of talk about 'China and India' - or even sometimes 'Chindia' – to describe the rising economic superpowers of emerging Asia. This is particularly important in Australia, where China and India have moved up the ranks quickly, as leading export destinations for Australia.

In cricket terminology, Australia's exports to China have been growing steadily and consistently over a reasonable period of time, like a test match innings, while exports to India have shot up quickly like a 20/20 game. But with all the attention on China and India, there's been a third force to be reckoned with – ASEAN – the Association of South East Asian Nations (ASEAN). The local neighbourhood to our near north is becoming an important economic region to Australia, accounting for over 15 per cent of our trade (11.4 per cent of our exports and 19.2 per cent of imports) and with nearly half of Australia's 44,000 strong exporter community selling goods alone to the ASEAN market.

Furthermore, ASEAN is becoming important for small business too, with 21 per cent of exporting small and medium sized enterprises (SMEs) now selling into the region. They used to talk about Australia's 'tyranny of distance' from the rest of the world, well now we can talk about the 'power of proximity' with ASEAN joining China and India, as well as our traditional North East Asian markets of Japan and Korea and the like. At a time dubbed the ‘Asian Century', Australia finds itself in the right place at the right time.

Australia’s ties to ASEAN were assisted by bilateral agreements with Singapore, Malaysia and Thailand but also the ASEAN, Australia, New Zealand Free Trade Agreement (AANZFTA) that was negotiated in 2010. The AANZFTA agreement links the 12 nations of ASEAN, Australia and New Zealand into a trade community of 620 million people with a combined GDP of over A$3 trillion.

AANZFTA is Australia's most comprehensive agreement and given that it covers 12 nations it took considerable skill to negotiate. It follows on from agreements that Australia had with Chile, USA, Singapore, Thailand and New Zealand, along with the new agreements that Minister for Trade and Investment Andrew Robb has negotiated with South Korea, Japan and China. AANZFTA was negotiated by former Labor Minister for Trade, Simon Crean (as was Chile) who drew on all his negotiating skills and experience as ACTU President and general secretary of the Federated Storeman and Packers Union just as Andrew Robb used his negotiation skills as a former head of the National Farmers Federation (NFF).

What measures were in AANZFTA? The pact will immediately reduce tariffs to a range of agricultural exports, such as wheat and lamb to the Philippines, and cheese and grapes to Malaysia. In fact, by 2020, 96 per cent of all tariffs on current Australian exports to ASEAN are expected to be removed under AANZFTA. Australian exporters of dairy, horticulture, metals and automotive components were some of the key winners in the agreement.

However, that's just the trade side. Australia's ties to ASEAN are increasingly in the investment column as well. Accordingly, AANZFTA also includes measures covering issues important to investors such as intellectual property, eCommerce, business travel, competition policy and capacity building. This will help investment both ways, as ASEAN itself looks to invest in Australia too. This is important as ASEAN is a key source of foreign direct investment (FDI). For example, according to the Australian Bureau of Statistics (ABS) inward FDI stock from ASEAN is around $42.4 billion or $111.3 billion in total investment. Likewise, Australia invests around $29 billion in FDI and $84.2 billion in total investment.

In conclusion, there are strong signs now that ASEAN is joining China and India as a major economic engine for Australia and with the opportunities that will abound in the region in the Asian century there will be even more reasons for Australian exporters to 'love thy neighbour'.

On the 9 of November, CEDA will release the last policy perspective for 2015. Global networks: transforming how Australia does business will examine the importance of global connectedness to Australia's future prosperity.