Ai GROUP SUBMISSION. Foreign Affairs, Defence and Trade References: Australia s relationship with Mexico. OCTOBER 2015

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1 Ai GROUP SUBMISSION Foreign Affairs, Defence and Trade References: Australia s relationship with Mexico. OCTOBER 2015

2 About Australian Industry Group The Australian Industry Group (Ai Group) is a peak industry association in Australia which along with its affiliates represents the interests of more than 60,000 businesses in an expanding range of sectors including: manufacturing; engineering; construction; automotive; food; transport; information technology; telecommunications; call centres; labour hire; printing; defence; mining equipment and supplies; airlines; and other industries. The businesses which we represent employ more than one million people. Ai Group members operate small, medium and large businesses across a range of industries. Ai Group is closely affiliated with more than 50 other employer groups in Australia alone and directly manages a number of those organisations. Australian Industry Group contact for this submission Dr. Peter Burn, Head of Public Policy Ph: Peter.Burn@aigroup.asn.au 2

3 Introduction The Australian Industry Group welcomes the opportunity to share our views on the business relationship between Australia and Mexico. Mexico s $1.26 trillion economy is the 15th largest in the world and, along with Australia, is a significant middle power. It is a G20 economy that is on course to enter the top 10 in little more than a decade and potentially become a top 5 or 6 economy by Our relationships through MIKTA, APEC, G20, OECD and now the Transpacific Partnership should be utilised to transform the relationship. Mexico has been a priority market for the Ai Group for many years. In 2008 we signed a Cooperation Agreement with COMCE, The Mexican Business Council for Foreign Trade, Investment and Technology and since then, have, at various times, hosted Austrade Mexico personnel on secondment, the Australian NZ Mexican Chamber of Commerce and Industry and an intern from Instituto Panamericano de Alta Dirección de Empresa (IPADE Business School). We have undertaken these activities because we believe in the important position that Mexico should have in Australian industry s global strategy. Why Mexico is important to Australia. Mexico holds a unique position in the Australian business consciousness as a badly kept secret. It is rarely mentioned as an export or investment destination; in this year s International Australia s International Business Survey: 2015 Report 1 Mexico is not mentioned even once, and yet it is Australia s largest trading partner in Latin America. There is also strong representation in market from leading Australian businesses Macquarie Group, BHP Billiton, WorleyParsons, Ausenco, Seek, Flight Centre, Amcor, Lend Lease, Woodside, Futuris, Arrium, Ansell, Rio Tinto, Orica, Incitec Pivot (Dyno Nobel), Austin Engineering. Mexico s advantages lay its proximity to the United States and the benefits of the North American Free Trade Agreement, as well as its cultural and economic ties into the rest of Latin America. It is also a regional hub for Global Value Chains: 57% of the FDI has been in manufacturing and Mexico now supplies one third of the total value of US imports of auto parts2. It is this integration with the US Auto Industry that has attracted the attention of many of Ai Group s members, particularly those best positioned to sell into the Tesla program. Other Advanced Manufacturing sectors are experiencing significant growth in Mexico, in particular Aerospace and Defence. There are almost 300 companies and support organisations in this sector in Mexico and they collectively generate exports of over 5.5 billion USD. We anticipate that Mexico s recent historic reforms of the energy sector will provide significant opportunities to Australian companies at various points of the supply chain. According to a report by the IMF, the exploitation of hydrocarbon reserves will require an investment of USD 40 billion annually in the years Australia s International Business Survey 2015 was commissioned by the Export Council of Australia (ECA), with the support of Austrade and EFIC (Export Finance and Insurance Corporation), and was conducted by the University of Sydney (USYD). 2 U.S. Census Bureau data cited by Promexico 3 IMF Country Report No. 14/320 3

4 The agribusiness industry in Mexico is a sector in continuous and steady expansion with an average annual growth of 2%, driven in part by strong consumer demand benefiting from 9% of the nation s FDI. However, it is hampered by poor land management and does provide significant opportunities for Australian companies with expertise in water and land management. Assistance for Australian Businesses While it is improving each year, by many independent measures Mexico is not an easy country in which to do business. The World Bank Group ranks it 39 in its annual Doing Business Report, Australia is ranked 10, and Transparency International gives it a corruption score of 35 (rank 103), Australia s score is 80 and is ranked 11. And yet, according to the 2014 World Investment Report published by UNCTAD, Mexico is the world's tenth largest Foreign Direct Investment (FDI) recipient. Other major developed economies are significantly more advanced in developing ties with Mexico than Australia, especially US, Canada (taking advantage of NAFTA), Europe (esp UK, France, Spain, Germany and Netherlands) and our Asian neighbours (especially Japan and Korea) it is incumbent on Australia to forge stronger ties if we are to ensure Australia manages its trading risk profile in Asia. Mexico has a network of 10 FTAs with 45 countries, 30 Reciprocal Investment Promotion and Protection Agreements (RIPPAs) and 9 trade agreements (Economic Complementation and Partial Scope Agreements) within the framework of the Latin American Integration Association (ALADI). Signing the TPP simply puts Australia on par with many of our competitors and dedicated efforts are required to convert improved access into actual business. In order for Australia to take advantage of the significant opportunities in many of our core competencies, Australian companies will require assistance in navigating this complex market. The Austrade post in Mexico makes effective use of its limited resources, but the diversity of industries and the speed of local reform mean that Australian companies are at risk of missing out on new business. Recommendations: Increase the number of local and Australian based staff at Austrade Mexico, paying particular attention to recruiting people from a diversity of industries. Consider a second office in Mexico, located in the north where the Aerospace and Automotive Clusters are situated. Fund the placement of Mexican Austrade staff into Australian industry associations for short term secondments, to encourage Australian businesses to consider this market. Commit to holding Australia Week in Mexico to showcase Australian industry and introduce Australian companies to Mexico. 4

5 AUSTRALIAN INDUSTRY GROUP METROPOLITAN OFFICES SYDNEY 51 Walker Street, North Sydney NSW 2060, PO Box 289, North Sydney NSW 2059 Tel Fax CANBERRA 44 Sydney Avenue, Forrest ACT 2603, PO Box 4986, Kingston ACT 2604 Tel Fax MELBOURNE Level 2, 441 St Kilda Road, Melbourne VIC 3004, PO Box 7622, Melbourne VIC 8004 Tel Fax BRISBANE 202 Boundary Street, Spring Hill QLD 4004, PO Box 128, Spring Hill QLD 4004 Tel Fax ADELAIDE 45 Greenhill Road, Wayville SA 5034 Tel Fax REGIONAL OFFICES ALBURY/WODONGA 560 David Stree,t Albury NSW 2640 Tel Fax BALLARAT Suite 8, Lydiard St South, Ballarat VIC 3350, PO Box 640, Ballarat VIC 3350 Tel Fax BENDIGO 87 Wills Street, Bendigo VIC 3550 Tel Fax NEWCASTLE Suite 1 Nautilos, 265 Wharf Road, Newcastle 2300, PO Box 811, Newcastle NSW 2300 Tel: Fax: WOLLONGONG Level 1, 166 Keira Street, Wollongong NSW 2500, PO Box 891, Wollongong East NSW 2520 Tel Fax AFFILIATE: PERTH Chamber of Commerce & Industry Western Australia 180 Hay Street, East Perth WA 6004, PO Box 6209, East Perth WA 6892 Tel Fax