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Strong dollar hurts prospects for manufacturing exports

19 June, 2007

An important new study released by the Australian Industry Group highlights the strong contribution that Australian manufacturing makes to our export effort - a point that was made by the Trade Minister in the annual Trade Statement recently.

It also, however, highlights the strong headwinds our manufacturing exports face from the high and rising Australian dollar which is trading at almost 20 cents higher than its ten year average.  This is significantly reducing the potential earnings of our manufactured exports and is contributing to restructuring in Australia's manufacturing sector.

Ai Group Chief Executive, Heather Ridout, said the findings in the report, The Australian dollar and manufacturing exports: Shaping earnings and prospects, reinforce the anxieties most Australian manufacturing exporters feel when the exchange rate appreciates strongly.

"Australian manufacturers have clearly identified the high exchange rate as a critical factor influencing export growth.

"In recent days the Australian dollar has hit US$0.84 for the first time since August 1990.  According to the Ai Group report, this strong appreciation in the Australian dollar signals a scaling down of our export growth outlook by $1.7 billion.

"With the Australian dollar approaching US$0.85 in recent times, there is also a risk that the export gains clawed back by the manufacturing sector in the past two years might be further eroded.

"However, it is encouraging that the new report shows that in tandem with the exchange rate pressures, more than half of Australian manufacturing exporters have implemented strategies to improve global competitiveness. This action has left the sector in better shape than what might have been the case.

"The report also highlights that as part of industry's restructuring activities, sustained global engagement is now part of Australian manufacturing industry's ongoing operations.  In this regard, the Federal Government's recent Global Integration initiative brings together a range of programs which will provide strong support for the industry such as the Global Opportunities program and the new Productivity Centres.  We welcome these programs as they will build our strategic capability to take advantage of global opportunities in all their manifestations. In addition, the removal of tax barriers to offshore expansion of Australian companies would also be helpful in this regard," Ridout said.

"Clearly the current challenge, however, is to shore up our value added export efforts in the face of the high exchange rate and ferocious international competition which is exacerbating the competitive pressures on the industry.  In this regard we believe targeted enhancements to the EMDG and Tradestart schemes would be very timely and effective.

"One of the messages from the report is that while we know that at this very moment negotiations are precariously poised, nonetheless we have to continue to work hard to try to get a substantial outcome from the WTO Doha Round as well as achieve real gains in critical bilateral negotiations. This point was highlighted in the Annual Trade Statement released this week by the Minister for Trade, Warren Truss.

"The Ai Group report also highlights the success of the CER trade agreement with New Zealand with one in five exporters saying it had helped them with new market opportunities.  "New Zealand was found in the report to be the market with the greatest export growth prospects and this will provide a positive backdrop to the New Zealand Prime Minister's visit to Australia this week," she said.

"Encouragingly, it appears that companies are also reaping benefits from the Australia-US FTA where some 14 per cent of exporters found it beneficial in moving in to that market.

"Also, China is identified in the report as one of the countries with the greatest export growth potential which is very encouraging.  However, Ai Group's earlier companion report, Australian Manufacturing and China, found that around 50 per cent of companies with a trade relationship with China identified one or more non tariff barriers limiting their opportunities to take advantage of the China market.  These barriers included I.P. infringement, problems with the legal system and discrepancies in government administration.  These issues go to the heart of the challenges which we face in the current Australia-China FTA negotiations," Ridout said.

The results in the study The Australian dollar and manufacturing exports: Shaping earnings and prospects, are based on the responses of over 700 Australian manufacturers, with total employees of nearly 77,000 and with exports exceeding $4.3 billion.

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