From here to Germany: Why talks & trade are flourishing

June 28, 2017

From here to Germany: Why talks & trade are flourishing

In 1952, 13 years after diplomatic relations between Germany and Australia were broken off on account of World War II, Dr Walther Hess arrived in Canberra to mark a resumption of the relationship. “May this event mark a break with a deplorable past which has inflicted so much suffering upon the people of Australia,” Ambassador Hess was quoted in the Sydney Morning Herald as saying to the then Governor-General, Sir William McKell.

But more than just restarting diplomatic friendships, Hess noted that one of his most important tasks would be to promote economic ties between the two countries. “I’m convinced these relations are still capable of expansion,” he said. It’s a sentiment that carries on to this day, even if it has only kicked into high gear since 2000.

What we trade
Germany is Australia’s ninth-largest trade partner, with two-way goods and services trade valued at $19.7 billion in 2015-16. Australia’s goods and services exports to Germany were worth $3.6 billion in 2015-16. Goods accounted for $2.2 billion and included gold coins, oil seeds, precious metal ores and concentrates, coal and pharmaceutical products.

Germany is Australia’s fifth-largest source of imports ($16.2 billion). Goods imports ($13.2 billion) include cars, medication and high-tech equipment. Many German companies are also household names (and significant employers) in Australia, such as Volkswagen, Allianz, Siemens, Bosch and Deutsche Bank.

Merkel makes a visit
While that economic relationship has evolved steadily since 1952, Rolf Drohn of professional services firm EY’s German Business Network in Australia observes that bilateral relationships strengthened in parallel with the Group of 20 (G20) international forum gaining momentum in the past decade. Relations have moved into overdrive after German Chancellor Angela Merkel’s visit to Sydney after the 2014 G20 summit, when the two countries announced the formation of the Australia-Germany Advisory Group (AGAG).

The ramifications of Brexit are also starting to manifest in the changing ways Australian companies are accessing the EU, with some seeing Germany as a strong stepping stone to the entire trade bloc.

“Since Merkel’s visit, relations have moved very much closer,” says Werner Kemper, director of the Sydney office of Germany Trade & Invest, Germany’s economic development agency. “Both countries have realised that we are very much alike in our values and the way we think and do business. It’s much easier for the two to work together than it is with certain other countries. Both economies are very open, very trade and investment focused and both don’t support putting up barriers.”

Kemper adds: “When I spoke to Australian companies about four or five years ago, they’d say Germany was too complicated a market; if they were to go to Europe, they’d go to the UK. Nowadays I have companies come up to me and ask about the business climate in Germany. The whole outlook on Germany has improved.”

Productive agreements
The pace picked up in 2015 after AGAG released its recommendations during Prime Minister Malcolm Turnbull’s visit to Berlin for talks with Merkel in November that year. This “comprehensive blueprint” contains 59 recommendations across five themes: trade and investment; strategic dialogue; science and education; diversity and integration; and culture and sport.

At the time, Turnbull noted: “Australia and Germany have always had good relations, but we have not paid enough attention to that relationship.” He saw the recommendations as the beginning of a new era in Australian-German relations, “one where the longstanding friendship is going to be built into a much more productive engagement and cooperation in the years ahead”.

Drohn observes that the advisory group’s report has resulted in several measurable outcomes – for example, a new tax treaty that came into force on 1 January 2017 aiming to tackle international tax avoidance practices and eliminate double tax on income and capital. “Australia and Germany decided to take a fresh look at the links between the two countries,” he says. “And, during Germany’s G20 presidency in 2017, positive announcements on bilateral collaboration continue to flow.”

Investing in innovation
Kemper believes there are plenty of advantages for Australian companies investing in Germany. “Germany is in the very heart of Europe and close to all major capitals,” he says.

“We also have a highly skilled workforce. We have a very efficient and competitive manufacturing sector as well as great universities and institutions. And our companies are very good at helping start-ups get their products to market. So far we’ve had quite a few success stories in that area.”

No wonder the Australian Government established an innovation “landing pad” in Berlin last year that will give Australian entrepreneurs unprecedented access to Berlin’s well-established innovation sector and its strong links with potential funders. “It’s the first and only landing pad Australia has established in Europe,” says Kemper. “It shows that the Australian partners see Germany as the place to be in Europe.”

German-Australian Chamber of Industry and Commerce policy director Michael Zettinig says another interesting development is the Prime Minister’s Industry 4.0 Taskforce, which aims to boost collaboration between Australian industry leaders and their German counterparts in setting global standards for the next phase of advanced manufacturing.

Opportunities abound
Looking ahead, it seems relations will only get stronger.

Zettinig doesn’t expect any roadblocks from the German election in September 2017. “While the outcomes are obviously still to be decided, all major parties and both candidates for Chancellor – Merkel and Martin Schultz – are strongly pro-European and for free trade, so no negative impact on the Australia relationship is expected.”

While the details are also not clear yet, he says Brexit could strengthen the Australia-Germany relationship. “Companies are more interested in Germany when they want to connect with the EU, the single largest market in the world, and this will no longer be possible through the UK.”

Most experts expect positive benefits from a future Australia-EU Free Trade Agreement, which both Australia and Germany support. They also believe the biggest bilateral event in 2017 will be the major business conference, put on by the German-Australian Chamber of Industry and Commerce in Perth in November this year. This conference will bring together up to 1000 business and government leaders from Germany, Australia and the Asia-Pacific region to explore new investment and trade opportunities.

Forty years after the formation of the German-Australian Chamber of Industry and Commerce, and 65 years after the resumption of diplomatic relations, Kemper says the conference will be the biggest bilateral event that has ever taken place between the two countries.

“Together with ongoing talks about the free trade agreement with the EU, it suggests that the relationship will only move upwards and onwards,” Kemper says.

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