Chapter 3
Key issues and committee view
Key issues raised in submissions
3.1
While the committee's inquiry is focused on the provisions of the implementing
bills for ChAFTA, many submitters restated or reiterated their positions on
issues in relation to the broader agreement. These issues included:
-
benefits of the agreement;
-
timely entry into force;
-
specific tariff changes;
-
services and investment;
-
rules of origin issues;
-
support of Australian exporters;
-
investor-state dispute settlement (ISDS); and
-
labour issues.
Benefits of the agreement
3.2
There were conflicting views expressed by submitters regarding the value
of the tariff outcomes achieved through ChAFTA. Those opposed often
characterised the tariff changes as one-sided. For example, the Construction, Forestry,
Mining and Energy Union (CFMEU) stated:
The proposed Bill, consistent with the agreement, eliminates
all tariffs on Chinese imports (95% of tariff lines on ratification and 100%
within 5 years) whereas China maintains tariff protection under the
agreement for no less than 257 tariff lines, for eternity.
Some of Australia's principle agricultural sectors such as
cotton, rice, wheat, sugar, and vegetable oil do not benefit from any changes
to China's high tariff regime under the agreement.[1]
3.3
The CFMEU noted that under the China-New Zealand trade agreement affected
sectors were given longer periods of adjustment 'as opposed to Australia's
proposed commitments [under ChAFTA] which sees 95% of tariffs removed
immediately'.[2]
3.4
Other submitters were strongly supportive of the outcomes achieved. AustCham
Beijing noted that ChAFTA would enable tariff reductions that would be hugely
beneficial to Australian exporters; improve access to the Chinese market for
Australian companies; and streamline approval processes for subsidiaries of
Australian businesses operating in China.[3]
Similarly, the Australian Chamber of Commerce and Industry (ACCI) stated:
ChAFTA removes a wide range of tariff barriers, benefitting
many Australian exporters, particularly in agriculture and food (agri-food).
Thousands of tariff lines will receive concessions obtained by negotiators in
ChAFTA, benefitting Australian business. Within 10 years of ChAFTA entering
into force, tariffs on 95 per cent of Australian goods exported to China will
be completely eliminated. We applaud this achievement.[4]
3.5
The Export Council of Australia stated:
As with other agreements, ChAFTA represents a compromise
outcome reflecting the respective negotiating strengths of the parties and
their respective political sensitivities...[W]hile not all parties are satisfied
with all the outcomes, the ECA believes that the ChAFTA delivers significant
commercial outcomes across a wide range of product sectors including barley,
sorghum, seafood, sheepmeat, pork, dairy, beef, wine and wool, as well as
resources, which should not be downplayed.[5]
Timely entry into force
3.6
Several submitters recommended rapid passage of the bills to allow
Australia to take advantage of the schedule for tariff cuts under ChAFTA. The ACCI
noted that 'apart from the significant economic benefits in the medium to long
term, if the ChAFTA enters into force early, Australian business will get a
double tariff cut under the deal which will reap immediate rewards for many
industries who will benefit from better access to the China market'.[6]
Similarly, the Australian Red Meat Industry ChAFTA Taskforce stated:
Timely passage of the Bills is essential to facilitate ChAFTA
entry into force (EIF) in 2015. The resultant initial tariff cut (in calendar
2015), followed by a second cut on 1 January 2016, will be extremely beneficial
as it will reduce the competitive disadvantage currently faced by our sector
(vis-a-vis the tariff preference enjoyed by our major competitor, New Zealand).
It has been estimated that the failure to secure ChAFTA entry
into force in 2015 will cost our industry around $110 million in 2016.
The expeditious completion of domestic legislative
requirements is critical if the commercial advantages to be derived from ChAFTA
are to be realised in a timely manner.[7]
3.7
AustCham Beijing also urged the committee to consider 'the broader
positive implications of the agreement and support its timely ratification'. It
argued any 'additional delays in the agreement will only serve to damage the
relationship with our largest and most strategically important trading partner'.[8]
Specific tariff outcomes
3.8
A number of submitters highlighted the impact of specific tariff
outcomes with the committee. The ACCI noted that several sectors in Australia
(including the sugar and rice industries) would not receive specific benefits
under ChAFTA. It hoped that these sectors would be covered in future agreement
reviews and encouraged the Australian Government 'to pursue further and better
concessions with China on behalf of these sectors'.[9]
3.9
Armstrong World Industries outlined their concerns that the immediate
removal of all import tariffs on PVC flooring cover would adversely affect their
ability 'to remain competitive against imported products'. It noted that the 'imbalance
in the proposed agreement places manufacturers like Armstrong at a distinct disadvantage
when competing with imported products with minimal infrastructure and employment
investment'.[10]
3.10
Similarly, the Australian Forest Products Association (AFPA) considered
that 'the proposed ChAFTA delivers an inequitable tariff outcome for paper
products which would have an adverse impact on investment and trade in the
Australian paper industry'. The AFPA argued that further reform of ChAFTA was
needed to address the adverse treatment of paper tariffs for the domestic paper
industry with efforts directed to removing the Chinese paper import tariffs.
Further, it argued that positions taken under the ChAFTA should not be 'allowed
to set expectations regarding the shape of future negotiations for the
forthcoming Australia-India Comprehensive Economic Cooperation Agreement'.[11]
3.11
The AFPA's position was supported by the CFMEU who recommended that 'Australian
wood and paper sectors maintain their tariff duties pending acceptable outcomes
achieved through bilateral discussions with China on a timeline for reciprocal
tariff reduction/abolition or alternative acceptable compensation for the
Australian industry being agreed'.[12]
Services and investment
3.12
The beneficial changes under ChAFTA for the Australian services sector
and for investment were also emphasised during the inquiry. For example, ANZ noted
that 'ChAFTA provides Australian businesses with access to around forty Chinese
service sectors at levels either equivalent to, or better than, those enjoyed
by other nations'.[13]
The Financial Services Council (FSC) considered that ChAFTA was 'firmly' in
Australia's national interest. It noted:
[The] growing middle class in China will increasingly want to
invest beyond China's borders. But Australia cannot export to this market
unless a regulatory structure such as this free trade agreement is in place. Similarly,
Australian fund managers are looking to meet their client demand for exposure
to the growth within China. The FTA secures the ability for this exposure. China
is starting from a relatively low base of capability - only 3% of the 145
trillion Renminbi (RMB) Chinese finance sector are assets are held in managed
funds. Australian managers will be able to access this market if the ChAFTA is
entered into force, to the huge benefit of our financial services sector and
the economy.[14]
3.13
However, the FSC emphasised there was further work to be done, noting
that there was no equivalent implementing legislation for the services sector:
It is essential that ChAFTA ultimately result in true mutual
recognition between Australian and Chinese regulators. A roadmap should be
developed on how market access (through licensing and mutual recognition) will
be facilitated by the regulators.
ASIC should take an active role in this process, including
involvement in the financial services committee. We note the commitment of the
two regulators to strengthen cooperation and we welcome this.[15]
Rules of origin issues
3.14
The Export Council of Australia (ECA) commended the Australian
Government for negotiating 'such a trade liberalising agreement with Australia's
largest trade partner'. However, it cautioned that 'there is a significant
amount of information which is now needed urgently from the Department of Immigration
and Border Protection (DIBP) to clarify many of the procedures required to use
ChAFTA for imports and exports, including but not limited to the Regulations
required for the Rules of Origin'. These included:
-
details on Certificates of Origin (CoO);
-
information on Advance Rulings for Declarations on Origin (DoO);
-
the approach of the DIBP when the importer named on the CoO or
DoO is not the importer named on the Import Declaration; and
-
the approach of the DIBP to ChAFTA compliance and small
discrepancies in tariff classifications.[16]
3.15
The potential for transhipment issues for Australian exports to China
was also raised during the inquiry. For example, Australian Council of Wool
Exporters and Processors noted the experience of New Zealand wool exports who
have been required to obtain 'transhipment certificates' where shipments change
vessels before reaching their destination.[17]
The ECA also highlighted the need for information from DIBP regarding how
transhipment through Hong Kong would be treated.[18]
3.16
The DIBP outlined that the approach to implementing the rules of origin
in ChAFTA is consistent with the approach taken in Australia's other preferential
trade agreements such as the Japan-Australia Economic Partnership Agreement. The
DIBP acknowledged that 'concerns have been raised by industry bodies regarding
the complexity and lack of harmonisation of the rules of origin processes
across Australia's Free Trade Agreements (FTAs)'. It stated that 'concerns have
been noted and taken account of wherever possible in the negotiation of the
treaty and drafting of the Bills'.[19]
Support for Australian businesses
3.17
The ECA noted that China has a relatively complex and multi-layered
regulatory framework. A recent survey of Australian exporters identified 'China
as the most difficult market to do business in, with the most significant
barriers including information about local language, culture &/or business
practices (37 per cent), understanding local regulations (10 per cent), payment
issues (9 per cent), and regulations that favour local firms (9 per cent)'. The
ECA recommended:
[T]he adoption of a program to fully promote the benefits of
ChAFTA to all those in trade including importers, exporters and service
providers. It seems to be widely accepted that there is a significant lack of
awareness and understanding of FTAs across the board. The ECA commends the work
currently being undertaken by DFAT and Austrade to promote the benefits of the
North Asian FTAs. However, the ECA believes sector specific engagement and
expanding the scope to include the promotion of information about all of
Australia's FTAs is necessary.[20]
3.18
The ECA sought information regarding when DIBP would issue its usual
guides and notices and conduct its usual information sessions for ChAFTA.[21]
3.19
The DIBP outlined that it will hold information seminars in Brisbane,
Sydney, Melbourne, Adelaide and Perth with the aim of providing industry with
information on accessing preferential customs duty under ChAFTA. It stated:
These information sessions will follow a similar format to
those provided for the implementation of other recent FTAs, such as the
Korea-Australia Free Trade Agreement and the Japan-Australia Economic
Partnership Agreement.
These information seminars target customs brokers, freight
forwarders and other professional service providers, and will provide advice on
preferential customs duty commitments under ChAFTA and how to use the rules of
origin, including the product specific rules. The information sessions will be
underpinned by detailed Instructions and Guidelines and other material, which
will be available publically on the DIBP website before the commencement of
ChAFTA.[22]
Investor-state dispute settlement
3.20
The Investment Chapter of ChAFTA contains an investor-state dispute settlement
(ISDS) mechanism under which commitments can be enforced directly by Australian
and Chinese investors. The Australian Manufacturing Workers' Union (AMWU)
reiterated its concerns regarding ISDS clauses within Australia's trade agreements:
These clauses mean that when Australian governments make laws
or policy in the interests of Australian people, foreign investors can sue for
damages if their profits are affected in an international 'kangaroo court'.
Kangaroo court is a fitting description because these ISDS tribunals don't need
to consider the benefits of the policy change for the population, don't have an
independent judiciary, don't need to respect precedent and don't have an appeal
mechanism. By being restricted to foreign investors, these clauses also
discriminate against local businesses which can only access our domestic court
system for any claims for compensation.[23]
3.21
In contrast, ANZ considered that ChAFTA would increase certainty for
Australian investors and that the 'negotiation of a comprehensive investment
chapter will create further opportunities'.[24]
Similarly, the ECA also did not consider that the concerns regarding the ISDS
provision were warranted and pointed out that these protections 'will also be
available to Australian investors and exporters'.[25]
3.22
Further, Lexbridge Lawyers observed:
In the case of ChAFTA the scope of ISDS is much narrower than
any other Australian FTA which includes ISDS and also much narrower than the
vast majority of Australia's older bilateral investment treaties. ChAFTA
contains a set of safeguards which are similar to those found in other recent
agreements including the Korea-Australia FTA. In addition ChAFTA contains
additional procedural safeguards which have not been included in any existing
Australian agreement. Most notably, these include an innovative safeguard to
block – and potentially prevent – claims against non-discriminatory public
welfare regulation. Taken together, these factors lead to the conclusion that
the exposure under ChAFTA – in terms of a challenge to legitimate government
regulation – is significantly less than the vast majority of Australia's
agreements.[26]
Labour mobility issues
3.23
The provisions of the bills under consideration do not implement the
movement of natural persons commitments made under ChAFTA. Nonetheless, several
submissions reiterated concerns raised with other inquiries regarding these
arrangements. These labour mobility issues were extensively discussed within
the JSCOT's report on ChAFTA.[27]
3.24
On 21 October 2015, Minister Robb and Minister Dutton
announced that support had been secured from the Opposition to ensure the
passage of the implementing legislation for ChAFTA.[28]
The key components of the agreement were:
To provide Labor with greater assurance...the Government has
agreed to amend an existing regulation. The amendment will simply prescribe the
existing requirement under policy that employers seeking to sponsor skilled
workers on 457 visas under work agreements will have to demonstrate that they
have made recent and genuine efforts to recruit local Australian workers first.
This provision will apply to all work agreements, including
those under the Investment Facilitation Arrangement (IFA), linked to ChAFTA. It
is important to note that labour market testing is indeed already a mandatory
requirement under current Government policy which is detailed in existing DIBP
guidelines.
The Government has also agreed to make minor amendments to
guidelines for companies seeking a work agreement. The amendments will
incorporate additional criteria for the Minister to consider in approving work
agreements. To ensure observance of the guidelines they will also be referenced
in a new regulation.
The Department of Immigration and Border Protection (DIBP)
will include in its annual report details about the number of work agreements
signed, including the number of 457 visa holders engaged under the agreements,
together with occupations and industries in which they are engaged. This will ensure
programme transparency.
In regard to subclass 457 visas for overseas tradespersons,
the Government will amend a visa condition to make it clear that visa holders
must also obtain any licenses, registrations or memberships required under
commonwealth or state or territory law. The visa holder will be required to
notify the Immigration Department if their licence or registration is refused,
revoked, ceased or cancelled.
We have also reaffirmed that DIBP will continue to
investigate evidence-based allegations of non-compliance with visa conditions,
including those concerning licensing and registration. The Department will also
report annually on visa compliance monitoring.
...
As recommended by the recent Independent Review of the
Integrity of the Subclass 457 Programme, the Government will undertake an
evidence-based review of the TSMIT (Temporary Skilled Migration Income
Threshold). This review was scheduled to commence by the end of 2015, but has
been brought forward as part of the agreement with Labor.
The TSMIT is the entry level point into the 457 programme,
and positions with a market salary below the TSMIT are not eligible to be
sponsored under the Subclass 457 programme.
The forthcoming review of the TSMIT will consider its current
level (currently $53,900), whether it should be indexed and if so advise on an
appropriate methodology.
The base rate will not be increased prior to this review
which will commence before the end of this year. All relevant stakeholders will
be consulted including peak business groups and the ACTU.[29]
3.25
Commenting on this agreement, the ACTU did not consider it addressed
'the real shortcomings of ChAFTA and the related [Memorandum of Understanding
(MOU)]':
[A]ny requirements for labour market testing set out in the Regulations
or in guidelines as a result of this agreement, while welcome, will not cover
positions filled by Chinese nationals under the standard 457 visa program.
Under the terms of CHAFTA, these workers would not be subject to labour market
testing. Neither do the agreed amendments address the issue of labour market
testing for installers and servicers on 400 visas who under the terms of CHAFTA
cannot be made subject to labour market testing.
The problem remains that the express terms of CHAFTA remove
labour market testing for all occupations – trade, technical and professional –
under the standard 457 visa program. Therefore, while the changes initiated by
Labor make some improvements they do not (and, more to the point, cannot)
reverse what CHAFTA says in black and white. The only real solution to this
would be the renegotiation of CHAFTA itself.[30]
3.26
The ACTU recommended further amendments to 'help strengthen protections
for both Australian and temporary overseas workers'. These recommendations
included:
A requirement for an online 'Project Jobs Board' to be
established for each IFA to advertise all project positions.
A provision for the Minister to impose as a further condition
on IFA projects 'a minimum number of apprentices and trainees to be employed (or
graduate employment places be provided)'.
Aligning the TSMIT for 457 visa workers with Average Weekly
Earnings (currently around $77 000 p.a.).
Extending the requirement to pay ‘market rates’ to installers
and servicers on short-term 400 visas.
A requirement for a public register of work agreements that
includes the full text of all agreements, available online once they are
finalised.
Specific requirements for consultation with relevant unions
and other stakeholders as part of the negotiation of IFAs.
Placing the onus of proof on sponsoring employers to provide
evidence that the visa holder has obtained the appropriate licence within 60
days of the visa being issued.
Ensuring that all 457 visa holders under IFA work agreements
are direct employees and not contractors.
A provision for training plans under work agreements to
specify the occupations the training relates to, with a requirement for
training to be focused on those same occupations which are purportedly in
shortage and where 457 visa workers are being used.[31]
3.27
The ACTU argued these amendments 'should be implemented through the
Migration Act' and stated it was 'not clear why the agreement between Labor and
the Government has settled in the end on the amendments being implemented
through the Regulations and departmental policy guidelines'.[32]
Committee view
3.28
The committee's inquiry is into the provisions of the ChAFTA
implementation bills, however the committee recognises this proposed
legislation cannot be viewed completely apart from the broader agreement.
3.29
By any measure, this is an important trade agreement for Australia. China
is Australia's largest trading partner in goods and services (valued at almost
$160 billion in 2013-14), our largest goods export destination ($100 billion in
2013-14), and our largest source of merchandise imports ($50 billion in
2013-14). On entry into force, more than 85 per cent of Australia's trade to
China will have tariffs set at zero and on the full implementation of ChAFTA,
95 per cent of trade will enter duty-free.
3.30
In the view of the committee, some of the most significant outcomes are
in the trade in services component of the agreement. Under ChAFTA, many Australian
companies will be able to operate within China with improved market access
conditions. Australia has also achieved Most-Favoured Nation treatment
provisions for major services sectors.[33]
3.31
The committee acknowledges that some Australian exporters did not receive
the tariff reductions or the market access they hoped might be achieved. This situation
is not unexpected where negotiations are concluded between two trading partners
with each representing their own national interests. However, the committee
agrees with the FSC that 'ChAFTA is not an end-point, but rather a base from
which to build' on Australia's growing trade and investment relationship with
China.[34]
The committee notes that China has agreed to a review three year after ChAFTA
enters into force to consider future liberalisation of trade and further
expansion of market access.[35]
3.32
The committee urges the Australian Government to continue to work with
Australian businesses and exporters seeking further access to the Chinese
market and to consider the position of these sectors during negotiations for
future trade agreements, for example with India, Indonesia or the European
Union. Further, the committee considers the Australian Government should expand
its programs to improve the utilisation and awareness of Australia's free trade
agreements. In this regard, the committee notes that Austrade, the Department
of Foreign Affairs and Trade and other government agencies are currently
conducting information seminars around Australia regarding the North Asia Free
Trade Agreements.
3.33
Labour mobility issues were clearly the most contentious aspect of the
agreement. The committee notes the work done by Minister Robb, Minister Dutton
and the Shadow Minister for Trade and Investment, Senator the Hon Penny Wong,
to secure a bipartisan agreement to allow passage of the implementing bills. It
is encouraging that a pragmatic compromise has been achieved to address the
concerns raised regarding labour issues within the agreement. This outcome will
secure a timely implementation of ChAFTA and allow Australian businesses to
capture the full value of the tariff reductions and improved access to the
Chinese market. Importantly, these agreed changes are non-discriminatory and
will not contravene the commitments that have been made by Australia under
ChAFTA.
3.34
The committee acknowledges that not all concerns raised regarding labour
issues have been addressed through the compromise reached. There may be
opportunities to consider additional changes, provided these do not contravene
Australia's commitments. The committee's view is that there is continuing merit
in the recommendation from the majority JSCOT report that the Australian
Government ensure all government departments and agencies responsible for
regulating this area be adequately resourced to carry out their functions
effectively.[36]
3.35
The ISDS mechanism in ChAFTA was another area where concerns were
raised. This is an area of the agreement that is currently limited and will be
the subject of further development between Australia and China. The committee
is satisfied the additional safeguards which have been incorporated will be
sufficient to protect Australian interests.
3.36
An important consideration for the committee is that ChAFTA cannot be
considered in isolation. Australia must maintain a competitive advantage in a
dynamic global trading environment. In this context, the committee's view is
that ChAFTA is clearly in Australia's national interest. The bills should be
expeditiously passed to facilitate the implementation of the agreement.
Recommendation 1
3.37
The committee recommends that the Senate pass the Customs Amendment (ChAFTA
Implementation) Bill 2015 and Customs Tariff Amendment (ChAFTA Implementation)
Bill 2015.
Senator
Chris Back
Chair
Navigation: Previous Page | Contents | Next Page