The treaty actions considered in this Report represent substantial gains for Australian industry, agriculture and business and therefore for the Australian economy. Although Indonesia is currently only Australia’s 14th largest trading partner, its market provides exceptional potential for Australian businesses into the future. With its large population, rapid urbanisation, and emerging middle class it is expected to become the world’s fourth largest economy by 2050. Indonesia’s proximity to Australia and the already extensive existing relationship between the two countries, give Australia a distinct advantage in this growing market.
Hong Kong is one of Australia’s most significant trading partners. Australia’s exports to Hong Kong in goods and services were valued at $14.5 billion in 2017–18, approximately 3.6 per cent of Australia’s total goods and services exports. Hong Kong is Australia's fifth largest source of foreign investment ($116.6 billion, 2017) and the tenth largest destination for Australian foreign investment abroad ($47.4 billion, 2017).
The Committee is aware that the recent rise of protectionism and economic nationalism pose a risk to Australia as a trade-dependent nation. As the Committee has acknowledged previously, in theory, inclusive multilateral trade agreements are the preferred route to trade liberalisation and economic growth. However, with the difficulties currently facing the system, bilateral, plurilateral and regional trade agreements are often a more practical means to provide access for Australian businesses and to support the goal of trade liberalisation.
Despite a range of issues being raised with the Committee, there was overwhelming support for these two trade agreements and the investment agreement with Hong Kong, which the Committee considered concurrently.
The Indonesian agreement in particularly has been enthusiastically supported by industry, agricultural and business sectors. Access to the enormous potential presented by the Indonesian market has been pursued by Australian businesses for some time and the commitments in the IA‑CEPA are expected to deliver considerable gains across a wide range of sectors.
The timing of the agreement with Hong Kong has coincided with an uncertain political situation in Hong Kong. However, the advantages of the agreement have not been questioned. Hong Kong is already an open market but the A-HKFTA will lock in existing zero tariffs and address some non-tariff barriers. The Australia-Hong Kong investment treaty will replace an outdated bilateral investment treaty and provide certainty.
Investment: ISDS and BIT
Investor-state dispute settlement mechanisms
The Committee has previously examined investor-state dispute settlement (ISDS) mechanisms in some detail and is currently conducting an inquiry into the United Nations Convention on Transparency in Treaty based Investor‑State Arbitration (Mauritius Convention) which will provide a platform for a more extensive examination of the ISDS system.
The Committee recognises that improvements to ISDS mechanisms have been made in recent years, providing greater scope for public policy discretion and limiting vexatious or litigious claims, but acknowledges that concerns remain in some areas about the potential operation of such mechanisms.
Bilateral investment treaties
The Committee notes that the Australia-Hong Kong bilateral investment treaty (AHK-BIT) will terminate with the introduction of the new investment treaty, while there is no proposal to terminate the Australia-Indonesia bilateral investment treaty (IA-BIT). This has raised concerns over the overlap between the existing IA-BIT and the ISDS provisions in the IA‑CEPA.
The Committee acknowledges the uncertainty that may result if the two treaties remain in force and notes that accepted practice has been to terminate existing older bilateral investment treaties when updated provisions come into effect.
The Committee is also aware of the uncertainty posed by the ‘survival clause’ in the IA-BIT which could enable claims to be brought against the Australian Government for up to fifteen years after the treaty action has been terminated. The Committee notes that on previous occasions the Australian Government has terminated the ‘survival clause’ in similar BITs.
Ratification and implementation
The Committee notes the calls for rapid ratification of the IA-CEPA and strong support for early ratification from industry sectors.
The Committee acknowledges the challenge of fully realising and implementing IA-CEPA and urges the Australian Government to continue to work with Indonesian authorities to ensure that the current momentum is maintained and that roadblocks are identified and dealt with swiftly.
In this regard, the Committee also acknowledges the ongoing need to educate and support Australian businesses to take advantage of the opportunities presented by these trade agreements and commends the efforts being made by both government and non-government agencies to assist in this area.
The Committee supports the ratification of IA-CEPA and recommends that binding treaty action be taken as soon as possible to realise the benefits of this agreement.
The Committee supports the Comprehensive Economic Partnership Agreement between the Government of Australia and the Government of Indonesia and recommends that binding treaty action be taken as soon as possible.
The Committee acknowledges concerns over the current political situation in Hong Kong but takes the view that ratification of the Agreement will strengthen Hong Kong’s unique status under ‘one country, two systems’ and reaffirm and buttress the high measure of autonomy this provides Hong Kong over its own affairs.
The Committee supports ratification of the A-HKFTA and recommends that binding treaty action be taken as soon as possible to realise the benefits of this agreement.
The Committee supports the Free Trade Agreement between Australia and Hong Kong, China and recommends that binding treaty action be taken as soon as possible.
The Committee supports the ratification of the Australia-Hong Kong investment treaty and recommends that binding treaty action be taken as soon as possible to realise the benefits of this agreement.
The Committee supports the Investment Agreement between the Government of Australia and the Government of the Hong Kong Special Administrative Region of the People’s Republic of China and recommends that binding treaty action be taken as soon as possible.
The Committee recommends that the Australian Government pursue the termination of the Agreement between the Government of Australia and the Government of the Republic of Indonesia concerning the Promotion and Protection of Investments, and seeks to terminate the ‘survival clause’ in this agreement.
The Committee recommends the Australian Government gives due consideration to implementing a process through which independent modelling and analysis of a proposed trade agreement is undertaken in the future by the Productivity Commission, or equivalent organisation, and provided to the Committee alongside the National Interest Analysis (NIA) to improve assessment of the agreement.
Mr Dave Sharma MP
3 October 2019