As noted in the previous Chapter, the A-HKFTA and related Investment Agreement are intended to enshrine existing trade arrangements. As a consequence, most of the issues raised during the Committee’s inquiry do not relate directly to the provisions in the agreements.
This Chapter will examine the following issues:
the risk of protectionism in global trade;
international trade architecture;
the civil disturbances under way in Hong Kong at the time this Report is being drafted;
the income tax arrangements applying to residents of Hong Kong and Australia working for a period in the other party.
The Committee has in past reports noted with concern the trend towards protectionism in the international community.
The Australian Government has also acknowledged protectionism as a risk to Australia’s economy in its 2017 Foreign Policy White Paper.
Protectionism is also an increasing concern for many Australian exporters. Several inquiry participants focussed on the symbolic importance of the
A-HKFTA as an agreement between two parties with economies strongly reliant on an international rules-based global trading system.
Heath Baker, Acting Chief Executive Officer of the Export Council of Australia, advised the Committee that:
…the agreement binds the two governments to openness, which is increasingly important in the current geopolitical environment.
The Group of Eight, a body representing eight research focussed Australian universities, believes the A-HKFTA is particularly important in challenging times because it provides a clear and high level symbol of Australia’s commitment to our regional partners.
The Minerals Council of Australia argues that:
…in the current global environment of rising protectionism—and where the rules-based global trading system is coming under ever increasing pressure—trade and trade agreements become fundamental to constructive engagement, regional stability, development and economic growth across our region. Trade is a force for stability, and the ratification of A-HKFTA is an important step to help promote continued trade liberalisation and cooperation in the Indo-Pacific region.
The Committee concurs with these views. As protectionism rises, the original intent of an international rules-based global trading system, devised following the Second World War to minimise the risk of international conflict by promoting links between countries and furthering prosperity, is at risk of being forgotten.
International trade architecture
As noted in the previous Chapter, multilateral negotiations underway in the World Trade Organization (WTO) to liberalise trade rules and market access have been stalled for some time. In the absence of progress in the WTO, countries wishing to progress free trade agendas have used a mix of three alternatives:
unilateral reductions in tariffs and other trade barriers;
bi-lateral free trade agreements with other individual countries;
plurilateral free trade agreements involving more than one other country.
The negotiation of bi-lateral free trade agreements has increased significantly in recent decades, particularly in the Asia Pacific region.
The proliferation of bi-lateral free trade agreements, of which the A-HKFTA is an example, has resulted in the fragmentation of the international trade architecture. This is colloquially referred to as the ‘noodle bowl effect’ because of the number of bilateral agreements criss-crossing the region.
While bi-lateral free trade agreements are a useful response to the breakdown of negotiations in the WTO, the fragmentation of the international free trade architecture is not without its problems.
The Australian Industry Group (Ai Group) points out that when there are multiple relevant agreements, exporters must determine if there is an advantage to be gained in opting in to a particular agreement, and what they must do to comply with the rules of that agreement.
The Ai Group provides evidence that indicates that the resulting administrative burden prevents exporters, particularly small and medium businesses, from accessing the benefits of free trade agreements. Ai Group’s research found that:
13 per cent of large businesses and 24 per cent of small and medium businesses found comparing free trade agreements time consuming;
30 per cent of large businesses and 29 per cent of small and medium businesses found the rules of origin documentation process time consuming;
30 per cent of large businesses and 34 per cent of small and medium businesses had difficulty accessing information about free trade agreements;
29 per cent of large businesses and 26 per cent of small and medium businesses found considerable differences between the apparent requirements of a free trade agreement and the actual requirements by the officials in charge;
16 per cent of large businesses and 28 per cent of small and medium businesses had insufficient human or financial resources to utilise free trade agreements; and
31 per cent of large businesses and 29 per cent of small and medium businesses had difficulty understanding rules of origin.
Civil disturbances in Hong Kong
On 9 February 2019, the Hong Kong Government indicated that it would introduce legislation permitting extradition from Hong Kong to a number of countries including the Peoples Republic of China. The proposed extradition legislation has sparked a significant protest movement, and has resulted in large protests and some violence.
On 4 September 2019, the Hong Kong Government announced it was withdrawing the proposed extradition legislation. However, at the time of writing, civil disturbances continue in Hong Kong. A number of submissions addressed this issue. Several, in supporting the protest movement, recommended that ratification of the A-HKFTA be delayed.
Hong Kong Watch points out the link between the civil rights of Hong Kong citizens with the success of the Hong Kong economy:
Hong Kong’s freedoms and autonomy play a central role in allowing the city to function as East Asia’s financial hub. Safeguarding the rule of law, the fundamental freedoms and the city’s autonomy is not only in the interests of the people of Hong Kong, but it is in the interests of foreign businesses and international governments which consider it their Asian hub.
The National Tertiary Education Union’s (NTEU) submission emphasises the fact that the A-HKFTA does not require any commitments to human or labour rights. For the NTEU, this omission is particularly troubling, especially given recent reports in relation to the treatment of citizens, including trade union members, exercising their basic human right to peacefully protest against proposed extradition laws and in support of universal suffrage.
The Australian Council of Trade Unions (ACTU) argues that:
Given the escalating events taking place in Hong Kong at the moment, the ACTU calls on the government to wait until the situation is resolved before proceeding with the enabling legislation of the Australia-Hong Kong Free Trade Agreement. We feel it’s important that we show solidarity with the protesters, and our support for human rights, civil society and the rule of law in Hong Kong, before we decide on how to proceed with a free trade agreement.
The Minerals Council of Australia (MCA) believes that the protests that have affected Hong Kong since the beginning of June have had impacts on Hong Kong’s economy and on tourism and financial institutions, but the MCA expects the impact will be short lived. The MCA believes Hong Kong will remain an important source of investment into Australia in the medium and long term.
Elizabeth Ward from the Department of Foreign Affairs and Trade (DFAT) indicated that:
With a substantial stake in the success of Hong Kong, the Australian government continues to monitor the situation closely. The Prime Minister and foreign minister have welcomed the Hong Kong government’s recent decision to formally withdraw the extradition bill as a positive step towards responding to the concerns of the Hong Kong people and have continued to urge further efforts to de-escalate, establish dialogue and commit to negotiation as a basis for lasting resolution. Despite the protests, the purpose and import of the agreements negotiated here remain unchanged: to deliver architecture between the Australian and Hong Kong governments to build certainty around our strong economic relationship. It is because the Australian Government supports a stable, prosperous Hong Kong, with a high degree of autonomy, under the ‘one country, two systems’ framework, that the government intends to proceed to ratify the agreements which deliver the next milestone in this important relationship.
Hong Kong’s unique status is enshrined within the Basic Law, which provides it a high measure of autonomy and some of the attributes of a nation-state, whilst reaffirming the ultimate sovereignty of China. It is the Committee’s view that the maintenance of Hong Kong’s unique status is in Australia’s national interests.
The Committee heard evidence from the DFAT and the Australian Consul-General in Hong Kong that ratification of the Agreement would reaffirm and strengthen Hong Kong’s autonomous status within ‘one country, two systems’ and help to buttress Hong Kong’s unique constitutional arrangements.
The Committee notes with concern the ongoing civil disturbances and political instability in Hong Kong and urges a peaceful resolution of these issues and preservation of Hong Kong’s unique status.
The extent to which the Australian Government consults with stakeholders during the process of negotiating free trade agreements continues to be an issue for a number of inquiry participants. Trevor Gauld from the Electrical Trades Union of Australia advised the Committee that:
…The union movement was not engaged in any meaningful way throughout these processes. Periodically, there might be a webpage somewhere that calls for submissions. Meanwhile, the business community gets a seat at the table, gets regularly briefed and gets regularly involved in details of the negotiations. Civil society, unions included, is effectively locked out of the negotiation process, and we think that that’s reflected in the lack of emphasis on important societal issues that trade agreements bring up, such as what impacts on labour rights, what impacts on workers’ rights and the lack of detail that often comes through in the agreements.
Elizabeth Ward responded to the concerns about consultation:
I would say that we have most regular contact with AFTINET who, over the years, have been extremely active. They will acknowledge that many of their members are trade unions, and we know, because it’s all over their website, that ACTU is one of their members, and so our working assumption for a long time has been that whenever we speak to AFTINET, which is very regularly, it means that that information is well known, because AFTINET obviously does an excellent job with its members.
According to Vanessa Bourne, Chief of Staff at the University of Wollongong College Hong Kong :
…I would like to highlight… that, while we do support the robustness of Australia’s current tax regime, and the tax regime in Hong Kong as well, we do currently have some difficulty in the exchange of our staff between Australia and Hong Kong. Currently we have staff undertaking an exchange or secondment for periods of less than two years, which gives rise to a potential double income-taxation liability for those staff. It works as a disincentive for our Australian staff to undertake those engagements that may exceed the 60 days where they would also be captured under the Hong Kong income tax laws.
This issue is also raised by CPA Australia:
We note that Australia and Hong Kong have not entered into a double taxation agreement … As a consequence, we expect the anticipated economic benefits of the free trade agreement may not fully materialise.