This is the second inquiry that the Joint Standing Committee on Treaties (JSCOT) has held into the Peru-Australia Free Trade Agreement (PAFTA). At the request of the Australian Labor Party, this inquiry examined two specific aspects of PAFTA – the number of trade agreements and the investor state dispute settlements (ISDS) provisions. Having reported as recently as August 2018, this Committee has found no evidence to warrant a change to its original recommendation that binding treaty action be taken.
Number of trade agreements
Australia is entering a growing number of trade agreements, and the number of agreements with one partner is increasing. It is important to note, however, that Australia has previously negotiated multiple free trade agreement pathways in order to achieve greater market access.
Australia has multiple existing agreements with Malaysia, New Zealand, Thailand and Singapore.
While there was discussion about the number of trade agreements with Australia’s trading partners, evidence shared also showed that this can produce benefits for exporters. The Export Council of Australia stated to the Committee:
Regarding the issue of multiple FTAs with one partner, that is something that we have taken a position on, and it is something that we do not consider to be a problem. I should say at the outset that I'm not aware of any of our members complaining about too much market access.
The National Farmers Federation expressed a similar view:
Essentially, we don't see any significant problem with there being multiple trade agreements. We say in the submission that our preference, of course, would be for one set of trade rules that apply to all countries in order to make it easier for our exporters to know the regulatory conditions and the market access conditions that they face in all markets.
The PAFTA is a good example where an additional agreement has opened up more market access for Australian exporters. PAFTA was able to achieve market access gains for Australian exporters that exceed the TPP 11, because the TPP 11 is a plurilateral agreement of 11 parties representing interests of a diverse group of countries.
The DFAT submission provides a useful summary of the additional benefits of PAFTA, namely:
The TPP 11 eliminates 99.3% of tariffs over 16 years. Under PAFTA more than 99 per cent of tariffs will be eliminated in 5 years. PAFTA offers Australian exporters a significantly lower phasing period to access tariff eliminations…
Peru provided significant new market access for Australia in PAFTA for four of its so called “price band” products (an additional variable tariff of up to 20 per cent). Australia will receive tariff-free and price band-free quotas on:
Sugar: on entry into force of the agreement, Australia will have duty free access of 30,000 tonnes of sugar into Peru, growing to 60,000 tonnes in five years and 90,000 tonnes in 18 years;
Dairy: on entry into force, Australia will have duty free access of 7,000 tonnes of dairy products into Peru, growing to 10,000 tonnes in five years;
Rice: on entry into force, Australia will have duty free access of 9,000 tonnes of rice products into Peru, growing to 14,000 tonnes in five years;
Sorghum: on entry into force, Australia will have duty free access of 15,000 tonnes of sorghum products into Peru, growing to 20,000 tonnes in five years.
The price band was not subject to reduction in the TPP-11 thereby effectively excluding trade. A comprehensive list of PAFTA market access outcomes that are better than TPP-11 outcomes is at Attachment A.
Beyond goods market access, Peru has undertaken to recognise Australian university degrees following the ratification of PAFTA.
Throughout the public hearing, there was a lengthy discussion about whether these benefits would be incorporated into the TPP-11. In response to this DFAT noted that:
it “would be difficult” to incorporate PAFTA into the TPP-11 through a side letter:
The limits of a side letter are that it cannot materially change the obligations that the parties have agreed to;
in the case of the additional market access Australia has negotiated with Peru in PAFTA:
… the TPP-11 already has rules of origin for all of those products, and those rules of origin are for most cases regional rules of origin. So you would need to change those rules of origin either to protect Australia's preference to make sure that the benefit was quarantined for Australia or to stop others getting it, which would mean, basically, we would need New Zealand's agreement that they would allow us to have this better dairy access, which they don't have.
While the Committee noted that it would be preferable to see multilateral trade treaties negotiated to ensure a harmonious set of trade rules that govern global trade, the reality of today’s trade environment makes this increasingly difficult. Therefore the Committee pragmatically accepts the need to negotiate plurilateral and bilateral agreements to ensure that market access is a priority. Australian businesses and exporters should be able to take full advantage of the demand for Australian products and expertise.
Investor-state dispute settlement mechanisms
Australia and Peru have had an ISDS mechanism for over 20 years through the Agreement between Australia and the Republic of Peru on the Promotion and Protection of Investments and Protocol which entered in to force on 2 February 1997.
The Committee acknowledges that the government includes ISDS on a case by case basis and there has never been a successful ISDS claim against Australia but that successful ISDS claims have been made by Australian investors overseas.
The Committee understands that ISDS provisions protect Australian businesses operating overseas, including in Peru.
The BCA submitted that:
Treaty-backed ISDS provisions provide an important avenue for Australian investors to seek remedy in the event of arbitrary, opaque or unfair decisions by foreign governments.
The BCA further pointed out that:
….the existing IPPA will be terminated upon entry-into-force of PAFTA, and the old ISDS provisions replaced with updated provisions that include new limitations and safeguards on ISDS proceedings. For example, there are new provisions on the transparency of arbitral proceedings and safeguards on the right of both Australia and Peru to regulate for environment, health and other social policy objectives. These provisions are not part of the existing ISDS arrangements with Peru. It would be ironic, therefore, if opponents of ISDS sought to delay the ratification of PAFTA, as they would in effect be supporting the retention of older and less circumscribed ISDS arrangements.
The Committee acknowledges that the ISDS mechanism in PAFTA includes the safe guards that are contained in the TPP-11 investment chapter, as well as additional safeguards, such as a broader safeguard on public health measures.
Ratification of PAFTA
The Committee acknowledges the gains and opportunities that PAFTA will provide for Australian businesses and exporters and notes the importance of early ratification.
Therefore the Committee reiterates its previous recommendation that binding treaty action be taken.
The Committee supports the Free Trade Agreement between Australia and the Republic of Peru (PAFTA) and recommends that binding treaty action be taken.
Mr Russell Broadbent MP
20 November 2018