Trade in services provisions
The key commitments in the TPP 11 relating to trade in services include:
a national treatment obligation requiring a TPP 11 country to treat local and foreign service suppliers equally where there are like circumstances;
a Most Favoured Nation treatment obligation requiring a TPP 11 country to treat service suppliers from another TPP 11 country equally to how it treats service suppliers from other countries;
a market access obligation preventing a Party from imposing restrictions on its own or foreign suppliers in service sectors, including preventing limitations on the number of providers who can supply services in a country or the legal form of enterprise that can provide services, unless otherwise listed in the non-conforming measures schedules; and
a prohibition from requiring a provider from another TPP 11 country to establish a local office as a condition of supplying services.
Specifically, the TPP 11 will result in the following:
the liberalisation of Mexico’s energy sector;
changes to Vietnam’s and Brunei Darussalam’s local content requirements on supplies for mining, oil and gas exploration;
removing Malaysian restrictions on foreign legal, architectural, engineering and surveying professional services;
guarantees for cross border access in relation to investment advice, portfolio management, collective investment, maritime insurance, and international commercial aviation and freight brokerage;
guaranteed access for secondary and tertiary education providers to Brunei Darussalam, Japan, Malaysia, Mexico, and Vietnam;
changes to integrated logistics and supply chains to support transportation services;
the phasing out of foreign equity limits on telecommunication services in Vietnam;
greater access for private health providers to Malaysia, Mexico and Vietnam; and
guaranteed access for Australian tourism operators to Brunei Darussalam, Canada, Chile, Japan, and Mexico.
The Export Council of Australia (ECA) noted the benefits of liberalisation in trade in services:
The TPP-11 makes it easier for people, data and investment to flow between the parties, greatly reducing some major obstacles for Australian businesses operating internationally, particularly in services sectors. The TPP-11 will ensure Australian businesses can provide a better level of services to their clients (either through temporary travel or sending people to establish offices). It will allow businesses to host data from TPP-11 parties on one secure server. It will protect the international offices of Australian businesses from discriminatory treatment and ensure they can return their profits to Australia.
Mineral Exploration and Technology Services (METS)
As many TPP 11 Parties have already removed tariffs on Australian resources exports, the greatest benefit to Australia’s resources sector is likely to be in the export of Mineral Exploration and Technology Services (METS).
The Minerals Council of Australia (MCA) also focussed on the potential benefits to Australia of (METS). The Minerals Council submission identifies the following measures as being particularly attractive for mining equipment, technology and services businesses:
access to legal services markets in Canada, Mexico, Malaysia and Brunei Darussalam;
access to engineering services markets in Brunei Darussalam, Canada, Chile and Mexico;
access for exploration, production, processing and refining of oil and gas in Mexico;
increased transparency for operating conditions for suppliers and investors in Malaysia;
opening investment in oil, gas, and power development in Vietnam and Brunei Darussalam;
access for mining and oilfield goods and services in Brunei Darussalam, Mexico and Vietnam;
access to mining related consulting, research and development, engineering and environmental services in Chile and Mexico; and
commitments to allow a more level playing field in competition with mining and energy state owned enterprises.
The Minerals Council also identified the provisions of Chapter 14 of the TPP 11 as being particularly beneficial for Australian METS businesses:
The TPP-11’s electronic commerce provisions in Chapter 14 will support Australian exports of mining-related software and the potential for digital delivery of Australian mining services to these markets. Chapter 14 recognises the opportunities of digital trade and the importance of promoting confidence and avoiding unnecessary barriers to the development of electronic commerce. Several specific provisions in this Chapter will support Australian mining software and digital delivery of mining services.
Public Services International (PSI) is concerned that the TPP 11 goes further than previous agreements in relation to trade in services by only allowing governments to exclude specified services from international competition.
According to PSI, the TPP 11 prevents governments from, for example, resuming control of services even in the case of market failure. PSI argues that some services in Australia such as the childcare industry and vocational training, have suffered market failure recently.
According to PSI, the TPP 11 will also prevent governments from requiring minimum staffing levels and qualifications in areas such as nursing, childcare and aged care regardless of evidence that supports such minimum ratios.
The effect is colloquially called the ‘ratchet mechanism,’ which is contained in Chapter 10 of the TPP 11, relating to trade in services.
Chapter 10 obliges a party to permit services and service suppliers from another party to no less favourable treatment than it accords local services and service suppliers.
Article 10.5 is the relevant article for the ratchet mechanism. This article prevents a party from imposing limits that do not already exist on:
the number of service suppliers;
the value of service transaction or assets;
the total number of service operations or the quantity of service output; and
the total number of persons that may be employed in a service.
PSI argues that the effect of this is to set a limit on government’s ability to wind back access to service provision by entities from other parties.
The National Tertiary Education Union (NTEU) makes the same point:
Once a ‘public’ social service is opened to competition, regulatory actions undertaken by government will have a cost that is ultimately defrayed onto the taxpayer. Take Australia’s experience of profound market failure in the deregulation of vocational education and training (VET), where State and Federal governments have been forced to intervene and reregulate against the private provision of those services. Ratification of the [TPP 11] means that a for-profit VET provider owned by an overseas company could demand compensation from a State/Territory or Federal government if they changed laws which led to the company being deregistered, losing a licence, or being excluded from access to public subsidies.
However, Article 10.7 provides that a Government can list in a Schedule to Annex II of the TPP 11 the types of services to which the provisions in Article 10.5 do not apply.
Australia has listed a number of measures to which the relevant provisions to Chapter 10 do not apply. The range of measures appears to be quite broad.
Australia’s Schedule to Annex II states the following:
Australia reserves the right to adopt or maintain any measure with respect to the provision of law enforcement and correctional services and the following services to the extent that they are social services established or maintained for a public purpose: income security or insurance, social security or insurance, social welfare, public education, public training, health, including the collection and distribution of blood and blood related products, childcare, public utilities, public transport and public housing.
It is not clear whether the Australian Government is now limited in terms of the matter to which the Chapter 10 provisions apply to those contained in Australia’s Schedule to Annex II, or whether it is open to Australia to amend its Schedule using the provisions in Chapter 27. The provisions in Chapter 27 do not limit the matters which can be the subject of amendment.
In addition, the Australian Government would appear to be able to pursue nationalisation in a service sector subject to market failure under Article 9.8 of the TPP 11.
Concerns relating to the Australian Government’s capacity to act in Australia’s interest in relation to trade in services hinge on the scope and applicability of Australia’s Schedule to Annex II of the TPP 11.
In the Committee’s view, the Australian Schedule to Annex II is quite broad in scope, and would seem sufficient to address the particular concerns raised by participants in the inquiry. Australia should, according to the TPP 11, be able to regulate the matters listed in Annex II without impediment under the Agreement.
Other mechanisms exist in the TPP 11 in the event that Australia needs to regulate matters outside the scope of the Australian Schedule of Annex II, although these would likely be costly and time consuming to pursue.