Chapter 4
Key issues
Introduction
4.1
This chapter considers some of the key issues raised in submissions to
the inquiry. These included:
-
investor-state dispute settlement;
-
labour market testing;
-
skills assessment processes;
-
investment facilitation arrangements; and
-
environmental standards.
Investor-state dispute settlement
4.2
Investor-state dispute settlement (ISDS) provides foreign investors with
the right to access an international arbitration tribunal if they believe
actions taken by a host government are in breach of its investment obligations.[1]
Chapter 9 of ChAFTA, Investment, commits Australia and China to
non-discriminatory treatment of the other party's investors and investments. It
also commits both parties to Most Favoured Nation (MFN) treatment, meaning
neither party can offer more favourable treatment to foreign investors in any
future agreements.[2]
Chapter 9, Section B, outlines the agreed ISDS arbitration tribunal processes.
4.3
Currently, Australia has agreed ISDS provisions in free trade agreements
with Chile, Singapore, Thailand and Korea. It has also agreed to ISDS
provisions in 21 bilateral investment treaties, including with China.[3]
4.4
A large number of submissions to the inquiry from individuals opposed
the inclusion of ISDS processes within ChAFTA and other Australian trade
agreements. These submissions pointed to cases in which foreign investors took
legal action against governments under ISDS provisions for enacting health,
environmental or other public interest legislation.
4.5
Some of those opposed to ISDS processes argued that the cost of
litigation and compensation awarded to foreign investors can also act to
discourage governments from proceeding with legitimate domestic legislation in
the national interest. For example, the Public Health Association of Australia
stated:
From a public health point of view, one of the biggest
concerns is the chilling or deterrent effect that ISDS can have on public
health policy. An example is the stalling of plans to introduce tobacco plain packaging
in New Zealand, while the ISDS case against Australia by Philip Morris Asia is
decided.[4]
4.6
The potential for the ChAFTA ISDS mechanism to influence the scope of
future Australian regulation was a key issue raised. This was illustrated by
CHOICE which outlind the potential for ChAFTA ISDS processes to prevent future reform
of Australia's food labelling laws.[5]
4.7
Philip Morris Asia is currently challenging Australia's legislation,
enacted in 2011, regulating for the plain packaging of tobacco products under
the ISDS processes of Australia's investment agreement with Hong Kong. This
arbitration is still ongoing.[6]
While this arbitration is the first major ISDS case to be brought against Australia,
several submissions pointed to an increased use of ISDS cases against other
national governments. In particular, Dr Kyla Tienhaara noted:
Over the last decade there has been an explosive increase of
cases of investor-state dispute settlement (ISDS). Until the mid-nineties, only
a handful of cases had emerged. Then, following a few high-profile cases,
everything changed. Between 2003 and 2013, one arbitral body registered more
than thirty new cases every year and more than fifty cases in each of the last
three years of that decade. As of the end of 2014, the total number of known
cases was 608. By then, one hundred and one governments had responded to one or
more ISDS claims.[7]
4.8
Many opposed to ISDS provisions noted that the Investment Chapter within
ChAFTA is unfinished, with negotiation of some provisions to occur during a
review process within three years of the date of entry into force of the
agreement. For example, AFTINET stated:
...the section is unfinished, with important definitions of the
criteria that can be used to sue governments to be determined by review process
in three years' time. These include two of the most controversial aspects of
ISDS, the definition of indirect expropriation and the definition of minimum
standard of treatment of foreign investors. These are provisions often used to
sue governments under other agreements. The Australian Parliament is being
asked to vote for the implementing legislation for this agreement without
having the details of what these future provisions may be.[8]
4.9
Other submissions spoke of the lack of transparency in ISDS cases and
disagreed with the legal processes used in ISDS cases. The Electrical Trades
Union of Australia (ETU) characterised ISDS as 'an enormously costly system
with no independent judiciary, precedents or appeals, which gives increased
legal rights to global corporations which already have enormous market power,
based on legal concepts not recognised in national systems and not available to
domestic investors'.[9]
4.10
However, some submissions indicated support for the inclusion of an ISDS
mechanism in ChAFTA. Both GrainGrowers and the Australian Chamber of Commerce
and Industry (ACCI) considered the ISDS provisions in ChAFTA would provide
protection for Australian investors. The ACCI highlighted that 'ISDS clauses
ensure that Australian investments abroad receive the same non-discriminatory
and fair access to markets accorded to foreign investments in Australia'.[10]
4.11
Others emphasised the limited scope of the ChAFTA ISDS provisions. For
example, Dr Luke Nottage described the scope of ISDS-backed protections for
investors as 'narrow'.[11]
Lexbridge Lawyers observed that there is always a degree of risk associated
with ISDS in regard to a potential challenge to government action or regulation:
However, in recognising this risk it is also necessary to recognise
that the exposure varies between agreements and depends on the specific
provisions in each agreement. A proper assessment of the risk of ISDS therefore
requires a detailed examination of the relevant agreement, including the scope
of ISDS and any applicable safeguards...In our view, an examination of these
factors leads to the conclusion that the exposure under ChAFTA – in terms of a
challenge to government regulation – is significantly less than the vast
majority of Australia's agreements containing ISDS.[12]
4.12
In particular, Lexbridge Lawyers highlighted the safeguards in ChAFTA:
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.[13]
Labour market testing
4.13
Conflicting views were expressed on the ChAFTA impact on labour market
testing. Article 10:4 states:
3. In respect of the specific commitments on temporary
entry in this Chapter, unless otherwise specified in Annex 10-A, neither Party
shall:
...
(b) require labour market testing, economic needs testing
or other procedures of similar effect as a condition for temporary entry.[14]
4.14
Many submitters were concerned that the removal of the requirement for
labour market testing would mean that Australian workers could lose employment
opportunities to temporary migrants. For example, the Australian Nursing and
Midwifery Federation commented:
We note that temporary visa holders working in health and
aged care under the visa class 457, 442 and 485 along with international
students and working holiday makers now constitute a significant and growing
temporary migrant workforce at a time when local nurses and midwives are
struggling to gain employment.[15]
4.15
Likewise, the ETU commented that the removal of the labour market
testing provision for issuing 457 visas to Chinese workers 'sets the stage for
Australian workers to be robbed of opportunities, and undercut by a new class of
immigrant working poor'.[16]
Several submitters also argued there were existing problems with the 'lack of
enforcement' of standards for 457 visa workers and gave examples of temporary
migrant workers being employed in unfair and unsafe conditions.[17]
4.16
Conversely, the Master Builders Association (MBA), while it is 'first
and foremost committed to the local building and construction industry and...the
training and upskilling of Australians' thought that labour market testing
should be removed as it is unreliable and ineffective. The MBA also stated that
temporary migration would be important to the building and construction
industry given that:
The industry's challenge is to meet the rising demand for a
skilled workforce against a background of decreasing apprentices in training,
from 56,000 to 43,100 since 2010. In addition, the apprenticeship commencement
rate has decreased by 18.8 per cent since 2010, from 22,100 to 18,000
commencements in the past five years...[18]
4.17
Migration Council Australia considered that existing 457 visa provisions
would ensure that Australian workers would be given preference. It stated:
...Chinese citizens on 457 visas under ChAFTA will still
require English proficiency and sponsorship under standard terms and conditions
of the 457 visa program, including market salary rates and a wage threshold. In
effect, those elements of the 457 regulatory framework that have been shown to
be most effective in preventing employers from preferencing overseas workers
will still apply.[19]
Skills assessment processes
4.18
Submissions from individuals and organisations also voiced their
concerns regarding a side letter to ChAFTA which removes the requirement for
mandatory skills assessment for temporary skilled visas for a number of trades,
with the remaining trades to be reviewed within two years. In all cases there
was concern that Chinese workers may not have skills and health and safety
training of an Australian standard which could lead to harm to themselves and
others.
4.19
The ETU stated:
Electrical work is inherently dangerous...removing the
requirement for overseas trade workers to be assessed to see if their skills
meet our standards is dangerous for the workers, their colleagues and for the
public.
China does not have the level of trades training and safety
standards in comparison to Australia. The ChAFTA arrangements will only serve
to erode electrical safety in our country and lead to accidents, injuries and
death to workers and members of the public.[20]
4.20
The CFMEU expressed concern with the quality of trade training in China
and quoted an assessment made by the World Bank in 2013 of the Chinese VET
system:
At technical/vocational schools in China, curriculums and
training methods are outdated and can barely keep pace with the evolving
market's needs...teachers often lack practical skills themselves; students don't
get enough hands-on training and workplace experience as they hope.[21]
4.21
In contrast, Migration Council Australia said removing mandatory
testing:
...signals Chinese qualifications will be treated in the same
manner as other countries, such as the United Kingdom, recognising the
continuous improvement in the Chinese formal education sector and the growth in
the maturity of the Chinese labour market.[22]
4.22
The CFMEU expressed concern that the trades of cabinetmaker, carpenter,
carpenter and joiner, and joiner do not have licensing requirements to work in
the trade. The submission stated:
Removing mandatory skills assessments for Chinese 457 visa
applicants in these trades is therefore removing the last and only regulatory safeguard
designed to prevent employers nominating for 457 visas Chinese workers who do
not possess Australian-standard skills in these trades.[23]
4.23
The CFMEU also cited the removal of mandatory skills assessment as a
potential cause of exploitation of temporary migrant workers, with employers
nominating them for skilled 457 visas but putting them to work in lower-skilled
jobs. The CFMEU noted that this was commonplace prior to the introduction of
mandatory skills assessments for China.[24]
4.24
The Business Council of Australia did not see the removal of mandatory
skills testing as problematic because workers on 457 visas are still required
to obtain the necessary licences to work in Australia.[25]
Similarly the Export Council of Australia noted that the 'relevant provisions
reflect that important regulatory conditions must be complied with before
overseas workers can be employed in Australia including any mandatory licencing
or registration requirements'.[26]
Investment Facilitation Arrangements
4.25
The concerns of organisations and individuals in regard to the removal
of the requirement for labour market testing and mandatory skills testing were
reiterated in a number of submissions which discussed the Memorandum of
Understanding (MOU) on Investment Facilitation Arrangements (IFA). A key
concern was that Australian workers may be displaced by temporary migrant
workers on 457 visas. The Australian Council of Trade Unions noted:
A mandatory requirement for Australian workers to have first
priority on Australian infrastructure projects would be entirely consistent
with the position advocated by Australian unions and in line with community
expectations. However, there is nothing in the text of ChAFTA or in the MOU
that provides such a guarantee...In fact, the MOU states explicitly that 'there
will be no requirement for labour market testing to enter into an IFA'.[27]
4.26
As with 457 visa arrangements, some organisations also believed IFAs
could leave migrant workers vulnerable to exploitation. The Textile Clothing
and Footwear Union of Australia noted that workers employed under IFA
provisions would be more vulnerable than those on 457 visas:
...a worker's migration status is tied to their employment, and
there is no entitlement to remain in the country to find a new job before the
visa's expiration (even 457 visa workers have 90 days to find a new job). Dr
Joanna Howe, Senior Lecturer of Law, University of Adelaide, explains:
The worker's right to remain in Australia is wholly
contingent upon the employer's continuing demand for their labour. Withdrawal
of support from the employer-sponsor may mean cancellation of the visa. This
threat, actual or perceived, may induce an IFA worker to accept any degree of
substandard working conditions and creates a strong disincentive for these workers
to voice concern for fear of being sent home.[28]
4.27
Civil Liberties Australia noted that the lack of a requirement for
labour market testing could lead to lesser conditions for Australian workers:
The likely lower rate paid to Chinese workers who have not
had the chance to negotiate their terms and conditions will give Chinese firms
or firms with Chinese investors an unfair advantage over local Australian
firms. As the numbers of such special condition firms expands, their freedom
from paying the going rate and lesser requirements for occupational health and
safety provisos could be used to drive down Australian wages and conditions
more generally in the relevant industries.[29]
4.28
The Migration Council of Australia called for further information regarding
IFA provisions, requesting 'the government clarify whether labour market
testing can occur for an IFA or whether this is precluded given Chapter 10 of
ChAFTA as labour market testing is not referenced in the MOU'.[30]
4.29
However, some organisations believed that the IFA provisions would
require investors to provide evidence of a lack of suitable Australian workers
to complete projects. The Australian Chamber of Commerce and Industry (ACCI)
noted that '...the labour agreements will require evidence of labour market
shortages as part of the rigorous process the Department of Immigration and
Border Protection puts in place to finalise an agreement'.[31]
The ACCI also maintained that the IFAs would not place downward pressure on the
wages of Australian workers as labour agreements:
...provide some ability to
seek concessions to the 457 program (similar to those mentioned in the MOU).
But no concessions are available on the 457
sponsor obligations, including the need to pay market wage rates and comply
with all workplace laws.[32]
4.30
The Minerals Council of Australia was also supportive of the IFA
provisions, perceiving them as beneficial for Australia:
IFAs are innovative 'umbrella' project-wide agreements
designed to promote increased investment in large infrastructure projects above
$150 million, leading to increased jobs and economic prosperity for
Australians. They respond to Chinese companies' concern that they were unable
to secure skilled staff for projects in a timely way during the mining boom.[33]
Environmental standards
4.31
Some submitters considered that ChAFTA should contain additional
environmental protections.[34]
AFTINET observed that while Australia's free trade agreement with Korea contained
an environment chapter, ChAFTA does not. It stated that this indicated 'that
neither government has made any commitment to implement agreed international
environmental standards':
China still has very high levels of industrial pollution
which harms both the environment and public health...Lack of compliance with
environmental standards reduces costs for both local Chinese firms and global
firms subcontracting to China, cost reductions not available to local
Australian firms. The ChAFTA places no obligations on the Chinese government to
improve its environmental standards. In fact it rewards current standards by
granting preferential market access to Australia for its products.[35]
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