Chapter 4
Key issues
Introduction
4.1
This chapter will consider four specific issues with KAFTA which were
raised during the inquiry:
-
the investor state dispute settlement provisions;
-
the intellectual property provisions;
-
the certificate of origin processes; and
-
labour issues.
Investor state dispute settlement provisions
4.2
Investor state dispute settlement (ISDS) provisions grant foreign
investors the right to access an international arbitration tribunal if they
believe actions taken by a host government are in breach of certain investment
related commitments made in a trade agreement or an investment treaty.[1]
For example, in KAFTA, the investment chapter (Article 11.7) includes that
neither party 'shall expropriate or nationalise a covered investment' except
for a public purpose, in a non-discriminatory manner and on payment of prompt
adequate and effective compensation.
4.3
Most ISDS mechanisms refer to arbitration rules developed by the UN
Commission on International Trade Law (UNCITRAL) and the International Centre
for the Settlement of Investment Disputes (ICSID). Under KAFTA, Chapter 11,
Section B outlines the agreed ISDS arbitration tribunal processes and selection
of applicable rules.
4.4
Currently, Australia has agreed to ISDS provisions in four of its seven free
trade agreements, being FTAs with Chile, Singapore, Thailand and ASEAN-New
Zealand. It has also agreed to ISDS provisions in 21 bilateral investment
treaties with Argentina, China, Czech Republic, Egypt, Hong Kong, Hungary,
India, Indonesia, Laos, Lithuania, Mexico, Pakistan, Papua New Guinea, Peru,
Philippines, Poland, Romania, Sri Lanka, Turkey, Uruguay and Vietnam.[2]
Notably, an ISDS mechanism was not included in the US-Australia Free Trade
Agreement 'in recognition of the Parties' open economic environments and shared
legal traditions, and the confidence of investors in the fairness and integrity
of their respective legal systems'.[3]
Similarly, the recently concluded Japan-Australia Economic Partnership
Agreement also does not include ISDS provisions.
4.5
While the policy of the previous Labor Government was not to include
ISDS provisions in trade agreements, the Coalition government's position is
that it will consider ISDS mechanisms in trade agreements on a 'case-by-case'
basis. In relation to KAFTA, Ms Adams from DFAT stated:
The inclusion of an ISDS mechanism in KAFTA was essential for
the conclusion of negotiations with Korea, and we negotiated a modern, balanced
mechanism that includes a range of explicit ISDS safeguards which protect the
government's ability to regulate in the public interest, including for public
health and the environment.[4]
4.6
The submission from Dr Jeffrey Wilson provided a useful summary of
common positions in relation to the inclusion of ISDS mechanisms in trade
agreements:
Advocates of ISDS provisions argue they augment the strength
of investment policy commitments made in FTAs. By providing investors an
independent legal route to seek redress against expropriation by host
governments, they increase certainty that investment protections will be
adhered to. This is argued to increase investor confidence, and ultimately
flows of foreign direct investment, resulting from FTAs containing ISDS.
Critics of ISDS provisions contend they impose unnecessary
and asymmetric restrictions on the regulatory capacity of governments. Some
argue that ISDS protections, which are only extended to investors from a
partner country, asymmetrically create legal rights for foreign (but not local)
companies. Others go further to suggest that as ISDS tribunals are not subject
to the laws created by a democratically-elected legislature they are inherently
illegitimate. Others have also contended that ISDS restricts the ability to
enact various public welfare provisions – including environmental, cultural,
and public health policies – and will produce a 'chilling-effect' on
governments' willingness to regulate in these areas in future.[5]
4.7
At the public hearing, Dr Wilson stressed that 'these agreements do not
prohibit Australian governments engaging in regulations even that are found to
be adverse by ISDS':
What the ISDS process would do is enforce the payment of
compensation for indirect expropriation as a result of these regulations. So it
does not say that you cannot regulate in protection of the environment; it
simply says that if you do and that results in indirect expropriation you have
to compensate affected companies in timely and fair manner.[6]
4.8
A large number of submissions to the inquiry from individuals opposed
the inclusion of ISDS processes within KAFTA and other Australian trade
agreements. These submissions pointed to a number cases in which investors have
taken action against overseas governments under ISDS provisions for enacting
health, environmental or other public interest legislation. In particular, Dr
Matthew Rimmer, highlighted United Nations Conference on Trade and Development
research which indicated a 'staggering' increase in ISDS cases being brought
against national governments in recent years.[7]
Repeatedly mentioned cases included:
-
the Eli Lilly pharmaceutical company suing the Canadian national
government over a court decision to refuse a medicine patent;
-
the US Lone Pine mining company suing the Québec provincial
government of Canada over environmental regulation of shale gas mining; and
-
the Swedish energy company, Vattenfall, suing the German
government over its decision to phase out nuclear energy.
4.9
Many also argued that the ISDS system privileges foreign investors,
usually large multinational corporations over Australian investors and pointed
to the lack of evidence that ISDS mechanisms have any effect on levels of
direct foreign investment.[8]
Several submissions also emphasised that, in 2010, the Productivity Commission
had recommended that Australian Governments should seek to avoid including ISDS
provisions in subsequent international agreements 'that confer additional
substantive or procedural rights on foreign investors over and above those
already provided by the Australian legal system'.
4.10
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.[9]
Dr Kyla Tienhaara described this as 'regulatory chill':
The concept of regulatory chill reflects the fact that policy
makers will be wary of introducing measures that could be challenged in
arbitration because of the immense costs associated with the arbitration system
and the uncertainty surrounding how investment provisions will be interpreted
in any given case.[10]
4.11
Serious concerns with the procedural aspects of ISDS arbitration were
also raised during the inquiry. For example, Dr Tienhaara stated:
Arbitrators lack the independence of judges because they are
chosen by the parties to the dispute and are paid by the hour. Additionally,
individuals may act as an arbitrator in one case and as a legal representative
for a claimant in another, which creates serious issues of conflict of
interest. Arbitrators are also generally experts in the field of commercial
arbitration and may have little knowledge of domestic environmental and health
legislation.
There is also no system of precedents or any process for
appeals, which makes the outcomes of ISDS cases difficult to predict, creating
uncertainty for regulators. ISDS is also very expensive. Governments can spend
millions of dollars defending themselves in arbitration and may not recoup
these costs even if they eventually win a case. The committee should consider
whether it believes that panels of international arbitrators who have no
accountability to the Australian public should be put in the position of
reviewing the decisions of the state and federal governments as well as those
made by our domestic courts.[11]
4.12
A frequently mentioned illustrative example was the action taken by
Philip Morris Asia against Australia for the Tobacco Plain Packaging Act
2001 under the 1993 Australia-Hong Kong bilateral investment treaty.[12]
Philip Morris claimed that Australia's plain packaging tobacco policy
constitutes an 'indirect expropriation' of its Australian investments (in
particular in relation to the use of trademarks) and was an 'unreasonable and
discriminatory' measure.[13]
4.13
One aspect of this case identified by Dr Wilson was the potential for
'forum shopping' by companies in order to mount claims under ISDS mechanisms:
There have been a complex set of changes in the ownership of
Philip Morris Australia and Asia within the group of companies that were made
by the company around the time that this legislation was being enacted, and
some have suggested that these were a form of forum shopping—in effect, an
attempt to get Philip Morris's Australian operations owned in Hong Kong so then
a case could be brought under the Hong Kong BIT, effectively a forum-shopping
exercise in restructuring ownership to allow a case under the most favourable
BIT that they could find.[14]
4.14
The plain packaging arbitration is one of the first ISDS cases to be
brought against Australia. However, several witnesses and submitters pointed to
an increased use of ISDS mechanisms against other national governments.
4.15
Several witnesses and submitters highlighted that there appeared to be a
growing international trend against the inclusion of ISDS mechanisms in trade
treaties.[15]
For example, AFTINET stated that '[g]overnments in significant economies in
Europe, South America, Africa, the Indian sub-continent and Asia have reviewed
and/or renounced ISDS on the grounds that it undermines legitimate democratic
legislation'.[16]
Dr Jeffrey Wilson told the committee:
The German government has expressed deep reservations about
ISDS provisions being included in the TTIP agreement that the EU is currently
negotiating with the United States, which is very similar to a kind of European
version of the Trans-Pacific Partnership, for those familiar with that
agreement. We have also seen the Indonesian government effectively repudiate
all, from my understanding, of its bilateral investment treaties, which include
these ISDS provisions, in effect, because they have decided they no longer want
to be bound by this legal remedy.[17]
4.16
A controversial aspect of the ISDS provisions in KAFTA, and ISDS
provisions in other trade agreements, was the broad coverage of potential
liability for 'indirect expropriation...where an action or a series of actions by
a Party has an effect equivalent to direct expropriation...'. Dr Jeffrey Wilson
commented:
On one hand, indirect expropriation is a real and genuine
concern for investors, and has a legitimate place in ISDS clauses. However,
because an extremely broad set of regulatory behaviour might potentially
qualify as indirect expropriation, concerns exist that it widens the scope of
expropriation to be dangerously broad.[18]
4.17
The suggestion was made during the inquiry that the definition of
'expropriation' in KAFTA is broader than in other FTAs. For example, Dr
Tienhaara pointed to the narrower definition of expropriation in the Canada
Korea free trade agreement.
[T]he Canada Korea treaty has slightly stricter wording,
because it requires a complete, or almost complete, destruction of the
investment. So the investment has to be completely destroyed in order for it to
be considered potentially an indirect expropriation.[19]
4.18
Associate Professor Weatherall also argued that 'expropriation should
only be treated as arising in cases where the interference with a tangible or
intangible property right in an investment eliminates all or nearly all of its
value and/or substantially deprives the investor of the fundamental attributes
of property in its investment, including the right to use, enjoy and dispose of
its investment'.[20]
She suggested this matter could be resolved through a side letter with Korea
Table 1. Comparison of expropriation definitions[21]
4.19
Recent commentary regarding ISDS mechanisms made by Chief Justice French
was also highlighted during the inquiry. This commentary noted that ISDS
arbitral tribunal decisions could effectively override decisions made by senior
Australian courts and noted the lack of consultation with the Australian
judiciary about the 'possible effects upon the authority and finality of decisions
of Australian domestic courts'.[22]
In his commentary, Chief Justice French recommended that the issues be promptly
and fully considered, potentially by referral to the Council of Chief Justices,
and suggested the following requirements in ISDS provisions be considered:
-
prior exhaustion of remedies in domestic courts of the
Contracting State;
-
preclusion of any challenge to the decision of a domestic court
as constituting a breach of the relevant BIT or FTA provisions; and
-
preclusion of any arbitral decision based upon a rejection of a
decision on a question of law of a domestic appellate court binding on lower
courts.[23]
4.20
Requested by the committee to consider these suggestions, DFAT
responded:
Requiring investors to exhaust remedies before resorting to ISDS
has been identified as an option by various commentators, including in academic
literature and intergovernmental organisations such as UNCTAD. In practice,
such a requirement has not been adopted in the majority of treaties. One
concern is that a requirement to exhaust domestic remedies could frustrate an
investor's ability to seek recourse for an alleged breach, in particular when
the resort to domestic remedies would be futile. In some jurisdictions there
can be significant delays in the conduct of judicial proceedings and requiring
investors to exhaust domestic remedies before submitting a claim to ISDS is
likely to prolong a dispute. An alternative approach, adopted in KAFTA, does
not require an investor to exhaust domestic remedies but does require that an
investor waives its right to initiate or continue proceedings before a domestic
court or other dispute settlement procedures before submitting a claim to ISDS.
This ensures that the Government could not face multiple simultaneous claims in
different fora...
Under KAFTA an award would not be based on a rejection of a
decision on a question of law of a domestic court. It must be based on a breach
of an investment commitment. It is possible that an ISDS tribunal could examine
the same facts and circumstances as a domestic court, however this does not
mean that the ISDS tribunal is accepting or rejecting a domestic court's
decision on a question of domestic law.[24]
4.21
The lack of transparency and public accountability of tribunal
arbitrations, in comparison to normal legal processes, was also emphasised by
those opposed to ISDS mechanisms. For example, AFTINET stated:
The proceedings are not public, and even the results of
proceedings can remain secret. Until the time of writing, there has been little
public information about UNICITRAL disputes...If it is instructive to note that a
side letter to KAFTA refers to the forthcoming UNCITRAL transparency
arrangements. However, the side letter states that both parties will not
be bound by requirements for increased transparency. This may be an indicator
of the extent to which not only governments, but future investor parties in
disputes may be unwilling to agree to the transparency provisions.[25]
4.22
On this issue, DFAT stated:
The ISDS mechanism in KAFTA contains a very high degree of
transparency which in broad terms is similar to that provided under the
UNCITRAL Transparency Rules. The time period for consultations will give the
Parties the opportunity to consider how the recently concluded UNCITRAL
Transparency Rules could interact with the existing KAFTA ISDS procedures,
including the detailed transparency provisions. By this time there may have
been some practical application of the Rules which could inform the Parties'
consideration.
Australia was actively involved in the development of the
UNCITRAL Transparency Rules. Australia supports a transparent approach in ISDS
disputes, including through application of the UNCITRAL Transparency Rules
where appropriate. Australia's policy approach and representation in these consultations
will be determined after considering the interaction of the UNCITRAL
Transparency Rules with the existing KAFTA ISDS provisions.[26]
4.23
A range of other issues were raised in relation to ISDS provisions. For
example, the ACTU noted that ISDS mechanisms could provide foreign corporations
with legal avenues which were not accessible to domestic corporations, putting
domestic corporations at a competitive legal disadvantage.[27]
AFTINET considered that the ISDS provisions highlighted a double standard in
KAFTA whereby 'foreign investors [have] additional rights to sue governments',
but the treaty contains 'no provisions to enforce environmental laws based on
agreed UN multilateral agreements through a government-to-government dispute
process'.[28]
4.24
An absence of evidence for the benefits of ISDS mechanisms was stressed
during the inquiry. For example, Dr Tienhaara argued there was 'no evidence to
suggest that including ISDS in KAFTA will lead to an increase in Korean
investment in Australia'.[29]
AFTINET provided the committee with a recent September 2014 report by the United
Nations Conference on Trade and Development. The report concluded that 'policymakers
should not assume that signing up to [bilateral investment treaties] will boost
FDI...[i]ndeed, they should remain cautious about any kind of recommendation to
actively pursue [bilateral investment treaties]'.[30]
4.25
Another specific concern regarding ISDS mechanisms was that the
provisions in KAFTA could serve as a precedent for further ISDS mechanisms in a
number of other upcoming trade agreements including the Trans-Pacific
Partnership Agreement or a bilateral agreement with China.[31]
4.26
However, some submissions indicated broad support for the inclusion of
an ISDS mechanism in KAFTA. The ACCI highlighted that the ISDS provisions were
an important component in reaching a trade agreement with Korea. It noted that
negotiations had stalled until 'the incoming Abbott Government signalled that
it was willing to contemplate inclusion of such provisions to accommodate the
political requirements of the Korean Government who had a mandate for inclusion
of such provisions'.[32]
4.27
The AFGC considered that the inclusion of ISDS provisions in KAFTA
'provides a high level of confidence for investors in both parties, and the
inclusion of such provisions promotes the good-faith objectives of the trade
agreement'.[33]
Similarly, the Export Council of Australia believed that the adoption of the
limited ISDS in the KAFTA was warranted. It considered it was 'in the interests
of all exporters that they have access to an independent body to mediate and if
needs be, resolve disputes in overseas markets'.[34]
The Winemaker's Federation of Australia also considered that the 'inclusion of
investor state provisions in FTAs give some protection against sovereign risk
due to the introduction of social engineering policies and legislation'.[35]
4.28
The ACCI supported the inclusion of ISDS provisions in Australia's
bilateral and regional trade investment agreements on a 'case by case' basis.
It noted that 'Australia has included such provisions in almost 30 agreements
over the past 30 years' and that this 'long history has not resulted in any
significant deleterious effects on the Australian economy, but has provided a
large amount of security for Australian investors internationally'.[36]
Mr Bryan Clark from ACCI commented:
We are relaxed in developed markets about whether [ISDS
provisions are] included or excluded...There are much higher priority countries
where you would want it, such as China, India and a lot of developing
countries.[37]
Exceptions and safeguards
4.29
In response to some of the criticisms of ISDS provisions in trade
agreements, some of the supporters of the treaty highlighted the exceptions and
safeguards in relation to these processes. For example, the AFGC argued the
'carve outs for public interest matters...should adequately address some of the
concerns around the recent use of ISDS provisions'.[38]
The Winemaker's Federation of Australia stated:
A significant number of investor-state cases taken under
NAFTA have involved environmental regulation. However, tighter drafting of
provisions in more recent FTAs have largely overcome the issues that concern
our government, and we have no concerns with these provisions.[39]
4.30
Dr Jeffrey Wilson outlined that:
[T]he KAFTA ISDS safeguards: (a) define a set of public
welfare measures explicitly protected from expropriation claims by investors;
and (b) set guidelines for how all other indirect expropriation claims shall be
assessed by the tribunal. These provisions broadly conform to – and in some
cases directly reproduce text from – the ISDS safeguards included in the United
States' Model Bilateral Investment Treaty (2012).[40]
4.31
However, a large number of submissions questioned the effectiveness of
the 'safeguard' provisions as part of their criticisms of ISDS processes. For
example, Dr Tienhaara characterised them as 'untested and likely
insufficient'.[41]
Similarly, Dr Rimmer stated that the 'framework for exceptions, defences,
and safeguards seems partial, limited, and rickety'.[42]
He noted that the Productivity Commission's assessment of trade agreements in
2010 included that 'although some of the risks and problems associated with
ISDS can be ameliorated through the design of relevant provisions, significant
risks would remain'.[43]
The Australian Services Union also stated:
The supposed 'safeguards' included in the KAFTA are not
sufficiently adequate to prevent foreign investors from suing governments over
health, environment or other public interest policy and legislation. These same
'safeguards' have proved to be ineffective in other agreements with potentially
devastating impacts on the capacity of governments to work in the interests of
its own people.[44]
4.32
In particular, one safeguard of the ISDS provisions of KAFTA was the
'shared understanding' of the meaning of expropriation in Annex 11-B of the
agreement. This included:
Except in rare circumstances, non-discriminatory regulatory
actions by a Party that are designed and applied to protect legitimate public
welfare objectives, such as public health, safety, and the environment, do not
constitute indirect expropriations.
4.33
The phrase 'except in rare circumstances' was perceived by some
submitters as opening 'a very big loophole' to this safeguard provision.[45]
Dr Tienhaara noted that it had been suggested 'that the use of the ambiguous
terminology "rare circumstances" will only encourage lawyers to
develop creative arguments to test the boundaries of the exception'.[46]
In relation to this part of KAFTA, Mr Richard Braddock from DFAT commented:
The policy basis is that there could be exceptional
circumstances where this may be appropriate...One example could be where a
government has made specific written commitments to a particular investor to
refrain from taking a certain action and the investor makes an investment based
on that commitment, and then the state proceeds to break their commitment in a
way which amounts to an expropriation.[47]
4.34
Another problem with this safeguard identified by Dr Wilson was that the
KAFTA text fails to precisely define the concept of 'legitimate public welfare
objectives'. He argued that this 'leaves the scope of the safeguards up to the
interpretation of international arbitral tribunals and therefore poses
uncertainty about precisely what qualifies as a public welfare regulation in
the first place'.[48]
He suggested that an explicit definition of 'legitimate public welfare
objectives' could be resolved by an exchange of side letters between Australia
and Korea. Dr Wilson commented:
One of the big difficulties here of course is the lack of
binding precedent in international trade law means the risk that different
tribunals will rule differently...Were this a matter of domestic law where you
could look to past precedent as interpretation it might be less of an issue,
but the lack of binding precedents in these tribunals really compounds the
definitional problem because things can be redefined from case to case.[49]
4.35
In terms of drafting the safeguards provisions of the ISDS mechanism in
KAFTA, Ms Adams from DFAT commented:
One of the dilemmas, as many would know, of legal drafting is
that contrary to what you might first think, sometimes the more that you define
something the narrower you make it because saying what is in it can raise more
questions. If it is not explicitly mentioned, is it therefore excluded? So
there were a lot of debates in the negotiation of this text about whether more
definition of particular terms was going to be productive or counterproductive
towards the objective. In this case, our considered view was that more
explicitly defining legitimate welfare objectives raised a very high risk of
being counterproductive and effectively narrowing the definition, whereas we
thought we were better to let the words speak for themselves.[50]
Intellectual property
4.36
Chapter 13, the intellectual property (IP) chapter of the agreement, was
the focus of some submitters and witnesses, in particular where they considered
that KAFTA introduced further obligations to extend IP protection in Australia
and Korea.
4.37
For example, Associate Professor Kim Weatherall highlighted a number of
areas where 'chapter 13 imposes new international IP obligations in Australia:
obligations not found in any other multilateral or bilateral agreement,
including AUSFTA'. She argued that KAFTA 'locks in' existing Australia IP law
which will constrain domestic flexibility to make IP and innovation policy. She
noted that Chapter 13 included 'provisions which reflect bad policy and are
contrary to the trends in IP law reform internationally', provisions which were
'extremely difficult to interpret...of uncertain scope' and lacked any 'balancing
provisions to protect the rights of the public, users, and defendants in
enforcement actions'.[51]
4.38
Associate Professor Weatherall also criticised the approach of DFAT to
negotiating the IP sections of trade agreements:
The basic problem is that Australian trade negotiators seem
to think that good domestic policy is the same as good trade policy in IP. That
is simply incorrect. What works well in local legislation is not always great
in a treaty, especially in an area like intellectual property, which is all
about innovation and the latest technologies and where we amend the law all the
time. We might want to change our IP laws in the future. It is much harder to
change things once you have written them in detail into a trade agreement.[52]
4.39
She highlighted that the Productivity Commission had concluded that 'the
Australian Government should not seek to include intellectual property
provisions in Australia's [bilateral and regional trade agreements] as an
ordinary matter of course, and should only include such provisions after an
economic assessment of the impacts, including on consumers, in Australia and
partner countries'. She highlighted that such an assessment had not be undertaken
and that the proposed changes are 'unsupported by any economic or other
evidence suggesting a need for extensive or new IP provisions in this
particular trade agreement'.[53]
4.40
Dr Matthew Rimmer also described the intellectual property chapter of
KAFTA as controversial, 'onesided and unbalanced':
The intellectual property chapter is focused upon providing
longer and stronger intellectual property rights for intellectual property
owners. There is a failure to properly consider other public interest
objectives – such as access to knowledge, the progress of science and the
useful arts, and the promotion of innovation and competition.[54]
4.41
The Electronic Frontiers Australia (EFA) pointed to several extensions
of intellectual property protection in KAFTA in relation to trademarks, patents
and copyright and related rights. The EFA was concerned that KAFTA contained
requirements substantially at odds with Australian legislation and case law and
that the intellectual property rights of consumers have not been addressed. A particularly
'problematic' change 'may require recognition of software patents'. It
highlighted that software patents 'pose significant problems for the IT
industry and if they are to be recognised in Australia this should be a
carefully considered process'.[55]
4.42
The Australian Digital Alliance noted that previously parliamentary
committees, the Productivity Commission, a report commissioned by IP Australia
and others have made recommendations about the importance of evidence and
cost/benefit analysis if Intellectual Property chapters are to be included in
trade deals. It highlighted there was 'no evidence of economic analysis, or
indeed any analysis of the impact of the IP Chapter in KAFTA'.[56]
4.43
DFAT noted that the international IP system was defined by a large number
of multilateral treaties such as the World Trade Organization Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).
Australian IP policy is bound by these multilateral treaties and also 'a
small number of obligations contained in bilateral trade agreements that are
not covered by the multilateral system, most notably in AUSFTA'.[57]
However, DFAT pointed out that parties to these treaties are 'largely free as
to how they meet these obligations within their own legal systems and
practices'.
4.44
As part of its responses, DFAT noted that bilateral trade agreements
'such as KAFTA often reaffirm commitments to the multilateral agreements [on
IP], but in particular circumstances, may differ from those commitments as part
of a negotiated outcome'. However it stated:
[A]ny extension of obligations (e.g. to provide an additional
term of protection for a particular right) is examined during the negotiation
process and considered against Australia's overall interests. The result
reflects a negotiated outcome considered by Government to be in Australia's
interests, weighing up all factors across the entire agreement, not just on
copyright.
4.45
During the hearing, Ms Adams from DFAT commented:
The basic reason that we have international agreements
covering intellectual property issues or laws is that it is part of
international trade, so we have all sorts of international agreements on IP,
including in trade agreements. That has been the case since the Uruguay Round
because of the importance of IP protection as part of the modern trading
system. So it is not really just a question of binding domestic law in
international agreements; it is a question of striking international agreements
that are going to facilitate trade and protection of intellectual property and
making sure domestic legislation implements those international commitments.[58]
4.46
DFAT acknowledged in responses to questions on notice that some of the
IP provisions in KAFTA 'do have a different scope to previously agreed
international obligations, or deal with the subject matter in a different way'.
However, it considered that '[o]n balance the text represents a negotiated
outcome that is consistent with current Australian law, and outcomes negotiated
in other FTAs'.[59]
4.47
However, Associate Professor Weatherall commented:
The Department has acknowledged that some aspects of KAFTA
'have a different scope' from previously agreed obligations. In reality, where
there is a difference, and with a couple of notable exceptions, most of the
provisions of KAFTA expand Australia's international obligations.
The Department offers no justification for the expansion of
Australia’s international obligations, other than to say that the obligations
are consistent with current Australian law.[60]
4.48
In particular, DFAT asserted that the obligations in KAFTA 'do not limit
the ability of the Government to consider appropriate domestic copyright
reform'. It characterised the KAFTA obligations as 'high level and flexible',
and stated they 'would not prevent Australia from modernising and updating the Copyright
Act 1968 where required'. However, Associate Professor Weatherall disputed
this description of the copyright obligations under KAFTA which she argued were
'detailed and prescriptive'. She noted 'KAFTA precludes change to many aspects
of our current copyright system: the lack of formalities, the length of rights,
who gets rights, many aspects relating to how litigation occurs (including
presumptions that must be applied), and others'.[61]
4.49
Ms Adams defended the qualifications of the personnel involved in treaty
negotiations in relation to intellectual property:
DFAT works with not only the Attorney-General's on some parts
of the IP agenda but also with IP Australia. When we were negotiating this
text, there were a large number of extremely expert people from those three
agencies involved in that process. The DFAT trade lawyers have particular areas
with responsibility for trade law in the department. They include qualified
legal people. Those people come to work in the public sector with a variety of
backgrounds including often a private sector background—not always—with
academic qualifications and often with commercial private sector experience. In
all cases they are very well versed in the interlocking sets of international obligations
be they in the trade sphere or in the broader IP sphere so they are completely
experienced and qualified to do the work that they are entrusted to do.[62]
4.50
However, DFAT did concede that the intellectual property chapter, except
for 'a few outstanding issues', was negotiated 'a few years ago' and that the
personnel involved had since left those positions.[63]
Online copyright liability
4.51
Article 13.9.28 Enforcement of Intellectual Property Rights, provides
that each country will 'provide measures to curtail repeated copyright and
related right infringement on the internet'. Further, Article 13.9.29, includes
that each country will provide 'legal incentives for online service providers
to cooperate with copyright owners in deterring the unauthorised storage and
transmission of copyrighted materials'.
4.52
The National Interest Analysis (NIA) for KAFTA states that, consistent
with Australia's existing obligations under the FTA's with the US and
Singapore, to fully implement the obligations under KAFTA, 'the Copyright
Act 1968 will require amendment in due course to provide a legal incentive
for online service providers to cooperate with copyright owners in preventing
infringement due to the High Court's decision in Roadshow Films Pty Ltd v
iiNet Ltd, which found that ISPs are not liable for authorising the
infringements of subscribers'.[64]
4.53
At the public hearing, Mr Andrew Walter, an officer from the
Attorney-General's Department, characterised the need for legislative reform in
this area as 'a risk assessment':
In our view, the difficulty that arises with the iiNet
decision is that the decision is likely to be applied in almost any case that
came before a court in relation to these authorisation liability
provisions...[I]f we were relying on section 101 [of the Copyright Act 1968]
to be an incentive provision—and the [iiNet] decision means that section 101
does not operate in the way we thought it would—then we find ourselves in a
situation where we are applying in good faith our obligations at international
law, we think there is a risk that we would not be compliant.[65]
4.54
However, Mr Walter conceded that no formal approaches from Australia's
trading partners have been made on this matter.[66]
He also noted that the government was currently considering submissions from a
public consultation process regarding reforms to address online copyright
infringement.[67]
4.55
Several submissions and witnesses objected to this statement in the NIA.
The Electronic Frontiers Australia (EFA) characterised the description of the
iiNet case in the NIA as 'overly broad and misleading arguing that the High
Court found that 'iiNet did not authorise copyright infringement'. The EFA was
'concerned that the government may have misinterpreted our obligations under
the KAFTA and will seek unnecessarily significant changes to Australian law as
a result'. Also in relation to this issue, the Australian Digital Alliance
suggested that KAFTA was being used as a justification for contentious domestic
policy proposals. It described proposals to extend authorisation liability
raised by the Attorney-General's Department as 'likely to cause unforeseen
consequences for other intermediaries, such as libraries, schools and
universities'.[68]
4.56
Associate Professor Weatherall described the NIA as 'plain wrong in its
assertions about online copyright infringement' and stated that 'nothing in our
current trade agreements requires legislative change'.[69]
Similarly, Dr Matthew Rimmer characterised the statement in the NIA as 'inaccurate
and misleading, both in terms of domestic and international law' and argued
that '[t]here is no pretext for overturning the ruling of the High Court of
Australia under the guise of international law'.[70]
In relation to this issue, AFTINET stated:
The introduction of legislation to nullify a High Court
decision which would have the effect of greatly strengthening copyright law in
favour of copyright holders is an issue of great public interest, not only to
Internet service providers as an industry sector, but also to consumers. Such a
proposal should be fully debated and rigorously scrutinised by the democratic
parliamentary process, not presented as a done deal in legislation to implement
a trade agreement.[71]
4.57
However, other submissions supported the proposed changes in relation to
online infringement. News Corp Australia expressed its support for the
inclusion of paragraphs 28 and 29 of Article 13.9 of the KAFTA regarding the
enforcement of intellectual property rights. It considered these parts of the
agreement 'acknowledge the importance of creators and rights holders having
workable and technology-neutral provisions to protect their rights online'.[72]
It noted:
[W]e are concerned that the amendments made to the Copyright
Act 1968 (the Act) in 2004 regarding secondary liability of ISPs do not
operate as intended. Specifically, the provisions of the Act – although
intended to do so – do not provide rights holders with means to protect rights
online as the provisions are technology specific and ineffective in dealing
with online copyright infringement as it manifests today, nor as it may
manifest in the future.[73]
4.58
Similarly, Music Rights Australia also expressed support for sections 28
and 29 in Article 13(9). It argued that online services offered by 'the Australian
music industry must compete with persistent and unchecked use of unlicensed
music online and the damaging impact which illegal streaming and downloading
services have on it'. It argued:
There are currently no legal incentives in place to encourage
online service providers to cooperate with copyright owners to address
infringement on their networks. The section of the Act, which was intended to
put in place the mechanisms which would facilitate this, does not function as
it was intended to function. The section needs to be amended to address these
inadequacies so that the relationship between section 101 and the 'safe harbour
scheme' is realigned.[74]
4.59
Commenting on the general nature of the copyright provisions in KAFTA,
DFAT stated that the 'KAFTA obligations are high-level and flexible, and do not
prevent Australia from modernising and updating the Copyright Act 1968
where required'. In particular, it noted that KAFTA provides a more flexible
provision on ISP liability compared to the AUSFTA'.[75]
Certificates of origin
4.60
Several technical issues with the provisions of KAFTA were raised during
the inquiry, particularly in relation to certificates of origin. Certificates
of origin are documents which contain a certification by a government
authority, or another body, that exported goods originated in a specific
country. Ms Adams from DFAT told the committee:
KAFTA establishes transparent and effective rules of origin
and clear origin procedures that promote compliance without creating red tape
or unnecessary obstacles to trade. Exporters have the choice to certify the
origin of their own products or pay a service provider to certify on their
behalf.[76]
4.61
The ACCI identified a large number of specific technical issues and
potential problems with KAFTA, particularly in relation to the practicalities
of the rules of origin procedures. It stated:
Preferential trade agreements are specifically designed to
benefit the signature parties and exclude all others. They do this through
establishing barriers to trade known as the Rules of Origin. That is, only
goods that meet the origin conferring criteria of an agreement are eligible to
be offered the preferential treatment of the agreement...
The administrative processes described in KAFTA fail in some
aspects to provide for the requisite levels of 'trust' needed by importing
Customs to have confidence to grant tariff concessions.[77]
4.62
The recommendations of the ACCI focused on the importance of developing
clear and consistent rules of origin procedures and the availability of commercially
responsive dispute resolution procedures for exporters and importers. Mr Bryan
Clark from the ACCI told the committee:
The origin of goods is the single most important aspect of
any preferential trade agreement. It is the process by which goods from the
party countries are differentiated from non-party goods and hence to which the
preferential terms are applied. If the system lacks integrity than the entire
agreement is jeopardised. If the documentary protocols are too hard then
commercial use will be limited....[78]
The integrity of these systems has been undermined in the
outcomes for origin determination contained in the KAFTA text. If the system of
determining the origin of goods lacks integrity then the entire preferential
agreement is jeopardised. If traders experience any levels of delay or
difficulties in acceptance of their documents in the destination market then
they will avoid the agreement and utilisation will be low.[79]
[W]e continue to highlight the poorly drafted and constantly
variable approaches and that the rules of origin and the documentary protocols
that continue to ignore international norms will lead to continued low
utilisation of our agreements, which in turn will reduce the net benefits being
captured.[80]
4.63
In particular, the ACCI urged that government negotiators embed the
established system of third party certification into Australia's trade
agreements:
If they do not then they continue the current path of novel
approaches in each agreement, which reduces our ability to deliver timely and
efficient services to exporters and increases the risk of rejection of the
claim for preference in the counterparty market.[81]
4.64
While it supported the outcomes of KAFTA, the AFGC observed that each
new trade agreement 'invariably produces a new set of arrangements given the
nature of a negotiated outcome between two parties'. It stated:
A number of exporters have highlighted the time consumed or
wasted in meeting the different and specific requirements of individual trade
agreements in order to receive the preferential treatment under particular
agreements. KAFTA will add to this task and while food and beverage exporters
will welcome the implementation of KAFTA, there is a growing concern about the
administrative burden across agreements.[82]
4.65
AFGC stressed the need for the Australian Government to take approaches
in negotiating trade agreements to encourage 'more opportunity for commonality
among agreements'.
4.66
The Export Council of Australia considered that the KAFTA 'should not be
seen as a static or "settled" FTA' and noted that 'its terms and
benefits will continue to develop over time through the Committees established
pursuant to KAFTA'. It had the view that 'further work will be necessary on a
number of fronts, including advancing the agenda for our exporters, assisting
with trade facilitation and assisting with work to further streamline the Rules
of Origin (ROO) under KAFTA' and encouraged the Australian Government 'to
appoint members of relevant agencies to immediately establish full engagement
with industry to further improve those ROO'.[83]
4.67
DFAT stated that the Australian Government's preferred approach to
origin is self-declaration undertaken by the exporter or producer, rather than
a certificate of origin issued by a government body or other authorised bodies
such as the ACCI:
However, KAFTA does provide two origin documentation options
for Australian exporters. A claim for preferential tariff treatment for
Australian goods exported to Korea can be made on the basis of either: a
certificate of origin completed by the exporter or the producer; or a
certificate of origin issued by an authorised body. This approach provides
flexibility for traders, particularly small and medium-sized enterprises.[84]
4.68
Mr Karl Brennan from the Department of Industry noted most of
Australia's FTAs facilitated industry flexibility in terms of rules of origin
by including both third-party certification and self-declaration. He noted that
certain exporters, particularly agricultural industries, prefer to use
self-declaration.[85]
The preference of some industries for self-declaration could exist for a number
of reasons, including avoiding the cost and time involved in third party
certification.[86]
4.69
As part of its responses to the ACCI recommendations, DFAT also
commented:
The Government places a high priority on the reduction of red
tape and it is envisaged that a simple, business-friendly system of
declarations by the exporter or producer continues to be our strongly preferred
model in preferential trade agreements.
There are a variety of documentation requirements in Australia's
FTAs. It is the Government’s intention to achieve greater consistency in these
arrangements over time, as this will reduce the burden for business and advance
the Government’s agenda to reduce red tape. But the focus for these efforts
must be on convincing trading partners that still have bureaucratic systems,
with a focus on documentary controls, to move to a more business friendly risk
management system. Declaration systems, which clearly put the onus on the individual
companies to ensure their compliance with FTA requirements, are the origin
documentation system most consistent with risk management.[87]
4.70
Ms Adams from DFAT described the differing views within the exporting
industry on this issue as 'a bit of a domestic issue'. She stated that '[f]rom
a Korean point of view, they have confidence that Australia will have a proper
process for certifying, be that through certifying bodies, or through proper
self-certification'.[88]
Labour rights and labour market testing
4.71
Chapter 17 of KAFTA concerns labour issues. In particular, Article 17.1
General Principles provides 'Each Party shall endeavour to adopt or maintain in
its laws, regulations, policies and practices the following fundamental
principles and rights as stated in the ILO Declaration'. Several submissions
argued that labour rights areas were insufficiently protected within KAFTA. For
example, the ACTU noted that 'the labour chapter in KAFTA does not require
Australia or South Korea to meet the ILO standards'. The Committee to Protect
Vietnamese Workers (CPVW) argued that the use of the phrase 'shall endeavour
to' in Article 17.1 'implies it is best-effort only, that is, not enforceable'.[89]
Similarly, AFTINET stated that the KAFTA labour chapter had relatively low standards
and weak commitments, and noted it was not enforceable through the
government-to-government dispute process which applies to some other chapters
in the agreement.[90]
4.72
In Australia, employers seeking to access the Subclass 457 visa program
to engage workers from outside of Australia, in prescribed occupations, must
first test the local labour market to ensure that there is no suitably
qualified and experienced Australian citizen or permanent resident to fill the
position. As at 31 August 2014, there were 2495 primary 457 visa holders and
2575 secondary (dependent) visa holders from Korea in Australia out of
approximately 109,000 in total.[91]
4.73
The RIS notes that:
Australia has made a commitment [under KAFTA] not to apply
labour market testing. The Migration Act 1958 provides that labour
market testing may only be applied if not inconsistent with Australia's
international trade obligations. In order to implement Australia's undertaking
not to impose labour market testing on Korean nationals, a determination needs
to be made by the Immigration Minister under regulatory arrangements. As this
chapter locks in existing arrangements, no significant change is expected in
the number of skilled workers entering Australia.[92]
4.74
In response to a question on notice, the Department of Immigration and
Border Protection commented:
The subclass 457 visa programme is demand driven so it is not
possible to predict how many contractual service suppliers will come to
Australia under the KAFTA. There are no numerical limitations placed on the
programme or identified in KAFTA commitments; a South Korean visa applicant
will only be able to be granted a 457 visa if there is however an eligible
employer sponsor nominating them for a skilled position and all other criteria
are met.[93]
4.75
Korea has retained the right to apply labour market testing to the category
of Australian contractual service suppliers.[94]
AFTINET outlined its concerns in relation to labour market testing:
The Australian government has not required in KAFTA that
there will be labour market testing for any categories of temporary workers
from Korea in Australia. This means that Korean temporary contractors will be
able to work in Australia without local labour market testing to see if there
are available local employees. This could contribute to local unemployment. In
contrast, Korea's commitments on temporary movement of people retain the right
for labour market testing for entry of some categories of temporary workers.[95]
4.76
Similarly, the CPVW argued:
Because Australia's part of Annex 10-A, which stipulates
conditions for allowing such entry and temporary stay, does not require labour
market testing, Korean enterprises may freely bring in Korean workers without
first giving Australian workers the chance to apply for jobs. This denies
employment opportunities for Australian workers. And, even if Korean companies
employ some local Australians, the workers' bargaining position is weakened
because Korean employers can readily replace them with Korean workers. Further,
the Agreement is silent on wages, working conditions, and individual contracts,
thus leaving open the possibility of Australians working in Australia but on
Korean pay and conditions.[96]
4.77
At the hearing, Mr Greg McLean from the Australian Services Union also
raised general concerns related to ensuring workers coming to Australia have
appropriate recognised qualifications and occupational health and safety
training and equipment. However, he also acknowledged that there can be 'a need
for skills to be brought to [Australia] for specific targets'.[97]
4.78
In contrast, the ACCI indicated its support for all efforts to improve
and streamline the movement of people for economic purposes. It considered this
was a particularly important issue for increasing services trade and allowing
people with skills and a commercial need to travel between economies.[98]
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