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Bills Digest No. 21 2004–05
US Free Trade Agreement Implementation Bill 2004
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Date Introduced: 23 June 2004
House: House of Representatives
Portfolio: Foreign Affairs and Trade
Commencement: Schedules 1, 2 (Parts 1 and 2), 3, 4, 5, 7 commence on either
the 1 January 2005 or the day AUSFTA comes into force, whichever
is the latter. Schedule 2 (Part 3) commences after Parts 1 and 2 and
the commencement of the Agricultural and Veterinary Chemicals Legislation
Amendment (Name Change) Act 2004. Schedules 6 and 8 commence on
Royal Assent. Items in Schedule 9 commence on different dates, as outlined
in items 9–20 of the table in clause 3 of the Bill.
The purpose of these Bills is to
make the necessary legislative changes to implement the Australia—United
States Free Trade Agreement (AUSFTA).
The United States (US) is Australia’s largest trading
partner, and has been for a number of years. Trade disputes between
the two nations have been relatively frequent and have included some
of the disputes most widely publicised in Australia.(1)
On a number of occasions in the past, a free trade agreement between
the two nations has been mooted, usually at the behest of the US. In
late 2000, during the US presidential election and subsequent disputes
over the result, the Australian Cabinet reached an in-principle decision
that Australia would try to secure a free trade agreement with the US
if George W. Bush was elected.(2) The logic seems to have
been based on the assumptions that Bush and his likely trade appointees
would be open to the idea, that the 1999 Seattle Ministerial(3)
had demonstrated difficulties with the World Trade Organisation (WTO)
process,(4) and that there were significant barriers to bilateral
trade that could be reduced to the long-run benefit of the Australian
community.
Two-way trade between the US and Australia in 2002-03
was A$44.1 billion, or some 14.1 per cent of Australia’s total trade.(5)
The US was a more important source of imports (A$28.6 billion) than
a destination for exports (A$15.6 billion). Japan actually remains
Australia’s largest merchandise trading partner and export destination,
but stronger bilateral services trade makes the US Australia’s single
largest trading partner overall, services trade partner and source of
imports. Merchandise trade with the US has been growing slowly over
the past two decades and the relative importance of the US as a trade
partner has been declining. However, in services trade the US’ importance
as a trade partner has been increasing.(6)
Australia is not a highly important partner for the
US, with only 1.1 per cent of total US trade, or US$ 27.9 billion,
in 2003, although Australia is the destination for 1.8 per cent of US
exports.(7) The US has its largest bilateral surplus with
Australia, or second highest depending on how entrepôt trade
through the Netherlands is treated. Overall, the US, like Australia,
runs a large trade deficit.
The US is a more important partner for investment for
Australia than for trade.(8) At the end of 2003, the stock
of US investment in Australia was some A$297.3 billion, or 30 per cent
of the total, while Australian investment in the US was some A$211.0
billion, or 42 per cent of Australian investment abroad. It is interesting
to note the US was the source of 50 per cent of flows of investment
into Australia in 2003 and the destination of 52 per cent of Australian
investment abroad.(9)
The WTO’s 2002 Trade Policy Review of Australia(10)
found that 45 per cent of Australia’s tariff lines were duty free, and
more than 80 per cent faced duties of 5 per cent or less. While the
proportion of trade with the US that is duty free could differ, it is
unlikely to be substantially different. None of the econometric studies
of AUSFTA examined this (although the 2001 CIE study cites earlier WTO
Trade Policy Reviews). Australia applies only one tariff rate quota
(TRQ) which is for cheese.(11) The highest tariffs are applied
to automobiles and parts, and textiles, clothing and footwear.
In the WTO’s 2004 Trade Policy Review of the United
States, the US Government estimated that in 2003, 66 per cent of all
US imports entered duty free (including those under various preferential
programs).(12) However, given that Australia is not currently
eligible for any preferences, the WTO’s estimate that only 31 per cent
of all tariff items enter the US duty free is likely to be more applicable
to Australia. While the average tariff in the US is low, some tariffs
are very high—in the range of 50 to 350 per cent—principally on tobacco,
peanuts, dairy products, sugar and footwear. Additionally non-ad
valorem tariffs (tariffs not expressed as a percentage of the price)
tend to be high, TRQs apply to 1.9 per cent of all tariff lines and
complicated contingency measures (anti-dumping and countervailing duties)
are increasingly applied, often on a long-term basis.
Those sectors of merchandise trade that already face
no ‘standard’ tariff barriers (technically known as Most Favoured Nation
tariff barriers) (likely to be some 30–40 per cent of goods) and those
services sectors where no improvement on the two nations’ General
Agreement on Trade in Services (GATS) commitments have been made
do not stand to gain directly from AUSFTA. This is in addition to those
sectors where no reduction in trade barriers was achieved (such as sugar).
On the other hand, the increased protections and inter-governmental
communications offered by the agreement, and investment that may be
stimulated by it, could benefit all sectors.
In 1938, Sir Earle Page made a statement to the House
of Representatives that the possibility of a trade agreement between
Australia and the US was being studied by both Governments.(13)
This was the first of a number of occasions—more often at US initiative(14)
—on which the possibility of a free trade agreement was raised, but
for various reasons was not implemented. The Government’s 1997 White
Paper on Foreign and Trade Policy, In
the National Interest,(15) foreshadowed a shift to
increased emphasis on bilateral relations, including in trade. In late
2000, the Cabinet made a decision to propose a bilateral free trade
agreement,(16) and this was signified by a speech by Ambassador
Thawley in New York in December 2000. Given the chequered history of
trade negotiations, incoming United States Trade Representative (USTR)
Bob Zoellick required bipartisan support in Australia to consider the
matter.
In May 2001, President Bush announced that he was making
approval for Trade Promotion Authority (TPA, also known as ‘fast-track’)
from Congress his priority in trade policy. TPA allows the President
to negotiate trade agreements with other states, subject to Congressionally-imposed
conditions and Congressional oversight, with agreement from the Congress
that it will not seek to amend any agreements achieved but simply vote
them up or down. A bill giving this authority to the President came
into effect in August 2002. In November 2002—almost two years into
his four-year term—the President notified Congress of his intention
to enter into negotiations with Australia on a free trade agreement.
The first round of talks was held in Canberra in March 2003 and agreement
between USTR Zoellick and Trade Minister Vaile was achieved on 8 February
2004.(17) The draft text of the agreement was made public
on 4 March 2004, and was soon referred to the Joint Standing Committee
on Treaties (JSCOT). In May 2004, the Senate set up the Senate Select
Committee on the Free Trade Agreement between Australia and the United
States of America (Senate Select Committee). The Agreement was signed
in Washington on 18 May 2004 and the final
text of the agreement was released. JSCOT recommended binding treaty
action on 23 June 2004 and these Bills, implementing AUSFTA, passed
the House of Representatives the following day. In July 2004, President
Bush sent legislation to the Congress, and it was passed in both chambers
by large margins. President Bush signed the agreement in Washington
on 3 August 2004.(18)
The Productivity Commission is the Australian Government's
principal review and advisory body on microeconomic policy and regulation.
It conducts public inquiries and research into a broad range of economic
and social issues affecting the welfare of Australians, including: competition
policy, productivity, the environment, economic infrastructure, labour
markets, trade and assistance, structural
adjustment and microeconomic reform. Although there is a large amount
of expertise in the Commission regarding trade issues, no reference
to the Commission regarding AUSFTA was made by the Government, despite
calls from a number of trade experts.(19) The recommendations
of both JSCOT and the Senate Select Committee envisage an enhanced role
for the Productivity Commission in trade negotiations.
The Centre for International Economics was commissioned
by the Government in 2001 to evaluate the economic impacts of a possible
AUSFTA, and Trade Minster Vaile released the results in June 2001.
The report found that:
Australian GDP could be 0.33 per cent higher by 2006. This
gap would then continue to widen, levelling off by 2010 at 0.4 per cent
of GDP – an annual increase in that year of nearly US$2 billion.
The report is available from the DFAT website.(20)
It should be noted that the modelling assumed full implementation of
the agreement by 2006 and that all agricultural trade would be liberalised,
two important outcomes that were not achieved in negotiations.
ACIL Consulting prepared a report on the possible FTA
for the Rural Industries Research and Development Corporation. (21)The
report found far fewer potential benefits from a possible agreement
than the CIE study.
Our assessment is that the economic benefits of the FTA
to Australia as a whole are, at best, very finely balanced. The impact
on Australian farmers is likely to be negative, especially if domestic
political considerations in the US prevent genuinely free trade in the
most sensitive industries — sugar, dairy and meat. Given this, the case
for the FTA must rest on broader strategic arguments, the articulation
of which has not been clear to date.
Trade diversion effects, the diversion of government resources
away from other trade initiatives, and the disaffection of countries
that on the whole are more important trading partners, all threaten
the worth to Australia of a special trade agreement with the US. Note
“special”: it is unlikely to be genuinely “free”.(22)
While a number of assumptions differed between the
studies, one that seems critical is whether trade liberalisation in
and of itself induces productivity improvements in the sectors involved.
DFAT went further in criticising the ACIL Consulting study, claiming
that its methodology would imply that unilateral trade liberalisation
would be harmful to the Australian economy, something contrary to recent
experience and theoretical foundation.
Once the details of the agreement were known in February
2004, the Government commissioned a new study based on the specific
outcomes rather than the general idea of an FTA.(23) Again
this was awarded to the Canberra-based CIE. Although many of the earlier
assumptions had not been realised—notably, full and rapid agricultural
liberalisation—the new report, released at the end of April 2004, found
that the actual agreement was likely to lead to greater economic benefits
than the earlier study.
The most probable effect on macroeconomic welfare after
a decade, as represented by real gross national product (GNP), is an
increase of $5.6 billion per year above what it might otherwise be.
Merchandise and services trade liberalisation contributes
an extra $1 billion per year to both welfare and real GDP above what
it might otherwise be a decade out. The size of this effect reflects
several things. First, both Australia and the US are already relatively
open economies, with average tariffs of 4.5 per cent and 3.6 per cent
respectively. Second, when tariffs are removed preferentially, there
is some trade diversion and that offsets some of the gain. Third, the
services markets in both countries are also relatively open.
Investment liberalisation makes the biggest contribution
to overall economic growth and welfare.
Indeed, the investment and productivity impacts of
the agreement in the CIE’s model were the cause of the bulk of the expected
economic gain. This was criticised by some as overstating the case.(24)
Dee Report
The Senate Select Committee commissioned its own econometric
evaluation of the likely impact of AUSFTA, by Dr Philippa Dee.(25)
The first section (and associated appendices) of the Dee report gives
a very clear accounting of the trade liberalisation achieved in AUSFTA
in various sectors, compared to the two nations’ existing commitments
under other agreements such as GATS. The conclusion of the report is
that:
Based on the alternative assessment, the annual gains to
Australia from AUSFTA are a mere $53 million. This is a tiny harvest
from a major political and bureaucratic endeavour. And the figure does
not reflect further unquantifiable costs, such as associated with safeguards
on manufactured goods and the additional tightening of intellectual
property rights.(26)
The US government is required to commission the US
International Trade Commission (USITC) to produce a report on the economic
effects of each free trade agreement negotiated with Congressional TPA.
In May 2004 the USITC published its findings regarding AUSFTA.(27)
It found a relatively small net gain to the US economy, in the order
of US$ 500 million per year when fully implemented.
A number of other studies have examined AUSFTA, either
in full or in part. A major study commissioned by DFAT looked at the
broader non-quantifiable effects of a potential FTA with the US, and
was enthusiastically in favour of the agreement.(28) The
Australian Manufacturing Workers Union commissioned a study by Dr Peter
Brain, released in June 2004, and this found potential costs of A$ 46.9
billion, mainly from restrictions on the ability to pursue an active
industrial policy.(29) An International Monetary Fund study
of the impacts of various US FTAs found that AUSFTA was likely to have
a small negative effect on Australia, and a similar effect for the global
economy.(30) This was caused by trade diversion from Japan,
Asia and the EU.
The schedule of the negotiations of AUSFTA is extensively
covered in a paper by Ann Rann.(31) What is most apparent
about the timing is that there was a major delay from the announcement
of an intention to seek negotiations (August 2001) and the actual beginning
of negotiations (November 2002). A reduction in this delay would have
meant substantive negotiations were less affected by the logic of US
Presidential (and Congressional) elections in November 2004.(32)
In part, this delay was caused by the time taken to grant TPA to President
Bush.
The Coalition parties have made clear their support,
for the FTA, despite some apparent reservations before the close of
negotiations at the beginning of 2004 related to the non‑inclusion
of all agricultural sectors in AUSFTA.(33) The Democrats,
Greens and One Nation have all expressed opposition to the agreement,
focussing on issues such as the Pharmaceutical Benefit Scheme, investment,
intellectual property, culture and other issues. The ALP has been reserved
about the agreement from the start of negotiations, committing to awaiting
the findings of the Senate Select Committee before determining its policy.
It has recently announced it will support AUSFTA, subject to two provisos
and with a commitment to enact further legislative change if it wins
governments (see Concluding Comments, below).
A number of groups have expressed concerns about the
potential inability to develop local content restrictions in new media
as they evolve under AUSFTA and the “one-way ratchet” (quotas can only
go down), although it is possible that these concerns are overstated,
or reflect a protectionist motivation. A number of community groups
have expressed concern that the increased mechanisms for bilateral consultation
regarding quarantine issues may actually lead to a downgrading of existing
protections. Some agricultural groups have expressed concern that,
although for now single desk arrangements(34) have been preserved,
Australia has agreed to cooperate with the US in the WTO on the issue.
JSCOT issued its report on AUSFTA in June 2004, and
made 23 recommendations – including recommending binding treaty action
to implement AUSFTA.(35) A dissenting report was issued
by the ALP members of the Committee (requesting more time for consideration).
Some of the most important committee recommendations were:
- the Productivity Commission review the operation of AUSFTA
every five years after it comes into operation
- consultation with state and territory governments be improved in future
negotiations
- a number of principles must be taken into account in implementation
of AUSFTA to ensure the integrity of PBS
- active measures be taken to promote increased market access for sugar,
and to improve recognition of qualifications and movement of business
people
- local content levels for broadcasting be protected by legislation
- legislate to protect academic and research access to copyright material,
and take other measures to ensure the consistency of proposed changes
with other (more lenient) aspects of the US intellectual property system,
and
- the Government review the environmental impact of AUSFTA and legislate
for this to happen for all future FTAs.
The Senate Select Committee released a summary of its
findings on 2 August 2004.(36) The ALP members of the Committee
raised 43 qualifying recommendations about the agreement as it stands
(see endnote 55), while nonetheless recommending the Senate support
the agreement (which meant that, with coalition support, the majority
of committee members supported the agreement). Among the many concerns
the ALP members of the Committee expressed were a number related to
intellectual property issues, the PBS and generic drugs, manufacturing
protection and local media content.
Thus, both Parliamentary Committees found that a number
of aspects of AUSFTA could be improved, even given the finalisation
of negotiations. At the same time, both found that on balance AUSFTA
was likely to be a net benefit to Australia.
- As JSCOT argued, AUSFTA is GATS-plus, that is, it goes further than
GATS in liberalising services trade by using a negative list
approach—all sectors are included unless specifically excluded. While
this is desirable, there do not appear to be any substantial innovations
in AUSFTA in services compared to Australia’s other bilateral agreements
and there appears to be somewhat less liberalisation from the US perspective
than in its recent agreements with Chile and Singapore, particularly
regarding mobility of skilled labour.(37)
- The opening up of government procurement markets is desirable from
a trade perspective, while safeguards have been included for indigenous
Australians, any socially or economically disadvantaged minorities in
the US and small business in both countries.
- The inclusion of mechanisms to increase competition policy cooperation
is a WTO-plus aspect of the agreement, as JSCOT argued. While this
does not go as far as under CER (FTA with New Zealand), this seems appropriate
given the different policy structures that currently exist.
- The exclusion of investor-state dispute settlement provisions, such
as those that exist in NAFTA, is likely to alleviate concerns many in
the community have about trade agreements impinging on the ability of
governments to legislate on legitimate social issues.(38)
- Increased connection to the largest/most dynamic economy in the world—the
US had 20.9 per cent of world GDP in 2003, and 12.4 per cent of world
exports (and 4.9 per cent of global population).(39) This
increased connection will not only occur through trade, but also through
greater two-way investment, greater people-to-people contact (especially
at the business level) and greater attention in the media (if only for
a limited period) to each other’s nation.
- Improve Australian management practices, especially in services and
the use of information technology.(40) In particular, US
managers have demonstrated a strong preparedness to put new ideas into
practice—whether this relates to personnel issues like affirmative action
and promotion of women and migrants, and adoption and innovation of
new information technologies, or to the generous funding of universities
and research.
- Australians have never saved enough to provide for their investment
requirements(41) and there is a constant need to find sources
of new fixed investment.(42) It has been noted that when
the US has signed free trade agreements there has been a tendency for
a surge in investment to occur, not just to take advantage of new opportunities
opened up by the agreement per se (and much attention has been
paid in the agreements to investment), but through a ‘head-turning’
or advertising effect of the discussion and policy process preceding
Congressional approval of a deal.(43) Since the relaxation
of foreign investment screening need apply only to US firms, existing
agreements with New Zealand and Japan may be somewhat compromised and
will possibly lead to wider investment deregulation in the long-run.
The agreement is also being promoted in the US on the basis that Australian
investment in the US will increase.(44)
- Some Australian industries will be given a competitive advantage
(with respect to US tariffs/quotas) ahead of their competitors in nations
without free trade agreements with the US.(45) For example
Australian aluminium producers, with tariff free access from year one,
will have an advantage over other exporters from countries without a
free trade agreement with the US.(46)
- Contrary to the claims of some critics, AUSFTA may increase Australia’s
ability to reach trade agreements with important Asian trading partners.(47)
This is not only because Australia will have enhanced access to the
US market, and will be offering preferential access, say, to US cars
over Japanese or Korean cars, but also because Australia has demonstrated
that it is now willing to leave sensitive agricultural sectors out of
trade liberalisation deals.
- The provision of information to consumers through labelling, for example,
of genetically modified ingredients, will be maintained despite US objections.
- As an FTA partner, DFAT claims Australia will be exempted from US
safeguard actions almost automatically.(48) This is a protectionist
tool that the US is increasingly invoking. This will be particularly
important for those agricultural industries not specifically listed
as being subject to safeguard protections.
One significant problem with AUSFTA from Australia’s
long term trade perspective relates to the rules regarding free trade
agreements in the WTO. Article XXIV of the General Agreement on
Tariffs and Trade (GATT 1947) requires that free trade agreements
(and customs unions) should cover substantially all trade. While
AUSFTA excludes sugar and a number of services covered under GATS, it
would be difficult to argue that it does not meet this criterion. However
the Marrakesh Agreement (1995) clarified Article XXIV (which
had been increasingly ignored by GATT members) and strengthened its
discipline.(49) In particular the length of phase-in periods
in FTAs (Article XXIV:5(c)) was limited to 10 years except in exceptional
cases. In cases where parties believe that 10 years would be insufficient
they shall provide a full explanation to the Council for Trade in Goods
of the need for a longer period. It is difficult to see a compelling
reason for extended phase-in periods in the case of AUSFTA, especially
since both countries are signatories to the (APEC) Bogor declaration
committing them to free trade by 2010. Most of the barriers in TCF
and automobiles will be phased out over the whole ten years, and of
course, a number of agricultural barriers will be in place for at least
18 years.
In its inquiry into the SAFTA, JSCOT praised the agreement
for reinforcing Australia’s position on free trade in agriculture.
2.18 DFAT acknowledged that neither party actually provides
export subsidies to agriculture. Nevertheless, SAFTA reinforces Australia’s
international stance on comprehensive trade liberalisation and particularly
the trade in agricultural goods.(50)
Unfortunately, AUSFTA can be seen as presenting a negative
precedent in the sense that Australia has accepted the continuing subsidisation
of US agriculture through export credits and the exclusion of sensitive
agricultural products from trade agreements. Perhaps coincidentally,
exclusion of sensitive products was recently accepted on the Doha agenda.
In addition Australia has agreed to ‘unprecedented price mechanisms’(51)
(safeguards) that will reduce access to the US beef market in the case
of quite moderate downward fluctuations for US producers,(52)
and there are safeguards for many horticultural products.
Significant concerns have been raised about the value
of a bilateral, as opposed to multilateral, approach to trade liberalisation.
It has been argued that a piecemeal approach to trade agreements may
result in an incoherent system, as a US Congressional Committee advised
in relation to the US–Singapore Free Trade Agreement:
A minority believes that, though not a fault of the Agreement,
there is a concern that the current melange of global, regional and
bilateral international trade agreements have different, [in]congruent
and conflicting substantive, procedural and enforcement provisions.
This creates confusion and uncertainty and encourages global forum shopping
and multiple proceedings. Congress should look at this patchwork quilt
in its entirety, not only one piece at a time and consider the long
term impact these agreements will have on American interests over the
long term.(53)
This is similar to the ‘spaghetti bowl’ problem identified
with such clarity by Professor Bhagwati: the more FTAs that are signed,
the more incompatible standards and rules of origin emerge. (54)This
makes ‘free trade’ an administrative mess, and eliminates one of the
large efficiency gains possible from moves to free trade. In particular
for Australia, sourcing of components from New Zealand suppliers under
CER might affect the ability to claim tariff free status for exports.
In the TCF case, this effect is expected to preclude 80 per cent of
Australian manufacturers making any substantial gains in the US as a
result of AUSFTA.
It can be argued that Australia might have negotiated
a better deal had the negotiations been conducted earlier, with more
political distance from the US presidential and congressional elections.(55)
At the time of the finalisation of negotiations US beef was facing difficulties
due to the outbreak of BSE, and the inclusion of sugar in the US FTA
with five Central American countries had raised the lobbying efforts
of US sugar producers, who are concentrated in electorally important
states. (56)
The content of AUSFTA raises several other concerns:
- that Australia has traditionally opposed the inclusion of geographical
indications on the trade agenda in the WTO, so it seems somewhat
surprising that this has been included in AUSFTA
- Australia’s export monopolies are left in place, although Australia
has promised to cooperate with the US in the WTO regarding state-trading
enterprises (STEs). Investigation of STEs has been one of the gains
the EU could claim in the recent Doha Round negotiations
- while Australia has supported developing countries’ efforts to limit
the inclusion of labour and environmental standards in the WTO, as essentially
a form of implicit protectionism, these areas have been included, albeit
in an attenuated form, in AUSFTA
- generally, the most protected industries—for example, sugar in the
US and textiles, clothing and footwear (TCF) in Australia—retain their
protected status longer than other industries, something that will not
encourage the specialisation in areas of comparative advantage that
is the basis of gains from trade agreements
- the intellectual property (IP) chapter contains highly prescriptive
requirements for Australian IP law. This is especially the case for
copyright, where AUSFTA requires the extension of performers’ rights,
a twenty-year extension to the duration of copyright (longer for photographs),
extended criminalisation of infringement and use of circumvention devices
and an onerous regime for the policing of internet service providers.
This chapter will severely circumscribe Australia’s ability to craft
IP law that balances the needs of creators and innovators against users
and consumers. Given the increasing role that information plays in the
economy, this could involve significant costs in the future. Of most
concern are those provisions that restrict trade by allowing IP holders
to control imports and exports of their products (known as parallel
importing). In the area of patents, Australia has agreed to respect
patent holders rights to prevent parallel importing. In the area of
copyright, Australia may have agreed to a system for protecting ‘technological
protection measures’ that allows copyright owners to effectively prevent
parallel importing through ‘region-coding’ devices.(57)
For more detail on aspects of the agreement, see these
other publications from the Parliamentary Library:
- David Richardson, ‘Foreign investment
and the Australia–United States Free Trade Agreement’, Current
Issues Brief, No. 7 2003–04, Parliamentary Library, Department of
Parliamentary Services, March 2004
- David Richardson, ‘Intellectual Property
Rights and the Australia–US Free Trade Agreement’, Research Paper,
No. 14 2003–04, Parliamentary Library, Department of Parliamentary Services,
May 2004.
- Kate Burton and Jacob Varghese, ‘The PBS and the
Australia–US Free Trade Agreement’, Research Note, No. 3
2004–05, Parliamentary Library, Department of Parliamentary Services,
July 2004.
- Jacob Varghese, ‘Guide to copyright
and patent law changes in the US Free Trade Agreement Implementation
Bill 2004’, Current Issues Brief, No. 3 2004–05, Parliamentary
Library, Department of Parliamentary Services, August 2004.
Aside from the merits or demerits of the agreement
itself, Parliament also has to consider whether the Bill proposes the
best means to implement the agreement. It is important to appreciate
that the implementation is not merely a technical matter, but also involves
policy issues of substance and process.
The provisions of the Bill are analysed in the Main
Provisions section below. Observations about those provisions are made
in the Concluding Comments section.
Main Provisions: US Free
Trade Agreement Implementation Bill 2004
Schedule 1 of the Bill is comprised of two Parts. Part
1 deals with US originating goods or the rules of origin, implementing
Chapter 5 of AUSFTA, and Part 2 deals with the conferring of verification
powers in relation to certain trade items (implementing Article 4.3.2
AUSFTA).
Part 1—US originating
goods
Part 1 of the Bill proposes changes to the Customs
Act 1901 in relation to the rules of origin. These amendments reflect
the agreements reached under Chapter 5 of AUSFTA, providing comprehensive
and descriptive rules to determine the origin of individual products.
Under the new scheme, whether a product can qualify as a US originating
good would determine whether the product is eligible for preferential
customs rates under the Customs Act 1997.(58)
Proposed new section 153YB stipulates that goods
‘wholly obtained or produced entirely in the US are of US origin’. Subsection
153YB(2) provides an exhaustive list of circumstances according
to which a good is classified as ‘wholly obtained or produced entirely
in the US’.
Rule 2. Goods produced
entirely in the US, or in the US and Australia, from ‘originating
material’ (proposed Subdivision C)
Goods are considered to be of US origin if they were
produced entirely in the US or in the US and Australia, using exclusively
originating materials. The term ‘originating material’ is defined in
proposed section 153YA, including, for example, goods which are of US
origin and which are used in the production of other goods.
Proposed section 153YE sets out the requirements
according to which a good (except clothing and textiles), which was
produced entirely in the US, or in the US and Australia, from non-originating
material, may qualify as a US originating good. Proposed subsections
153YE(2), (4) and (7) stipulate three essential requirements
that a US originating good must fulfil, including:
- that the good satisfies the transformation test set out in subsection
153YE(8) or, for example, that the non-originating material does
not exceed 10 % of the customs value of the goods (paragraph 153YE(2)(a)
and (b))
- that the good satisfies the regional value content requirement (paragraph
153YE(4))
- that the good satisfies any other requirement set out in Schedule
1 of the Free Trade Agreement Regulations (paragraph 153YE(7)).
Refer to the Explanatory
Memorandum of the Bill for a more detailed discussion of this
complex provision and examples.(59)
Proposed section 153YF provides specific rules for
goods that classify as chemicals, plastics and rubber. Similar to Rule
3 above, a good produced entirely in the US, or in the US and Australia,
from non-originating material that fulfils all the requirements set
out in proposed subsections 153YF(a) to (f) will qualify
as a US originating good.
Proposed section 153YH sets out the requirements
according to which a clothing or textiles good, which was produced entirely
in the US or in the US and Australia from non-originating material,
may qualify as a US originating good. This provision is similarly structured
as Rule 3 above. Proposed subsections 153YH(2) and (4) stipulate
two requirements a US originating good must fulfil, including:
- that the good satisfies the transformation test set out in subsection
153YH(7) or, for example, that the non-originating material does
not exceed 7% of the total weight of the goods (paragraph 153YH(2)(a)
and (b)), and
- that the good satisfies any other requirement set out in Schedule
1 of the Free Trade Agreement Regulations (paragraph 153YH(4)).
Refer to the Explanatory
Memorandum of the Bill for a more detailed discussion of this
complex provision and examples.(60)
Chapter 62 of the Harmonised Commodity Description
and Coding System (‘Harmonised System’) as devised by the World
Trade Organisation deals with articles of apparel and clothing accessories,
not knitted or crocheted. Proposed section 153YI stipulates a
specific three tiered test to determine US origin for goods falling
within the scope of Chapter 62.
Rule 7. Other US
originating goods (proposed Subdivision F)
This rule would apply to standard accessories, spare
parts and tools. Proposed section 153YJ sets out the test to be applied
to goods comprised of an ‘underlying good’ and standard accessories,
standard spare parts or standard tools (‘parts’). The parts would only
qualify as US originating goods, if:
- the underlying goods are US qualifying goods
- the parts are not invoiced separately, and
- the parts are of a usual quantity and value in relation to the underlying
good (proposed paragraphs 153YI(1)(a) to (c)).
Where, however, the underlying good has to be tested
for its origin under Rule 3 discussed above, to satisfy the regional
value content, the value of the parts must be taken into consideration
(proposed paragraphs 153YI(2)).
As a general rule, packing material and containers
used to package goods for retail are to be disregarded from the operation
of the Division, if they are classified with the goods in accordance
with Rule 5 of the General Rules for the Interpretation of the Harmonized
System. Rule 5 specifies, for example, containers and packing material
such as camera cases, musical instrument cases, gun cases, drawing instrument
cases or necklace cases, which therefore would be disregarded. (61)
Where, however, the packaged goods have to be tested
for their origin under Rule 3 discussed above, to satisfy the regional
value content, the value of the packaging material must be taken into
consideration (proposed paragraphs 153YH(2)).
Where goods went through any other country than the
US or Australia, undergoing there a process of production, proposed
section 153YL provides that the goods can not be US originating
goods within the meaning of the Act.
Under AUSFTA, Australia and the US are required to
create and confer certain verification powers in relation to textile
or apparel goods.
Article 4.3 of AUSFTA requires the parties to
- enforce or assist in the enforcement of measures affecting trade in
textile or apparel goods
- ensure the accuracy of claims of origin
- enforce or assisting in the enforcement of measures implementing international
agreements affecting trade in textile or apparel goods, and
- prevent circumvention of international agreements affecting trade
in textile or apparel goods.
The proposed amendments apply only in relation to the
trade with textile or apparel goods, enabling Australia, either upon
request by the US or on its own accord, to determine that a claim of
origin for the good is accurate (Article 4.3.2 of AUSFTA).
Item 6 of the Bill inserts proposed new Division
4B dealing with exportation of textile and clothing goods to the
US. Central to this Division is proposed section 126AE which
confers to certain, specifically authorised officers (‘verification
officers’) the power to request records or ask questions from:
- exporters or producers of goods as defined in proposed subsection
126AE(4) (proposed paragraph 126AE(1)(a)) or
- persons involved in the transport of such goods from Australia
to the US (proposed paragraph 126AE(1)(a)).
The person subject to the request is not obliged to
provide the records or answer any questions (proposed paragraph 126AE(2))
and the strict liability offences, sections 243SA (failure to answer
questions) and 243SB (failure to provide documents or records) of the
Customs Act 1901, will not apply.
Item 8 proposes to introduce a new Subdivision
JA–Powers to monitor and audit–Australia–United States Free Trade
Agreement. The proposed provisions in this subsection would create several
powers for the ‘purpose of verifying information relating to the export,
production or transportation of textile and clothing goods that are
exported to the US.’ (proposed section 214BAA).
The powers created are set out in proposed subsection
214BAC(1), including:
- the power to search a premises (paragraph 214BAC(1)(a))
- to take photos (paragraph 214BAC(1)(b))
- to take and inspect or analyse samples (paragraph 214BAC(1)(c)),
and
- to test record keeping (paragraph 214BAC(1)(g)).
The powers created under this section can only be exercised
if it is reasonably necessary for the purpose of ‘verifying information
relating to export, production or transportation of textile and clothing
goods that are exported to the US.’ (proposed subsection 214BAE(1))
Further, the power to enter premises is subject to
the voluntary written consent given by the occupier (proposed section
214BAE). The section does not provide for entering the premises
on the basis of a warrant. To obtain the requisite consent, the verification
officer must follow certain procedural steps set out in this proposed
section.
Under proposed section 214BAF, a verification
officer can be accompanied by a US customs official, subject, however,
to the occupier’s voluntary written consent. However, even where an
occupier does not consent to a US customs official accompanying a verification
officer, any information obtained by a verification officer in the course
of exercising the powers under the Act can still be disclosed to a US
customs official (proposed section 214BAJ). The Bill does not
specify that the occupier has to be informed about this.
The verification officer has the power to ask questions
and ask for reasonable assistance in performing his duties (proposed
section 214BAH and 214BAI).
Also provided are powers:
- to operate equipment, such as computers, containing information relevant
to the information verification, and
- to transfer electronically stored information onto disks and to remove
those disks from the premises (proposed subsections 214BAC(2)
and (3)).
It is a prerequisite under proposed section 214BAK
that the person operating the equipment must hold a reasonable belief
that the operation will be safe for the equipment. Where damage to the
equipment occurs, proposed section 214BAL provides for a compensation
regime that, under certain circumstances, provides the owner of the
equipment with avenues to obtain compensation. However, the legislation
possibly contains a gap which could result in unnecessary complications
for the parties. It seems arguable that the preliminary decision to
operate the equipment based on the reasonable belief that it is safe
is not covered by the compensation provision. This situation should
be resolved by amending proposed subparagraph 214BAK(1)(b)(ii)
to include the situation where the person lacked the reasonable belief
required pursuant to proposed section 214BAK.
Agricultural and veterinary chemicals, and labels for
those products, require approval or registration with the Australian
Pesticides and Veterinary Medicines Authority (APVMA, formerly the National
Registration Authority, NRA) before they can be marketed. This process
is called marketing approval. The process requires the applicant to
provide certain data to APVMA, demonstrating that the chemical is safe
and effective.
This schedule proposes a new regime for the protection
of that data. This affects the practice of ‘springboarding’ generic
products. Generic products are those produced by manufacturers other
than the owner of the patent in the product. Springboarding is a process
which allows a generic product to get marketing approval on the basis
of test data that has already been submitted by the original product’s
manufacturer. This allows the generic manufacturer to avoid duplicating
much of the costly and time-consuming process of chemical testing, resulting
in a faster entry to market and therefore cheaper product prices.
Article 17.10 establishes certain requirements for
the regulation of agricultural chemicals and pharmaceuticals. Pharmaceuticals
are discussed below, under Schedule 7.
Article 17.10 requires that generic products not be
permitted to springboard in the first ten years after the original product
has been given marketing approval—this is known as the data exclusivity
period. It also requires that the information submitted to the government
for the purpose of obtaining marketing approval be protected from ‘unfair
commercial use’.
Currently, the Agricultural and Veterinary Chemicals
(Administration) Act 1992 provides an effective data exclusivity
period of five years (s 69EY).
In order to ensure compliance with AUSFTA, the Bill
proposes a ten year data exclusivity period where use of the product
within ten years would be ‘commercially unfair’ (item 8, proposed
subsection 14B(2)).
Item 8 proposes to severely circumscribe the remedies
available to the original product manufacturer if information is used
in breach of this rule. Proposed subsection 14B(3) would provide
that the use of information in contravention of the rule (for example,
within the ten year period) would not affect the validity of any registration
that results from that use. Proposed subsection 14B(4) would
prevent the original applicant from claiming any compensatory remedy
against the Commonwealth or its agents in relation to the misuse of
information. In other words, except for injunctive relief before
a second (or subsequent) product has been registered, the Bill would
provide no relief to the original product manufacturer in the event
that the data exclusivity period is breached. In practice, the Bill’s
attempt to remove remedies for breach of the law by APVMA may not be
effective if courts hold that a decision to grant registration within
the ten years was not properly made.(62)
Beyond implementing AUSFTA, the Bill proposes several
other changes to the way information supplied to APVMA may be used.
These are not directly required by AUSFTA, but do deal with the issue
of how the data provided to APVMA is protected.
According to the Second Reading Speech, these reforms
represent part of a suite of reforms devised by the government with
the agreement of ‘key stakeholders including all State and Territory
Governments’.(63) According to the Trade Minister, a second
set of reforms will be proposed in a subsequent Bill.
There does not appear to have been much commentary from
stakeholders on the provisions proposed in the Bill. However, the Pastoralist
and Graziers Association of Western Australia has indicated opposition
to the ten year data exclusivity rule on the basis that it overrides
the outcome of earlier stakeholder consultation on data protection and
it could increase the costs of chemicals.(64)
The Bill proposes a detailed scheme for the protection
of data in different circumstances. This Digest does not examine these
provisions in detail.
This section:
- may lead to increased costs for agricultural chemical products by
extending the data protection period to ten years and delaying the entry
of generic products, and
- makes changes that go beyond implementing AUSFTA, but that are, according
to the Trade Minister, consistent with outcomes negotiated with key
stakeholders.
Article 17.2 of AUSFTA provides certain obligations
regarding the treatment of trade marks and geographical indications
(GIs).
GIs are words or expressions protected for the use
of producers from a particular geographical region. Australia has a
system for declaring and protecting GIs for wine and spirits under the
Australian Wine and Brandy Corporation Act 1980.
Article 17.2.7 requires that interested parties have
an opportunity to seek refusal or cancellation of a GI. Article 17.2.12(b)(v)
requires that GIs be refused on the grounds that they are likely to
cause confusion with a pre-existing trade mark or a good faith pending
application for a trade mark. The current law does not comply with these
requirements.
Schedule 3 proposes amendments to the Australian Wine
and Brandy Corporation Act to require the Geographical Indications
Committee to take account of pre-existing trademark rights when determining
geographical indications (GIs). This would involve the following process:
- notice of a proposed GI must be published if an application for a
GI has been made or if the committee is considering a GI on its own
initiative. The notice must set out the GI and invite written objections
within one month (item 11, proposed section 40RA)
- a person may object to a GI on the following grounds:
- if he or she owns a registered trade mark that consists of
a word or expression identical to the proposed GI or of a word or
expression with which the GI is likely to cause confusion, or the
proposed GI contains a word or expression with which the
GI is likely to cause confusion and the owner has trade mark rights
in the word or expression
- if he or she has an application pending for registration of a
trade mark, any of the above conditions apply, the application was
made in good faith and there is a prima facie case for accepting
the trade mark, and
- if he or she has trade mark rights in an unregistered trade mark,
any of the conditions of the first ground are met and the trade
mark rights were acquired through use in good faith
- objections are made to the Registrar of Trade Marks, who decides
whether the objector has a ground. Even if the ground is made out, the
Registrar may recommend to the Committee that it is reasonable in the
circumstances to determine the proposed GI, although such a recommendation
must be made with regard to Australia’s international obligations (for
example, AUSFTA)
- decisions by the Registrar of Trade Marks on these issues may be
appealed to the Federal Court, and
- the Committee may not determine a GI until any trade mark issues
have been resolved, including appeals. The Committee may not determine
a GI if the Registrar of Trade Marks has decided that the grounds for
objection are made out and does not recommended the determination, unless
the objector consents.
This process will apply to any GIs that have not been
finally determined by the date of commencement. In other words, it may
apply to GI’s still under consideration by the Committee.
Schedule 3 also proposes a scheme for the cancellation
(called ‘omission’) of GIs by the Committee. This would be possible where
a GI is not in use (as defined by proposed s 40ZAF) or where a
GI is no longer required (according to the process outlined in proposed
s 40ZAI).
This schedule:
- prevents GIs from being determined where they are likely to be confused
with pre-existing or pending trade marks, and
- according to the Trade Minister, enacts existing practice into legislation.(65)
Chapter 13 of AUSFTA makes certain requirements of
Australia in relation to financial services, which includes life insurance.
The key obligation is national treatment—treating US life insurance
companies no less favourably than domestic companies in like circumstances.
Currently, the Life Insurance Act 1995 provides
that only companies incorporated in Australia can carry out a life insurance
business (through definition of company in the dictionary Schedule,
among other provisions).
The Bill proposes the creation of a new category of
life insurance company, to be known as an eligible foreign life insurance
company (items 1 and 25). Such a company must, among other
criteria, be authorised to carry on life insurance business in another
country, have an Australian branch or propose to establish one and meet
conditions specified in the regulations. These conditions would include,
but not be limited to, a list of countries in which eligible foreign
life insurance companies may be incorporated. Presumably, the United
States would be placed on this list.
The Bill would set certain governance requirements
for eligible foreign life insurance companies. These would require the
company to nominate a ‘Compliance Committee’, who would have management
responsibility for the Australian branch of the company and be responsible
for ensuring the company complied with the Life Insurance Act. Items
11 and 12 would empower courts to grant injunctions against members
of the compliance committee in order to enforce the Act.
The other items appear to be consequential and technical.
This schedule:
- allows regulations to prescribe countries from which life insurance
companies can be based but still access the Australian market, with
conditions, and
- would allow regulations to prescribe more than just the United States
as an eligible country.
This schedule proposes changes to allow regulations
to prescribe new asset screening thresholds in relation to certain foreign
investors.
In AUSFTA, Australia agreed to relax its requirement
for Foreign Investment Review Board (FIRB) review and screening by the
Treasurer of proposed US investments in Australia (Annex 1—Australia—2–3).
This was done be agreeing to raise the threshold below which most investments
do not require review and screening. The threshold is currently A$50
million and this must be raised to A$800 million where US investors
are involved. Lower thresholds or other conditions still apply in certain
'sensitive' areas such as real estate, banking, aviation, shipping,
media and telecommunications.
The Bill proposes to allow regulations to:
- define investors from a specified country as prescribed foreign
investors which could allow them to be treated as non-foreign investors
in certain circumstances (proposed s 17E)
- define specified foreign government investors as prescribed foreign
government investors, again allowing them to be treated as non-foreign
investors in certain circumstances (proposed s 17G)
- define a business activity as a prescribed sensitive sector
(proposed s 17H)
- determine the screening threshold for proposed acquisition of shares
or assets by a prescribed foreign investor or a prescribed
foreign government investor. The regulations would be able to determine
different thresholds for a variety of different contexts, including
in relation to different countries and different sensitive sectors (proposed
ss 17A, 17B, 17C), and
- specific rules for the screening of foreign investments in financial
sector companies (proposed s 17D).
Regulations would determine the entire scope of all
the substantive provisions of proposed Part IA. Presumably the Government
will make regulations under these provisions to ensure compliance with
AUSFTA. It is possible that regulations under these provisions could
extend the benefits of these provisions beyond the United States, to
include investors from other countries.
This schedule:
- would allow regulations to set different foreign investment screening
thresholds for prescribed countries in prescribed sectors, and
- would allow regulations to extend these liberalising benefits beyond
United States investors.
Schedule 6 contains a proposed amendment to the Commonwealth
Authorities and Companies Act 1997.
Chapter 15 of AUSFTA imposes certain obligations regarding
government procurement. In general, this involves a commitment not to
discriminate against US providers in awarding government contracts,
although there are several exceptions to this principle.
Item 1 proposes to provide the Finance Minister
with the power to issue directions to prescribed Commonwealth authorities
and companies on matters relating to procurement, on the condition that
such directions are consistent with international agreements concerning
government procurement (such as AUSFTA). This change will enable the
Finance Minister to ensure that Commonwealth authorities and companies
are subject to the Commonwealth Procurement Guidelines that apply
throughout the public service.
It is understood that other changes to ensure compliance
with AUSFTA will be made through amendment to those guidelines.
As with agricultural and veterinary chemical products
(see above), Article 17.10 makes similar requirements for the regulation
of pharmaceuticals. It requires:
- data exclusivity period of five years
- that measures be provided in the marketing approval process to prevent
generic manufacturers from entering the market during the term of a
patent, and
- that, where generics are permitted to request approval to enter the
market during the life of a patent, the patent holder must receive notification
of any such attempt, including the identity of the applicant.
See the Parliamentary Library’s Research Note
‘The PBS and the Australia—US Free Trade Agreement’ for more detailed
discussion of these provisions and their implications.(66)
Currently, the Therapeutic Goods Administration (TGA)
is prevented from allowing generic manufacturers to springboard in the
first five years following registration of the patented product (s 25A
, Therapeutic Goods Act 1989). Aside from this requirement, the
TGA is not concerned with any intellectual property issues when considering
applications to register a drug.
Schedule 7 proposes that, in addition to existing
requirements, applicants for registration of a new drug must supply
a ‘section 26B’ certificate with their application. This certificate
must state either:
- that the applicant is not marketing, and does not propose to market,
the drug in a manner that would infringe a patent in relation to that
drug, or
- that a patent has been granted in relation to a drug, that
the applicant proposes to market the drug before the end of the term
of the patent and that they have notified the patentee that they have
applied for registration of the drug (item 6).
A new offence is proposed for providing false or misleading
material information in the certificate, with a maximum penalty of 1,000
penalty units ($110 000). Read with cl 5.6 of the Criminal Code,
the wording of this offence would require that it apply even if the
person did not intentionally provide false or misleading information,
as long as they were reckless as to this fact.(67)
This schedule would introduce a new certification scheme
in which generic manufacturers must either certify that they will not
infringe a patent or certify that they have notified the patent holder
of their intentions. The ALP has been concerned that the notification
requirement could lead to spurious infringement claims launched by patent
holders to delay the entry of generics. While a civil remedy is currently
available against unjustified threats of infringement action
(ss 128–129, Patents Act 1990), there may not be a significant
disincentive to actually launching such claims, especially where the
patent holder may stand substantially to benefit from such an action.
To this end, the Opposition has indicated that it will propose an amendment
to introduce a penalty for spurious claims.
The proposed changes to the Patent Act 1990
are relatively minor. They include expansion of the grounds for opposition
to patents and removal of conditions on patents. Despite some earlier
concerns, they do not involve any change to the tests for patentability.
See the Parliamentary Library’s Current Issues Brief,
‘Guide
to the copyright and patent law changes in the US Free Trade Implementation
Bill 2004’ for more detail.
The changes to the Copyright Act 1968 are the
most complex changes proposed by this Bill. See the Parliamentary Library’s
Current Issues Brief, ‘Guide to the
copyright and patent law changes in the US Free Trade Implementation
Bill 2004’ for more detail. The following is an extract from the
Executive Summary to that guide:
The copyright changes [proposed by the Bill] would introduce
a regime that is more protective of copyright and more punitive toward
infringement. These changes would: expand performers’ rights, including
the creation of performers’ copyright in sound recordings; extend the
duration of copyright protection; introduce a more protective regime
for electronic rights management information and broadcast decoding
devices; criminalise more infringing and some non‑infringing conduct;
extend the scope of copyright to include all temporary reproductions;
and introduce a new regime for determining the liability of carriage
service providers.
In several areas, the proposed implementation either goes
further than AUSFTA requires or fails to take advantage of exceptions
and limitations that AUSFTA allows. More generally, the Bill introduces
no new mechanisms to counter-balance the more protective copyright regime,
such as a broad ‘fair use’ exemption or stronger competition laws. The
result is that, in several respects, this Bill would give Australia
a more protective copyright regime than the United States.
Copyright is a complex area of law and changes can produce
unexpected results. As a result Australia has tended to pursue copyright
law reform with wide, public consultation with stakeholders and experts.
In several areas, changes proposed by this Bill conflict with the recommendations
that have arisen through those processes, including those from the very
recent review of the 2000 Digital Agenda reforms by law firm Phillips
Fox.
It seems that little or no public consultation has been
involved in the preparation of this Bill. Given the complexity of the
reforms and the substantial issues of policy involved, a special public
inquiry into the proposed copyright changes could be warranted.
Main Provisions: US Free Trade Agreement Implementation
(Customs Tariff) Bill 2004
Central to the amendments are items 8 and 9
of the Bill, proposing changes to section 16 of the Act. Should
these amendments take effect, goods originating in the US(68)
will be generally free of customs unless the Act expressly specifies
a rate for a particular good (proposed paragraph 16(k)(i)).
Item 14 introduces a regulation making power
in relation to matters:
- required or permitted under the Act (proposed subsection
21A(a)) or
- necessary or convenient to be prescribed for carrying out,
or giving effect to, the Act (proposed subsection 21A(b)).
Items 15 to 34 make amendments to various
items in Schedule 4 of the Act, specifying express concessional rates
for a range of products.
Items 1 to 32 of the Bill will come into
effect either
- on 1 January 2005 or
- on the day the AUSFTA enters into force in Australia, whichever is
later.
Should AUSFTA should not enter into force at all, these
provisions will not commence (item 2, table item 2 of the Bill).
Item 33 will come into effect immediately after
both
- the Customs Tariff Amendment (Textile, Clothing and Footwear Post
2005 Arrangements) Act 2004(69) and
- the provisions covered by item 2, table item 2 of the Bill
came into effect. Again, commencement is the later date
of the above events. However, if neither of the above events would occur,
the provision will not commence. (item 2, table item 3 of the
Bill).
Item 34 proposes to incorporate a new Schedule
5 – US originating goods.
Items 1 to 133 of proposed Schedule 5 would provide
express custom rates to be imposed upon certain alcohol, tobacco and
petroleum products which are in line with excises imposed upon equivalent
domestic products. This is in accordance with Article 1.2.4(a) of AUSFTA.
These items are not subject to the phasing regime agreed upon under
AUSFTA, except for item 121, stipulating a custom rate of 5% applicable
to certain carbolic acids.
Items 134 to 951 of proposed Schedule 5 would provide
expressly specified customs rates to be imposed upon a variety of US
originating goods. The schedule sets out the relevant heading numbers
that are to be amended. The numbers correspond with the Harmonised Commodity
Description and Coding System 2002 designed by the World Trade Organisation.(70)
The goods subject to the changes set out in items 134 to 951 are subject
to phasing rates as stipulated in Annex 2B of the AUSFTA.
Item 34 will commence at the same time as the items
1 to 32 referred to above.
Items 35 to 56 of the Bill make subsequent
amendments to the proposed Schedule 5 to account for the changes to
the fuel tax structure proposed by the Customs
Tariff Amendment (Fuels) Bill 2004.(71)
Under item 2, table item 5 of the Bill, these amendments
will only come into effect if the Customs
Tariff Amendment (Fuels) Bill 2004 and the AUSFTA come into effect.
The commencement date for the provisions in this Bill will be the later
of those two events.
Items 57 makes consequential amendments to the
Act’s user guide.
Although AUSFTA is an unusually prescriptive and detailed
agreement, as with all international agreements, it leaves some room
for Australia to determine how it will change its law to ensure compliance.
As a result, implementation is not a merely technical issue—it involves
substantive issues of policy as well.
In general, the Bill’s proposed approach to implementation
involves substantial reliance on regulations to implement the details
of the legislation, so that many of the Bill’s proposals merely involve
extension of the Government’s regulation making power (for example,
Schedules 4, 5, 6). This has the advantage of allowing the Government
flexibility to ensure that AUSFTA is adequately implemented and that
any concerns of the United States can be more easily accommodated. It
has the disadvantage of involving less parliamentary scrutiny of those
details. Related to this, the Bill sometimes allows regulation to extend
to other countries the benefits that AUSFTA requires to be given to
the United States. This has the advantage of allowing the Government
to more easily pursue liberalising goals in investment, government procurement
and services, either unilaterally or through subsequent agreements.
Again, it has the disadvantage of reduced parliamentary scrutiny of
such extensions.
Schedules 1 and 3—8 appear to make the only changes
necessary to implement AUSFTA or allow regulations to implement AUSFTA.
Schedule 2 implements AUSFTA but also goes further,
introducing further rules relating to data protection. Apparently, these
are proposed with the concurrence of major stakeholders, including the
states and territories. The Trade Minister has foreshadowed a second
suite of reforms to agricultural and veterinary chemical regulation
in a subsequent Bill.
Schedule 9—relating to copyright—contains many provisions
required by AUSFTA. However, in some cases it fails to implement AUSFTA
adequately, goes further in protecting copyright than AUSFTA requires
or fails to take advantage of exceptions and limitations that AUSFTA
allows. Where these happen, substantive policy choices are involved.
It appears that Schedule 9 would give Australia a more protective and
more punitive copyright regime than the United States. See the Guide to
the copyright and patent law changes in the US Free Trade Implementation
Bill 2004 for details.
The Government does not appear to have given significant
consideration to legislative change that might mitigate some of the
potentially negative aspects of AUSFTA. There may be significant scope
to make such change while maintaining compliance with the text and spirit
of the agreement.
The Opposition has indicated that it will oppose the
Bill unless two such changes are made. These relate to introduction
of a penalty for spurious patent claims (discussed above) and enactment
of local content standards in legislation, rather than allowing them
to be changed by the Australian Broadcasting Authority. There seems
no reason to believe that these amendments would be inconsistent with
AUSFTA.
However, there may be many more options to makes these
sorts of changes, especially in the area of intellectual property. The
failure to consider these may indicate a concern with ensuring the implementation
of AUSFTA by 1 January 2005. However, given the complexity of the Bill
and the nature of changes to the law it requires (and of course the
long-term nature of the agreement itself), it is the type of legislation
that could fruitfully be referred to a Senate Legislation Committee
for consideration. These issues of process might be considered in future
bilateral trade negotiations, possibly modelled on the US Congressional
trade promotion authority approach which provides substantially more
legislature involvement in all stages of negotiation and implementation.
- Bilateral disputes have included problems with lamb, steel and Howe
Leather, and these have reached the WTO dispute system. Of course,
since January 1995, the WTO Dispute Settlement Understanding has been
in place – one of the great advances of the WTO system (see Pru Gordon,
“The World Trade Organization”, DPL, Research Paper No. 10 1995–96,
23 October 1995) - and all bilateral cases taken to the WTO have been
resolved well.
- See Ross Garnaut, “An Australia–United States free trade agreement”,
Australian Journal of International Affairs, 56(1), 2002, p.
123.
- The topmost decision-making body of the WTO is the Ministerial Conference,
which has to meet at least every two years. It brings together all
members of the WTO, all of which are countries or customs unions. The
Ministerial Conference can take decisions on all matters under any of
the multilateral trade agreements, including the launch of a new round
of multilateral trade negotiations. The 1999 Ministerial held in Seattle,
in the US, had been expected to launch a new round of multilateral trade
negotiations, since a number of major agreements were due for substantive
review by 2000. Instead the Ministerial ended in acrimony and chaos,
in part due to the large anti-globalisation protests outside, but also
due to fundamental disagreements between those such as the US and Europe
pushing new trade agendas such as “trade and labour” and “trade and
the environment” to the complete opposition of most developing nation
members. For more information on the Seattle Ministerial see the WTO website.
- This belief, while prevalent, is not necessarily correct. A number
of US domestic factors strongly affected the Seattle Ministerial: see
Bruce Donald, “The World
Trade Organization (WTO) Seattle Ministerial Conference, December 1999:
Issues and Prospects”, Department of the Parliamentary Library (DPL),
Current Issues Brief 12 1999-2000, 30 November 1999. In addition,
it is entirely unsurprising that as GATT/WTO has lowered average tariffs
and its coverage of topics has increased, it takes longer to achieve
agreements that will give additional significant gains. The anti-globalisation
movement, prominent in Seattle, is equally likely to be opposed to bilateral
trade deals as to multilateral.
- This was a decline from both 2001-02, with bilateral trade of A$ 45.2
billion, and from 2000-01 with bilateral trade of A$ 47.0 billion.
- B. Donald, ‘Basic Facts of Australia’s Economic Relationships with
the USA', Unpublished paper, Foreign Affairs Defence and Trade
Section, Parliamentary Library, Department of Parliamentary Services,
Canberra, June 2004.
- Calculated from Bureau of Economic
Analysis, US International Transactions Data, Tables 1 and 11, accessed
June 2004.
- See ABS, 5352.0, International
Investment Position, Supplementary Country Statistics, 2003, 20
July 2004.
- However, while the Singapore-Australia Free Trade Agreement came in
effect in July 2003, Singaporean investment in Australia actually declined
by A$ 4.9 billion into 2003, and Australian investment in Singapore
declined by A$ 1.4 billion. Thus, there is no guarantee that AUSFTA
will ensure the continued strength of this investment partnership.
- World Trade Organization, Trade Policy Review,
Australia, Geneva, 2002, WT/TPR/G/104.
- This is unlikely to substantially affect the US.
- WTO, Trade Policy Review, United States, Geneva, 2004,
WT/TPR/G/126 and WT/TPR/S/126.
- This section is based on A. Rann, 'Chronology of events leading to
the Australia–United States free trade agreement', Unpublished memo,
Foreign Affairs Defence and Trade Section, Parliamentary Library,
Department of Parliamentary Services, Canberra, 2004.
- For a history of discussion of the issue in recent decades see Ross
Garnaut, op cit., while for a longer history see A. Rann, op cit.
- Commonwealth of Australia, In
the National Interest: Australia’s Foreign and Trade Policy White Paper,
Canberra, 1997.
- See Ross Garnaut, op cit.
- This followed intensive negotiations between the two Ministers (as
opposed to only officials) from 26 January 2004. The same month WTO
Director-General Supachai was warning of the urgent need for US leadership
to revive the Doha Round.
- For a press release, see the White House
website.
- See for example, Bill Carmichael (chairman of the former Industries
Assistance Commission), “Vital to get independent gauge of FTA benefit”,
Australian Financial Review, 11 March 2004, p. 79. Chris Wallace,
“US trade deal gets a laugh”, The Australian, 4 May 2004, p. 7, states
that Professor Ross Garnaut urged the Government to refer AUSFTA for
independent assessment, and that Dr Andy Stoeckel (CIE) conceded there
might be merit in such a referral, both testifying to the Senate Select
Committee.
- Centre for International Economics, Economic
Impacts of an Australia-US Free Trade Area, Canberra, 2001.
- A Melbourne-based economic consultancy, now known as ACIL Tasman.
- ACIL consulting, A Bridge Too
Far? An Australian Agricultural Perspective on the Australia/United
States Free Trade Area Idea, report for the Rural Industries
Research and Development Corporation, February 2003, p. iv.
- Centre for International Economics, Economic
Analysis of AUSFTA: Impact of the bilateral free trade agreement with
the United States, Canberra, 2004.
- Ross Peake, “FTA study fails the laugh test”, Canberra Times,
4 May 2004, p. 3.
- Philippa Dee, The Australia. US
Free Trade Agreement: An Assessment, Paper prepared for the
Senate Select Committee on the Free Trade Agreement between Australia
and the United States of America, June 2004.
- Dee, op cit., 2004, p. 35.
- USITC, U.S.-Australia Free
Trade Agreement: Potential Economywide and Selected Sectoral Effects,
May 2004, Washington.
- APEC Study Centre, An Australia-United
States Free Trade Agreement - Issues and Implications, Melbourne,
2001.
- National Institute of Economic and Industry Research, An assessment of the direct
impact of the Australian-United States Free Trade Agreement on Australian
trade, economic activity and the costs of the loss of national sovereignty,
June 2004.
- vin Hilaire and Yongzheng Yang, “The United States
and the New Regionalism/Bilateralism”, IMF Working Paper,
WP/03/206, October 2003.
- Rann, 'Chronology of events leading to the Australia–United States
free trade agreement', op. cit.
- For an analysis of the effect of the forthcoming US elections on
the current round of WTO negotiations see Geoff Kitney, “Trade talks
rush to beat US election”, Australian Financial Review, 28 July
2004, p. 7.
- See for example Mark Forbes, “Sugar Doubts Could Kill Trade Talks”,
The Age, 24 January 2004, p. 4. In this article National Party
leader Anderson is cited as saying it would be un-Australian to accept
any free trade deal without sugar being included. In “US sugar lobby
likely to sink FTA”, Canberra Times, 24 January 2004, p. 9, Trade
Minister Vaile is quoted as saying “We’ve sought to do a comprehensive
deal across all sectors, including agriculture, including sugar, and
we’ve said that sugar must be part of the deal and we’re not conceding
that”.
- Single desk arrangements are those – such as the Australian Wheat
Board – where a single organisation coordinates all export sales, in
order to maximise returns to sellers. These are viewed as anti-competitive,
and potentially state-subsidised, monopsonies by trade authorities in
the EU and US. In most cases in Australia the state owned nature of
these organisations has been eliminated, although often state regulations
introduce an element of uncompetitiveness to their operations. See
also William Cooper, “U.S.-Australian FTA: Negotiations and Results”,
CRS Report for Congress, updated March 12, 2004.
- Joint Standing Committee on Treaties, Report 61, The Australia-United
States Free Trade Agreement, June 2004.
- Senate Select Committee on the Free Trade Agreement between Australia
and the United States of America, Summary
of Inquiry on the Free Trade Agreement between Australia and the United
States of America, 2 August 2004.
- It is understood that this may be the result of Congress informing
the USTR that it believed those two FTAs overstepped the mandate given
in Trade Promotion Authority regarding labour mobility.
- William Cooper, “U.S.-Australian FTA: Negotiations and Results”, CRS
Report for Congress, updated March 12, 2004. For a discussion of
some of the reasons the US did not insist on the inclusion of these
provisions, despite lobbying by business, see Ann Capling and Kim Nossal,
“The Rise and Fall of Chapter 11: Investor-State Dispute Mechanisms
in the North American Free Trade Agreement and the Australia-United
States Free Trade Agreement”, Paper prepared for the Oceanic Conference
on International Studies, Australian National University, Canberra,
14-16 July 2004.
- IMF, World Economic Outlook, September 2003 (including online
data appendices). Note that the figure for share of world GDP includes
an adjustment for purchasing power parity (which reduces the US share),
and that the use of exports to measure trade lowers US trade importance,
since its imports are much higher than its exports.
- This point has been especially emphasised by Alan Oxley, see for example,
The Australian APEC Study Centre, Monash University, An Australia-USA
Free Trade Agreement: Issues and Implications, August 2001, Ch.
6.
- That is Australia has a perennial capital account surplus.
- Again this is a point made most forcefully by Alan Oxley.
- Andrew Stoler, “Australia-USA Free Trade: Competitive Liberalisation
at Work in 2003”, Agenda, 10(4), 2003, pp. 291 – 306.
- See Phillip Coorey, op cit.
- This is not necessarily a “good thing” for the world economy, especially
if the competitors are actually more efficient than Australian producers,
in which case it leads to trade diversion.
- See DFAT’s overview
of the agreement.
- Including with Indonesia according to Andrew Stoler, “Potential goldmine
awaits us under FTA”, Australian Financial Review, 25 February
2004, p. 55.
- See DFAT’s overview
of the agreement: in particular they claim “Australia will now gain
the benefit of preferred status as an FTA partner with regard to any
future global safeguard actions - that is, we will be exempted from
safeguard restrictions almost automatically, just as Canada was for
steel and lamb”. It is interesting to note that of the cases brought
against or by Canada in the WTO, 11 out of 28 involved a dispute with
the US (calculated from WTO dispute
database).
- Indeed even the Marrakesh Agreement provisions have proved unsatisfactory
to many members and the Doha Round includes work to further strengthen
the restrictions on Article XXIV. Chanticleer discusses this point,
‘Some trade pluses for Australia’, Australian Financial Review,
3 August 2004, p. 64.
- Joint Standing Committee on Treaties, Report 52, Singapore
Australia Free Trade Agreement, June 2003.
- Christine Wallace, “Lobbyists, negotiators stunned by Bush rebuff”,
The Australian, 25 February 2004, p.2.
- According to the Cattle Council of Australia the safeguards would
have been triggered in 6 out of the past 10 years, during a period of
rising prices, see David McKenzie, “Concern over deal”, Weekly Times
(Victoria), 18 February 2004, p. 10.
- The U.S.-Singapore Free
Trade Agreement Report of the Trade and Environment Policy Advisory
Committee (TEPAC) February 27, 2003. Similarly the January 2004 WTO
Trade Policy Review
of the US has raised questions about the increased use of bilateral
trade agreements by the US, noting that “care should be taken that negotiating
and administrative resources are not distracted away from the multilateral
system and that vested interests are not created that complicate multilateral
negotiations” (WTO, Trade Policy Review of the United States,
January 2004, WT/TPR/S/126).
- See for example Jagdish Bhagwati, “Preferential trade agreements:
the wrong road”, Law and Policy in International Business, 27(4),
Summer 1996, pp. 865 – 871.
- See for example Kim Nossal, “Upper Hand down Under: American Politics
and the Australia-U.S. Free Trade Agreement”, Paper prepared for the
Australian and New Zealand Studies Association of North America Meeting,
February 2004. The ALP members of the Senate Select Committee claim
that the electoral cycle made the negotiating time frame unrealistic
“Recommendations of Labor Senators on the Senate Select Committee on
the Free Trade Agreement between Australia and the United States”, 2
August 2004.
- See Alan Dick, “Beef FTA ‘nonsense’”, The Land, 11 March 2004,
p. 58, Tony Walker, “Why Bush kept sugar off the table”, Australian
Financial Review, 10 February 2004, p. 12, Ann Capling, “The selling
out of Australia”, The Age, 10 February 2004, p. 11, Aaron Lukas,
“A sticky state of affairs: Sugar, the US–Australia Free Trade Agreement’,
Free Trade Bulletin, No 8, Cato Institute Center for Trade Policy
Studies, 9 February 2004 and “US–Australia Free
Trade Agreement Factsheet”, FASOnline, April 2004.
- See Jacob Varghese, Guide to copyright
and patent law changes in the US Free Trade Agreement Implementation
Bill 2004, Current Issues Brief No. 3 2004-05, Parliamentary
Library, Department of Parliamentary Services, August 2004.
- Refer to the other Digest.
- Explanatory
Memorandum, ibid. pp. 14-20.
- Explanatory
Memorandum, ibid. pp. 21-24.
- Rule 5 of the Interpretation Rules provides as follows:
In addition to the foregoing provisions, the following Rules shall apply
in respect of the goods referred to therein:
(a) Camera cases, musical instrument cases,
gun cases, drawing instrument cases, necklace cases and similar containers,
specially shaped or fitted to contain a specific article or set of articles,
suitable for long-term use and presented with the articles for which
they are intended, shall be classified with such articles when of a
kind normally sold therewith. This Rule does not, however, apply to
containers which give the whole its essential character;
(b) Subject to the provisions of Rule
5 (a) above, packing materials and packing containers presented with
the goods therein shall be classified with the goods if they are of
a kind normally used for packing such goods. However, this provision
is not binding when such packing materials or packing containers are
clearly suitable for repetitive use.
- See Plaintiff S 157/2002 v Commonwealth (2003) 211 CLR 476.
- Mark Vaile, Minister for Trade, ‘Second reading speech: US Free Trade
Agreement Implementation Bill 2004, House of Representatives, Debates,
23 June 2004, p. 31216.
- Submission to the Senate Select Committee
on the Free Trade Agrement between Australia and the United States,
Pastoralists and Graziers Association of Western Australia, Submission
to the Senate Select Committee, May 2004.
- Vaile, op.cit.
- Burton and Varghese, op.cit.
- Recklessness requires that there be a ‘substantial risk’
of a circumstance (in this case, that the information is false and misleading)
and that it was ‘unjustifiable’ to take that risk (Criminal Code,
cl 5.4).
- Whether goods originate in the US is determined on the basis of the
origination rules. The reader is referred to the US Free Trade Agreement
Implementation Bill 2004.
- M Priestley, T John, ‘Customs Tariff Amendment (Textile, Clothing
and Footwear Post 2005 Arrangements) Bill 2004’, Bills Digest,
no. 1, Parliamentary Library, Canberra, 2004-2005.
- Explanatory
Memorandum, ibid, p. 9.
- T John, ‘Customs Tariff Amendment (Fuels) Bill 2004’, Bills Digest,
no. 149, Parliamentary Library, Canberra, 2003-2004.
Bruce Donald and Jacob Varghese
5 August 2004
Bills Digest Service
Information and Research Services
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