- Background and context
Overview
2.1Throughout the inquiry, the Committee received evidence highlighting the significance of international trade and investment to Australia. Open trade and investment bring benefits to Australian producers and consumers, increasing prosperity and improving living standards. Submitters noted that open trade and access to overseas markets is vital to the continued success of many Australian business and industries, particularly the agricultural sector.
2.2Australia’s trade and investment activity is underpinned by an extensive architecture of bilateral, plurilateral and multilateral free trade agreements (FTAs) as well as bilateral investment treaties (BITs). The Department of Foreign Affairs and Trade (DFAT) leads the negotiation and development of Australia’s trade and investment agreements with support from other relevant departments and agencies.
2.3The nature of Australia’s trade and investment agreements has changed over time, and several factors continue to shape the context for Australia’s approach to trade negotiations. Broadly, these include an increase scope and complexity of agreements over time as well as more recent changes in the international trade environment.
Benefits of trade and investment for Australia
2.4Submitters and witnesses widely identified the vital role of international trade in enhancing Australia’s prosperity, promoting economic growth and achieving higher living standards. To illustrate the extent of the contribution of trade to the Australian economy, the Productivity Commission advised that exports accounted for 27 per cent of Australia’s gross domestic product (GDP) in 2022-23 ($685 billion), with imports accounting for 22 per cent ($547 billion). Trade is also estimated to support one in four full-time equivalent or almost 3 million Australian jobs.
2.5Greater export and import of goods and services functions to improve domestic productivity and contributes to the improved wellbeing of Australians. The Productivity Commission explained that exports enable Australia to earn foreign income to buy goods and services that it does not produce or that are expensive to produce domestically, while also providing significant employment and higher incomes. Imported goods and services are used by Australian businesses as inputs to production and to expand the range of goods and services available for Australian consumers.
2.6A key benefit of trade is increased competition between producers. The Productivity Commission explained that:
Imports also provide additional competition to Australian producers, strengthening and deepening Australian markets and lowering the cost, and improving the quality, of Australia goods and services. This extra competition helps make Australian producers more efficient and internationally competitive, by lowering their input costs and the costs of Australian producers that use their outputs as inputs into their own production. It also lowers costs to Australian consumers.
2.7Dr Hazel Moir also described how the benefits of international trade flow from increased competition:
International trade is an important mechanism for increasing competition for the benefit of both consumers (through lower prices, more choice and higher quality) and producers (through better inputs allowing more efficient production and through the competitive impetus to improve innovation and customer focus).
2.8The Department of Foreign Affairs and Trade (DFAT) submitted that the benefits of Australia’s trade are shared across the community, including through broad economic growth and a stronger labour market.
2.9However, some submitters argued the benefits of trade for Australia should be more widely and equitably shared. For example, the Australian Council of Trade Unions (ACTU) noted that while trade is a vehicle for economic growth, job creation, and raising living standards:
The most important objective of trade policy should be to deliver benefits to workers, the community and the economy by increasing opportunities for local businesses, creating quality local jobs, and protecting public services. The benefits of trade must be shared among our community, and promote equitable development abroad.
2.10Foreign investment also plays a vital role in Australia’s economy and in advancing prosperity. The development of Australia’s highly successful minerals, energy, and agriculture industries have been substantially underpinned by foreign investment. Foreign investment in Australia exceeds outbound investment from Australia, in 2022 investment in Australia totalled $4.6 trillion while outbound investment totalled $3.7 trillion.
2.11DFAT summarised the benefits of foreign investment in Australia as delivering higher productivity; building the economy and creating jobs by improving business links to global supply chains; offering capital to finance new businesses and expand existing businesses; providing finance for infrastructure; and encouraging competition and innovation by delivering new knowledge and technology. On the other hand, the ability for Australia to invest internationally provides the opportunity to diversity investment, as well as the opportunity for business to expand markets, acquire new technology and integrate into global value chains.
2.12The importance of ensuring that trade and investment agreements are in the national interest and provide a net benefit to Australia as well as how the national interest is determined and how economic, social, and environmental impacts are assessed is discussed further in Chapter 3.
Importance of open trade and investment for Australian industries
2.13Submitters widely drew attention to the importance of trade to the success of many Australian industries. It was noted that Australian agriculture, fisheries, and forestry in particular, are strongly dependent on trade with over 70 per cent of produce exported. In 2022, agricultural exports contributed a record $78 billion to the Australian economy.
2.14Grain Trade Australia (GTA) advised that international trade underpins the Australian grain industry, which provides substantial economic benefits, especially in regional and rural areas. Around 65 to 75 per cent of Australian grain is exported. In 2022-23, the forecast farm-gate value of Australian grain was $30.7 billion and the export value was $28.3 billion, amounting to more than 33 per cent of the Australia’s gross value of annual agricultural production.
2.15The Red Meat Advisory Council (RMAC) outlined the significance of trade to Australia’s red meat industry:
Access to overseas markets is critical not only for the export of produce and underpinning our domestic industries, but also for the sourcing of inputs, technology and capital equipment. These trade transfers are paramount for business efficiency. This efficiency can only be derived by Australia embracing trade and, where necessary, trade liberalisation.
2.16The Department of Agriculture, Fisheries and Forestry (DAFF) reflected that the Australian agriculture sector relies on the predictability and stability of export markets provided by improved preferential access through trade agreements.
2.17Consequently, submitters emphasised that continued trade liberalisation and prioritising improved market access in trade negotiations is crucial to maintaining and growing Australia’s agricultural industries. For example, the National Farmers’ Federation (NFF) stated that: ‘… agricultural trade needs to be free and liberalised and distortions such as tariffs, subsidies and other technical market access barriers should be limited and where possible removed.’
2.18Similarly, GrainGrowers Limited explained: ‘Australian growers are some of the least subsidised in the world, relying on a free and open trading environment to ensure ongoing profitability and sustainable growth.’
2.19Both the NFF and Australia Pork Limited (APL) reflected that Australia is a trusted supplier of agricultural products and that Australian agricultural industries have a strong global reputation for providing high-quality, safe, and sustainable food.
2.20Evidence emphasising the need for a continued focus on new and existing trade agreements to improve market access, including through the removal of tariff and non-tariff barriers is discussed further in Chapter 6.
Australia’s trade and investment architecture
2.21This section describes Australia’s current trade and investment agreement architecture and the different types of trade and investment agreements that Australia has entered into with partner countries.
Types of trade and investment agreements
2.22Australia has a range of multilateral, plurilateral, regional, and bilateral trade and investment agreements, including both legally binding treaties and non-legally binding arrangements—such as memorandums of understanding—with other economies.
2.23The negotiation of Australia’s multilateral and plurilateral trade agreements occurs under the auspices of the World Trade Organization (WTO). A multilateral trade agreement is one that all WTO members are a party to; in contrast, a plurilateral trade agreement is one that WTO members can choose to participate in.
2.24WTO multilateral trade agreements include the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), the WTO Agreement on Trade Facilitation, and the WTO Agreement on Fisheries Subsidies. Australia’s participation in WTO plurilateral trade agreement negotiations include the upgrade to the WTO Information Technology Agreement, the WTO Agreement on Government Procurement (GPA), and WTO negotiations on e-commerce, investment facilitation, and services rules.
2.25In addition to multilateral and plurilateral agreements, Australia has settled a series of regional and bilateral free trade agreements (FTAs) with other countries.
2.26DFAT gave evidence that Australia’s trade-related arrangements serve to:
… help safeguard and promote Australia’s national trade and investment interests in key export markets, building on WTO commitments. FTAs reduce or eliminate barriers to trade in goods, services and investment and enable Australian exporters and investors to benefit from the same or better preferential access than our competitors and their investors enjoy in overseas markets. FTAs also enhance people-to-people links, strengthen bilateral relationships and promote regional economic integration and collaboration.
2.27Australia has also negotiated a range of bilateral investment treaties (BITs) with partner countries. DFAT explained that: ‘BITs are treaties… that include rules to promote and protect two-way investment… These investment rules provide protections and greater certainty for Australian investors overseas and foreign investors in Australia.’ For example, BITs may include rules relating to non-discrimination, appropriation of an investor’s property, and fair and equitable treatment for investors.
Australia’s bilateral and regional trade agreements
2.28Australia currently has 18 regional and bilateral trade agreements in force with 30 economies (listed below with entry-into-force dates):
- Australia-United Kingdom FTA (31 May 2023)
- Australia-India Economic Cooperation and Trade Agreement (29 December 2022)
- Regional Comprehensive Economic Partnership (1 January 2022)
- Pacific Agreement on Closer Economic Relations (13 December 2020)
- Indonesia-Australia Comprehensive Economic Partnership Agreement (5 July 2020)
- Peru-Australia FTA (11 February 2020)
- Australia-Hong Kong FTA (17 January 2020)
- Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (30 December 2018)
- China-Australia FTA (20 December 2015)
- Japan-Australia Economic Partnership Agreement (15 January 2015)
- Korea-Australia FTA (12 December 2014)
- Malaysia-Australia FTA (1 January 2013)
- Association of Southeast Asian Nations (ASEAN)-Australia-New Zealand FTA (1 January 2010)
- Australia-Chile FTA (6 March 2009)
- Thailand-Australia FTA (1 January 2005)
- Australia-United States FTA (1 January 2005)
- Singapore-Australia FTA (28 July 2003)
- Australia-New Zealand Closer Economic Relations Trade Agreement (1 January 1983).
- Australia’s trade agreements accounted for 81 per cent of Australia goods trade in 2021-22 (85 percent of exports and 75 per cent of imports).
- Additionally, Australia is continuing to undertake negotiations to secure four more agreements (listed with negotiation launch dates):
- Australia-European Union FTA (June 2018)
- Australia-India Comprehensive Economic Cooperation Agreement (first commenced in May 2011; suspended in 2016; recommenced in September 2021)
- Indo-Pacific Economic Framework (September 2022).
- Australia-United Arab Emirates Comprehensive Economic Partnership Agreement (December 2023).
- A further FTA—the Australia-Gulf Cooperation Council (GCC) FTA—remains under consideration. Negotiations for an Australia-GCC FTA commenced in July 2007 but were later paused, with the last of four negotiating rounds happening in June 2009. Stakeholders remain able to make written submissions to DFAT on the potential to recommence these negotiations.
Australia’s foreign investment agreements
2.32Australia is currently a party to 15 BITs with the following countries (listed below with entry-into-force dates):
- Argentina (11 January 1997)
- China (11 July 1988)
- Czech Republic (29 June 1994)
- Egypt (5 September 2022)
- Hungary (10 May 1992)
- Laos (8 April 1995)
- Lithuania (10 May 2022)
- Pakistan (14 October 1998)
- Papua New Guinea (20 October 1991)
- Philippines (8 December 1995)
- Poland (27 March 1992)
- Romania (22 April 1994)
- Sri Lanka (14 March 2007)
- Turkey (29 June 2009)
- Uruguay (23 January 2022).
- Both BITs and FTAs facilitate foreign investment in Australia. More recently, FTAs often contain an investment chapter with requirements to safeguard investment activities. For example, DFAT explained that Australia’s FTAs have provisions that seek to:
- attract beneficial investment by showcasing Australia as an open and attractive investment destination;
- preserve the operation of Australia’s foreign investment framework, particularly the Foreign Investment Review Board which allows screening of investment; and
- facilitate greater access to overseas markets for Australian investors.
Australian Government departments and agencies
2.34Australian Government departments and agencies work collectively to negotiate, implement, and upgrade Australia’s trade and investment agreements. Although different departments and agencies have different roles, they are responsible for considering and assessing the national interest in the negotiation process, including engaging with relevant stakeholders.
2.35This section details the evidence that the Committee received about the roles of departments and agencies in negotiating trade and investment agreements.
Foreign Affairs and Trade portfolio
2.36DFAT and the Australian Trade and Investment Commission (Austrade) within the Foreign Affairs and Trade portfolio play a central part in negotiating and promoting Australia’s trade and investment agreements.
Department of Foreign Affairs and Trade
2.37DFAT leads and coordinates whole-of-government negotiations for most of Australia’s trade and investment agreements. This includes forming a negotiating position and obtaining a negotiating mandate through Cabinet; conducting negotiations with partner countries; engaging with interested stakeholders, including other departments and agencies; and, where necessary, preparing a National Interest Analysis (NIA) and Impact Analysis for the consideration of the Joint Standing Committee on Treaties (JSCOT).
2.38In addition to finalising negotiations, DFAT supports businesses to be aware of and understand that advantages and conditions of FTAs. For instance, the FTA Portal website is a DFAT resource that provides: ‘… information to businesses for all Australia’s in-force FTAs, as well as for those FTAs that are signed but not yet in force, to help business prepare for their entry into force.’
Austrade
2.39Austrade has responsibility for promoting, facilitating, and accelerating trade and foreign investment between Australia and other countries. As an agency with a network of representatives in 107 domestic and international locations, Austrade receives intelligence from a wide range of potential investors. Before and during the negotiation of trade and investment agreements, Austrade shares its market insights with DFAT and other departments and agencies.
2.40Austrade also plays a key role in the implementation of trade and investment agreements. For instance, it frequently engages with businesses to inform them of how to best take advantage of trade and investment agreements and uses the feedback that it receives to support the development of fact sheets and guidance materials for potential investors.
Agriculture, Fisheries and Forestry portfolio
2.41DAFF is closely involved in trade agreement negotiations, offering expertise in areas such as agricultural market access and sanitary and phytosanitary measures. It collaborates closely with DFAT on the development and conclusion of negotiating mandates to ensure that its stakeholders’ perspectives and broader biosecurity, environmental and sustainability considerations are incorporated into trade agreements.
2.42DAFF leads the negotiations of commodity-specific trade agreements. For example, DAFF is currently renegotiating the Agreement between Australia and the European Community on Trade in Wine. This includes responsibility for: ‘… developing the negotiating mandate, leading consultation with relevant agencies and the wine industry and the treaty making process when negotiations are finalised.’ DAFF also supports the continuing administration of these commodity-specific trade agreements and any commodity-specific dialogues formed as part of an FTA.
Home Affairs portfolio
2.43The Department of Home Affairs and the Australian Border Force (ABF) within the Home Affairs portfolio participate throughout the trade agreement negotiation process, including the development of negotiating mandates and implementation.
Department of Home Affairs
2.44The Department of Home Affairs is responsible for the movement of natural persons (MNP) components of FTAs. This role has evolved over time, with MNP-related parts of FTAs expanding to contain ‘more extensive movement offerings, such as skills exchange, working holiday maker programs, and post study employment options.
Australian Border Force
2.45The ABF, as Australia’s customs service that facilitates the movement of people and goods across the border, leads the portfolio’s participation in the negotiating and implementation of FTAs. It is responsible for the movement of goods aspects of trade agreement negotiations (excluding tariff levels and rules of origin, which are developed between DFAT, DAFF and the Department of Industry Science and Resources with the engagement of the ABF). Additionally, to implement each FTA, the ABF is required to implement legislative changes so that the agreement can enter into force.
Australia’s trade and investment context
2.46Some submitters reflected on how the nature of Australia’s trade and investment agreements has changed over time, as well as factors that have and will continue to shape the context for Australia’s approach to trade negotiations. Broadly, these were an increase in the scope and complexity of agreements over time as well as more recent changes in the international environment including the breakdown of the multilateral trade framework and a rise protectionism.
Scope and complexity of agreements
2.47Many submitters and witnesses reflected that Australia’s trade and investment agreements have become broader in scope and more complex over time. The Productivity Commission summarised that:
Our early agreements focused on removing tariff and non-tariff barriers (such as quotas) to international trade in goods. Subsequent agreements included barriers to trade in services, including the temporary movement of people, and then to include impediments to international investment. Recent agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership [CPTPP], include a raft of additional provisions that cover areas such as digital trade, health, the environment, labour, and anti-corruption.
2.48DFAT similarly explained that: ‘While early trade agreements focused on reducing or eliminating import tariffs on goods, the benefits of contemporary agreements are much broader and include improved rules across a range of sectors including intellectual property, e-commerce and government procurement.’
2.49Referring to the Australia–United Kingdom Free Trade Agreement (A-UKFTA) as an example, the Productivity Commission noted that it contains 32 chapters with those in addition to trade and investment including intellectual property, government procurement, competition policy and consumer protection, state-owned enterprises and designated monopolies, innovation, labour, environment, development, trade and gender equity, animal welfare and antimicrobial resistance.
2.50Dr Hazel Moir similarly observed that agreements have expanded over time to include many issues beyond tariff barriers and quotas such as government procurement, capital mobility, competition policy, labour standards and environmental goals.
2.51The Productivity Commission explained that the content of contemporary trade and investment agreements is far broader and more comprehensive than what is required to gain market access for Australian goods, services, and investment. Therefore, it observed that: ‘… modern trade agreements look much more like ‘broad cooperation’ agreements in which countries commit to solving a range of problems bilaterally or in small or more extended groups.’
International environment
2.52Australia has historically been a strong supporter of the international rules-based trading system and has generally advocated for a multilateral approach to trade. However, several submitters observed that the multilateral approach to international trade, particularly through WTO, has stalled in recent years.
2.53The Productivity Commission explained that the breakdown of multilateral trade negotiations in 2011 led to fundamental changes in international trade and noted that bilateral agreements that were previously limited in number have become increasingly common. It stated that: ‘After the breakdown of the Doha round, there was a proliferation of, at first, bilateral, and then plurilateral, trading agreements that sought to circumvent the failure of the multilateral round to advance trade reform.’
2.54Some submitters noted the rise in international trade protectionism in recent years. For example, DAFF reflected that the international trade environment is becoming increasingly complex due to rising protectionism and increasing strategic challenges.
2.55The Productivity Commission suggested that the causes of rising protectionist sentiment include concerns about economic resilience and stable supply chains, especially during the COVID-19 pandemic; geopolitical conflicts, such as the Russian invasion of Ukraine; the challenges associated with climate change mitigation and adaptation; and some major countries’ recent policy responses, which have often incited replies from other economies.[80]
2.56The New Zealand Ministry of Foreign Affairs and Trade (NZ MFAT) also observed the global trend away from trade openness and an increasing discontent with globalisation:
The two assumptions that have shaped our trade policy over the past thirty years—that global market openness will continue to increase over time, and the multi-lateral rules-based system will continue to strengthen and expand—have been seriously tested by rising protectionism.
Domestically, discontent with globalisation has grown, and with it, reservations about the balance in trade agreements between market access for our exporters, national sovereignty and policy space for regulators. [81]
Committee Comment
2.57The Committee recognises that open international trade and investment makes a significant contribution to the Australian economy and to the wellbeing of Australians. Further, it notes that many successful Australian industries are underpinned by access to export markets and are supported by access to foreign capital.
2.58The Committee acknowledges the strong track record of DFAT over many years in negotiating, maintaining, and promoting Australia’s extensive architecture of trade and investment agreements. Overall, the Committee is of the view that Australia’s trade and investment agreements have largely served Australia well.
2.59The Committee notes that the nature of Australia’s trade and investment agreements has changed over time, with agreements becoming broader in scope and more complex. Further, that changes to the international environment have necessarily shaped Australia’s approach to trade with the response to the breakdown of the multilateral approach being to seek a range of bilateral and regional agreements to continue to pursue the benefits of international trade. The recent rise in protectionist and anti-globalisation sentiment poses a significant challenge for Australia’s interests as an economy reliant on open international trade.