Chapter 2 - AANZFTA Second Protocol

AANZFTA Second Protocol

Overview

2.1The Joint Standing Committee on Treaties (JSCOT) was referred the following major treaty action (Category 1): Second Protocol to Amend the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) (AANZFTA Second Protocol). Further information on the treaty can be found on the JSCOT website including the full treaty documents and in the National Interest Analysis (NIA).[1]

2.2The AANZFTA Second Protocol builds on the original Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) and First Protocol providing greater provisions on services and investments, new digital trade data rules and cooperation in the areas of environment, labour rights, and women’s economic empowerment.[2]

2.3The Association of Southeast Asian Nations (ASEAN) is Australia’s second largest trading partner and as of 2022 accounted for more than 14.8 per cent of Australia’s overall trade at AUD 178 billion.[3] Southeast Asia is expected to continue its strong economic growth which is forecast at a compound average growth rate of 4 per cent to 2040.[4]

Background

ASEAN

2.4The original agreement, the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) (AANZFTA) was signed at Cha-am, Phetchaburi on 27 February 2009 [5] between ASEAN member states: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, as well as Australia and New Zealand (NZ).[6]AANZFTA entered into force for Australia in January 2010.[7] The original agreement provided for extensive tariff reduction and greater certainty for service suppliers and investors.[8]

2.5ASEAN was established on 8 August 1967 in Bangkok, Thailand according to the ASEAN Declaration (Bangkok Declaration) which was signed by Indonesia, Malaysia, Philippines, Singapore, and Thailand.[9] This group expanded with the joining of Brunei Darussalam in January 1984, Vietnam in July 1995, Laos and Myanmar in July 1997 and Cambodia in April 1999 to comprise the ten members of ASEAN that exist today.[10]

2.6The aims and purposes of ASEAN are to:

accelerate economic growth, social progress and cultural development in the region through collaborative endeavours;
promote peace and stability, achieved through respect for justice and the rule of law;
promote collaboration and mutual assistance in areas of common interest, with a focus on economic, social, cultural, technical, scientific and administrative fields;
provide assistance to members through training and research facilities, focusing on educational, professional, technical and administrative spheres;
collaborate to encourage growth in the agriculture and industry, and trade sectors to raise the living standards of people in ASEAN;
promote Southeast Asian studies; and
maintain close and beneficial cooperation with international and regional organisations with similar aims and purposes, and to engage in closer cooperation among member states.[11]
1. The Department of Foreign Affairs and Trade (DFAT) has said that AANZFTA ‘forms the central pillar of Australia’s trade and investment relationship with ASEAN.’[12] DFAT further notes that ‘AANZFTA is ASEAN’s highest quality free trade agreement in market access openings for goods trade. Since entry into force in 2010, it has eliminated tariffs on 96 per cent of Australian exports to the more developed Southeast Asian markets.’[13]
2. At the time of the original agreement, ASEAN expressed that, ‘The AANZFTA Agreement is the single most ambitious undertaking made by ASEAN since expanding its outward-looking economic regime to include region-to-region free trade agreements with major trading partners.’[14] Also at the time of the original treaty, ASEAN noted, ‘Through the AANZFTA Agreement, ASEAN, Australia and New Zealand effectively create a free trade area of over 600 million people with a combined GDP of US$ 2.3 trillion (based on International Monetary Fund [IMF] 2007 figures)’.[15]
3. The original Agreement was amended by the First Protocol to Amend AANZFTA which entered into force on 1 October 2015.[16]

Second Protocol

2.10The major treaty action in question is the Second Protocol to the AANZFTA [17] which amends AANZFTA.[18]

2.11On 21 August 2023, Ministers from Australia, and NZ and four ASEAN member countries: Brunei Darussalam, Indonesia, Malaysia, and Singapore signed the AANZFTA Second Protocol [19] alongside the 28th ASEAN Economic Ministers’-Closer Economic Relations consultations in Semarang, Indonesia.[20] The remainder of the ASEAN Member States are expected to sign in due course.[21]

2.12The Second Protocol will enter into force 60 days after the date Australia, NZ and at least four ASEAN Member States notify the depository of the completion of their domestic processes through ratification, acceptance, or approval.[22]The parties aim for the Second Protocol to enter into force in 2024.[23]

2.13Of the AANZFTA Second Protocol, ASEAN has said that the signing of the treaty ‘is a strong demonstration of the Parties’ determination to ensure that the AANZFTA, which is the first region-to-region FTA [free trade agreement] for both ASEAN and Australia and New Zealand, remains to be the gold standard of ASEAN’s free trade agreements.’[24]

2.14Secretary-General of ASEAN, Dr. Kao Kim Hourn, stated, ‘The economic and strategic value of the AANZFTA cannot be overemphasised, especially now that it has been upgraded, to ensure that it remains commercially relevant for the businesses in the region, notwithstanding the current global uncertainties.’[25]

2.15As of April 2023, ASEAN reported that AANZFTA is a market of 711 million people with a combined GDP of USD 5.9 trillion, based on data from the IMF and the World Economic Outlook.[26] Australia and NZ combined are ASEAN’s eighth largest trading partner.[27]

2.16Minister for Trade and Tourism, Senator the Hon Don Farrell said, ‘The AANZFTA upgrade will create new commercial opportunities for Australians, for our exporters and investors to work hand-in-hand with businesses in Southeast Asia. This will cement Australia as a partner of choice in an open and inclusive region.’[28]

2.17The Hon Tim Watts MP, Assistant Minister for Foreign Affairs commented, ‘The upgrade of this agreement highlights Australia, New Zealand and ASEAN’s shared commitment to sustainable and inclusive trade.’[29]

2.18Senator the Hon Tim Ayres, Assistant Minister for Trade and Assistant Minister for Manufacturing said, ‘An upgraded AANZFTA promises new opportunities for Australian businesses in a complex international trading environment and challenging global economic outlook.’[30]

2.19On the topic of the AANZFTA Second Protocol, the Government has noted that Australia first became a dialogue partner of ASEAN in 1974 and has since worked closely with the group.[31] DFAT noted that ‘ASEAN is one of Australia’s most important trade and economic partners and has supported regional security and prosperity for more than 50 years.’[32]

Justifications

2.20The proposed treaty action:

builds on AANZFTA’s original services and investment outcomes and delivers additional commercial opportunities for Australian businesses, particularly in the services sector, including the digital economy and green economy;[33]
increases certainty to Australian investors through greater investment protection and sector-specific commitments;[34]
benefits from the inclusion of a chapter on trade and sustainable development to facilitate enhanced cooperation on labour standards, environmental protection and women’s economic empowerment which are key objectives for the Australian Government;[35]
reaffirms Australia’s rights and obligations under the World Trade Organisation (WTO) Agreement and other international agreements;[36]
enhances cooperation and coordination with ASEAN which will help to reduce the vulnerability of Australia’s trade and investment to future crises;[37]
contributes to Australia’s ongoing commitment to trade liberalisation in Southeast Asia;[38]
ensures the AANZFTA remains contemporary and in line with Australia’s evolving trade policy interests particularly in areas such as electronic commerce, trade and sustainable development, and Micro, Small and Medium Enterprises (MSMEs);[39]
deepens Australia’s regional economic engagement;[40]
maintains the status of AANZFTA as ASEAN’s highest quality free trade agreement (FTA);[41]
complements Australia’s bilateral FTAs with NZ and four ASEAN member states (Indonesia, Malaysia, Singapore, and Thailand);[42]
builds on the outcomes of the Regional Comprehensive Economic Partnership Agreement (RCEP) which entered into force on 1 January 2022;[43]
deepens and broadens Australia’s economic ties under Australia’s Southeast Asia Economic Strategy to 2024;[44]
enhances Australia’s trade relationship with Southeast Asia including economic integration and cooperation;[45]
will bring diversity to Australia’s trade and guard against the risk of discriminatory trade blocs.[46]
1. The agreement benefits Australia in the following areas:
goods – e.g. new provisions that promote ease of trade;[47]
upgrade and transposition of product-specific rules;[48]
services and investment provisions which have been upgraded;[49]
electronic commerce chapter upgraded;[50]
sustainable development.[51]
1. Professor Luke Nottage described that, ‘Overall … this Protocol has achieved some significant improvements after a long consultation and negotiation process, impeded by the pandemic.’[52] Professor Nottage explained that the Australian government ‘needs … to be open and consultative about aspects left open like the shift of some [ASEAN Member States] to a negative list approach to market access, discussions about ISDS [Investor-State Dispute Settlement], and better coordination to harmonise and enhance consumer protection.’[53]
2. The Export Council of Australia (ECA) noted that, ‘We infer from the changes to the Agreement that the parties have a shared acknowledgement of the importance of making trade more inclusive (e.g. for small businesses), and trade as a better force for the planet.’[54]

Obligations

2.24The new, upgraded AANZFTA which incorporates the Second Protocol amendments consists of 21 chapters.[55]This section of the Report outlines key amendments. The full amendments are outlined in the treaty text which is available on the JSCOT website.[56]

Goods

2.25The changes:

in the Chapter on Trade in Goods, are in alignment with the RCEP and will improve transparency around quantitative restrictions and non-tariff measures such as quotas, import or export licences (Chapter 2, Article 11);[57]
allow for the temporary admission of goods (Chapter 2, Article 4);[58]
provide for the temporary admission for containers and pallets that further promote ease of trade (Chapter 2, Article 5);[59]
align the Chapter on Rules of Origin (ROO) with RCEP including allowing self-certification and Certificates of Origin (Chapter 3).[60] This provides for the full cumulation for participating parties, giving traders more flexibility with sourcing (Chapter 3);[61]
provide for facilitation of transshipment if goods do not enter into commerce or free circulation in non-Parties (Article 14);[62]
contain new commitments in the Chapter on Customs Procedures and Trade Facilitation, for the efficient and transparent customs procedures to facilitate increased bilateral trade (Chapter 4);[63]
build on commitments under the WTO Agreement on Trade Facilitation and ensure transparency of rules and procedures (Chapter 4).[64]

Services

2.26The changes:

build on existing AANZFTA services commitments through the Chapter on Trade in Services, giving Australian service suppliers better access to Southeast Asian markets and more certainty about the applicable rules;[65]
establishes rules for the supply of services between AANZFTA parties, including a new obligation to treaty foreign suppliers at least as well as suppliers of any other non-AANZFTA country (Article 9);[66]
enhance denial of benefits (Article 25) and domestic regulation provisions (Article14).[67]

Financial Services

2.27The changes:

provide for greater market access through the Annex on Financial services (Annex 8A) for Australian financial services companies that are supplying services to ASEAN economies;[68]
allow for the extension of transparency to allow financial services business to more easily understand and comply with laws and regulations when providing financial services abroad or setting up a commercial presence (Article 6);[69]
allow for additional information about licensing, regulation, fees, and regulator decision-making to be publicly available;[70]
provide for the acceptance of authenticated copies of documents and applications in electronic format;[71]
provide that the AANZFA electronic payment system rules are aligned with elements of the Australian-Singapore Digital Economy Agreement and the Digital Economy Partnership Agreement between Chile, NZ, and Singapore (DEPA) (Article 14);[72]
allow for the movement of data and information transfer necessary to conduct the ordinary business of a financial service supplier (Article 8);[73]
outline commitments relating to the exchange of information between financial institutions.[74]

Telecommunication Services

2.28The changes:

provide for rules in the Telecommunications Annex (Annex 8B) to support telecommunications services providers to operate in AANZFTA markets;[75]
ensure Parties commit to safeguard providers’ right to the resale of public telecommunications services (Article 8);[76]
support new entrants to the market (Article 4);[77]
support domestic regulation to help markets remain competitive (Article 6);[78]
ensure transparency of telecommunication disputes resolution processes (Article23).[79]

Professional Services

2.29The changes:

provide a new annex on Professional Services (Annex 8C) which facilitates cooperation on the recognition of professional qualifications, licensing, and registration requirements;[80]
provide a framework for professional bodies to expand their links with counterparts in AANZFTA.[81]

Education Services

2.30The changes:

contain a new annex on Education Services Co-Operation (Annex 8D) recognising the important role of education services in enhancing growth and prosperity and developing institutional and people-to-people links;[82]
encourage cooperation in education quality assurance processes and recognition of qualifications;[83]
encourage cooperation on the development of training, programs, and staff exchanges.[84]

Movement of Natural Persons

2.31The changes:

establish rules through the Chapter on Movement of Natural Persons (Chapter 9) for the temporary entry and stay of natural persons between AANZFTA Parties including new obligations to facilitate and streamline immigration formalities (Article 6);[85]
contain requirements to accept immigration formalities in electronic format;
contain provisions to distinguish the Movement of Natural Persons Chapter from other chapters in the agreement removing ambiguity.[86]

Electronic Commerce

2.32The changes:

outline new disciplines in the Chapter on Electronic Commerce (Chapter 10) to consider developments since the AANZFTA was negotiated;[87]
contain new articles adapted from RCEP including extensions beyond RCEP including articles on digital inclusion, electronic invoicing, digital trade standards and open government data;[88]
contain obligations that move towards paperless trading in the digital economy by requiring the acceptance of e-signatures and e-authentication (Article 6);[89]
provide rules on protection of consumers online (Article 9) and personal information (Article 10); transparency (Article 14) and the prevention of unsolicited communications (Article 11);[90]
contain new rules that support the free flow of data across borders and prevent unjustified data localisation requirements;[91]
provide that parties agree that the dispute settlement mechanism in Chapter 20 apples to the Electronic Commerce Chapter subject to specific transnational periods for certain data rules (Article 17; Article 18);[92] the dispute settlement mechanism will not however apply to any matters arising under the Electronic Commerce Chapter for Cambodia, Laos, and Myanmar.[93]

Investment

2.33The changes:

modernise existing protections for Australian investors through the upgraded Investment Chapter (Chapter 11) and aligns most investment commitments with outcomes in RCEP;[94]
contain investor protections that have been updated to align with the RCEP including treatment of investment (Article 7), transfers (Article 9) and expropriation and compensation (Article 10);[95]
activates and upgrades an inactive National Treatment obligation (Article 3) and adds other ‘market access’ obligations.[96] The changes include adding a requirement that parties accord investors and investments treatment no less favourable than that provided to investors and investments of other Parties or non-Parties (Most Favoured Nation Treatment, Article 4);[97]
comprise a work program that will be formed by parties to commence a review of the ISDS mechanism (Article 17);[98]
contain elements to reduce legal risk to Australia of a dispute settlement claim arising;[99]
include exempting decisions relating to foreign investment screening from dispute settlement (including ISDS) (Article 6, Chapter 18) and allowing financial services authorities the opportunity to resolve certain ISDS matters relating to financial services in the first instance (Article 12, Annex 8A).[100]
1. Professor Luke Nottage commented that with respect to the investment chapter, market liberalisation commitments it is ‘somewhat disappointing that some commitments are “less ambitious” for some AMS [ASEAN Member States] than under the [RCEP] FTA, or have (unspecified) “expanded carveouts for additional obligations to enable regulatory flexibility”’.[101] He further said that ‘transparency is … needed from the Australian government regarding Investment chapter protections’.[102]
2. The Australian Council of Trade Unions (ACTU)noted that ‘it is unacceptable that ISDS was excluded from review in the amended AANZFTA.’[103] They went on to say, ‘The Australian Government must expedite the review of ISDS in the AANZFTA to remove ISDS provisions as a matter of priority.’[104]
3. Gene Ethics suggested that the Australian government should, ‘Expedite the review of ISDS in the AANZFTA, to remove ISDS provisions’.[105] Gene Ethics also considered that the Government should, ‘Urgently implement a program with tight timelines, to review and revoke ISDS provisions in all trade and investment agreements with ASEAN countries, or to exclude ISDS provisions from applying to Australia.’[106]
4. The Australian Fair Trade and Investment Network (AFTINET) noted that, ‘The proposed review of the ISDS provisions, which is planned to commence 18 months after the amended agreement is in force and take a further 12 months to complete, leaves another gap in which further cases could arise.’[107] AFTINET went on to say, ‘The government should take urgent action to expedite this review with a view to removing ISDS or preventing its application to Australia.’[108]

Trade and sustainable development

2.38The changes:

through the new chapter on Trade and Sustainable Development (Chapter 13), which is ASEAN’s first chapter of this type, provides that parties recognise the importance of cooperation to strengthen efforts and capacities to protect the environment and to collaborate on labour protections and women’s economic empowerment;[109]
facilitate economic cooperation activities in sustainable development areas including climate, green and blue economy, and energy.[110]
1. Professor Luke Nottage explained that, ‘The Protocol's chapter on Environmental Protection (13) is helpful, drawing again on the CPTPP’ but he believes there are some drafting concerns.[111]
2. ACTU welcomed the ‘inclusion of a new Trade and Sustainable Development chapter which will facilitate enhanced cooperation on labour rights, women’s economic empowerment and environmental protection’.[112] ACTU further said, ‘The commitments in this chapter are, however, weak and unenforceable. The chapter makes no specific reference to ILO standards or UN agreements’.[113]
3. The ECA noted that, ‘The Trade and Sustainable Development chapter is a positive inclusion to the Agreement, as it may spur this green transitioning in the region.’[114] ECA further said, ‘It reflects a shared view among parties that incorporation of environmental sustainability practices within exporting businesses and trade in green goods and services are good from a commercial standpoint and for the planet.’[115]
4. AFTINET explained regarding the trade and sustainable development chapter that, ‘While it is positive that this Chapter has been included in the amended agreement, and that environmental and labour standards have been recognised, the commitments are weak and not enforceable.’[116] AFTINET went on to say, ‘Unlike other recent agreements, women’s empowerment is barely mentioned and there is no reference to Indigenous rights.’[117] AFTINET explained, ‘Commitment should be more specific, stronger and more enforceable, and there should be more definite commitments for resources for capacity-building to meet those commitments.’[118]

Competition

2.43The changes:

provide new obligations through the Chapter on Competition (Chapter 15) requiring AANZFTA parties to adopt or maintain competition law and regulations to proscribe anti-competitive activities (Article 3) and enforce these laws accordingly (Article 3);[119]
provide that parties adopt or maintain laws or regulations to proscribe the use in trade of misleading practices or false or misleading deceptions;[120]
provide for cooperation between parties on competition law enforcement (Article4) and consumer protection (Article 7).[121]

Micro, Small and Medium Enterprises

2.44The changes provide a new chapter on MSMEs (Chapter 16) to promote information sharing (Article 2) and cooperation (Article 3) among parties to enhance opportunities for their MSMEs.[122]

2.45ECA welcomed ‘the new AANZFTA chapter on MSMEs, as it acknowledges the ongoing challenges faced by small businesses in engaging in international trade.’[123] They went on to say. ‘We hope this will prompt governments and the private sector of ASEAN countries, Australia and New Zealand to initiate practical cooperation efforts on a regional basis.’[124]

Government Procurement

2.46The changes:

through a new Chapter on Government Procurement (Chapter 17) recognises the importance of promoting enhanced transparency and integrity in government procurement processes (Article 4);[125]
promote the use of electronic procurement systems (Article 5);[126]
promote environmental sustainability in government procurement (Article 6);[127]
facilitate micro, small, and medium enterprise participation in government procurement (Article 8);[128]
provides for capacity building and cooperation among parties (Article 9).[129]

General Provisions and Exceptions

2.47The changes:

through the Chapter on General Provisions and Exceptions (Chapter 18) updates provisions on exceptions relating to matters such as essential security and provides discretion for parties to take measures which it considers necessary to protect its essential security interests (Article 2);[130]
provides updates to balance of payments (Article 4);[131]
note that decisions relating to foreign investment screening are not subject to dispute settlement (Article 6).[132]

Consultation and Dispute Settlement

2.48The changes provide that new chapters on Trade and Sustainable Development (Chapter 13), MSMEs (Chapter 16) and Government Procurement (Chapter 17) are excluded from dispute settlement.[133]

Implementation

2.49The following legislative changes are required to implement the AANZFTA Second Protocol:Amendments to the Customs Act 1901, the Customs (International Obligations) Regulation 2015 and Customs (ASEAN-Australia-New Zealand Rules of Origin) Regulations 2009 which would facilitate the determination of the originating status of goods for the purpose of determining eligibility for preferential rates of customs duty.[134]

2.50Further updating the definition of Harmonized System in the Customs Act 1901 would be required.[135] This would enable the use of updated Harmonized System codes for product specific ROO.[136]

2.51All other changes will be administrative.[137]

Withdrawal or denunciation

2.52A party may withdraw from the AANZFTA by giving six months advance notice in writing.[138] Parties cannot withdraw separately from the Second Protocol.[139]

Costs

2.53There are no anticipated additional costs to the Government.[140] Australia will however assist ODA (Official Development Assistance) eligible ASEAN states to implement the AANZFTA under the Regional Trade for Development Initiative.[141] Funding for this will be reallocated from existing administered appropriation.[142]

Consultation

2.54A public consultation and stakeholder process took place.[143] The Government has communicated that it ‘consulted widely with industry and other stakeholders’.[144] A complete list of the stakeholders that were consulted as well as submissions received is outlined in the NIA.[145]

Issues

Importance of ASEAN to Australia

2.55The importance of Australia’s relationship with ASEAN was raised at the public hearing. DFAT explained of the original AANZFTA that, ‘The agreement has made a significant contribution to our collective prosperity and has provided certainty and market access to Australian businesses.’[146] DFAT went on to say, ‘Australia became ASEAN's first dialogue partner in 1974. Since then, our mutual commitment to the rules based international order and shared ASEAN centred regional architecture has reinforced our regional security and collective prosperity.’[147]

2.56The significance of the trade relationship between Australia and ASEAN was emphasised. DFAT said, ‘ASEAN is Australia's second largest two-way trading partner bloc, behind only the European Union, with total two-way trade of $178 billion in 2022.’[148] DFAT noted, ‘ASEAN member states represent six of Australia's top 15 export markets. For trade in goods outcomes, the original AANZFTA is ASEAN's highest quality FTA. It eliminates tariffs on 96 per cent of Australian exports.’[149]

Modernising the original treaty

2.57The Committee observed that the AANZFTA Second Protocol is an update on the original treaty so that it keeps in step with state-of-the-art evolutions in trade and investment agreements. The upgrade ensures that the treaty is consistent with more recent agreements such as the RCEP, the Australian Singapore Digital Economy Agreement and the WTO Agreement on Trade Facilitation. These agreements incorporate more effective administrative methods and other non-tariff aspects of the trade and investment world and AANZFTA now also includes similar measures. The amendments offer an improvement in quality and assists in the trade space because it puts in place consistency that would otherwise not be there.

2.58At the public hearing DFAT agreed that there has been new agreements since AANZFTA entered into force in 2010. DFAT said, ‘There are new rules, new provisions and even new chapters, which AANZFTA did not contain and which we've sought to upgrade in this agreement. There are also some market access benefits to it.’[150] DFAT explained, ‘We have gone slightly above those other arrangements, so that there are market access benefits for our services providers into ASEAN as a result of this agreement.’[151] DFAT said that the upgrade to the treaty ‘does seek to embed the more modern rules into the ASEAN region, but it also does provide some significant benefits.’[152]

2.59Professor Nottage said at the public hearing, ‘In the revised AANZFTA investment chapter, the substantive commitments have been improved and upgraded compared to over 10 years ago to match the standards in RCEP.’[153] Professor Nottage explained, ‘Leaving the original AANZFTA provisions without those new balance provisions I think would be detrimental to everyone concerned if we didn't ratify.’[154]

Trade and Sustainable Development

2.60The Committee noted that the new trade and sustainable development chapter is a step forward, covering protection for the environment, cooperation, or collaboration on advancing and maintaining labour protections, and collaboration on enabling women's economic partnership. At the public hearing, the Committee inquired into how this chapter compares to the equivalent provisions in the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP).

2.61DFAT explained that, ‘The CPTPP does go further. It has specific chapters on some of these issues, labour, and environment in particular.’[155] DFAT clarified that the AANZFTA Second Protocol ‘is a negotiated outcome. This is the first time that ASEAN has agreed to a trade and sustainable development chapter in an FTA, so this is a step forward on these issues.’[156] DFAT explained that, ‘It would have been impossible for us to get some of the conditions in CPTPP into this agreement with the ASEANs. So, it's a move forward on some of these issues. It's not as ambitious as some other agreements… but it's a start with the region.’[157]

2.62At the public hearing ACTU said, ‘We also welcome the inclusion of the new trade and sustainable development chapter, which was absent from the AANZFTA. However, we note that the commitments in this chapter are weak and unenforceable.’[158] ACTU said of the chapter, ‘There's no specific reference to ILO standards or UN agreements. Women's empowerment is hardly mentioned, and there's no mention of indigenous rights.’[159] ACTU advised that ‘Given the poor record on workers' rights of a significant number of AANZFTA members, this chapter must be strengthened to ensure that the provisions are specific and enforceable.’[160]

Micro Small and Medium Enterprises

2.63The Committee inquired into how the chapter on MSMEs supports those enterprises. The Committee observed that the larger and more established an entity is as an exporting organisation, whether for goods or services, the more likely it is that they will be able to understand and benefit from trade and investment arrangements. The smaller and less involved entities are in the export business, the more difficult it is for them.

2.64DFAT said of MSME, ‘It is a chapter that's been upgraded to introduce some new provisions to promote publicly accessible information. Information barriers are a big one for micro, small and medium enterprises. So it does that, making it more transparent.’[161] DFAT further explained, ‘We promote cooperation as well, to promote micro, small and medium enterprises' access to the market. That's a dialogue between partners, between us and the ASEANs as well.’[162] DFAT explained that the chapter ‘focuses on a few key areas, such as how to use innovation and technology, how to develop capabilities in sustainability. And, importantly, we've established a new committee on [MSMEs] that allows the members to exchange information.’[163]

First Nations People

2.65The Committee noted that through the AANZFTA Second Protocol there is more flexibility around policies that benefit and support First Nations trade and economic activity. DFAT said, ‘An improvement to our recent trade policy is to add a reservation for Indigenous activities and certain preferences.’[164]

2.66DFAT noted ‘From the comparison with the equivalent RCEP reservation, the AANZFTA upgrade provides greater policy space for the Australian government to legislate for the benefit of Australia’s First Nations People.’[165] DFAT explained, ‘AANZFTA provides policy space to adopt or maintain any measure that accords preferences or favourable treatment to Indigenous people or organisations.’[166]

Negative List

2.67At the public hearing, the Committee discussed the issue of negative lists in relation to the AANZFTA Second Protocol. With respect to the use of a positive list, parties list only the sectors or subsectors where specific commitments are undertaken. With a negative list approach, parties list reservations to core obligations contained in the agreement.

2.68The Committee noted that with respect to trade in services, AANZFTA is moving towards a negative list approach. While Australia is moving to a negative list approach immediately, other countries are not. The Committee noted that there appears to be some expectation or hope that the countries that are not negative list countries now will become negative list countries in the future. On this topic, DFAT said, ‘Australia has a long history of using negative lists. We've done so in past FTAs, but many of the South-East Asian countries have not moved to a negative list approach for services.’[167] DFAT explained, ‘it's one aspect of this agreement that there are a number of countries that are using a negative list—Brunei, Indonesia, Malaysia and Singapore. And all countries use a negative list for investment.’[168]

2.69DFAT further clarified that, ‘A positive list doesn't necessarily mean you're not offering any market access; there are still good improvements in terms of market access, even from positive-list countries.’[169] DFAT went on to note that moving countries towards a negative list would continue to be a topic of discussion.[170] DFAT said there is no set timeframe or set period for that to occur and is subject to future negotiations.[171]

2.70DFAT noted that they put effort into ‘embedding modern approaches to trade rules and to trade policy in developing countries and lesser-developed countries.’[172] DFAT explained, ‘That's certainly the case for ASEAN, where we've provided significant support to assist countries to move towards some of these more modern approaches’.[173]

2.71The Committee inquired into whether Australia has excluded any sectors. DFAT said, ‘We have, consistent with our other FTAs; so it's the same. Our listing here is the same as what we did in RCEP, so we've not changed. We've not added anything, as in we've not altered that approach.’[174] DFAT provided a list of the sectors that Australia excludes from its’ services and investment market access schedules in the AANZFTA upgrade as a response to a question on notice.[175]

2.72ACTU said, ‘We're also concerned that the AANZFTA requires parties to make use of a negative-listing approach for services, whereby services are automatically open to market access unless they are specifically excluded’.[176]

ISDS

2.73The Committee noted at the public hearing that the AANZFTA Second Protocol marked a change in the approach to ISDS. The Committee noted that while ISDS already existed as a mechanism within AANZFTA the government has made it clear that its starting position is to not have ISDS provisions in new agreements and to review ISDS provisions in agreements where they already exist. That is being given form through the work program arrangement that will be established under Second Protocol to review the ISDS provisions within AANZFTA.

2.74On the topic of ISDS, DFAT said, ‘ISDS has been part of AANZFTA for 10 years, and one of the positive developments from the upgrade was an agreement that we would review those ISDS provisions 18 months after entry into force.’[177] DFAT went on to explain, ‘We will obviously be coming to government to seek a mandate for the positions that we take into that review’.[178]

2.75At the public hearing submitters to the inquiry pointed out that there are currently ISDS actions afoot, some of which involve arrangements between Australia and ASEAN nations. The Committee inquired as to the cost of these legal actions to the Australian taxpayer. The Attorney-General’s Department (AGD) said ‘the Attorney-General and the Prime Minister have instructed us to vigorously defend those matters and we are in the process of doing so, and that does accrue cost.’[179]

2.76At the public hearing, ACTU said, ‘We're recommending that the Australian government not ratify the AANZFTA in its current form.’[180] ACTU said, ‘We think the Australian government should review ISDS provisions in all those existing agreements … but where that is not possible negotiating side letters to exclude Australia from ISDS provisions.’[181] ACTU further said, ‘In our view, ISDS is a restriction on national sovereignty and the ability of the government to regulate in the public interest and … imposes an unnecessary cost burden on Australian taxpayers.’[182] ACTU went on to say, ‘We recommend that the government should expedite this review [in the AANZFTA Second Protocol] with the goal of removing ISDS provisions from this agreement as soon as possible.’[183]

2.77AFTINET similarly said, ‘We're specifically asking that the committee recommend that the government expedite the review of the ISDS in AANZFTA or, failing that, negotiate bilateral side letters with individual ASEAN countries to exclude the application of ISDS to Australia.’[184]

2.78Professor Nottage said, ‘Interstate dispute settlement procedures are not enough. They can get very political’.[185] Professor Nottage said, ‘If we did away with ISDS provisions generally in treaties, we would have to go back to relying on that interstate dispute settlement process or allow foreign investors via lawyers to negotiate individual contracts’.[186] Professor Nottage explained that this ‘would favour larger companies and create extra transaction costs.’[187]

2.79Professor Nottage noted, ‘if we took out ISDS, it would be often meaningless, because we have in any case other treaties that apply that give that ISDS backed protection to foreign investors anyway.’[188] With respect to the work program on ISDS, Professor Nottage said, ‘we need a bit more transparency about these work programs.’[189]

2.80The Committee sought clarification as to the recent trend away from ISDS. Professor Nottage said, ‘I think that's a good thing—that we try something; it has an effect; we realise some of its problems, so we try to fix the problems, address the problems and come up with a new compromise solution.’[190] Professor Nottage said, ‘As it unfolds, I think we should be wary about saying we should just get rid of ISDS completely or backtrack from the substantive commitments that are made already in the investment chapter’.[191]

Myanmar and sanctions

2.81The topic of Myanmar was a key issue raised during the inquiry. The ACTU explained that, ‘Continuing a preferential trade agreement with Myanmar serves to legitimise the brutal, illegal regime that is responsible for the death of thousands.’[192] The ACTU went on to say, ‘The Australian Government must take a consistent position on Myanmar and refuse to ratify the amended AANZFTA while Myanmar is still a party, and enact further sanctions against the regime to support a return to democracy.’[193]

2.82At the public hearing, the ACTU said that they were ‘deeply concerned that the Australian government is seeking to ratify the AANZFTA while Myanmar continues to be a party.’[194] ACTU argues that, ‘This is inconsistent with the Australian government's position on Myanmar that includes enacting sanctions against the regime.’[195]

2.83At the public hearing the Committee noted that Australia has requirements regarding modern slavery that differ to many ASEAN countries. In addition, Australia has autonomous sanctions on the military regime in Myanmar, which many other countries in ASEAN do not have.[196] The Committee inquired into how Australia could ensure that it was not going to start importing goods that have come from Myanmar via another member of ASEAN, with the goods being processed to whatever extent by that other member, which then certifies them as being from their own country, perhaps then bypassing our sanctions regime or modern slavery laws.

2.84On that issue DFAT said ‘We absolutely appreciate the concerns regarding Myanmar.’[197] DFAT further noted, ‘I can confirm to the committee that Australia raised these concerns, including in this AANZFTA upgrade negotiations, with Myanmar at every opportunity, our strong concerns about the military coup and the situation in Myanmar.’[198]

2.85DFAT explained that the ROO in the agreement ‘will outline what does and doesn't qualify for preferential tariff treatment under this agreement. This sits separate to, but also alongside, whatever other arrangements we put in place domestically to deal with sanctions.’[199] DFAT qualified that, the ROO ‘will not be used in any way to determine whether a sanction should be applied or barriers be created to stop the import of a good because it's contravened something else in our sanctions regime or our modern slavery requirements.’[200]

2.86The Committee further inquired into how the AANZFTA Second Protocol provisions interact with the Australian sanctions regime so that border officials will be able to identify whether a product is supporting a sanctioned entity given that the ROO allow that a product could be labelled a product of AANZFTA origin. Australian Border Force (ABF) explained, ‘This agreement only covers the preferential tariffs. It does not affect our sanctions or country-of-origin labelling’.[201]

2.87ABF said, ‘our sanctions operate regardless of the tariff treatment.’[202] DFAT agreed that the agreement, ‘is simply setting the rules for preferential tariff treatment. So a good is certified as whether or not it satisfies the requirements to receive preferential tariff treatment.’[203] DFAT explained, ‘Whether it gets sanctioned or is blocked or is a prohibited item is a separate bit of legislation and regulations that Border Force looks after.’[204] In terms of the practical effect, DFAT said of goods that are subject to sanctions, ‘they could claim for a preferential tariff treatment under AANZFTA but they would be stopped at the border on the basis of the separate legislation.’[205]

Self-regulation

2.88The Committee noted concerns about self-regulation and the consequences if an organisation or a country puts forward an application for preferential tariff treatment, and it was found that there were components of their product that were from outside of the ASEAN nations. DFAT said, ‘To the extent that it shouldn't be counted as an ASEAN agreement, that's subject to audit processes within Border Force… we don't just have to take on gratis what people say.’[206]

2.89The Committee inquired into the consequences if following an audit of a good that attempted to gain preferential tariff treatment it was found that it had significant components from outside the ASEAN nations. The ABF said that the treaty ‘allows for non-originating materials to be included. They have to meet a certain threshold or test for them to be considered AANZFTA originating.’[207] ABF went on to explain, ‘If someone was found to have made that claim and the goods were not originating, obviously, they'd be denied the preference.’[208] ABF further said, ‘If they were subsequently audited, they'd be required to pay that back and they could be subject to penalties, depending on the circumstances around that situation.’[209]

Conclusion

2.90The Committee notes that AANZFTA Second Protocol is an important development in the relationship between Australia and its ASEAN partners. As a set of nations, ASEAN is without question one of Australia’s most important trade and economic partners in addition to its broader regional significance.

2.91The original AANZFTA agreement provides for extensive tariff reduction and greater certainty for service suppliers and investors. The original agreement is central to Australia’s trade and investment relationship with ASEAN.

2.92The Committee believes that the AANZFTA Second Protocol has significant strategic and economic value to Australia. Through a focus on inclusive and sustainable trade, the treaty creates new commercial opportunities and establishes new shared wellbeing norms that will benefit Australian in its trade and investment engagement with NZ and Southeast Asian partners, including for exporters and investors. In the current uncertain global economic situation such a treaty is particularly beneficial.

2.93The Committee believes that the proposed changes are in Australia's national interests. The changes build on AANZFTA's original services and investment outcomes and deliver additional commercial opportunities for Australian businesses. The AANFTA Second Protocol offers broader coverage through new provisions with respect to services and investments, digital trade data rules and first-time cooperation on the environment, labour rights and women's economic empowerment.

2.94Key issues discussed at the public hearing include the importance of ASEAN to Australia, the need to update the original treaty, matters related to how trade can contribute to sustainable development, the circumstances of micro, small, and medium enterprises, the interests of First Nations people, the negative list approach, ISDS, questions relating to Myanmar and sanctions, and the nature of self-regulation. The Committee notes the concerns expressed about the use of ISDS and, separately, the interaction between the crisis in Myanmar, the application of sanctions, and the treaty provisions.

2.95The Committee noted the Government's position to review ISDS provisions in agreements where they already exist, and Australia's successful negotiations to include a review of ISDS provisions in AANZFTA 18 months after entry into force of the Second Protocol. The Committee noted that the work program for the review is yet to be determined. Considering the significant interest in this issue demonstrated by a range of stakeholders in this and previous JSCOT inquiries, the Committee will seek an update on the progress of the ISDS review work program commitment in due course, and in any case would expect the Department to draw any notable developments to the Committee's attention.

2.96On the topic of Myanmar, the Committee heard that the agreement only covers preferential tariffs. It does not affect Australia's sanctions regime. Sanctions operate regardless of the tariff treatment. The Committee believes that the concerns raised during the inquiry regarding ISDS and the interaction between the treaty provisions and Myanmar have been adequately addressed.

2.97The Committee supports the ratification of the treaty action and recommends that binding treaty action be taken.

Recommendation 1

2.98The Committee supports the Second Protocol to Amend the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) and recommends that binding treaty action be taken.

Footnotes

[1]Joint Standing Committee on Treaties (JSCOT), ‘Second Protocol to Amend the Agreement Establishing the

ASEAN-Australia-New Zealand Free Trade Area (AANZFTA): Treaty Being considered’,

www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/AANZFTASecondProtocol/Treaty_being_considered, accessed 7 March 2024.

[2]National Interest Analysis 2023 ATNIA 13 with attachments – Second Protocol to Amend the Agreement

Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) Semarang, 21 August 2023, 2023 ATNIF 13 (NIA), para 5.

[3]NIA para 5.

[4]NIA para 6.

[5]ASEAN, ‘Joint Media Statement on the Signing of the Agreement Establishing the ASEAN-Australia-New

Zealand Free Trade Area, Cha-am, Thailand, 27 February 2009’, 28 February 2009, asean.org/joint-media-

statement-on-the-signing-of-the-agreement-establishing-the-asean-australia-new-zealand-free-trade-area-cha-am-thailand-27-february-2009-3/, accessed 7 March 2024.

[6]Department of Foreign Affairs and Trade (DFAT), ‘ASEAN-Australia-New Zealand FTA’,

www.dfat.gov.au/trade/agreements/in-force/aanzfta/asean-australia-new-zealand-free-trade-agreement,

accessed 7 March 2024.

[7]DFAT, ASEAN-Australia-New Zealand FTA.

[8]DFAT, ASEAN-Australia-New Zealand FTA.

[9]Association of Southeast Asian Nations (ASEAN), ‘About ASEAN’, asean.org/about-asean, accessed 7 March 2024.

[10]ASEAN, About ASEAN.

[11]ASEAN, ‘What We Do’, asean.org/what-we-do, accessed 7 March 2024.

[12]DFAT, ‘ASEAN-Australia-New Zealand Free Trade Agreement - Benefits for Australia’,

www.dfat.gov.au/trade/agreements/in-force/aanzfta/news/aanzfta-news/aanzfta-benefits-australia, accessed 7 March 2024.

[13]DFAT, ASEAN-Australia-New Zealand Free Trade Agreement - Benefits for Australia.

[14]ASEAN, ‘Joint Media Statement on the Signing of the Agreement Establishing the ASEAN-Australia-New

Zealand Free Trade Area’, Cha-am, Thailand, 27 February 2009.

[15]ASEAN, Joint Media Statement on the Signing of the Agreement Establishing the ASEAN-Australia-New

Zealand Free Trade Area, Cha-am, Thailand, 27 February 2009.

[16]DFAT, ‘Changes to AANZFTA Rules of Origin Following Entry Into Force of the First Protocol’,

www.dfat.gov.au/trade/agreements/in-force/aanzfta/for-business/Pages/first-protocol-to-enter-into-force-on-1-

october-2015, accessed 7 March 2024.

[17]JSCOT, ‘Second Protocol to Amend the Agreement Establishing the ASEAN-Australia-New Zealand Free

Trade Area (AANZFTA)’, 7 March 2024,

www.aph.gov.au/Parliamentary_Business/Committees/Joint/Treaties/AANZFTASecondProtocol.

[18]NIA, para 2.

[19]ASEAN, ‘Signing of The Second Protocol to Amend the Agreement Establishing The ASEAN-Australia-New

Zealand Free Trade Area (AANZFTA)’, 21 August 2023, asean.org/signing-of-the-second-protocol-to-amend-the-agreement-establishing the-asean-australia-new-zealand-free-trade-area-aanzfta/, accessed 7 March 2024.

[20]ASEAN, Signing of The Second Protocol to Amend the Agreement Establishing The ASEAN-Australia-New