Chapter 2

Background and Overview

Introduction

2.1        The first section of this chapter will provide a brief background to the development of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11), including an overview of the Agreement, suspended provisions and the anticipated outcomes and benefits.

Background to the TPP-11

2.2        Negotiations between the 12 signatories for the original Trans-Pacific Partnership (TPP) commenced in 2008 and concluded in October 2015. The original signatories were: Australia; Brunei Darussalam; Canada; Chile; Japan; Malaysia; Mexico; New Zealand; Peru; Singapore; the United States of America; and Vietnam.

2.3        In January 2017 the acting United States Trade Representative wrote to the representatives of other TPP signatories advising that the United States did not intend to become a Party to the TPP. On 21 May 2017, ministers from the remaining 11 TPP signatory countries issued a joint statement reaffirming the significance of the TPP and agreeing to launch a process of consultations to assess options to bring the TPP into force.[1] 

2.4        This process culminated in agreement by TPP-11 ministers to the core elements which were announced on 11 November 2017 in Vietnam. A subsequent meeting of senior officials in January 2018 settled the outstanding issues and reached agreement on a final deal.[2]

2.5        On 21 February 2018 the text of the TPP-11 was released publicly and subsequently signed on 8 March 2018 in Santiago, Chile. The text, the side letters and accompanying National Interest Analysis (NIA) were tabled in parliament on 26 March 2018.[3]

2.6        The Agreement has been designed so that it is open to other parties to join over time, with a number of other countries already expressing an interest. The TPP-11 will enter into force 60 days after at least 50 per cent of the original signatories to the Agreement have notified each other that their domestic legal treaty-making procedures are complete.[4]

Overview of the Agreement

2.7        The TPP-11 incorporates the provisions of the TPP Agreement by reference, with the exception of a limited set of provisions which are suspended.[5] The TPP-11 Agreement is a separate legal instrument from the TPP and as outlined by the Department of Foreign Affairs and Trade (DFAT):

Importantly for Australia, the TPP-11 ensures that the substantial market access package secured in the original TPP is maintained (i.e. covering goods and services market openings and commitments on regulations on foreign investment). This market access package will be implemented among the TPP-11 Parties, delivering major new opportunities for Australian exporters, investors and firms engaged in international business. The outcome maintains the ambitious scope and high quality standards and rules of the original TPP.[6]

2.8        The original TPP included a number of bilateral side letters which will be retained in TPP-11; seven of these side letters are of treaty-level status and four are of less-than-treaty status. A number of new side letters have been agreed by TPP-11 parties. Of the ten new side letters, six are of treaty-level status and are legally binding while the other four are of 'less-than-treaty status' and not legally binding.[7] The TPP-11 Agreement's entry into force will terminate or alter a number of Australia's existing treaties or treaty obligations.[8]

2.9        A number of legislative amendments will be required to implement Australia's obligations in the Agreement:

•                     Customs Act 1901, Custom Tariffs Act 1995 and relevant customs regulations to incorporate preferential tariff rates. New customs regulations will need to be enacted for the rules of origin requirements;
•               Foreign Acquisitions and Takeovers Regulations 2015 to incorporate the new thresholds for screening investment proposals by investors from Brunei Darussalam, Canada, Malaysia, Mexico, Peru, Singapore and Vietnam;
•               passing the Government Procurement (Judicial Review) Bill 2017;
•               legislative instrument under the Public Governance Performance and Accountability Act 2013; and
•               Ministerial determination under section 140GBA of the Migration Act 1958.[9]

Ratifying the Agreement

2.10      Once the TPP-11 has been ratified by six of the 11 signatories, it will enter into force 60 days later for those six countries. In May 2018, Mr George Mina, First Assistant Secretary, Office of Trade Negotiations, DFAT noted the importance for Australia to be part of the first group of TPP-11 parties to ratify the agreement:

It is important that Australia be able to participate in TPP-11 as soon as it enters into force, otherwise we will be at a significant competitive disadvantage as our competitors obtain more-favourable access into TPP-11 markets than we would enjoy.[10]

2.11      At the Joint Standing Committee on Treaties (JSCOT) hearing in June 2018, Mr Mina advised that other TPP-11 signatories have already commenced their domestic treaty approval processes:

Japan, Australia's second-largest trading partner, and Mexico, a new FTA [free trade agreement] partner for Australia under this agreement, are close to finalising their ratification requirements. Canada is committed to expeditious ratification, introducing implementing legislation in the House of Commons just this month. Brunei, Chile, New Zealand, Peru and Singapore have expressed their desire to ratify in 2018.[11]

2.12      At this committee's July public hearing, DFAT confirmed that three countries have ratified the TPP-11: Japan, Mexico, and Singapore with further countries indicating their intention to ratify in the coming months. Mr Mina advised the committee that:

[I]t's quite possible that Australia will not be one of the first six signatories to ratify the agreement and therefore may not be, if we don't accelerate our domestic ratification efforts, one of the first group to have the agreement enter into force.[12]

2.13      In an opening statement tabled at the hearing on 30 July 2018, Mr Mina explained the impact if Australia were not to be in the first group of countries to ratify the Agreement:

It is also vital that Australia reaps the benefits of the TPP-11 as soon as it enters into force. Prompt ratification is essential to ensure our competitors do not obtain more favourable access into TPP-11 markets than that of our own businesses. To illustrate this, if Australia were not one of these first six countries and the Agreement entered into force in 2018, Australian agricultural businesses would miss out on real opportunities, losing out on an immediate round of initial tariff cuts, and a second round of cuts in the first half of 2019. The New Zealand wine industry could gain an edge over Australia with access to phased out tariffs in markets such as Canada, Malaysia, Mexico and Vietnam, jeopardising Australia's current wine exports to TPP-11 countries which are valued at around $454 million annually. Dairy businesses, without preferential tariff reductions when exporting to Japan, Canada and Mexico, would face heightened competition with exports from New Zealand.[13]

2.14      At a subsequent hearing on 20 August 2018, Mr Mina again emphasised the potential impact should Australia's ratification be delayed. This would mean that Australia would not be able to take advantage of the increased market access in the TPP­-11 (until the time that Australia ratified) and it may also affect Australia's position to influence institutional questions (such as dispute settlement) as well as discussions about expanding the parties in the Agreement. On the expansion issue, Mr Mina noted:

As you know, we've set out our view that this is a very important open platform for the future of regional architecture, which countries join that platform and the terms on which they join. These are big questions that shape the future of the initiative, and we would have, again, a diminished role in those discussions as long as we weren't a full party.[14]

2.15      Submissions also highlighted the costs to Australia should it not ratify the Agreement. The Export Council of Australia explained:

If Parliament chose to not ratify a bilateral FTA, the agreement would not go ahead and the status quo would remain. That is not the case with the TPP-11.

If the Parliament chooses not to ratify the TPP-11, it would still likely go ahead with ten members that account for around 14% of world trade Australian businesses would lose out to competitors in the countries that were still party to the Agreement.[15]

2.16      The committee notes that the JSCOT tabled its Report 181, Comprehensive and Progressive Agreement for Trans-Pacific Partnership which recommended that binding treaty action be taken.[16]

Impact of the withdrawal of the US from the Agreement

2.17      In January 2017, Mr Donald Trump, President of the United States, signed an executive order withdrawing the United States from the original TPP. The impact of the withdrawal of the US from the Agreement was also discussed by DFAT during a JSCOT hearing:

In respect of what the impact is of the withdrawal of the US, the US was one of the most important—certainly the most important—economy in the TPP-12 project. In our views, US participation in the region's economic architecture is vital to the region's future in articulating and pursuing high standards and norms for global trade in our region. So, we do hope that the United States looks to come back to this agreement.[17]

2.18      While it was noted that the Government's 'overwhelming interest' is that the US re-join the Agreement, it was also recognised that 'there are additional preferential market access benefits to Australian suppliers in the interim'.[18]

We know that...the Australian beef, dairy and wine sectors of all made improvements in their market access. I might just reference for you some of those gains, if I may. Some of those benefits include the very significant benefits we have in agriculture. For instance, Australian beef will have a significant [advantage] over non-TPP beef producers into the Japanese market. Australian beef tariffs into Japan will be reduced down to nine per cent.[19]

2.19      Submissions to this inquiry also discussed the impact of the US withdrawing from the Agreement. GrainGrowers explained that the US is a major exporter of grains and oilseeds and competes directly with Australia in a number of TPP-11 nations. Under TPP-11 Australia will continue to have preferential access (over the US) into the TPP region.[20] Australian Pork Limited noted that the exclusion of the US from the Agreement delivers additional benefits for the Australian pork industry given that Australian suppliers compete with US suppliers to access key pork markets, such as Japan.[21]

2.20      The Winemakers Federation of Australia also submitted:

The US withdrawing from the agreement is not necessarily considered a negative for Australian wine as US tariffs on Australian wine (specific rates of 6.3 to 16.9 cents/l) have already been eliminated under Australia’s existing FTA with US since 2015. There are also currently minimal technical barriers trade for wine sold between Australia and the US.

Furthermore as a competitor in these markets, the US will not receive the benefits that will flow to the wine producing countries, particularly Chile, Canada, New Zealand and Australia. The TPP11 also means we will restore parity with the US in the Mexican market, where the US has the benefit of North American Free Trade Agreement.[22]

TPP provisions suspended in TPP-11

2.21      TPP-11 parties have agreed by consensus to suspend the application of 22 provisions contained in the original TPP. As noted in the NIA:

These provisions will, therefore, have no effect as a matter of international law until the Parties agree to end the suspension, which would also be by consensus. The limited number of suspensions reflect a shared desire by TPP-11 countries to strike a balance between maintaining the overall high standards of the deal, while ensuring that only Parties to the TPP-11 Agreement benefit. Australia's position throughout the TPP-11 process was to preserve the deal's market access package, which represents major economic opportunities for Australia.[23]

2.22      The 22 suspended provisions cover a range of issues and are listed in the Annex to the TPP-11 Agreement. Many suspensions relate to intellectual property and the NIA notes:

None of the suspended intellectual property provisions would have required changes to Australia's intellectual property legislation. Provisions governing the protection of satellite and cable signals (Article 18.79) would have required minor regulatory amendments.[24]

2.23      A number of other non-intellectual property articles have also been suspended including:

•                     commitment to commence further negotiations on government procurement;
•               narrowing the scope of claims that can be made under the Investor-State Dispute Settlement (ISDS) mechanism, specifically precluding ISDS claims for a breach of a private investment contract or for a violation of an investment authorisation granted by the government. In addition, foreign investors in financial institutions can no longer bring an ISDS claim for a breach of the minimum standard of treatment related to those investments.[25]

2.24      At a JSCOT public hearing, DFAT officials discussed the process for further scrutiny should TPP-11 parties agree to reinstate the suspended provisions:

The suspensions will remain in place until the parties agree to end them by consensus. All the parties will have to agree to begin with. You'll note that the suspension is specified in the treaty itself. As I understand it, if we were to agree to make a treaty amendment, that would be a treaty action... If it is a treaty amendment, we'll have to come back to the Joint Standing Committee on Treaties for scrutiny of that particular action.[26]

2.25      Some submissions questioned the merit of suspending the provisions rather than completely removing them from the TPP-11. Open Source Industry Australia (OSIA) suggested that '[t]he failure to remove these only casts doubts upon the future of the agreement and creates uncertainty for investment by Australian businesses'.[27] The Public Health Association of Australia (PHAA) submitted that suspending the provisions is 'a step in the right direction' but remains concerned that they could be reinstated at a later stage by agreement of the Parties.[28]

Outcomes and anticipated benefits of the TPP-11

2.26      DFAT has described the TPP-11 as 'one of the most ambitious global trade deals concluded since 1994'.[29] At the JSCOT hearing on 7 May 2018, DFAT summarised a range of anticipated benefits:

In its revised form, the legal undertakings framed in the TPP-11 will break down some of the most persistent barriers to deliver opportunities for our businesses to enter new markets, shape new standards for TPP-11 governments to facilitate trade and investment and address commercial challenges in the digital era and provide shared rules for the TPP-11 community on transparency, environment, labour, state-owned enterprises and anticorruption, encouraging SMEs to participate more actively in trade and investment in our region...

With the elimination of 98 per cent of tariffs, the TPP-11 tariff cuts will have a cost-saving impact on imported goods for Australian households and businesses, and deliver material gains for our exports. The TPP-11 will provide preferential access for more than $5½ billion of Australia's dutiable agricultural exports into existing markets as well as new markets, such as Canada and Mexico, working to expand opportunities for industries such as beef, dairy, sugar, rice, grains, seafood, horticulture and wine. The deal will afford new levels of market access for iron and steel products, ships, pharmaceuticals, machinery, paper and auto parts, to name but a few products.[30]

2.27      The Business Council of Australia (Business Council) identified the strategic benefits for Australia in ratifying the Agreement as the TPP-11:

...can make an important contribution to the diversification and robustness of Australian exports and thus help to insulate Australia against potential disruption in our key markets.[31]

2.28      Furthermore the Business Council was of the view that the TPP-11 will provide an important benchmark in the negotiations for a Regional Comprehensive Economic Partnership with ASEAN and other neighbouring countries. It was also noted that the Agreement 'will also contribute to Australia's engagement in Asia, and increase Australia's weight and influence in trade and strategic dialogue in the region'.[32]

2.29      The Minerals Council of Australia (MCA) also highlighted the strategic benefits of the TPP-11:

In addition to the direct economic benefits, the TPP will deliver Australia's commitment to economic engagement with Asian countries critical to our ability to weather the global financial crisis when other advanced economies fell into recession. The TPP 11 will confirm the Asia-Pacific as a region committed to trade liberalisation at a time when protectionist sentiment is rising in parts of the Northern Hemisphere. As a trading nation, as the current trade tensions play out in the global system, Australia has a strategic interest in high-quality trade agreements like the TPP-11 that will drive trade liberalisation and strengthen the rules based international trading system.[33]

Identified benefits for particular sectors

2.30      Submissions and evidence from industry associations and peak bodies identified benefits for particular sectors that would result from Australia's ratification of the Agreement.

2.31       The MCA submitted that the TPP-11 will open up new markets for Australian manufacturing, agriculture, mining and energy resources and services exports to major export markets such as Japan and Canada, and to some of the fastest growing emerging markets in the Asia-Pacific.[34] MCA also stated that the TPP-11 will assist the mining and mining services sectors to expand resources commodity exports to a range of countries. In addition, as the TPP-11 includes Latin American economies, where the resources trade with Australia is currently small, there will be opportunities for Australian mining companies and mining services firms to partner with local businesses to invest in and develop those countries' resources sectors.[35] A report released in September 2018 estimated mining sector exports and imports would each increase by US$1 billion (A$1.3 billion) under the TPP-11.[36]

2.32      GrainGrowers explained that the elimination of 98 per cent of all tariffs will deliver benefits to a broad range of agricultural products including beef, dairy, sheep meat, cotton, wool and grains. Mr Luke Mathews, Trade and Economics Manager explained further:

Improved market access resulting from TPP-11 for the grain sector is most apparent in the Japanese market. In 2016-17 Australian grain exports to Japan were valued at over $750 million, led by barley at $325 million, wheat at just over $300 million and canola at roughly $84 million. For Japan TPP-11 results in reduced mark-ups or tariffs in addition to improved quota access for wheat, barley and malt.

In addition to these market access outcomes, TPP-11 is probably Australia's most sophisticated agreement in dealing with non-tariff barriers to trade. As a regional agreement, TPP-11 will help encourage mutual recognition of standards and systems and it will improve processes for rules of origin, self-certification and improved and increased transparency for import licensing. Finally, TPP-11 includes a technical barriers to trade committee which it is hoped will assist in the management of these important challenges.[37]

2.33      In its submission, the red meat and livestock industry noted that the TPP-11 will deliver a range of benefits for their industry and 'will add significant value to the Australian red meat and livestock industry and complement the gains derived from the other free trade agreements Australia has concluded to date'.[38] In addition, it is noted that the implementation of the Agreement will 'help to ensure that the Australian red meat supply chain remains internationally competitive'.[39]

2.34      Australian Pork Limited (APL) explained that, in terms of market access, the TPP-11 is a 'mixed bag' for the pork industry as it will provide greater access opportunities for some markets (such as Mexico) but the advantage Australia currently experiences in the Japanese market will gradually disappear.[40] Ms Deb Kerr, General Manager, Policy, APL welcomed the non-tariff measures under the TPP-11 as well as the labour market testing waiver for some TPP-11 countries.[41]

2.35      The Australian Sugar Industry Alliance (ASA) advised:

With 100 per cent of the value of Australian sugar cane directly linked to the value of Australian world sugar exports, we actively work to improve conditions for world sugar exports, and we see TPP-11 as a really important step in the right direction.

Around a third of our exports, with a value of more than $500 million annually, are sold to TPP-11 member countries. In this context, securing the improved access opportunities for sugar has been a significant achievement and an important step forward. It builds on some of the gains that had been made in other agreements...In terms of our access to Japan, once TPP-11 is entered into force it will deliver a benefit of further reductions in the levy of around $18 to $25 per tonne. This will mean Australia will be the most competitive supplier into the Japanese market and deliver a significant value to that trade.[42]

2.36      Wine Australia described the TPP-11 as a 'landmark treaty that will support growth in Australian wine exports'.[43] It was noted that Australia will gain a competitive advantage, beyond that obtained through bilateral agreements, in four markets: Canada, Malaysia, Mexico and Peru. Wine Australia submitted they are 'particularly excited by the opportunity presented in Mexico' as the removal of the 20 per cent tariff will open the Mexican imported wine market of 72 million litres to Australia, 'thus levelling the playing field with wines from Chile and the USA'.[44]

Implementing and reviewing the TPP-11

Outreach strategy

2.37      The Analysis of the Regulatory Impact on Australia (ARIA) states that:

Once the TPP-11 enters into force, it is intended that DFAT and Austrade will implement an outreach strategy to ensure all Australians are able to take advantage of the Agreement. This will include information sessions held throughout Australia.[45]

2.38      The committee notes that DFAT and Austrade are currently running a series of FTAs seminars across all states and territory with over 100 seminars being delivered since March 2015. For example, a seminar was recently held in Maroochydore, Queensland to assist local businesses to better understand a range of FTAs, including the TPP-11.[46]

2.39      In its submission, the Export Council of Australia (ECA) noted the value of the DFAT and Austrade 'roadshows' although the seminars are 'necessarily high level, and leave the attendees without the detailed knowledge about how to utilise FTAs'.[47]

2.40      The ECA advocated for the Australian Government to commit sufficient resources for the provision of a training program to assist businesses understand 'what they are entitled to and how to access their entitlements'.[48] In particular, it was noted that businesses will require information about how to determine which FTA to use when their trading partners have multiple FTAs with Australia, rules of origin, services provisions processes, customs classifications and compliance and dispute resolution mechanisms under the TPP-11.[49]

2.41      The ECA submission explained further:

While agencies have deep subject matter expertise, they are usually not adequately staffed to roll out a sustained training program. (It is necessary for the training to be available over a long period because there will be many businesses not ready to take advantage of the Agreement until well after it enters into force.) In addition, agencies have little expertise in providing training and often find it difficult to talk in ways that SMEs can understand.

There would be significant value in government partnering with private sector providers to develop an online training program that was freely available to businesses. This training program could reinforce the content of the FTA roadshow seminars, as well as providing much more detail on the technical questions about using an FTA...[50]

TPP­-11 Commission

2.42      A TPP-11 Commission will be established under the Agreement which will be responsible for the operation of the TPP-11. The ARIA states that the Commission will review the operation of the Agreement three years after entry into force and at least every five years after that.[51]  

2.43      The Commission is established under Article 27.1 and is required to meet within one year of the TPP-11 commencing and the frequency of meetings thereafter will be decided by the TPP-11 parties. Meetings of the Commission shall be chaired successively by each Party.[52] The Commission will comprise representatives for each of the TPP-11 countries at the level of Ministers or senior officials and its purpose is to oversee the implementation of the Agreement and to review its operations as actions under the Agreement are rolled out. The Commission will consider ways to further enhance trade and investment between the Parties and supervise the work of all committees and working groups established under the Agreement.

Evaluating Free Trade Agreements

2.44      Witnesses referred to the 2010 research report published by the Productivity Commission: Bilateral and Regional Trade Agreements. This report examined the effects of bilateral and regional trade agreements on a range of matters, including trade and investment barriers, prospects for multilateral reform, regional integration and Australia's economy generally.[53]

2.45      Mr Bryan Clark, Director, Trade and International Affairs, Australian Chamber of Commerce and Industry (ACCI) explained the importance of a review of existing FTAs particularly as there have been a number of new agreements since 2010:

The Productivity Commission in 2010 did a study of Australia's bilateral and regional agreements that existed at the time, and they thought that there are, perhaps, better ways to do some aspects of them. We'd like to see a revisitation now, because at the time there were fewer and we've now had some more agreements, including the ASEAN-Australia-New Zealand trade agreement, the North Asia free trade agreements plus these ones we're considering now, and a few on the table. So we think that perhaps times have changed, but they're the right type of body to do that sort of work. The fundamental question we would start with is: what happened last time? How do we analyse what happened then to know that continuing the same approach is going to result in different outcomes?[54]

2.46      MCA expressed support for an evaluation of the TPP-11 to occur 'at some stage in the future'. In this context, MCA noted the importance of evaluating FTAs but that the timing of evaluation 'is a matter for government'.[55]

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