Our FTA with South-East Asia labelled ’mediocre’

The Australian, Canberra

Our FTA with South-East Asia labelled ’mediocre’

By Rowan Callick, Asia-Pacific editor

4 April 2009

Australia’s biggest ever free trade agreement has been branded as mediocre by one of the first detailed reviews of the deal.

Law firm Minter Ellison says that "in some cases there is little or nothing within the shell of the framework" of the new FTA between Australia and New Zealand, and the 10 countries of the Association of South East Asian Nations. The deal was signed a month ago. But analysts are only now starting to explore the full, lengthy text.

Few if any business groups or other non-government players were consulted on the final terms of the agreement before it was completed.

The department of Foreign Affairs and Trade says in its overview that trade with the partners covered in the deal was worth $103 billion in the last financial year, comprising 21 per cent of Australia’s total.

Although the deal principally treats ASEAN as an entity, its market access arrangements differ between the 10 members, with especially varied commitments with the newer ASEAN members, Vietnam, Burma, Cambodia and Laos. Australia already has separate FTAs with New Zealand, Thailand and Singapore, but the new agreement extends this to new markets — including Malaysia, with two-way trade worth $14billion, Indonesia, worth $10.3billion, and Vietnam, worth $8billion.

The DFAT overview details the proportion of tariff lines which are to carry very small or no tariffs. But this is less relevant, given that in most countries a high proportion of trade is covered by a few lines, than the accompanying statement that the deal eliminates tariffs that cover 96 per cent of Australian exports to the six more developed ASEAN countries plus Vietnam.

It will come into force once national ratification processes have been concluded — no later, DFAT says, than January 1, 2010.

Minter Ellison’s international trade group rates the deal, in its overview published yesterday, as six out of 10.

It says: "While there are some market access gains for Australian merchandise exporters, there remain some important carve-outs in agriculture and other sectors."

And it says: "In the area of services, the existing level of protection is preserved, with bindings at ’standstill’ rather than ’rollback’ levels."

The key sectors affected in Australia are textiles, clothing and footwear, and motor vehicles and car parts, where tariffs of about 10 per cent will be rolled back to zero — though Australia has preserved its system of anti-dumping and anti-subsidy duties and safeguards.

The deal accords market economy status to Vietnam, a communist state with some similar institutions to neighbouring China — which the Howard government conceded the same status as a preliminary to embarking on TFA talks which are continuing after four years.

Indonesia has excluded sugar from its tariff commitments, and is given a decade to phase out its dairy tariffs.

On vehicles, Indonesia has agreed to liberalise all but five tariff lines — but only by 2020.

Under the category of competition policy, Minter Ellison says: "There is little beyond a commitment for the governments to co-operate. In other areas, for example sanitary and phytosanitary (SPS) measures, the rules generally do not go beyond existing commitments under existing trade agreements."

One "notable gap", the law firm says, is an absence of "any rules to promote non-discrimination in government procurement".

Competition, SPS measures, electronic commerce and economic co-operation are excluded from the dispute settlement rules of the deal.

"To the extent that the agreement provides any rights to Australian business in these areas, therefore, it fails to provide a remedy to enforce those rights," Minter Ellison says.

The chapter on dispute resolution seeks to limit the scope of what may constitute expropriation of foreign investments, Minter Ellison says, "but remains a potentially powerful tool in the hands of investors". It opens the dispute machinery to the private sector.

The FTA’s intellectual property chapter largely reinforces obligations already existing under the World Trade Organisation, the review says.

But it builds on these in several areas, to enable a broader defence of copyright, and to "enhance the transparency and management of IP rights".

The deal establishes an "economic co-operation work program" under which outstanding issues, including customs, standards and "technical barriers", are discussed by the members.

Australia and New Zealand will pay for this program.

The FTA includes an emergency safeguard provision for services, allowing ASEAN countries to request consultations to escape from commitments they have made.

Unlike the FTA with the US, it does not affect the Foreign Investment Review Board’s thresholds.

Minter Ellison concludes that its six out of 10 rating of the FTA means that "while it is not bad, its immediate impact on business is unlikely to be dramatic".

Alan Oxley, trade principal at ITS Global and a former Australian ambassador to the WTO’s predecessor, said it was important to recall that ASEAN’s own internal FTA originally discriminated against some Australian products.

He said: "In the long run, there will be some form of new regional architecture, and this agreement will help reduce the risk of illiberal results there.

"It can make a contribution to raising the standard of FTAs around the region, to making them cleaner. And in the longer term it helps us to gain better access to consumer markets in ASEAN, which are bound to keep growing. Our trade with the region is at present quite patchy, dominated by a few products."