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Joint Standing Committee on Treaties - 14/07/2014 - Korea - Australia Free Trade Agreement
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CLARK, Mr Bryan, Director of Trade and International Affairs, Australian Chamber of Commerce and Industry

WILLCOCKS, Mr Andrew, Certificate of Origin Compliance Officer, Australian Chamber of Commerce and Industry

[11:53]

CHAIR: Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and warrants the same respect as proceedings of the House and Senate. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament.

If you nominate to take any questions on notice, could you please ensure that your written responses to questions reach the committee secretariat within seven days of your receipt of today's transcript. Do you wish to make any introductory remarks?

Mr Clark : Yes I do. The Australian Chamber of Commerce and industry welcomes the recent completion of the Australia-Korea Free-Trade Agreement negotiations and looks forward to working with business and government to make the agreement a success. KAFTA will create a framework for Australian exporters to develop in the Korean marketplace as time progresses. These benefits will flow more advantageously if the agreement can reach entry into force in the shortest possible time and, ideally during 2014.

Notwithstanding our general support for trade liberalisation, ACCI is interested in ensuring the commercial operability of Australia's preferential trade agreements. To that end, our submission focuses primarily on the aspects of the agreement that relate to what an exporter or importer needs to do to access the benefits of the agreement—that is, we focus on the market access arrangements and the rules of origin, along with some of the investment aspects. Beyond the hype, we ask: how does a company actually access and use the agreement? And what are the administrative processes for doing so?

We are concerned that this agreement, when considered in an aggregate sense along with Australia's other PTAs, may increase red tape for business due to the cumulative effects of divergent and novel procedures across the full range of Australia's preferential trade agreements. These cumulative impacts create ambiguities and are in many cases incompatible with international standards designed to harmonise and facilitate international trade. The irregularities in KAFTA may result in low utilisation if they are not changed prior to ratification.

The KAFTA agreement is over 1,700 pages long and contains over 4,000 separate product-specific rules. Companies need to navigate through these for their own import and export requirements. If compliance is too complex and difficult then commercial trade will avoid the agreement and utilisation will be low. Container turnarounds in Australian ports already require up to 120 informational transactions, let alone new trade agreement procedures further adding to this complexity.

Whilst we support the work of the Australian government in negotiating the agreement, a preferential trade treaty to the benefit to Australian businesses, but we have concerns with the details of the treaty, particularly regarding the rules of origin chapter, the associated text and a lack of commercially responsive dispute mechanisms for border crossing. We have provided some recommendations in our submission that we hope will provide some guidance to the government that will improve the operability of this agreement and future treaties to ensure a high utilisation rate.

Most of our specific concerns relate to chapter 3 as it currently stands. These include: inconsistency with international norms, other preferential trade agreements and the recent WTO Bali package aims; confused nomenclature between certificate of origin and self-declaration systems, which are essential to the claim for tariff concessions from a trading partner; lack of appropriate means for the trade agreement to have commercially relevant dispute resolution; silence on transmission methodologies for the documents, which should be expressly electronic in a paperless trading era; unreasonable liability for exporters both personal and corporate; requirements that are potentially at odds with the Australian customs blueprint; and what we think is a failure to provide adequate defence against foreign inquiry into claims for tariff concessions.

It is important for all stakeholders to understand that a preferential trade agreement does not automatically confer preferential access to all products from the agreement parties. The agreement only confers preferential terms for market access and tariff concessions to those goods, services and investments that comply with the terms and conditions of the agreement.

The process for origin verification is vitally important to the integrity of the agreement and also to support exporters when their claims for preferential treatment are scrutinised in the counter-party market. Unfortunately, the treaty confuses the terms of 'certified declaration of origin' with 'self declaration' systems on the basis of a clear misunderstanding that these systems are equivalent; they are not.

The certified declarations made by an exporter to obtain the tariff concession in a foreign country are supported by a system of Australian government verification to the compliance of goods to the treaty's origin conferring criteria. This system is managed through third-party issuing bodies such as the Australian Chamber of Commerce and Industry, and we are in turn are accredited by the Joint Accreditation System of Australia and New Zealand. This results in the exporter being issued with an Australian government certificate attesting to the origin of the goods in question.

Self declaration, on the other hand, is simply a statement by the exporter directly to the foreign government in relation to the goods. The difference is that the former system is a third-party verified system and can support the exporter in making their claim for preference along with a legal defence in the foreign jurisdiction should that preference claim be challenged by foreign customs whereas the latter is an untested first-party statement made by an individual with no standing in the foreign jurisdiction, which can be of questionable veracity.

By way of non-treaty examples to assist the committee to understand the issue, it is the equivalent of the difference between a government issued passport and a self drafted statement of citizenship. Imagine trying to enter Seoul airport with your own passport typed up by you the night before. There is a reason why we have 100 points to open a bank account and various other documents and declarations need to be attested by JPs or other authorised people. The same goes for meat and other primary products, which cannot be exported without third-party issued AQIS certificates. There are few examples where the first-party statement is accepted yet that is what is being negotiated in our trade agreements. It will open the door to mischievous and criminal behaviour and will fail to protect our exporters from unjustified rejections of claims for preference in counter-party customs, which are charged with ensuring that only truly compliant goods are offered the significant discounts and tariffs afforded by the agreement.

Over the past week we have assisted exporters from meat, minerals and horticultural sectors in seeking market access in Asia where the counter-party customs officers have rejected correct and legitimate preference claims due to misinterpretation of the agreement terms. Without a certificate of origin, these exporters would be left unsupported and their preferential market access denied.

We note that in April this year the US agricultural marketing service resolved a year-long dispute with the Korean authorities over the verification of the origin of US frozen concentrated orange juice exports under the KORUS agreement. Because there was no third-party verification system to support the exporter's claims, the US DA's specialty crops inspection division now has to certify that the orange juice is produced domestically—an expensive and disruptive outcome.

Similarly in 2012, Toyo Ink settled an origin dispute in the US courts for $45 million when their origin claims were challenged by US authorities. These examples highlight that claim of origin is important. It is important because we need to make sure that only the products from both Korea and Australia are offered the preferential terms and not the products from New Zealand or China. We raise these concerns in a genuine attempt to alert the government to the outcomes from this negotiation and seek changes to the text before it is ratified to ensure that it is a valuable agreement which is commercially relevant Australian businesses. Given it appears there are Australian-specific articles, it would appear to provide an avenue for Australia to unilaterally adjust the text while it is still a draft without needing to fully reopen the negotiations.

We support the government's efforts to develop commercially relevant preferential trade agreements and to reduce red tape domestically. However, we are not seeing this translate into our preferential trade agreements. The continuing invention of novel processes in each new PTA is adding knowledge, time and, potentially, other costs to what are already established border crossing arrangements. In our view, the key issue that has escaped the negotiations is to seek the removal of the need for customs inspections of documents for each shipment that have been issued with a gold standard certificate of origin by the Australian government and treaty partners. Such an approach would dramatically reduce time and costs for exporters as well as customs authorities. We alert the committee to these issues to ensure they are not repeated in the current other PTA negotiations.

We conclude our comments by calling for a permanent role for an independent body to analyse the national benefits of PTA negotiations and then regular reporting of performance on each one during its implementation. The success of a trade agreement depends on how much the commercial sector uses it, so it is important that utilisation rates are regularly reported and scrutinised.

CHAIR: You talked about the opportunity that the FTA presents and then the utilisation of that opportunity. How would you characterise what has been achieved in the FTA in market access? Can you give us a description?

Mr Clark : I think it is a reasonable agreement from a market access perspective. It gets some things but not all things so it will be an improvement on the current status quo. But if companies cannot actually use it because the terms are too confusing then it has been a waste of time and companies will go back to MFN trade.

CHAIR: Would you say this is a better agreement than other agreements we have signed or worse or what would you say?

Mr Clark : No, it simply sits alongside the other ones. For those companies wanting to use it, they need to understand the terms of operating it. Increasingly that is difficult because each one of the agreements is different. The companies trade today with New Zealand, tomorrow with China and the day after with Korea. They do not specifically trade with one country so they need to understand all of them.

CHAIR: Is this agreement with Korea better or worse than other countries' agreements with Korea? Have we achieved in this agreement something that is relative to the US or other countries that are dealing with Korea? Where do you see it in relation to other countries' relationships with Korea?

Mr Clark : It is roughly equivalent to the US.

CHAIR: And if we did not have the agreement, where would that leave Australian industry?

Mr Clark : Somewhat disadvantaged in terms of the tariff preference which applies to those goods and services where it applies; but for the ones which have been left out, clearly the status quo remains. Again, if the arrangements are too hard to get to the tariff preference, or they are not honoured by the Korean customs officers, they will still go back to MFN trade.

CHAIR: I might come back to some other questions later.

Mr KELVIN THOMSON: At the end you talked about having an independent body looking at the rates of take-up and the like. Is this information not collected by the department, or not publicly available? If we want to find out how many people are using the US free trade agreement or the Thailand free trade agreement, is that information around?

Mr Clark : It is certainly very difficult to find and, when we have asked, we have not been able to find a public set. We have made specific inquiries of both Customs and the department of foreign affairs who have, often enough, refused to provide it on the basis of it being commercial in confidence. The sets may exist—we are not certain of that—but it is very difficult to separate out what the trade trend is, as opposed to against the baseline without the agreements where they exist. We would certainly encourage much greater transparency and more reporting on what is going on.

Our own surveys of our members have indicated that 25 per cent is the highest utilisation, and that is under the AANZFTA—the ASEAN-Australia-New Zealand free trade agreement. The others, the bilaterals, are lesser-known. It is something we all need to work on. There is a genuine attempt and a lot of effort gone into these agreements. How do we make sure they are better utilised by Australian industry?

Mr KELVIN THOMSON: You are suggesting that many of your members might find this onerous in practice because of the amount of detail in each of the bilateral agreements. How do they go about it in practice? Where would they look for support to accomplish this

Mr Clark : The department of foreign affairs, in the first instance, will put out a set—which they have already—of some guidance information for it. We ourselves put more information out. Austrade and others try to highlight various market aspects but the physical detail of 'how do I make a shipment and get it across the border' then comes down to organisations such as ours, and chambers of commerce in exporter's relevant state, to assist. They may get some support from Austrade in doing that. Freight forwarders and others who are experts—legal providers—will also assist with that, but it tends to be very specialised knowledge which companies do not have. They are having to go looking for it to make sure they are compliant. If they get it wrong, as we have highlighted, the ramifications can be substantial.

Mr KELVIN THOMSON: You suggested that there be some amendments or additions before this treaty is ratified. Have we got a set of words somewhere?

Mr Clark : In our submission we have some, yes.

CHAIR: Would you support that even if it delays the ratification of the treaty beyond 2014, which you said was essential in your opening remarks?

Mr Clark : We would hope it could be done through this ratification process. We would like to think that recommendations from this committee may have some influence on that. The really good thing in the Korean agreement is that the text was released early, so we in industry have had an opportunity to scrutinise it. We provided some advice—similar advice to what is in our submission—to government in the hope that they may be able to modify it before it got to the JSCOT process but that has not happened.

CHAIR: Given that is not the case, and that you would require significant changes, then the Koreans would have to go a ratification process, it would probably not happen this year. Would you like to see those changes and the agreement not ratified this year, or would you like to see the agreement ratified this year?

Mr Clark : There is very little precedent for them being well modified afterwards, so our preference would be, while we want to see early ratification—ratifying an agreement which then results in commercial unworkability would benefit from a little extra time.

Dr STONE: Going to the country of origin issue, or your certificate of origin issue: we in Australia use the World Trade Organisation measures, which come out of the Codex Alimentarius of the 1960s, which say that if you add 50 per cent of a transformation in a country, or 50 per cent of the value—for example, with Danish frozen pork or pig meat coming into Australia, when we cure it in Australia we call it made in Australia, and that is lawful under both the WTO and our Australian regulations. How are we going to work with that, given that it is an issue that is very, very hot in Australia at the moment. As you would be aware, we have inquiries into it as we speak. Given that in Australia, we allow a product to be called 'made in Australia'—to every purpose sourced in Australia, pig meat, fish fingers; I could go on and on, a huge number of products are in this category—how are we going to deal with a certificate of origin given what we allow in our own country?

Mr Clark : That is an excellent question. The answer is: the treaty terms tell you how to do that, and each treaty has a different set, but the principle of what is called 'last substantial transformation' applies. How you do that is a set of calculations which are described in the agreement, and the process for making the statements around that are also described. They are agreement specific. So companies who are used to the WTO terms have to become familiar with the PTA terms. They are not necessarily the same. It would be of great benefit if Australia used a single set where it is common and everyone understands them and that is just the way you do it.

Dr STONE: So you are saying there are already in existence some appropriate regulations which would show you how to accurately give a country of origin, without using the WTO terms, but they are not in the KAFTA at the minute.

Mr Clark : No; exactly.

Dr STONE: Where do they exist at the moment?

Mr Clark : The World Customs Organization is often a custodian of this. We particularly like the 2006 revised Kyoto agreement on harmonised and simplified customs procedures.

CHAIR: Why do you think the government negotiated something different in this agreement?

Mr Clark : That is beyond us. You will have to ask them.

Senator WHISH-WILSON: In recommendation 1, on page 13 of your submission, you say:

Australia should develop a 'model' Preferential Trade Agreement based on international standards that is fully transparent to Australian Industry and to international Governments, so that all stakeholders are aware of what Australia sees as the ideal outcome from a PTA.

Given the comments you made earlier about getting the details early and needing some changes, what exactly are you suggesting there in terms of how the process could be more transparent, to the point where a draft agreement is released?

Mr Clark : The negotiations are firstly done in secret, so you do not know exactly what is being done. We from industry do try to stay close to the negotiators, and it depends on what we can hear and what we can suggest and what can be taken up by the government through that. It is difficult to see exactly what the government is negotiating from time to time. We agree—and we also have as one of our final recommendations—on the need for an appropriate assessment process so that you do know, as the negotiations go over time, what is there. But at the moment there is no model, if you like, from Australia. You can derive a model from what has previously been negotiated—but, as has been seen, that does not necessarily mean it is going to be followed. We think it would add transparency to the process if Australia had a model agreement which was available to all to see, including potential other partners, and said, 'If it looks like this or it has these characteristics then we are likely to agree to it.' I think that would be of great benefit and comfort to industry, frankly, about where the negotiators' guidelines are going to be.

Senator WHISH-WILSON: It is very pleasing to hear industry and business stakeholders calling for more transparency in our trade agreements. I put this question directly to Senator Brandis at Senate estimates with Defence, Foreign Affairs and Trade. The reason he gave us for not making these things more transparent was that there were commercial-in-confidence business issues or industry issues and therefore the government could not disclose. To be honest, that is totally contradictory to what you, as an industry representative, are saying here today. Do you have any comments in relation to that—that commercial-in-confidence compels secrecy in trade deals and does not allow them to be more open?

Mr Clark : They are obviously going to be public at the end, so it is difficult to see—there are models around where they have been publicly available. I think what they also do is increase the debate around things. So we could potentially see new or other approaches come out of it which are innovative and can lead forward rather than just the embedded process which the government negotiators have been doing. That said, I think companies need to be able to have an in-confidence discussion. We do agree also that the negotiations themselves need to be in confidence. But we are attracted to the system that the US uses, of accredited advisers, where you can have a system which is sort of an intermediary between what we have got now, which allows industry and appropriate representatives to be closer to the negotiations and particularly to see the country's approach. We may not see—which I think is the US system—the counterparty proposition, but certainly the development of the Australian proposition could benefit from a more transparent process that way.

Senator WHISH-WILSON: Obviously you are here representing industry and business and have made it very clear that you want it to be fully transparent to Australian industry and governments, but would you agree with also making it transparent to other stakeholders—civil society stakeholders, for example?

Mr Clark : I think that, if you use the accredited adviser model, which effectively allows on an in-confidence basis some people from the stakeholder community—you do not want everybody in, of course. As you have heard today, there are differing views on particular points. Because there is no process for that, all of that information just goes into the department of foreign affairs and eventually comes out at the other end of the negotiation sausage factory. We do not know what has gone on in the middle of those things. Maybe there are points where there is actually quite a lot of harmony in view between those stakeholders. So putting them all in a room together and saying, 'Sort it out and tell us what you think is the compromise outcome' could be pretty beneficial.

Senator WHISH-WILSON: Certainly the Productivity Commission supports your comments. They made it very clear that they would like to see similar processes and a lot more transparency around this.

Mr Clark : And we were very pleased with some of their pick-up in their most recent trade industry assistance.

CHAIR: I think the senator has hit on something a lot of committee members are quite interested in. You said that you need to have negotiations done in confidence, and there are pretty obvious reasons why that is the case—if you want to achieve an outcome, you need to have a negotiation with some confidence around it—so what is the lever you would be pulling in changing the process we go through in negotiating these sorts of agreements? In a perfect world, how would industry be consulted in a practical sense and what would we actually be doing differently?

Mr Clark : The process at the moment calls for public submissions, and the department goes through the various negotiations and holds some public forums from time to time where usually there is not a lot let out about the negotiations and you hear that they are making lots of progress and it is all very good. If you go to the specifics of what is in it, it is very difficult to find out. We then make submissions to that, of course, and talk individually to the negotiators, but I do not know what some other organisations are necessarily saying, and there is no forum where they are brought together to say there are two different view or a multitude of views. We as negotiators need to find a consistent spot.

CHAIR: So, in a practical sense, how would you bring them together and ensure the confidence of the negotiation?

Mr Clark : A room like this with people who are accredited specifically to come provide advice and who can talk at different levels?

CHAIR: In confidence?

Mr Clark : In confidence.

CHAIR: So they have signed confidentiality agreements.

Mr Clark : Chatham House, yes. We are also proposing at the moment that there is a need for a centre of excellence on international trade policy. There are good views around through industry, academia and stakeholders, but there is no place where they can come together around that. We are building a case for that at the present time.

CHAIR: And do you believe that in that process industry with government could be drafting a proposed text that is then taken to negotiations and used as something we want to see, or do you think that is going too far?

Mr Clark : Sometimes. I think more it would be about the principles rather than the specific text. There would be the ability to see the specific text and go through it, because in the end where the rubber hits the road is what the specific text looks like. I am assured by negotiators that there are all types of propositions in the negotiations, so the bracketed text goes on and can be very lengthy documents which are not going to reflect the final documents. Frankly, I would agree. I do not have the time to be reading all that sort of stuff. But having an opportunity to come together and see the various proposals—bilateral is just one other proposal—and say what you think about it is important. In more complex negotiations like the Regional Comprehensive Economic Partnership or the Trans-Pacific Partnership Agreement you have potentially 15 different views.

CHAIR: The devil's advocate for that—TPP is a good example. You have industry consulted in the US in a Chatham House way where they have developed a draft text which, as you said, might not resemble the final text in any way. Then it is released through WikiLeaks» , and you do not have confidence in negotiations. Then you get further away from signing an agreement. But do you think there could be significant safeguards built in so that you can maintain confidence in negotiations but further consult?

Mr Clark : I do not see the problem in it. We have seen some of the «Wikileaks» stuff too, and all it is is you can see what the propositions are.

CHAIR: Yes—as long as they are defined as propositions.

Senator WHISH-WILSON: Can I correct the record though? We do not actually know whether those chapters that were released by «WikiLeaks» are actually correct. There has been no confirmation from DFAT or anyone around that.

CHAIR: That is my point. That is the point I am making.

Senator WHISH-WILSON: I just want to get that on the record.

Mr WHITELEY: So we will claim some of «WikiLeaks but just not all of it.

Senator WHISH-WILSON: We do not even know if it is true. That is the point.

CHAIR: That is my point, but you believe that it can be done in confidence.

Mr Clark : I would think that a significant step could be made in this.

CHAIR: And how would you accredit people coming into that process? It is a serious question—

Mr Clark : No, I appreciate that. I have to think about it some more.

CHAIR: Can you take it on notice because it is a serious question. If you want to do this in a different way and there are questions about having confidence in negotiations, how would you accredit people who would be involved in the closer environment that the senator was talking about?

Mr Clark : I think the fundamental starting point is that we think there is some attractiveness in the US system, so we would look at it as a model for a start.

CHAIR: Excellent.

Mr WHITELEY: These agreements by their very nature are bilateral, so I am a little conflicted by some of your opening comments about trying to provide some procedural consistency and your frustration with the fact that so many of the preferential trade agreements are different to each other. But given the unique trade, diplomatic and cultural perspectives surely it is wishful thinking to think there is some template that every country is going to be comfortable to work with. That is the very nature of a bilateral agreement, surely.

Mr Clark : No, on the contrary there are. That is the point of the WTO and most favoured nation trading status that we operate through now. There are common systems. The World Customs Organization—

Mr WHITELEY: But they are not all going to come out of the sausage factory, as you call it, as the same sausage.

Mr Clark : They should because there are precedents—if they draw upon the precedents, which have a common set that go with it, and increasingly we are all trying to get to the WTO multilateral agreement. The Australian government I think, quite rightly, is using a stepping stone approach. If you use the stepping stone approach the stones have to be the same so that you get to an end point where they all fit back together. At the present time if you attempt to multilateralise over a period of time—we want to get to a bigger agreement out of these things—how do you pull them all together? It is very difficult when they have all been built differently. You need a consistent set so you can then harmonise them at a later point.

Mr WHITELEY: Even at the risk of not signing one?

Mr Clark : I think if they are approached with a common set and they draw upon the international rules you will get the same outcome and you will sign them. I think the negotiation is actually much more efficient.

CHAIR: There being no further questions, thank you for appearing today. If we have any further questions, the committee secretariat will seek comment from you at a later date. Thanks so much.

Mr Clark : Thank you very much.

Proceedings suspended from 12:23 to 12:41