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Joint Standing Committee on Treaties - 22/09/2014 - Treaties tabled on 26 August and 2 September 2014

BAXTER, Mr Peter, Deputy Secretary Strategy, Department of Defence

CAREY, Mr Michael, Special Counsel, Defence Legal, Department of Defence

CRONAN, Air Commodore Paul, Director General Australian Defence Force Legal Service, Department of Defence

CULLEY, Mr Adam, Chief Finance Officer, Chief Operating Officer Division, Department of Defence

MASON, Mr David, Executive Director, Treaties Secretariat, International Legal Branch, Department of Foreign Affairs and Trade

SHEEHAN, Ms Anne, Acting Assistant Secretary, International Law, Trade and Security Branch, Office of International Law, Attorney-General's Department

Committee met at 11:01

Force posture agreement between the government of Australia and the government of the United States of America

CHAIR ( Wyatt Roy ): I declare open this public hearing. The committee will take evidence on the proposed force posture agreement between the government of Australia and the government of the United States of America. I welcome representatives of the Department of Defence, the Attorney-General's Department and the Department of Foreign Affairs and Trade. Although the committee does not require you to give evidence under oath, I advise you that this hearing is a legal proceeding of the parliament and warrants the same respect as proceedings of the House and the Senate. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. If you nominate to take any questions on notice, can you please ensure that the committee secretariat has your written responses to questions within seven working days of receipt of the transcript of today's proceedings. We might go to your introductory remarks now and then go to questions.

Mr Baxter : Good morning. Thank you for the opportunity to appear today. I participated in the Australian government's interagency team for the negotiations for the force posture agreement and led the negotiations during the last round. My group within Defence, the strategy group, is also responsible for strategic oversight of the US force posture initiatives in Australia, which this agreement will govern. To inform today's hearing, I would like to provide the committee with a short overview of the initiatives and the role this agreement will play in facilitating their implementation.

The US force posture initiatives in Australia were announced on 16 November 2011 by then Prime Minister Gillard and President Obama. These two initiatives comprise rotational US Marine Corps deployments and increased corporation with the US Air Force in northern Australia. The initiatives are an extension of our existing defence cooperation and arrangements under our alliance with the United States and are consistent with our strategic interest in supporting US engagement in our region in a manner that promotes regional security and stability. The initiatives also provide tangible benefits to Australia through enhanced training opportunities for the Australian Defence Force as well as opportunities to improve cooperation between Australia, the United States and other regional partners.

The most visible elements of the initiatives are the rotations of the US Marines in northern Australia. These rotations, which began in 2012 with around 200 marines, occur during the northern dry season for around six months at a time. This year's rotation commenced in March and involves around 1,150 marines. In coming years the rotations will grow to a full marine air-ground task force of around 2,500 personnel, vehicles and equipment. The other initiative, which concerns enhanced cooperation with the US Air Force, will over time result in increased rotations of US aircraft through northern Australia. This too will provide opportunities to enhance bilateral collaboration and for combined training and exercises. The force posture agreement signed at the Australia-United States ministerial consultations on 12 August this year will provide a legal, policy and financial framework to help facilitate the full implementation of these two initiatives. It will also provide for any future force posture initiatives should they be agreed between the Australian and US governments.

The force posture agreement is not designed to introduce a broad new architecture for US forces in Australia. Rather, it builds upon and complements our existing agreements and arrangements with the United States. This includes the Status of Forces Agreement of 1963, which will continue to be the baseline for any US military presence in Australia. The force posture agreement has been negotiated to apply to the force posture initiatives and the activities under the agreement that have been mutually agreed by the two governments. The agreement reaffirms that the initiatives will occur at Australian owned facilities.

At its core the agreement is designed to achieve two aims in the context of the initiatives. Firstly, it aims to provide certainty around access by US personnel to Australian facilities and to provide equitable and sustainable cost-sharing arrangements. The reasons for this are simple. In coming years there will be several thousand US personnel in Australia for the initiatives that will access, use and live in Australian facilities for months at a time. It is important, therefore, that there is an agreement that governs the expectations, rights and responsibilities with respect to the use of Australian facilities. That is why the agreement encompasses issues such as consultation and day-to-day administration.

In addition, infrastructure works will be required at some Australian facilities to support the US rotational presence. This could include upgrading existing facilities and new infrastructure to house US personnel and their equipment. Where infrastructure is upgraded or new facilities built, it is appropriate that the United States contributes to the cost. That is why the agreement contains a commitment to share costs on the basis of proportionate use. At its most basic, this will see the United States pay for infrastructure that is unique to US requirements and, where there is shared benefit, for the costs to be apportioned on the basis of proportionate use.

Beyond these two aims, the agreement also includes obligations that recognise key Australian interests and ensure that local communities derive benefit from the initiatives. These obligations include: an assurance that implementation of the agreement shall not adversely impact upon the readiness or capability of the Australian Defence Force or the functions of the Australian Commonwealth, state or territory governments; a commitment that United States will apply the more protective of either US or Australian environmental compliance standards; a commitment that relevant mutually-determined activities will be conducted in accordance with Australia's policy of full knowledge and concurrence where it is applicable; and an undertaking by the United States that it will strive to use Australian goods, products and services to the greatest extent practicable.

For these reasons, I consider the force posture agreement to be unequivocally in our national interest. It provides a robust policy, legal and financial framework for the initiatives. It provides the certainty needed for both countries to maximise the benefits of the initiatives while protecting their sovereign interests. It builds upon the framework of agreements and arrangements we have with the United States, and it incorporates obligations that accord with Australian community expectations. I look forward to your questions on this important new agreement.

CHAIR: Thank you, Mr Baxter. To start us off, I might go to some of the comments you made at the end of your statement where you talked about striving to use Australian goods where practical. Article 17 of the agreement outlines the governing arrangements for US contracts for materials, supplies, equipment and services. Can you talk us through what the opportunities are for Australian companies to provide those services and materials to the marines going through their rotation?

Mr Baxter : As I said in my opening remarks, the agreement does provide for the United States to use Australian suppliers or contractors where that is practicable, and we expect that there will only be a relatively small number of US contractors associated with highly specialised tasks supporting the US deployments. But, as I also mentioned in my opening statement, there will be a requirement for Australia and the United States to cooperate on developing infrastructure that will facilitate reaching the full 2½ thousand marines on rotation through Darwin. That could include housing and other infrastructure associated with those deployments. We would expect that we will go through normal tender processes and contracting processes and that Australian services and suppliers will have the opportunity to bid for those contracts.

CHAIR: When you say 'highly specialised services for US contractors', what sorts of things are you talking about? What sorts of things would the US be doing that we would not be doing?

Mr Baxter : The United States, for instance, uses a range of equipment that the Australian defence forces do not use. For instance, when the US Air Force rotations start to become implemented, it is likely that the US will bring aircraft here that are not part of the Australian inventory and that we do not have the skills to maintain, and they would bring those specialist contractors with them. There will also be some aspects of the work that would be of a classified nature that the United States would have United States citizens working on.

CHAIR: You talked about the shared cost and proportional use of infrastructure, and you mentioned housing just before. Is the intention not to house the US marines with Australian troops in the north? Is the intention to do that quite separately?

Mr Baxter : No, the intention is to house the US marines on Australian owned facilities. At the moment it is Robertson Barracks in Darwin. There has been some new temporary accommodation provided for the increased rotation this year. We are up from 250 in 2013 to 1,150 this year, and we will discuss with the United States the permanent arrangements that we will put in place to upgrade the facilities on the barracks to deal with those increased numbers.

CHAIR: So the intention is to have the marines and the Australians together?

Mr Baxter : Very much so.

CHAIR: Excellent. The final question that I have is this. Defence conducted public consultation, particularly in the north, and I am just curious: could you talk us through what that entailed, who you spoke to and what the outcome of that consultation was?

Mr Baxter : We have an ongoing dialogue with state and territory governments about the Defence presence in those states and territories, and that is certainly the case in terms of our liaison with the Northern Territory government throughout the development of the force posture initiatives. Most recently, in mid-July, the Chief Operating Officer of Defence, Mr Brendan Sargeant, met with the Chief Minister of the Northern Territory to brief him on the latest developments relating to the force posture initiatives. The Minister of Defence has also written to the Chief Minister about the initiatives, informing him of the conclusion of the agreement and the signing of the agreement at AUSMIN last month. And, through both the northern commander of the Australian Defence Force and the commanding officer of the US marine force in Darwin, there is constant liaison between Defence and the Northern Territory authorities to ensure the smooth implementation of the initiatives.

Mr KELVIN THOMSON: Article 17 indicates that the US is obligated to strive to use Australian goods, products and services, including Australian workers and commercial enterprises, to the greatest extent practicable. Does that represent any change from the situation which provided prior to this? Secondly, what can you tell us about how many contracts have gone to Australian businesses or jobs to Australian workers so far?

Mr Baxter : The force posture initiatives are a step change in our alliance with the United States, because while we have had in the past thousands of members of the US military forces coming to Australia for short periods of training—for instance, you would be familiar with exercise Talisman Sabre—this is the first time we have had such a large group of US forces rotating through Australia for long periods of time. So the commercial opportunities that will be provided to Australian business will in a sense be different because, as you would be aware, the agreement has a 25-year life period, and we are setting up this initiative on a long-term basis. So there will be investments made in infrastructure that will support the force posture initiatives throughout the duration of the agreement. So they will be of a different nature from short-term deployments of US forces to participate in exercises or other activities in Australia.

I would have to take on notice the number of contracts that have been let so far. I know there was one contract last year for $11 million let to Australian building companies to provide the increased temporary accommodation to facilitate this year's rotation. But we see that as the force posture initiatives develop there will be a number of opportunities for Australian business in the North.

One of the issues that we will face in seeking to develop the force posture initiative is just the demand for skilled labour in the North with other developments, particularly relating to the mining sector. So it is likely that we will be in what will be a very competitive market for those services.

Mr KELVIN THOMSON: How do you monitor a provision like that that the US is obligated to strive to use Australian goods? How do you see that a provision like that is being put into effect?

Mr Baxter : We will have both formal and informal consultation mechanisms with the United States to monitor the implementation of the agreement. The United States defence force is very aware of the need to ensure that the implementation of the US force posture initiatives engenders broad support from the communities in which the force posture initiatives will take place. But we will monitor, with the United States, the way in which the contracting processes take place, and we will obviously be able to report on that as the initiatives move to full maturity.

Mr KELVIN THOMSON: On that question of implementation, the articles indicate that a lot of the detail will be worked out in implementing arrangements. Are those arrangements in place, or how far advanced are they, or how long will they take to be done?

Mr Baxter : They are not in place as yet. We are in discussions with the United States about negotiating those implementing arrangements. Our ambition is to have most of those, if not all of those, implementing arrangements in place in time for the commencement of the next rotation in around March-April next year.

CHAIR: Has there been a status quo in terms of the implementation? What have you been doing now that is going to be different once you get these agreements done? Obviously they are already there; it is just that you are doing it on a larger scale.

Mr Baxter : What we are doing is formalising the legal, financial and other administrative arrangements to establish the force posture initiatives on a more permanent basis through this treaty-level agreement.

Mr WHITELEY: A couple of questions if I could. You talk about the cost in the final part of the thing. It says the agreement imposes limited foreseeable direct financial costs. Now we have talked a little bit about the benefits, of course, but have you got any more idea of what those costs would be?

Mr Baxter : Those costs will be determined in terms of the nature of the initiatives themselves. What we have done is put in place, with our colleagues from the United States, an agreement that makes it clear that if infrastructure, or other investment, is required to facilitate activities that are solely going to be undertaken by the United States—for instance, it might be an aircraft hangar for a type of aircraft that only the United States uses and Australia does not use—then the United States would meet the costs of that. If it is a joint facility where we will both be using that facility then, on the basis of proportionate use, we will work out the proportionate cost sharing for those facilities.

Mr WHITELEY: So no detailed work on the costings has been done at this point?

Mr Baxter : We are working with our United States colleagues to plan the future infrastructure developments.

Mr WHITELEY: Just a further question. Article 17, which we have been focusing on a little bit, talks about the provision of supplies and materiel, and so on and so forth. There will obviously be a commissary. I do not know what we call it by the comparative language but, in relation to the operation of that and the provisions to that facility, would you include that in your overall bundle of contracts in materiel and supplies, or will that operate separately?

Mr Baxter : Absolutely, including on the cost-sharing basis because clearly things like messing facilities and the like—water, sewerage, all of the services that exist at the moment in Robertson Barracks and at RAAF base Darwin—we will work with our United States colleagues to look at where they need to be upgraded and how the contracts that underpin those services are allocated, and we will cost-share according to the formula that is included in the agreement.

Mr WHITELEY: So could you just walk me through briefly the process for the provision of fresh produce into that facility? Will that be just an open tender basis like everything else?

Mr Baxter : I do not have a detailed knowledge of that aspect of the operation. Unless any of my colleagues do, I am happy to get that for you. Certainly we would be looking at an upgrade of the existing contracts just based on the much larger numbers that we are going to have operating out of Robertson Barracks. There will be opportunities there in terms of the suppliers of that produce and other food stuffs.

CHAIR: So you think that you will be using existing defence contractors and just increasing the size of the contract, as opposed to a whole new tender?

Mr Baxter : I would have to look at where the existing contracts are and take that on notice. There will clearly be a need to increase the volumes, whether they are provided under existing contracts, or whether we go to new contracts.

Mr WHITELEY: In my humble opinion, it would not be fair to utilise existing tenders. That would be my view, given that we are talking about a whole different business model here. So to suggest that we would use current providers and they just get a benefit would not seem to be a fair outcome to me.

Mr Baxter : No.

Mr WHITELEY: I would be interested to receive more detail in relation to that. I mean we are talking about more than a doubling of this facility's participation. That is an extremely significant increase in the provision of fresh food, vegetables, protein, so on and so forth. I think there are some significant benefits to be gained here for local suppliers from as far away as Tasmania, dare I suggest.

Mr Baxter : Very much so. I will just ask my colleague Mr Culley, if I may.

Mr Culley : There are extant contracts that are in place to support the current effort in the Northern Territory. I would have to take on notice your direct question on the precise way forward. I would suggest there probably is some leveraging of the extant contracts, but I would have to take on notice precisely how that step-function is being structured within the contract solution.

Mr WHITELEY: Do you think that is a fair outcome though, that we are dealing with a completely different business model than someone who would have tendered some years ago based on a particular provision compared to the potential. Now wouldn't that put existing contractors at a distinct advantage?

Mr Baxter : We will obviously have to meet our legal obligations under existing contracts. I certainly take your point. As we move into much higher levels of rotation over the next several years, we will clearly need to look at how we provide those services and the contracting processes behind them.

Mr WHITELEY: I would be pleased to receive a little bit more detail on that if you could.

CHAIR: You can take that on notice. Thank you.

Ms PARKE: Just going back to the point about the costs, did you provide a dollar amount? I may have missed that.

Mr Culley : No.

Ms PARKE: Do you have an estimate?

Mr Baxter : No, we do not at the moment because we are in the process of planning with the United States the gradual increases over the coming years to get to the full 2,500 marine rotation, and the bringing online of the air force component. So as those details become clearer we are then able to do our infrastructure and investment planning on the back of that.

Ms PARKE: So would those limited costs that are referred to in the national interest analysis include forgone rental because we are not charging rental for the agreed facility land?

Mr Baxter : We are not charging rental.

Mr Culley : No we are not; that is correct.

Ms PARKE: And so that would be part of the limited cost?

Mr Culley : The limited costs at this point are related to some of the messing, and living and accommodation charges, not rental.

Ms PARKE: Not rental, so that is just not included at all. And what about the cost of providing security? Australia has the primary responsibility for that.

Mr Baxter : This would be on a proportionate basis. Obviously, we provide security already at our military facilities. Any upgrades to that, if they were specific to US requirements, we would have a discussion under the cost-sharing formula with the United States about a reasonable division of those costs.

Ms PARKE: And the accommodation as well?

Mr Baxter : And the accommodation as well. We have provided and absorbed the costs of some of the temporary accommodation that has been established for these smaller rotations of US marine forces, but as we move to the more mature state of the rotation, we will be looking at investing with the Unites States in upgraded facilities.

Ms PARKE: Do we have an approximation on the cost of that so far?

Mr Baxter : The cost so far is about $11 million in terms of the infrastructure that we have invested in in Robertson Barracks.

Ms PARKE: Thank you. Article 7 relates to the pre-positioning and storage of defence equipment, supplies and materiel. The US is obligated not to pre-position any items to which Australia has objected on the basis that they are prohibited. Is that in relation to cluster munitions specifically?

Mr Baxter : Yes, it is to meet Australia's international obligations on certain forms of defence materiel that are prohibited under our international obligations, such as cluster munitions, depleted uranium and the like.

Ms PARKE: Is that specified in the agreement itself?

Mr Baxter : That will be specified in the implementing arrangements to the agreement.

Ms PARKE: Thank you.

Mr WHITELEY: If I could follow on from the questions in relation to cost without trying to be too pedantic, even though we do not have any details of the cost, there must be a budget line item within the department's budget to cover off on these costs, obviously. So what sort of number is that?

Mr Baxter : We certainly have cost estimates but the actual details of the costs will be negotiated with the United States.

Mr WHITELEY: But there must be a provision in the budget for an intended or possible limited cost?

Mr Culley : The 2014-15 budget incorporated a budget line for the infrastructure works. The estimate was $2.2 billion.

Mr WHITELEY: For infrastructure? Are there any other line items associated with this posturing agreement?

Mr Culley : Not at the moment, no.

Mr WHITELEY: So that is the only line item in the budget?

Mr Culley : As Mr Baxter indicated earlier, we are still in negotiations with the US in determining some of the revenue to come back into the department. That is some way down the track.

Mr WHITELEY: Sure.

Mr Culley : As an initial planning basis, the 2014 budget did have a budget line in for the infrastructure works.

Mr WHITELEY: So was that $2.2 billion a forward estimate aggregate?

Mr Culley : It is an aggregate.

Mr WHITELEY: For the forward estimates or for the next financial year?

Mr Culley : No, it is across the forward estimates.

CHAIR: Is that the entirety of the costs or the Australian proportion?

Mr Culley : It is the entire.

CHAIR: Okay. So the US would pick up a significant part of that?

Mr Culley : That is right.

CHAIR: The costs to the Australian taxpayer would be significantly less—

Mr Culley : Just to clarify that, the majority of the cost is out beyond the forward estimates.

CHAIR: Okay.

Mr WHITELEY: Oh, okay. So it is $2.2 billion in total, but most of it out—but I suppose it would need to be, given the time frames.

CHAIR: And also the US will pick up their portion of it.

Mr Baxter : If I could just add that the goal is to achieve full implementation by 2020, so that is over the next several years.

Senator LUDWIG: Just to go on with this issue about costs, are you making outlays now which are not infrastructure?

Mr Culley : Yes.

Senator LUDWIG: So where is that? Have you been asked to absorb those costs to date, and what are they?

Mr Culley : We are absorbing some minimal costs, as I indicated previously, on messing and living-in accommodation. The agreement as it has been structured allows for proportional charging, so the Americans at some point will fully reimburse costs that are incurred by Australia.

Senator STERLE: The cheque's in the mail.

Senator LUDWIG: Yes.

Mr Culley : The step function is from 250 to 1,100 to 2,500—

Senator LUDWIG: I am trying not to cut you off, so please finish after I clarify it. I am not looking at those costs which are going to be reimbursed. I am trying to identify whether we are going to foot the bill on items outside of infrastructure that you have been asked to absorb to date.

Mr Culley : No.

Senator LUDWIG: Thank you.

Senator STERLE: Mr Baxter, as part of the procurement and the construction for Robertson Barracks, you said $11 million was spent. Were there any Aboriginal-owned enterprises that tendered on that work or engaged in that work?

Mr Baxter : Not that I am aware of, but I will take that on notice.

Senator STERLE: I bet you a $2 scratchie that some of those good-looking people behind you would know. Does anyone know? You are going to cost me two bucks here. No-one knows? Strewth! Unbelievable! In that case I cannot ask anymore. You will come back to us?

Mr Baxter : Yes.

CHAIR: $2 scratchie. Any other questions?

Senator STERLE: Someone knows, I am telling you. I reckon there is a 'no', but no-one is telling me yet.

CHAIR: You will take it on notice and you are going to give him the scratchie.

Senator STERLE: I want my $2 scratchie.

CHAIR: No other questions?

Mr WHITELEY: In relation to subsequent legislative amendments that will support this agreement and the work that is being done around that, what can we foresee in relation to any legislative changes?

CHAIR: Is there more than what has already gone through the parliament?

Mr WHITELEY: Yes.

Air Cdre Cronan : There are amendments to the Income Tax Assessment Act 1997.

Mr WHITELEY: Is that one that has already been flagged?

Air Cdre Cronan : That is correct and an amendment to the Defence Visiting Forces regulations, which is also flagged and that there are no additional amendments to that.

Mr WHITELEY: This far through the process, we have only identified those two?

Air Cdre Cronan : Correct.

Mr WHITELEY: Thank you.

CHAIR: Thank you so much for appearing before the committee and if we have got any further questions the committee secretariat will be in contact with you.