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Monday, 8 March 2004
Page: 20954

Senator HILL (Minister for Defence) (3:06 PM) —I have answers to two questions that were asked on 4 March—one from Senator Nettle and one from Senator Ridgeway, both in relation to the Australia-US free trade agreement. I seek leave to incorporate them in Hansard.

Leave granted.

The answers read as follows—

Senator Nettle

Given that the AUSFTA has attached at least 25 side letters making significant commitments in a range of areas from foreign investment to education services, will the minister explain the legal status of these side letters? For example, will future governments be prevented from returning Telstra to full public ownership by the text of one of these side letters, and will the important task of collecting and providing blood plasma for use in Australian medical services The opened up to US corporations as discussed in the exchange of letters on blood plasma products?


The various side-letters to the AUSFTA may represent stand-alone, legally binding, treaty-level agreements; constitute part of the Agreement; or have no legal standing; depending on the language included in each individual letter. Side-letters are used in the Agreement in three main ways:

To provide additional clarification on how a particular provision of the Agreement will apply to either the United States or Australia;

Where either the United States or Australia wishes to make additional commitments that apply only to that country, as part of the overall deal;

Where either the United States or Australia wishes to confirm to the other country how its current policies or systems operate.

In general, the first two categories of side-letter would be effected as an exchange of letters in which authorised signatories from both Parties affirm that the letters “constitute an integral part of the Agreement”. Letters of this type are a legally binding part of the Agreement.

The final category of side-letter does not normally become an integral part of the Agreement and is not legally binding. However, if there were a dispute between the Parties, these side-letters could be used to explain the context of the dispute.

The side letter on Telstra falls into the latter category. It makes no commitments but serves to explain the current Australian Government's policy with regard to Telstra. The letter does not commit the Government to selling its remaining share of Telstra. Nor does it constitute a legal barrier preventing future Australian governments, or the Parliament, from returning Telstra to full public ownership. Rather, it explains that any future sale of Telstra would be conditional on the passage of relevant legislation by Parliament.

The exchange of letters on the treatment to be provided to blood plasma products and blood fractionation services is an integral part of the Free Trade Agreement and is subject to the dispute settlement provisions of the Agreement.

The letter commits Commonwealth, State and Territory governments to undertake a review, by no later than 1 January 2007, of the arrangements for the supply of plasma fractionation services. The Commonwealth Government undertakes to recommend to the States and Territories at such a review that, in future, suppliers of such services should be selected through tender processes consistent with the Government

Procurement Chapter of the Agreement. It does not bind the Commonwealth or State and Territory States to take a particular decision in relation to the outcome of the review.

The Commonwealth of Australia currently has a contract with CSL Limited for the supply of plasma fractionation services that will expire at the end of 2004. The National Blood Authority is negotiating a new contract with CSL Ltd which will commence from 1 January 2005. Under the terms of paragraph 1, this new contract will conclude no later than 31 December 2009, or earlier if Australian governments decide that is appropriate.

The commitment in the Agreement to review existing arrangements by 2007 is a sensible and prudent course of action. If there were to be a competitive tender process agreed upon as a result of this review, the Australian Government would want to make sure that proposals from any local company such as CSL Ltd were properly weighed against proposals from overseas suppliers to get the best outcome for Australians.

The letter states the importance of each party maintaining regulatory requirements for ensuring the safety, quality and efficacy of blood plasma products and supply of blood fractionation services. In the case of Australia, the Therapeutic Goods Administration (TGA) will continue to regulate blood products. The TGA will keep regulatory control of standards, wherever the fractionation process takes place, and who ever is the fractionator. However, consistent with our obligations under the World Trade Organisation Technical Barriers to Trade Agreement, regulatory requirements should not unnecessarily obstruct trade.

The letter also acknowledges the right of governments to have policies that blood plasma products are derived from blood plasma collected in their own territory. This allows Australia to preserve its policy on using plasma collected from Australian blood donors.

Senator Ridgeway

(1) With regard to the provisions in the AUSFTA relating to exemption for “services supplied in the exercise of governmental authority”, is the minister aware that the AUSFTA uses the same definition as the GATS—that is, “any service which is supplied neither on a commercial basis, nor in competition with one or more suppliers”?


The Chapter of the Agreement on Cross-Border Trade in Services excludes from its coverage “services supplied in the exercise of governmental authority”. These services are defined in the same way as in the GATS, i.e. as “any service which is supplied neither on a commercial basis, nor in competition with one or more suppliers”.

(2) Is this not clearly ambiguous given that so many essential services either have been privatised or are in the process of becoming so under this government and many are supplied in a competitive environment?


No problems have been experienced with the GATS definition of a service supplied in the exercise of government authority. For example, it has not provided the basis for any challenge to, or questioning, of government provision of essential services under the WTO or under other Free Trade Agreements that use this definition. Whether a particular service met this definition would need to be determined on a case-by-case basis. The intention of this definition is to ensure that government provision of essential services cannot be adversely affected by the Chapter while still maintaining the benefits of the Chapter's protection; in cases where private suppliers are competing on a commercial basis with government-owned entities. Where a government-owned business is operating on a commercial basis, in competition with other suppliers, then Australia would want the protections of the Cross-Border Trade in Services Chapter to apply to Australian services suppliers competing with government-owned businesses in the United States.

(3) Can the minister guarantee that the government has not compromised the ability of governments at all levels in Australia to deliver essential public services to their communities?


There is nothing in the Agreement that in any way compromises the ability of Australian Governments to deliver essential public services. None of the obligations, whether in the Cross-Border Trade in Services Chapter, or in other Chapters of the Agreement, limits the ability of governments to continue to provide essential public services. Furthermore, the Chapter on Investment states explicitly that nothing in it imposes an obligation on a Party to privatise.

(4) If there no effective exemption for public services, can the minister guarantee that these have not been sold out?


It is misleading to say that there is no effective exemption for public services. There is nothing in the Agreement which limits the ability of Government to provide regulate public services.

(5) In annex 2 of the agreement, there is a very general reservation for Australia to reserve the right to “adopt or maintain” any measure with respect to a number of services including public education, health and child care. If the government has recognised the importance of these service; to the extent that they have secured a reservation in the agreement, why did they not go one step further and exempt essential public services from the agreement entirely?

The reservation in Annex II relates to the specific obligations of the Chapters of the Agreement on Cross-Border Trade in Services and Investment and not to the whole Agreement. It addresses a specific set of social services established for a public purpose. Australia judged that a specific reservation. in this regard was required in relation to the chapters dealing most directly with services.

There is no single approach in the Agreement to the treatment of public services, as the nature of the obligations and provisions varies significantly from Chapter to Chapter. For example, all the chapters relating to trade in goods and services incorporate the broad exemption, provided under both the General Agreement on Tariffs and Trade and the General Agreement on Trade in Services, for measures necessary to protect human, animal, or plant life or health. Many of the other Chapters have no relevance to the provision of public services. In some chapters, it is neither necessary nor appropriate to remove entirely the activities of public education or health services from the application of the disciplines. In the Government Procurement Chapter, inclusion of health and veterans' affairs departments means that Australian companies will now be able to supply goods and services to the substantial network of veterans' hospitals in the United States.

(6) Why have other essential public services such as the provision of water, waste disposal and energy services not been mentioned in this annexure reservation?

There is nothing in the Agreement that would prevent Governments from providing water, waste disposal or energy services as public services. The decision on whether to provide such services as public services or through a system of competitive, commercial suppliers is one for each Party to make and there is nothing in the Agreement which favours one approach over the other.