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Joint Standing Committee on Treaties
17/10/2016
Trans-Pacific Partnership Agreement

PEARSON, Mr Brendan, Chief Executive, Minerals Council of Australia

[10:00]

CHAIR: I now welcome representatives of the Minerals Council of Australia to give evidence today. 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 therefore has the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. I now invite you, sir, to make a brief opening statement before we proceed to wider committee discussion.

Mr Pearson : Thank you for the opportunity to participate today. As you know the Minerals Council of Australia represents small, medium and large firms engaged in the exploration, extraction and processing of minerals and energy resources in Australia. The minerals industry is Australia's largest exporter, with exports of around $175 billion in the last year. Think of it this way: if Australia did not export minerals and energy commodities, our merchandise export income would be lower than that of Kuwait, Nigeria, Hungary, Ireland and Denmark.

The minerals industry supports the ratification of the TPP, and there are three reasons why. First, the TPP will reduce or eliminate a number of tariff and non-tariff barriers to trade and investment in the minerals sector. Australia's export of resources and energy products to TPP countries were worth over $47 billion in 2014, representing around 53 per cent of Australia's total goods exports to these countries. The TPP will abolish tariffs on key Australian minerals; facilitate expansion of exports of Australian mining equipment, technology and services; and create new opportunities for Australian miners to find and develop resources around the agreement's 12 countries, which together represent about 40 per cent of the global economy and about a quarter of world trade. For these minerals exports, the TPP will lock in the duty- and quota-free access Australia currently enjoys in a number of TPP countries for such major exports as coal and iron ore. In addition, the TPP removes Peru's tariffs on iron ore, copper, nickel and inorganic chemicals upon entry into force.

The second point is that the TPP will boost economic activity in the 12 member countries and stimulate demand in those countries, which include some of Australia's most important trading partners. I think it is fair to say that the TPP is the most comprehensive trade agreement that involves both developed and developing countries, and it moves beyond just trade in goods; it builds strength in the overall operating environment for service providers. Economies in the region will grow faster as a result. It is good for Australia if countries like Japan, Malaysia, Vietnam and other countries grow faster, and Australia will benefit not just from these economic opportunities but because of the building block that the TPP provides towards wider regional integration. This is related closely to the final point.

The TPP has broader economic and strategic significance over the medium term. It will promote closer economic integration by creating a template for reform involving more countries of the Asia-Pacific. As you know, some important Asian trading nations are not included in the TPP, and these include Korea, China and India, as well as Thailand, the Philippines and Indonesia. It is important that we make a success of the TPP in order to encourage the addition of many or all of these economies into a broader free-trade area of the Asia-Pacific. Australia has a big stake in this. If the TPP fails then the basis for a future region-wide trade agreement may fall to the Regional Comprehensive Economic Partnership agreement process. I think it is fair to say that the level of ambition and the quality of the RCEP, at least to date, is lower than that of the TPP. I do not think it is in Australia's interests to have a lower-quality trade agreement or blueprint as the model for closer regional economic integration.

In closing, there has been much debate about whether the US Congress will pass the TPP in coming months. As Paul Keating might put it: every galah in the pet shop has expressed a view on this. But our calculations should be more straightforward. Do we, Australia, support the TPP? Do we plan to ratify the agreement? If the answer is 'yes', we should say so on our timetable. We should not wait for the US Congress. I do not exaggerate the impact that unambiguous clarity of the Australian position and that of the other TPP partners may have on deliberations on Capitol Hill. That is not the point. If we believe we should ratify it, we should say it and we should do it. Thank you, and I welcome your questions.

CHAIR: Thank you, sir. Andrew Wallace.

Mr WALLACE: Thank you, Mr Pearson. What do you see as the advantages and the disadvantages of us ratifying before the US?

Mr Pearson : I think it is a signal. It tells other member economies what we think. It tells those in the US Congress who are considering their positions, that, hopefully, whether it is that all or most TPP partners have ratified, that that is a signal to them that the region wants US economic engagement in the Asia-Pacific. I know from the recent vote on the Trade Promotion Authority that the numbers in the US House of Representatives were quite close. I think if four members change their minds the authority does not pass. As I said, I do not exaggerate Australia's impact on individual votes of US congressmen or women, but I do think that if we believe it is a good idea then we should say so and, if we believe it is good and in Australia's interest to ratify the TPP in advance of the US, we should do so.

Mr WALLACE: With regard to some of the comments that the committee has heard in relation to the ISDS provisions, do you have a view about the utility or the benefit of the ISDS provisions.

Mr Pearson : I do know that they are relatively commonplace around the world these days. I think there are something like two and a half thousand bilateral investment treaties that contain ISDS provisions amongst countries around the world. I think we have them in half a dozen or more of our free trade agreements. We have a higher number than that—around 15 bilateral investment treaties—that contain ISDSs. There has been some exaggeration of concern about the impact the ISDSs have and some aspects of their operations. I do not say that it was not a priority negotiating point for the minerals industry in this negotiation but we do have to reflect on the fact that Australia is an exporter of capital. Australian companies and Australian superfunds are exporters of capital. We have interests in the way our companies and investments are treated elsewhere. I understand some of the reaction, but I am not sure it is justified. We certainly have no concerns about ISDS provisions. I do not think Australia has been a big user, we have only been the recipient of one claim. I think the US has been the recipient of 13 claims. I think there are appropriate improvements in ISDS provisions in this agreement and there is more transparency about the way that they will be pursued. So on balance I think this is a good agreement in the whole. That is just one element. I think, as I said at the very start, these things are remarkably commonplace in the world of trade and investment flows around the world today.

Ms TEMPLEMAN: Just following up on the ISDS provisions: given that foreign companies will end up with an advantage over Australian companies in that a foreign company will be able to sue the Australian government over a policy change potentially that an Australian company will not be able to, I am interested in to what extent that would concern you or your members—that there will be an unfair playing field as result of the TPP in this area.

Mr Pearson : I am not quite sure that that is true. We look at it, as I said, from an exporter of capital perspective. We have $160 billion in the minerals sector alone and you can add to that many other sectors, so we as an exporter-of-capital nation have an interest in our exporters and investors in particular being given fair and reasonable treatment in other countries. That is all that the ISDS provides. We have not seen an overwhelming proliferation of ISDS-related claims. As I said, there are—and I have seen two figures—somewhere between 2,200 and 3,000 agreements that include ISDS provisions around the world. They have been negotiated by many countries. In fact, many capital-importing countries are now negotiating these agreements in order to give an extra degree of comfort, particularly developing countries, to those countries and investors that they are serious about providing fair treatment to investors of capital in their country.

Ms TEMPLEMAN: You said you were not sure that what I said was true. Which bit do you feel might not be true?

Mr Pearson : I am not sure that there is a special advantage for an investor than a domestic investor. When you invest in another country you are taking a greater risk than when you are investing in your own country. That is I think the experience. It is a less familiar legal process. So I am not sure that we would see that proposition in the same way as you characterised it.

Ms TEMPLEMAN: Obviously we have had testimony that would disagree with that view, so there are going to be a range of interpretations of the consequences. With your indulgence I have one more question about the labour force provisions. How important is it to your sector? The way the TPP is set up there are far fewer restrictions for workers coming to Australia than many other countries have chosen to put into the agreement. It does not just relate to businesspeople; it goes down to pretty much any worker who would currently come in on a 457 visa, for instance. How important is that provision to your sector so that you can access a broader range of workers than currently you are able to?

Mr Pearson : I think temporary skilled migration provisions are important to us. That is an important part of our part in the world of global commerce, but my understanding is that the provisions in this agreement are not materially different from those that are included in our earlier FTAs. I would add that we are a relatively minor user of the 457 visa. In terms of the entire mining industry workforce, I think it is something like two or three per cent, so we are not a big user of them, but it is important—

Ms TEMPLEMAN: I want to clarify the percentage, so two or three per cent of your workforce or two or three per cent of temporary—

Mr Pearson : I think we are a bit lower on the share of overall 457s issued and it is around two or three per cent of our workforce.

Ms TEMPLEMAN: What volume would that be? Excuse my ignorance in not being able to convert that—

Mr Pearson : There is probably a couple of thousand. Our direct employment workforce is around about 10,000 to 20,000—maybe 4,000. At the peak of the mining boom it might have been a little higher, but the share of 457s that we use has fallen faster than the share of our employment during that period of downturn. But it still remains an important part of the armoury that we have to deploy. We are a major importer of capital in our sector, and our sector is a global sector and people move around quite a lot.

Ms TEMPLEMAN: I have one tiny follow-up on that. The TPP has fewer market-testing provisions, though, for workers. Is that a good thing for your industry?

Mr Pearson : We pay a lot more than most other industries. I think the average wage in the mining sector is 70 per cent above the all industry average, so we look locally. Using 457s is more expensive than if you can locate local professionals and tradespeople, so we do not do it unless we have to because it is more expensive. It is more expensive than the highest paid jobs in the Australian economy, frankly, on a sector wide basis. We do not try and avoid looking locally, but whether or not labour market testing rules are the best way of getting the best person is an open question.

Ms MARINO: Thank you for your testimony, Mr Pearson. When you look at the capacity of the Australian mining industry—and you can correct me if I am wrong—some of our technology, our experience, our equipment and even some of our services we are capable of, I would say, are probably second to none in the world in a sense. Can you give us some idea of the potential market—whether it is services, whether it is technology or whether it is mining equipment and expertise—in some of the countries like Brunei, Mexico and other countries that are covered by the TPP, please?

Mr Pearson : The growth prospects and opportunities that this agreement will open is probably greater for the service providers than for the commodity producers because there are not a lot of tariff related barriers in TPP economies, not least because we have concluded FTAs with a lot of them. Japan was one and Japan knocked over some of its residual tariff barriers. But one of the things that has developed in Australia when you have such a significant mining economy—a resource economy—is that you develop skills that are interesting to other countries, whether it is in Africa, which is not covered by this agreement, or, as you mentioned, Mexico or Peru. As we have exported capital, the service providers follow the capital, and, in some cases, the service providers go in advance of the capital because Australia is recognised as one of the leading, if not the most advanced, mining countries in the world, so the service providers are respected for that—not only the service providers but also contracting companies. So I think that is probably as significant or more significant than even the commodity trade out of this deal. As I said, it is 12 plus.

There are some important countries that are not part of this, and we are pleased to see that there is an accession clause that others can join. There are big countries out there that we would like to see become a part of this because we would like this to be the basis of regional integration. Whether it is China, whether it is Indonesia or whether it is the Philippines, I think this is an important platform to build a free trade area, a megaregional area, which, in a sense, resolves that spaghetti bowl issue that some people talk about. This is one of those agreements that, if we were to capture the extra six countries that I mentioned in my introductory remarks and a few others, could really come over the top of a lot of other subregional agreements and could wash away some of the rules-of-origin issues and other issues that get thrown up by some of those subregional agreements.

Ms MARINO: Taking that one step further, in the more immediate region do you see an opportunity for some of our companies to provide services around the issue of what we call social licence—working with the local community, ensuring that obligations are met and applying some of the standards that apply to the mining sector in Australia but that are not necessarily replicated elsewhere?

Mr Pearson : I think some of this is underestimated. Some Australian companies have set remarkable examples in countries in South-East Asia and Indochina. An integral part of that are some of those service providers that work with the companies exporting the capital. There are other companies located in Australia with very big investments in Peru. My former Chair's company—MMG—work in Peru, and they are setting a remarkably high standard for interactions with the local community, by building up and protecting the social licence from mining companies in that area. I think we have a lot to export in that field. This agreement will help that. This agreement, because of its nature, offers to extend that to others who are not yet members of the TPP.

Mr WALLACE: Mr Pearson, you said earlier in your testimony that 457 visa holders were more expensive to engage. Why is that?

Mr Pearson : This is the—

Mr WALLACE: There is a perception that they are not.

Mr Pearson : We certainly do not pay them less than the locals we employ. There is an administrative and compliance cost in tracking them down, bringing them to Australia and going through a process which can take a number of months. I think you will find that the Australian industry looks locally first—whether it is for a geologist, or whether it is for some sort of other professional or skilled tradesperson.

Mr WALLACE: If this is too broad a question, I am happy to withdraw it. Are you able to put a figure on how more expensive it is to employ a 457 visa holder as opposed to a local employee or a local contractor?

Mr Pearson : I have a number in my head, but can I come back on that? We have certainly done some work on that in the past. It might be two or three years out of date.

Mr WALLACE: That is okay. Two or three years out of date is fine.

CHAIR: Mr Pearson, if the TPP sails through and the lame duck session promises to be all that we hoped it would be, what do you think the benefits for your industry will be from the agreement?

Mr Pearson : In dollar figures, this is not going to change the mining industry from a market-opening perspective, but I think the really important thing is that it gives us a chance. This is not just an Australia focus. There is a big debate about who is going to write the rules in East Asia and the Asia-Pacific over the next 10 years. I think this is the best template to start with. If we think it is good to keep the US economy and the US in East Asia—and I think we all do—the rules are written in a way that sort of mimics the WTO. There are many areas in which this supports the WTO, particularly in the facilitation area. This is supportive of the Trade Facilitation Agreement that the WTO finished a little while ago.

If we have an open and inclusive approach to regionalism in the Asia-Pacific, that is a very good thing for Australia, because many of our industries, and I suggest for the foreseeable future, will look north. If those economies are more open and easier for us to deal with then that is a good thing for our country, for our sector and for living standards and jobs in this country.

CHAIR: Noting the value of a consolidated set of trade rules, is there value in terms of our expansion in export of mining equipment? We are particularly good at building stuff that digs stuff out of the ground. What is the potential value of our export of mining gear into the TPP countries?

Mr Pearson : We have some work underway on that point that will be concluded by the end of this year and released either late this year or early next year. There are various estimates about the so-called METS, the mining equipment, technology and services. I think our strongest growth area is the services element of that, which is the people. Regarding the growth in the sector in the last decade, I can remember when it was around about the value of wine in our exports. I think it is now multiples of that. I think it is now a $90 billion industry—the industry group for this sector is called Austmine, and that is their number. Having developed and nurtured those talents in Australia, they are already pursuing opportunities around the world. Previous free trade agreements have made that possible. This one makes it easier for them to operate in the 12 countries. When we add some more countries it will be even greater. There is exponential growth in the opportunities in mining services in East Asia, Latin America and, at some point in the future, Africa.

CHAIR: Thank you for your attendance here today. If you have been asked to provide any additional information would you please forward it to the secretariat within seven days. You will be given a copy of the transcript of your evidence and will have an opportunity to request corrections to transcription errors.