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Joint Standing Committee on Treaties
Treaty tabled on 14 August 2012

CHURCHE, Dr Milton, Coordinator, South-East Asia Goods Branch, Free Trade Agreement Division, Department of Foreign Affairs and Trade

McEWIN, Ms Jenni, Executive Officer, South-East Asia Goods Branch, Free Trade Agreement Division, Department of Foreign Affairs and Trade

MEEHAN, Ms Jennifer, Director, Legal, Free Trade Agreement Division, Department of Foreign Affairs and Trade

MUGLISTON, Mr Michael, Special Negotiator, Free Trade Agreement Division, Department of Foreign Affairs and Trade


CHAIR: I welcome representatives of the Department of Foreign Affairs and Trade. 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 the Senate. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of the parliament. At the conclusion of your evidence, would you please ensure that Hansard have had the opportunity to clarify any matters with you. If you nominate to take any questions on notice, could you please ensure that your written response to questions reaches the committee secretariat within seven working days of your receipt of the transcript of today's proceedings. I invite you to make some introductory remarks before we proceed to questions.

Mr Mugliston : On 22 May 2012 in Kuala Lumpur Dr Emerson, along with his Malaysian counterpart, signed the Malaysia-Australia Free Trade Agreement, MAFTA. MAFTA was tabled in parliament on 14 August along with the national interest analysis and regulation impact statement. The full text of the MAFTA package, including the text and schedules of the agreement plus the associated documents and letters, is available on the Department of Foreign Affairs and Trade website.

MAFTA builds on the agreement we already have with Malaysia through our regional FTA with the 10 ASEAN countries and New Zealand which entered into force on 1 January 2010. MAFTA negotiations commenced in May 2005 but were put on hold at the end of 2006 to allow both countries to focus on concluding the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area, AANZFTA.

Following the signing of AANZFTA, our bilateral negotiations with Malaysia recommenced in August 2009 and concluded in March 2012. Malaysia is Australia's third largest trading partner in ASEAN and 10th largest trading partner overall with bilateral trade worth $16 billion in 2011.

Turning to the substance of the agreement, MAFTA would provide for commercially meaningful improvements to Australia's market access to Malaysia and new trade disciplines that build on Malaysia's commitments under AANZFTA. On tariffs, MAFTA would achieve a higher level of tariff elimination by Malaysia and accelerated tariff elimination. From MAFTA's entry into force, tariff-free access would apply to 97.6 per cent of 2009-11 average imports into Malaysia from Australia increasing to 98.9 per cent in 2016 and 99 per cent in 2017. Significant tariff outcomes would include the automotive sector; iron and steel; plastics; chemicals; a range of processed foods; manufactured products; milk; and rice. MAFTA's rules of origin provisions include a simplified documentation requirement to allow goods exported from Australia to claim MAFTA tariff treatments solely on the basis of a declaration of origin by the exporter.

Australia's free trade agreements contain a variety of approaches to documentary evidence which support origin claims. In general, the preferred approach of successive Australian governments has been to use a declaration of origin completed by the exporter or manufacturer rather than a certificate of origin issued by a government body or other authorised body. Our longstanding FTA with New Zealand operates on the basis of a declaration of origin, as does the Australian system of tariff preferences for developing countries. Australia's FTA with Chile, which entered into force on 1 January 2009, also uses a declaration of origin.

MAFTA would also address some Malaysian non-tariff measures—for example, Malaysia would no longer apply quantitative restrictions on motor vehicle imports from Australia, and there would be a liberalised licensing arrangement for Australian liquid milk exporters to enable them to gain access for higher value retail product as well as improved transparency and consultative mechanisms.

Australia has also secured a good outcome on services increasing certainty for Australia's services exporters, including through AANZFTA-plus services commitments. Significant outcomes would include Malaysia's commitments giving Australian entities the right to acquire majority ownership across a range of sectors, such as education, insurance and investment banking, telecommunications and some professional services. MAFTA includes useful commitments in other trade related areas, such as intellectual property, electronic commerce and the temporary entry and stay of skilled Australian personnel, and would establish a framework for mutual recognition of qualifications and licensing requirements for professionals. Finally, I should note that MAFTA will enter into force after Australia and Malaysia have notified each other of completion of their internal requirements.

CHAIR: The national interest analysis talks about this particular free trade agreement as being an improvement on existing agreements—ASEAN and the Australia and New Zealand free trade area—and there is also a reference to the negotiations going on between Australia and Malaysia in terms of the transpacific partnership. This is less charitably viewed by the Australian Fair Trade and Investment Network, which says that this treaty contributes to a 'noodle bowl' of confusing, overlapping agreements in our region and that it is unclear what the relationship between the different agreements will be. I just want to ask you: how are these various agreements going to interact? Which one takes precedence? If there are disputes involving these agreements, how do they get resolved?

Mr Mugliston : These agreements will co-exist. Decisions will need to be taken by the private sector on which of these agreements they wish to operate under. That will depend obviously on what is contained in each of these agreements. We are seeking to achieve as much consistency and coherence across all these FTAs as possible. I think what is important to appreciate and understand is that the regional FTA with ASEAN and New Zealand contains a very substantial outcome on tariffs, but it is still a work in progress regarding non-tariff measures. That is the subject of a work program. It also contains modest commitments in other areas, such as services, investment and intellectual property, and it contains a major component on economic co-operation.

The idea and concept behind it is that it is a platform for our ongoing engagement with the region. The fact is that, in that sort of agreement where ASEAN has done more in terms of its own internal liberalisation on goods than it has in other areas, that has represented a ceiling—that it is not willing to go with any other external trading partner. So there is a natural limit at this point in time as to how far we can go in the regional FTA. However, it is a living agreement. ASEAN is very committed to further developing the ASEAN economic community and has established a goal of achieving that by 2015. So we will review AANZFTA in 2016.

In the interim, recognising we already have bilateral free trade agreements with Singapore and Thailand, there was keen interest on both sides to progress trade issues and interests bilaterally through the Malaysia-Australia FTA. In my opening remarks I pointed to some rather significant outcomes on some non-tariff measures in bilateral FTAs as well as some rather significant outcomes in the services area as well as the temporary movement of skilled Australian personnel. Our thinking is that we are able to go beyond AANZFTA in the bilateral context, given the stages of development in both countries. But I also think this will be useful in feeding back into the regional FTA. That can help us, I suggest, in the post-2016 process.

We also, as AFTINET has noted, engaged in other negotiations such as the Trans-Pacific Partnership Agreement negotiations which are pursuing further liberalisation. I have previously heard Dr Emerson explain that all these approaches should be viewed as complementary and mutually supportive in trying to achieve good outcomes.

CHAIR: You said that the business concerned, importers or exporters, could pick and choose which agreement that they wish to operate under but is there any risk that they could fall foul of another agreement if they choose an agreement but what they are looking to do runs into problems in terms of the provisions of one of the other agreements?

Mr Mugliston : No. You have to make an upfront decision. Let us use the example of a widget that has a tariff in the regional FTA and an associated rule of origin and then you have the corresponding widget in the bilateral FTA with an associated rule of origin. In the AANZFTA context, it is a regional rule of origin that is not confined to sourcing it from Malaysia, so that gives you a bit more flexibility, but then you may find in the bilateral FTA you have a lower tariff—perhaps a zero tariff as opposed to a tariff of 10 per cent—on the widget in the regional FTA, so it is a commercial decision. The regional FTA is heading towards elimination of those tariffs over time. It gives flexibility to the private sector in the commercial world to decide where and how they wish to operate.

CHAIR: The other issue that AFTINET raised in correspondence to the committee was the lack of labour and environment chapters. I am a bit surprised by this because the Labor Party national conference last year said we would have enforceable labour rights and environmental standards in trade agreements. They are saying that trade agreements should have a labour rights chapter which commits the parties to those fundamental rights at work that are set out in the ILO conventions and the like and should have an environmental chapter that commits the parties to implement the relevant United Nations environmental agreements and look to improving rather than weakening national environmental protections. I invite you to comment on that.

Mr Mugliston : As you have noted, there is some history to this. I consider it appropriate if I perhaps refer to the ASEAN-Australia-New Zealand FTA and JSCOT's consideration of that treaty and specifically the report that this committee produced on that treaty which contained a number of recommendations on AANZFTA. Specifically, recommendation 5 was that the government include consideration of environment protection and labour standards in future FTAs. The government response was that the government will explore the inclusion of environmental protection and labour standards issues in FTA negotiations on a case-by-case basis.

Then there was the government's April 2011 trade policy statement and that articulated the rationale behind seeking these provisions in respect of both environment and labour in FTAs and concluded that a case-by-case approach be taken for each FTA under negotiation with the government's general approach applied to the circumstances of each negotiation. What is important to appreciate with Malaysia is there are no labour or environment provisions in AANZFTA. So the concept of MAFTA is AANZFTA-plus and we, consistent with the policy, sought the incorporation of environment and labour as well as government procurement in MAFTA.

We did pursue this but Malaysia pointed out that it has not included labour provisions in any of its other trade agreements, although it did agree a cooperation and dialogue oriented side agreement with New Zealand in 2009. Malaysia then joined the TPP negotiations in October 2010, and then after exploring elements of a possible chapter text and other options such as a side agreement Malaysia concluded that it could not agree to include labour provisions in the MAFTA treaty text at this point in time, because of concerns that it had about possible duplication and conflicting commitments with possible TPP outcomes on those issues. So Malaysia suggested the side letter approach. I should note that the effect of both of those side letters on labour and environment issues is that they are an integral part of the agreement. They are not chapters, but they are legally binding elements of the overall package. I can respond to any more questions on the detail of that.

CHAIR: My understanding is that the side letters refer to what might emerge on labour and environment issues in the TPPA negotiations but that these negotiations have been going for quite some time and there are reports that there are wide differences between the various parties on labour rights issues and environmental issues. So it feels like there is no guarantee that you will get agreement on them. In the absence of getting an agreement on them through the TPPA process, you simply would not have enforceable labour rights and environmental protections.

Mr Mugliston : All these negotiations are challenging and they are still under negotiation, but parties and all participants in the TPP are very committed to pursuing very ambitious and solid outcomes for the TPP. Let me just note that the formulation agreed with Malaysia, as reflected in the side letter, is that we will review the inclusion of labour provisions no later than two years after entry into force of the MAFTA. So it is not conditional on any other development. Within two years we will do it and we will obviously need to take into account developments and deliberations in other fora.

Ms PARKE: I seem to recall that it was not just the treaties committee but also the foreign affairs committee that recommended that labour, environmental and human rights standards be incorporated into future FTAs.

Mr Mugliston : You are correct. I do not have that report with me, but there was a very similar if not identical recommendation, yes. That is correct.

Ms PARKE: So there is a very clear desire from the parliament to see those standards incorporated into the agreement. I do not accept that side letters saying, 'We'll look at it in two years time,' is the equivalent of putting it into the initial agreement.

Mr Mugliston : I have noted your point, as have my colleagues. Let me just note, though, the letters do not just say that. The also use the opportunity to affirm certain commitments that both parties make, both in respect of labour and environment. They are spelt out in the letter. So there are in fact some commitments there affirming both parties' commitments as members of the ILO under the Declaration on Fundamental Principles and Rights at Work and its Follow-up et cetera. It is spelt out. So we did not keep it to one simple paragraph saying that we are going to review this within two years.

Ms PARKE: There are particular concerns in relation to environmental issues. For example, there is currently a very controversial matter with the Lynas Corporation developing rare earths. There is a proposal to do that in Malaysia with raw materials exported from Western Australia. Will this agreement make it easier for companies to come and do those sorts of actions without regard to environmental standards?

Mr Mugliston : No, it will have no effect at all on the existing regime.

Ms PARKE: Okay. You have referred to the fact that the Trans-Pacific Partnership is being negotiated and new agreements may be influenced by the TPP outcomes. I understand that intellectual property is also a part of the TPP negotiations, yet there is a whole chapter on intellectual property in the MAFTA. That does not seem to be consistent.

Mr Mugliston : My colleague is just pointing out to me that it is true that the complication of parallel negotiations with TPP was not unique to labour and environment issues but also extends across other issues as well, including intellectual property. But the baseline that we are operating on and from was what we concluded in the ASEAN-Australia-New Zealand FTA. There are some provisions there on intellectual property which are basically aimed towards encouraging adherence to some of the World Intellectual Property Organization treaties on copyright et cetera including the Madrid protocol. The MAFTA intellectual property chapter reinforces Australia's and Malaysia's rights and obligations under the WTO TRIPS agreement and builds on them in certain areas where both parties have higher standards. That is the approach. It is AANZFTA-plus, which reflects that Malaysia has one of the more sophisticated intellectual property regimes in South-East Asia, so it was possible for us, without either party having to make any changes to their legislation, to agree on these standards of IP protection as well as on the cooperation on the enforcement provisions. It contains specifically more comprehensive obligations than AANZFTA on the protection of trademarks, geographical indications and copyright.

Senator THORP: When you were talking about the products, services et cetera that are going to be covered by this agreement, you mentioned rice and milk, but my understanding is that fruit and vegetables will also be covered. I just want to clarify a couple of things. Some concerns have been expressed on imports that may compromise the disease-free status of some of our industries, such as pineapples. I just wanted to hear from you whether you are confident that the conditions placed on such imports are sufficient and will not permit our industries such as the pineapple industry to be harmed.

Dr Churche : You are essentially now talking about a quarantine regime—our sanitary and phytosanitary standards. None of the market access commitments here in any way infringe Australia's ability to continue to maintain our quarantine regime. We do have a chapter on sanitary and phytosanitary measures in this FTA, as we do in all our FTAs, but essentially it is about improved cooperation between the two countries. It does not in any way change the international legal obligations on us. That continues to be governed by the WTO agreement on sanitary and phytosanitary measures. So there is really no change in terms of the legal situation about our ability to impose quarantine measures.

Senator THORP: Thank you.

Senator McKENZIE: I want to go to the rice issue. I notice that we do not really get going for quite some time, and I want to flesh that out a bit. Elimination of all tariffs on Australian rice by 2026 is a little way away. I just wonder if we have done any modelling on what the projected market for Australian rice will be in 2026, given other policy settings domestically at the moment and the challenges ahead?

Mr Mugliston : Getting back to the ASEAN-Australia-New Zealand FTA, rice was excluded from the scope of Malaysia's tariff commitments under the AANZFTA. We take your point.

Senator McKENZIE: So anything is good?

Mr Mugliston : Well, it is in the right direction and it is going to be locked into the treaty, so you know in 2023 it will be bound at 30 per cent, whereas at the moment under the regional FTA it is unbound.

Dr Churche : Clearly the rice outcome is disappointing in the long time frame that we are looking at, but this is actually quite a significant commitment. In fact, it is one of the most significant commitments we have ever done on rice in any trade agreement because the reality is, as Mr Mugliston just referred to, Malaysia did exclude rice from any market access commitments in the AANZFTA agreement. Indonesia did the same and so did a number of other countries. The reality is that, when you look at the whole range of FTAs most of these countries have in Asia, rice is typically excluded, as I am sure you are well aware. It is obviously a key issue for us in other FTA negotiations.

The reality is Malaysia has a very controlled domestic policy on rice. Its general policy is not to take any commitments on market access at all, let alone tariff elimination. What is even more significant here is not just the fact that we are talking about elimination of the tariff but the freeing up of the licensing regime. At the moment you effectively have an import monopoly in Malaysia. What Malaysia has committed at least in relation to imports from Australia is that from 2023 there are three years to eliminate the tariff. But quite significantly, there will be no restriction on who can import rice, so there will no longer be a monopoly import arrangement for imports from Australia. Any import licence should be issued on a first come, first served basis and again with no limitation on who can get those licences.

Very importantly for Australia, there is no restriction on whether the product is imported in bulk or retail packs. One of the things about the rice industry in Australia is the way SunRice have very much gone into being a supplier of branded product. That has been one of the gains. Even when we do get commitments in some cases on rice, it tends to be still just in bulk form. So when you look at what we have here, we think it is a very significant thing which we will be able to point to in other FTA negotiations and also in the WTO as a commitment by one of those countries in Asia who has a very controlled approach to rice imports. You are not only eliminating the tariff but actually freeing up the whole import licensing regime. We see this as quite a significant commitment by Malaysia. Frankly, obviously these commitments are only in relation to imports from Australia, but we think the very fact that the Malaysian government was prepared to make this commitment in a trade agreement is a good indication of it trying to signal this is the direction in which it wants to go domestically more generally.

On your broader question about what is the scope for rice exports from Australia to Malaysia, clearly our premium product tends to go to people with more middle-class incomes. But when you look at Malaysia, it is a rapidly developing economy and when you look at the sort of time frames we are talking about here, hopefully that sort of time frame is when one would think you would have a larger market there. Even though Australia has had rice exports to Malaysia over the years, they have always been very small. Frankly, even if we had a complete opening tomorrow, would Australia be sending significant volumes of rice to Malaysia? I would have thought the answer would be no. Obviously, the industry are the experts on that in their assessments. I am not going to try to second judge that, except to say there is a potential there for Malaysia. It is something in the longer term as the economy develops, as living standards improve, as people are looking for high quality premium product. There will be a certain segment there in Malaysia. Someone would think there is an opportunity.

I just emphasise the fact that we think there is an indication of the direction Malaysia wants to go. Obviously this is a commitment to what Malaysia will do in 2023; there is no reason why Malaysia may not do things earlier. Malaysia is clearly indicating, in our view, that this is the direction it wants to go for its domestic reform and hopefully that will happen sooner rather than later. Obviously that is up to political developments in Malaysia, and where future governments in Malaysia want to go, but we certainly think that this is a very significant indication of the direction in which it is trying to move.

Senator McKENZIE: The Federated Chamber of Automotive Industries is concerned about the non-tariff barriers and local content rules that are in place in Malaysia and believe that under the current MAFTA criteria it is unlikely that Australian built vehicles will be exported to Malaysia. The reduction of tariffs has been one of the touted benefits. Conversely, the FCAI believes that MAFTA will facilitate a significant increase in Malaysian vehicle imports to Australia. Did DFAT do any, or know of any, specific modelling on the treaty's impact on the Australian automotive industry, or on the treaty's impact on the Malaysian automotive industry? Can you make some broader comments around where you see the benefits.

Dr Churche : I am going to give a little bit of history. We have referred several times to the ASEAN-Australian-New Zealand FTA. Obviously, the automotive outcome was one of the disappointing areas for a number of countries, particularly Malaysia. The auto sector was one of the key outcomes, from the point of the view of the government, in terms of what we had to get in MAFTA. We think there is a very significant outcome there. I might emphasise here that we are looking at this from the automotive sector as a whole. I think it is fair to say—we have very intense consultations with the automotive industry in Australia—that one of the things which we were encouraged by was the fact that you had the car manufacturers, the automotive components and parts producers and some of the auto services firms, sitting down together to try and look at these issues from an industry perspective.

We have seen some of the comments from some of the car companies that anything which improves the competitiveness of the parts manufacturers is also good for the car companies. I have to say I think that was part of the spirit in which we had industry involvement in this process. Frankly, in the short-to-medium term where do we expect the benefits on the auto side to come from? It is clearly more likely to be in the parts, components and perhaps some of the services dimensions.

Again, I will explain a little bit of the background here. The reality is that at this point in time Malaysia does not have an internationally competitive automotive industry. It is very much an internally focused, highly protected automotive sector. When you look at exports of fully built passenger cars, Malaysia's exports tend to be around 25,000 units a year. When you look at Australia over the last three years—this is even after the global financial crisis and the drop in our exports—you find that we export around 80,000 passenger motor vehicles a year. So we are a significantly bigger exporter of fully built cars than Malaysia is. I am just putting it into perspective here: this is not a case of a big, competitive Malaysian automotive industry.

From the Malaysian point of view, they have a very ambitious outcome in autos in this agreement. What we have here is more than what Malaysia has done in any of its other free trade agreements on automotives, and in terms of the access we have it is the closest one to what ASEAN has. So, we need to look at the fact that we have the tariff outcomes and that virtually all automotive parts will enjoy tariff-free treatment from day one, larger cars will have zero tariffs next year, under the AANZFTA agreement anyway, and smaller cars will have zero tariffs from 2016. But in addition to that, Malaysia operates a quantitative restriction on the import of fully built motor cars. Australian imports will no longer be subject to that quantitative restriction. So we actually have addressed an important non-tariff barrier in this FTA.

So it is not the case that we have only done tariffs. This is an area where we think we have quite a significant precedent. I think it is fair to say that Malaysia's automotive industry is probably where we were 20 or 30 years ago. They are just starting the process of trying to reduce protection, trying to open up and trying to become more internationally competitive. They are starting to have an export focus to their automotive industry. An important part of the automotive outcome here was a cooperation chapter, which also includes a Malaysia-Australia automotive industry dialogue. That will actually bring the two industries together as well as the two governments to try to further collaboration between the two industries to encourage joint efforts in developing new technology in joint ventures, including supplying parts and components to each country, looking for opportunities to work together in third markets.

Again, just to put this into context, Malaysia has a very different approach to automotive industries compared with some other countries, which have been very much about opening it up to the multinational automotive companies. Malaysia has taken an approach that is not just protectionist in terms of protecting manufacturing industry. It has to be locally owned. They have had a national car company industry policy. They are now saying, 'We want to move into a different model.' In a sense it is not about being fully open to the multinational corporations; rather, they still want a more local focus. They were not that interested in Australia. We actually organised a visit by the Malaysian government and automotive industry in July 2010, and that really opened their eyes. They had actually thought that Australia was just an outpost, frankly, of Tokyo and Detroit—that we did not have a genuinely Australian industry that actually did exciting things, when you look at technology. That visit opened their eyes. Malaysia is very interested in collaboration with Australian companies, and there are already things happening, particularly with some of our parts and components suppliers. They are involved in developing our technology and in supplying parts to Malaysia.

So, frankly, on the auto sector—hopefully, if Malaysia continues down that reform path of trying to open up or trying to modernise and make its automotive industry competitive—there will be opportunities for collaboration, including for parts and components for vehicles. I think a lot of it is dependent on Malaysia becoming a more middle-class society. Again, it is about the quality of the cars people buy in Malaysia; that is also an issue. As for the question of whether there will be an opportunity for Australian car exports there, who knows? Certainly there are non-tariff barriers there, particularly on the excise taxes. But, again, just as you saw in Australia, we would see the pressure for that reform to continue, both through Malaysia's domestic process of opening up and trying to become internationally competitive and also through other free trade agreement negotiations.

CHAIR: Just sticking with that, the Australian government unilaterally reduced the general automotive tariff from 10 per cent to five per cent in 2010. The Federal Chamber of Automotive Industries says that Australia's free trade agreements do not appear to be providing market access for Australian vehicle manufacturers. Specifically, in relation to this agreement, they have said that it is 'unlikely that Australian built vehicles will be exported to Malaysia'. Is that right?

Mr Mugliston : That is their assessment, based on their understanding of the Malaysian market—which, as explained by my colleague, Dr Churche, has been a very protected market. We have addressed the tariff issue, but, as you know, market access is not just about tariffs; it is about all these other non-tariff measures. As Dr Churche has said and as I explained in my opening remarks, we have addressed at least one of the major non-tariff measures—the quantitative limitation that applies on imports from non-ASEAN countries. So at least we have a level playing field with other ASEAN countries in terms of potential access. But then there are other measures as well.

We could spend a long time discussing the automotive sector, because this was a difficult area in the negotiations, and we were involved in the negotiations with the Malaysian government as well as having intense discussions domestically with our industry here. I think there is an understanding and appreciation on all sides that it is a very difficult market, but it is going to have to change in the future.

As Dr Churche mentioned, I think it is of significant note that we have agreed to establish this Malaysia-Australia automotive industry dialogue. Planning is underway, because our industry is actually keen to see that progress in terms of engaging in the dialogue with the Malaysian side, to have industry, government and research bodies around the table discussing cooperation and collaboration here, given the globalised nature of the auto industry and the direction in which it is heading.

That also provides a forum for us to raise any policy or other issues that may be hampering increased cooperation and trade between the two automotive sectors. To put it very simply, the Malaysians are very keen to tap into our expertise in some of these areas and to cooperate. Our industry is very keen to have some real access to that market and to at least provide that. They see that as part of the equation of effective collaboration and cooperation. I see this as that we are setting up a dialogue here in the period ahead.

CHAIR: You can have all the discussion and collaboration and cooperation that you like but at the end of the day it seems to me that Australia has very low barriers for the automotive industry and that Malaysia—the example we are discussing here—has very high ones. Is that a fair comment?

Mr Mugliston : Yes, they certainly do, and that is fair comment. The fact is that we have a five per cent tariff and we know, we just have to look at the vehicles on the road in terms of imported vehicles and their share. To perhaps also answer Senator McKenzie's earlier question, effectively what we are doing here under this FTA with Malaysia is eliminating that five per cent tariff with effect from entry into force of the Malaysia-Australia FTA. To what extent that will affect demand for Malaysian automotive vehicles in the Australian market, I just note that it is a very competitive market in Australia. A five per cent tariff is a pretty low tariff.

CHAIR: Yes, that is right. It is an accident of birth that I am not a Malaysian politician representing rice farmers. I happen to be an Australian politician who has quite a number of motor vehicle industry workers in my electorate. When I look at the rice situation that the Malaysian politician can go to their electorate and say, 'We are not going to have any problems in relation to rice for another 10 years' and I noted Dr Churche's rosy view about the possibility of the thing happening earlier. Perhaps I am just a more gloomy person and think there is a possibility that an agreement that does not take effect for 10 years can be reneged on by any government, any time in the course of the next 10 years. I look at that and think my Malaysian political equivalent has done me like a dinner. That is how it looks in terms of what arrangements apply to motor vehicle workers compared to the ones applying in the rice industry.

Ms PARKE: In relation to the Music Council of Australia's submission—I do not know if you have had a chance to see that yet—

Mr Mugliston : That has just come in, hasn't it?

Ms PARKE: Yes.

Mr Mugliston : Sorry, I have not seen it.

Ms PARKE: Well the Music Council has written that it considers the cultural exception contained in the Singapore-Australia Free Trade Agreement, along with its definition of 'creative arts', which is mirrored in the AANZFTA, should act as the pro forma for free trade agreements. They note their disappointment that 'while regard has been given to Australia's cultural sector in MAFTA, is not as robust as the consideration given it in SAFTA and AANZFTA'. Do you have any comment on that? If not, you could take it on notice.

Mr Mugliston : No, let's address it now. Dr Churche can supplement on this as he was involved in the negotiations with Singapore for the Singapore-Australia FTA on services. The point there is that the schedule of specific services commitments in our FTA with Singapore was done on a negative list basis, which meant that all the sectors are covered, whereas the scheduling approach taken in both the ASEAN Australia-New Zealand FTA and the Malaysia-Australia FTA is done on a positive list basis. So we have not made any commitments, for example in the audio visual services sector in the MAFTA or the AANZFTA, and that was the sector where there was particular sensitivity about the cultural aspects. I am puzzled by the reference to AANZFTA there, because—

Ms PARKE: I am saying that MAFTA uses much looser terminology than AANZFTA, since it excludes measures imposed for the protection of national treasures of artistic, historic or archaeological value.

Mr Mugliston : I think it is best for us to take that on notice. I am conscious of your time constraints.

Ms PARKE: Yes, that is good. Thank you. Further, the CFMEU submission says:

Australian workers and … the Australian public in general, are extremely frustrated by a lack of transparency in the trade discussion processes.

Do you have any comment on the issue of transparency in the process?

Mr Mugliston : This continues to be a work in progress for us. We really do endeavour to have very broad ranging consultations. We have meetings with peak industry bodies. We update the websites. We welcome emails, we welcome contact from people. We visit the states and territories and have engagements with stakeholders. We provide, as a matter of course, regular updates on developments in negotiations through our website, and contact points for people. We are in regular contact with a lot of these stakeholders.

Ms PARKE: Just out of curiosity, how many staff in DFAT are working on MAFTA? I notice we have a cast of thousands here! Are they all involved in MAFTA or in free trade agreements generally?

Mr Mugliston : Dr Churche just pointed out to me that he does not just work on MAFTA! We have colleagues here at the table from the Free Trade Agreement Division in Foreign Affairs and Trade. We have some other colleagues from that division behind me as well as colleagues from other agencies. It is not just the Department of Foreign Affairs and Trade here; you also have DIISR, DAFF, Customs et cetera. So there are many agencies involved in this—and we are not involved exclusively in one FTA.

The basic division of responsibility in terms of the Free Trade Agreement Division in DFAT is that I am responsible at the senior official level for the negotiations with South-East Asia, and my colleague the First Assistant Secretary of the division is responsible for North Asia and India. We also draw on relevant expertise across the department, including from our embassies and high commissions—overseas posts—in the negotiations. That is the general approach.

Ms PARKE: Thank you. I have one final question. I know we have dealt with this issue of environmental and labour standards, and it is something that I know the two different committees—the treaties committee and the foreign affairs committee but also the various subcommittees of the foreign affairs committee, including the Human Rights Subcommittee—are very exercised about. I hear what you are saying, that the government's response is to take it on a case-by-case basis, but what effort goes into trying to incorporate these sorts of standards into the FTAs? Are they regarded as optional extras? If a country says, 'No, we're not interested in doing that, so no free trade agreement,' do we take the attitude that it is better to have an agreement on some things rather than no agreement at all, and so we just proceed, regardless of what the country's attitude is to those issues; or are we making genuine efforts to try to incorporate those standards?

Mr Mugliston : We are making genuine efforts. In response to your earlier question, the government is pursuing these issues in negotiations, but we recognise that you have to get the agreement of your negotiating partner or partners as well. At officials level, we get a mandate, a negotiating mandate that is decided by ministers in cabinet. That is the riding instructions for officials to prosecute, and we do the best we can in prosecuting the mandate. Inevitably what happens is that you have to go back and get a revised mandate from cabinet, and then you prosecute that, and then the minister is involved, of course, as well. The minister will consult with colleagues. At the end of the day, we arrive at a package. One has to make the assessment: 'Of course there is stuff in here—we did not get everything we wanted in this agreement. There are aspects one can be disappointed about. But, on the other hand, there are some useful outcomes here. What is the overall assessment? Is it worthwhile our banking this or not?'

I and Dr Churche have been involved in the MAFTA negotiations from the outset, so it is over 7½ years of negotiations. There was a pause in between, but, as you know from some of the other FTAs, they are not easy. They take time. But you make an assessment: at what point do we have enough for us to conclude a deal? I think the other important point to note is the concept of living agreements that we try and strive for. It is not just a case of it all being there but a case of recognising that this is the best we can do at this point in time, but we want to continue to work with the other country to improve on this as we go. That is the general approach.

Ms PARKE: Thank you.

Senator McKENZIE: Just on revising mandates et cetera and prioritising areas within that discussion, what is the process in how that happens? Is it your mandate to prioritise, or is it—

Mr Mugliston : Part of our role is to make recommendations in the first instance to the relevant minister, but I should note that we have colleagues here from other agencies. They have their own priorities and perspectives, including of their ministers. They will provide appropriate briefs for their ministers and recommendations on what the overriding priority or highest priorities should be, and presumably there is a discussion around the table as to what in fact the overall priorities for the Australian government are in this particular negotiation. There is that sort of process. Of course, at the officials level there is obviously pretty clear direction, but on some issues you need guidance from ministers.

Senator McKENZIE: The ACCI have made a comment in their submission that I would just like to get your opinion on.

Mr Mugliston : Sure.

Senator McKENZIE: They said:

Trade facilitation is a fundamental principle of any Australian Free Trade Agreement, and unilateral divergence in export documentation in Australia’s future Agreements such as MAFTA is not trade facilitating.

I know you made some comments at the beginning around this. I would just like a direct response about it being 'not trade facilitating'.

Dr Churche : On the points raised by ACCI in its submission, I think that the key point we would make there is that Australia's general preference is for the use of declarations of origin. That is what we have in our CER agreement with New Zealand. It is what we apply in the Australian system of tariff preferences. Importers using that scheme have to demonstrate origin. They do that through a declaration-of-origin approach. It is what we have in our FTA with Chile. And that is why in the MAFTA negotiations that was our preferred approach. The outcome, at least in terms of exports from Australia, reflects Australia's preferred approach, just in terms of our particular view on that.

We accept the reality that AANZFTA does have a certificate-of-origin approach. That was a negotiated outcome. It was not our preferred approach. We saw that as a second-best outcome. But part of that was a reflection of where the ASEANs were at and the reality that they have a rather more bureaucratic approach. But, even within ASEAN, you actually have a movement towards looking at the adoption of declarations of origin. Malaysia itself is already participating in a pilot project within ASEAN with Brunei, Singapore and Thailand using declarations of origin.

When you look at MAFTA, at the way it is actually crafted, the default position is the use of declarations of origin. It has an exception to allow Malaysia to use certificates of origin, but it is based on the assumption that, in coming years, Malaysia itself will move to the use of declarations of origin. That is quite clear when you look at the way the relevant provisions in MAFTA are drafted. It is quite clear that the default position is a declaration-of-origin approach.

There is an exception there at the moment to allow Malaysia to use certificates of origin, but it allows for Malaysia in future years to go to a declaration of origin approach. That is our expectation, given the fact that it has already participated in a pilot project within ASEAN. One of the things we are doing in the work program in the AANZFTA is to look at the possibility of AANZFTA parties moving to a pilot project on self-declaration.

Senator McKENZIE: As that process continues, do you see an issue around the potential increase in the risk complexity in the interim period?

Dr Churche : Certainly. That is why we welcome a dialogue with ACCI. We are looking at acting in response to their concerns in this area and we are holding a workshop with industry later this year. I know Dairy Australia made this point in their submission, and the overwhelming view we have got from industry has been a preference for declarations of origin. So we are certainly interested in ACCI's view. We can understand where they are coming from. But certainly it does not reflect, as we understand it at this point in time, where most Australian companies are at.

We have experience because we have a certificate of origin scheme in AANZFTA. We also have it in a couple of other FTAs. We also have FTAs with declaration of origin. Certainly we have experienced far more problems with certificates of origin that we have with declarations of origin. So, on the practical experience, which I have to say is before government at the moment, we would say that certificates of origin are more likely to pose implementation issues, and problems in terms of trade facilitation, whereas we have not seen that with declarations of origin.

Obviously, part of this is related to the nature of any type of scheme. We do not take a position that any declaration of origin approach is preferable to certificate of origin; we would always look at any scheme which we would negotiate in an FTA on its merits and on whether we thought the way it would work would be trade facilitating. But this is always a work in progress. Certainly, on the basis of the evidence we have at the moment, and from what we have heard from most industry associations and most companies, we still believe that.

There is one important point. On the question you asked about this issue, in a sense, of duplication, if I can put it that way, between what we have in AANZFTA and what we have in MAFTA—where is the difference? For the vast majority of Australian exporters, they will have a choice. The tariff commitments are identical in MAFTA and AANZFTA, if not from entry into force of MAFTA then within a very short number of years. They will therefore have a choice. If they think that certificates of origin are better, they will be able to use AANZFTA and use the certificate of origin scheme. We thought it was better in MAFTA to provide them with an alternative which would allow them to, from all the evidence we have, have a more trade facilitating approach.

Ms PARKE: On 29 August 2012, the respected US foreign policy think tank the Council on Foreign Relations published an article that indicated there may now be some evidence that supports the argument that free trade, for all of its many benefits, has also played a significant role in job loss, particularly in manufacturing, and in the stagnation of middle-class incomes, at least in the United States during the past decade. Has any research been done on the impact of free trade agreements on manufacturing in Australia?

Mr Mugliston : That is a broad question and I think it would be best for me to take that on notice.

Ms PARKE: Thank you.

CHAIR: I would be interested in the response to that. Another question that arises from some of the earlier discussion is: what free trade agreements are currently being negotiated or are well advanced up the pipeline? Obviously, we have had discussion about the Trans-Pacific Partnership Agreement, and indeed there has been a briefing provided to the committee about that, but I am just wondering if there is anything else that is well advanced that might be of interest to us.

Mr Mugliston : That is well advanced?


Mr Mugliston : The negotiations with Korea are well advanced. That is the one I would identify for the committee. I should note that we are also making good progress in the bilateral FTA with Japan.

CHAIR: Okay. Thank you for attending to give evidence today. If the committee has any further questions, the committee secretariat may seek further comment from you at a later date.

Resolved (on motion by Senator McKenzie):

That this committee authorises publication of the transcript of the evidence given before it at public hearing this day.

Ms PARKE: Chair, when are responses to questions on notice due?

CHAIR: Seven working days.

Committee adjourned at 12:25