On 13 October 2016, the Australian and Singaporean trade ministers signed an agreement to amend the Singapore-Australia Free Trade Agreement (SAFTA). The updated SAFTA formalises the trade outcomes announced on 6 May 2016 by Prime Minister Malcolm Turnbull and his Singaporean counterpart Prime Minister Lee Hsien Loong. The amendments will enter into force once both countries have completed their domestic treaty processes.
With first tier capability in both Australia and Singapore in key sectors KWM is well placed to help clients with the opportunities arising from these new developments.
Change to FIRB thresholds for certain Singaporean investors
The updated SAFTA raises the Foreign Investment Review Board (FIRB) screening threshold for private Singaporean investment in non-sensitive sectors from A$252 million to A$1,094 million, consistent with the Trans-Pacific Partnership Agreement (not yet signed) and the North Asian Free Trade Agreements (Japan, Korea and China), as well as the earlier free trade agreements entered with the United States, Chile and New Zealand. The thresholds are indexed annually.
The A$252 million investment cap trigger required for Australian government approval (through FIRB) remains for investments in sensitive sectors prescribed by the legislation, namely:
- transport, including airports, port facilities, rail infrastructure, international and domestic aviation and shipping services provided either within, or to and from, Australia;
- supply of training or human resources or the development, manufacture or supply of military goods, equipment or technology to the Australian Defence Force or other defence forces;
- manufacture or supply of goods, equipment or technology able to be used for a military purpose;
- development, manufacture or supply of, or provision of services relating to, encryption and security technologies and communications systems; and
- extraction of (or holding of rights to extract) uranium or plutonium or the operation of nuclear facilities.
Acquisitions of interests in Australian land (other than developed commercial property) are also sensitive and the usual land thresholds apply. For developed commercial property, however, private investors from Singapore now also receive the beneficial A$1,094 million threshold.
It is important to note that for investments to gain the benefit of the higher FIRB threshold, the acquirer must be an individual from or an entity formed or established in an agreement country. If a subsidiary entity is used as an acquirer and it is not from an agreement country, even if incorporated in Australia, then the lower A$252 million threshold will apply.
Australia will continue to examine all proposed investments by Singaporean government related entities, regardless of value, that meet the proportionate thresholds under the legislation. This is consistent with all of the free trade agreements that Australia has entered, including with China.
The increase in the FIRB threshold for private Singaporean investment in non-sensitive sectors is a welcome development and will assist with removing the burden of obtaining FIRB approval for such investments into Australia.
The Investment Chapter of the SAFTA governs the treatment of investors and their investments. Subject to certain exceptions, it contains minimum standards of treatment for investors across both nations, protection against discrimination and the right to compensation for certain types of expropriation.
The updated SAFTA also updates the existing investor-state dispute settlement (ISDS) mechanism to incorporate more explicit safeguards protecting the Government’s right to regulate in the public interest (e.g. to safeguard public welfare objectives).
The updated SAFTA includes a number of beneficial amendments for services suppliers.
Financial service providers will be able to provide a range of financial services on a cross border basis. This includes investment advice and portfolio management services and brokerage services for insurance of maritime, aviation and transport-related risks.
In addition, the updated SAFTA provides for:
- increased mobility for business persons, including increasing entry for independent executives and contractual service suppliers from three months to two years;
- increased recognition of Australian tertiary qualifications in Singapore and a framework for mutual recognition of professional qualifications with priority given to engineers and accountants;
- more certainty for Australian lawyers and law firms operating in Singapore, including locking in existing opportunities for Australian lawyers to practise Singapore law and work in international commercial arbitration. Australia is also positioned to benefit from future market reforms in Singapore’s legal sector; and
- new content in the e-commerce and telecommunications sections on the free flow of data across borders for service suppliers and investors as part of business activity.
Trade in Goods
The original SAFTA signed in 2003 enabled Australian products to enter Singapore tariff-free. The amended version makes it easier for Singaporean and Australian traders to claim preferential treatment under the Agreement. Traders can now self-certify that their goods meet the rules of origin in addition to the option for third party certification.
The SAFTA includes a full schedule of product-specific rules of origin, replacing the 50 per cent content rule that requires businesses to record all production costs, providing more certainty for traders. In addition, specific annexes facilitate technical regulation for cosmetics, medical devices and wine and distilled spirits, without limiting the government’s ability to impose additional requirements.
Updated SAFTA available here.