On 5 December 2013, Australia and Korea announced that agreement had been reached on the Australia-Korea Free Trade Agreement (KAFTA).The KAFTA is the first in a series of trade agreements that the Australian government is seeking to reach agreement on in the short to medium term, with the aim of liberalising access to markets for goods and services, and increasing investment.
The Government is currently engaged in eight FTA negotiations, with countries covering 45 per cent of Australia’s trade.1
Australia is currently engaged in bilateral free trade agreement (FTA) negotiations with China, Japan, India and Indonesia; as well as four multilateral FTA negotiations: the Trans-Pacific Partnership Agreement (TPP), the Gulf Cooperation Council (GCC), the Pacific Trade and Economic Agreement (PACER Plus), and the Regional Comprehensive Economic Partnership Agreement (RCEP).
The Australian Government had put a 12 month time-frame (in October 2013) on bilateral negotiations with Korea, China and Japan.2 The Korean FTA was completed last week and negotiations with China and Japan seem to be on track.
At a media conference on 7 December 2013 in Beijing, Foreign Minister Julie Bishop, while denying any time-frame having being set, said Chinese Vice-President Li Yuanchao was very positive about finalising the agreement “within a short period of time”.3 Bishop said,
"We have been negotiating a free trade agreement with China for eight years now and the high quality, comprehensive agreement that we were able to conclude with South Korea gives us hope that we will be able to do something similar with China."4
Negotiations with Japan, our second largest trading partner, also seem on track to conclude within the 12 month time-frame. Trade and Investment Minister Andrew Robb said he was confident in overcoming the remaining obstacles to the conclusion of the agreement.5
Australia’s other bilateral negotiations with India and Indonesia began in 2011 and 2012 respectively and remain in relatively early stages.
Of the multilateral FTAs being negotiated, the TPP has attracted the most attention. The TPP is a regional free trade agreement under negotiation between Brunei Darussalam, Chile, New Zealand, Australia, Canada, Japan, Malaysia, Mexico, Peru, the USA and Vietnam and Singapore. The Agreement will be one of the most significant FTAs entered into to date, with member states’ GDP amounting to 39% of the world’s GDP in 2012. The countries taking part in the TPP negotiations had hoped to reach agreement before the end of the year. However, it appears the countries are now targeting early 2014 with country representatives to meet again in January 2014.
Negotiations for the GCC FTA involving Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates have paused pending a review of the Council’s trade agreement policy.6 The GCC is a key market for agricultural exports such a livestock, meat, dairy products, vegetables, sugar, wheat and other grains.
The RCEP is a regional FTA between Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam, Australia, China, India, Japan, Republic of Korea and New Zealand. The Agreement will build on and expand Australia’s existing FTA with ASEAN and New Zealand and complement Australia’s bilateral agreements. The third round of negotiations are to be held in January 2014 with negotiations set to conclude by the end of 2015.7
The PACER Plus is a regional FTA between Australia, Cook Islands, Federated States of Micronesia, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New Guinea, Republic of Marshall Islands, Samoa, Soloman Islands, Tonga, Tuvalu and Vanuatu. The Agreement aims to provide the long-term opportunity to create jobs, enhance private sector growth, raise standards of living, and boost economic growth in Forum Island Countries. No time-frame has been set for the conclusion of the FTA with the next round of negotiations to be held in March/April 2014.
The Government has signalled foreign investment as one of its key economic goals and the finalisation of a number of these FTAs seems near. As we enter this new era of international trade, investors should be aware of the opportunities and implications of these agreements.
In addition to these FTAs currently under negotiation, Australia has seven FTAs currently in force with New Zealand, Singapore, Thailand, US, Chile, the Association of South East Asian Nations (ASEAN) (with New Zealand) and Malaysia. Australia is also a party to 23 bilateral investment treaties.
One key issue to keep an eye on is whether the new investment agreements include investor state dispute settlement mechanisms. These provisions assist investors by providing protections against the political risks associated with investing overseas, such as the risk of expropriation (whether directly or indirectly) of investment assets or profits by opportunistic foreign governments.
The previous Labor government had refused to include such mechanisms in FTAs and bilateral investment treaties but the new Coalition government has shown its preparedness to include these provisions on a case by case basis, starting with the KAFTA signed last week.