Introduction

As foreshadowed in my e-alert of yesterday, the Australian Trade Minister and his Malaysian counterpart signed the Malaysia- Australia Free Trade Agreement (“MAFTA”) yesterday in Malaysia.

Consequently, the Australian Federal Government has released documentation regarding the MAFTA including a number of “Quick Guides” to the MAFTA, an introduction to the text of the MAFTA together with its full text. The MAFTA is comprised by 21 Chapters together with associated Annexes regarding specific schedules of tariff commitments, product specific rules of origin, schedules of specific services commitments, schedules of movement of natural persons commitments and “Side Letters” on commitments in relation to wine, environmental issues and labour issues.  

In addition, there are implementing arrangements for economic cooperation (consistent with the arrangements set out in the ASEAN FTA) and a “non-legally binding exchange of letters” regarding traditional and complementary medicine.  

In general, the form and structure (or the “architecture”) of the MAFTA reflects other recent Australian FTA.  

Taken altogether, the material is extensive and detailed and I have yet to fully review each and every provision of the MAFTA and associated Guides.

However, I thought it appropriate to provide the following summary of highlights of an “action-packed” FTA.

Benefits to Australian goods exporters

According to documentation issued by the Australian Government, some Australian industries to benefit include:

  • Milk – a liberalised licensing arrangement for liquid milk exporters allowing access for higher valued retail products. This is consistent to treatment afforded by Malaysia to NZ under its FTA with Malaysia.
  • Automotive – elimination of all tariffs on large cars and virtually all tariffs on automotive parts imported into Malaysia from the commencement of the MAFTA. All tariffs on small cars will be eliminated by 2016. From the commencement of the MAFTA, Malaysia will exempt Australian cars from its global limit on imports.  
  • Processed foods: plastics: chemicals and a range of manufactured products – immediate elimination of virtually all tariffs.  
  • Wine – a guarantee for Australian exporters that the best tariff treatment Malaysia gives any country.  
  • Iron and steel – tariffs on 96.4% of iron and steel imported from Australia eliminated by 2016. This will rise to 99.9% by 2017 and 100% by 2020.  
  • Rice – open access arrangements from 2023. All tariffs eliminated by 2026.

Benefits for Australian service suppliers

As referred to in yesterday’s e-alert, the Government’s material records that Australian investors will be guaranteed right to majority ownership of companies in a wide range of sectors supplying services in Malaysia including the following:

  • Education services – 70% ownership in higher education services increasing to 100% in 2015; 70% ownership in a range of other education services. 
  • Financial services – 70% ownership in investment banking and direct insurance services.
  • Telecommunications – at least 70% ownership in all telecommunication services.
  • Professional services – 100% ownership in accounting, auditing and bookkeeping services: 100% ownership in management consultant services (excluding financial management consulting); 51% ownership in taxation services.

Service providers in other industries including tourism, research and development and mining-related services will also be guaranteed the right to majority ownership.

Other provisions to assist Australian businesses

The Government material also records that MAFTA will also allow for: 

  • “more business-friendly” Rules of Origin (“ROO”) with Australian exporters not needing to supply a Certificate of Origin (“COO”) but rather a simpler Declaration Of Origin (“DOO”); 
  • additional levels of access to work within Malaysia;
  • the establishment of a “Framework for Mutual Recognition” of qualifications and licensing for professionals although that recognition will not occur immediately and will depend on the work conducted to develop “Mutual Recognition Agreements” (“MRA”);
  • stronger protection of Australian trademarks and copyrights; and
  • the facilitation of electronic commerce through measures to increase efficiency and to protect online consumers.

Of these, the ROO issues are discussed in some detail below. The proposed “ Framework for Mutual Recognition” is contained in Chapter 11 if the FTA. While this is, in principle, an excellent concept, the Chapter only provides for a “Framework”. The “Framework” is a mechanism for developing MRA’s by which Australia and Malaysia will “encourage” relevant authorities to develop arrangements for mutual recognition of qualifications. Unfortunately some of these authorities have, to date, resisted liberalisation in services so the persuasion of Governments will be vital.

Rules of Origin

  • The ROO are contained in Chapter 3, the associated “Operational Certification Procedures” and the “Schedule of Product Specific Rules”. The Chapter also sets out procedures and documentation for demonstrating that a good qualifies for preferential treatment and, if necessary, verifying that this is the case.
  • MAFTA adapts an approach consistent to the ASEAN FTA where, for the majority of products, exporters have the benefit of “co-equal” access to allow for either the “Change In Tariff Classification” (“CTC”) model or the “Regional Value Content” (“RVC”) test when claiming preferential status. However, for some goods only a single approach applies. The “co-equal” approach will accommodate the fact that Malaysia generally prefers the RVC approach while Australia prefers the CTC approach. However, Australian exporters may still choose to export their goods under the RVC based test. For some goods, there is an additional option for exporters to use a rule based on production process. As in all cases it will depend on the specific goods.
  • The FTA provides for full “accumulation” whereby any originating material and processing occurring in Australia or Malaysia is counted as originating content.
  • The Chapter includes the traditional provisions including the methodology for calculation RVC, “de minimis” provisions, treatment for accessories, parts and tools, treatment of packing materials and containers and the transport of goods through countries other than Australia and Malaysia.
  • The Chapter also sets out procedures relating to documentation satisfying the origin requirements. For Australian exporters, they will be required to provide a DOO completed by the exporter or producer of the goods and the Malaysian exporters are required to provide a COO issued by a designated issuing authority. However, there is flexibility that Malaysia can waive the COO requirement and instead allow its exporters to make use of a DOO. The mandatory data requirements for both documents are the same but a DOO is issued by the exporter based on self-assessment.
  • There are the usual provisions associated with “trade facilitation” including for the review and appeal of decisions on eligibility for preferential tariff treatment and the consignment provisions allowing goods to be transhipped through, stored, repacked and relabelled in non-parties yet still retain MAFTA origin.

Customs procedures and co-operation

The MAFTA provides the anticipated usual provisions on customs procedures and co-operation including particular facilitation of clearance for “low-risk” goods, the use of advance rulings and the availability of review and appeal mechanisms. The provision for advance rulings is readily available in Australia but not in Malaysia.

Sanitary and Phytosanitary Measures (Quarantine measures)

Chapter 5 affirms that both countries commit to apply measures in a manner consistent with the WTO Agreement dealing with such measures. The Chapter includes provisions intended to strengthen information exchange, co-operation and consultation and provides for an “SPS Working Group” to enhance existing co-operation arrangements. Interestingly, the provisions at Chapter 5 are excluded from the operation of the dispute settlement provisions.  

Trade remedies

MAFTA includes Chapter 7 allowing the parties to implement “safeguard action” in accordance with the rights under the WTO. These may be applied during the transitional period and only for such time as may be necessary to prevent unanticipated damage from the reduction in tariffs.  

Trade in services, financial services and telecommunication services

Chapter 8 of the MAFTA (Trade in Services Generally), the Annex 8 to Chapter 8 (Financial Services) and Chapter 9 (Telecommunication Services) include specific provisions as to trade and services, financial services and telecommunication services aimed at enhancing existing access to the Malaysian market.  

Institutional provisions

Chapter 19 of the MAFTA establishes the “FTA Joint Commission” to oversee implementation and operation of MAFTA and supervise and co-ordinate the work of subsidiary bodies. Again this is consistent to our ASEAN FTA and other FTA.  

Consultation and dispute settlement

Consistent with statements in Australia’s recent Trade Policy Statement, there is no “Investor to State” dispute resolution provision. However, Chapter 20 establishes a process for consultations and for settlement of disputes arising under the FTA although it does not apply to disputes arising from Chapters on Sanitary and Phytosanitary Measures, the Chapter on Electronic Commerce, the Chapter on Economic, technical co-operation and the Chapter on Competition policy.

Chapter 20 of the MAFTA sets out procedures and timelines for consultations on disputes arising under MAFTA and if they are unsuccessful, it also provides for the establishment, functions, composition, proceedings and reports of Arbitral Tribunals. The Chapter then provides for implementation of the findings of such Arbitral Tribunals including where the parties disagree on compliance. Remedies such as compensation and suspension of concessions are also governed by the Chapter and an Annex to the Chapter sets out rules for procedure to govern Arbitral Tribunals.  

The Chapter also contains commitments on “non-violation complaints” where a particular provision is introduced which, while not inconsistent with MAFTA, may have the effect of nullifying and impairing benefits. If such a dispute is not resolved the matter is referred to the FTA Joint Commission.  

Final provisions

Chapter 28 of the MAFTA sets out the usual form of final provisions including the parties’ agreement that it does not detract from the WTO Agreement. The Chapter provides that entry into force shall occur 45 days after Australia and Malaysia have notified each other of completion of the necessary domestic procedures. In the Australian case, the process will require consideration by the Australian Parliament’s Joint Standing Committee on Treaties and the passage of enabling legislation which will also amend Australian legislation to change provisions to specifically accommodate the MAFTA.  

Conclusion

As stated above, the “architecture” of the MAFTA reflects the architecture of Australia’s other recent FTA. The approach to liberalisation is also consistent, accelerating some liberalisation already promised under the ASEAN FTA, providing additional gains in other areas (some based on other FTA to which the countries are party) and establishing “frameworks” to consider future liberalisation rather than achieving that liberalisation immediately (i.e. with MRA). The use of DOO for Australia exporters will be welcomed as with the “consignment” provisions for interim shipping and work on qualifying goods.