House debates

Thursday, 24 October 2019


Customs Amendment (Product Specific Rule Modernisation) Bill 2019; Second Reading

11:52 am

Photo of Madeleine KingMadeleine King (Brand, Australian Labor Party, Shadow Minister for Trade) Share this | | Hansard source

I rise today to support the Customs Amendment (Product Specific Rule Modernisation) Bill 2019 but, in so doing, I move:

That all words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the bill a second reading, the House:

(1) notes:

  (a) that the focus of the Government's trade priorities in the short, medium, and long term should be to diversify Australia's trading relationships in order to balance against further external economic shocks; and

  (b) the government's failure to allow the Productivity Commission to conduct independent modelling of bilateral trade agreements prior to ratification; and

(2) calls on the Government to:

  (a) proactively engage with the Opposition on trade matters, maintaining bipartisanship in the trade portfolio in the face of increasing global economic uncertainty; and

  (b) reaffirm Australia's support for a multilateral trade system, including continuing engagement with international trade institutions such as the World Trade Organisation".

In moving these amendments we're ensuring Australia's commitment to a balanced, practical rules based system that serves to further Australia's best interests internationally and at home. In line with that and more broadly, Labor supports the bill before the House. The bill amends the Customs Act to streamline the product-specific rules of origin, or PSRs, for six of Australia's free trade agreements, including the Australia–Chile Free Trade Agreement, the Australia-New Zealand Closer Economic Relations Trade Agreement, the Australia–United States Free Trade Agreement, the Korea-Australia Free Trade Agreement, the Malaysia FTA and the Thailand-Australia FTA.

For the benefit of the House, I'll just briefly explain that product-specific rules of origin are an essential component of FTAs that must be met by importers seeking preferential tariff treatment for goods that include materials not originating in the territories covered by the agreement. They're based upon the Harmonized Commodity Description and Coding Systems, well-known as the Harmonized System, which is an international naming system for the classification of traded products. It currently covers thousands of commodity groups and is used by more than 200 economies as a basis for customs tariffs and the collection of international trade statistics. Due to a revision of the Harmonized System, the proposal is to replace individual definitions of Harmonized System with new ones according to each specific free trade agreement. Simply, the amendments aim to simplify the way in which the product-specific rule annexes in each FTA are implemented domestically. So, while this is a fairly technical bill, it speaks to some of the wider issues in the international trading system, and Labor supports bills such as this as part of a bipartisan effort to support a rules based order in international trade.

Australians need to see the tangible benefits from these free trade agreements and others to better understand the part they play in the economic advancement of Australia. In that light, it is worth going through some of the details of the trade agreements concerned in this bill. The Australian-Chile FTA entered in 2009. It was Australia's fifth agreement and first with a Latin American country. It included the elimination of almost 92 per cent of tariff lines, covering 90 per cent of merchandise trade. It also confirmed the commitment of both countries to liberal services and investment regimes. It locked in both countries to high standards on intellectual property protection for patents, trademarks, geographical indicators and copyright issues.

The Australia-New Zealand Closer Economic Relations Trade Agreement is one of the most comprehensive bilateral free trade agreements in existence. The agreement came into force in 1983 and covers all trans-Tasman trading goods, including agricultural products, and was the first to include free trade in services. It included a prohibition on all tariffs and quantitative import or export restrictions on trade in goods originating in the free trade area of the agreement. It also contains measures to minimise market distortions in trading goods, including through domestic industry assistance and export subsidies and incentives. There was also a harmonisation of the trans-Tasman food standards through the Australia New Zealand Food Authority agreement of 1995, which means lower compliance costs for industry, fewer regulatory barriers and more consumer choice.

The Australia-US Free Trade Agreement came into force in 2005 and represented a landmark in improving Australia's trade and investment relationship with the world's largest and richest economy and most significant merchandise and services exporter and importer. The agreement significantly improved Australia's attractiveness as a destination for US investment—important for our efforts to maintain Australia at the leading edge of growth and competitiveness. I want to recognise the very important direct investment of US companies into Australia, particularly my state of Western Australia. The investment of Chevron into building the LNG plants across the north-west has been a remarkable boost and of course was part of the construction boom that we saw in recent years. In recent sitting weeks I was pleased to host in my office the US Chamber of Commerce, along with some Labor colleagues that also attended. I want to acknowledge Mr Patrick Kilbride, Senior Vice-President of the Global Innovation Policy Center of the US Chamber of Commerce, and also Miss Kelly Anderson, the director of policy from the same group.

The Australia-US Free Trade Agreement included provisions where tariffs were reduced. Also, 60 per cent of agricultural tariffs went to zero immediately, with a further nine per cent dropped to zero in 2008, and the trade in all metals and minerals became duty free upon entry into force. There was also a closer harmonisation of Australian and US intellectual property, which benefits Australian exporters and creates a more familiar and certain legal environment.

The Korea Australia FTA came into force in 2014. Under that agreement, Australian exporters to Korea gained a competitive edge for their goods exports, with nearly all Korean import taxes on Australian goods eliminated over time. Australian services exporters also have better access to that market. Under that agreement, more than 99 per cent of Australia's goods exports to Korea were eligible to enter duty free or with other preferential access and about 88 per cent of Australia's manufacturing, resources and energy exports entered into Korea duty free from entry into force and all remaining tariffs will be phased out by 1 January 2023.

The Malaysia free trade agreement came into force in 2013. Under that agreement, Malaysia and Australia cut tariffs on a wider range of goods earlier than was negotiated under the earlier agreement, the ASEAN-Australia-New Zealand Free Trade Agreement. The agreement also addresses other barriers to trade. It makes administration for traders much simpler and there were significant tariff reductions. The agreement has benefited many industries, such as tourism, research and development, mining-related services and also the potential for majority ownership by Australian companies into Malaysian companies.

The Thailand-Australia Free Trade Agreement came into force in 2005 and was focused on eliminating the majority of Thai tariffs on goods imported from Australia and the reduction of Thailand's previously very high tariff barriers for some goods—tariffs of up to 200 per cent. It's a significant benefit for Australian businesses, opening up a range of export opportunities in South-East Asia's second-largest economy. It was important for many industries, but, in particular, it opened up access for Australian companies to Thailand's services markets, and there was a commitment to liberalise two-way services trade into the future.

It is important to note that trade with Thailand and trade with Malaysia has increased ever since both of these agreements were made, and still far outweighs trade with Indonesia, which is a remarkable fact given the much larger size of the population of Indonesia, and it goes some way towards demonstrating how underdone the relationship is between Australia and Indonesia and how important it is for all of us in this place and outside of this place to work very hard on people-to-people and economic ties with great nations such as Indonesia. Despite some reservations, Labor were supportive of the IA-CEPA, which is still to go through the other place, and we look forward to working with our friends and colleagues in Indonesia in the future.

But, for all the benefits that are claimed about trade agreements, we must also be cognisant of the potential costs that can come from open trade, and that is why the Labor Party has called consistently for independent economic modelling of free trade agreements. In fact, it was Labor in government that did the first economic modelling of the IA-CEPA, the Indonesia-Australia Comprehensive Economic Partnership Agreement, when negotiations commenced in 2007. We also welcome the fact that the Department of Foreign Affairs and Trade is now conducting five-year reviews of all free trade agreements. There is an obligation on the government, on Labor as the alternative government and on the business community to ensure the wider community does indeed benefit from open trading relationships with the world and to argue, as we need to do, that the benefits do outweigh any negative impacts and the concerns of the community about those.

We must only look to our friends and strong allies the US to see what happens when domestic politics weaponise international free trade. Those anxious about the economy and in their own very challenging financial and social circumstances were invited to and did, and continue to, blame global open trade for their struggles—and, without an adequate social safety net in the US, who can really blame them for turning to trade as the cause of their quite desperate circumstances?

That's why it is important for a country like Australia to maintain a social safety net, our Medicare system and our Pharmaceutical Benefits Scheme—so that people who are struggling, who have their challenges, are supported by government and by all of those in this House, and are not made to feel like a target for attack by certain people who like to reprimand, and see as negative, people that are in the social safety net and do depend on it to get by. If we fail to do this, we may find ourselves in the situation that the US is in, where people in circumstances where they are struggling turn the blame straight onto global trade. That would not be in the best interests of Australia.

The international trading system, as we know, has entered a period of extraordinary instability and uncertainty over recent years. That has been compounded by the recent events unfolding between the two largest economies in the world. Every tariff imposition and each trade sanction enforced by these countries against one another continues to rip the fabric of international markets and institutions, and there will be a ripple effect that will only widen in diameter. The failure to appoint further judges to the WTO Appellate Body is another crushing blow to an international organisation that has benefited Australia greatly since its inception. In 2019, demand for international products has continued to grow, and interconnected global supply chains criss-cross scores of different regions. A conflict of the magnitude that we are seeing between the US and China only serves as a disruptor to a peaceful working order.

Put simply, the international trading system as it stands is under immense pressure. Now, more than ever, Australia must continue to seek out new markets and new agreements—but good-quality agreements that are fair—to diversify against external financial shocks. We must be a model for other nations in our region and around the globe in a clear pursuit of multilateralism over unilateralism. We must continue to show a willingness to engage in a rules based system that is balanced, fair and rewarding for nations that choose to participate.

The build-up of bilateral trade agreements across the globe has been welcomed in the sense that nations are willing to participate in the trade process; however, as time has progressed the proliferation of these nation-to-nation agreements has resulted in significant underlying concerns for the wider trade system. This noodle bowl effect, as it is called, is detrimental to the multilateral approach under which the World Trade Organization operates and continues to have counterproductive effects in the promotion of open international trade. This is not to say that there are not benefits from bilateral trade agreements—there clearly are—but the greater gain over the longer term is very much in pursuing true multilateralism. That takes time and that takes patience.

The noodle bowl effect not only allows countries to ignore the existing rules based order but presents multiple layers of complicated processes in relation to other international trade agreements which can be both costly and reductive to global tried priorities. This is a disincentive to multilateralism and only serves to amplify the risk of situations like the US-China trade war. The trade war between China and the US should not and cannot become a foundation for the legitimatisation of aggressive trade disputes between nations. Labor supports action that will reinforce institutions like the WTO in order to provide a balanced, reasonable and arbitrary conciliation process to avoid what we can see unfolding internationally.

In this period of global uncertainty, here at home we have seen the gulf widen between the major parties on a number of domestic issues, but this cannot be allowed to happen when discussing trade, and international trade in particular. Trade should be bipartisan in nature, as all members of parliament have an interest increasing the prosperity of our great country. According to a recent Lowy Institute survey, 75 per cent of Australians believe that free and open trade has been good for their own standard of living. That's eight points up since the survey of 2017. It's an obligation on us in this House to do better at explaining these benefits.

At this point I'd like to thank the trade minister, Senator Birmingham, for his willingness to engage with me on a number of issues in relation to the trade portfolio and to address them in a very constructive manner. I look forward to being able to continue to work with him in the national interest and with my colleagues, of course, on this side of the House and on the other side of the House.

Photo of Sharon ClaydonSharon Claydon (Newcastle, Australian Labor Party) Share this | | Hansard source

Is there a seconder for the amendment?

12:07 pm

Photo of Andrew LeighAndrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | | Hansard source

I second the amendment. I spoke in the debate earlier this week about the specifics of the Indonesia free trade agreement, the largest of the three free trade agreements that we're discussing in this subsequent bill, the Customs Amendment (Product Specific Rule Modernisation) Bill 2019. Labor supported those free trade agreements, as we have supported trade liberalisation in Australia for nearly 50 years. This goes back to Gough Whitlam's decision in 1973 to cut tariffs by 25 per cent and to the decisions of the Hawke government to cut tariffs in 1988 and 1991. They did so not out of any ideological belief in free trade but because of a practical recognition that tariffs are a regressive tax and that the burden of tariffs falls more heavily on low-income Australians than on high-income Australians as a share of their income.

Just as it has been the Labor side of politics that has been sceptical about the benefits of consumption taxes, so too has it been the Labor side of the House that has been most sceptical about the benefits of tariffs, which are a consumption tax on overseas imports. We have recognised, too, that open markets benefit workers by creating more jobs. Exporting firms tend to pay higher wages and do more research and development. Multinational firms are more likely to pay higher wages. We recognise that openness is not an unmitigated good but, managed well, it can be one of the drivers of prosperity for Australia. Labor has always recognised that a strong social safety net must go hand in hand with trade liberalisation. Just as the Hawke government in the 1980s, through people such as John Button, worked with industries to engage in suitable restructuring packages, so too Labor today believes it is vital to have strong social supports and a cooperative relationship with industries to manage the impacts of trade. While trade boosts aggregate incomes, it doesn't follow automatically that every worker and every industry is made better off by trade, so we need to ensure that social supports are in place as we work to gain the benefits of trade. Labor's commitment is shown through our Australia in the Asian century white paper, delivered by the Gillard government, and the Future Asia suite of policies which Labor took to the last election.

As the shadow trade minister has pointed out, multilateral agreements are the best way of achieving trade liberalisation. The Productivity Commission notes that bilateral and regional agreements may have limitations. In this case, Labor saw these three bilateral agreements as being good, on balance. As the shadow trade minister has eloquently pointed out, they weren't negotiated precisely as Labor would have done, but on balance we saw the need to support them. As the trade shadow minister noted in The West Australian today, Indonesia, as a result of this agreement, will provide duty free or preferential access for 99.9 per cent of Australia's goods exports and there will be new services opportunities for Australian exporting firms. In return, Australia will scrap any remaining tariffs on Indonesian imports.

I acknowledge Michiko Mokodompit, who's been working in my office this week. She is a young Indonesian woman who assisted me in preparing my remarks earlier this week. My own background with Indonesia is as somebody who lived in Indonesia for three years and has a great deal of warmth and personal affinity for Indonesians. I see this agreement as encouraging those strong ties.

The Productivity Commission, in its trade policy review that was brought down this year, noted that Australia has signed 15 bilateral and regional preference agreements. It's useful to go through what those 15 agreements are: New Zealand in 1983, Singapore in 2003, Thailand and the United States in 2005, Chile in 2009, ASEAN and New Zealand in 2010, Malaysia in 2013, Korea in 2014, China and Japan in 2015, PACER Plus in 2017, CPTPP in 2018, Peru in 2018 as well, and Hong Kong and Indonesia in 2019. Those agreements will potentially be built on by the negotiations which are underway on prospective bilateral agreements with the European Union and India and the negotiations which are ongoing over the Regional Comprehensive Economic Partnership—an ASEAN-centred proposal for a regional free trade area which would include 10 ASEAN member states and the countries that have existing free trade agreements with ASEAN: Australia, China, India, Japan, Korea and New Zealand. The RCEP participating countries account for almost half the world's population, 30 per cent of global GDP and a quarter of world exports.

It's important that we go into free trade agreements or preferential trade agreements with clear eyes. Preferential trade agreements necessarily cover a smaller volume of trade than a multilateral trade agreement would encompass. A study by the Productivity Commission in 2003 found that two-thirds of the free trade agreements they surveyed diverted more trade from non-members than they created among members. So not every FTA is a good FTA. There's potential, as the Productivity Commission pointed out, for internal discrimination and for powerful vested interests to have more sway over what's included within a preferential trade agreement than might be the case through multilateral negotiations.

There's also the complexity. The shadow trade minister referred to Jagdish Bhagwati's metaphor of a spaghetti bowl, which we in the Asian region tend to refer to as the 'noodle bowl effect'—the risk that preferential trade agreements can end up diverting more trade than they create. But we also need to be pragmatic. We need to recognise what the World Trade Organization negotiations have become. The Doha Round has potentially become 'dead as a Doha'! We may not see another multilateral trade deal in our lifetimes of the scale that we saw in the Uruguay trade agreement negotiated by Labor.

In that context, we may be operating in the world of the second-best regional agreements and third-best preferential trade agreements. But if we are in that world, we need to have appropriate modelling. Labor has called for modelling not just by the department that is a responsible for negotiating the agreement, the Department of Foreign Affairs and Trade, but also by the Productivity Commission, which is well set up to carry out the sort of independent modelling that is necessary to have a clear-eyed assessment of the cost and benefits of these agreements.

We have also called in the past for a review by the Productivity Commission of the benefits of preferential trade agreements a decade on, to find out after the dust has settled how they have panned out and whether the promises that were made in the signing ceremonies, which are always bold, have been delivered in reality. We continue to take the view that expert independent modelling would be desirable not only from an economic standpoint but from a political one too.

As the shadow trade minister has noted, the global view of trade is hardening in some countries. While in Australia we still see strong popular support for free trade and a recognition by many that trade benefits their household, in the United States the backlash against trade has been strong. The hardship that has been experienced, particularly in parts of the rust belt Midwest through rapid job loss, has been blamed too heavily on trade, even though technology is doing far more job destruction than trade. Trade is an easy scapegoat for right-wing populists, and it is a danger that we must face down here. It is important that, in Australia, we do not descend into populism. The cost of a trade war would be massive.

As the Productivity Commission noted in 2017, a major trade war could see Australia slip into recession, losing hundreds of thousands of jobs. The impact of a global Smoot-Hawley style rise in protectionism would be dramatic and negative for Australia. A relatively undiversified country like ours would suffer far more than large economies which can turn inwards to their own domestic market were a trade war to start. Maintaining popular support for openness is vital, and that is why we on the Labor side of the House believe that more needs to be done to ensure that there is independent assessment of the benefits of preferential trade agreements.

12:18 pm

Photo of Jason WoodJason Wood (La Trobe, Liberal Party, Assistant Minister for Customs, Community Safety and Multicultural Affairs) Share this | | Hansard source

I thank all honourable members for their contribution to this debate on the Customs Amendment (Product Specific Rule Modernisation) Bill 2019. The bill will amend the Customs Act to simplify the way in which the product-specific rules of origin annexes in six of Australia's free trade agreements, the FTAs, are implemented domestically. The Customs Act will refer directly to the annexes, enabling future changes to the annexes to be reconsidered in the Customs Act. This will remove the need to prescribe the product-specific rules of origin in regulations to amend them when the annexes are updated.

The changes to the Customs Act proposed by the bill are technical in nature and do not change the benefits available under any of the FTAs. These amendments, however, will streamline the implementation of updates to the FTAs that relate to goods, help facilitate smoother trade between Australia and our FTA partners and reduce the administrative burden on importers. Further, it is expected that the size of the regulations for the six affected FTAs will significantly reduce over 3,000 pages to about 90 pages, lowering the cost administration of the FTAs and removing unnecessary red tape.

Regarding the opposition amendments, this bill has nothing to do with economic modelling, IA-CEPA or the other free trade agreements considered by this House on Monday. It is concerning that the shadow minister for trade and the shadow assistant minister for Treasury cannot work that out. All we ask the opposition to do is actually read the bill. This has nothing to do with that. I therefore commend this bill to the House.

Photo of Tony SmithTony Smith (Speaker) Share this | | Hansard source

The original question was that this bill be now read a second time. To this, the honourable member for Brand has moved as an amendment that all words after 'that' be omitted with a view to substituting other words. So the immediate question now is that the amendment be agreed to.