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House of Representatives

Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019

Explanatory Memorandum

(Circulated by authority of the Assistant Minister for Customs, Community Safety and Multicultural Affairs, the Honourable Jason Wood MP)

OUTLINE

The purpose of the Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019 (the Bill) is to amend the Customs Act 1901 (the Customs Act) to give effect to:

the Peru-Australia Free Trade Agreement;
the Indonesia-Australia Comprehensive Economic Partnership Agreement; and
the Free Trade Agreement between Australia and Hong Kong, China.

Peru-Australia Free Trade Agreement

On 12 February 2018 in Canberra, the Hon Steven Ciobo MP, then Minister for Trade, Tourism and Investment, and his Peruvian counterpart Mr Eduardo Ferreyros, signed the Peru-Australia Free Trade Agreement (PAFTA).

PAFTA is a comprehensive, high quality free trade agreement that will open new access to Peru's goods, services and investment markets for Australian businesses. It builds on the gains secured in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It provides a gateway to Latin America, strengthening our economic relationships within the region and helping facilitate value chains between the Americas and Asia.

PAFTA will eliminate more than 99 per cent of tariffs on Australian exports within five years of entry into force. This outcome will provide Australian exporters with new market access opportunities in beef, sheepmeat, wine, pharmaceuticals, medical devices, paper products and machinery. PAFTA will also provide greater legal certainty for Australian service suppliers in Peru and will create new opportunities for Australian education providers to attract more Peruvian students to study in Australia.

Schedule 1 of the Bill amends the Customs Act to provide rules for determining whether goods are Peruvian originating goods and therefore entitled to be imported into Australia at preferential rates of customs duty. The amendments will also enable regulations to prescribe record keeping obligations on exporters and producers of goods exported to Peru for which a preferential rate of customs duty is claimed.

The Customs Tariff Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019 (Customs Tariff Amendment Bill) will make complementary amendments to the Customs Tariff Act 1995 to give effect to the preferential rates of customs duty in accordance with PAFTA. Schedule 6A of the Customs Tariff Act will set out the preferential customs duty rates for Peruvian originating goods.

Indonesia-Australia Comprehensive Economic Partnership Agreement

On 4 March 2019 in Jakarta, Senator the Hon Simon Birmingham, Minister for Trade, Tourism and Investment, and his counterpart the Indonesian Minister for Trade H.E Enggartiasto Lukita, signed the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA).

IA-CEPA creates a framework for Australia and Indonesia to unlock the potential of our bilateral economic partnership. It builds on commitments under our existing free trade agreement, the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) across goods, services and investment. In addition to reducing non-tariff barriers to trade and simplifying paperwork, IA-CEPA will allow 99% of Australia's goods exports to enter Indonesia duty free or with significantly improved preferential arrangements. Australian services suppliers and investors will have greater certainty for entry and operation in the Indonesian market, creating more opportunities for Australians to meet Indonesia's growing needs in investment and world-class services.

Schedule 2 of the Bill amends the Customs Act to provide rules for determining whether goods are Indonesian originating goods and therefore entitled to be imported into Australia at preferential rates of customs duty. The amendments will also enable regulations to prescribe record keeping obligations on exporters of goods exported to Indonesia for which a preferential rate of customs duty is claimed.

The Customs Tariff Amendment Bill will make complementary amendments to the Customs Tariff Act to give effect to the preferential rates of customs duty in accordance with IA-CEPA. Schedule 9A of the Customs Tariff Act will set out the preferential customs duty rates for Indonesian originating goods.

Australia-Hong Kong Free Trade Agreement

On 26 March 2019 in Sydney, Senator the Hon Simon Birmingham, Minister for Trade, Tourism and Investment, and his counterpart the Hong Kong Secretary for Commerce and Economic Development Edward Yau, signed the Free Trade Agreement between Australia and Hong Kong, China (A-HKFTA).

The A-HKFTA, along with the associated Investment Agreement, will strengthen the economic relationship between Australia and Hong Kong, China. It provides business certainty by locking in zero tariff levels, improved access for services, updated international investment protection, and transparent policy settings. It also sets up a dynamic framework for future engagement.

Schedule 3 of the Bill amends the Customs Act to provide rules for determining whether goods are Hong Kong originating goods and therefore entitled to be imported into Australia at preferential rates of customs duty. The amendments also enable regulations to prescribe record keeping obligations on exporters and producers of goods exported to Hong Kong, China for which a preferential rate of customs duty is claimed.

The Customs Tariff Amendment Bill will make complementary amendments to the Customs Tariff Act to give effect to the preferential rates of customs duty in accordance with A-HKFTA. Schedule 13 of the Customs Tariff Act will set out the preferential customs duty rates for Hong Kong originating goods.

FINANCIAL IMPACT STATEMENT

The 2018-19 Budget estimated that implementing PAFTA would have a negligible cost to revenue over the forward estimates.

The 2019-20 Budget estimated that implementing IA-CEPA would have no impact on revenue over the forward estimates and implementing A-HKFTA would reduce revenue by $40 million over the forward estimates.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

A Statement of Compatibility with Human rights in respect of the amendments contained in the Bill is at Attachment A . The Statement assesses the amendments to be compatible with Australia's human rights obligations.

REGULATION IMPACT STATEMENT

A regulation impact statement in respect of all amendments to give effect to the new rules of origin requirements in accordance with the PAFTA and related preferential treatment of customs duty is at Attachment B .

A regulation impact statement in respect of all amendments to give effect to the new rules of origin requirements in accordance with the IA-CEPA and related preferential treatment of customs duty is at Attachment C .

A regulation impact statement in respect of all amendments to give effect to the new rules of origin requirements in accordance with the A-HKFTA and related preferential treatment of customs duty is at Attachment D .

NOTES ON CLAUSES

Clause 1 - Short title

1. This clause provides for the 'Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019' (the Bill), when enacted, to be cited as the Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Act 2019.

Clause 2 - Commencement

2. This clause sets out, in a table, the date on which provisions of the Bill, when enacted, will commence.

3. Table item 1 provides for clauses 1 to 3 and anything in the Bill not elsewhere covered by the table to commence on the day the Bill receives the Royal Assent.

4. Table item 2 provides for Schedule 1 of the Bill, when enacted, to commence on the later of the day the Bill receives the Royal Assent, and the day the Peru-Australia Free Trade Agreement (PAFTA), done at Canberra on 12 February 2018, enters into force for Australia. The Minister must announce the day on which PAFTA enters into force for Australia by notifiable instrument, (in accordance with the Legislation Act 2003). However, the provisions do not commence at all if the PAFTA does not enter into force for Australia.

5. Table item 3 provides for Schedule 2 of the Bill, when enacted, to commence on the later of the day the Bill receives the Royal Assent, and the day the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), done at Jakarta on 4 March 2019, enters into force for Australia. The Minister must announce the day on which IA-CEPA enters into force for Australia by notifiable instrument, (in accordance with the Legislation Act 2003). However, the provisions do not commence at all if the IA-CEPA does not enter into force for Australia.

6. Table item 4 provides for Schedule 3 of the Bill, when enacted, to commence on the later of the day the Bill receives the Royal Assent, and the day the Free Trade Agreement between Australia and Hong Kong, China (A-HKFTA), done at Canberra on 26 March 2019, enters into force for Australia. The Minister must announce the day on which A-HKFTA enters into force for Australia by notifiable instrument, (in accordance with the Legislation Act 2003). However, the provisions do not commence at all if the A-HKFTA does not enter into force for Australia.

Clause 3 - Schedules

7. This clause enables the Schedules of the Bill, when enacted, to amend or repeal provisions of legislation specified in that Schedule in accordance with the applicable items. In the context of the Bill, the Customs Act 1901 (the Customs Act) is being amended.

Schedule 1 - Peru

Part 1 - Peruvian originating goods

Customs Act 1901

Introductory Comments

1. On 12 February 2018, in Canberra, the Hon Steven Ciobo MP, then Minister for Trade, Tourism and Investment, and his Peruvian counterpart Mr Eduardo Ferreyros, signed the PAFTA.

2. PAFTA, on entry into force, provides in part for new rules of origin to determine 'Peruvian originating goods' and for the preferential treatment of customs duty to apply to such goods. 'Peruvian originating goods' in accordance with PAFTA are those goods that satisfy the requirements in new Division 1EA of Part VIII of the Customs Act inserted by the Bill.

Item 1 Subparagraph 105B(3)(b)(ii)

3. Section 105B of the Customs Act sets out circumstances where the liability to pay import duty on excise-equivalent goods is wholly or partly extinguished.

4. 'Excise-equivalent goods' is defined in subsection 4(1) of the Customs Act to mean goods prescribed by the regulations for the purposes of this definition.

5. However, under subsection 105B(3) of the Customs Act, those circumstances do not apply to an amount of duty if the excise-equivalent goods are classified to subheading 2207.20.10 (denatured ethanol) or 3826.00.10 (biodiesel) of Schedule 3 to the Customs Tariff Act 1995 (the Customs Tariff Act), or an item in the table in Schedule 4A, 5, 6, 7, 8, 9, 10, 11 or 12 of that Act that relates to a subheading mentioned.

6. As part of the implementation of PAFTA, a separate Customs Tariff Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2018 (the Customs Tariff Amendment Bill) will insert new Schedule 6A into the Customs Tariff Act. New Schedule 6A will provide for excise-equivalent rates of duty on certain alcohol, tobacco, fuel petroleum products in accordance with PAFTA, and the related preferential rates of customs duty.

7. This item amends subparagraph 105B(3)(b)(ii) of the Customs Act to insert a reference to Schedule 6A of the Customs Tariff Act.

8. The purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under PAFTA.

Item 2 Subsection 105B(4) (paragraph (b) of the definition of biofuel blend )

9. Subsection 105B(4) of the Customs Act defines 'biofuel blend', in part, as goods classified to certain subheadings under Schedule 3 of the Customs Tariff Act or an item in the table in the Schedules relating to originating goods under Free Trade Agreements (FTAs) that relate to the relevant subheadings.

10. This item amends the definition of 'biofuel blend' under subsection 105B(4) of the Customs Act to insert a reference to new Schedule 6A of the Customs Tariff Act.

11. As for item 1, the purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under PAFTA.

Item 3 After Division 1E of Part VIII

12. This item amends Part VIII of the Customs Act to insert new Division 1EA.

13. New Division 1EA is titled 'Peruvian originating goods' and sets out the new rules for determining whether goods are Peruvian originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act. These new rules give effect to Chapter 3 of PAFTA.

14. New Division 1EA contains seven Subdivisions (Subdivision A to Subdivision G) as set out below.

Subdivision A - Preliminary

15. Subdivision A contains a simplified outline of new Division 1EA and the interpretation provision for this Division.

New section 153ZIL Simplified outline of this Division

16. New section 153ZIL sets out a simplified outline of Subdivision B to Subdivision G of new Division 1EA.

New section 153ZIM Interpretation

17. New subsection 153ZIM(1) sets out the definitions for the purposes of new Division 1EA as follows:

Agreement means the Peru-Australia Free Trade Agreement, done at Canberra on 12 February 2018, as amended and in force for Australia from time to time. The note to this definition indicates that as at 2019, the text of PAFTA is accessible through Australian Treaties Library on the AustLII website.

aquaculture has the meaning given by Article 3.1 of Chapter 3 of PAFTA. This term is necessary as it is referred to in the definition of 'production' also provided in Article 3.1 of Chapter 3 of PAFTA.

Australian originating goods means goods that are Australian originating goods under a law of Peru that implements PAFTA.

Certificate of Origin means a certificate that is in force and that complies with the requirements of Article 3.17 of Chapter 3 of PAFTA.

Convention means the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983, as in force from time to time. The note to this definition indicates as at 2019, the text of the Convention is accessible through the Australian Treaties Library on the AustLII website. This term is necessary and is referred to in the definition of 'Harmonized Commodity Description and Coding System'.

customs value of goods has the meaning given by section 159 of the Customs Act. In most cases, this will be the transaction value but there are other valuation methods if this value cannot be ascertained.

enterprise has the meaning given by Article 1.3 of Chapter 1 of PAFTA.

Harmonized Commodity Description and Coding System means the Harmonized Commodity Description and Coding System (the HCDC System) that is established by or under the Convention.

The HCDC System is the worldwide classification system that has been adopted by all countries that are members of the World Customs Organization (WCO). In Australia, the HCDC System has been adopted in the Customs Tariff Act.

The HCDC is a structure for classifying goods based on internationally agreed descriptors for goods and related six-digit codes administered by the WCO. This six-digit classification uniquely identifies all traded goods and commodities and is uniform across all countries that have adopted the HCDC System. The WCO reviews the system every five years to reflect changes in industry practice, technological developments and evolving international trade patterns.

This term is referred to in the definition of 'Harmonized System' which sets out the HCDC System on which PAFTA, particularly the product-specific rules, is based.

Harmonized System means:

(a)
the Harmonized Commodity Description and Coding System (the HCDC System) as in force on 1 January 2017; or
(b)
if the table in Annex 3-B of PAFTA is amended or replaced to refer to Chapters, headings and subheadings of a later version of the HCDC System-the later version of the HCDC System.

As per the notes for the definition of HCDC System above, updates to that System are undertaken every 5 years. The last review of the HCDC System (the fifth review) was completed in June 2014 and related amendments made entered into force on 1 January 2017.

While each signatory to the Convention is required to implement and reflect related amendments to the HCDC System in their domestic legislation, simultaneously on the date when the amendments enter into force, the pace at which the amendments are implemented varies from country to country.

By way of example, while Australia has implemented, and currently uses, the latest HCDC System of 2017, many of our established FTAs still utilise other versions of the HCDC System for their product specific rules of origin. In light of this, and to avoid causing any disruption to international trade, Australia, through the Australian Border Force, publishes the changes between each HCDC System update and relevant concordance associated with those updates on its website so that anyone can readily identify the appropriate tariff classification codes for importing goods from other countries into Australia.

The definition of 'Harmonized System' will expressly recognise, in the Customs Act, the version of the HCDC System on which the PAFTA was based, and allow subsequent versions of that System to also be recognised when the relevant Annex of the PAFTA is formally amended.

indirect materials means:

(a)
goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods; or
(b)
goods or energy used in the maintenance of buildings or the operation of equipment associated with the production of goods;
including:
(c)
fuel (within its ordinary meaning); and
(d)
catalysts and solvents; and
(e)
gloves, glasses, footwear, clothing, safety equipment and supplies; and
(f)
tools, dies and moulds; and
(g)
spare parts and materials; and
(h)
lubricants, greases, compounding materials and other similar goods.

Interpretation Rules means the General Rules (as in force from time to time) for the Interpretation of the Harmonized System provided for by the Convention.

non-originating materials means goods that are not originating materials.

Non-originating materials are goods that are not originating materials because they do not satisfy the requirements of new Division 1EA in their own right. For example, where frozen crumbed fish fillets processed in a Party to PAFTA from fish caught in the territory of that Party, coated with herbs and spices that are produced in Thailand (which is not a Party to PAFTA), the fish would be originating materials and the herbs and spices would be non-originating materials.

non-Party has the same meaning as it has in Chapter 3 of PAFTA.

This term is necessary and referred to in new section 153ZIS, which deals with the consignment of Peruvian originating goods (see notes below for new section 153ZIS).

originating materials means:

(a)
Peruvian originating goods that are used in the production of other goods; or
(b)
Australian originating goods that are used in the production of other goods; or
(c)
indirect materials.

In some circumstances, in order to determine whether goods that are imported into Australia are Peruvian originating goods, and therefore eligible for a preferential rate of customs duty, it may be necessary to have regard to the goods from which the final goods are produced (see Subdivision C and Subdivision D).

person of Peru means a national within the meaning, so far as it relates to Peru, of Article 1.3 of Chapter 1 of PAFTA, or an enterprise of Peru.

Peruvian originating goods means goods that, under new Division 1EA of Part VIII of the Customs Act, are Peruvian originating goods.

production has the same meaning given by Article 3.1 of Chapter 3 of PAFTA.

In Article 3.1, production is defined as operations including, but not limited to, growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, collecting, breeding, extracting, aquaculture, gathering, manufacturing, processing or assembling a good. This list is non-exhaustive - the term 'production' is also capable of capturing any other process that falls within the meaning of 'operations', including any currently existing operations that have not been listed and any new operations which may arise in the future.

territory of Australia means territory within the meaning, so far as it relates to Australia, of Article 1.3 of Chapter 1 of PAFTA.

territory of Peru means territory within the meaning, so far as it relates to Peru, of Article 1.3 of Chapter 1 of PAFTA.

18. New subsection 153ZIM(2) provides that the value of goods for the purposes of new Division 1EA is to be worked out in accordance with the regulations and that the regulations may prescribe different valuation rules for different kinds of goods. The value of goods is relevant, for example, in determining whether goods satisfy the de minimis requirement in Article 3.9 of Chapter 3 of PAFTA. The value of goods is to be distinguished from the customs value of goods, which is to be worked out under section 159 of the Customs Act.

19. New subsection 153ZIM(3) provides that in specifying tariff classifications for the purposes of new Division 1EA, the regulations may refer to the Harmonized System. The product-specific rules of origin in Annex 3-B to Chapter 3 of PAFTA refer to the tariff classifications of the Harmonized System.

20. New subsection 153ZIM(4) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of new Division 1EA. Subsection 4(3A) provides that reference in the Customs Act to the tariff classification of goods is a reference to Schedule 3 to the Customs Tariff Act, which is not the case in new Division 1EA.

21. New subsection 153ZIM(5) provides that, despite subsection 14(2) of the Legislation Act 2003 (the Legislation Act), regulations made for the purposes of Division 1EA may make provision in relation to a matter by applying, adopting or incorporating, with or without modification, any matter contained in an instrument or other writing as in force or existing from time to time. The subsection will override subsection 14(2) of the Legislation Act should it be necessary in order to implement PAFTA by applying, adopting or incorporating an instrument or other writing that is not an Act or disallowable legislative instrument. Any instrument and other writing so incorporated will be limited to those that are required for the operation of the PAFTA and will be accessible through the Department's website, and free of charge, to ensure they are readily available and at no cost to persons concerned. For example, in implementing other FTAs, this provision has enabled the regulations to refer to the general accounting principles of a country other than Australia for the purposes of the regional value content calculations. Where such references are made in regulations, the explanatory material will explain the basis on which such references are made and indicate where the material referred to can be located by the public.

Subdivision B - Goods wholly obtained or produced entirely in Peru or in Peru and Australia

22. Subdivision B contains new section 153ZIN, which sets out the rules in relation to goods that are wholly obtained or produced entirely in Peru or in Peru and Australia.

23. New subsection 153ZIN(1) provides that goods are Peruvian originating goods if they are wholly obtained or produced entirely in Peru or in Peru and Australia, and either the importer of the goods has, at the time the goods are imported, a certificate of origin, or a copy of one, for the goods; or Australia has waived the requirement for a certificate of origin for the goods.

24. New subsection 153ZIN(2) provides that goods are wholly obtained or produced entirely in Peru or in Peru and Australia if, and only if, the goods are:

(a)
plants, or goods obtained from plants, that are grown, cultivated, harvested, picked or gathered in the territory of Peru or in the territory of Peru and the territory of Australia; or
(b)
live animals born and raised in the territory of Peru or in the territory of Peru and the territory of Australia; or
(c)
goods obtained from live animals in the territory of Peru; or
(d)
animals obtained by hunting, trapping, fishing, gathering or capturing in the territory of Peru; or
(e)
goods obtained from aquaculture conducted in the territory of Peru; or
(f)
minerals, or other naturally occurring substances, extracted or taken from the territory of Peru; or
(g)
fish, shellfish, other goods of sea-fishing or other marine life taken from the sea, seabed or subsoil beneath the seabed:

(i)
outside the territory of Peru and the territory of Australia; and
(ii)
in accordance with international law, outside the territorial sea of non-Parties;
by vessels that are registered or recorded with Peru and are entitled to fly the flag of Peru; or

(h)
goods produced, from goods referred to in paragraph (g), on board a factory ship that is registered or recorded with Peru and is entitled to fly the flag of Peru; or
(i)
goods (except fish, shellfish, other goods of sea-fishing or other marine life) taken by Peru, or a person of Peru, from the seabed, or subsoil beneath the seabed, outside the territory of Peru and the territory of Australia, and beyond areas over which non-Parties exercise jurisdiction, but only if Peru, or the person of Peru, has the right to exploit that seabed or subsoil in accordance with international law; or
(j)
waste or scrap that:

(i)
has been derived from production in the territory of Peru and that is fit only for the recovery of raw materials; or
(ii)
has been derived from used goods that are collected in the territory of Peru and that are fit only for the recovery of raw materials; or

(k)
goods produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, exclusively from goods referred to in paragraphs (a) to (j) or from their derivatives.

25. New section 153ZIN gives effect to Articles 3.2, 3.3, 3.17, 3.20 and 3.21 of Chapter 3 of PAFTA in respect of rules of origin for goods wholly obtained or produced in a Party to PAFTA. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with PAFTA.

Subdivision C - Goods produced in Peru, or in Peru and Australia, from originating materials

26. Subdivision C contains new section 153ZIO, which sets out a rule for goods that are produced in Peru, or in Peru and Australia, from originating materials only.

27. Such goods are Peruvian originating goods if they are produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, from originating materials only and if the importer of the goods has, at the time the goods are imported, a certificate of origin, or a copy of one, for the goods, or Australia has waived the requirement for a certificate of origin for the goods.

28. New section 153ZIO gives effect to Articles 3.2, 3.3, 3.17, 3.20 and 3.21 of Chapter 3 of PAFTA in respect of rules of origin for goods produced exclusively from originating materials. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with PAFTA.

Subdivision D - Goods produced in Peru, or in Peru and Australia, from non-originating materials

29. Subdivision D contains new section 153ZIP, which deals with goods produced in Peru, or in Peru and Australia, from non-originating materials.

30. New subsection 153ZIP(1) provides that goods are Peruvian originating goods if:

(a)
they are classified to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex 3-B of PAFTA; and
(b)
they are produced entirely in the territory of Peru, or entirely in the territory of Peru and the territory of Australia, from non-originating materials only or from non-originating materials and originating materials; and
(c)
the goods satisfy the requirements applicable to the goods in that Annex; and
(d)
either:

(i)
the importer of the goods has, at the time the goods are imported, a certificate of origin, or a copy of one, for the goods; or
(ii)
Australia has waived the requirement for a certificate of origin for the goods.

31. This provision applies the product specific rules by direct reference to Annex 3-B of PAFTA. This applies both the product specific rules and any product specific process rules. The direct application of Annex 3-B does not change the operation of these rules as set out in that Annex. Rather, as PAFTA is defined to be the Agreement as amended from time to time, this will ensure that the current Annex in PAFTA will be applied. It will also ensure that any updated version of the Annex that would be contained in PAFTA when the parties implement later versions of the Harmonized System will be applied as soon as any provisions of PAFTA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

32. For certainty, new subsection 153ZIP(2) provides that, without limiting paragraph 153ZIP(1)(c), a requirement may be specified in the table in Annex 3-B of PAFTA by using an abbreviation that is given a meaning for the purpose of that Annex. For example, the abbreviation of RVC 40 in the Annex means a regional value content of at least 40 per cent. Another example of an abbreviation in the Annex is 'CC', which is an abbreviation for Change of Chapter.

Change in tariff classification

33. New subsection 153ZIP(3) refers to the first of several requirements that may be prescribed in regulations made for the purposes of Subdivision D. The subsection provides that, if a requirement that applies in relation to the goods is that all non- originating materials used in the production of the goods must have undergone a particular change in tariff classification, the regulations may prescribe when a non- originating material used in the production of the goods is taken to satisfy the change in tariff classification.

34. The regulations made under this head of power include provisions to give effect to the cumulative rules of origin contained in Article 3.8 of Chapter 3 of PAFTA where the non-originating materials that are used or consumed in the production of the good do not satisfy the change in tariff classification.

35. The concept of the change in tariff classification requirement applies to non-originating materials. Goods that have been sourced outside Peru or Australia and that are used in the production of other goods are non-originating materials. Goods sourced from Peru or Australia that have not fulfilled the requirements of new Division 1EA and that are used in the production of other goods are also non- originating materials.

36. Non-originating materials used to produce other goods may not have the same classification under the Harmonized System as the final good. For example, non- originating materials used to produce a good may be classified to one tariff classification before the production process, and the final good may be classified under a different tariff classification after the production process. To satisfy the requirement of classification change, and therefore satisfy a requirement for the purposes of claiming preferential treatment of customs duty in accordance with PAFTA, the goods concerned must be sufficiently transformed such that they can be classified to a different tariff classification to that of the non-originating materials from which they are produced.

37. For example, frozen fish fillets (classified to tariff code 0304) are produced from fish caught in Peru and combined with herbs and spices produced in Thailand (which is not a Party to PAFTA) (classified to tariff code 0907 to 0910) to make crumbed fish fillets (classified to tariff code 1604 in Chapter 16 of the Harmonized System). The applicable tariff change for crumbed fish is 'a change to Chapter 16 from any other chapter'. As the herbs and spices are classified to Chapter 9 of the Harmonized System, these non-originating materials meet the tariff change requirement, considering that the fish concerned is produced by Peru, and is therefore an originating material and is not required to change its classification.

38. As per the above example, it is necessary for the tariff classification of the final good and each of the goods that are non-originating materials used in the production of the final goods to be known in order to determine the applicable change in tariff classification.

39. New subsection 153ZIP(4) allows for the change in tariff classification requirement to also be satisfied if the total value of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the customs value of the goods.

40. New subsection 153ZIP(4) gives effect to the de minimis requirement set out in Article 3.9 of Chapter 3 of PAFTA. Therefore, even if all the non-originating materials used to produce a final good do not satisfy a particular change in tariff classification, the final goods may still be Peruvian originating goods because the change in tariff classification will be taken to be satisfied.

41. The value of non-originating materials for the purposes of subsection 153ZIP(4) is to be worked out in accordance with the method that will be included in the regulations.

42. New subsection 153ZIP(5) provides that, if:

(a)
a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification; and
(b)
the goods are classified to any of Chapters 50 to 63 of the Harmonized System; and
(c)
one or more of the non-originating materials used in the production of the goods do not satisfy the change in tariff classification;
then the requirement is taken to be satisfied if the total weight of the non- originating materials covered by paragraph (c) does not exceed 10 per cent of the total weight of the goods.

43. This provision allows for the change in tariff classification requirement to also be satisfied in relation to certain goods if the total weight of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the total weight of the goods.

Regional value content

44. New subsection 153ZIP(6) provides that, if a requirement that applies in relation to the goods is that the goods must have a regional value content worked out in a particular way:

(a)
the regional value content of the goods is to be worked out in accordance with PAFTA; or
(b)
if the regulations prescribe how to work out the regional value content of the goods-the regional value content of the goods is to be worked out in accordance with the regulations.

45. This provision provides the head of power to prescribe formulae for calculating regional value content and in doing so gives effect to Article 3.4 of Chapter 3 of PAFTA.

46. New subsection 153ZIP(7) provides that, if:

(a)
a requirement that applies in relation to the goods is that the goods must have a regional value content worked out in a particular way; and
(b)
the goods are imported into Australia with accessories, spare parts, tools or instructional or other information materials; and
(c)
the accessories, spare parts, tools or instructional or other information materials are classified with, delivered with and not invoiced separately from the goods; and
(d)
the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the goods;

the regulations must provide for the value of the accessories, spare parts, tools or instructional or other information materials to be taken into account for the purposes of working out the regional value content of the goods (whether the accessories, spare parts, tools or instructional or other information materials are originating materials or non-originating materials).

47. The note to this section indicates that the value of the accessories, spare parts, tools or instructional or other information materials is to be worked out in accordance with the regulations.

48. New subsection 153ZIP(7) provides a head of power to prescribe regulations to give effect to Article 3.11 of Chapter 3 of PAFTA in respect of the value of the accessories, spare parts, tools or instructional or other information materials for working out regional value content. This provision is necessary because the value of such goods would not normally form part of the value of materials that are used in the production of the underlying goods.

49. New subsection 153ZIP(8) also gives effect to Article 3.11 of Chapter 3 of PAFTA and provides that section 153ZIR should be disregarded for the purposes of subsection 153ZIP(7) when working out whether the accessories, spare parts, tools or instructional or other information materials are originating or non-originating materials. This provision ensures that consideration of applicable change in tariff classification only applies to final goods produced from non-originating materials and not the accessories, spare parts, tools or instructional or other information materials for the final goods.

Goods put up in a set for retail sale

50. New subsection 153ZIP(9) gives effect to Article 3.15 of Chapter 3 of PAFTA which applies to sets of goods.

51. New subsection 153ZIP(9) provides that if:

(a)
goods are put up in a set for retail sale; and
(b)
the goods are classified in accordance with Rule 3(c) of the Interpretation Rules;
the goods are Peruvian originating goods under this section only if:
(c)
all of the goods in the set, when considered separately, are Peruvian originating goods; or
(d)
the total customs value of the goods (if any) in the set that are not Peruvian originating goods does not exceed 20% of the customs value of the set of goods.

52. This provision applies to goods that are put up for retail sale and are comprised of multiple components that are classified under two or more tariff headings. Under Rule 3(c) of the Interpretation Rules, when goods cannot be classified to a single heading or subheading, they shall be classified under the heading or subheading which occurs last in the numerical order of the HCDC system.

53. By way of an example, a mirror, brush and comb are put up as a 'grooming set' for retail sale. This set is classified under Rule 3(c) of the Interpretation Rules according to the tariff classification applicable to combs. This is because 'combs' is the heading which occurs last in numerical order of the HCDC system among the three items concerned.

54. The effect of new paragraph 153ZIP(9)(c) is that the set will not be considered to be Peruvian originating goods unless all three of the goods in the set, when considered separately, are such originating goods. However, if one or more of the goods in the grooming set is non-originating, then the grooming set may still be Peruvian originating goods under new paragraph 153ZIP(9)(d) if the customs value of the non- originating goods does not exceed 20% of the customs value of the entire grooming set.

55. New section 153ZIQ gives effect to Article 3.12 of Chapter 3 of PAFTA in relation to packaging materials and containers for retail sale.

56. Subsection 153ZIQ(1) gives effect to paragraph (1) of Article 3.12 of Chapter 3 of PAFTA and provides that if:

(a)
goods are packaged for retail sale in packaging material or a container; and
(b)
the packaging material or container is classified with the goods in accordance with Rule 5 of the Interpretation Rules;
then the packaging material or container is to be disregarded for the purposes of this Subdivision.

57. This provision has effect that packaging materials or containers do not need to satisfy the change in tariff classification requirement that may apply to the goods packaged within the materials or containers.

58. However, in accordance with paragraph (2) of Article 3.12 of Chapter 3 of PAFTA, new subsection 153ZIQ(2) provides one exception to subsection 153ZIQ(1). This exception applies where the goods are required to have a regional value content worked out in a particular way. In this context, the regulations must provide for the value of the packaging material or container to be taken into account as originating materials or non-originating materials, as the case may be, for the purposes of working out the regional value content of the goods.

59. Without this provision, the value of packaging materials and containers would normally not form part of the value of materials that are used in the production of the goods.

60. The note to this subsection explains that the value of packaging materials and containers for the purposes of this subsection is to be worked out in accordance with the regulations.

Subdivision E - Goods that are accessories, spare parts, tools or instructional or other information materials

61. Subdivision E contains new section 153ZIR, which sets out a specific rule that applies to goods that are accessories, spare parts, tools or instructional or other information materials.

62. New section 153ZIR provides that goods are Peruvian originating goods if:

(a)
they are accessories, spare parts, tools or instructional or other information materials in relation to other goods; and
(b)
the other goods are imported into Australia with the accessories, spare parts, tools or instructional or other information materials; and
(c)
the other goods are Peruvian originating goods; and
(d)
the accessories, spare parts, tools or instructional or other information materials are classified with, delivered with and not invoiced separately from the other goods; and
(e)
the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the other goods.

63. Under this provision, accessories, spare parts, tools or instructional or other information materials will be deemed Peruvian originating goods even if, in fact, they are non-originating goods, provided all of the requirements in this new section are satisfied. However, this deeming section is to be disregarded when performing a regional value calculation on goods under new subsection 153ZIP(7). The value of the accessories, spare parts, tools or other instructional or information materials that are originating or non-originating materials must be included in that calculation (see new subsection 153ZIP(8)).

64. This provision gives effect to Article 3.11 of Chapter 3 of PAFTA with respect to specific rules for goods that are accessories, spare parts, tools or instructional or other information materials.

Subdivision F - Consignment

65. Subdivision F contains new section 153ZIS, which deals with the consignment requirements applicable to Peruvian originating goods in accordance with PAFTA.

66. New subsection 153ZIS(1) provides that goods are not Peruvian originating goods under new Division 1EA if the goods are transported through the territory of one or more non-Parties and either or both of the following apply:

(a)
the goods undergo subsequent production or any other operation in the territory of a non-Party (other than unloading, reloading, storing, separation from a bulk shipment, labelling or any other operation that is necessary to preserve the goods in good condition or to transport the goods to the territory of Australia);
(b)
while the goods are in the territory of a non-Party, the goods do not remain under customs control at all times.

67. New subsection 153ZIS(2) provides that section 153ZIS applies despite any other provision of new Division 1EA. This means that even if goods are Peruvian originating goods in accordance with any other provisions of Division 1EA, if they come within the terms of subsection 153ZIS(1) they will not be Peruvian originating goods.

68. The new section gives effect to Article 3.16 of Chapter 3 of PAFTA which deals with transport through non-Parties.

Subdivision G - Regulations

69. Subdivision G contains new section 153ZIT, which provides a head of power to prescribe regulations to make provisions for and in relation to determining whether goods are Peruvian originating goods under new Division 1EA.

Part 2 - Verification Powers

Customs Act 1901

Item 4 After Division 4D of Part VI

70. This item amends Part VI of the Customs Act to insert new Division 4D, which is titled 'Exportation of goods to Peru'.

71. Division 4D contains new sections 126AJE, 126AJF, 126AJG and 126AJH. These new sections impose obligations on people who export eligible goods to a Peru and who wish to obtain preferential treatment of customs duty in respect of those goods, and on people who produce such goods.

Section 126AJE Definitions

72. New section 126AJE defines the term 'Agreement', 'Peruvian customs official', 'producer' 'production' and 'territory of Peru' for the purposes of new Division 4DA. With the exception of the terms 'Peruvian customs official' and 'producer', the terms have the same meaning as defined in new Division 1EA of Part VIII of the Customs Act, inserted by item 3 of Part 1 of the Bill.

73. 'Peruvian customs official' is defined under this section to mean a person representing the customs administration of Peru. This term is necessary as it is referred to in new sections 126AJG and 126AJH.

Section 126AJF Record keeping obligations

74. New section 126AJF inserts a head of power to prescribe record keeping obligations. These record keeping obligations will apply in respect of goods that are exported from Australia to Peru.

75. New subsection 126AJF(1) enables regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Peru and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru. The record keeping obligation envisaged by Article 3.22 of Chapter 3 of PAFTA is broader than the general record keeping obligations under the Customs Act.

76. It is intended that the method of keeping the documents, such as the length of time for which they must be kept and the manner in which they must be kept, will be similar to current record keeping obligations under the Customs Act. However, the type of documents that will be required to be kept will be much broader than current requirements. The requirements will extend to all records relating to the origin of the goods for which preferential tariff treatment is claimed and may include, amongst other things, records associated with the tariff classification of the goods and the origin or value of the materials used to produce the goods.

77. New subsection 126AJF(2) provides that the regulations made for the purpose of subsection 126AJF(1) may impose obligations on an exporter or producer of goods.

Section 126AJG Power to require records

78. New section 126AJG supports the record keeping obligations in Articles 3.22 and 3.23 of Chapter 3 of PAFTA by imposing a requirement on exporters to produce records to authorised officers, and empowering authorised officers to disclose records to Peruvian customs officials.

79. Subsection 126AJG(1) provides that an authorised officer (as defined in section 4 of the Customs Act) may require a person who is subject to record keeping obligations under regulations made for the purposes of section 126AJF to produce to the officer such of those records as the officer requires.

80. The note to new subsection 126AJG(1) indicates that, where an authorised officer has requested a person who is subject to record keeping obligations under regulations made for the purposes of section 126AJF, a failure to produce documents or records by that person may be an offence under section 243SB of the Customs Act. The note also indicates that, under section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

81. Under Article 3.23 of Chapter 3 of PAFTA, the importing party may take action to verify the eligibility of goods for preferential treatment, including requesting the supply of information relating to the production or export of the goods. New subsection 126AJG(2) gives effect to this Article in respect of goods that are exported to the territory of Peru and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru.

82. New subsection 126AJG(2) provides that an authorised officer (as defined in section 4 of the Customs Act) may disclose any records so produced to a Peruvian customs official for the purpose of verifying a claim for a preferential tariff in the territory of Peru. Records obtained by an authorised officer under new section 126AJG may be Immigration and Border Protection information within the meaning of Part 6 of the Australian Border Force Act 2015 (the ABF Act).

83. Section 42 in Part 6 of the ABF Act prohibits the disclosure of Immigration and Border Protection information except, amongst other things, where the disclosure is authorised by or under a law of the Commonwealth.

84. By including an express provision in the Customs Act to permit the disclosure of information (that may be Immigration and Border Protection information) to a Peruvian customs official, the disclosure of such information is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

Section 126AJH Power to ask questions

85. New subsection 126AJH(1) provides that an authorised officer (as defined in section 4 of the Customs Act) may require a person who is an exporter or producer of goods that:

(a)
are exported to the territory of Peru; and
(b)
are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Peru;

to answer questions in order to verify the origin of the goods.

86. The power to ask questions in the circumstances set out in this section is a necessary adjunct to the power to require records in new section 126AJG.

87. The note to new subsection 126AJH(1) indicates that, where an authorised officer has requested a person to answer questions in order to verify the origin of goods in accordance with this subsection, a failure to answer questions by that person may be an offence under section 243SA of the Customs Act. The note also indicates that, under section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

88. Subsection 126AJH(2) enables an authorised officer (as defined in section 4 of the Customs Act), for the purpose of verifying a claim for a preferential tariff in a Party, to disclose any answers to questions answered in accordance with new subsection 126AJH(1) to a Peruvian customs official.

89. The answers to questions obtained by an authorised officer under new section 126AJH may also be Immigration and Border Protection information within the meaning of Part 6 of the ABF Act and therefore cannot not be disclosed to a Peruvian customs official except as allowed by Part 6. By including an express provision in the Customs Act allowing for this information to be disclosed to a Peruvian customs official, the disclosure is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

Part 3 - Application provisions

Item 5 Application provisions

90. This item operates such that the amendments made by Part 1 of Schedule 1 to the Bill, when enacted, apply in relation to:

(a)
goods imported into Australia on or after the commencement of that Part; and
(b)
goods imported into Australia before the commencement of that Part, where the time for working out the rate of import duty on the goods had not occurred before the commencement of that Part.

91. This item also provides that the amendment made by Part 2 of Schedule 1 to the Bill, when enacted, applies in relation to goods exported to the territory of Peru on or after the commencement of that Part (whether the goods were produced before, on or after that commencement).

Schedule 2 - Indonesia

Part 1 - Indonesian originating goods

Customs Act 1901

Introductory Comments

92. On 4 March 2019, in Jakarta, Indonesia, Senator the Hon Simon Birmingham, Minister for Trade, Tourism and Investment, and his counterpart the Indonesian Minister for Trade H.E Enggartiasto Lukita, signed the IA-CEPA.

93. The IA-CEPA, on entry into force, provides in part for new rules of origin to determine 'Indonesian originating goods' and for the preferential treatment of customs duty that applies to such goods. 'Indonesian originating goods' in accordance with the IA-CEPA are those goods that satisfy the requirement in new Division 1HA of Part VIII of the Customs Act inserted by the Bill; see the notes on clauses below in respect of relevant requirements.

Item 1 Subparagraph 105B(3)(b)(ii)

94. Section 105B of the Customs Act sets out circumstances where the liability to pay customs duty on excise-equivalent goods is wholly or partly extinguished. 'Excise-equivalent goods' is defined in section 9 of the Customs Regulation 2015 to mean the goods prescribed under clause 1 of Schedule 1 of that Regulation.

95. However, under subsection 105B(3) of the Customs Act, those circumstances do not apply to an amount of duty if the excise-equivalent goods are classified to subheading 2207.20.10 (denatured ethanol) or 3826.00.10 (biodiesel) of Schedule 3 to the Customs Tariff Act, or an item in the table in Schedule 4A, 5, 6, 7, 8, 8B, 9, 10, 11 or 12 to that Act that relates to a subheading mentioned.

96. As part of the implementation of the IA-CEPA, the Customs Tariff Amendment Bill will insert new Schedule 9A into the Customs Tariff Act. New Schedule 9A will provide for excise-equivalent rates of duty on certain alcohol, tobacco, and fuel petroleum products in accordance with IA-CEPA, and the related preferential rates of customs duty.

97. This item amends subparagraph 105B(3)(b)(ii) of the Customs Act to insert a reference to Schedule 9A of the Customs Tariff Act.

98. The purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under IA-CEPA.

Item 2 Subsection 105B(4) (paragraph (b) of the definition of biofuel blend)

99. Subsection 105B(4) of the Customs Act defines in part 'biofuel blend' as goods classified to certain subheadings under Schedule 3 to the Customs Tariff Act or an item in the table in the Schedules relating to originating goods under FTAs that relate to the relevant subheadings.

100. This item amends the definition of 'biofuel blend' under subsection 105B(4) of the Customs Act to insert a reference to new Schedule 9A to the Customs Tariff Act.

101. The purpose of this amendment is to ensure the collection of the correct customs duty for biofuels and biofuel blends imported under IA-CEPA.

Item 3 After Division 1H of Part VIII

102. This item amends Part VIII of the Customs Act to insert new Division 1HA.

103. New Division 1HA is titled 'Indonesian originating goods' and sets out the new rules for determining whether goods are Indonesian originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act applying to such goods that are imported into Australia. These new rules are being inserted to give effect to Chapter 4 of IA-CEPA.

104. New Division 1HA contains six Subdivisions (Subdivision A to Subdivision F) and they are set out below.

Subdivision A - Preliminary

105. Subdivision A contains a simplified outline of Division 1HA and the interpretation provision for that Division.

New section 153ZLJ Simplified outline of this Division

106. New section 153ZLJ sets out a simplified outline of each of the Subdivision B to Subdivision F of new Division 1HA.

New section 153ZLK Interpretation

107. New subsection 153ZLK(1) sets out new definitions for the purposes of new Division 1HA as follows:

Agreement means the Indonesia-Australia Comprehensive Economic Partnership Agreement, done at Jakarta, on 4 March 2019, as amended from time to time. The note to this definition indicates that IA-CEPA could in 2019 be viewed in the Australian Treaties Library on the AustLII website.

aquaculture has the meaning given by Article 4.1 of Chapter 4 of IA-CEPA. This term is necessary as it is referred to in new paragraph 153ZLL(2)(d).

Australian originating goods means goods that are Australian originating goods under a law of Indonesia that implements IA-CEPA.

Certificate of Origin means a certificate that is in force and that complies with the requirements of Article 4.20 of Chapter 4 of IA-CEPA.

Convention means the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983, as in force from time to time. The note to this definition indicates that the Convention is in Australian Treaty Series 1988 No. 30 ([1988] ATS 30) and could in 2019 be viewed in the Australian Treaties Library on the AustLII website. This term is necessary and is referred to in the definition of 'Harmonized Commodity Description and Coding System'.

customs value of goods has the meaning given by section 159 of the Customs Act. In most cases, it will be the transaction value but there are other valuation methods if this value cannot be ascertained.

Declaration of Origin means a declaration that is in force and that complies with the requirements of Article 4.20 of Chapter 4 of the IA-CEPA. Article 4.20 sets out the requirements for a declaration of origin, including the requirements set out in Annex 4-B of the IA-CEPA.

enterprise has the meaning given by Article 1.4 of Chapter 1 of the IA-CEPA.

Harmonized Commodity Description and Coding System means the Harmonized Commodity Description and Coding System (the HCDC System) that is established by or under the Convention.

The HCDC System is the worldwide classification system that has been adopted by all countries that are members of the WCO. In Australia, the HCDC System has been adopted in the Customs Tariff Act.

The HCDC System is a structure for classifying goods based on internationally agreed descriptors for goods and related six-digit codes administered by the WCO. This six-digit classification uniquely identifies all traded goods and commodities and is uniform across all countries that have adopted the HCDC System. The WCO reviews the system every five years to reflect changes in industry practice, technological developments and evolving international trade patterns.

This term is necessary and is referred to in the definition of 'Harmonized System' to ascertain the version of the HCDC System on which IA-CEPA, particularly the product specific rules, is based.

Harmonized System means:

(a)
the Harmonized Commodity Description and Coding System as in force on 1 January 2017; or
(b)
if the table in Annex 4-C of IA-CEPA is amended or replaced to refer to Chapters, headings and subheadings of a later version of the Harmonized Commodity Description and Coding System-the later version of the Harmonized Commodity Description and Coding System.

As per the notes for the definition of HCDC System above, updates to that System are undertaken every 5 years. The last review of the HCDC System (the fifth review) was completed in June 2014 and related amendments made entered into force on 1 January 2017.

While each signatory to the Convention is required to implement and reflect related amendments to the HCDC System in their domestic legislation, simultaneously on the date when the amendments enter into force, the pace at which the amendments are implemented varies from country to country.

By way of example, while Australia has implemented, and currently uses, the latest HCDC System of 2017, many of our established FTAs still utilise other versions of the HCDC System for their product specific rules of origin. In light of this, and to avoid causing any disruption to international trade, Australia, through the Australian Border Force, publishes the changes between each HCDC System update and relevant concordance associated with those updates on its website so that anyone can readily identify the appropriate tariff classification codes for importing goods from other countries into Australia.

The definition of 'Harmonized System' will expressly recognise, in the Customs Act, the version of the HCDC System on which IA-CEPA was based, and allow subsequent versions of that System to also be recognised when the relevant Annex of IA-CEPA is formally amended.

indirect materials means:

(a)
goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods; or
(b)
goods or energy used in the maintenance or operation of equipment or buildings associated with the production of goods;
including:
(c)
fuel (within its ordinary meaning); and
(d)
tools, dies and moulds; and
(e)
spare parts and materials; and
(f)
lubricants, greases, compounding materials and other similar goods; and
(g)
gloves, glasses, footwear, clothing, safety equipment and supplies; and
(h)
catalysts and solvents.

This term, together with the definition of 'originating materials', new Subdivision C and new Subdivision D implement Article 4.14 of Chapter 4 of the IA-CEPA.

Indonesian originating goods means goods that, under new Division 1HA, are Indonesian originating goods.

Interpretation Rules means the General Rules (as in force from time to time) for the Interpretation of the Harmonized System provided for by the Convention.

non-originating materials means goods that are not originating materials.

Non-originating materials are goods that are not originating materials because they do not satisfy the requirements of new Division 1HA in their own right. For example, where frozen crumbed fish fillets are processed in a Party to the IA-CEPA from fish caught in the territory of that Party, and coated with herbs and spices that are produced in Thailand (which is not a Party to the IA-CEPA), the fish would be originating materials and the herbs and spices would be non-originating materials.

non-party has the same meaning as it has in Chapter 4 of the IA-CEPA, which is a party that is not a Party to the IA-CEPA.

This term is necessary and referred to in new section 153ZLL, which deals with goods that are wholly obtained or produced in the territory of Indonesia, and new section 153ZLP, which deals with the consignment of goods (see notes below for new subsections 153ZLL and 153ZLP).

originating materials means:

(a)
Indonesian originating goods that are used in the production of other goods; or
(b)
Australian originating goods that are used in the production of other goods; or
(c)
indirect materials.

In some circumstances, in order to determine whether goods that are imported into Australia are Indonesian originating goods, and therefore eligible for a preferential rate of customs duty, it may be necessary to have regard to the goods from which the final goods are produced (see Subdivision C and Subdivision D).

person of Indonesia means:

(a)
a natural person of a Party within the meaning, so far as it relates to Indonesia, of Article 1.4 of Chapter 1 of IA-CEPA; or
(b)
an enterprise of Indonesia.

This term is necessary and referred to in new section 153ZLL, which deals with goods that are wholly obtained or produced in Indonesia (see notes below for new subsection 153ZLL(2)).

production has the meaning given by Article 4.1 of Chapter 4 of IA-CEPA. That is, production means the methods of obtaining goods including growing, mining, harvesting, farming, raising, breeding, extracting, gathering, collecting, capturing, fishing, trapping, hunting, manufacturing, producing, processing or assembling a good.

In Article 4.1, production is defined as methods of obtaining goods including, but not limited to, growing, mining, harvesting, farming, raising, breeding, extracting, gathering, collecting, capturing, fishing, trapping, hunting, manufacturing, producing, processing or assembling a good. This list is non-exhaustive - the term 'production' is also capable of capturing any other process that falls within the meaning of 'methods of obtaining goods', including any currently existing methods that have not been listed and any new methods which may arise in the future.

sea-fishing has the same meaning as it has in Chapter 4 of IA-CEPA .

territory of Australia means territory within the meaning, so far as it relates to Australia, of Article 1.4 of Chapter 1 of IA-CEPA .

territory of Indonesia means territory within the meaning, so far as it relates to Indonesia, of Article 1.4 of Chapter 1 of IA-CEPA .

108. New subsection 153ZLK(2) provides that the value of goods for the purposes of new Division 1HA is to be worked out in accordance with the regulations and that the regulations may prescribe different valuation rules for different kinds of goods. The value of goods is relevant, for example, in determining whether goods satisfy the de minimis requirement in Article 4.9 of Chapter 4 of IA-CEPA. The value of goods is to be distinguished from the customs value of goods, which is to be worked out under section 159 of the Customs Act.

109. New subsection 153ZLK(3) provides that in prescribing tariff classifications for the purposes of new Division 1HA, the regulations may refer to the Harmonized System. The product specific rules of origin in Annex 4-C of IA-CEPA refer to the tariff classifications of the Harmonized System.

110. New subsection 153ZLK(4) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of new Division 1HA. Subsection 4(3A) provides that reference in the Customs Act to the tariff classification of goods is a reference to Schedule 3 to the Customs Tariff Act, which is not the case in new Division 1HA.

111. New subsection 153ZLK(5) provides that, despite subsection 14(2) of the Legislation Act, regulations made for the purposes of Division 1HA may make provision in relation to a matter by applying, adopting or incorporating, with or without modification, any matter contained in an instrument or other writing as in force or existing from time to time. The subsection is necessary to ensure there is an appropriate delegation of legislative power should it be necessary in order to implement IA-CEPA by applying, adopting or incorporating an instrument or other writing that is not an Act or disallowable legislative instrument. Any instrument and other writing so incorporated will be limited to those that are required for the operation of IA-CEPA and will be available on the Department's website to ensure they are readily available. For example, in implementing other FTAs, this provision has enabled the regulations to refer to the general accounting principles of a country other than Australia for the purposes of the regional value content calculations. Where such references are made in regulations, the explanatory material will explain the basis on which such references are made and indicate where the material referred to can be located by the public.

Subdivision B - Goods wholly obtained or produced in Indonesia

112. Subdivision B contains new section 153ZLL, which sets out the rules in relation to goods that are wholly obtained or produced in the territory of Indonesia.

113. New subsection 153ZLL(1) will provide that goods are Indonesian originating goods if they are wholly obtained or produced in Indonesia, and either the importer of the goods has, at the time the goods are imported, a Certificate of Origin or a Declaration of Origin, or a copy of one, for the goods; or Australia has waived the requirement for a Certificate of Origin or a Declaration of Origin for the goods.

114. New subsection 153ZLL(2) provides that goods are wholly obtained or produced in Indonesia if, and only if, the goods are:

(a)
plants, or goods obtained from plants, that are grown, harvested, picked or gathered in the territory of Indonesia (including fruit, flowers, vegetables, trees, seaweed, fungi and live plants); or
(b)
live animals born and raised in the territory of Indonesia; or
(c)
goods obtained from live animals in the territory of Indonesia; or
(d)
goods obtained from hunting, trapping, fishing, farming, aquaculture, gathering or capturing conducted in the territory of Indonesia; or
(e)
minerals, or other naturally occurring substances, extracted or taken from the soil, waters, seabed or beneath the seabed in the territory of Indonesia; or
(f)
goods of sea-fishing, or other marine goods, taken from the high seas, in accordance with international law, by any vessel that is registered or recorded with Indonesia and is entitled to fly the flag of Indonesia; or
(g)
goods produced, from goods referred to in paragraph (f), on board a factory ship that is registered or recorded with Indonesia and is entitled to fly the flag of Indonesia; or
(h)
goods taken by Indonesia, or a person of Indonesia, from the seabed, or beneath the seabed, outside:

i.
the exclusive economic zone of Indonesia; and
ii.
the continental shelf of Indonesia; and
iii.
an area over which a non-party exercises jurisdiction;

and taken under exploitation rights granted in accordance with international law; or
(i)
either of the following:

i.
waste and scrap that has been derived from production or consumption in the territory of Indonesia and that is fit only for the recovery of raw materials;
ii.
used goods that are collected in the territory of Indonesia and that are fit only for the recovery of raw materials; or

(j)
goods obtained or produced in the territory of Indonesia solely from goods referred to in paragraphs (a) to (i) or from their derivatives.

115. New section 153ZLL gives effect to Articles 4.2(a), 4.3, 4.17(1) and (2), 4.20(1) and 4.21(b) of Chapter 4 of IA-CEPA in respect of rules of origin for goods wholly obtained or produced in a Party to IA-CEPA. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with IA-CEPA.

Subdivision C - Goods produced in Indonesia from originating materials

116. Subdivision C contains new section 153ZLM, which sets out a rule for goods that are produced entirely in the territory of Indonesia from originating materials only. Such goods are Indonesian originating goods if the importer of the goods has, at the time the goods are imported, a Certificate of Origin or a Declaration of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Certificate of Origin or a Declaration of Origin for the goods.

117. New section 153ZLM gives effect to Articles 4.2(c), 4.17(1) and (2), 4.20(1) and 4.21(b) of Chapter 4 of IA-CEPA in respect of rules of origin for goods produced exclusively from originating materials. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with IA-CEPA.

Subdivision D - Goods produced in Indonesia, or in Indonesia and Australia, from non-originating materials

118. Subdivision D contains new section 153ZLN, which deals with Indonesian originating goods produced from non-originating materials.

119. New subsection 153ZLN(1) provides that goods are Indonesian originating goods if:

(a)
they are classified to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex 4-C of IA-CEPA; and
(b)
they are produced entirely in the territory of Indonesia, or entirely in the territory of Indonesia and the territory of Australia, from non-originating materials only or from non-originating materials and originating materials; and
(c)
the goods satisfy the requirements applicable to the goods in that Annex; and
(d)
either:

i.
the importer of the goods has, at the time the goods are imported, a Certificate of Origin or a Declaration of Origin, or a copy of one, for the goods; or
ii.
Australia has waived the requirement for a Certificate of Origin or a Declaration of Origin for the goods.

120. This provision applies the product specific rules by direct reference to Annex 4-C of IA-CEPA. This applies both the product specific rules and any product specific process rules. The direct application of Annex 4-C does not change the operation of these rules as set out in that Annex. Rather, as IA-CEPA is defined to be the Agreement as amended from time to time, this will ensure that the current Annex in IA-CEPA will be applied. It will also ensure that any updated version of the Annex that would be contained in IA-CEPA when the parties implement later versions of the Harmonized System will be applied as soon as any provisions of IA-CEPA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

121. For certainty of abbreviations used in Annex 4-C, new subsection 153ZLN(2) provides that, without limiting paragraph 153ZLN(1)(c), a requirement may be specified in the table in Annex 4-C of the IA-CEPA by using an abbreviation that is given a meaning for the purposes of that Annex. For example, the abbreviation of QVC(40) in the Annex means a regional value content of at least 40%. Another example of an abbreviation in the Annex is 'CC', which is the abbreviation that means that all of the non-originating materials used in the production of the good have undergone a change in tariff classification at the 2-digit level, that is, a change of Chapter.

Change in tariff classification

122. New subsection 153ZLN(3) refers to the first of several requirements that may be prescribed in regulations made for the purposes of Subdivision D. It provides that, if a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification, the regulations may prescribe when a non-originating material used in the production of the goods is taken to satisfy the change in tariff classification.

123. The regulations made under this head of power will include a provision which sets out when a non-originating material that does not satisfy a particular change in tariff classification is taken to satisfy the change in tariff classification.

124. The concept of the change in tariff classification requirement applies to non-originating materials. Goods that have been sourced outside a Party to IA-CEPA and that are used in the production of other goods are non-originating materials. Goods sourced from a Party to IA-CEPA that have not fulfilled the requirements of new Division 1HA and that are used in the production of other goods are also non-originating materials.

125. Non-originating materials used to produce other goods may not have the same classification under the Harmonized System as the final good. For example, non-originating materials used to produce a good may be classified to one tariff classification before the production process, and the final good may be classified under a different tariff classification after the production process. To satisfy the requirement of classification change, and therefore satisfy a requirement for the purposes of claiming preferential treatment of customs duty in accordance with the IA-CEPA, the goods concerned must be sufficiently transformed such that they can be classified to a different tariff classification to that of the non-originating materials from which they are produced.

126. For example, frozen fish fillets (classified to tariff code 0304) are produced from fish caught in a Party to IA-CEPA and combined with herbs and spices produced in Thailand (which is not a Party to IA-CEPA) (classified to tariff code 0907 to 0910) to make crumbed fish fillets (classified to tariff code 1604 in Chapter 16 of the Harmonized System). The applicable tariff change for crumbed fish is 'a change to Chapter 16 from any other chapter'. As the herbs and spices are classified to Chapter 9 of the Harmonized System, these non-originating materials meet the tariff change requirement, considering that the fish concerned is the produce of a Party to IA-CEPA, and is therefore an originating material and is not required to change its classification.

127. As per the above example, it is necessary for the tariff classification of the final good and each of the goods that are non-originating materials used in the production of the final goods to be known in order to determine the applicable change in tariff classification.

128. New subsection 153ZLN(4) allows for the change in tariff classification requirement to also be satisfied if the total value of all of the non-originating materials, used in the production of the goods, that do not satisfy the particular change in tariff classification of the goods, does not exceed 10% of the customs value of the goods.

129. New subsection 153ZLN(4) gives effect to the de minimis requirement set out in Article 4.9(1) of Chapter 4 of the IA-CEPA. As a result, even if none of the non-originating materials used to produce a final good satisfy a particular change in tariff classification, the final good may still be an Indonesian originating good if it satisfies subsection 153ZLN(4) because the change in tariff classification will be taken to be satisfied.

130. The value of non-originating materials for the purposes of subsection 153ZLN(4) is to be worked out in accordance with the method that will be included in the regulations.

131. Giving effect to the de minimis requirement set out in Article 4.9(1)(b) of Chapter 4 of IA-CEPA, new subsection 153ZLN(5) provides that, if:

(d)
a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification; and
(e)
the goods are classified to any of Chapters 50 to 63 of the Harmonized System; and
(f)
one or more of the non-originating materials used in the production of the goods do not satisfy the change in tariff classification;
then the requirement is taken to be satisfied if the total weight of the non-originating materials covered by paragraph (c) does not exceed 10% of the total weight of the goods.

132. This provision allows for the change in tariff classification requirement to also be satisfied in relation to certain goods if the total weight of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the total weight of the goods.

Qualifying value content

133. New subsection 153ZLN(6) provides that, if a requirement that applies in relation to the goods is that the goods must have a qualifying value content of not less than a particular percentage worked out in a particular way:

(c)
the qualifying value content of the goods is to be worked out in accordance with IA-CEPA; or
(d)
if the regulations prescribe how to work out the qualifying value content of the goods-the qualifying value content of the goods is to be worked out in accordance with the regulations.

134. This provision provides the head of power to prescribe formulas for calculating qualifying value content and in doing so gives effect to Article 4.5 of Chapter 4 of IA-CEPA.

135. New subsection 153ZLN(7) provides that, if:

(a)
a requirement that applies in relation to the goods is that the goods must have a qualifying value content of not less than a particular percentage worked out in a particular way; and
(b)
the goods are imported into Australia with accessories, spare parts, tools or instructional or other information materials; and
(c)
the accessories, spare parts, tools or instructional or other information materials are not invoiced separately from the goods; and
(d)
the accessories, spare parts, tools or instructional or other information materials are included in the price of the goods; and
(e)
the quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the goods;
the regulations must provide for the value of the accessories, spare parts, tools or instructional or other information materials to be taken into account for the purposes of working out the qualifying value content of the goods (whether the accessories, spare parts, tools or instructional or other information materials are originating materials or non-originating materials).

136. The note to this section indicates that the value of the accessories, spare parts, tools or instructional or other information materials is to be worked out in accordance with the regulations: see new subsection 153ZLK(2).

137. New subsection 153ZLN(7) provides a head of power to prescribe regulations to give effect to Article 4.10(b), (c) and (d) of Chapter 4 of IA-CEPA in respect of the value of the accessories, spare parts, tools or instructional or other information materials for working out qualifying value content. This provision is necessary because the value of such goods would not normally form part of the value of materials that are used in the production of the underlying goods.

138. New subsection 153ZLN(8) gives effect to Article 4.8 of Chapter 4 of IA-CEPA, and provides that if the goods are claimed to be Indonesian originating goods on the basis that the goods have a qualifying value content of not less than a particular percentage worked out in a particular way, the following are to be disregarded in determining whether the goods are Indonesian originating goods:

(a)
operations to preserve the goods in good condition for the purpose of transport or storage of the goods;
(b)
operations or processes to facilitate the shipment or transportation of the goods;
(c)
packaging or presenting the goods for transportation or sale;
(d)
simple processes for sifting, classifying, washing or other similar simple processes;
(e)
affixing of marks, labels or other distinguishing signs on the goods or on their packaging;
(f)
mere dilution with water or another substance that does not materially alter the characteristics of the goods;
(g)
any combination of things referred to in paragraphs (a) to (f).

139. If any of the above operations are the only operations that take place in a Party to IA-CEPA in relation to goods (either alone or as a combination), such operations are to be disregarded in determining whether the goods are Indonesian originating goods. For example, if non-originating goods such as spices from Thailand (which is not a Party to IA-CEPA) are packaged into bottles in a Party to IA-CEPA, this will not confer the status of Indonesian originating goods on the spices.

140. New section 153ZLN gives effect to the above-mentioned Articles in Chapter 4 of IA-CEPA (including Articles 4.2(b), 4.4, 4.17(1) and (2), 4.20(1) and 4.21(b)) for the new section and enables goods produced from non-originating materials that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with IA-CEPA.

141. Subdivision D also contains new section 153ZLO, which deals with packaging materials and containers in accordance with IA-CEPA.

142. New subsection 153ZLO(1) gives effect to Article 4.12(1) of Chapter 4 of IA-CEPA and provides that if:

(c)
goods are packaged for retail sale in packaging material or a container; and
(d)
the packaging material or container is classified with the goods in accordance with Rule 5 of the Interpretation Rules;

then the packaging material or container is to be disregarded for the purposes of this Subdivision.

143. The effect of this provision is that packaging materials or containers do not need to satisfy the change in tariff classification requirement that may apply to the goods packaged within the materials or containers.

144. However, in accordance with Article 4.12(2) of Chapter 4 of IA-CEPA, new subsection 153ZLO(2) provides one exception to subsection 153ZLO(1). This exception applies where the goods are required to have a qualifying value content of at least a particular percentage worked out in a particular way. In such circumstances, the regulations must provide for the value of the packaging material or container to be taken into account for the purposes of working out the qualifying value content of the goods (whether the packaging material or container is an originating material or a non-originating material).

145. Without this provision, the value of packaging materials and containers would normally not form part of the value of materials that are used in the production of the goods.

146. The note to this section indicates that the value of packaging material or container is to be worked out in accordance with the regulations: see new subsection 153ZLK(2).

Subdivision E - Consignment and exhibition

147. Subdivision E contains new section 153ZLP, which deals with the consignment requirements applicable to Indonesian originating goods in accordance with IA-CEPA, and new section 153ZLQ, which deals with the exhibition of goods in a non-party.

148. New subsection 153ZLP(1) provides that goods are not Indonesian originating goods under new Division 1HA if the goods are transported through a non-party, the goods are not exhibited in a non-party, and one or more of the following apply:

(a)
the goods undergo any operation in the non-party (other than unloading, reloading, unpacking and repacking, labelling or any other operation that is necessary to preserve the goods in good condition);
(b)
the goods enter the commerce of the non-party;
(c)
the transport through that non-party is not justified by geographical, economic or logistical reasons.

149. New subsection 153ZLP(2) provides that section 153ZLP applies despite any other provision of new Division 1HA. This means that even if goods are Indonesian originating goods in accordance with any other provisions of Division 1HA, if they come within the terms of subsection 153ZLP(1) they will not be Indonesian originating goods.

150. New section 153ZLP gives effect to Articles 4.15(1) and (2) of Chapter 4 of IA-CEPA.

151. New subsection 153ZLQ(1) provides that goods are not Indonesian originating goods under new Division IHA if the goods are imported into Australia after being exhibited in a non-party, and one or more of subparagraphs (a), (b), (c), (d) and (e) of paragraph 1 of Article 4.16 of Chapter 4 of IA-CEPA are not satisfied.

152. Subparagraphs (a), (b), (c), (d) and (e) of paragraph 1 of Article 4.16 are:

(a)
an exporter has dispatched the originating good from the territory of the exporting Party to the other Party or non-Party where the exhibition is held and has exhibited it there;
(b)
the exporter has sold the originating good or transferred it to a consignee in the importing Party;
(c)
the originating good has been consigned during the exhibition or immediately thereafter to the importing Party in the state in which it was sent for the exhibition;
(d)
the exhibition is any trade, agriculture or crafts exhibition, fair or similar show or display which is not organised for private purposes in shops or business premises with the view to the sale of foreign goods; and
(e)
the originating good has not entered the commerce of the other Party or non-Party, including where the originating good was exhibited under customs control.

153. New subsection 153ZLQ(2) provides that section 153ZLQ applies despite any other provision of new Division 1HA.

154. New section 153ZLQ gives effect to Article 4.16(1) of Chapter 4 of IA-CEPA. It ensures that Indonesian originating goods that are imported into Australia after an exhibition in a non-party shall continue to qualify as Indonesian originating goods in circumstances where the goods are Indonesian originating goods in accordance with new Division 1HA, and the requirements in Article 4.16(1) are satisfied.

Subdivision F - Regulations

155. Subdivision F contains new section 153ZLR, which provides a head of power to prescribe regulations to make provision for and in relation to determining whether goods are Indonesian originating goods under new Division 1HA.

Part 2 - Verification powers

Customs Act 1901

Item 4 After Division 4F of Part VI

156. This item amends Part VI of the Customs Act to insert new Division 4FA, which is titled 'Exportation of goods to Indonesia'.

157. Division 4FA contains new sections 126ALE, 126ALF, 126ALG and 126ALH. Collectively, these new sections impose obligations on people who export eligible goods to Indonesia and who wish to obtain preferential treatment of customs duty in respect of those goods.

Section 126ALE Definitions

158. New section 126ALE defines the terms 'Agreement', 'Indonesian customs official', and 'territory of Indonesia' for the purposes of new Division 4FA. The terms 'Agreement' and 'territory of Indonesia' have the same meaning as defined in new Division 1HA of Part VIII of the Customs Act, inserted by item 3 of Part 1 of Schedule 2 to the Bill.

159. 'Indonesian customs official' is defined under this section to mean a person representing the customs administration of Indonesia. This term is necessary and is referred to in new sections 126ALG and 126ALH.

Section 126ALF Record keeping obligations

160. New section 126ALF inserts a head of power to prescribe record keeping obligations. These record keeping obligations will apply in respect of goods that are exported from Australia to Indonesia.

161. New subsection 126ALF(1) enables regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Indonesia and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Indonesia. The record keeping obligation envisaged by Article 4.26(1) of Chapter 4 of IA-CEPA is broader than the general record keeping obligations under the Customs Act.

162. It is intended that the method of keeping the documents, such as the length of time for which they must be kept and the manner in which they must be kept, will be similar to current record keeping obligations. However, the type of documents that will be required to be kept will be much broader than current requirements. The requirements will extend to all records relating to the origin of the goods for which preferential tariff treatment is claimed in the territory of Indonesia and may include, amongst other things, records associated with the tariff classification of the goods and the origin or value of the materials used to produce the goods.

163. New subsection 126ALF(2) provides that regulations for the purposes of new subsection 126ALF(1) may impose such obligations on an exporter of goods.

Section 126ALG Power to require records

164. New subsection 126ALG(1) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may require a person who is subject to record keeping obligations under regulations made for the purposes of section 126ALF to produce to the officer such of those records as the officer requires.

165. New subsection 126ALG(2) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may, for the purpose of verifying a claim for a preferential tariff in the territory of Indonesia, disclose any records so produced to an Indonesian customs official. Records obtained by an authorised officer under new section 126ALG may be 'Immigration and Border Protection information' within the meaning of Part 6 of the ABF Act.

166. Section 42 in Part 6 of the ABF Act prohibits the disclosure of Immigration and Border Protection information except, amongst other things, where the disclosure is authorised by or under a law of the Commonwealth.

167. By including an express provision in the Customs Act to permit the disclosure of information (that may be Immigration and Border Protection information) to an Indonesian customs official, the disclosure of such information is required or authorised by or under a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

168. Under Article 4.22 of Chapter 4 of IA-CEPA, the customs administration of the importing Party may verify the eligibility of a good for preferential tariff treatment by, amongst other things, issuing written requests to the provider of the documentary evidence of origin for further information relating to the origin of the good. By Article 4.20 of Chapter 4 of IA-CEPA, documentary evidence of origin can be a certificate of origin made in accordance with Annex 4-A of IA-CEPA, or a declaration of origin made in accordance with Annex 4-B of IA-CEPA by an exporter registered or certified by the exporting Party in accordance with its laws and regulations. New section 126ALG gives effect to Article 4.22 in respect of goods that are exported to the territory of Indonesia and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Indonesia.

169. The note to new section 126ALG indicates that failing to produce a record when required to do so by an officer may be an offence under existing section 243SB of the Customs Act. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

Section 126ALH Power to ask questions

170. New subsection 126ALH(1) provides that an authorised officer (as defined in existing section 4 of the Customs Act) may require a person who is an exporter of goods that:

(a)
are exported to the territory of Indonesia; and
(b)
are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the territory of Indonesia;

to answer questions in order to verify the origin of the goods.

171. The power to ask questions in the circumstances set out in this section is a necessary adjunct to the power to require records in new section 126ALG.

172. Subsection 126ALH(2) enables an authorised officer (as defined in existing section 4 of the Customs Act), for the purpose of verifying a claim for a preferential tariff in the territory of Indonesia, to disclose any answers to such questions to an Indonesian customs official.

173. The answers to questions obtained by an authorised officer under new section 126ALH may also be Immigration and Border Protection information within the meaning of Part 6 of the ABF Act and in those circumstances cannot not be disclosed to an Indonesian customs official except as allowed by Part 6. By including an express provision in the Customs Act allowing for this information to be disclosed to an Indonesian customs official, the disclosure is required or authorised by or under a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

174. The note to new section 126ALH indicates that failing to answer a question when required to do so by an officer may be an offence under existing section 243SA of the Customs Act. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to answer a question if doing so would tend to incriminate the person.

Part 3 - Application provisions

Item 5 Application provisions

175. This item operates such that the amendments made by Part 1 of Schedule 2 to the Bill, when enacted, apply in relation to:

(a)
goods imported into Australia on or after the commencement of that Part; and
(b)
goods imported into Australia before the commencement of that Part, where the time for working out the rate of import duty on the goods had not occurred before the commencement of that Part.

176. This item also provides that the amendment made by Part 2 of Schedule 2 to the Bill, when enacted, applies in relation to goods exported to the territory of Indonesia on or after the commencement of that Part (whether the goods were produced before, on or after that commencement).

Schedule 3 - Hong Kong

Part 1 - Hong Kong originating goods

Customs Act 1901

Introductory Comments

177. On 26 March 2019, in Sydney, Senator the Hon Simon Birmingham, Minister for Trade, Tourism and Investment, and his counterpart Hong Kong Secretary for Commerce and Economic Development, Edward Yau, signed the A-HKFTA.

178. A-HKFTA, on entry into force, provides in part for new rules of origin to determine 'Hong Kong originating goods' and for the preferential treatment of customs duty that applies to such goods. 'Hong Kong originating goods' in accordance with A-HKFTA are those goods that satisfy the requirements in new Division 1M inserted by the Bill. The notes on clauses below describe those requirements.

Item 1 Subparagraph 105B(3)(b)(ii)

179. Section 105B of the Customs Act sets out circumstances where the liability to pay customs duty on excise-equivalent goods is wholly or partly extinguished. 'Excise-equivalent goods' is defined in section 9 of the Customs Regulation 2015 to mean the goods prescribed under clause 1 of Schedule 1 to that Regulation.

180. However, under subsection 105B(3) of the Customs Act, those circumstances do not apply to an amount of duty if the excise-equivalent goods are classified to subheading 2207.20.10 (denatured ethanol) or 3826.00.10 (biodiesel) of Schedule 3 to the Customs Tariff Act, or an item in the table in Schedule 4A, 5, 6, 7, 8, 9, 10, 11 or 12 to that Act that relates to a subheading mentioned.

181. As part of the implementation of the Agreement, the Customs Tariff Amendment Bill will insert new Schedule 13 into the Customs Tariff Act. New Schedule 13 will provide for excise-equivalent rates of duty on certain alcohol, tobacco, fuel petroleum products in accordance with A-HKFTA, and the related preferential rates of customs duty.

182. This item amends subparagraph 105B(3)(b)(ii) of the Customs Act to insert a reference to Schedule 13 to the Customs Tariff Act.

183. The purpose of this amendment is to ensure the collection of the correct import duty for biofuels and biofuel blends imported under A-HKFTA.

Item 2 Subsection 105B(4) (paragraph (b) of the definition of biofuel blend )

184. Subsection 105B(4) of the Customs Act defines in part 'biofuel blend' as goods classified to certain subheadings under Schedule 3 to the Customs Tariff Act or an item in the table in the Schedules relating to originating goods under Free Trade Agreements (FTAs) that relate to the relevant subheadings.

185. This item amends the definition of 'biofuel blend' under subsection 105B(4) of the Customs Act to insert a reference to new Schedule 13 to the Customs Tariff Act.

186. As for item 1, the purpose of this amendment is to ensure the collection of the correct import duty for biofuels and biofuel blends imported under the A-HKFTA.

Item 3 After Division 1L of Part VIII

187. This item amends Part VIII of the Customs Act to insert new Division 1M.

188. New Division 1M is titled 'Hong Kong originating goods' and sets out the new rules for determining whether goods are Hong Kong originating goods and therefore eligible for a preferential rate of customs duty under the Customs Tariff Act applying to such goods that are imported into Australia. These new rules are being inserted to give effect to Chapter 3 of A-HKFTA.

189. New Division 1M contains seven Subdivisions (Subdivision A to Subdivision G), as set out below.

Subdivision A - Preliminary

190. Subdivision A contains a simplified outline of Division 1M and the interpretation provision for that Division.

New section 153ZPA Simplified outline of this Division

191. New section 153ZPA sets out a simplified outline of each of the Subdivision B to Subdivision G of new Division 1M.

New section 153ZPB Interpretation

192. New subsection 153ZPB(1) sets out new definitions for the purposes of new Division 1M as follows:

Agreement means the Free Trade Agreement between Australia and Hong Kong, China, done at Sydney on 26 March 2019, as amended and in force in Australia from time to time. The note to this definition indicates that in 2019, the text of A-HKFTA will be accessible through Australian Treaties Library on the AustLII internet website.

aquaculture has the meaning given by Article 3.1 of Chapter 3 of A-HKFTA. This term is necessary as it is referred to in the definition of 'production'.

Area of Australia has the meaning given by Article 1.3 of Chapter 1 of A-HKFTA for 'Area', so far as it relates to Australia.

Area of Hong Kong, China has the meaning given by Article 1.3 of Chapter 1 of A-HKFTA for 'Area', so far as it relates to Hong Kong, China.

Australian originating goods means goods that a law of Hong Kong, China that implements A-HKFTA determined to be Australian originating goods.

Convention means the International Convention on the Harmonized Commodity Description and Coding System done at Brussels on 14 June 1983, as in force from time to time. The note to this definition indicates that in 2019, the text of the Convention is accessible through the Australian Treaties Library on the AustLII internet website. This term is necessary and is referred to in the definition of 'Harmonized Commodity Description and Coding System'.

customs value of goods has the meaning given by section 159 of the Customs Act. In most cases, it will be the transaction value but there are other valuation methods if this value cannot be ascertained.

Declaration of Origin means a declaration that is in force and that complies with the requirements of Article 3.16 of Chapter 3 of A-HKFTA. Article 3.16 sets out the information required for a declaration of origin, including such information as set out in Annex 3-A of A-HKFTA.

enterprise has the meaning given to it by Article 1.3 of Chapter 1 of A-HKFTA. This term is used in the definition of the term 'person of Hong Kong, China'.

Harmonized Commodity Description and Coding System means the Harmonized Commodity Description and Coding System (the HCDC System) that is established by or under the Convention.

The HCDC System is the worldwide classification system that has been adopted by all countries that are members of the WCO. In Australia, the HCDC System has been adopted in the Customs Tariff Act.

The HCDC is a structure for classifying goods based on internationally agreed descriptors for goods and related six-digit codes administered by the WCO. This six-digit classification uniquely identifies all traded goods and commodities and is uniform across all countries that have adopted the HCDC System. The WCO reviews the system every five years to reflect changes in industry practice, technological developments and evolving international trade patterns.

This term is necessary and is referred to in the definition of 'Harmonized System' to ascertain the version of the HCDC System on which A-HKFTA, particularly the product-specific rules, is based.

Harmonized System means:

(a)
the Harmonized Commodity Description and Coding System as in force on 1 January 2017; or
(b)
if the table in Annex 3-B of the Agreement is amended or replaced to refer to Chapters, headings and subheadings of a later version of the Harmonized Commodity Description and Coding System-the later version of the Harmonized Commodity Description and Coding System.

As per the notes for the definition of HCDC System above, updates to that System are undertaken every 5 years. The last review of the HCDC System (the fifth review) was completed in June 2014 and related amendments made entered into force on 1 January 2017.

While each signatory to the Convention is required to implement and reflect related amendments to the HCDC System in their domestic legislation, simultaneously on the entry into force date, the pace at which the amendments are implemented varies from country to country.

By way of example, while Australia has implemented, and currently uses, the latest HCDC System of 2017, many of our established FTAs still utilise other versions of the HCDC System for their product specific rules of origin. In light of this, and to avoid causing any disruption to international trade, Australia, through the Australian Border Force, publishes the changes between each HCDC System updates and relevant concordance associated with those updates on its website so that anyone can readily identify the appropriate tariff classification codes for importing goods from other countries into Australia.

The definition of 'Harmonized System' will expressly recognise, in the Customs Act, the version of the HCDC System on which A-HKFTA was based, being that of 2017, and allow subsequent versions of that System to be recognised when Annex 3-B to Chapter 3 of the Agreement is formally amended.

Hong Kong originating goods means goods that are Hong Kong originating goods under Division 1M of the Customs Act.

indirect materials means:

(a)
goods or energy used in the production, testing or inspection of goods, but not physically incorporated in the goods; or
(b)
goods or energy used in the maintenance or operation of equipment or buildings associated with the production of goods;
including:
(c)
fuel (within its ordinary meaning); and
(d)
catalysts and solvents; and
(e)
gloves, glasses, footwear, clothing, safety equipment and supplies; and
(f)
tools, dies and moulds; and
(g)
spare parts and materials; and
(h)
lubricants, greases, compounding materials and other similar goods.

This term, together with the definition of 'originating material', new Subdivision C and new Subdivision D implement Article 3.14 of Chapter 3 of A-HKFTA.

Interpretation Rules means the General Rules (as in force from time to time) for the Interpretation of the Harmonized System provided for by the Convention.

non-originating materials means goods that are not originating materials.

Non-originating materials are goods that are not originating materials because they do not satisfy the requirements of new Division 1M in their own right. For example, where frozen crumbed fish fillets processed in Hong Kong, China to A-HKFTA from fish caught in the territory of Hong Kong, China coated with herbs and spices that are produced in Thailand (which is not a Party to A-HKFTA), the fish would be originating materials and the herbs and spices would be non-originating materials.

non-Party has the same meaning as it has in Chapter 3 of A-HKFTA, which is a Party that is not a Party to A-HKFTA.

This term is necessary and referred to in new section 153ZPH, which deals with the consignment of Hong Kong originating goods (see notes below for new section 153ZPH).

originating materials means:

(a)
goods that are Hong Kong originating goods, in accordance with Chapter 3 of A-HKFTA, that are used in the production of other goods; or
(b)
goods that are Australian originating goods, in accordance with Chapter 3 of A-HKFTA, that are used in the production of other goods; or
(c)
indirect materials.

In some circumstances, in order to determine whether goods that are imported into Australia are Hong Kong originating goods, and therefore eligible for a preferential rate of customs duty, it may be necessary to have regard to the goods from which the final goods are produced (see Subdivision C and Subdivision D).

person of Hong Kong, China means:

(a)
a natural person of a Party within the meaning, so far as it relates to Hong Kong, China, of Article 1.3 of Chapter 1 of A-HKFTA; or
(b)
an enterprise of Hong Kong, China.

This term is necessary and referred to in new section 153ZPC, which deals with goods that are wholly obtained or produced entirely in Hong Kong, China or in Hong Kong, China and Australia (see notes below for new subsection 153ZPC(2)).

production has the same meaning given by Article 3.1 of Chapter 3 of A-HKFTA. That is, production means methods of obtaining goods including farming, growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, collecting, breeding, extracting, aquaculture, gathering, manufacturing, processing or assembling a good.

In Article 3.1, production is defined as methods of obtaining goods including, but not limited to, farming, growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, collecting, breeding, extracting, aquaculture, gathering, manufacturing, processing or assembling a good. This list is non-exhaustive - the term 'production' is also capable of capturing any other process that falls within the meaning of 'methods of obtaining goods', including any currently existing methods that have not been listed and any new methods which may arise in the future.

sea-fishing has the same meaning as it has in Chapter 3 of A-HKFTA, where it is used in the context of determining goods that are wholly obtained or produced goods.

193. New subsection 153ZPB(2) provides that the value of goods for the purposes of new Division 1M is to be worked out in accordance with the regulations and that the regulations may prescribe different valuation rules for different kinds of goods. The value of goods is relevant, for example, in determining whether goods satisfy the de minimis requirement in Article 3.9 of Chapter 3 of A-HKFTA. The value of goods is to be distinguished from the customs value of goods, which is to be worked out under section 159 of the Customs Act.

194. New subsection 153ZPB(3) provides that in specifying tariff classifications for the purposes of new Division 1M, the regulations may refer to the Harmonized System. The product specific rules of origin in Annex 3-B of A-HKFTA refer to the tariff classifications of the Harmonized System.

195. New subsection 153ZPB(4) provides that subsection 4(3A) of the Customs Act does not apply for the purposes of new Division 1M. Subsection 4(3A) provides that reference in the Customs Act to the tariff classification of goods is a reference to Schedule 3 to the Customs Tariff Act, which is not the case in new Division 1M.

196. New subsection 153ZPB(5) provides that, despite subsection 14(2) of the Legislation Act, regulations made for the purposes of Division 1M may make provision in relation to a matter by applying, adopting or incorporating, with or without modification, any matter contained in an instrument or other writing as in force or existing from time to time. The subsection is necessary to ensure there is an appropriate delegation of legislative power should it be necessary in order to implement A-HKFTA by applying, adopting or incorporating an instrument or other writing that is not an Act or disallowable legislative instrument. Any instrument and other writing so incorporated will be limited to those that are required for the operation of A-HKFTA and will be accessible through the Department's website, and free of charge, to ensure they are readily available and at no cost to persons concerned. For example, in implementing other FTAs, this provision has enabled the regulations to refer to the general accounting principles of a country other than Australia for the purposes of the regional value content calculations. Where such references are made in regulations the explanatory material will explain the basis on which such references are made and indicate where the material referred to can be located by the public.

Subdivision B - Goods wholly obtained or produced entirely in Hong Kong, China or in Hong Kong, China and Australia

197. Subdivision B contains new section 153ZPC, which sets out the rules in relation to goods that are wholly obtained or produced in Hong Kong, China or in Hong Kong, China and Australia.

198. New subsection 153ZPC(1) provides that goods are Hong Kong originating goods if they are wholly obtained or produced in Hong Kong, China, and either the importer of the goods has, at the time the goods are imported, a Declaration of Origin, or a copy of one, for the goods; or Australia has waived the requirement for a Declaration of Origin for the goods.

199. New subsection 153ZPC(2) provides that goods are wholly obtained or produced in Hong Kong, China or in Hong Kong, China and Australia if, and only if, the goods are:

(a)
plants, or goods obtained from plants, that are grown, cultivated, harvested, picked or gathered in the Area of Hong Kong, China or in the Area of Hong Kong, China and the Area of Australia; or
(b)
live animals born and raised in the Area of Hong Kong, China or in the Area of Hong Kong, China and the Area of Australia; or
(c)
goods obtained from live animals in the Area of Hong Kong, China; or
(d)
animals obtained by hunting, trapping, fishing, gathering or capturing in the Area of Hong Kong, China; or
(e)
goods obtained from aquaculture conducted in the Area of Hong Kong, China; or
(f)
minerals, or other naturally occurring substances, extracted or taken from the Area of Hong Kong, China; or
(g)
goods of sea-fishing, or other marine goods, taken from the high seas, by any vessel that is entitled to fly the flag of Hong Kong, China; or
(h)
goods produced, from goods referred to in paragraph (g), on board a factory ship that is registered, listed or recorded with Hong Kong, China and is entitled to fly the flag of Hong Kong, China; or
(i)
goods, other than fish, shellfish or other marine like, taken by Hong Kong, China, or a person of Hong Kong, China, from the seabed, or subsoil beneath the seabed, outside the Area of Hong Kong, China and the Area of Australia, and beyond territories over which non-Parties exercise jurisdiction, but only if Hong Kong, China, or the person of Hong Kong, China has the right to exploit that seabed or subsoil in accordance with international law; or
(j)
waste or scrap that:

i.
has been derived from production or consumption in the Area of Hong Kong, China and that is fit only for the recovery of raw materials; or
ii.
has been derived from used goods that are collected in the Area of Hong Kong, China and that are fit only for the recovery of raw materials; or

(k)
goods produced in the Area of Hong Kong, China or in the Area of Hong Kong, China and the Area of Australia, exclusively from goods referred to in paragraphs (a) to (j) or from their derivatives.

200. New section 153ZPC gives effect to Articles 3.2(a), 3.3, 3.16 and 3.19(b) of Chapter 3 of A-HKFTA in respect of rules of origin for goods wholly obtained or produced entirely in a Party to it. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with A-HKFTA

Subdivision C - Goods produced in Hong Kong, China or in Hong Kong, China and Australia, from originating materials

201. Subdivision C contains new section 153ZPD, which sets out a rule for goods that are produced entirely in the Area of Hong Kong, China or entirely in the Area of Hong Kong, China and the Area of Australia, from originating materials only. Such goods are Hong Kong originating goods if the importer of the goods has, at the time the goods are imported, a Declaration of Origin, or a copy of one, for the goods, or Australia has waived the requirement for a Declaration of Origin for the goods.

202. New section 153ZPD gives effect to Articles 3.2(b), 3.16 and 3.19(b) of Chapter 3 of A-HKFTA in respect of rules of origin for goods produced exclusively from originating materials. The purpose of this new section is to enable goods that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with A-HKFTA.

Subdivision D - Goods produced in Hong Kong, China or in Hong Kong, China and Australia, from non-originating materials

203. Subdivision D contains new section 153ZPE, which deals with Hong Kong originating goods produced from non-originating materials.

204. New subsection 153ZPE(1) provides that goods are Hong Kong originating goods if:

(a)
they are classified to a Chapter, heading or subheading of the Harmonized System that is covered by the table in Annex 3-B of A-HKFTA; and
(b)
they are produced entirely in the Area of Hong Kong, China or entirely in the Area of Hong Kong, China and the Area of Australia, from non-originating materials only or from non-originating materials and originating materials; and
(c)
the goods satisfy the requirements applicable to the goods in that Annex; and
(d)
either:

i.
the importer of the goods has, at the time the goods are imported, a Declaration of Origin, or a copy of one, for the goods; or
ii.
Australia has waived the requirement for a Declaration of Origin for the goods.

205. This provision applies the product specific rules by direct reference to Annex 3-B of A-HKFTA. This applies both the product specific rules and any product specific process rules. The direct application of Annex 3-B does not change the operation of these rules as set out in that Annex. Rather, as A-HKFTA is defined to be the Agreement as amended from time to time, this will ensure that the current Annex in A-HKFTA will be applied. It will also ensure that any updated version of the Annex that would be contained in A-HKFTA when the parties implement later versions of the Harmonized System will be applied as soon as any provisions of A-HKFTA and any of Australia's domestic treaty-making procedures that pertain to the adoption of an updated Annex are completed.

206. For certainty, abbreviations used in Annex 3-B, new subsection 153ZPE(2) provides that, without limiting paragraph 153ZPE(1)(c), a requirement may be specified in the table in Annex 3-B of A-HKFTA by using an abbreviation that is given a meaning for the purpose of that Annex. For example, the abbreviation of RVC(40) in the Annex means a regional value content of at least 40%. Another example of an abbreviation in the Annex is 'CC', which is an abbreviation for Change of Chapter.

Change in tariff classification

207. New subsection 153ZPE(3) refers to the first of several requirements that may be prescribed in regulations made for the purposes of Subdivision D. It provides that, if a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification, the regulations may prescribe when a non-originating material used in the production of the goods is taken to satisfy the change in tariff classification.

208. The regulations made under this head of power include provisions to give effect to the cumulative rules of origin contained in Article 3.8 of Chapter 3 of A-HKFTA, and apply where the non-originating materials that are used or consumed in the production of the good do not satisfy the change in tariff classification.

209. The concept of the change in tariff classification requirement applies to non-originating materials. Goods that have been sourced outside Hong Kong, China or Australia and that are used in the production of other goods are non-originating materials. Goods sourced from Hong Kong, China or Australia that have not fulfilled the requirements of new Division 1M and that are used in the production of other goods are also non-originating materials.

210. Non-originating materials used to produce other goods may not have the same classification under the Harmonized System as the final good. For example, non-originating materials used to produce a good may be classified to one tariff classification before the production process, and the final good may be classified under a different tariff classification after the production process. To satisfy the requirement of classification change, and therefore satisfy a requirement for the purposes of claiming preferential treatment of customs duty in accordance with A-HKFTA, the goods concerned must be sufficiently transformed such that they can be classified to a different tariff classification to that of the non-originating materials from which they are produced.

211. For example, frozen fish fillets (classified to tariff code 0304) are produced from fish caught in a Party to A-HKFTA and combined with herbs and spices produced in Thailand (which is not a Party to A-HKFTA) (classified to tariff code 0907 to 0910) to make crumbed fish fillets (classified to tariff code 1604 in Chapter 16 of the Harmonized System). The applicable tariff change for crumbed fish is 'a change to Chapter 16 from any other chapter'. That is, non-originating materials used in the production of the final good must be classified in a different Chapter (two digits) from the classification of the final good. As the herbs and spices are classified to Chapter 9 of the Harmonized System, these non-originating materials meet the tariff change requirement, considering that the fish concerned is the produce of a Party to A- HKFTA, and is therefore an originating material and is not required to change its classification.

212. As per the above example, it is necessary for the tariff classification of the final good and each of the goods that are non-originating materials used in the production of the final goods to be known in order to determine the applicable change in tariff classification.

213. New subsection 153ZPE(4) allows for the change in tariff classification requirement to also be satisfied if the total value of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10% of the customs value of the goods.

214. New subsection 153ZPE(4) gives effect to the de minimis requirement set out in Article 3.9(a) of Chapter 3 of A-HKFTA. As a result, even if none of the non-originating materials used to produce a final good satisfy a particular change in tariff classification, the final good may still be a Hong Kong originating good if it satisfies subsection 153ZPE(4) because the change in tariff classification will be taken to be satisfied.

215. The value of non-originating materials for the purposes of subsection 153ZPE(4) is to be worked out in accordance with the method that will be included in the regulations.

216. To give effect to the de minimis requirement under Article 3.9(b) of Chapter 3 of A- HKFTA, new subsection 153ZPE(5) provides that, if:

(g)
a requirement that applies in relation to the goods is that all non-originating materials used in the production of the goods must have undergone a particular change in tariff classification; and
(h)
the goods are classified to any of Chapters 50 to 63 of the Harmonized System; and
(i)
one or more of the non-originating materials used in the production of the goods do not satisfy the change in tariff classification;
then the requirement is taken to be satisfied if the total weight of the non-originating materials covered by paragraph (c) does not exceed 10% of the total weight of the goods.

217. This provision allows for the change in tariff classification requirement to also be satisfied in relation to certain goods if the total weight of all of the non-originating materials used in the production of the goods that do not satisfy the particular change in tariff classification of the goods, does not exceed 10 % of the customs value of the goods.

Regional value content

218. New subsection 153ZPE(6) provides that, if a requirement that applies in relation to the goods is that the goods must have a regional value content of not less than a particular percentage worked out in a particular way:

(e)
the regional value content of the goods is to be worked out in accordance with A-HKFTA; or
(f)
if the regulations prescribe how to work out the regional value content of the goods-the regional value content of the goods is to be worked out in accordance with the regulations.

219. This provision provides the head of power to prescribe formulas for calculating regional value content and in doing so gives effect to Article 3.4 of A-HKFTA.

220. New subsection 153ZPE(7) provides that, if:

(a)
a requirement that applies in relation to the goods is that the goods must have a regional value content of not less than a particular percentage worked out in a particular way; and
(b)
the goods are imported into Australia with accessories, spare parts, tools or instructional or other information materials; and
(c)
the accessories, spare parts, tools or instructional or other information materials are classified with, delivered with and not invoiced separately from the goods; and
(d)
the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the goods; and
(e)
the accessories, spare parts, tools or instructional or other information materials are non-originating materials;
the regulations must require the value of the accessories, spare parts, tools or instructional or other information materials covered by paragraph 157ZPE(7)(e) to be taken into account for the purposes of working out the regional value content of the goods.

221. The note to this section indicates that the value of the accessories, spare parts, tools or instructional or other information materials is to be worked out in accordance with the regulations.

222. New subsection 153ZPE(7) provides a head of power to prescribe regulations to give effect to Article 3.11(b) of Chapter 3 of A-HKFTA in respect of the value of the accessories, spare parts, tools or instructional or other information materials for working out regional value content. This provision is necessary because the value of such goods would not normally form part of the value of materials that are used in the production of the underlying goods.

223. New subsection 153ZPE(8) gives effect to paragraph 2 of Article 3.11 of Chapter 3 of A-HKFTA and provides that section 153ZPG should be disregarded for the purposes of subsection 153ZPE(7) when working out whether the accessories, spare parts, tools or instructional or other information materials are non-originating materials. This provision ensures that the relevant product specific rules for the accessories, spare parts, tools or instructional or other information materials must be applied to determine whether they are originating goods.

224. New section 153ZPE gives effect to the above-mentioned Articles in Chapter 3 of A-HKFTA and enables goods produced from non-originating materials that satisfy relevant requirements to be subject to preferential treatment of customs duty in accordance with the Agreement.

225. Subdivision D also contains new section 153ZPF, which deals with packaging materials and containers in accordance with A-HKFTA.

226. New subsection 153ZPF(1) gives effect to Article 3.12(1) of Chapter 3 of A-HKFTA and provides that if:

(e)
goods are packaged for retail sale in packaging material or a container; and
(f)
the packaging material or container is classified with the goods in accordance with Rule 5 of the Interpretation Rules;
then the packaging material or container is to be disregarded for the purposes of this Subdivision.

227. This provision has the effect that packaging materials or containers do not need to satisfy the change in tariff classification requirement that may apply to the goods packaged within the materials or containers.

228. However, in accordance with Article 3.12(2) of Chapter 3 of A-HKFTA, new subsection 153ZPF(2) provides an exception to subsection 153ZPF(1). This exception applies where the goods are required to have a regional value content of at least a particular percentage worked out in a particular way, and where the packaging material or container is non-originating material. In this context, the regulations must provide for the value of the packaging material or container to be taken into account when working out the regional value content of the goods.

229. Without this provision, the value of packaging materials and containers would not normally form part of the value of materials that are used in the production of the goods.

230. The note to this section indicates that the value of packaging materials and containers for the purposes of this section is to be worked out in accordance with the regulations.

Subdivision E - Goods that are accessories, spare parts, tools or instructional or other information materials

231. Subdivision E contains new section 153ZPG, which sets out a specific rule that applies to goods that are accessories, spare parts, tools or instructional or other information materials.

232. New section 153ZPG provides that goods are Hong Kong originating goods if:

(a)
they are accessories, spare parts, tools or instructional or other information materials in relation to other goods; and
(b)
the other goods are imported into Australia with the accessories, spare parts, tools or instructional or other information materials; and
(c)
the other goods are Hong Kong originating goods; and
(d)
the accessories, spare parts, tools or instructional or other information materials are not invoiced separately from the other goods; and
(e)
the quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the other goods.

233. Therefore, under this provision, accessories, spare parts, tools or instructional or other information materials will be deemed Hong Kong originating goods even if, in fact, they are non-originating goods, provided all of the requirements in this new section are satisfied. However, this deeming section is to be disregarded when performing a regional value calculation on goods under new subsection 153ZPE(7). The value of the accessories, spare parts, tools or other instructional or information materials that are non-originating materials must be included in that calculation (see new subsection 153ZPE(8)).

234. This provision gives effect to Article 3.11 of Chapter 3 of the Agreement with respect to specific rules for goods that are accessories, spare parts, tools or instructional or other information materials.

Subdivision F - Consignment

235. Subdivision F contains new section 153ZPH, which deals with the consignment requirements applicable to Hong Kong originating goods in accordance with A-HKFTA.

236. New subsection 153ZPH(1) provides that goods are not Hong Kong originating goods under new Division 1M if the goods are transported through a non-party and the goods undergo any operation in the territory of a non-party other than unloading, reloading, separation from a bulk shipment, repacking, storing, labelling or marking for the purpose of satisfying the requirements of Australia or any other operation that is necessary to preserve the goods in good condition or to transport the goods to the Area of Australia.

237. New subsection 153ZPH(2) provides that section 153ZPH applies despite any other provision of new Division 1M. This means that even if goods are Hong Kong originating goods in accordance with any other provisions of Division 1M, if they come within the terms of section 153ZPH(1) they will not be Hong Kong originating goods.

238. The new section gives effect to Article 3.15 of Chapter 3 of A-HKFTA.

Subdivision G - Regulations

239. Subdivision G contains new section 153ZPI, which provides a head of power to prescribe regulations to make provisions for and in relation to determining whether goods are Hong Kong originating goods under new Division 1M.

Part 2 - Verification powers

Customs Act 1901

Item 4 After Division 4J of Part VI

240. This item amends Part VI of the Customs Act to insert new Division 4K, which is titled 'Exportation of goods to Hong Kong, China'.

241. Division 4K contains new sections 126APA, 126APB, 126APC and 126APD. Collectively, these new sections impose obligations on people who export eligible goods to the Area of Hong Kong, China and who wish to obtain preferential treatment of customs duty in respect of those goods, and on people who produce such goods.

Section 126APA Definitions

242. New section 126APA defines the term 'Agreement', 'Area of Hong Kong, China', 'Hong Kong, China customs official', 'producer' and 'production' for the purposes of new Division 4K. With exception to the terms 'Hong Kong, China customs official' and 'producer', the terms have the same meaning as given in new Division 1M of Part VIII of the Customs Act, inserted by item 3 of Part 1 of Schedule 3 to the Bill.

243. 'Hong Kong, China customs official' is defined under this section to mean a person representing the customs administration of Hong Kong, China. This term is necessary and referred to in new sections 126APC and 126APD.

244. The term 'producer' is defined under this section to mean a person who engages in the production of goods, where production has the same meaning as given in new Division 1M of Part VIII of the Customs Act, inserted by item 3 of Part 1 of Schedule 3 to the Bill.

Section 126APB Record keeping obligations

245. New section 126APB inserts a head of power to prescribe record keeping obligations. These record keeping obligations will apply in respect of goods that are exported from Australia to Hong Kong, China.

246. New subsection 126APB(1) enables regulations to prescribe record keeping obligations that apply in relation to goods exported to the Area of Hong Kong, China and that are claimed to be Australian originating goods for the purpose of obtaining a preferential tariff in the Area of Hong Kong, China. The record keeping obligation envisaged by Article 3.22 of Chapter 3 of A-HKFTA is broader than the general record keeping obligations under the Customs Act.

247. It is intended that the method of keeping the documents, such as the length of time for which they must be kept and the manner in which they must be kept, will be similar to current record keeping obligations. However, the type of documents that will be required to be kept will be much broader than current requirements. The requirements will extend to all records relating to the origin of the goods for which preferential tariff treatment is claimed in the Area of Hong Kong, China and may include, amongst other things, records associated with the tariff classification of the goods and the origin or value of the materials used to produce the goods.

248. New subsection 126APB(2) provides that the obligations under subsection 126APB(1) may be imposed on an exporter or producer of goods.

Section 126APC Power to require records

249. New subsection 126APC(1) provides that an authorised officer (as defined in section 4 of the Customs Act) may require a person who is subject to record keeping obligations under regulations made for the purposes of section 126APB to produce to the officer such of those records as the officer requires.

250. Under Article 3.23 of Chapter 3 of A-HKFTA, the customs administration of the importing Party may take action to verify the eligibility of goods for preferential treatment, including requesting the supply of records relating to the production or export of the goods. New section 126APC gives effect to this Article in respect of goods that are exported to the Area of Hong Kong, China and that are claimed to be originating goods for the purpose of obtaining a preferential tariff in the Area of Hong Kong, China.

251. New subsection 126APC(2) provides that an authorised officer (as defined in section 4 of the Customs Act) may disclose any records so produced to a Hong Kong, China customs official for the purpose of verifying a claim for a preferential tariff in the Area of Hong Kong, China. Records obtained by an authorised officer under new section 126APC may be Immigration and Border Protection information within the meaning of Part 6 of the Australian Border Force Act 2015 (the ABF Act).

252. Section 42 in Part 6 of ABF Act prohibits the disclosure of Immigration and Border Protection information except, amongst other things, where the disclosure is authorised by or under a law of the Commonwealth.

253. By including an express provision in the Customs Act to permit the disclosure of information (that may be Immigration and Border Protection information) to a Hong Kong, China customs official, the disclosure of such information is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

254. The note to new section 126APC indicates that, where an authorised officer has requested a person who is subject to record keeping obligations under regulations made for the purposes of section 126APB, a failure to produce documents or records by that person may be an offence under existing section 243SB of the Customs Act. This offence is not a strict liability offence. The note also indicates that, under section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

Section 126APD Power to ask questions

255. New subsection 126APD(1) provides that an authorised officer (as defined in section 4 of the Customs Act) may require a person who is an exporter or producer of goods that:

(a)
are exported to the Area of Hong Kong, China; and
(b)
are claimed to be Australian originating goods, in accordance with Chapter 3 of A-HKFTA, for the purpose of obtaining a preferential tariff in the Area of Hong Kong, China;
to answer questions in order to verify the origin of the goods.

256. It is considered that the power to ask questions in the circumstances set out in this section is a necessary adjunct to the power to require records in new section 126APC.

257. Subsection 126APD(2) enables an authorised officer (as defined in section 4 of the Customs Act), for the purpose of verifying a claim for a preferential tariff in the Area of Hong Kong, China to disclose any answers to questions covered by new subsection 126APD(1) to a Hong Kong, China customs official.

258. The answers to questions obtained by an authorised officer under new section 126APD may also be Immigration and Border Protection information within the meaning of Part 6 of the ABF Act and therefore cannot not be disclosed to a Hong Kong, China customs official except as allowed by Part 6. By including an express provision in the Customs Act allowing for this information to be disclosed to a Hong Kong, China customs official, the disclosure is required or authorised by a law of the Commonwealth for the purposes of Part 6 of the ABF Act.

259. The note to new section 126APD indicates that, where an authorised officer has requested a person to answer questions in order to verify the origin of goods in accordance with this section, a failure to answer questions by that person may be an offence under section 243SA of the Customs Act. This offence is not a strict liability offence. The note also indicates that, under existing section 243SC of the Customs Act, a person does not have to produce a record if doing so would tend to incriminate the person.

Part 3 - Application provisions

Item 5 Application provisions

260. This item operates such that the amendments made by Part 1 of Schedule 3 to the Bill, when enacted, apply in relation to:

(a)
goods imported into Australia on or after the commencement of that Part; and
(b)
goods imported into Australia before the commencement of that Part, where the time for working out the rate of import duty on the goods had not occurred before the commencement of that Part.

261. This item also provides that the amendment made by Part 2 of Schedule 3 to the Bill, when enacted, applies in relation to goods exported to the Area of Hong Kong, China on or after the commencement of that Part (whether the goods were produced before, on or after that commencement).

Attachment A - Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019

The Customs Amendment (Growing Australian Export Opportunities Across the Asia-Pacific) Bill 2019 (the Bill) is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Bill

The purpose of the Bill is to amend the Customs Act 1901 (the Customs Act) to give effect to:

the Peru-Australia Free Trade Agreement (PAFTA) signed on 12 February 2018;
the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) signed on 4 March 2019; and
the Australia-Hong Kong Free Trade Agreement (A-HKFTA) signed on 26 March 2019.

The amendments implement new rules of origin for goods imported into Australia under one of these agreements. In particular, the Bill will:

implement separate rules of origin for each agreement to determine eligible goods to be subject to preferential treatment of customs duty in accordance with each of the agreements. Goods that satisfy the rules of origin under PAFTA are referred to as Peruvian originating goods, goods that satisfy the rules of origin under IA-CEPA are referred to as Indonesian originating goods and goods that satisfy the rules of origin under A-HKFTA are referred to as Hong Kong originating goods;
enable regulations to prescribe record keeping obligations on exporters that export goods to a Party to one of the agreements and who make a claim that the goods exported are Australian originating goods in accordance with that agreement;
enable regulations to prescribe record keeping obligation on producers that produce goods for export to Peru or Hong Kong, China and who make a claim that the goods exported are originating in accordance with PAFTA or A-HKFTA respectively; and
enable an authorised officer (as defined in subsection 4(1) of the Customs Act) to disclose information (including personal information within the meaning of the Privacy Act 1988 (Cth) and Immigration and Border Protection information within the meaning of the Australia Border Force Act 2015 (Cth)) to customs officials of the other Party to the applicable agreement for the purposes of verifying the claims for origin of goods exported to that Party under the relevant agreement. For each agreement customs official means a person representing a Customs Administration of that Party.

Human rights implication

This Bill engages the right to not be subjected to arbitrary or unlawful interference with privacy in Article 17 of the International Covenant on Civil and Political Rights to the extent that the Bill will allow for the collection and disclosure of personal information.

Article 17(1) sets out:

No one shall be subjected to arbitrary or unlawful interference with his privacy, family, home or correspondence, nor to unlawful attacks on his honour and reputation.

Peru-Australia Free Trade Agreement

Under Article 3.17 of Chapter 3 of PAFTA, a certificate of origin document completed by the exporter or producer or an authorised representative of the exporter or producer shall support a claim that goods are eligible for preferential tariff treatment in accordance with PAFTA. The key information that must be included in a 'certificate of origin' document is detailed in Article 3.17, and Annex 3-A of PAFTA and includes personal information, that is the exporter and/or the producer's name, address, email address and telephone number.

The Bill in part inserts new sections 126AJF, 126AJG and 126AJH into the Customs Act to enable:

regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Peru and are claimed to be Australian originating goods in accordance with PAFTA;
an authorised officer to require a person subject to record keeping obligations under the regulations to produce those records;
an authorised officer to disclose the records to a Peruvian customs official in order to verify a claim for a preferential tariff;
an authorised officer to require an exporter or producer of goods to answer questions in order to verify the origin of the goods; and
an authorised officer to disclose the answers to a Peruvian customs official in order to verify a claim for a preferential tariff.

Indonesia-Australia Comprehensive Economic Partnership Agreement

Under Articles 4.17 and 4.20 of Chapter 4 of IA-CEPA, valid documentary evidence of origin presented by the importer shall support a claim that the goods are eligible for preferential tariff treatment in accordance with IA-CEPA. The key information that must be included for a 'certificate of origin' and a 'declaration of origin' are set out in Annex 4-A and Annex 4-B of IA-CEPA respectively, and includes personal information, that is, the exporter's name, address and contact details.

The Bill in part inserts new sections 126ALF, 126ALG and 126ALH into the Customs Act to enable:

regulations to prescribe record keeping obligations that apply in relation to goods that are exported to the territory of Indonesia and are claimed to be Australian originating goods in accordance with IA-CEPA;
an authorised officer to require a person subject to record keeping obligations under the regulations to produce those records;
an authorised officer to disclose the records to an Indonesian customs official in order to verify a claim for a preferential tariff;
an authorised officer to require an exporter or producer of goods to answer questions in order to verify the origin of the goods; and
an authorised officer to disclose the answers to an Indonesian customs official in order to verify a claim for a preferential tariff.

Australia-Hong Kong Free Trade Agreement

Under Article 3.16 of Chapter 3 of A-HKFTA, a declaration of origin document completed by the exporter, producer or importer, or an authorised representative of the exporter, producer or importer shall support a claim that the goods are eligible for preferential tariff treatment in accordance with A-HKFTA. Key information that must be included for a 'declaration of origin' are set out in Annex 3-A of A-HKFTA and includes personal information, that is, the name, address, email address and telephone number of the Importer, Exporter, Producer or their Authorised Representative.

The Bill in part inserts new sections 126APB, 126APC and 126APD into the Customs Act to enable:

regulation to prescribe record keeping obligations that apply in relation to goods that are exported to Hong Kong, China and are claimed to be Australian originating goods in accordance with A-HKFTA;
an authorised officer to require a person subject to record keeping obligations under the regulations to produce those records;
an authorised officer to disclose the records to a Hong Kong, China customs official in order to verify a claim for a preferential tariff;
an authorised officer to require an exporter or producer of goods to answer questions in order to verify the origin of the goods; and
an authorised officer to disclose the answers to a Hong Kong customs official in order to verify a claim for a preferential tariff.

Additionally, the record keeping obligations to be prescribed by the regulations will reflect the obligations set out in Article 3.22 of Chapter 3 of PAFTA, Article 4.26 of Chapter 4 of IA-CEPA and Article 3.22 of Chapter 3 of A-HKFTA in respect of the retention of records and the verification of origin.

The new sections allow the other Party to verify the origin of goods exported from Australia that are claimed to be Australian originating goods. For example, this may include the collection and disclosure of personal information set out in a 'certificate of origin' document, for limited purposes including to a customs official from the other Party for the purpose of verifying a claim for a preferential tariff

The verification of the eligibility for preferential treatment is required under PAFTA, IA-CEPA or A-HKFTA and the measures in the Bill are directed at the legitimate purpose of facilitating and supporting Australia's economic and international trade objectives and implementing the international legal obligations under these agreements. The collection and disclosure of personal information is authorised under the Privacy Act 1988 (Cth) and, where applicable, the Australian Border Force Act 2015 (Cth), with the Bill clarifying that authorised officers may require exporters or producers of goods to produce records or answer questions, which records or answers may be disclosed to officials of the other Parties to the agreements for the purpose of verifying a claim for a preferential tariff. The Bill will not alter the existing Australian domestic law protections. The collection, access and disclosure is intended to be permitted for the limited purpose of verifying a claim made by a person for preferential tariff treatment and the records captured by the new sections only to relate to goods that are exported to the relevant Party and are claimed to be Australian originating goods for those purposes. As such, the amendments are a reasonable and proportionate response to the legitimate purpose described above. As such, the collection and disclosure of personal information in these circumstances will not constitute an unlawful or arbitrary interference with privacy.

Conclusion

The Bill is compatible with human rights because to the extent that it may engage the right to privacy, will not constitute an unlawful or arbitrary interference with privacy.

Attachment B - PERU-AUSTRALIA FREE TRADE AGREEMENT

ANALYSIS OF REGULATORY IMPACT ON AUSTRALIA

OBPR Reference Number: 22433

Introduction

1. This Regulation Impact Statement (RIS) relates to the Free Trade Agreement between Australia and the Republic of Peru (PAFTA). Peru and Australia launched negotiations for PAFTA on 24 May 2017. PAFTA was signed in Canberra, Australia on 12 February 2018.

Policy Problem

2. Peru is one of the fastest growing economies in Latin America with an average growth rate of 5.9 per cent over ten years (2005-2015 World Bank). Peru's Gross Domestic Product (GDP) of USD 189 billion is similar to that of Vietnam, and its population of 31 million is similar to Malaysia. Peru presents a low level of risk compared to some other economies in the region, with modern infrastructure networks, a favourable tax regime, and a history of solid macroeconomic reforms.

Table 1: Economic and Trade Relationship - Australia and Peru
Peru GDP USD 189 billion Australian goods exports $82 million
GDP Growth (Trend 2005-2015) 5.9% Australian goods imports $255 million
Population 31.38 million Australian services exports $55 million
Exports (Trend 2005-2015) 2.2% Australian services imports $112 million
Imports (Trend 2005-2015) 9.1% Australian investment $ 5,000 million*
Two way trade $504 million Other investment in Australia $163 million

* An estimate of Australian badged investment, including in the mining sector. Source: World Bank; DFAT Country Fact Sheets. All currencies AUD unless specified otherwise.

3. As shown in Table 1, Australia's trade and economic relationship with Peru is less developed compared to our relationship with economies of a similar size. Peru has high barriers to trade that have prevented the trade relationship from reaching its full potential.

4. The absence of a bilateral trade agreement with Peru:

limits Australian producers' and exporters' ability to increase trade across many of our top exports in the face of very high tariffs;
leaves Australian exporters at a disadvantage compared to competitors from countries with which Peru has concluded, or is negotiating, a trade agreement;
maintains tariffs on many imports from Peru, which can lead to higher costs for businesses and consumers; and
maintains barriers to investment and services exports.

5. Australia's trading relationship with Peru is governed by Peru's obligations under the World Trade Organization (WTO) Agreement. Australia's exports of beef, sheep meat, horticulture, wheat, barley, rice, canola, sugar and wine are effectively shut out of the Peruvian market because of high tariff barriers. Sugar, dairy, rice and corn are subject to Peru's price band system, which can result in applied tariffs of up to 29 per cent. There are also tariffs of up to 11 per cent on beef, and up to 9 per cent on sheep meat, almonds, vegetables and wine.

6. Peru's market access commitments in relation to services are as agreed under the WTO General Agreement on Trade in Services (GATS). These commitments do not include services in sectors of commercial interest to Australia, including telecommunications, financial services, professional services, energy and mining-related services, environmental services, construction services, and transport services.

7. Australian investment is the most important feature in Australia's commercial ties with Peru. Australia's commercial presence in Peru has increased significantly with nearly 90 Australian companies now represented in Peru. Australian investment in Peru is estimated to be around 5 billion, and Australia is the fourth largest investor in the mining and energy sector. Australia's investment relationship with Peru remains governed by a 1995 bilateral investment treaty. While this older treaty provides protections for Australian investors, it does not include the more effective, modern safeguards aimed at better protecting Australia's right to regulate in the public interest. Nor does it contain procedural safeguards regarding investor-sate dispute settlement. These safeguards provide greater legal certainty, reducing the risk of investors bringing claims against the government for regulations designed for legitimate public policy purposes.

8. A number of Australia's competitors, including the United States (US), Canada, European Union (EU), and Singapore, have FTAs with Peru. As a result Australian exporters face additional barriers including tariffs; restrictions on the sale of services; additional red tape; and barriers on temporary entry for business people. This places Australian exporters of goods and services at a significant disadvantage to our competitors.

Need for Government Action

9. Peru maintains trade barriers on many goods and services of interest to Australia. Without an arrangement to reduce these restrictions, Australian exporters will remain constrained in their ability to capitalise fully on the opportunities presented by Peru's large and growing market. PAFTA provides unprecedented market access that unlocks new opportunities for Australian businesses and will make Australian exporters more competitive in the Peruvian market. Furthermore, it is in Australia's interest to secure a preferential advantage in the Peruvian market as soon as possible to enable Australia to keep pace with competitors, many of which have already negotiated FTAs with Peru.

Policy options and assessment

No action

10. Without an FTA, Australian business will continue to be at a disadvantage due to preferential treatment provided to our major competitors through FTAs. PAFTA outcomes build on and improve those in the Trans-Pacific Partnership (TPP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) for many of Australia's top goods and services exports. Without removing these barriers, trade is unlikely to increase.

Multilateral negotiations

11. There are currently no negotiations for a comprehensive multilateral trade agreement advancing in the World Trade Organization. As a result, it is not currently feasible to seek improved market access for Australian exporters through multilateral negotiations.

Regional FTA negotiations

12. Regional negotiations should not be seen as an alternative to PAFTA - the Government is pursuing regional agreements in tandem with bilateral agreements for many trading partners. PAFTA outcomes support further progress in these regional efforts while providing early gains and protection for Australia.

13. Australia and Peru are both signatories to the TPP and the TPP-11. TPP-11 incorporates the TPP with the exception of a limited number of suspensions. These are agreements are not yet in-force. The market access outcomes obtained in PAFTA improve on those obtained through TPP-11. PAFTA has faster tariff elimination and new tariff quota access that was not possible in a regional agreement as Peru had greater sensitivities with other Parties.

14. On 30 June 2017, Australia and the Pacific Alliance (Chile, Colombia, Mexico and Peru) launched negotiations for a free trade agreement. Australia does not currently have FTAs (in force) with Colombia, Mexico or Peru. The Pacific Alliance was part of the government's multi-faceted strategy to capture the benefits of the TPP-11 and to strengthen Australia's trade relationship with Latin America. PAFTA will complement this and act as a building block to improved access in the region.

Bilateral FTA negotiations

15. A high-quality bilateral agreement with Peru is only realistic option to achieve the Government's objectives and provide the greatest opportunities to Australian exporters. On 24 May 2017, Australia and Peru commenced negotiations on for a bilateral FTA and signed on 12 February 2018. Negotiations were swift due to a shared negotiating history in the TPP. Due to the bilateral nature of the negotiations, and Australia was able to secure market access outcomes that improved on those obtained in TPP-11.

16. PAFTA is a comprehensive modern trade agreement that addresses the key barriers faced by Australian exporters and investors in Peru. Small and medium-sized enterprises will benefit from provisions emphasising user-friendliness and accessibility of information on opportunities arising from PAFTA. Australian goods and services exporters will benefit from commitments regarding state-owned enterprises and government designed monopolies, designed to create a level playing field and ensure non-discrimination. PAFTA will also support the expansion of Australia's creative and innovative industries through a common set of intellectual property rules that incentivise research and development and creative endeavour.

Outcomes on Goods

17. For goods exporters, PAFTA will eliminate tariff barriers and provide mechanisms to address non-tariff barriers. Peru will eliminate tariffs on 93.5 per cent of its tariff lines from entry into force of the agreement, and ultimately will eliminate 99.4 per cent of all its tariffs. PAFTA outcomes represent a significant improvement to TPP-11. For example, under PAFTA, Peru has given Australia historic levels of new goods market access in areas such as sugar, dairy, rice and sorghum, while for all other tariff lines Australia attained quicker phase out periods than the TPP-11. Without PAFTA, Australian exports to Peru would face very high barriers to trade, which effectively prohibit trade across many of Australia's top export strengths.

18. Under PAFTA, new market access outcomes include:

Sugar: on entry into force of the agreement, Australia will have duty free access of 30,000 tonnes of sugar into Peru, growing to 60,000 tonnes in five years and 90,000 tonnes in 18 years.
Dairy: on entry into force of the agreement, Australia will have duty free access of 7,000 tonnes of dairy products into Peru, growing to 10,000 tonnes in ten years.
Rice: on entry into force of the agreement, Australia will have duty free access of 9,000 tonnes of rice products into Peru, growing to 14,000 tonnes in five years.
Sorghum: on entry into force of the agreement, Australia will have duty free access of 15,000 tonnes of sorghum products into Peru, growing to 20,000 tonnes in five years.
Beef cuts: tariffs (up to 17 per cent) will be eliminated within five years.
Sheep meat: tariffs on all sheep meat (up to 9 per cent) will be eliminated on entry of the agreement into force.
Seafood: Peru will eliminate all tariffs (up to 9 per cent) on entry into force.
Almonds: immediate elimination of duties on all tariff lines (up to 9 per cent).
Wine: immediate elimination of duties across lines of commercial interest to Australia with the remainder being phased out over 5 years (up to 9 per cent).

19. Australian exports to Peru are currently concentrated in machinery and other goods related to the mining industry, along with some food products. While some of Australia's major global exports, such as liquefied natural gas, iron, steel and aluminium already enter Peru duty-free, PAFTA has secured additional market access, including:

immediate elimination of tariffs on base metals including iron ore, copper and nickel;
immediate elimination of tariffs on coal; and
immediate elimination of duties on mineral fuels and mineral oils.

20. Australia's exports of manufactured goods to Peru were worth an estimated $55.7 million. New market access outcomes include:

immediate elimination of duties on paper and paperboard to Peru; and
immediate elimination of duties on pharmaceuticals and medical devices.

Outcomes on Services

21. PAFTA benefits Australian service suppliers by removing key barriers to services trade, providing more transparent and predictable operating conditions for Australian service suppliers in Peru, and capturing future Peruvian services sector reforms. This creates opportunities to expand our services trade with Peru, which was worth $177 million in 2016.

22. A snapshot of the PAFTA services outcomes include:

Education: Australian universities will benefit from Peruvian recognition of Australian degrees. Australian education providers seeking to establish campuses in Peru will be treated the same as Peruvian education providers. Neither Australia nor Peru have made any services-related commitments on public education and the agreement will not require Australia to make any changes to its current laws and regulations covering education.
Mining Equipment, Technology and Services (METS) and oilfield service providers: Peru has granted access on non-discriminatory terms to Australian suppliers of mining-related consulting, research and development, engineering, environmental, mining and technical testing and analysis services. Australians working in the METS sectors and Australian technicians working on oil and gas wells are covered by Peru's commitments on temporary entry, allowing them to stay for a year with the possibility of extension.
Professional services: Guaranteed access for Australian lawyers, engineers, architects, accountants and urban planners to provide their world-class services in Peru.
Financial services: Guaranteed access for Australian financial service suppliers to export their services to Peru, including investment advice and portfolio management services to a collective investment scheme and insurance of risks relating to maritime shipping and international commercial aviation and freight, and related brokerage.
Temporary entry of business people: Guaranteed minimum length of stay for Australian professionals of up to one year and an undertaking from Peru not to impose any labour market testing requirements on Australians covered by PAFTA. Australia retains the right to impose labour market testing on Peruvian contractual service suppliers. Spouses of Australian intra-corporate transferees and investors will be allowed to stay in Peru for the same length of time as the primary visa holder.
Telecommunications services: Guaranteed non-discriminatory treatment, including no foreign equity limits, for Australian investors in telecommunications and e-commerce services.
Health services: Australian providers of private health and allied services will be treated the same as Peruvian suppliers. Neither Australia nor Peru have made any services-related commitments on public health and the agreement will not require Australia to make any changes to its current laws and regulations covering suppliers of health services.
Hospitality and tourism services: Australian hotel, restaurant, travel agency, tour operator and tour guide operators will benefit from guaranteed access to Peru's significant and expanding tourism market.
Government procurement: Opportunities arising from Australian businesses now having the guaranteed right to bid for government procurement services contracts, such as:

-
Management consulting services;
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Computer and related services, along with maintenance of office machinery;
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Architectural engineering and other technical services;
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Land and water transport services;
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Telecommunication and related services; and
-
Environmental protection services;

Outcomes for Investors

23. Australia has around 5 billion of energy and resources investments in Peru, and is the fourth largest foreign investor in Peru's mining sector. PAFTA will create new investment opportunities and provide a more predictable and transparent regulatory environment for investment. It will facilitate foreign investment into Australia, and provide important protections to Australian businesses investing in Peru.

24. PAFTA will promote further growth and diversification of Australian outward investment by liberalising investment regimes in key sectors such as mining and resources, telecommunications and financial services. PAFTA will also promote foreign investment in Australia by liberalising the screening threshold at which private foreign investments in non-sensitive sectors are considered by the Foreign Investment Review Board (FIRB), increasing it from $261 million to $1,134 million.

25. Under PAFTA, Australia has retained the ability to screen investments in sensitive sectors to ensure they do not raise issues contrary to the national interest. All investments by a foreign government will continue to be examined and lower screening thresholds will apply to investment in agricultural land and agribusiness.

26. PAFTA's investment obligations can be enforced directly by Australian and Peruvian investors through an Investor-State Dispute Settlement (ISDS) mechanism. The ISDS mechanism includes safeguards to protect the government's ability to regulate in the public interest and pursue legitimate public welfare objectives, such as public health. Public health measures cannot be challenged.

Outcomes for Australian consumers and businesses

27. PAFTA also includes a number of provisions and many others help to reduce red tape, improve transparency of international trade environment and support the competitiveness of Australian exports. Highlights include:

more transparent and efficient customs procedures making it easier for Australian companies to export and do business with Peru. For example, under PAFTA, Peru is required to provide an advance ruling on the tariff classification of a good, how it should be valued, whether a good is originating and how to claim preference;
modern trade rules to reflect commercial shipping routes. Most products don't travel directly from one country to another. PAFTA recognises that products are often shipped via logistics and supply hubs and has trade rules to ensure that Australian products that transit through, or are stored in, third countries still qualify for tariff preferences. For example mining equipment from Australia will be able transit through the US or Chile and still qualify for preferential tariff rates, as will advanced Australian mining manufactures, which may be stored in global distribution hubs in customs control of countries outside of Peru or Australia;
duty-free temporary admission of pallets and containers. This commitment will provide cost and administrative savings for Australian businesses engaged in providing transport logistics services to Peru;
mechanisms to address non-tariff barriers impeding Australia's exports. PAFTA will enhance transparency, cooperation and promote good practice with regard to establishment and maintenance of technical regulations;
simplified rules and technical requirements for several products, including wine and spirits. For example, PAFTA includes a wine annex that enables Australian exporters to use the same label to Peru as all other World Wine Trade Agreement countries, saving money on marketing and distribution costs; and
trade facilitative rules of origin that enable exporters, producers or their authorised representatives to self-certify whether the goods originate in Australia. Traders will also be able to make post-importation claims for preferential tariff treatment, provided certain conditions are met.

Commitments made by Australia

28. In order to obtain high quality outcomes in the FTA with Peru, Australia also commitments on trade and investment. By international standards, Australia's trade and investment regime is already open, with low tariffs and significant opportunities for international services suppliers and investors. In addition, Australia's has an open and non-discriminatory government procurement system, and a flexible approach business travel and work within Australia. The commitments in PAFTA did not extend beyond those already offered in other Australian FTAs, including TPP-11. As such, minimal changes are need to Australia's regulatory system to implement PAFTA. Australia's commitments in PAFTA cover:

elimination of tariffs;
ability to provide services in Australia;
increased thresholds for FIRB screening;
access to Australia's government procurement market; and
commitments on the temporary entry of business persons.

29. Australia will eliminate 96 per cent of its tariffs from entry into force of the agreement, and within four years will eliminate 99.8 per cent of all tariffs. This is consistent with other Australian FTAs and our trade policy settings. This includes tariffs of no higher than five per cent on plastics and rubber, textiles, clothing and footwear, iron and steel, motor vehicle components and some machinery and furniture tariffs. Peru is a significant textile exporter and prioritised textile market access in negotiations. As a result of PAFTA, there may be an increase in imports of textile products, or other products from Peru, where Australia has eliminated its tariffs. This is not expected to have a significant impact on the Australian textile sector or others sectors, as the Australian economy is already open to import competition from our major trading partners, including China, the US, Japan, Korea, Singapore and New Zealand.

30. Under PAFTA, Australia will provide greater certainty to Peruvian business people and skilled professionals seeking temporary entry to Australia. These commitments are consistent with Australia's existing immigration and workplace relations frameworks. This includes the sponsorship requirements under the new Temporary Skill Shortage visa. Sponsors must meet market salary rates and offer employment conditions as required under Australian workplace law, and equivalent to those accorded to Australian workers performing similar duties in the workplace. Peruvian skilled professionals must also meet all relevant Australian skills, qualification and licensing requirements. Australia's PAFTA commitments go beyond Australia's WTO commitments on the category of Installers and Servicers and Contractual Service Suppliers. These commitments, including in relation to length of stay and labour market testing, are consistent with Australia's current immigration policy and require no regulatory changes to implement.

Regional Impact

31. PAFTA is expected to have a positive impact on regional Australia. PAFTA provide new open opportunities for regions that export goods or services, particular in sectors related to agriculture and mining. Australia has not only captured the gains of the TPP, but attained improved market access opportunities for Australian exporters.

32. In addition to reducing tariff barriers and improving market access, PAFTA will provide certainty for businesses and reduce costs and red tape for Australian exporters, service suppliers and investors in Peru by setting common rules and promoting transparency of laws and regulations. These include more transparent and efficient customs procedures, streamlined rules of origin procedures, mechanisms to address non-tariff barriers, and simplified rules and technical requirements for several products.

33. Consistent with Australia's other free trade agreements, remaining Australian tariffs on imports from Peru will be eliminated within five years, with consumers and businesses across Australia set to benefit from lower prices. PAFTA is unlikely to impose major adjustment costs on any region or sector.

Regulatory costs/savings

34. In order to implement PAFTA the following regulatory and legislative changes will be required:

changes to the Customs Act 1901 and the Customs Tariff Act 1995 to implement new preferential tariff rates and associated rules of origin; and
changes to the Foreign Acquisitions and Takeover Regulations 2015 to implement the commitment to a higher threshold for screening by FIRB.

35. PAFTA will benefit Australian businesses trading with Peru by removing the regulatory burdens of any tariffs on applied to 99.8 per cent imported goods from Peru, and eliminating tariffs on 99.5 per cent of Australian exports to Peru. To enable Australian importers or exporters to claim preferential access under PAFTA, like any other FTA, traders may need to fulfill some documentary requirements. Under PAFTA, with the objective of minimising regulatory requirements, exporters will be able to self-certify the origin of their goods when claiming the preferential rate. Exporters and importers are not required to trade under preferential rates of PAFTA, and thereby not required to change their documentary requirements when trading with Peru.

36. This Regulation Impact Statement does not assess the change in the regulatory burden faced by Australian businesses and individuals which will arise from regulatory and legislative changes made by Peru. Changes by Peru as a result of the FTA are expected to reduce the regulatory burden for Australian businesses trading with Peru.

Conclusion

37. It is in Australia's national interest to enter into a bilateral trade agreement with Peru given PAFTA will:

deliver commercially meaningful market access gains that will benefit Australian agricultural producers, as well as energy and mineral resources exporters, service providers, consumers and investors;
secure a competitive advantage for Australian exporters in the Peruvian market against other trading partners, and level the playing field for Australian exporters with countries that already have an FTA;
deliver faster and deeper market access gains than those possible through multilateral WTO or regional negotiations;
be consistent with WTO requirements for free trade agreements; and
complement Australia's efforts to seek additional trade liberalisation from the region, through the WTO and other regional agreements.

Consultation

38. The Department of Foreign Affairs and Trade (DFAT) leads Australia's negotiations on FTAs in consultation with other government agencies. Australia's negotiating positions were informed by the views and information provided by stakeholders through both formal and informal mechanisms.

39. The public consultation and stakeholder engagement process on the PAFTA negotiations commenced with the government's announcement on 24 May 2017 that Australia and Peru would be launching PAFTA negotiations. DFAT, in conjunction with other government agencies, has consulted widely with industry and other stakeholders in formulating our positions. A list of businesses and organisations that have been consulted - through consultation events, stakeholder meetings, and phone calls - is set out below.

40. Stakeholders in the public consultation process broadly appreciated the benefits of the Peru-Australia Free Trade Agreement. Most stakeholders supported the government's efforts in the pursuit of a comprehensive trade agreement. Particular interest has been shown in reducing barriers in the agriculture sector, and in enhancing opportunities for Australian providers of, and investors in, mining services, professional services, and telecommunications. Many were especially keen that market access gains achieved under the TPP could be expanded, with agricultural stakeholders particularly forceful advocates for improved market access outcomes.

41. Representatives from a range of peak farming bodies, including Meat & Livestock Australia, Dairy Australia, and the National Farmers' Federation, have been consulted throughout PAFTA negotiating rounds, where they have pressed for better access for Australian agricultural products. Representatives from the mining industry have been closely consulted throughout negotiations, since Australia and Peru's mining sectors are already closely integrated across the areas of mining investment, mining equipment and inputs used in mining.

42. Interest in PAFTA by civil society groups was limited. The Australian Fair Trade and Investment Network provided a submission outlining its concerns, which included: lack of transparency of the negotiating process; the use of the TPP text as a model; the possible inclusion of ISDS provisions; the possible extension of monopoly intellectual property rights on patents or copyright; the existence of provisions on the movement of natural persons and government procurement.

43. Engagement with stakeholders will continue following entry into force of PAFTA to raise awareness of the FTA and ensure businesses and consumers can access the benefits of the agreement. Stakeholders will have an additional opportunity to provide their views on PAFTA through the inquiry process by the Joint Standing Committee on Treaties (JSCOT).

Stakeholders consulted

Australian Industry Group
Almond Board of Australia
Apple and Pear Australia
Australian Chamber of Commerce and Industry
Australian Fair Trade and Investment Network
Australia-Latin America Business Council (ALABC)
Atlas Pearls
AusQuest
Austal
Austin Engineering
Australia Indonesia Business Council (WA)
Australian International Commerce Centre
Australian Wool Industries Secretariat
BHP
Chamber of Commerce and Industry of Western Australia
Canegrowers
City of Perth
Costa Group
Council on Australia Latin America Relations (COALAR) and Managing Director, Latin Resources
Dairy Australia
DTI Group Ltd
EFIC
Fortescue Metals Group (FMG)
Fremantle Chamber of Commerce
FTI Consulting
Grain Growers Limited
Joondalup Council
Meat & Livestock Australia
Minerals Council of Australia
Navitas
National Farmers' Federation
PWC
Ricegrowers
Rio Tinto
Spinnaker Run
Squire Patton Boggs
Sunrice
Sweetlips
WA European Business Association
Western Australia Government
Wellard Rural Exports Limited
West Australian European Business Association
Winemakers Federation of Australia
Woodside

Implementation and evaluation

44. In line with Australia's treaty-making processes, the text of the FTA will be tabled in Parliament. JSCOT will conduct an inquiry into the FTA and report back to Parliament. Implementation of PAFTA will require changes to: the Customs Act 1901; the Customs Tariff Act 1995 and associated regulations; the Foreign Acquisitions and Takeovers Regulations 1989.

45. Once domestic processes are completed, including amendments to legislation and regulatory, Australia and Peru will exchange diplomatic notes to advise that the ratification process has been completed by both Parties. Both Parties are aiming for entry into force before the end of 2018.

46. DFAT and other Government agencies will use existing resources to implement PAFTA. The operation and effectiveness of the FTA will be addressed through working groups, Senior Officials Meetings, Ministerial Meetings and through future reviews of the FTA. In advance of these meetings and any formal review, DFAT will invite submissions from the public, and consult with stakeholders to identify concerns regarding the implementation of the FTA.

Attachment C - INDONESIA-AUSTRALIA COMPREHENSIVE ECONOMIC PARTNERSHIP AGREEMENT

ANALYSIS OF REGULATORY IMPACT ON AUSTRALIA

5 December 2018

PART 1: INTRODUCTION

1. This Analysis of Regulatory Impact on Australia (ARIA) relates to the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA). Australian Prime Minister Julia Gillard and Indonesian President Susilo Bambang Yudhoyono launched negotiations on IA-CEPA in November 2010.

2. A Regulatory Impact Statement was prepared by the Department of Foreign Affairs and Trade (DFAT) in consultation with the Office of Best Practice Regulation (OBPR) in 2009 to inform the decision to commence negotiations (See Attachment 1 - 2009 Regulatory Impact Statement ).

3. After a pause in negotiations, these were relaunched by Indonesian Minister of Trade Republic of Indonesia, H.E Thomas Trikasih Lembong and Australian Minister of Trade and Investment, the Hon Steven Ciobo MP when they met in Canberra on 16 March 2016.

4. An interim Regulatory Impact Statement was completed by DFAT in consultation with OBPR in 2016 in order to inform cabinet's decision on a negotiating mandate after negotiations were restarted.

5. The substantial conclusion of negotiations was jointly announced by the Australian Prime Minister Scott Morrison and Indonesian President Joko Widowdo on 31 August 2018.

6. On the basis of these RIS, among other supporting documentation, Cabinet decided that, of the available policy options, pursuing a high quality bilateral agreement with Indonesia was the likely to produce the most benefit to Australia. Cabinet set the acceptable parameters of a beneficial agreement in the form of a negotiating mandate. An agreement within these parameters has now been achieved and is ready to be tabled in parliament. This ARIA will support the deliberations of Parliament's Joint Standing Committee on Treaties.

PART 2: PROBLEM IDENTIFICATION

7. The Joint Standing Committee on Trade and Investment Growth enquiry Leveraging our advantages - The trade relationship between Australia and Indonesia noted 'The trade relationship between Australia and Indonesia is clearly underdeveloped. In 2015-16 Indonesia was Australia's 13th largest trading partner, trailing behind smaller markets such as New Zealand'. Indonesia is a natural market for Australia, with high potential for growth into the future (geographical proximity, large and growing population, economic growth).

8. Indonesia is also an important strategic partner for Australia, with a significant and growing leadership role in the Indo-Pacific via its role in ASEAN and its position as one of the world's largest democracies and most populous Muslim country.

9. It is in Australia national interest to deepen and broaden economic cooperation with Indonesia, as well as other facets of the relationship, and encouraging ongoing reforms that will help Indonesia grow and develop. This was recognised by the government's recent announcement of a Comprehensive Strategic Partnership with Indonesia, of which economic partnership was one of the key pillars.

10. Australia's trading and strategic relationship with Indonesia has been emphasised with the recent global trade environment - and rules-based international order more generally- facing challenges, including through growing protectionist sentiment.

11. Australia is a nation dependent on trading for our success. Australian businesses rely on export markets to sell their products and to access low cost inputs from overseas. The 2017 report Australian Trade Liberalisation: Analysis of the Economic Impacts by the Centre for International Economics found that Australian households have benefited from a higher standard of living thanks to cheaper consumer goods and one in five jobs in the Australian economy is dependent on trade.

12. With the World Trade Organization (WTO) Doha Development Agenda Round stalled, major trading economies are increasingly working to decrease barriers to trade via bilateral and plurilateral agreements, within which countries agree to lower existing trade barriers on a reciprocal basis.

13. With Australia's trading partners being proactive in negotiating reciprocal reductions in trading barriers, Australia's businesses will increasingly be at a disadvantage compared to their competitors in other countries unless the government ensures that Australian businesses enjoy the same levels of access. Expanding and deepening Australia's trade and investment relationships is critical to Australia's future economic growth and prosperity.

Barriers impeding Australia-Indonesia Trade and Investment

14. Indonesia will move from being the 16th largest economy into the top 10 by 2030, and be the fourth largest by 2050. By 2030, around 70 per cent of Indonesians will be of working age, supporting a consuming class of around 135 million people and business opportunities will be worth approximately $US1.8 trillion.

15. In Indonesia, high tariffs and non-tariff measures, including variable customs procedures, red tape and import-licensing arrangements are significant obstacles for Australian business. Indonesian policies are often geared towards 'self-sufficiency', notably in the food and agriculture sectors, with measures that aim to encourage domestic production and discourage imports.

16. In a promising development, Indonesian President Widodo has announced the aim of improving Indonesia's position on the World Bank Ease of Doing Business report, targeting a rank of 40. From a ranking of 109 in 2015, Indonesia achieved a ranking of 91 by 2016, a jump of 15 places. By 2017, Indonesia's ranking remains at 72, due to improvements in similar countries while Indonesia made no progress.

17. Despite much progress, Indonesia's regulatory environment remains uneven.

Tariff Barriers

18. Like most countries, Indonesia has progressively lowered its import tariffs. The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) continues to reduce these in certain sectors for Australian exporters to Indonesia. However, a range of key agricultural exports such as sugar, frozen beef, some horticulture and sheep meat, and some manufactured exports, such as copper cathodes, some iron and steel products and some machinery parts continue to face high tariffs.

Non-Tariff Measures

19. Indonesia maintains non-tariff measures including quotas, bans, import licensing requirements and pre-shipment inspection for a range of products. Between 2009 and 2015, the number of product-level non-tariff measures on Indonesian imports doubled, expanding the number of products covered by non-tariff measures by over 38 per cent[1]. This dilutes some of the benefits created by reductions in both the MFN tariff and tariff reductions under AANZFTA.

20. Indonesia's import licensing restrictions apply to many goods, including alcoholic beverages[2]. Indonesia frequently revises import arrangements for a range of other products, such as sugar, live cattle and horticulture.

21. A number of Australian companies have expressed concern about anti-dumping actions affecting their trade with Indonesia. Concern about the transparency of regulations and administration in Indonesia also has an impact on trade and investment prospects.

22. Indonesia's regulations vary for different Australian imports with, for example, seasonal permits applied to Australia citrus[3], unpredictable permits for grapes, and no permits issued for apples, mangoes, melons, bananas or pineapples.

Barriers to Services Trade

23. Australia's exports in education, health, mining, telecommunications, business and professional, financial, tourism and other services into Indonesia are significant but impeded by Indonesia's regulatory regime. Lengthy and costly business licensing, permitting and operating procedures, visa restrictions around expatriate employment and difficulties with governance hamper further growth.

24. Indonesia maintains barriers to services trade in many sectors. Relatively restrictive rules governing legal, accountancy and architecture services, as well as education, telecommunications and construction exist. Australian professionals face challenges in obtaining recognition of qualifications. Indonesia maintains restrictions on services, including limits on foreign equity and nationality requirements. Australian and other foreign educational institutions cannot, for example, establish branches or local campuses in Indonesia.

Investment

25. The Indonesian Government is keen to secure large-scale international investment, yet despite some reforms, investment attractiveness remains low due to factors including:

a.
Limitations on foreign investment, including foreign investment in a number of sectors being either closed or restricted. Many sectors have investment caps that limit foreign investment to a non-controlling shareholding. Investment caps are also subject to change and changes may apply retrospectively.
b.
Limitations on expatriate work visas for service, trading and consulting companies.
c.
Additional permits and costs associated with visiting directors, consultants, auditors and lecturers.
d.
Shortages of skilled local staff and low levels of labour productivity. While Indonesia has one of the lowest wage costs for manufacturing in US dollar terms in Asia (lower than China, Philippines, Thailand, Malaysia and Vietnam) the advantage is lost when adjusted for labour productivity. Firms also incur large indirect costs due to poor logistics, infrastructure gaps, labour skills shortages and complex business licensing requirements.

Logistics Costs

26. Logistics costs in Indonesia are estimated at 25 per cent of the cost of manufacturing sales, higher than that of neighbouring countries including Thailand (15 per cent) and Malaysia (13 per cent)[4]. A large proportion of this cost is associated with the need to carry higher inventory levels to accommodate an unreliable logistics chain. Moving freight from Java to Indonesia's outer provinces is hampered by long supply chains, uncertainties in delivery times, and high costs that cover the cost of mostly empty return voyages.

Impact of Other Preferential Trade Agreements

27. Australian businesses are currently at a disadvantage to some key competitors given Indonesia's existing trade agreements. Under the ASEAN Trade in Goods Agreement (ATIGA), Indonesia provides preferential access to ASEAN nations. China also has preferential access to Indonesia compared to Australia on a range of goods under the ASEAN-China FTA.

28. Indonesia has been negotiating an FTA with the EU since July 2016. If finalised, this has the potential to further impact the competitiveness of Australian businesses.

29. The ASEAN Framework Agreement of Services (AFAS) allows Indonesia to offer greater market access to service suppliers from ASEAN countries - including through recognition of qualifications in a range of professions, such as accounting. In practice, Indonesian regulations give advantages to ASEAN service suppliers in 20 sectors, including transport, healthcare and tourism.

30. Some of Australia's existing trade agreements also currently provide preferential access to Indonesia's competitors in the Australian market. For example, tariffs on all China's textiles, clothing and footwear exports to Australia are being eliminated under the China Australia Free Trade Agreement. For Indonesia, these tariffs are not eliminated under AANZFTA until 2020.

Global Mid-Term Outlook

31. The future trajectory of the Australia-Indonesia trade and economic relationship will be affected in part by prevailing global and regional conditions. Global economic growth has been held at around 3 per cent per year since 2010, around 0.5 of a percentage point weaker than the average for the two decades before the global financial crisis (GFC). Weak trade and investment growth, low productivity growth and low inflation remain major vulnerabilities for the global economy.

32. The United Nations Conference on Trade and Development (UNCTAD) estimates global foreign direct investment (FDI) flows fell 23 per cent in 2017, reaching an estimated US$1.43 trillion, as global economic growth remained weak and world trade volumes posted anaemic gains. FDI flows to developing economies remained stable in 2017 after falling 20 per cent in 2016 (to an estimated US$671 billion), largely on the back of slowing economic growth and falling commodity prices.

33. However, despite heightened uncertainty, there are also some encouraging signs. Australia's 2018-19 Budget Economic and Fiscal Outlook forecasts global growth at 3.8 per cent in 2017 moving to 3.75 per cent in 2018 and 2019. This is in part due to higher forecast growth in the United States and East-Asian economies in 2017 and 2018.

34. The July 2018 IMF World Economic Outlook forecasts US economic growth of 2.9 per cent for 2018 and 2.7 per cent for 2019 (Budget 2018-19 - 2.3 per cent). Economic activity in the ASEAN 5 (Philippines, Indonesia, Malaysia, Thailand and Vietnam) has remained relatively resilient despite subdued global demand, with economic growth of 5.3 per cent in 2018 and 5.4 per cent in 2019.

35. The Indonesian economy has continued to expand, driven by private consumption and public investment, and economic growth in the Philippines and Vietnam has remained strong

36. Key uncertainties for the global outlook include the pace of growth in China, the impact of Brexit, and tighter global financial conditions. On the upside, the support to economic activity from policy stimulus in the United States and/or China could turn out to be larger than expected, which could translate to a stronger pickup of activity in their trading partners (including Australia and Indonesia). Upside risks also include higher investment if confidence in the recovery of global demand strengthens.

Indonesia's Economic Outlook

37. Despite the challenges outlined above, there are significant opportunities for greater trade, commercial and cultural links between Australia and Indonesia. Indonesia's economy has expanded strongly over recent decades. The poverty rate more than halved from 23 per cent during the Asian Financial Crisis to 10 per cent in 2018. Indonesia's Central Statistics Agency (BPS) reported growth of 5.06 per cent for the year to Q3 2017, with growth of 5.2 per cent in Q3 2017. Indonesia remains the third fastest growing economy in the G20 (behind India and China).

38. Indonesia accounts for more than a third of total ASEAN GDP. Positive growth during the global financial crisis (GFC), compared to the turbulence caused by the Asian financial crisis, illustrates a new resilience to external shocks. While there are important caveats, Indonesia's future economic outlook remains relatively upbeat out to 2030. Based on current trends, Indonesia will move from the 16th largest economy in the world to the ninth largest by 2030, and fourth largest in 2050. A PWC report (February 2017) expects average annual growth of over 6 cent per annum out to 2050, Global Insights estimate annual growth ranging from 5.1 to 6.1 per cent per annum and the US Department of Agriculture expect annual growth between 4.4 and 5 per cent.[5]

39. To fully realise its potential, Indonesia will need to continue structural reform and improve its governance and business climate. The tendency to look inward for growth, change laws unexpectedly and restrict trade to protect local industry are all areas where continued reform would bring significant long-term gains.

Growing Opportunities with a Growing Economic Power

40. Asia is predicted to be home to around two thirds of the world's middle-class by 2030, fuelling demand for resources and commodity exports from both Indonesia and Australia. Under conservative assumptions, Indonesia itself will have a consumer class of 135 million people by 2030[6]. This would support domestic consumption and represent the largest growth in consumers aside from China and India.

41. Indonesia's urban population could reach 63 per cent in 2030, up from 51 per cent in 2012, with much of the movement anticipated to occur outside of Jakarta. Cities with populations between 150,000 and 10 million people (such as Surabaya, Medan, Makassar and Yogyakarta) will grow faster than Jakarta and contribute more to the economy.

42. These cities are predicted to contribute around 63 per cent of GDP in 2030, compared to Jakarta's 19 per cent. Indonesia has one of the youngest demographic profiles in the world, with 53 per cent of its 257.6 million people below the age of 30. With continued population growth, around 70 per cent of the population are expected to be of working age by 2030.

43. As Indonesia's economic weight grows, and more of its people enter the consumer class, business opportunities in Indonesia will continue to grow. McKinsey (2012) estimates that Indonesia could offer private-sector business opportunities worth approximately $1.8 trillion by 2030. As wealth grows, Indonesian investors are likely to look to countries offering stable economic returns, particularly in industries with links to their domestic economy, including, for example, food and agriculture.

Opportunities in Goods

Agriculture

44. Indonesia is an important market for Australian agriculture. This importance should increase as Indonesia's economy and middle class grow. In an analysis of Indonesia's food demand to 2050, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES 2015) anticipates that economic, population and urbanisation growth will result in a quadrupling of the value of agricultural food consumption from 2009 levels. (Figure 1)

Figure 1 Agrifood consumption in Indonesia 2009 versus 2050 forecasts

45. While there is potential for Indonesia to increase its food production and productivity, Indonesia's domestic agricultural sector will face challenges to satisfy the country's growing food demands (Figure 2). There are opportunities for Australian agricultural goods to supplement Indonesia's demands for quality agricultural products, and to be used as inputs for Indonesian manufactured food products.

Figure 2 Agrifood exports and imports for Indonesia: 2009 versus 2050 forecasts

46. There are distinct opportunities for collaboration between Australian and Indonesian agrifood business to access third markets. Australian wheat is already used as a crucial input for Indonesia's noodle production, which is then exported to the region. As the region continues to grow, these types of opportunities should expand.

Consumer goods

47. Indonesia's rapidly expanding middle class represents opportunities for Australian exporters of consumer goods. For example, the rising demand for premium goods has boosted the growth of imported cosmetics and skin care products. Sales of imported cosmetics in 2015 reached US$441 million and accounted for more than 60 per cent of cosmetics market share in Indonesia.

Manufacturing and specialised equipment

48. There is scope for Australian manufactured and industrial goods to be used as inputs or intermediate products in Indonesian manufacturing, which is increasingly targeting Asian markets.

49. The medical devices technology market in Indonesia is forecast to pass US$1 billion in 2018. Around 85 per cent of the medical equipment and services market is comprised of imports. Business opportunities primarily exist in surgical equipment, high-intensity focused ultrasound, radio immunotherapy and clinical laboratory equipment used for diagnostic tests, particularly for molecular diagnostics, microbiology, and immunochemistry and genetics testing.

50. There is also scope for Australian innovations, including in the resources sector where Australian companies already supply specialised underground mining equipment.

Opportunities in Services

51. Increased services trade represents the biggest potential for growth partnerships between Indonesian and Australian businesses. There are significant synergies between the services sectors that Indonesia is prioritising for future growth and the sectors in which Australia has expertise.

52. Australia's strengths match Indonesia's priorities in agriculture, education, healthcare, mining, professional, financial and tourism services. In many of these areas Australian exports are showing signs of growth, but there is huge potential for further growth that would help lift productivity across sectors in Indonesia.

ICT, E-Commerce and Fintech

53. Indonesia's digital innovation sector is rapidly evolving, with increasing technical literacy especially among younger age groups. The rate of internet access is rapidly growing. Smartphones are the key platform, with more than 280 million SIM cards in use across the archipelago.

54. E-commerce is growing rapidly in Indonesia. Current government forecasts estimate a surge in e-commerce spending from US$6.9 billion this in 2017 to US$14 billion by 2020. Ecommerce is growing between 40-50 per cent annually, making Indonesia one of Asia's more attractive destinations for digital investment. There are opportunities for firms ready to bring in capital, technology and security solutions to partner with local companies to launch their own e-commerce arm.

55. Financial technology services (FinTech) continues to develop rapidly in Indonesia. Total FinTech transactions in Indonesia are estimated to reach US$37.15 billion by 2021. The Indonesian Government has identified close to 100 local FinTech companies with the potential to help Indonesia's banks, small medium enterprises and non-banking financial institutions. The Financial Services Authority of Indonesia (OJK) has developed new guidelines to encourage greater FinTech investment in Indonesia, based on Australian templates.

Energy and Resources

56. Indonesian energy demand is predicted to grow strongly over the medium term. Population growth will put extreme pressure on Indonesia's energy infrastructure and make identifying new and unconventional energy sources increasingly important for sustaining growth.

57. The Indonesian government has already signalled it wants to see a substantial expansion of renewables and oil and gas exploration. Australian companies providing renewable and exploration services will need to continue monitoring developments in Indonesia.

58. As a major producer of thermal coal, tin, nickel and copper, Indonesia offers opportunities for Australian engineering, technology and mining services companies. Despite 2013-2015 marking a low point in the commodities cycle, Indonesia continued to attract investment and the resources and the energy sector remains a strong contributor to overall GDP.

59. Opportunities exist for providers of mining technology services who can clearly demonstrate productivity gains to Indonesian miners. Demand remains strong for mining (and to a lesser degree exploration) software, specialised and innovative equipment, education and training services and specialised mining consulting.

60. The Indonesian mining industry has suffered from considerable skills shortages, creating opportunities for training providers. Mine safety - an area of outstanding Australian capability - also looms large as a growth opportunity for Australian service providers.

Education

61. Australia remains the number one destination for Indonesian university students studying abroad and is forecast to grow at 7 per cent through to 2024. Austrade estimates that there are over 500,000 Indonesian alumni of Australian education institutions, many of whom are now in senior positions in the private and public sectors. Australia is the number one destination for Indonesians studying abroad, with an approximate 25 per cent share of internationally mobile Indonesian higher education students (UNESCO, 2014; Illuminate, 2015).

62. There are also significant opportunities for Australian institutions to partner with Indonesian industry and the education sector to build capacity, develop programs and deliver training in Indonesia. This is especially the case in the VET sector, which Indonesia has identified as a major driver of economic growth and for which it is establishing new policies and partnerships to align skills with industry needs.

63. Australia can become a key partner by supporting greater links between skills development systems, industry and employers (including Australian employers); engaging with industry to help tailor training to business needs; and developing new industry-led skills development delivery models to meet increased demand.

64. Australian institutions can also tap into opportunities in maritime (port management and safety), engineering-related training (electrical, manufacturing, automotive and mechanical), hospitality (food safety, kitchen operations), tourism (hotel management), health services (allied health and patient care) and training needs in a range of other sectors by providing training in Indonesia and Australia.

Tourism

65. Increased tourism is central to Indonesia's economic growth strategy, which is targeting 20 million visitors by 2020. In response to limited tourism development outside of Bali, the Indonesian government has nominated ten new destinations for development to increase visitation, capitalising on key strengths of price competitiveness, rich natural resources and heritage sites.

66. As a world leader in providing consulting services to grow tourism destinations and innovative attractions and experiences, there are significant opportunities for Australian companies to help develop Indonesia's new tourist areas. Australia's research, marketing, training systems and tourism planning are highly regarded internationally and can readily contribute to growth in Indonesia. There are also opportunities for Australian hotel management businesses, which have a large global footprint and access to well-developed value chains of businesses that provide high-quality products, services and skills to deliver premium visitor experiences.

67. There are significant prospects for growth in visitor numbers and spend by inbound Indonesian tourists to Australia. When choosing a holiday destination, Indonesians value safety and security, value for money, sport and cuisine, world-class nature and welcoming people. Australia performs strongly in all these categories.

Healthcare services

68. Rising affluence is increasing the demand for high-quality health care. However, as an emerging market with infrastructure constraints and a challenging geography, an increasing number of Indonesians are travelling overseas for medical treatment, spending up to US1.2 billion a year. There are opportunities for Australia's world-class healthcare providers and businesses to build capacity across the Indonesian healthcare sector- from the vocational training of doctors, nurses and hospital workers to hospital administration, patient management, after-care and aged care.

69. Over the medium to long term the healthcare IT market is likely to be a major contributor to the sector's growth. Examples of key growth areas are telehealth, telemedicine, electronic medical records, and the use of healthcare mobile applications for point-of-care diagnostics, particularly in remote and rural areas.

Aviation

70. Indonesian domestic air travel is growing at over 5 per cent annually and in 15 years will be the fifth largest domestic air travel market globally. In preparation, the Indonesian government has allocated $5.4b over the next 5 years to upgrade or build 15 airports annually. In mid-2016, Indonesian airlines had 800 new planes on order and a deficit of 2,500 pilots.

71. Indonesia's demand for international maintenance, repair and overhaul (MRO) services and training, aviation flight training and aviation engineering presents a significant opportunity for Australian business to engage in the aviation industry. Australian companies are in discussions around air traffic control management systems and airport scheduling technology.

Maritime

72. As an archipelagic nation there are significant infrastructure needs in the port sector. Planning from large port developers and operators takes in tourism needs as well as interisland and international connectivity. There are also opportunities for Australian port management capabilities and technology to be overlaid on the port infrastructure.

Global Value Chains

73. The foreign content share of Indonesia's exports is one of the lowest among major economies, partly reflecting relatively high export dependencies on agricultural, food and mining products (OECD-TiVA, December 2016). Australia's supply of products and services (particularly in manufacturing and ICT inputs) that underpin the latter suggests potential for further complementarity to access third markets.

PART 3: OBJECTIVES OF GOVERNMENT ACTION

74. The current trade and investment relationship between Australia and Indonesia could be much stronger given the growing complementarities between our economies, Indonesia's growth trajectory and the opportunities a closer partnership and economic integration would provide in accessing the dynamic Asian markets to our north. Deeper economic integration would strongly complement already close strategic, security and political engagement, and help build stronger people-to-people links.

75. Recognising the gains to be made from closer economic ties, Australia and Indonesia have been working to progressively address barriers and capitalise on opportunities through liberalising trade agreements.

76. The most significant barriers to trade with Indonesia are at the level of government regulation. Australia companies are not able to influence these barriers, so Australian Government action is required. This has been requested by a broad range of Australian businesses (see consultation section).

77. If the Australian government does not act to ensure a level playing field for Australian exporters, those businesses risk being out-competed by others whose home governments have reciprocally negotiated the lowering of trade barriers for their companies.

78. Previous government actions in this space have been successful. The Productivity Commission's 2017 report Rising Protectionism: Challenges, threats and opportunities for Australia notes that reductions in Australian government regulation on trade have overwhelmingly improved the quality of life enjoyed by Australians. Australia's deregulated trading environment was an important cause of our resilience in the global financial crisis. Other FTAs have been successful at convincing our trading partners to reciprocally reduce their own barriers, increasing trade and investment.

79. The objectives of government action are to secure tariff reductions on commercially significant Australian exports to Indonesia, secure increased market access in Indonesia for Australian services providers, and to build a strong foundation/framework for economic and other cooperation between Australia and Indonesia.

80. This reduction of barriers to trade will level the playing field for Australian businesses, enabling Australian exporters to compete on an equal level with exporters from other countries.

81. Constraints on government action include domestic sensitivities within Australia and Indonesia. Vested interests in Australia and Indonesia and non-competitive industries currently shielded by government regulation will resist the removal of regulations that prevent competition from imports.

82. In Australia, negative media reporting about trade has tended to focus on community fears that trade could increase migration, decrease available employment in manufacturing and prevent the government from regulating in the public interest. Concerns frequently raised in the media in Australia are addressed in the consultation section.

PART 4: ALTERNATIVE MEANS BY WHICH TO ACHIEVE THESE OBJECTIVES

No Government Action

83. No government action would mean leaving all regulations in place that currently restrict imports and inbound investment to Australia from Indonesia. This would not improve Australian companies' access to Indonesian markets, however it would not prevent them from attempting to export goods and services to Indonesia under existing WTO and AANZFTA conditions.

Unilateral Deregulation

84. The productivity commission[7] notes 'that there is no reason why Australia could not proceed unilaterally to lower these barriers. Lowering barriers to all countries on a most favoured nation (MFN) basis would confer larger benefits than lowering them preferentially to a relative few. This is because preferential agreements can result in trade diversion, where it is the preferential treatment that makes the agreement partner country the cheaper supplier, giving them an advantage over the lower cost suppliers.

85. Past work of the Commission has highlighted how bilateral agreements have not always delivered the expected benefits or earned the broad support of the community (PC 2010). In part, this is due to long phase-in periods for tariff reductions in the most sensitive areas and the costs of navigating multiple agreements with complex rules of origin and regulations, which limit their use by businesses. Recent analysis concluded that rules of origin 'have become a pernicious barrier to trade for Australian businesses' (Crook and Gordon 2017, p. 3).'

86. While from a purely economic perspective, unilateral reductions are the easiest to achieve and require the least amount of effort, analysis by the Productivity Commission understates the benefits of FTAs and overstates the complexities in making use of them.

87. This arises due in part to Australia's trade policy not operating in a vacuum, or under conditions found in the ideal economic model, and due to Trade Agreements being written to address every product that is being exported/imported along with Services, Investment and an increasing range of contemporary issues.

88. Should Australia act unilaterally, other countries would continue to pursue bilateral or plurilateral agreements to the exclusion of Australia and Australian industries. That is, inaction itself can lead to a worsening of Australia's position over time, and short of multilateral agreement to not negotiate further trade agreements, Australia would experience a short term gain, for longer term pain.

89. The international trading environment is already distorted by existing regulations, which include:

a.
Sanitary and phytosanitary measures;
b.
Standards, technical regulations and conformity assessment procedures;
c.
Tariff and non-tariff measures;
d.
Customs procedures; and
e.
Existing FTAs.

90. As Australia has already reduced or eliminated tariffs from its major trading partners under existing FTAs, as well as providing duty-free and quota free access to Least Developed Countries under the Generalised System of Preferences (GSP), it is likely that an additional FTA would have a negative effect on trade diversion for Australian importers. This is due to IA-CEPA allowing imports from Indonesia to compete on equal grounds to imports from many of Australia's major trading partners and Least Developed Countries.

91. An example of the benefit of is Australian sugar exporters to Indonesia who received no preferential outcome under the AANZFTA Agreement. In 2015, it was brought to the Australian Government's attention that Thai exporters would be facing an effective tariff of five per cent under the ASEAN Trade in Good Agreement while Australian exporters to Indonesia would continue to face the MFN tariff, effectively 8 per cent.

92. The Australian Sugar Industry Alliance noted that 'We[Australia] went from supplying around a third of Indonesia's sugar imports to almost nothing.'

93. As an early deliverable of the IA-CEPA negotiations and a demonstration of goodwill, Australia and Indonesia were able to make use of provisions of the AANZFTA to bring the tariffs faced by Australian exporters of sugar in to line with that of Thai exporters, with Australia eliminating the tariff on certain pesticides and herbicides.[8]

94. Had Australia not had an existing trade agreement in place, Australian sugar producers would continue to be locked out of the Indonesian market. While transactional, the specific impact on Australian sugar producers could have had major consequences for both producers and the regions they are located in.

95. When it comes to the complexities of using FTAs, IA-CEPA will build off the existing rules for AANZFTA including the Rules of Origin and document certification procedures, including improving on aspects where AANZFTA resulted in a negotiated outcome that Australia sought to improve.

96. Where a business already makes use of AANZFTA, they will already understand many of the rules of IA-CEPA.

97. Businesses are free to decide which Agreement to export their goods under, or not to make use of a FTA at all, and as such, rather than creating a noodle bowl of overlapping FTAs, an additional agreement will strengthen Australian industries ability to trade with Indonesia while minimising the tariffs and barriers they face.

98. It is important to understand that the 'noodle bowl' concept is an issue raised, not typically by individual businesses but, by those who are involved in looking at an FTA holistically such as industry associations, policy makers and academics.

99. Most small or medium enterprises export a fixed and limited number of products across a small selection of tariff lines, meaning that even in the case where they may have a choice between four or five FTAs, they will only need to learn the rules for the FTA which they wish to make use of the available tariff preferences.

100. Where larger businesses need to make use many agreements across a larger range of products these businesses tend to access the services of specialist logistics firms or in-house logistics experts that are experienced in managing the complexities involved in the international movement of goods, which involves matters beyond the trade agreements such as shipping, quarantine and standards.

Multilateral Agreement

101. There are currently no negotiations for a comprehensive multilateral trade agreement advancing in the World Trade Organization. As a result, it is not currently feasible to seek improved market access for Australian exporters through multilateral negotiations.

Plurilateral Agreement

102. The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) has been in force between Australia and Indonesia since 2012, following Indonesian ratification.

103. Australia committed under AANZFTA to eliminate all tariffs on Indonesians goods by 2020.

104. Under AANZFTA, Indonesia has bound 92 per cent of tariff lines at tariff-free treatment in 2017, which will rise to 94 per cent by 2025, with another four per cent having the tariff bound at 5 per cent or less. However, some products will still face high tariffs.

105. AANZFTA also provides outcomes on services and a regime of investment protections.

106. In addition, AANZFTA provides a platform for economic integration with ASEAN, including through the AANZFTA Economic Cooperation Support Program, an aid-for-trade program funded by Australia and New Zealand. Parties to AANZFTA are currently conducting a General Review to ensure AANZFTA remains relevant to business. However, this review focuses on issues beyond the Australian-Indonesian bilateral relationship, and it is not certain that it would address all the issues identified.

107. In addition to negotiating the bilateral IA-CEPA, Australia and Indonesia are building on the outcomes of AANZFTA through negotiations of the plurilateral Regional Comprehensive Economic Partnership (RCEP).

108. However, plurilateral negotiations have the disadvantage that they bring the economic sensitivities of a larger range of countries, and in the case of RCEP, the Australian government cannot expedite the timing of such agreements' conclusions due to being dependent on a larger number of Parties needing to agree.

109. In addition, plurilateral agreements can sometimes end up being less ambitious than bilateral negotiations because of the need to address sensitivities between the parties, for example, in the case of RCEP, the inclusion of China, India, Japan and Korea means that for some of those countries, this will be the first trade agreement they have negotiated with each other. This also means that sometimes areas of particular interest to Australia may not be covered unless all negotiating parties are willing to discuss them.

110. While RCEP does offer prospects for reducing barriers to trade with Indonesia, the timing of this is uncertain and the number of barriers reduced will be limited by the nature of plurilateral negotiations and may not be able to target some areas of specific commercial interest for Australian companies.

Bilateral Agreement

111. A bilateral FTA with Indonesia would allow Australia to address a broad range of trade barriers that Australian businesses face when dealing with Indonesia.

112. The Australian Prime Minister and the Indonesian President have publically agreed that this option will be beneficial for both Australia and Indonesia and will support the bilateral relationship going forward.

113. Part of the negotiation process involved the establishment of the Indonesia Australia Business Partnership Group (IA-BPG) which now comprises the:

a.
Australian Chamber of Commerce and Industry;
b.
Kadin Indonesia (Indonesian Chamber of Commerce);
c.
APINDO (Asosiasi Pengusaha Indonesia, the Employers' Association of Indonesia);
d.
AiGroup;
e.
Indonesia Australia Business Council; and the
f.
Australia Indonesia Business Council.

114. These business organisations are strongly in support of the IA-CEPA as is outlined in a comprehensive position paper presented in 2012[9] and updated in a submission to the IA-CEPA in 2016.[10] The papers outline a vision for a strategic partnership model that recognises the complementary nature of resources and capacity between the two countries.

115. As well as securing reduced barriers to trade for Australian exporters, IA-CEPA sets up a comprehensive plan of economic cooperation between Australia and Indonesia that will lead to an improved business environment in the future.

116. IA-CEPA also provides a foundation for working together on future regulatory alignment that will lower the cost of doing business further.

Best option

117. The best option to achieve these goals is for the IA-CEPA to enter into force between Australia and Indonesia. The FTA offers the prospect of delivering outcomes across goods, services and investment that respond to contemporary challenges facing Australian business.

118. An agreement with Indonesia, which delivers commercially meaningful outcomes and uses the AANZFTA as its foundation would deliver benefits for Australian exporters and investors, and demonstrate the importance of the bilateral relationship to the broader Indo-Pacific region.

119. Consistent with Australia's other free trade agreements, remaining Australian tariffs on imports from Indonesia will be eliminated, with consumers and businesses across Australia set to benefit from lower prices.

120. The agreement is unlikely to impose major adjustment costs on any region or sector.

121. Savings related to improvements to administrative processes using the Agreement's Rules of Origin, including Certificate of Origin Procedures, are set out in Attachment 2 - Regulatory Burden Estimate.

122. The Obligations under IA-CEPA are set out in Attachment 3 - Obligations in Detail

PART 5: IMPACT ANALYSIS

Goods

123. Under AANZFTA, 98 per cent of Indonesian exports to Australia are duty free and only two per cent face tariffs; however around 30 per cent of Australian exports to Indonesia are still affected by tariffs. These tariffs are a burden on our businesses and discourage trade.

124. Under IA-CEPA, 99.9 per cent of Australian goods exports to Indonesia will enter Indonesia duty free or under significantly improved and preferential arrangements.

125. Indonesia will offer improved and more certain access for Australia on live cattle, feed grains and horticultural products such as citrus fruits and vegetables (carrots and potatoes). As the centre of Australia's live cattle trade with Indonesia, northern Australia will be a particular beneficiary.

126. IA-CEPA will also offer better access for rolled steel coil, produced in Australia by Bluescope as a feedstock for its Indonesian manufacturing facilities.

127. Through IA-CEPA, Indonesia will lock in the lower sugar tariff that has already been implemented as a result of the 2017 agreement between then Prime Minister Turnbull and President Widodo. Indonesia will also progressively eliminate tariffs on most other products, including frozen beef and sheep meat, dairy, and a range of manufactured steel, copper, plastic, automotive parts and machinery products.

Services

128. Indonesia made limited services commitments under AANZFTA. IA-CEPA is an important opportunity to secure and improve the basis for trade in services between Indonesia and Australia.

129. IA-CEPA will improve certainty for Australian service providers in Indonesia in a range of sectors of commercial interest. Indonesia's commitments represent a significant improvement on its services commitments in AANZFTA. For example, for the first time in any FTA, Indonesia has offered commitments on a wide range of technical and vocational education, ensuring Australian providers can establish certain majority Australian-owned joint ventures in Indonesia and limiting the onerous conditions that have previously applied to the education sector. This is a significant win for Australian VET providers.

130. Indonesia has offered its best ever commitments overall on services in any FTA. These commitments would guarantee that Australian suppliers can establish majority-owned businesses with no geographic limitations, in sectors including private hospitals, tourism, telecommunications, architecture, engineering, construction, infrastructure and a range of mining and energy-related services.

131. Indonesia has offered to lock in future liberalisation for higher education, legal, postal, courier and international maritime services, guaranteeing that Australian providers would benefit from future reforms.

Investment

132. Market access outcomes for Australian investors exceed those in Indonesia's most ambitious agreements to date, with Indonesia for the first time binding meaningful levels of access for investment in key sectors, such as energy.

133. IA-CEPA will deliver important protections for Australian investors, both general protections and investor-state dispute settlement (ISDS), equivalent to and, in some instances, beyond Indonesia's most liberal agreements.

134. Investor protections, including ISDS, are necessary in the challenging Indonesian investment environment. Indonesia presents risks for foreign investors, with an uncertain regulatory climate and increasing economic nationalism. Strong disciplines in the IA-CEPA Investment Chapter, including ISDS, are important to promote and protect Australian investors and investments in Indonesia. The Indonesia-Australia Business Partnership Group called for the inclusion of ISDS in IA-CEPA in its submissions to government.

135. ISDS between Australia and Indonesia is already available under the ASEAN Australia New Zealand Free Trade Agreement (AANZFTA), but that agreement lacks the important safeguards contained in Australia's more recent FTAs.

136. The ISDS chapter in IA-CEPA includes safeguards equivalent to the best Australia has agreed to date (equivalent to our most recent concluded agreement, the Peru-Australia Free Trade Agreement), providing a better balance between the protection of investors and maintaining the government's right to regulate in the public interest.

137. In IA-CEPA, an investor's basis for challenging legitimate Australian regulatory measures is limited by carve-outs, exceptions and other protections for government policy setting. Modern procedural safeguards, such as provision for expedited preliminary objections and costs orders, are included to contain costs and deter frivolous claims. Moreover, the agreement precludes ISDS disputes from being pursued in relation to any public health measure.

Improving the Business Environment

138. In addition to traditional barriers, non-tariff issues, variable customs procedures, red tape and WTO-inconsistent import licensing arrangements are major obstacles for many Australian businesses in the Indonesian market.

139. IA-CEPA will include an innovative new program of economic cooperation. We will use the IA-CEPA economic cooperation program in key areas of mutual interest for Australia and Indonesia, such as strengthening links between Australian exporters and Indonesian processors. It will also help maximise the benefits of IA-CEPA's outcomes in key services sectors such as education, health and tourism.

140. Cooperation under IA-CEPA will strengthen prospects for IA-CEPA's implementation and support reform efforts in Indonesia, which will benefit both Indonesia and Australia. IA-CEPA includes a built-in agenda to include appropriate economic cooperation to facilitate trade and investment and secure support in the Indonesian system.

141. IA-CEPA will improve conditions for Australian exporters in a number of ways. It will guarantee import licences for a number of key products.In addition, for the first time in an Australian FTA, IA-CEPA includes a chapter on non-tariff measures. This will set up a cooperative mechanism to help deal with non-tariff barriers in the Indonesian market. IA-CEPA will also support improvements to customs procedures and provide assistance linked to Indonesia's implementation of the WTO Trade Facilitation Agreement.

142. Australia and Indonesia have agreed to a comprehensive set of domestic regulation disciplines for trade in services to help address behind-the-border barriers such as delays in processing licences and permits. These build on the rules contained in AANZFTA. Australia and Indonesia have agreed to establish a mechanism to promote professional mutual recognition arrangements between relevant bodies and to improve licencing and certification processes for professionals.

143. The Electronic Commerce Chapter reflects the increasing importance of the internet for business, including commitments to ensure service suppliers and investors can transfer information into and out of Indonesia. It will lock in Indonesia's planned liberalisation of its current data localisation requirements - an important outcome for Australian businesses in Indonesia. The Chapter builds on AANZFTA in several other ways. It also prohibits governments from requiring companies to release their software source code as a condition of importation, sale or distribution, and it contains enhanced commitments on paperless trading and electronic signatures.

144. The Competition Policy Chapter seeks to ensure that the trade and investment liberalisation achieved across IA-CEPA is not undermined by anti-competitive practices. The Chapter includes an obligation on Parties to adopt or maintain consumer protection laws to proscribe the use in trade of misleading practices, or false or misleading descriptions.

145. The Transparency Chapter promotes greater transparency in the making and implementation of laws, regulations and government decisions to facilitate predictability and ease of doing business. It requires Parties to establish or maintain impartial and independent tribunals or procedures for the review of final administrative actions. Australia already complies with the Chapter's requirements.

146. The agreement includes a skills exchange component. The Indonesia-Australia Business Partnership Group (IA-BPG) - a grouping of Australian and Indonesian business interests developed to support the negotiation of IA-CEPA - sought a reciprocal skills exchange as an early outcome of the negotiations. Over five years, the exchange will provide a total of 1500 eligible Australians and 1500 eligible Indonesians the opportunity to work in the other country for a maximum period of six months. The maximum number of participants from each country would start at 100 per year in the first year and step up by 100 per year to a maximum of 500 in the fifth year. Each rise in annual intake would be subject to the Participants' mutual approval following a review each year. The sectors available for the exchange would be limited to: financial and insurance services; mining, engineering and related technical services; and information, media and telecommunications services.

147. The skills exchange will operate under existing visa criteria and processing arrangements. It has been designed to adapt to changes in Migration Law and will be subject to regular review. It is limited to a modest number of eligible participants whose visits will be short in duration.

148. The exchanges will help build the capacity of Indonesian workers for skilled work in Indonesia. This is a key area of need in the Indonesian economy and an important component of improving the prospects of increased Australian investment in Indonesia, where a shortage of skilled labour is a significant impediment. The skills package will also help build people-to-people links and increase the Indonesia literacy of Australian businesses - leading to more export opportunities. Significantly, the inclusion of the skill exchange had been instrumental in securing major benefits for Australia under IA-CEPA. These includes significant improvements in market access for Australian exporters - particularly on agriculture and steel - as well as greater access and certainty for Australian service providers and investors, including in areas such as vocational education and training, health, tourism, telecommunications, and mining and energy services.

Supporting the Strategic Partnership

149. Indonesia is one of Australia's most important bilateral relationships. Cooperation spans political, economic, security, development, education and people to people ties. Australia and Indonesia share joint interests in supporting economic growth, safeguarding our open sea-lanes, cooperating to fight terrorism and deter transnational crime, working together to bolster a rules-based international order and celebrating both countries' diversity by building deeper community understanding of each other's societies, languages and cultures. Australia's relationship with Indonesia is central to achieving the goals set out in the 2017 Foreign Policy White Paper. The White Paper notes that Indonesia is likely to be one of the five biggest economies in the world in purchasing power parity terms by 2030, and it is already a leader in our region, including in ASEAN.

150. In recognition of this, on 31 August 2018, Australia and Indonesia signed the Comprehensive Strategic Partnership. The Comprehensive Strategic Partnership has five pillars: Enhancing Economic and Development Partnership; Connecting People; Securing Our and the Region's Shared Interests; Maritime Cooperation; and Contributing to Indo-Pacific Stability and Prosperity. IA-CEPA will play a direct role in supporting Pillar One: Enhancing Economic and Development Partnership, but will also make important contributions to the other four pillars of the Comprehensive Strategic Partnership.

151. For example, economic cooperation under IA-CEPA will support important reforms and developments in Indonesia to drive growth and prosperity. This work will facilitate trade and provide markets for Australian goods and services, but it will also support sustainable and inclusive economic growth in Indonesia that benefits Australia and contributes to regional growth and stability. IA-CEPA has been designed to contribute to the three objectives of Australia's Aid Investment Plan: Effective Economic Institutions and Infrastructure; Human Development for a Productive Society; An Inclusive Society through Effective Governance.

152. Further, several important telecommunications cables connecting Australia to the rest of the world pass through Indonesian waters. The IA-CEPA Telecommunications Chapter includes specific obligations designed to improve the transparency and predictability of Indonesia's regulation of the installation, maintenance and repair of submarine telecommunications cables in its waters.

PART 6: TRADE IMPACT ASSESSMENT

153. The IA-CEPA will open up market opportunities for Australian exporters and investors in the region.

154. Indonesia has one of the fast growing populations in the region, already ten times the size of Australia's, and Gross Domestic Product (GDP) two-thirds the size of Australia.

Key Economic Statistics

Australia Indonesia
GDP - 1998 (USD million) 380.466 115.323
GDP - 2018 (USD million)a 1,427.77 1,005.27
GDP - 2023 (USD million)a 1,794.43 1,446.43
Population - 1998

(million people)

18.706 201.581
Population - 2018 (million people)a 25.182 265.316
Population - 2023 (million people)a 27.343 282.591
Gross domestic product per capita, current prices - 1998 (USD) 20,339.65 572.09
Gross domestic product per capita, current prices - 2018a (USD) 56,698.10 3,788.95
Gross domestic product per capita, current prices - 2023a (USD) 65,627.34 5,118.45

Table 1 - Australia's and Indonesia GDP and Population

Source: IMF WEO October 2018, CIA World Fact book

a IMF WEO October 2018 Estimate

Australia's exports, import and two-way trade with Indonesia

155. Indonesia is Australia's 13th largest two-way trading partner, with Australia's goods exports to Indonesia being a significant component of the relationship.

156. Indonesia is Australia's 14th largest merchandise trading partner, with Indonesia being Australia's 9th largest goods export destination.

157. Indonesia is Australia's 9th largest Services trading partner, with Australia importing twice as much as it exports, driven predominately by personal travel.

2017 2010
Exports Goods 7.030 4.491
Services 1.601 1.231
Total 8.631 5.722
Imports Goods 4.212 5,313
Services 3.696 2.773
Total 7.908 9.099
Two Way Goods 11.242 11.173
Services 5.297 4.053
Total 16.539 15.226

Table 2 - Australia's trade with Indonesia (A$ billion)

Source: ABS catalogues 5368.0 and 5368.0.55.004 (July 2018 data)

Impact on Goods Exports

158. Australia's merchandise exports to Indonesia were worth A$7.03 billion in 2017, with agricultural and resources being key products.

2012 2017
1 Wheat 1,323.99 1,364.94
2 Crude petroleum 316.29 1,318.66
3 Live animals (excluding seafood) 190.23 602.48
4 Coal 0.04 444.12
5 Sugars, molasses & honey 168.34 331.13
6 Beef, fresh chilled or frozen 119.24 283.54
7 Iron ores & concentrates 0.00 280.83
8 Cotton 240.48 219.85
9 Aluminium 295.60 180.95
10 Confidential items of trade 271.51 168.32
11 Milk, cream, whey & yoghurt 106.82 130.27
12 Zinc 59.26 114.12
13 Ferrous waste & scrap 77.61 95.52
14 Meat (excluding beef), fresh chilled or frozen 42.66 87.41
15 Fruit & nuts 30.83 76.54
16 Animal feed 34.06 71.41
17 Specialised machinery & parts 57.93 69.70
18 Pulp & waste paper 43.98 69.54
19 Pumps for liquids & parts 68.82 55.95
20 Pigments, paints & varnishes 33.70 54.86
Other Exports 1,009.60 1,009.40
Total Exports 4,490.97 7,029.53

Table 3- Australia's Top 20 Exports to Indonesia

159. The elimination of barriers to trade is expected to increase the volume and value of trade with Indonesia. Attachment 4 - specific market access outcomes in detail lists the benefits for some of the goods outcomes for goods that Indonesia already imports from Australia.

160. It is estimated that, for goods where tariffs are reduced or eliminated beyond existing Indonesia's AANZFTA commitments, some A$923.4 million of 2015-17 average imports into Indonesia from Australia would face an average $A23.7 million less tariffs per annum than if IA-CEPA were not to enter into force.

161. This is on top of A$1.67 billion worth of 2015-17 imports not facing tariffs due to the existing tariff elimination under the AANZFTA agreement in 2018, which otherwise would be A$220.0 million in duty per annum.

HS Code 2017 Description of Goods Indonesian Imports from Australia

AUD

2015-2017 Average

Average duty saved

per annum

2018-2036

0102.29.90 - - - Other $60,698,258.33 $1,972,693.40
0201.30.00 - Boneless $34,634,462.33 $173,172.31
0202.20.00 - Other cuts with bone in $26,496,059.33 $1,092,962.45
0204.41.00 - - Carcasses and half-carcasses $4,270,709.33 $112,106.12
0204.42.00 - - Other cuts with bone in $5,615,979.67 $231,659.16
0204.43.00 - - Boneless $4,002,120.67 $165,087.48
0402.10.41 - - - In containers of a net weight of 20 kg or more $117,124,127.67 $468,496.51
1701.14.00 - - Other cane sugar $468,773,997.67 $13,360,058.93
7312.10.99 - - - Other $5,902,463.67 $125,427.35
7312.90.00 - Other $2,492,605.33 $112,167.24
7314.20.00 - Grill, netting and fencing, welded at the intersection, of wire with a maximum cross-sectional dimension of 3 mm or more and having a mesh size of 100 cm2 or more $13,148,150.67 $558,796.40
7314.31.00 - - Plated or coated with zinc $3,062,375.67 $145,462.84
7403.11.00 - - Cathodes and sections of cathodes $91,613,378.00 $3,252,274.92
8537.20.90 - - Other $2,737,273.33 $104,016.39

Table 4 - Products where more than A$100,000 of duty is saved per annum due to IA-CEPA when compared to AANZFTA

Tariff rate quotas

162. For several tariff rate quotas (TRQs), the benefit provided by IA-CEPA is that exporters will have a known quantity allowed to be imported into Indonesia for the first time. For example, under current arrangements, Australia grains exporters are not able to export animal-feed quality wheat, sorghum and barley. IA-CEPA provides that up 500,000 tonnes of these animal-feed grains maybe imported in year one.

163. By year ten after entry into force, this will have increased to 775,664 tonnes. This is a new market opportunity that does not currently exist and provides benefits to Australian grains exporters, as well as Indonesian feed-lotters that require the certainty provided by having access to these grains in order to affordably feed the animals on their lots.

164. With a more affluent and growing population, demand for high-quality protein from poultry and beef is expected to continue to increase (see Figure 1 Agrifood consumption in Indonesia 2009 versus 2050 forecasts), making this a potentially lucrative market for Australian grain producers looking to diversify their export market opportunities.

165. Australia exported on average A$1.2 billion or 4.3 million tonnes of these grains to Indonesia over the 2015-2017 period, taking 16.6 per cent of Australia's exports of these goods over the period. However, these grains were predominantly for human consumption.

166. From day one of the Agreement, new quota arrangements will provide certainty to exporters of the most sensitive products to Indonesia. In total, IA-CEPA contains eight TRQs. These are for:

a.
Live Cattle
b.
Potatoes
c.
Carrots
d.
Oranges
e.
Mandarins, Clementines, Wilkings and similar citrus hybrids
f.
Lemons and Limes
g.
Feed Grains
h.
Hot/cold rolled steel coil

167. For example, based on recent market prices, should the TRQs be fully utilised:

a.
Live Cattle - Over the first six years, tariff savings in the order of A$200 million on Australian exports to Indonesia worth A$4.0 billion.
b.
Potatoes - Over the first six years, tariff savings of A$5.2 million dollars would be avoided on A$48.2 million of exports.
c.
Carrots - Over fifteen years, tariffs of A$15.0 million dollars would be avoided in comparison to AANZFTA, and A$21.2 million in comparison to the MFN rate, on A$131.7 million of exports.
d.
Mandarins - Over the first six years, tariff savings of A$5.2 million dollars would be avoided on A$48.2 million of exports.

168. Under the IA-CEPA, an exporter or importer who already trades under AANZFTA will understand much of the Agreement's rules of origin, and the inclusion of arrangements for authorised exporters to self-certify documentation when exporting will assist Australian exporters. This will reduce the administrative arrangements an Australian trader needs to be aware of and comply with to access IA-CEPA preferences. Attachment 2 - Regulatory burden and cost offset estimate sets these out in detail.

Elimination schedule for Indonesia's tariffs on imports from Australia under IA-CEPA

169. Imports from Australia into Indonesia typically face higher MFN tariffs than imports from Indonesia into Australia. The following table sets out historic data of the trade weighted tariffs faced by imports from Australia into Indonesia.

Indonesian Imports from Australia

USD - 2015

Trade Weighted Tariff - 2013

(Australia)

All Products 4,815,794,517 4.14%
Capital Goods 327,391,593 5.70%
Consumer Goods 413,088,683 5.93%
Intermediate Goods 1,305,058,912 6.15%
Raw Materials 2,770,233,338 2.49%
Maximum Duty (2017) 150.00%
% of tariff lines Duty free (2017) 12.01%

Source: World Integrated Trade System

170. Under IA-CEPA, Indonesia will eliminate tariffs on 94.5 per cent of tariff lines, covering some 78.87 per cent of recent imports from Australia.

171. Importantly, tariffs on sugar will be bound at 5 per cent, comparable with sugar tariffs faced by Indonesia's closest trading partners under the ASEAN Trade in Goods Agreement. This is particularly notable given the two sugar tariff lines are responsible for 6.66 per cent of imports.

172. Likewise, many of the gains from IA-CEPA for Australian merchandise exporters are under TRQs, with live cattle subject to a TRQ accounting for 9.27 per cent imports from Australia.

Staging category Tariff lines Imports from Australia 2015-17
No. % of total Cumulative (%) A$ million % of total Cumulative
MFN 0% 1,297 11.99% 11.99% 3,511 49.87% 49.87%
0% tariff in 2018 8,922 82.51% 94.50% 2,041 29.00% 78.87%
0% in 2020 10 0.09% 94.60% 283 4.02% 82.89%
0% in 2023 7 0.06% 94.66% 44 0.62% 83.52%
0% in 2025 1 0.01% 94.67% 0 0.00% 83.52%
0% in 2026 8 0.07% 94.75% 0 0.00% 83.52%
0% in 2033 3 0.03% 94.77% 0 0.01% 83.53%
TRQ 16 0.15% 94.92% 684 9.72% 93.24%
Reduced to 5% or less 96 0.89% 95.81% 471 6.69% 99.93%
Reduced from MFN rate 351 3.25% 99.06% 1 0.02% 99.95%
Exempt from commitments 95 0.88% 99.94% 3 0.05% 100.00%
Bound at MFN 7 0.06% 100.00% 0 0.00% 100.00%
Total 10,813 100.00% 7,040 100.00%

Source: Analysis based on DFAT STARS database

Impact on Goods Imports

173. Australia's merchandise imports from Indonesia were worth A$4.212 billion in 2017, with resources and manufactures being key products.

Table 5 - Australia's Top 20 Imports from Indonesia

2012 2017
1 Crude petroleum 2,570.65 870.94
2 Refined petroleum 203.34 351.09
3 Wood, simply worked 175.95 200.93
4 Confidential items of trade 126.84 155.84
5 Footwear 72.23 138.26
6 Specialised machinery & parts 46.37 135.53
7 Monitors, projectors & TVs 96.45 104.59
8 Paper & paperboard 64.30 96.68
9 Other textile clothing 26.85 86.90
10 Rubber tyres, treads & tubes 125.04 83.44
11 Furniture, mattresses & cushions 69.50 82.79
12 Medicaments (incl veterinary) 19.23 74.74
13 Paper & paperboard, cut to size 39.05 69.93
14 Men's clothing (excl knitted) 26.46 61.63
15 Women's clothing (excl knitted) 23.06 60.40
16 Veneers, plywood & particle board 35.47 57.87
17 Cocoa 24.91 53.46
18 Pigments, paints & varnishes 6.29 51.33
19 Women's clothing, knitted 7.63 49.08
20 Manufactures of base metal, nes 29.37 47.25
Other Imports 2,536.64 1,379.60
Total Imports 6,325.64 4,212.29

174. Under IA-CEPA, Australia has committed to eliminating tariffs on all IA-CEPA originating products from entry into force of the Agreement.

175. This is consistent with Australia's other Free Trade Agreements, and should IA-CEPA enter into force in 2019, would also be faster than under AANZFTA.

176. IA-CEPA will benefit consumers by increasing the choice of goods available at lower prices. This includes tariffs of mostly 5 per cent on plastics and rubber, textiles, clothing and footwear, iron and steel, motor vehicle components and some machinery and furniture tariffs.

177. Though Australia had already eliminated tariffs for a majority of tariff lines under the AANZFTA, some increased imports and price reductions can be expected as a result of the removal of remaining tariffs, allowing Indonesian produced goods to compete with those goods that already have preferential access, either under Australia's existing FTAs or under the GSP.

178. While Australia will eliminate tariffs on a higher proportion of tariff lines, the trade weighted average as highlighted by the low trade weighted tariffs below shows that for imports from Indonesia into Australia, tariffs are not a major barrier to trade.

2015 Australian Imports from Indonesia

USD - 2015

Trade Weighted Tariff - 2016

(Indonesia)

All Products 3,668,914,225 0.14%
Capital Goods 802,714,356 0.02%
Consumer Goods 1,278,701,078 0.26%
Intermediate Goods 738,977,107 0.16%
Raw Materials 758,638,343 0.00%
Maximum Duty 5.00%
% of tariff lines Duty free 47.77%

Source: World Integrated Trade System

Impact on Services

179. The IA-CEPA will contribute to the growth and diversification of Australian exports of services by liberalising barriers and providing more transparent and predictable operating conditions in Indonesia. Australian services exports to Indonesia have grown from A$1.2 billion in 2012 to A$1.6 billion in 2017. Australians involved in education, finance, ICT, health, transport and logistics, tourism, mining and professional services sectors all stand to benefit from this deal.

180. Australia and Indonesia have a growing relationship in services trade, with Australia exporting and importing twice the amount of services as Indonesia to the world in 2016.

181. Australian service suppliers are well positioned to take advantage of knowledge and expertise in order to expand into the growing Indonesian market.

Australia Indonesia
2006 2016 % change 2006 2016 % change
Services Imports - World (USD million) 33,268.60 56,907.28 71.1% 21,560.95 30,637.17 42.1%
Service Exports - World (USD million) 33,108.04 53,210.49 60.7% 9,149.09 24,150.87 164.0%

Source: World Integrated Trade System

182. Australia imports more services from Indonesia than it exports, driven by personal travel services, i.e. the tourism sector. In 2017-18, tourism to Indonesia was worth A$3.392 billion, or almost 86.2 per cent of Australia's service imports.

183. Australia's main services export to Indonesia is education related personal travel services, worth A$861 million out of A$1.292 billion in travel services. Total services exports to Indonesia in 2017-18 were worth A$1.609 billion.

AUSTRALIA'S SERVICES TRADE WITH INDONESIA (a)
(A$ million)
2013-14 2014-15 2015-16 2016-17 2017-18
Total services exports 1,479 1,425 1,495 1,721 1,609
Total services imports 3,188 3,205 3,449 3,683 3,935
Balance on services trade -1,709 -1,780 -1,954 -1,962 -2,326
Services exports
Manufacturing services on physical inputs owned by others 0 0 0 0 0
Maintenance & repair services nie 27 16 18 8 8
Transport services 135 123 141 184 138
Travel services 1,071 1,050 1,124 1,336 1,292
Business 42 44 40 48 37
Personal 1,029 1,006 1,083 1,288 1,255
Education-related 651 698 748 804 861
Other 378 308 336 484 394
Construction services 3 5 23 2 2
Insurance & pension services 4 4 5 4 4
Financial services 11 13 12 12 11
Intellectual property charges nie 3 1 5 5 5
Telecom. computer & information services 6 7 12 29 31
Other business services 181 158 136 122 97
Personal, cultural & recreational services 23 35 4 3 3
Government services 15 14 15 16 18
Services imports
Manufacturing services on physical inputs owned by others 0 0 0 0 0
Maintenance & repair services nie 0 1 1 0 0
Transport services 222 206 200 224 227
Travel services 2,729 2,737 3,018 3,244 3,510
Business 127 100 101 131 118
Personal 2,602 2,638 2,916 3,113 3,392
Education-related 14 13 14 18 21
Other 2,588 2,625 2,902 3,095 3,371
Construction services 0 0 0 0 0
Insurance & pension services 3 3 3 2 2
Financial services 0 0 0 0 0
Intellectual property charges nie 0 0 0 0 0
Telecom. computer & information services 10 9 7 7 8
Other business services 101 106 84 81 54
Personal, cultural & recreational services 21 31 16 1 2
Government services 101 111 121 123 133
(a) Cells in this table may have been perturbed to protect confidentiality.
Based on ABS catalogue 5368.0.55.003.

184. Australia's current education services exports to Indonesia will assist with the future development of the nation and build long term relationships. In terms of tourism, Australia is an important destination for Indonesians with non-education personal travel growing 5.5 per cent per annum since 2012-13. Indonesia provides Australia with a young, growing market, with growing consumer demand allowing for a diversification in offerings.

185. The recognition of Australia as an important destination for study is reflected in the growing use of Student Visas, with Student Visas up from 8,224 in 2007-08 financial year to 9,104 in 2017-18.

186. While not comparable to Department of Home Affairs visa data, data from the Department of Education highlights that students coming from Indonesia have moved away from higher education towards VET based courses, making up nearly half of the commencements in 2017-18.

Visas Granted (Department of Home Affairs)

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 to 30 September 2018 10 year

trend growth

%

Tourist 48,583 52,912 61,586 67,423 71,219 73,900 76,571 74,845 78,645 97,963 93,671 21,099 6.34%
Business 12,823 11,046 14,119 15,892 15,837 15,309 13,563 11,241 10,758 13,224 13,076 3,192 -0.77%
Working Holiday Maker 100 98 99 176 437 288 776 1051 1562 206 46.04% a
Student Visa 8,224 8,681 8,729 8,088 8,211 8,060 8,862 9,178 8,810 9,323 9,104 2,889 1.05%
Temporary Resident (Skilled) Visas 1236 958 495 762 1207 1053 748 718 716 723 548 196 -4.17%
Temporary Graduate Visa 34 697 576 362 985 1,101 638 572 758 863 1,101 362 19.45%
70,900 74,294 85,605 92,625 97,558 99,599 100,819 96,842 100,463 123,147 119,062 27,944 4.86%

a 8 Year trend growth

Source: Department of Home Affairs
https://data.gov.au/organization/immi

Enrolment and Commencement data for international students 2002 - 2017

Enrolments Commencements
Year Higher Education VET Schools ELICOS Non-award Total Higher Education VET Schools ELICOS Non-award Total
2002 12,846 3,731 1,351 2,018 1,056 21,002 5,474 1,603 461 1,580 699 9,817
2003 12,973 3,096 1,242 2,009 1,072 20,392 5,038 1,469 441 1,539 698 9,185
2004 12,016 2,556 1,028 1,616 892 18,108 4,371 1,236 330 1,192 535 7,664
2005 10,889 2,272 787 1,442 712 16,102 3,905 1,040 192 1,131 451 6,719
2006 9,999 2,204 586 1,462 656 14,907 3,549 1,177 176 1,179 431 6,512
2007 9,240 2,765 471 1,634 701 14,811 3,428 1,548 151 1,330 465 6,922
2008 8,826 3,876 379 2,199 730 16,010 3,666 2,297 140 1,852 461 8,416
2009 9,254 5,147 329 2,257 852 17,839 3,943 2,799 130 1,800 555 9,227
2010 9,389 5,742 325 1,888 940 18,284 3,644 3,198 137 1,478 582 9,039
2011 9,331 5,684 303 1,736 787 17,841 3,640 3,489 115 1,445 416 9,105
2012 9,016 5,930 286 1,564 635 17,431 3,317 3,522 122 1,316 408 8,685
2013 8,716 5,893 264 1,598 633 17,104 3,244 3,534 108 1,347 385 8,618
2014 8,469 6,773 227 1,765 652 17,886 3,278 4,374 91 1,538 425 9,706
2015 8,469 8,190 223 1,733 644 19,259 3,333 5,320 99 1,437 389 10,578
2016 8,735 8,578 213 1,542 681 19,749 3,519 5,235 82 1,326 449 10,611
2017 9,274 8,270 228 1,358 838 19,968 3,599 4,735 87 1,095 567 10,083
2018YTD 9,511 7,650 206 965 796 19,128 3,541 3,792 75 755 489 8,652
2007 - 2017 10 year trend growth rate

%

-0.51% 9.93% -6.98% -3.00% -1.06% 2.28% -0.68% 10.97% -5.82% -2.67% -0.80% 3.05%

2018 YTD to September 2018.

Source: Department of Education and Training -
https://internationaleducation.gov.au/research/International-Student-Data/Pages/InternationalStudentData2018.aspx#Explanatory

Investment

187. An area of importance raised by investors was that the agreement addressed various aspects of law, including Investor-State Dispute Settlement, to provide certainty that would enable businesses to make long-term investments in Indonesia.

188. Many of these investors are Australian minerals and resource companies, which already have investments in various projects in the region. The outcomes provided under an FTA, such as this, enable investors to make better-informed investment decisions by helping to minimise the sovereign risks.

Australia's Investment position with Indonesia

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Rank 2017 % share 2017 % change 2016-2017
Australia investment abroad 2,916 2,717 2,279 2,439 2,657 3,084 3,532 3,969 4,822 5,355 5,410 6,942 9,760 8,094 8,440 9,291 10,734 - 0.5 15.5
Australian direct investment abroad 519 469 594 607 926 1,396 1,875 2,089 3,068 3,319 3,642 5,075 7,500 5,308 5,553 6,226 7,541 11 1.3 21.1
Foreign investment in Australia 412 377 362 513 568 514 424 630 334 409 444 494 1,124 1,326 1,403 1,233 1,044 - 0.0 -15.3
Foreign direct investment in Australia np np -6 np np np np np np np np -12 -8 13 -9 np np - .. ..

Source: ABS Catalogue 5352.0 - International Investment Position, Australia: Supplementary Statistics, 2017

PART 7: CONSULTATION

189. The public consultation and stakeholder engagement process on the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) commenced with a joint feasibility study between Australia and Indonesia in August 2007.

190. Negotiations were launched in 2010 and reactivated in March 2016. Throughout the negotiations DFAT, in conjunction with other government agencies, has consulted widely with industry and other stakeholders in formulating our positions.

191. A list of businesses and organisations that have been consulted - through consultation events, stakeholder meetings, and phone calls - is set out in Attachment 5 - Stakeholder Consultations.

192. DFAT also consulted with State and Territory Governments.

193. Negotiators also benefitted from the participation of the Indonesia-Australia Business Partnership Group (IABPG), a joint business advisory body established by the parties.

194. The IA-BPG produced two reports for consideration by both Australia and Indonesia. The Australian members of the IA-BPG and the Australian stakeholders they consulted in preparing their recommendations are set out in Attachment 6 - Indonesia-Australia Business Partnership Group (IABPG).

195. Stakeholders in the public consultation process appreciated the benefits of negotiating IA-CEPA and building on the foundation provided by AANZFTA. The innovative "early outcome" process that delivered a sugar tariff cut and important cooperative projects - including a detailed standards mapping project - succeeded in building momentum and business support.

196. Most stakeholders supported the government's efforts to pursue a comprehensive trade agreement. Particular interest has been shown in reducing barriers for agriculture and steel, as well as enhancing opportunities for Australian service providers and investors in areas such as professional services, education, energy, tourism, health and transport.

197. Many were especially keen that market access gains achieved under AANZFTA could be expanded, with agricultural stakeholders particularly forceful advocates for improved market access outcomes. Representatives from a range of peak agricultural bodies, including Meat & Livestock Australia, Dairy Australia, and the National Farmers' Federation, have been consulted throughout IA-CEPA negotiating rounds. The steel industry was strongly engaged on securing meaningful commercial outcomes.

198. Following announcement of conclusion of the IA-CEPA, the following industry comments in support of the IA-CEPA were published by DFAT:

National Farmers' Federation (Fiona Simson, President)

199. The National Farmers' Federation congratulates the Government on concluding the Indonesia-Australia Comprehensive Economic Partnership Agreement. Trade is critical to the growth of Australian agriculture and Indonesia is a vital trade partner for Australian farmers.

200. IA-CEPA locks in important new trade opportunities for our meat, grains, sugar, dairy and horticulture producers. It ensures Australian farm exports can contribute to Indonesia's economic growth by providing high quality food and fibre to Indonesian consumers. IA-CEPA creates new opportunities for Australian farmers and Indonesian processors to partner in exporting to the world.

201. The NFF applauds the Government's ongoing commitment to negotiating valuable FTAs including ChAFTA, JAEPA, KAFTA and now IA-CEPA. Opening international markets is critical to agriculture's aim to reach a production value target of $100 billion by 2030. IA-CEPA and Australia's other FTAs lock in those trade opportunities and provide the market certainty needed to help us reach that target.

The Australian Industry Group (Innes Willox, Chief Executive)

202. Members often nominate at the border and behind the border barriers as the biggest obstacles to expanding in to the Indonesian market. The ground breaking agreement to dedicate an entire FTA Chapter to non-tariff measures, as well as streamlining the export documentation requirements, will give Australian exporters the confidence to have another look at this growing market.

Australian Chamber of Commerce and Industry

203. The Australian Chamber of Commerce and Industry has had a strong, long term interest in the completion of the Indonesia - Australia Comprehensive Economic Partnership Agreement (IA-CEPA), and in particular our involvement with the Business Partnership Group. We are pleased that it seems that a number of the recommendations from this Group have been included in the negotiated outcomes. For example, "economic cooperation" will be a feature to support both countries to develop stronger links between supply chains and related investments that will assist to realise the opportunities embedded in the dedicated chapter areas.

Australia Indonesia Business Council (AIBC) (Phil Turtle, National President)

204. The Australia Indonesia Business Council, as the peak organisation involved with the promotion and facilitation of trade and investment between Australia and Indonesia, is delighted to see the finalisation of IA-CEPA and congratulates all involved in its formulation. The Australia-Indonesia relationship is an important yet historically underdone one, and this Agreement promises to kick-start a new era of Trade and Investment between our countries. With important outcomes delivered across a broad range of sectors, the AIBC looks forward to playing an important role in socialising IA-CEPA within the business community, ensuring the opportunities created are widely known and pursued.

Australian Services Roundtable (Jane Drake-Brockman, Chairman of the Board):

205. The Australian Services Roundtable, the peak business body for the Australian services industries, said the Australia-Indonesia Comprehensive Economic Partnership Agreement (IA-CEPA) is a stand-out success on multiple fronts and will contribute to improved services sector competitiveness in both economies. It further demonstrates the Australian government's determination to champion better deals for services, including for SMEs.

206. The FTA breaks new ground on services trade, investment, business visits and e-commerce outcomes with Australia's geographically closest fast-growing South-East Asian trading partner. Over time the deal will enable enhanced business partnerships, greater technical inter-operability and a more seamless regulatory environment for services and data flows as the transformation to the digital economy evolves. SME exporters in both countries will benefit.

207. The deal involves market opening not only in Tourism and Education but also in Mining services, Health, Hospital and Aged Care services, in Architecture and Engineering and a range of other knowledge-intensive Business Services."

Minerals Council of Australia (Tania Constable, CEO)

208. This is a good outcome for the Australian and Indonesian resources sectors.

209. The agreement's provisions will create more scope for Australia's world-leading mining services firms to partner with Indonesian businesses in developing that country's extensive minerals and energy resources.

210. This will not only provide new export opportunities for Australia - it will also support economic growth and development in one of Australia's nearest and most important neighbours.

211. The agreement's tariff reductions for copper cathodes and steel products will improve market access for these resources-based commodities. Cheaper input costs will also boost the competitiveness of a number of Indonesia's manufacturing industries.

Specific goods-related groups

Australian Livestock Export Council (ALEC) (Simon Crean, Chairman)

212. The Australian Livestock Exporters Council (ALEC) commends and welcomes the Australian Government for the common ground and substantive outcomes achieved through the completed IA-CEPA. This is an agreement of great significance which our organisation and peer red-meat bodies have long argued for and supported.

213. The structure of the agreement to support sustainable expansion of Australian live cattle feeder and breeder export volumes out of northern Australia port gateways into the largest market of Indonesia, has many important elements under the completed free trade agreement.

214. Critically it complements Indonesia's policy goal of achieving greater security and access to protein through expanding free trade, whilst playing to Australia's strength with its large northern Australian cattle industry and established supply chain so ably equipped to support this market.

215. The collective efforts of Australian DFAT and DAWR officials during the IA-CEPA discussions and negotiations is recognised by industry, along with the former Australian Trade Minister and Prime Minister who embraced the need for closer economic ties between both nations.

Meat & Livestock Australia (Andrew McCallum, Global Manager - Trade and Market Access)

216. IA-CEPA is a most welcome addition to the suite of FTAs the Government has concluded with key trading partners. Indonesia is a customer for significant quantities of Australian live cattle, beef and offal and has a steady requirement for sheepmeat (albeit smaller volumes). IA-CEPA will not only deliver additional trade liberalisation (by building on the ASEAN-Australia-New Zealand FTA outcomes) it will also provide a framework for a more market orientated import regime. This in turn will deliver benefits for both our sector as well as the Indonesian supply chain - including importers, retailers and foodservice operators. On behalf of the red meat and livestock industry I extend our thanks to Australia's negotiating team for their tireless effort.

Bluescope (Mark Vassella, Managing Director and CEO)

217. BlueScope is very pleased that the Australian Government has secured a high quality, comprehensive agreement with Indonesia.

218. The outcome on hot rolled coil (HRC) and cold rolled coil (CRC) steel opens up the potential to more competitively export steel products from our Port Kembla Steelworks to BlueScope's operations in Indonesia. This is a win-win for Australia and Indonesia: it will boost Australian steel exports; while also ensuring that BlueScope's operations in Indonesia, which employ over 500 Indonesians, have access to a wider range of high quality, competitively priced feedstock.

219. We congratulate the government, including the former Trade Minister The Hon Steven Ciobo, for their hard work and close liaison with industry in achieving this important outcome.

GrainGrowers (John Eastburn, Chairman)

220. GrainGrowers, representing Australian grain farmers, commends the Australian and Indonesian Governments for the progression and finalisation of IA-CEPA. IA-CEPA will cement the existing relationship between Australian and Indonesian milling wheat industries whilst allowing new trade, investment and relationships to flourish between Australia's grain industry and Indonesia's food manufacturing, stockfeed and livestock sectors.

AUSVEG (James Whiteside, Chief Executive Officer)

221. AUSVEG, representing Australia's vegetable and potato growers, welcomes the finalisation of the IA-CEPA. The efforts of the Minister for Trade, Tourism and Investment and DFAT, working together with their Indonesian counterparts to finalise negotiations, are greatly appreciated by the Australian vegetable industry. In particular, the agreement made for carrot and potato exports - two of the Australian vegetable industry's key export crops - provides a strong basis for developing sustainable trade in fresh vegetables between Australia and Indonesia.

Citrus Australia (David Daniels, Market Access Manager)

222. With the conclusion of IA-CEPA, Citrus Australia is optimistic about the outcomes from the agreement.

223. While the tariff reductions under the proposed agreement are certainly welcome, the increased certainty provided for Australian citrus in Indonesia will be even greater news.

224. This outcome will allow the Australia citrus industry to build stronger long-term business relationships with Indonesian customers, and provide better business certainty along the value-chain.

225. As a close neighbour of Australia, the Indonesian market has strong growth potential and if the current offer by Indonesia is realised, we can expect to see export volumes increasing.

226. Australian citrus complements the product grown in Indonesia, filling different market segments. We look forward to working with our customers in Indonesia to grow demand for citrus in Indonesia across the board.

Australian Dairy Industry Council (Terry Richardson: President)

227. Indonesia is a major destination for our Australian dairy exports and ranks as Australia's third largest dairy export market on value terms. Indonesia's demand for dairy is set to continue to build on the back of its increasingly affluent 260 million strong population. As Australia's nearest neighbour with strong existing ties with our dairy industry, the conclusion of IA-CEPA will enhance the naturally emerging opportunities that are presenting themselves in that key market. From this perspective the conclusion of IA-CEPA is a very welcome outcome for the Australian dairy industry. The Australian dairy industry will continue to work with Indonesian food processors to grow demand for dairy products across the Indonesian market.

Canegrowers (Paul Schembri, Chairman)

228. Improving the conditions for trade with our nearest neighbour is a great outcome for the Australian sugar industry. The change in tariff from an effective 8% to 5% puts us on a par with our competitors in that market and provides the opportunity to increase our exports to Indonesia from their present level of 350,000 tonnes to more than 1 million tonnes. Indonesia is a growing market and one which we are perfectly situated to supply with quality sugar well into the future. We look forward to a long and mutually beneficial relationship.

Specific services and investment-related groups

Austmine (Robert Trzebski, Chief Operating Officer)

229. Austmine welcomes news of the conclusion of IA-CEPA. For over 10 years now, Indonesia has consistently ranked among the top 5 export destinations for Australian exporters of Mining Equipment, Technology and Services (METS) and remains a region of future growth in the resources sector. IA-CEPA should encourage more Australian METS exports to Indonesia, to the mutual benefit of our countries.

TAFE Directors Australia (TDA) (Craig Robertson, Chief Executive Officer)

230. TAFEs in Australia look forward to working with the Indonesian Government, technical education institutes and industry to assist in developing skills programs for Indonesians. The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) supports and encourages this collaboration to help Indonesian firms lift their capability through skilled workers to enable trade with Australia and across the globe.

Sustainable Skills Ltd (Nigel Carpenter, CEO)

231. The IA-CEPA has enabled a much improved understanding of how Indonesia's workforce skills opportunity is central to Indonesia's social and economic development. Australian experience in delivering industry-based training can help Indonesia to deliver job-ready trained workers. Sustainable Skills Ltd. welcomes the significant opportunity IA-CEPA opens for world-class Australian training providers to contribute to skilling the Indonesian workforce into the future.

Engineers Australia (Angela Frawley, General Counsel)

232. Engineers Australia welcomes the opportunity to work cooperatively with Indonesia to foster mutual recognition arrangements for professional engineering qualifications and services. The IA-CEPA will be significant in supporting and building upon an existing global dialogue about trade in professional engineering services and we look forward to exploring the benefits that the agreement will provide.

Other Stakeholder Views

233. Civil society and industry groups have not been vocal in articulating any significant concerns in relation to IA-CEPA. The Australian Forest Product Association expressed concern that IA-CEPA might impact the anti-dumping regime or lower Australian standards - it will not.

234. The Australian Fair Trade and Investment Network (AFTINET) provided a submission outlining its concerns, including over transparency, ISDS, temporary movement of workers; pharmaceuticals; and government procurement (the latter two areas are not covered by IA-CEPA).

235. The Department takes all concerns raised by stakeholders seriously and works with other Departments and State Governments to ensure that, while there may be differences from the positions raised by stakeholders, these are considered as part of Australia's overall negotiating position.

236. In addition to ongoing individual stakeholder consultations with directly interested stakeholders, the Department hosts stakeholder updates biannually to provide interested organisations an opportunity to find out about the state of play of current negotiations and provide input into those negotiations. Time is made at these meetings for side discussions on particular matters that arise, as well as individual meetings with key negotiators to discuss specific matters of concern.

237. Along with consultations, there have been enquiries and reports into Australia's trading relationship with Indonesia which are set out in Attachment 7 - Additional Reports.

238. Engagement with stakeholders will continue after the conclusion of IA-CEPA to raise awareness of the FTA and ensure businesses and consumers take full advantage of the agreement. DFAT and Austrade run an Australia-wide outreach programme to provide practical information on how to maximise benefits from Australia's FTAs. DFAT will publish all FTA outcomes and summary factsheets on its website.

239. The Department welcomes submissions at all stages of the negotiation from individuals and organisations on the potential opportunities and impacts of a free trade agreement (FTA) with the Indonesia. Written submissions may take several forms, from a short email through to a more comprehensive analytical paper. Information on making submissions can be found at:

Website
https://dfat.gov.au/trade/agreements/not-yet-in-force/iacepa/Pages/public-submissions-to-the-indonesia-australia-comprehensive-economic-partnership-agreement-negotiations.aspx
Email
ia-cepa@dfat.gov.au
Mail Regional Trade Agreements Division

Department of Foreign Affairs and Trade

RG Casey Building

John McEwen Crescent

Barton ACT 0221

PART 8: CONCLUSION

240. It is in Australia's interests to enter into a bilateral FTA with Indonesia, given the IA-CEPA is expected to:

a.
deliver commercially meaningful market access gains that will benefit Australian agriculture, resources, energy and manufacturing exporters, service providers, consumers and investors;
b.
secure Australian exporters' competitive position in one of the fastest growing countries in the Asia-Pacific;
c.
deliver faster and deeper market access gains than are possible through multilateral WTO negotiations;
d.
be consistent with WTO requirements for free trade agreements; and
e.
complement Australia's efforts to seek additional trade liberalisation from Indonesia through the WTO and regional mechanisms.

241. It should be noted that:

a.
the removal of tariffs on merchandise imports from Indonesia will lead to a small reduction in tariff revenue, should the Agreement enter into force in 2019 and will marginally affect the government's fiscal position. This reduction has been accounted for under AANZFTA for 2020 and subsequent years. The tariff reduction will also result in lower costs to Australian consumers; and
b.
Australia will eliminate tariffs on all originating products from entry into force of the Agreement.

PART 9: IMPLEMENTATION AND REVIEW

242. In line with Australia's treaty-making processes, once agreed, the text of the FTA will be tabled in Parliament. The Joint Standing Committee on Treaties (JSCOT) will then conduct an inquiry into the FTA and report back to Parliament.

243. Following consideration by the JSCOT, Parliament will consider any legislation or amendments to existing legislation that may be necessary to implement an agreement prior to treaty action being taken.

244. Australia will need to make the following legislative changes in order to implement the obligations in IA-CEPA.

a.
The Customs Act 1901 and the Customs Tariff Act 1995 and relevant customs regulations will need to be amended to incorporate the preferential tariff rates that will apply to goods imported from Indonesia under IA-CEPA.
b.
Changes will be required to the Export Control Act 1982 to provide authority to administer a tariff rate quota on steel.
c.
A Ministerial determination will need to be made under section 140GBA of the Migration Act 1958 to implement the IA-CEPA exemptions from labour market testing for Indonesian intra-corporate transferees and independent executives.

245. DFAT and other government agencies will use existing resources to implement the IA-CEPA.

246. There are no costs or losses of tariff revenue for Australia associated with the entry into force of IA-CEPA because Australia will have already eliminated all tariffs under AANZFTA by the time IA-CEPA enters into force.

247. Australia will provide Indonesia with economic cooperation to support its implementation of IA-CEPA and to support further liberalisation efforts in Indonesia.

248. IA-CEPA is expected to enable Australian exporters to increase the value of their sales to Indonesia and contribute to economic growth in both countries.

249. The operation and effectiveness of the FTA will be addressed through working groups, Senior Officials Meetings, Ministerial Meetings and future reviews of the FTA. In advance of these meetings and any formal review, DFAT will invite submissions from the public and consult with stakeholders to identify concerns regarding the implementation of the FTA.

250. The government is committed to helping businesses, particularly SMEs, make the most of opportunities FTAs may provide for those businesses, including through:

a.
the government's FTA seminar series;
b.
Austrade and DFAT support for the outreach of third parties, for instance by speaking at third party events, and providing materials to support third parties running their own activities;
c.
detailed online information about FTAs, including factsheets summarising outcomes and guides for businesses;
d.
FTA 'helpdesks' (email inboxes and a dedicated hotline) where SMEs and members of the public can contact FTA experts with specific questions or issues;
e.
the FTA Portal, a website assisting businesses that contains easy-to-access information about the specific benefits of Australia's FTAs in both goods and services as well as trade data

the Portal has attracted over 210 000 unique users since its launch in 2015 and is attracting 2,600 users each week;

f.
the Austrade "FTA Toolkit" designed for use by third party providers including industry associations and state and territory governments. The FTA Toolkit brings together government FTA related collateral in one online asset library, including: case study videos, guides, factsheets, and industry specific information; and
g.
an Austrade FTA grant for member-based business organisations to deliver knowledge-based seminars and workshops.

251. The FTA seminars are delivered jointly by Austrade and DFAT, drawing on the networks of Commonwealth, State and Territory Governments, and regularly include representatives from Austrade's TradeStart network, AusIndustry, and Efic.

252. DFAT and Austrade have delivered 105 seminars since March 2015 engaging with more than 4200 business and other representatives, with 73 held in regional and 32 in metropolitan areas

253. Participants are surveyed after each seminar with responses to date indicating a high-level of satisfaction.

254. In 2017-18, 79 per cent stated all or most of their objectives were being met with a further 21 per cent agreeing some of their objectives were being met. Eighty three per cent would recommend the seminar to a peer or colleague and 88 per cent reported an increased understanding of how to use and benefit from an FTA as a result of attending a seminar.

255. The Department also has an ongoing work program with existing FTA partners to monitor the use of trade agreements. This includes through methods such as exchanging data on the use of tariff preferences in order to better understand whether the preferences granted under an agreement are being used by exporters and importers.

256. In particular, the Free Trade Agreement Utilisation Study - PricewaterhouseCoopers (PwC) Report identifies areas where FTA preferences are underutilised. This information helps identify industries or sectors where greater outreach may be required.


https://dfat.gov.au/about-us/publications/trade-investment/Pages/free-trade-agreement-utilisation-study-pwc-report.aspx

ATTACHMENT 1 - 2009 REGULATORY IMPACT STATEMENT

REGULATION IMPACT STATEMENT: INDONESIA-AUSTRALIA FREE TRADE AGREEMENT

1. This Regulation Impact Statement relates to forthcoming negotiations towards an Indonesia- Australia Free Trade Agreement (IAFTA).

A. Problem Identification

2. In July 2007 Australia and Indonesia agreed to undertake a joint feasibility study on the merits of a bilateral free trade agreement (FTA). The feasibility study finds that a bilateral FTA with Indonesia would provide worthwhile benefits to Australia. The study shows that the greatest gains would be achieved under an FTA that would eliminate tariffs and non-tariff barriers to all trade between the two countries. The objective of an FTA negotiation ought to be to achieve commitments that go beyond those made in the World Trade Organization ("WTO-Plus") and the ASEAN-Australia-New Zealand Free Trade Area ("AANZFTA-Plus") and that aim to remove all barriers to bilateral services trade. Economic modelling undertaken by the Centre for International Economics (CIE) indicated that a bilateral FTA with Indonesia would result in gains of $3.2 billion of GDP to Australia by 2030. The report also concluded that improved access to the Indonesian market accounts for almost all projected GDP and consumption gains for Australia and is manifestly more important than economic gains attributable to opening up the Australian economy to greater trade and investment flows from Indonesia.

3. Indonesia is an important market for Australia. Australia's trading relationship with Indonesia was valued at $10.3 billion in 2007, accounting for 2.3 per cent of Australia's total trade in goods and services (2007 figures). Indonesia is Australia's 11th largest trading partner and third largest trading partner in ASEAN. In 2007, Indonesia purchased $3.9 billion (2.3 per cent) of Australia's merchandise and $896 million (1.9 per cent) of our services exports.

4. Australia has a lengthy history of investment in Indonesia, dating back to 1959. However, both countries acknowledge that bilateral investment links could be stronger. At the end of 2007, Australia's total investment in Indonesia (including portfolio investment) was $3.4 billion, of which direct investment amounted to $1.8 billion, making Indonesia our 20th largest investment destination. Indonesian investment into Australia is limited, with total inward investment (including portfolio investment) amounting to $409 million at the end of 2007, representing just over 4 per cent of total foreign investment in Australia.

5. The recently concluded AANZFTA will provide for significant reduction of tariff barriers faced by Australian exporters to Indonesia. As part of its AANZFTA commitments, Indonesia will eliminate tariffs on 93.2 per cent if tariff lines by 2025. At the end of the transition period, in 2025, 96.7 per cent of Indonesia's tariff lines will be in the 0-5 per cent range. While only 1 per cent of tariff lines are excluded from Indonesia's tariff commitments, this includes a range of products of trade interest to Australia, including some sheep meat and frozen beef lines, wine, rice, maize and sugar. For a range of other products of trade interest to Australia, Indonesia is reducing but not eliminating tariffs, including some on live cattle, certain categories of sheep meat, frozen pork, processed seafood, some dairy products, some fresh and processed fruit and vegetables , some motor vehicles, and some iron and steel lines. For a third group of products of trade interest to Australia, including motor vehicles and some automotive parts lines, tariffs are being eliminated but not within commercially relevant timeframes.

6. Despite a significant reduction in tariffs through commitments made by Indonesia under AANZFTA, the treatment of about US$91 million (or 3.5 per cent) of Australian agricultural exports to Indonesia (2005) will not change after AANZFTA enters into force, specifically sugar, rice, wine and some meat products. A bilateral FTA would provide an opportunity to seek tariff elimination for agricultural exports, which have been excluded from Indonesia's AANZFTA commitments. (sugar, rice, wine and some meat products). Where tariffs have either not been eliminated or the rate of removal is gradual, a bilateral FTA could seek to accelerate or improve on tariff commitments made under AANZFTA, specifically in turnips, mandarins, some livestock and meat products and dairy products.

7. An ambitious FTA could create opportunities for Australia in a wide range of manufactures, notably US$78 million worth of industrial products (3.1 per cent of Indonesia's 2005 imports from Australia), US$20.5 million worth of refined copper cathodes and sections of cathodes, Australian oil products, exports of iron and steel products and plastic products, including tubes and pipes, floor coverings and stoppers, worth US$ 4.4 million in 2005, which have either been excluded under AANZFTA or the tariff reduction timeframe is not commercially realistic.

8. There is also considerable scope for improved outcomes to be achieved in a bilateral FTA regarding automotives. Under AANZFTA, Indonesia's commitments on motor vehicles do not provide for elimination until 2014 (for larger engine cars), 2019 (for smaller and medium engine cars) and 2013 for a range of tariff lines in the automotive parts sector. Given the complementarities between Australia and Indonesia in this sector, eliminating tariffs would benefit both countries.

9. Indonesia's services commitments under AANZFTA, like its WTO commitments, are relatively modest and maintain numerous restrictive reservations in its market access and national treatment commitments on services, including on foreign equity and nationality. Under a bilateral FTA, Indonesia could commit to reform or eliminate some of these impediments to Australian exporters. For example, Indonesia has relatively restrictive rules governing legal, accountancy and architecture services, as well as education, telecommunications and construction.

10. In 2007, Indonesia introduced new investment legislation extending national treatment to foreigners and a negative investment list that liberalises equity requirements in a number of sectors. Likewise, a new mining law was passed in late 2008, the commercial significance of this, however, remains unclear until the implementing legislation is passed. AANZFTA provides for post-establishment treatment of foreign investors and investment and provides for a work program to develop investment and market access schedules, covering national treatment issues such as pre-establishment foreign equity limits. The impact of a bilateral FTA on investment will depend not only on the degree of reform undertaken by Indonesia (via the elimination of existing impediments to foreign investment), but also on the degree to which reforms undertaken by Indonesia are made subject to new binding commitments under a bilateral FTA.

B. Objectives

11. Australia's broad negotiating objectives in IAFTA are to:

a.
Achieve a comprehensive and genuinely liberalising FTA that is supportive of the multilateral trading system;
b.
Deliver improved market access for Australian exporters of goods and services and investors to the Indonesian market that provides commercial benefits and a platform for securing continuing trade and investment liberalisation in the future;
c.
Seek more transparent and predictable conditions for Australian traders, service suppliers and investors in Indonesia; and
d.
Position Australia to strengthen our strategic engagement with Indonesia
e.
Maintain competitiveness as Indonesia does FTAs with other trading partners.

C. Options

12. Australia has a number of options for addressing the market access problems identified in Section A above - through multilateral, bilateral and regional negotiations.

Multilateral

13. The Government's highest trade priority remains achieving a successful conclusion to the WTO Doha Round of multilateral trade negotiations. This is because the WTO negotiations offer the greatest opportunity to reduce barriers to trade and for Australia to increase access to overseas markets across agriculture, industrial products and services. Further liberalisation of trade through the conclusion of the Round will be key to stimulating growth in the global economy. Since it was launched in 2001 the Round has made important progress, particularly at the WTO Ministerial Meeting in July 2008.

Regional

14. Australia has continued to promote trade liberalisation at the regional level through the AANZFTA and the Asia-Pacific Economic Cooperation (APEC). In November 2008, the Minister for Trade, the Hon Simon Crean, MP, announced that Australia would participate in negotiations for a Trans-Pacific Partnership Agreement (TPP), expanding on the existing Trans-Pacific Strategic Economic Partnership Agreement (between Brunei, Chile, New Zealand and Singapore). Initial parties to the TPP negotiations are likely to comprise Brunei, Chile, New Zealand, Singapore, Australia, the United States, Peru and Vietnam.

15. The AANZFTA is the first time Australia has negotiated a plurilateral FTA, a key objective of which was to ensure that Australia maintains access to ASEAN markets at least as good as that provided to ASEAN's other FTA partners.

Bilateral

16. The global spread of FTAs gained pace in the mid-1990s and accelerated following the failure of the Seattle WTO Ministerial Meeting in 1999. Australia was part of this trend in seeking to conclude FTAs where these offered the prospect of delivering significant benefits more quickly than might be possible through a WTO round. Since 2003, Australia has concluded bilateral FTAs with Singapore, Thailand, the United States, and Chile. Australia also has FTA negotiations underway with China, the Gulf Cooperation Council, Japan, Korea and Malaysia. In addition, a joint FTA feasibility study has been finalised with Indonesia and a study is underway with India. ASEAN member countries too have substantial FTA negotiating agendas, with Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, all having completed bilateral FTAs.

17. Indonesia has concluded FTAs with...

D. Impact Analysis

18. A wide range of stakeholders identified an interest in IAFTA during a call for public submissions prior to the launch of negotiations. These stakeholders included groups and individuals from the agricultural sector, the manufacturing sector, the services sector, trade unions, employer organisations, state governments and public interest groups.

19. The IAFTA, once implemented, could be expected to have impacts on a number of these stakeholders. There is considerable potential for the IAFTA to create new trading opportunities and contribute to boosting Australia's investment relationship with Indonesia

Compliance costs

20. The main area of additional costs for exporters associated with the AANZFTA would be in relation to complying with the rules of origin provisions required to claim preferential tariff treatment, including obtaining certificates of origin. These costs would be most relevant to the Australian manufacturing sector, due to its use of imported components and parts, but should not be significant.

Trade Unions

21. One of the main concerns of trade unions, as highlighted in the public submission process...while noting a reduction in Australian tariffs, including the higher tariffs in the textile, clothing and footwear (TCF) and passenger motor vehicle (PMV) sectors. The main adjustment costs for Australian industry are likely to be in these areas.

Industry Groups

22. Industry groups were broadly in favour of negotiating IAFTA, provided the agreement was comprehensive in nature and delivered clear benefits to Australian industries. As discussed in the analysis above, liberalisation will occur across a broad range of tariff lines in all sectors - including agriculture and manufacturing - and will create substantial new market access opportunities for Australian exporters of goods and services.

State governments

23. Australia's state governments identified themselves as stakeholders in the negotiation of the IAFTA. The nature of the issues raised by state governments related to...

Public interest groups

24. The IAFTA is likely to have a positive impact on Australian consumers. There should be increased benefit for consumers as falling Australian tariffs provide greater choice across many product lines, including in TCF and PMV. IAFTA provisions on services should also see increased choice in service providers.

Small business

25. The overall impact of IAFTA on small business is likely to be positive. Many of the sectors which are expected to benefit from the FTA contain a significant number of small businesses. These include the dairy sector, beverages, construction, and a range of services industries where barriers to entry are high.

26. In addition, provisions designed to ensure transparency, consistency, and predictability, in the application of customs laws and regulations would increase certainty and also reduce costs for small businesses.

Federal Government

27. The main impact of AANZFTA on the Federal Government will be the loss of tariff revenue. The Treasury has estimated that...

E. Consultations

28. Public submissions were sought prior to the commencement of the AANZFTA negotiations and around xx written submissions were received, including from the South Australian, Victorian and Western Australian governments. Submissions from these governments recognised the potential benefits of an FTA between Australia and Indonesia, and agreed on the need to negotiate a comprehensive, high quality agreement.

29. During the negotiation of IAFTA, DFAT officials will held regular consultations with relevant Commonwealth agencies, state and territory governments and other stakeholders, including industry, unions and public interest groups, to ensure that their views informed development of the Government's negotiating strategy.

30. Commonwealth agencies will be consulted via regular inter-departmental committee meetings and participation of relevant agencies in the Australian delegation to negotiating sessions.

31. State and territory governments will be consulted through regular senior State and Territory Trade Officials Group (STOG) and Commonwealth-States Standing Committee on Treaties (SCOT) meetings, teleconferences and regular visits by the AANZFTA negotiators to state and territory capitals.

32. Consultations with industry will be substantial with DFAT...

F. Recommended Option

33. On balance, it is in Australia's interests to enter into an FTA with Indonesia, given the Agreement will:

a.
deliver significant market access commitments that provide benefits to Australian producers, exporters, consumers and investors and a platform for securing continuing trade and investment liberalisation in the future;
b.
deliver these market access gains in a faster timeframe than appears possible through the WTO Doha Round;
c.
achieve sufficiently comprehensive and reform-oriented WTO-plus commitments to ensure that the IAFTA is consistent with WTO obligations;
d.
impose small adjustment costs that would be outweighed by the overall economic gains to the Australian economy; and
e.
not detract from our ability to continue to negotiate trade liberalisation in other fora - WTO, regional or bilateral.

ATTACHMENT 2: REGULATORY BURDEN AND COST OFFSET ESTIMATE

1. The entry into force of an IA-CEPA is expected to result in a small reduction in ongoing business compliance costs for Australian exporters to Indonesia.

2. The reduction arises from:

a.
The possibility that some businesses that previously sought and obtained both preferential and non-preferential certificates of origin (COOs) may now be able to self-certify the origin of their goods for exports to Indonesia.

3. There is a level of uncertainty regarding the number and composition of COOs issued in respect of Australian exports into Indonesia. Accordingly, the estimates of the compliance costs under the status quo - as well as the likely incremental changes - are largely assumption driven and should be interpreted as such. However, based on the available data, it is possible to gain an appreciation of the order of magnitude of these changes.

Certificates of Origin

4. Industry groups such as the Australian Chamber of Commerce and Industry and the Australian Industry Group issue COOs, both for non-preferential purposes, as well as under the AANZFTA for preferential purposes.

5. Preferential certificates are generally issued in respect of countries with whom Australia has a free trade agreement, but which do not allow for self-declaration.

6. Non-preferential certificates are generally issued to meet specific requirements such as letters of credit or, in the case of antidumping concerns, to confirm origin.

Direct Costs

7. Where businesses seek third-party certification from industry groups, the cost of each certificate varies from between $20-70 at an average of $33. The cost of a certificate depends on a range of factors, such as whether an applicant is a member of the issuing body and the level of complexity.

Administrative costs

8. While new businesses may expend considerable time applying for certification for their initial consignment, as a matter of practice this information is re-submitted for subsequent certifications.

9. In addition, much of the information required would be collected for other purposes. Once the origin of the product has been determined, businesses only need to undertake this process again if their production process or the inputs/input prices change. This one-off administrative cost is likely to be moderate and take approximately two hours per business. This estimate is based on two factors:

a.
Some businesses may already be exporting under AANZFTA and will not require much additional information to make use of IA-CEPA.
b.
For businesses that are new to exporting under an FTA, it may take longer to learn about how to make use of IA-CEPA.

10. The ongoing administrative costs incurred by a business in preparing each subsequent COO are likely to be relatively low.

11. As IA-CEPA allows for self declarations of Origin on the invoice, businesses that are able to make use to the alternatives provide under IA-CEPA, and given most information will be known, would take on average less than 20 minutes.

12. Similarly, the records related to a COO are required to be kept for five years by most foreign customs agencies. However, businesses are required under Australian Taxation Law to retain these records for seven years. The incremental compliance burden associated with record keeping for COOs is therefore assessed as nil.

Incremental reduction in number of certificates under the IA-CEPA

13. COOs are required for Australian exports to Indonesia for a range of purposes in addition to tariff compliance. For example, overseas customs agencies may require COOs for the purpose of calculating import quotas and applying antidumping and countervailing duties. Alternatively, foreign banks may require COOs in order to provide letters of credit.

14. Therefore, it is possible that of the total number of Australian COOs currently issued in respect of Indonesia, some of these will no longer be required due to IA-CEPA. However, each business will have to consider for themselves, as a commercial decision, whether the benefits of obtaining a COO outweigh by the costs (administrative or otherwise).

15. It is therefore assumed that there will be a modest reduction in the number of third-party issued preferential and non-preferential COOs in respect of Australian exports to Indonesia as a result of the IA-CEPA. To the extent that this reduction occurs, those businesses will save the direct costs of certification by an industry body; offset by minor adjustment costs as a result of the additional work to understand and make use of the FTA.

Effect of Other Free Trade Agreements on reduction of certificates under IA-CEPA

16. By the time IA-CEPA enters into force, Australian businesses will have already been trading with Indonesia under AANZFTA since 2012.

17. Given this, it is expected learning times to make use of IA-CEPA would be significantly shorter, on average.

Estimate of Regulatory Burden and Costs Offsets

18. The average number of exporters to Indonesia over the three year period from 2014-15 through 2016-17 was 2,428. Each year, Australian exporters to Indonesia undertook some 72,480 transactions, worth on average A$73,887 per shipment.[11]

19. Given the average cost of a certificate in paragraph 7, the direct costs saved would, at most, be:

20. 72,480 transactions x $33 per certificate = A$2,391,840

21. With 2,428 business required to learn the rules of a new Agreement, a conservative estimate of two hours per business has been used based on the information in paragraphs 9a, 9b and 17. At a scaled up labour cost of $68.79 per hour, this works out as

22. 2,428 businesses x 2 hours x $68.79 per hour = A$334,044.24

23. Based on an estimate of completing the self-declaration taking up to 20 minutes, a total cost per year for completion of the certificates of origin is:

24. 72,480 transactions x 1/3 hours x 68.79 per hour = A$1,661,966.40

25. Over a ten-year period, businesses would be expected to save A$2,391,840 per year, or A$23,918,400 in total, and to spend A$334,044.24 in year one learning about the FTA, and A$1,661,966.40 per annum, or A$16,619,664 over ten years, completing Certificates of Origin.

26. Total cost over 10 years= 334,044.24 + 16,619,664 - 23,918,400 = -$6,964,691.76

27. Total regulatory saving per annum $694,469.18

28. Given the assumptions, the estimate is likely to have a low reliability; however, the magnitude of the savings is indicative of the overall minor positive effect.

29. The greatest risk to the estimate is that the time taken to complete a COO is not twenty minutes[12].

30. It would be expected that given the repetitive nature of the process, any change in time taken to complete a COO is likely to decrease from twenty minutes, i.e result in a larger decrease in regulatory burden faced by Australian businesses.

Regulatory Burden (RBE) Estimate Table

Average Annual Compliance Costs (from business as usual)
Costs ($m) Business Community Organisations Individuals Total Cost
Total by Sector (0.7) N/A N/A (0.7)

ATTACHMENT 3 - OBLIGATIONS IN DETAIL

1. IA-CEPA consists of 21 Chapters with associated Annexes. IA-CEPA is consistent with Australia's other international agreements, including the World Trade Organization. Chapter 1 (Initial Provisions and General Definitions) provides that the IA-CEPA will coexist with Parties' rights and obligations in other agreements to which they are also a party. The obligations in IA-CEPA align with those made by Australia to other FTA partners. Key obligations are outlined below.

Goods

2. Upon entry into force of IA-CEPA, Australia is required to eliminate all tariffs on imports of goods from Indonesia.

3. The provisions contained in IA-CEPA's goods related chapters (Chapters 2-7) reaffirm existing rights and obligations under the relevant WTO Agreements. These chapters maintain the Parties' rights and obligations under the WTO Agreements with regard to the application of safeguards, anti-dumping and countervailing measures. They include commitments on import and export restrictions and other non-tariff barriers that may otherwise present hurdles to Australian goods entering Indonesia.

4. IA-CEPA establishes a mechanism for the review of non-tariff measures raised by either Party. It also provides for dialogue on trade remedies to enhance transparency and understanding.

Rules of Origin

5. The chapter on Rules of Origin specifies the ways in which a good imported from a Party is eligible for the preferential tariff of the Agreement. Product Specific Rules of Origin for IA-CEPA taken as a whole are more trade facilitative than those in AANZFTA, provide for choice of method to establish origin, and build on Australia's best practice to date so as to enable regional value chains. The origin procedures provides for use of familiar AANZFTA-style certificates of origin, but allows for parties to also permit declarations by exporters.

Sanitary and Phytosanitary (SPS)

6. The Chapter on Sanitary and Phytosanitary (SPS) measures reaffirms the Parties' commitments in the WTO SPS Agreement. It establishes a sub-committee to promote cooperation on SPS issues. It does not alter the SPS controls on products entering Australia.

Technical Barriers to Trade (TBT)

7. The Chapter on Technical Barriers to Trade (TBT) reaffirms the Parties' WTO TBT Agreement obligations and extends the level of commitment on cooperation in international standards, guidelines and recommendations. The chapter establishes a sub-committee to promote cooperation on TBT issues. It does not alter Australia's standards and conformance regime.

Services

8. The Trade in Services, Financial Services and Telecommunications Chapters build on existing WTO and AANZFTA services commitments, giving Australian service suppliers better access to the Indonesian market and greater certainty about the rules that will apply to them in Indonesia.

Trade in Services

9. The Trade in Services Chapter (Chapter 9) contains a comprehensive section on domestic regulation, which sets out a common framework for the regulation of service suppliers in the territory of each Party. These rules help address behind-the-border barriers such as delays in processing licenses or other permits required to supply a service.

10. There is also a Recognition article, based on existing WTO language, which gives each Party the right to recognise qualifications obtained in another country should they wish to do so, but does not oblige Australian professional bodies to recognise Indonesian qualifications. There is also a specific Annex on Professional Services to facilitate cooperation, including with non-government professional bodies, on recognition of professional qualifications, licensing and registration requirements.

Financial Services

11. The Financial Services Chapter (Chapter 10) will help to ease some of the regulatory burdens Australian financial services firms face when operating in Indonesia. For example, the Chapter includes provisions that promote transparency in the application procedures necessary to supply financial services and improves access to self-regulatory organisations, where access is necessary to supply a financial service in Indonesia. Australia and Indonesia will also seek to permit financial institutions to supply new financial services in each other's territory.

Telecommunications

12. The Telecommunications Chapter (Chapter 11) commits Australia and Indonesia to transparent and pro-competitive telecommunications regulation, including ensuring that incumbent telecommunications companies provide other suppliers with access to services and key infrastructure on reasonable terms and conditions. The chapter also includes specific obligations designed to improve the transparency and predictability of Indonesia's regulation of the installation, maintenance and repair of submarine telecommunications cables in its waters. Several telecommunications cables connecting Australia to the rest of the world pass through Indonesian waters.

13. Services and investment market access commitments are subject to a range of carve-outs (non-conforming measures) in which the Parties preserve their right to regulate in the national interest. Australia has retained the right to introduce new regulations for sensitive issues and sectors, including preferences for indigenous peoples; public services including education, health and social services; cultural industries and audio-visual services. Australia has also reserved the right for governments to impose conditions should they choose to privatise government assets or contract out services.

Movement of Natural Persons

14. Chapter 12 applies to measures regulating the temporary movement between Australia and Indonesia of skilled professionals, including those engaged in trade in goods, the supply of services or the conduct of investment.

15. The Movement of Natural Persons Chapter requires each Party to:

a.
promptly process completed applications for visas or other immigration formalities from the other Party;
b.
provide information, upon request, about the status of applications;
c.
ensure that fees for the processing of an application for a visa or other immigration formality are reasonable;
d.
provide information on types of visas available, the documentation and other conditions that must be met and the appropriate method for submitting an application for a visa; and
e.
establish or maintain appropriate mechanisms for responding to enquiries about measures relating to temporary entry for business persons of the other Party.

16. Under the Chapter, each Party makes specific commitments guaranteeing access for specific categories of business persons who, provided they fulfil visa eligibility requirements, will be permitted to enter and temporarily stay in a Party. Those categories cover business persons undertaking activities such as attending meetings, conferences and trade fairs, setting up a business or an investment, or working in an overseas branch of their office.

17. Australia has undertaken to waive labour market testing for Indonesian business visitors, intra-corporate transferees and independent executives. These are the same categories on which Australia has existing commitments not to impose labour market testing for Indonesians under the WTO and the ASEAN-Australia-New Zealand Free Trade Agreement. Australia has not made any commitments on Indonesian contractual service suppliers (skilled workers employed by a company in either Australia or Indonesia to work temporarily in Australia to fulfil a contract).

18. The chapter does not create any obligations in relation to citizenship, nationality, residence or employment on a permanent basis. The Chapter recognises the right of Australia and Indonesia to regulate the entry of natural persons into their territories and to require foreign workers to meet all relevant skill, qualification or experience requirements in force in the country where they are working temporarily.

Electronic Commerce

19. The Electronic Commerce Chapter (Chapter 13) commits Australia and Indonesia to ensure service suppliers and investors can transfer information across borders by electronic means. The Chapter also contains commitments to not make existing measures that require data to be stored locally any more restrictive, and automatically include improvements to these measures into the agreement.

20. Notwithstanding, the Chapter retains the right of a Party to impose conditions or restrictions on the cross-border transfer of information and data storage in order to achieve public policy objectives, provided that such restrictions are not arbitrary or unjustifiable discrimination or a disguised restriction on trade. These obligations do not prevent a Party from adopting or maintaining any measures that it considers necessary for the protection of its essential security interests and do not apply to information held or processed on behalf of a Party.

21. The Chapter prohibits Parties from requiring the transfer of (or access to) source code of software owned by a person of another Party as a condition of importation, sale or distribution of such software. This obligation does not affect requirements relating to patent applications or prevent a Party from adopting or maintaining any measures that it considers necessary for the protection of its essential security interests.

22. Under the Chapter, Australia and Indonesia have made commitments to not deny the legal validity of electronic signatures and accept the electronic versions of trade documents as the legal equivalent of paper document. These obligations allow Parties to have contrary requirements where provided for under law.

23. The Chapter contains commitments to promote confidence in the online environment. These include for Australia and Indonesia to adopt or maintain a legal framework for privacy protection, and consumer protection laws that proscribe fraudulent and deceptive commercial activities that are harmful to online consumers. The Parties have also made commitments on addressing unsolicited commercial electronic, or 'spam', messages.

24. Under the Chapter, Australia and Indonesia have also agreed to cooperate to support electronic commerce, including on cyber security and on assisting micro, small and medium-sized enterprises to use electronic commerce. The Chapter also contains transparency commitments, including that Parties will publish information on the rights and protections provided to electronic commerce users and how businesses can comply with legal requirements.

Investment

25. The Investment Chapter enhances market access and protections for investors from both Parties. The key obligations in this Chapter include:

a.
non-discrimination through national treatment and most-favoured-nation (MFN) provisions; national treatment obliges a Party to afford equal treatment to foreign investors and local producers where there are like circumstances and MFN obliges a Party to afford no less favourable treatment to foreign investors of the other Party than investors from non-Parties in like circumstances;
b.
minimum standard of treatment (MST): the foreign investor/investment to be treated in accordance with customary international law standards of fair and equitable treatment and full protection and security;
c.
expropriation and compensation: the obligation not to expropriate a covered investment unless expropriation is undertaken in a non-discriminatory manner, for a public purpose and upon payment of prompt, adequate, and effective compensation;
d.
transfers: obligation to allow all transfers relating to a covered investment to be made freely and without delay into and out of its territory;
e.
performance requirements: lists the types of requirements, for example to purchase, use or accord a preference to goods produced in a Party's own territory, which a Party agrees not to impose as a condition of establishing or operating an investment in the other Party; and
f.
senior management and board of directors: limitations on requiring the appointment of particular nationalities to senior management positions in businesses that are covered investments.

26. Australia has reserved the right to maintain its existing foreign investment review process. IA-CEPA does not increase the thresholds for screening of Indonesian investments above the current levels. Australia has also reserved the right to strengthen its regulations for investments above the current screening thresholds in sensitive sectors such as agricultural land and agribusiness.

27. The agreement includes modern Investor-State Dispute Settlement (ISDS) provisions, with appropriate procedural and substantive safeguards that build on the existing ISDS mechanism between Australia and Indonesia in AANZFTA. The Indonesia-Australia Business Partnership Group called for the inclusion of ISDS in IA-CEPA in its submissions to government.

28. The inclusion of ISDS means that where an investor from one Party alleges loss or damage as a consequence of the other Party breaching a commitment in the Investment Chapter, the investor can commence arbitration against that Party in a tribunal. A Party investor's basis for challenging legitimate Australian regulatory measures is limited by carve-outs, exceptions and other protections for Australian policy setting.

29. An ISDS claim concerning IA-CEPA may only be brought in relation to commitments in the Investment Chapter. ISDS cannot be used to enforce other provisions of the agreement.

30. IA-CEPA preserves each Government's right to regulate in the public interest:

a.
There is a public health carve out ensuring that public health measures cannot be challenged under ISDS, including for Australia those relating to tobacco, the Pharmaceutical Benefits Scheme, Medicare Benefits Scheme, Therapeutic Goods Administration and Office of the Gene Technology Regulator; and
b.
Australia's foreign investment framework, including decisions of the Foreign Investment Review Board, cannot be challenged under ISDS;
c.
Australia reserves the right to maintain existing and introduce new measures in key policy areas, including:

Social services established or maintained for a public purpose, such as social welfare, public education, health and public utilities
Measures with respect to creative arts, Indigenous traditional cultural expressions and other cultural heritage

d.
General exceptions also apply to the Investment Chapter.

31. The ISDS mechanism in IA-CEPA also includes procedural safeguards to enhance the arbitration process, including:

a.
Expedited review of claims that are frivolous or manifestly without legal merit
b.
Mechanisms to deter unmeritorious claims, including through the award of costs against a claimant
c.
The ability of the Parties to issue interpretations of the Agreement, which must be followed by ISDS tribunals
d.
Time limits on bringing a claim, and
e.
A requirement for arbitrators to comply with rules on independence and impartiality, including on conflicts of interests.

Economic Cooperation

32. Cooperation will be important for implementing IA-CEPA and maximising its ongoing benefits. The Economic Cooperation Chapter (Chapter 15) seeks to build on our existing development partnership and establishes a Committee on Economic Cooperation. The Committee's activities will include:

a.
developing medium term priorities for economic cooperation for consideration and approval by the Joint Committee;
b.
developing an Annual Work Program for consideration and approval by the Joint Committee, including coordinating and prioritising proposals for economic cooperation from the other committees established under the Agreement;
c.
overseeing and reviewing the implementation of the Annual Work Program to assess its overall effectiveness and contribution to the implementation of this Agreement.

Competition and Transparency

33. The Competition Policy Chapter (Chapter 16) seeks to ensure that the trade and investment liberalisation achieved across IA-CEPA is not undermined by anti-competitive practices. The Chapter includes an obligation on Parties to adopt or maintain consumer protection laws to proscribe the use in trade of misleading practices, or false or misleading descriptions. The Chapter recognises the importance of consumer protection policy and enforcement to the creation of efficient and competitive markets and to enhancing consumer welfare. The Chapter recognises the value of the Parties making their competition enforcement policies as transparent as possible.

34. The Transparency Chapter (Chapter 19) promotes greater transparency in the making and implementation of laws, regulations and government decisions to facilitate predictability and ease of doing business. It requires Parties to establish or maintain impartial and independent tribunals or procedures for the review of final administrative actions. Australia already complies with the Chapter's requirements.

General exceptions

35. IA-CEPA includes a number of exceptions to ensure the Parties preserve their ability to take measures considers necessary for their essential security. An FTA-wide exception allows Australia and Indonesia to take any action they consider necessary for the protection of their essential security interests relating to a number of issues, including to protect critical infrastructure and fulfil their obligations under the United Nations Charter for the maintenance or restoration of international peace and security. There are also specific exceptions in the e-commerce chapter (to allow restrictions on data transfers and data localisation requirements). Australia's schedule of services and investment commitments also includes a broad carve-out from the key Investment and Services Chapter obligations to allow any action Australia considers necessary for the protection of its essential security.

36. The General Exceptions Chapter (Chapter 17) includes a series of public policy exceptions to allow Parties to adopt or enforce measures otherwise inconsistent with the Agreement in certain circumstances (such as to protect human, animal or plant life or health). The Chapter also permits the Parties to impose temporary safeguard measures in the event (or threat) of serious balance of payments and external financial difficulties. Taxation measures are also exempt from the Agreement, with some limited exceptions.

Legal and Institutional

37. The legal and institutional chapters establish the administrative provisions necessary for the operation and review of the Agreement, including the processes by which the Agreement will enter into force, may be subsequently amended or terminated, and how the Agreement will co-exist with existing treaties between the Parties. The legal and institutional chapters also establish a binding State-to-State dispute settlement mechanism, drawing on previous FTAs and the WTO system, and a committee structure to manage the ongoing implementation of the Agreement.

Side Letters and MOU

38. Alongside IA-CEPA, Australia negotiated two treaty-level side letters:

Side Letter between Australia and Indonesia on Economic Cooperation under IA-CEPA

a.
This side letter and its attachment set out the medium term objectives for cooperation between Indonesia and Australia under IA-CEPA. These commitments will be taken forward by the IA-CEPA Committee on Economic Cooperation.

Technical and Vocational Education and Training (TVET) side letter

b.
This letter provides that Indonesia and Australia will use the provisions of IA-CEPA to undertake mutually agreed economic cooperation in the TVET sector in order to help Indonesia build a highly-skilled, industry-ready workforce. It proposes to develop a Government of Indonesia TVET Committee responsible for national TVET standards that would work to incentivise Indonesian industry to participate in the vocational education and training system. It confirms that Indonesia agrees to allow Australians to own 67 per cent of investments in the Work Training sector in Indonesia without geographical limitations.

39. There are three other associated side letters and two Memoranda of Understanding (MOU), all of less than treaty status:

Health side letter

a.
This letter outlines Australia and Indonesia's mutual agreement to undertake actions that strengthen their economic partnership in the health sector, undertaking work on strengthening Health Professional standards and competitiveness in the Indonesian health sectorand encouraging Australian investment in the Indonesian health sector.

Indonesia Working Holiday Visa letter

b.
This letter outlines Australia's offer to increase the current annual cap of Work and Holiday visas for Indonesian Nationals to 4,100 on the first day of the month after IA-CEPA enters into force, and to increase the cap to 5,000 over the following five years.

Side letter on Mutual Recognition Arrangements in Engineering

c.
This letter outlines Australia's and Indonesia's mutual agreement to facilitate cooperation between their relevant bodies on assisting Indonesia to reach internationally benchmarked standards for engineering education, with a view to facilitating mutual recognition of the qualifications of professional mining engineers in the future.

Workplace-based training MOU

d.
This MOU commits Australia to granting annually up to 200 visas to Indonesian nationals allowing temporary stay for a period of up to six months for the purpose of undertaking workplace-based training in specified sectors. The participants must be sponsored by an approved Australian enterprise and meet all visa eligibility requirements.

Skills Exchange MOU

e.
This MOU sets out the details of the reciprocal skills exchange between Australia and Indonesia. In the first year, the exchange will allow a maximum of 100 participants each from Australia and Indonesia to work in the other country for a maximum of six months. The sectors available for the exchange will be limited to: financial and insurance services; mining, engineering and related technical services; and, information media and telecommunications services. The maximum number of participants from each country would increase by 100 per year to a maximum of 500 per year in the fifth year. Each rise in annual intake would be subject to the Participants' mutual approval following a review each year. The total maximum number of participants over five years would be 1500 eligible Australians and 1500 eligible Indonesians.

40. Each of these will take effect on the date that IA-CEPA enters into force for both Australia and Indonesia.

ATTACHMENT 4 - SPECIFIC GOODS MARKET ACCESS OUTCOMES IN DETAIL

1. The following table illustrates the duty that would be saved on imports from Australia into Indonesia should IA-CEPA enter into force.

2. Note, this is based on several assumptions;

a.
Trade is based on average Indonesian imports from Australia in 2015-2017. Should these increase in future years, savings are likely to be higher.
b.
It assumed that goods are able to claim all tariffs, that is, they meet the relevant rules of origin under the Agreement.
c.
The IA-CEPA rate was compared to the lower of the 2017 MFN Rate or the AANZFTA rate for each year of IA-CEPAs tariff reductions from 2018 through to 2036.
d.
For goods subject to TRQs, analysis of certain TRQs is provided after this table, on the basis of full utilisation of the tariff quota. Where the quota is not fully utilised, all of the benefits will not be realised;
e.
Due to a change in nomenclature in 2017, trade data has been averaged across new Tariff Lines where a tariff line from the previous nomenclature was separated to provide additional detail, such as for 1516.10.20 and 1516.10.90

In most cases, the tariff outcome across the tariff lines are the same, and where it is, the outcome will not be different, regardless of where the good is now classified.

3. Finally, this information should not be construed as modelling, rather "What if Analysis" to indicate how current trade would benefit from future outcomes. Given the uncertainty in predicting future trade patterns such as responses to currency fluctuations, change in production, change in demand and trade policy of third parties, it is advised to interpret the figures provided below as indicative only.

4. Full descriptions of products can be found by referring to Indonesia's Schedule of Tariff Commitments annexed to the Agreement.

HS Code 2017 Description of Goods Indonesian Imports from Australia

AUD

2015-2017 Average

Average duty saved

per annum

2018-2036

0101.30.90 - - Other $666.33 $31.65
0101.90.00 - Other $3,185.00 $151.29
0102.29.90 - - - Other $60,698,258.33 $1,972,693.40
0102.90.90 - - Other $36,806.00 $1,196.20
0201.30.00 - Boneless $34,634,462.33 $173,172.31
0202.20.00 - Other cuts with bone in $26,496,059.33 $1,092,962.45
0204.22.00 - - Other cuts with bone in $427,392.67 $13,890.26
0204.41.00 - - Carcasses and half-carcasses $4,270,709.33 $112,106.12
0204.42.00 - - Other cuts with bone in $5,615,979.67 $231,659.16
0204.43.00 - - Boneless $4,002,120.67 $165,087.48
0204.50.00 - Meat of goats $193,534.00 $5,080.27
0303.89.11 - - - - Grouper $36,752.17 $334.15
0304.39.00 - - Other $5.00 $0.04
0304.87.00 - - Tunas (of the genus Thunnus), skipjack or stripe-bellied bonito (Euthynnus (Katsuwonus) pelamis) $3,866.67 $0.00
0401.10.10 - - In liquid form $26,369.67 $210.96
0401.20.10 - - In liquid form $356.33 $8.20
0402.10.41 - - - In containers of a net weight of 20 kg or more $117,124,127.67 $468,496.51
0402.10.42 - - - In containers of a net weight of 2 kg or less $1,330,362.50 $7,982.18
0402.10.49 - - - Other $1,423,344.83 $8,540.07
0402.10.91 - - - In containers of a net weight of 20 kg or more $8,910,793.00 $35,643.17
0402.10.92 - - - In containers of a net weight of 2 kg or less $15,122.83 $90.74
0402.10.99 - - - Other $15,166.50 $91.00
0402.21.20 - - - In containers of a net weight of 20 kg or more $3,988,191.33 $7,976.38
0402.21.30 - - - In containers of a net weight of 2 kg or less $143,197.17 $572.79
0402.21.90 - - - Other $209,584.83 $838.34
0402.29.20 - - - In containers of a net weight of 20 kg or more $90,289.67 $180.58
0402.29.30 - - - In containers of a net weight of 2 kg or less $99.00 $0.20
0402.29.90 - - - Other $12,016.67 $24.03
0406.20.10 - - In packages of a gross weight exceeding 20 kg $2,589,048.33 $98,383.84
0406.20.90 - - Other $2,169,245.00 $82,431.31
0409.00.00 Natural honey. $457,225.00 $10,516.18
0702.00.00 Tomatoes, fresh or chilled. $247,191.67 $9,393.28
0704.20.00 - Brussels sprouts $26,241.33 $577.31
0704.90.10 - - Round (drumhead) cabbages $32,322.00 $1,228.24
0704.90.20 - - Chinese mustard $46,574.17 $1,769.82
0704.90.90 - - Other $195,610.50 $7,433.20
0705.11.00 - - Cabbage lettuce (head lettuce) $733.33 $16.13
0706.10.20 - - Turnips $48.00 $0.19
0804.40.00 - Avocados $21,728.00 $478.02
0810.10.00 - Strawberries $12,927.00 $284.39
0810.70.00 - Persimmons $1,961.67 $74.54
0810.90.94 - - - Pomegranate (Punica spp.), soursop or sweetsops (Annona spp.), bell fruit (Syzygium spp., Eugenia spp.), marian plum (Bouea spp.), passion fruit (Passiflora spp.), cottonfruit (Sandoricum spp.), jujube (Ziziphus spp.) and tampoi or rambai (Baccaurea spp.) $866,746.67 $32,936.37
0810.90.99 - - - Other $1,080,501.00 $41,059.04
1104.12.00 - - Of oats $5,640,927.33 $14,102.32
1104.29.90 - - - Other $8,682.67 $21.71
1107.10.00 - Not roasted $2,671,894.00 $18,703.26
1516.10.20 - - Re-esterified $15,949.83 $111.65
1516.10.90 - - Other $15,949.83 $111.65
1601.00.10 - In airtight containers for retail sale $28,486.67 $66.47
1604.14.11 - - - - Tunas $60,289.00 $1,959.39
1701.14.00 - - Other cane sugar $468,773,997.67 $13,360,058.93
1806.32.00 - - Not filled $1,277.33 $3.19
1806.90.10 - - Chocolate confectionery in tablets or pastilles $834.00 $2.09
1901.20.10 - - Of flour, groats, meal, starch or malt extract, not containing cocoa $4,219.33 $10.55
1901.20.30 - - Other, not containing cocoa $1,441,702.00 $3,604.26
1901.20.40 - - Other, containing cocoa $4,087.67 $10.22
1904.90.10 - - Rice preparations, including pre-cooked rice $84.00 $0.21
1904.90.90 - - Other $243,290.67 $608.23
1905.31.10 - - - Not containing cocoa $97,215.33 $243.04
1905.31.20 - - - Containing cocoa $27,767.33 $69.42
1905.32.10 - - - Waffles $2,196.00 $8.78
1905.32.20 - - - Wafers $5,332.67 $21.33
2007.10.00 - Homogenised preparations $8,643.33 $60.50
2008.11.90 - - - Other $1,214.00 $8.50
2009.19.00 - - Other $16,476.67 $131.81
2009.50.00 - Tomato juice $3,183.00 $7.96
2009.61.00 - - Of a Brix value not exceeding 30 $958,764.00 $2,396.91
2009.69.00 - - Other $386,011.00 $965.03
2009.71.00 - - Of a Brix value not exceeding 20 $209.67 $1.47
2009.90.91 - - - Ready for immediate consumption $220.83 $0.55
2009.90.99 - - - Other $282.83 $0.71
2103.20.00 - Tomato ketchup and other tomato sauces $346,192.00 $865.48
2501.00.10 - Table salt $235.67 $11.19
2501.00.50 - Sea water $40.67 $1.93
3917.21.00 - - Of polymers of ethylene $131,278.00 $1,352.16
3917.22.00 - - Of polymers of propylene $3,756.33 $38.69
3917.23.00 - - Of polymers of vinyl chloride $370,248.33 $17,586.80
3917.29.11 - - - - Of other addition polymerisation products $33,130.19 $1,573.68
3917.29.12 - - - - Of amino-resins; of cellulose nitrate, cellulose acetates and other chemical derivatives of cellulose, plasticised; of vulcanised fibre; of hardened proteins; of chemical derivatives of natural rubber $24,699.85 $1,173.24
3917.29.19 - - - - Other $29,198.52 $1,386.93
3917.29.21 - - - - Of other addition polymerisation products $24,695.85 $1,173.05
3917.29.25 - - - - Of other condensation or rearrangement polymerisation products $24,695.85 $1,173.05
3917.29.29 - - - - Other $52,144.52 $2,476.86
3917.31.11 - - - - Of addition polymerisation products $6,879.63 $326.78
3917.31.12 - - - - Of amino-resins; of phenolic resins; of vulcanised fibre; of chemical derivatives of natural rubber $6,700.96 $318.30
3917.31.19 - - - - Other $7,327.63 $348.06
3917.31.21 - - - - Of addition polymerisation product $6,700.96 $318.30
3917.31.23 - - - - Of amino-resins; of phenolic resins; of chemical derivatives of natural rubber $6,700.96 $318.30
3917.31.24 - - - - Of vulcanised fibre $6,700.96 $318.30
3917.31.25 $6,854.63 $325.59
3917.31.29 - - - - Other $6,700.96 $318.30
3917.32.10 - - - Sausage or ham casings $7,527.67 $45.54
3917.32.20 - - - Thermoplastic hoses for gas stove $8,162.81 $84.08
3917.32.91 - - - - - Of addition polymerisation products; of phenolic resins or amino resins; of chemical derivatives of natural rubber $7,811.81 $80.46
3917.32.92 - - - - - Other $24,294.14 $250.23
3917.32.93 - - - - - Of addition polymerisation products $11,218.14 $115.55
3917.32.94 - - - - - Of amino-resins or phenolic resins; of chemical derivatives of natural rubber $7,811.81 $80.46
3917.32.95 - - - - - Of other condensation or rearrangement polymerisation products; of vulcanised fibre; of cellulose nitrate, cellulose acetates and other chemical derivatives of cellulose, plasticised $7,811.81 $80.46
3917.32.99 - - - - - Other $156,187.81 $1,608.73
3917.33.10 - - - Other, further worked than merely surface worked $489.63 $40.64
3917.33.91 - - - - Of other addition polymerisation products $489.63 $40.64
3917.33.92 - - - - Of condensation or rearrangement polymerisation products $489.63 $40.64
3917.33.93 - - - - Of cellulose nitrate, cellulose acetates and other chemical derivatives of cellulose, plasticised $1,357.96 $112.71
3917.33.94 - - - - Of vulcanised fibre $489.63 $40.64
3917.33.95 - - - - Of hardened proteins $489.63 $40.64
3917.33.96 - - - - Of chemical derivatives of natural rubber $489.63 $40.64
3917.33.99 - - - - Other $1,424.96 $118.27
3917.39.11 - - - - Of addition polymerisation products; of vulcanised fibre $95,174.52 $7,899.49
3917.39.12 - - - - Of phenolic resins or amino resins; of chemical derivatives of natural rubber $48,465.19 $4,022.61
3917.39.13 - - - - Of cellulose nitrate, cellulose acetates and other chemical derivatives of cellulose, plasticised $48,465.19 $4,022.61
3917.39.19 - - - - Other $87,640.52 $7,274.16
3917.39.91 - - - - Of addition polymerisation products; of vulcanised fibre $48,465.19 $4,022.61
3917.39.92 - - - - Of phenolic resins or amino resins; of chemical derivatives of natural rubber $48,465.19 $4,022.61
3917.39.93 - - - - Of other condensation or rearrangement polymerisation products $48,465.19 $4,022.61
3917.39.94 - - - - Of cellulose nitrate, cellulose acetates and other chemical derivatives of cellulose, plasticised $48,465.19 $4,022.61
3917.39.99 - - - - Other $91,741.19 $7,614.52
3918.10.19 - - - Other $7,630.33 $820.26
3918.10.90 - - Other $25,144.67 $2,703.05
3920.20.91 - - - Plates and sheets $150,812.17 $13,346.88
3920.20.99 - - - Other $154,953.83 $13,713.41
3920.30.91 - - - Plates and sheets, rigid $12,633.22 $1,200.16
3920.30.92 - - - Other, plates and sheets $12,633.22 $1,200.16
3920.30.99 - - - Other $14,496.89 $1,377.20
3920.51.11 - - - - Rigid $11,915.00 $971.07
3920.51.19 - - - - Other $11,915.00 $971.07
3920.51.90 - - - Other $22,107.67 $1,801.77
3920.59.11 - - - - Rigid $25,938.33 $2,113.97
3920.59.19 - - - - Other $25,831.33 $2,105.25
3920.59.90 - - - Other $25,831.33 $2,105.25
3920.94.91 - - - - Plates and sheets $2,753.83 $261.61
3920.94.99 - - - - Other $4,047.17 $384.48
3920.99.21 - - - - Plates and sheets $14,321.33 $86.64
3920.99.29 - - - - Other $14,105.00 $85.34
3920.99.31 - - - - Plates and sheets $14,105.00 $85.34
3920.99.39 - - - - Other $14,105.00 $85.34
3920.99.90 - - - Other $31,008.00 $187.60
3923.50.00 - Stoppers, lids, caps and other closures $815,549.33 $67,282.82
4008.11.90 - - - Other $10,545.00 $26.36
4008.19.00 - - Other $98,374.00 $245.94
4008.21.30 - - - Water stop $143,396.11 $358.49
4008.21.40 - - - Rubber soling sheet $128,004.44 $320.01
4008.21.90 - - - Other $266,795.11 $666.99
4008.29.00 - - Other $44,140.67 $110.35
4115.10.00 - Composition leather with a basis of leather or leather fibre, in slabs, sheets or strip, whether or not in rolls $26,109.00 $104.44
4202.21.00 - - With outer surface of leather or of composition leather $6,546.00 $310.94
4202.22.00 - - With outer surface of sheeting of plastics or of textile materials $13,582.00 $645.15
4202.29.00 - - Other $50,494.00 $2,398.47
4202.32.00 - - With outer surface of sheeting of plastics or of textile materials $5,180.00 $246.05
4202.92.10 - - - Toiletry bags, of sheeting of plastics $665.33 $31.60
4203.10.00 - Articles of apparel $6,709.33 $318.69
4203.29.10 - - - Protective work gloves $21,157.67 $1,004.99
4205.00.20 - Industrial safety belts and harnesses $49,665.33 $2,359.10
4205.00.90 - Other $1,213.33 $57.63
4415.10.00 - Cases, boxes, crates, drums and similar packings; cable-drums $140,435.67 $351.09
4415.20.00 - Pallets, box pallets and other load boards; pallet collars $67,545.33 $168.86
6101.20.00 - Of cotton $510.67 $24.26
6102.20.00 - Of cotton $122.67 $5.83
6103.22.00 - - Of cotton $907.33 $43.10
6103.32.00 - - Of cotton $52.33 $2.49
6103.42.00 - - Of cotton $237.67 $11.29
6104.32.00 - - Of cotton $112.33 $5.34
6104.42.00 - - Of cotton $707.00 $33.58
6104.52.00 - - Of cotton $5.00 $0.24
6104.62.00 - - Of cotton $295.33 $14.03
6105.10.00 - Of cotton $583.33 $27.71
6106.10.00 - Of cotton $310.67 $14.76
6107.11.00 - - Of cotton $80.33 $3.82
6108.19.30 - - - Of cotton $12.33 $0.59
6108.21.00 - - Of cotton $127.00 $6.03
6108.31.00 - - Of cotton $73.67 $3.50
6109.10.10 - - For men or boys $20,166.33 $957.90
6109.10.20 - - For women or girls $3,333.67 $158.35
6110.20.00 - Of cotton $82,994.67 $3,942.25
6111.20.00 - Of cotton $46.00 $2.19
6114.20.00 - Of cotton $1,572.00 $74.67
6115.29.90 - - - Other $354.33 $8.86
6117.10.10 - - Of cotton $64.00 $3.04
6201.12.00 - - Of cotton $57.00 $2.71
6203.19.19 - - - - Other $319.00 $15.15
6203.32.90 - - - Other $2.00 $0.10
6203.42.90 - - - Other $30,488.00 $1,448.18
6204.12.90 - - - Other $1,098.00 $52.16
6204.22.90 - - - Other $67.67 $3.21
6204.32.90 - - - Other $480.67 $22.83
6204.42.90 - - - Other $1,200.67 $57.03
6204.52.90 - - - Other $206.67 $9.82
6204.62.00 - - Of cotton $151.67 $7.20
6205.20.20 - - Barong Tagalog $1,848.83 $87.82
6205.20.90 - - Other $3,426.17 $162.74
6206.30.90 - - Other $666.67 $31.67
6207.91.00 - - Of cotton $89.00 $4.23
6208.91.10 - - - Printed by traditional batik process $41.33 $1.96
6208.91.90 - - - Other $41.33 $1.96
6209.20.30 - - T-shirts, shirts, pyjamas and similar articles $712.00 $33.82
6209.20.40 - - Suits, pants and similar articles $107.33 $5.10
6209.20.90 - - Other $235.33 $11.18
6211.32.90 - - - Other $241.67 $11.48
6211.42.90 - - - Other $140.67 $2.67
6212.10.19 - - - Other $113.67 $5.40
6213.20.90 - - Other $126.33 $6.00
6304.11.00 - - Knitted or crocheted $170.00 $8.08
6309.00.00 Worn clothing and other worn articles. $35,997.00 $1,709.86
6504.00.00 Hats and other headgear, plaited or made by assembling strips of any material, whether or not lined or trimmed. $3,245.00 $154.14
7101.10.00 - Natural pearls $495.67 $0.00
7101.22.00 - - Worked $34,222.33 $0.00
7117.19.20 - - - Other imitation jewellery $32,085.67 $1,524.07
7117.19.90 - - - Parts $2,349.00 $111.58
7208.10.00 - In coils, not further worked than hot-rolled, with patterns in relief $199.67 $4.74
7208.26.00 - - Of a thickness of 3 mm or more but less than 4.75 mm $7,682.67 $182.46
7208.27.11 - - - - Containing by weight 0.6 % or more of carbon $433.83 $10.30
7208.27.19 - - - - Other $433.83 $10.30
7208.40.00 - Not in coils, not further worked than hot-rolled, with patterns in relief $29,645.33 $704.08
7208.51.00 - - Of a thickness exceeding 10 mm $313,741.00 $14,902.70
7208.52.00 - - Of a thickness of 4.75 mm or more but not exceeding 10 mm $138,019.67 $3,277.97
7208.53.00 - - Of a thickness of 3 mm or more but less than 4.75 mm $50,690.00 $2,407.78
7208.90.10 - - Corrugated $756.89 $17.98
7208.90.20 - - Other, containing by weight less than 0.6 % of carbon and of a thickness of 0.17 mm or less $756.89 $17.98
7208.90.90 - - Other $756.89 $17.98
7210.49.11 - - - - Coated with zinc by the iron-zinc alloyed coating method, containing by weight less than 0.04 % of carbon and of a thickness not exceeding 1.2 mm $65.33 $2.04
7211.13.11 - - - - Hoop and strip; universal plates $57.00 $1.35
7211.14.13 - - - - Hoop and strip; universal plates $7,437.90 $353.30
7211.14.15 - - - - Coils for re-rolling $795.90 $37.81
7211.14.19 - - - - Other $795.90 $37.81
7211.14.91 - - - - Hoop and strip; universal plates $1,068.90 $50.77
7211.14.92 - - - - Corrugated $795.90 $37.81
7211.14.93 - - - - Coils for re-rolling $795.90 $37.81
7211.14.99 - - - - Other $795.90 $37.81
7211.19.13 - - - - Hoop and strip; universal plates $2,080,541.50 $98,825.72
7211.19.91 - - - - Hoop and strip; universal plates $1,385,339.83 $65,803.64
7214.91.19 - - - - Other $1,789.00 $84.98
7214.91.21 - - - - Containing by weight less than 1.15 % of manganese $135,734.83 $6,447.40
7214.91.29 - - - - Other $150,282.50 $7,138.42
7214.99.19 - - - - Other $233.00 $11.07
7214.99.91 - - - - Containing by weight less than 0.38 % of carbon, not more than 0.05 % of phosphorus and not more than 0.05 % of sulphur $797.00 $37.86
7214.99.92 - - - - Containing by weight 0.38 % or more of carbon and less than 1.15 % of manganese $797.00 $37.86
7214.99.93 - - - - Containing by weight 0.17 % or more but less than 0.46 % of carbon and 1.2 % or more but less than 1.65 % of manganese $797.00 $37.86
7214.99.99 - - - - Other $4,436.67 $210.74
7216.10.00 - U, I or H sections, not further worked than hot-rolled, hot-drawn or extruded, of a height of less than 80 mm $85,871.67 $4,078.90
7216.21.10 - - - Containing by weight less than 0.6 % of carbon $55,262.17 $2,624.95
7216.21.90 - - - Other $39,869.17 $1,893.79
7216.31.10 - - - Containing by weight 0.6 % or more of carbon $85,069.50 $4,040.80
7216.31.90 - - - Other $50,896.17 $2,417.57
7216.33.11 - - - - Thickness of the flange not less than thickness of the web $77.56 $3.68
7216.33.19 - - - - Other $77.56 $3.68
7216.33.90 - - - Other $187,240.22 $8,893.91
7216.40.10 - - Containing by weight 0.6 % or more of carbon $24,871.00 $1,181.37
7216.40.90 - - Other $31,429.00 $1,492.88
7216.50.91 - - - Containing by weight 0.6 % or more of carbon $5,314.83 $252.45
7216.50.99 - - - Other $13,491.50 $640.85
7301.20.00 - Angles, shapes and sections $6,646.33 $315.70
7303.00.11 - - Hubless tubes and pipes $417.00 $18.77
7303.00.19 - - Other $101,049.33 $4,799.84
7303.00.99 - - Other $33,864.33 $1,608.56
7304.22.90 - - - Other $25,455.67 $1,209.14
7304.23.90 - - - Other $404,678.00 $19,222.21
7305.90.00 - Other $176,670.67 $530.01
7306.61.90 - - - Other $438,304.33 $1,314.91
7310.10.99 - - - Other $178,028.33 $534.09
7310.29.10 - - - Of a capacity of less than 1 l $4,581.33 $13.74
7310.29.99 - - - - Other $40,446.67 $121.34
7311.00.29 - - Other $886.33 $39.89
7311.00.94 - - Of a capacity of 30 l or more, but less than 110 l $2,879.67 $136.78
7311.00.99 - - Other $47,146.00 $2,239.44
7312.10.10 - - Locked coils, flattened strands and non-rotating wire ropes $22,826.00 $1,084.24
7312.10.20 - - Plated or coated with brass and of a diameter not exceeding 3 mm $1,630.67 $77.46
7312.10.91 - - - Stranded steel wires for prestressing concrete $176,099.00 $4,182.35
7312.10.99 - - - Other $5,902,463.67 $125,427.35
7312.90.00 - Other $2,492,605.33 $112,167.24
7314.20.00 - Grill, netting and fencing, welded at the intersection, of wire with a maximum cross-sectional dimension of 3 mm or more and having a mesh size of 100 cm2 or more $13,148,150.67 $558,796.40
7314.31.00 - - Plated or coated with zinc $3,062,375.67 $145,462.84
7314.39.00 - - Other $63,367.00 $2,693.10
7314.49.00 - - Other $260,065.33 $12,353.10
7315.11.99 - - - - Other $219,686.33 $1,098.43
7315.81.00 - - Stud-link $14,139.67 $600.94
7315.82.00 - - Other, welded link $82,012.00 $3,895.57
7318.11.00 - - Coach screws $3,431.00 $162.97
7318.12.10 - - - Having a shank of an external diameter not exceeding 16 mm $869.00 $41.28
7318.12.90 - - - Other $1,084.67 $51.52
7318.13.00 - - Screw hooks and screw rings $21,859.33 $1,038.32
7318.14.10 - - - Having a shank of an external diameter not exceeding 16 mm $28,339.67 $1,346.13
7318.14.90 - - - Other $34,354.67 $1,631.85
7318.19.10 - - - Having a shank of an external diameter not exceeding 16 mm $970,671.67 $46,106.90
7318.19.90 - - - Other $1,070,838.33 $50,864.82
7318.21.00 - - Spring washers and other lock washers $66,167.67 $3,142.96
7318.22.00 - - Other washers $1,143,066.67 $54,295.67
7318.23.10 - - - Having an external diameter not exceeding 16 mm $21,093.83 $1,001.96
7318.23.90 - - - Other $26,428.50 $1,255.35
7318.24.00 - - Cotters and cotter-pins $1,043,456.00 $49,564.16
7319.40.10 - - Safety pins $267,401.00 $12,701.55
7319.40.20 - - Other pins $396,820.33 $18,848.97
7320.10.11 - - - Suitable for use on motor vehicles of heading 87.02, 87.03 or 87.04 $548,537.33 $2,742.69
7320.10.12 - - - Suitable for use on other motor vehicles $85,367.50 $426.84
7320.10.19 - - - Other $95,366.83 $476.83
7320.10.90 - - Other $137,509.67 $687.55
7320.20.11 - - - For motor vehicles $8,950.56 $44.75
7320.20.12 - - - For earth-moving machinery $5,452.22 $27.26
7320.20.19 - - - Other $19,711.56 $98.56
7320.20.90 - - Other $445,647.67 $2,228.24
7403.11.00 - - Cathodes and sections of cathodes $91,613,378.00 $3,252,274.92
8203.10.00 - Files, rasps and similar tools $48,675.33 $730.13
8402.20.20 - - Not electrically operated $70,606.67 $3,353.82
8404.10.19 - - - Other $11,605.00 $220.50
8407.34.71 - - - - - Of a cylinder capacity not exceeding 2,000 cc $271.00 $1.36
8407.34.72 - - - - - Of a cylinder capacity exceeding 2,000 cc but not exceeding 3,000 cc $666.67 $3.33
8407.34.73 - - - - - Of a cylinder capacity exceeding 3,000 cc $99,298.33 $496.49
8407.34.95 - - - - - Of a cylinder capacity exceeding 2,000 cc but not exceeding 3,000 cc $10,310.33 $51.55
8407.90.10 - - Of a power not exceeding 18.65 kW $6,997.33 $27.99
8408.90.99 - - - Other $1,199,954.00 $35,998.62
8413.19.10 - - - Electrically operated $640,506.67 $24,339.25
8413.19.20 - - - Not electrically operated $566,415.67 $21,523.80
8413.60.31 - - - Electrically operated $261.33 $1.57
8413.60.32 - - - Not electrically operated $125,957.33 $897.45
8413.60.40 - - Water pumps, with a flow rate exceeding 8,000 m3/h but not exceeding 13,000 m3/h $506.67 $3.04
8413.60.90 - - Other $725,838.33 $4,355.03
8413.81.13 - - - Water pumps with a flow rate not exceeding 8,000 m3/h, electrically operated $37,923.33 $720.54
8413.81.15 - - - Water pumps, with a flow rate exceeding 8,000 m3/h but not exceeding 13,000 m3/h $70,857.33 $1,346.29
8413.81.19 - - - Other $3,584,391.33 $68,103.44
8413.82.10 - - - Electrically operated $561,538.33 $21,338.46
8415.10.90 - - Other $234.33 $11.13
8415.90.13 - - - Of a kind used in aircraft or railway rolling stock $3,003.79 $12.02
8415.90.14 - - - Evaporators or condensers for air-conditioning machines for motor vehicles $33,421.05 $1,270.00
8415.90.19 - - - Other $33,375.12 $66.75
8415.90.24 - - - - Of a kind used in aircraft or railway rolling stock $3,003.79 $12.02
8415.90.25 - - - - Other $8,745.83 $332.34
8415.90.26 - - - - Of a kind used in aircraft or railway rolling stock $3,003.79 $114.14
8415.90.29 - - - - Other $19,833.83 $753.69
8415.90.34 - - - - Of a kind used in aircraft or railway rolling stock $3,003.79 $114.14
8415.90.35 - - - - Other $10,932.83 $415.45
8415.90.36 - - - - Of a kind used in aircraft or railway rolling stock $3,003.79 $114.14
8415.90.39 - - - - Other $7,546.50 $286.77
8415.90.44 - - - - Of a kind used in aircraft or railway rolling stock $3,003.79 $12.02
8415.90.45 - - - - Other $7,815.50 $107.23
8415.90.46 - - - - Of a kind used in aircraft or railway rolling stock $3,003.79 $12.02
8415.90.49 - - - - Other $307,363.50 $4,217.03
8418.10.11 - - - Of a capacity not exceeding 230 l $232.00 $11.02
8418.21.10 - - - Of a capacity not exceeding 230 l $5,579.67 $265.03
8418.61.00 - - Heat pumps other than air conditioning machines of heading 84.15 $1,006,507.67 $6,039.05
8418.69.10 - - - Beverage coolers $769.00 $3.08
8419.31.40 - - - Other, electrically operated $30,956.67 $220.57
8419.50.92 - - - Not electrically operated $215,216.67 $860.87
8419.81.10 - - - Electrically operated $88,872.33 $2,110.72
8424.10.90 - - Other $11,086.33 $526.60
8424.20.11 - - - Agricultural or horticultural $39,192.33 $195.96
8424.20.19 - - - Other $348,114.33 $16,535.43
8424.20.21 - - - Agricultural or horticultural $18,549.33 $46.37
8424.20.29 - - - Other $46,361.33 $2,202.16
8426.12.00 - - Mobile lifting frames on tyres and straddle carriers $528,210.33 $23,769.47
8426.49.00 - - Other $9,458.33 $224.64
8427.20.00 - Other self-propelled trucks $312,794.00 $11,886.17
8427.90.00 - Other trucks $313,061.00 $11,896.32
8428.10.40 - - Skip hoists $8,195.67 $20.49
8429.19.00 - - Other $4,442.33 $22.21
8429.20.00 - Graders and levellers $33,178.00 $165.89
8429.40.40 - - Vibratory smooth drum rollers, with a centrifugal force drum not exceeding 20 t by weight $5,336.00 $253.46
8429.40.50 - - Other vibratory road rollers $108,206.67 $5,139.82
8429.40.90 - - Other $972.67 $46.20
8429.51.00 - - Front-end shovel loaders $391,796.67 $18,610.34
8429.52.00 - - Machinery with a 360° revolving superstructure $234,579.67 $11,142.53
8429.59.00 - - Other $413,267.33 $2,066.34
8431.39.10 - - - Of goods of subheading 8428.20.10, 8428.32.10, 8428.33.10 or 8428.39.10 $134,790.92 $6,065.59
8431.39.40 - - - Of automated machines for the transport, handling and storage of printed circuit boards, printed wiring boards or printed circuit assemblies $29,888.07 $709.84
8431.39.50 - - - Other, of goods of subheading 8428.90 $9,435.40 $424.59
8431.39.90 - - - Other $5,352,082.25 $53,953.58
8432.29.00 - - Other $49,695.67 $2,236.31
8437.80.20 - - Rice hullers and cone type rice mills, not electrically operated $390.00 $55.58
8437.80.40 - - Industrial type coffee and corn mills, not electrically operated $60.33 $8.60
8437.90.19 - - - Other $2,958.67 $23.33
8437.90.29 - - - Other $218.33 $1.72
8481.80.22 - - - Having inlet or outlet internal diameters exceeding 2.5 cm $2,402.33 $6.01
8484.90.00 - Other $1,389,520.00 $52,801.76
8487.10.00 - Ships' or boats' propellers and blades therefor $99,386.00 $3,776.67
8487.90.00 - Other $148,147.56 $1,752.52
8501.10.49 - - - - Other $62,529.00 $2,376.10
8501.20.29 - - - Other $38,139.33 $1,811.62
8501.31.30 - - - Motors of a kind used for the goods of heading 84.15, 84.18, 84.50, 85.09 or 85.16 $5,977.67 $283.94
8501.31.40 - - - Other motors $547,551.33 $26,008.69
8501.40.21 - - - Of a kind used for the goods of heading 84.15, 84.18, 84.50, 85.09 or 85.16 $1,221.33 $58.01
8501.40.29 - - - Other $30,244.67 $1,436.62
8501.53.00 - - Of an output exceeding 75 kW $1,002,513.33 $47,619.38
8502.11.00 - - Of an output not exceeding 75 kVA $121,163.00 $5,755.24
8502.39.20 - - - Of an output exceeding 10 kVA but not exceeding 10,000 kVA $13,567.67 $33.92
8504.22.93 - - - - Of a high side voltage of 66 kV or more, but less than 110 kV $290.33 $1.74
8504.22.99 - - - - Other $794.67 $4.77
8525.80.31 - - - Of a kind used in broadcasting $490.33 $23.29
8525.80.39 - - - Other $218,219.67 $10,365.43
8528.49.10 - - - Colour $15,742.17 $747.75
8528.59.10 - - - Colour $103,842.33 $4,932.51
8528.69.10 - - - Having the capability of projecting onto a screen diagonally measuring 300 inches or more $4,362.67 $207.23
8528.69.90 - - - Other $8,659.83 $411.34
8528.71.99 - - - - Other $3,689.00 $87.61
8528.72.92 - - - - Liquid crystal devices (LCD), light-emitting diodes (LED) and other flat panel display type $38,804.67 $1,843.22
8528.72.99 - - - - Other $105,801.33 $5,025.56
8536.70.10 - - Of ceramics $353.67 $8.40
8536.70.20 - - Of copper $1,062.00 $25.22
8536.70.90 - - Other $394,032.00 $9,358.26
8537.10.11 - - - Control panels of a kind suitable for use in distributed control systems $297,629.67 $11,309.93
8537.10.12 - - - Control panels fitted with a programmable processor $96,740.00 $3,676.12
8537.10.13 - - - Other control panels of a kind suitable for goods of heading 84.15, 84.18, 84.50, 85.08, 85.09 or 85.16 $379.00 $14.40
8537.10.19 - - - Other $827,659.00 $31,451.04
8537.10.20 - - Distribution boards (including back panels and back planes) for use solely or principally with goods of heading 84.71, 85.17 or 85.25 $577,610.00 $3,465.66
8537.20.21 - - - Incorporating electrical instruments for breaking, connecting or protecting electrical circuits for a voltage of 66 kV or more $17,736.00 $70.94
8537.20.29 - - - Other $254,168.67 $1,016.67
8537.20.90 - - Other $2,737,273.33 $104,016.39
8703.23.57 - - - - - Of a cylinder capacity exceeding 2,000 cc but not exceeding 2,500 cc $27,314.00 $68.29
8703.23.64 - - - - - Of a cylinder capacity exceeding 2,500 cc $9,089.89 $22.72
8703.33.62 - - - - - Of a cylinder capacity exceeding 3,000 cc $2,195.56 $65.87
8703.33.72 - - - - - Of a cylinder capacity exceeding 3,000 cc $2,195.56 $65.87
8703.40.76 - - - - Of a cylinder capacity exceeding 2,500 cc but not exceeding 3,000 cc $9,089.89 $22.72
8703.40.77 - - - - Of a cylinder capacity exceeding 3,000 cc $17,132.33 $331.23
8703.40.96 - - - - Of a cylinder capacity exceeding 2,500 cc but not exceeding 3,000 cc $59,962.67 $1,077.33
8703.50.67 - - - - Of a cylinder capacity exceeding 3,000 cc $2,195.56 $46.82
8703.50.77 - - - - Of a cylinder capacity exceeding 3,000 cc $2,195.56 $46.82
8703.60.76 - - - - Of a cylinder capacity exceeding 2,500 cc but not exceeding 3,000 cc $9,089.89 $22.72
8703.60.96 - - - - Of a cylinder capacity exceeding 2,500 cc but not exceeding 3,000 cc $59,962.67 $1,077.33
8703.70.67 - - - - Of a cylinder capacity exceeding 3,000 cc $2,195.56 $46.82
8703.70.77 - - - - Of a cylinder capacity exceeding 3,000 cc $2,195.56 $46.82
8704.31.29 - - - - Other $12,494.33 $224.90
8707.10.90 - - Other $8.67 $0.13
8707.90.40 - - Driver's cabin for dumpers designed for off-highway use $26,852.50 $88.61
8707.90.90 - - Other $29,974.50 $296.75
8708.29.15 - - - - Door armrests for vehicles of heading 87.03 $7,273.17 $36.37
8708.29.16 - - - - Other, for vehicles of heading 87.03 $6,473.83 $32.37
8708.29.17 - - - - For vehicles of subheading 8704.10 $76,866.00 $384.33
8708.29.18 - - - - For vehicles of heading 87.02 or other vehicles of heading 87.04 $41,246.33 $206.23
8708.29.19 - - - - Other $56,258.67 $281.29
8708.29.93 - - - - - Interior trim fittings; mudguards $3,615.00 $18.08
8708.29.95 - - - - - Other $179,567.33 $897.84
8708.29.96 - - - - - Interior trim fittings; mudguards $131.33 $0.66
8708.29.98 - - - - - Other $104,472.33 $522.36
8708.29.99 - - - - Other $1,130,524.67 $5,652.62
8708.30.21 - - - Brake drums, brake discs or brake pipes $172,065.00 $860.33
8708.30.29 - - - Other $960,720.33 $4,803.60
8708.50.11 - - - For vehicles of heading 87.03 $28,589.67 $142.95
8708.93.70 - - - For vehicles of heading 87.04 or 87.05 $6,778.67 $33.89
8708.93.90 - - - Other $786,236.67 $3,931.18
8715.00.00 Baby carriages and parts thereof. $901.67 $4.51
9403.90.90 - - Other $212.00 $8.06
9603.50.00 - Other brushes constituting parts of machines, appliances or vehicles $50,078.67 $2,378.74
9619.00.99 - - Other $589.67 $28.01
Total $923,408,383.47 $23,657,469.93

TRQ 1: Live cattle

1. Indonesia has committed to a quota for Live bovine animals - Other than pure-bred breeding animals - Male cattle - Other than oxen (Indonesia HS Code 0102.29.19) that increases from 575,000 to 700,000 over the first five years of the Agreement. During the sixth year of the Agreement, both Parties will review the implementation of the TRQ.

2. For cattle exported within the quota, these imports will receive duty free access. For imports outside the quota, the tariff is set at 2.5 per cent.

3. As a comparison, the AANZFTA rate currently being applied is 5 per cent, being reduced to 2.5 percent in 2025, while the MFN rate faced by these exports is 5 per cent.

4. Given the trade value and volumes below, Australia exporters are expected to benefit greatly from the certainty in volumes provided by the IA-CEPA as well as the reduction in tariff.

5. Should Australia fill the quota in the first year, even at the conservative unit price of 2018 YTD below, exporters would be not be met with A$29.8 million in tariffs.

6. By the sixth year of the Agreement, and using the same unit price, Australian exports of live male cattle will avoid A$38.9 million dollars in tariffs if the quota is fully utilised.

7. This works out to be a saving in the order of A$200 million over 6 years on Australian exports to Indonesia worth A$4.0 billion.

8. In order to claim the preferences under the Agreement, the exporter needs to be able to demonstrate that the cattle are Wholly Produced or Obtained, that is, the animal is born and raised in Australia.

2015 2016 2017 2018 YTD [13]
Breeder (number) 1,947 1,000 2,385 2,765
Feeder (number) 565,653 593,881 498,511 410,870
Prod Heifer Indonesia (number) 3,111
Productive (number) 21,823 11,975 4,473
Slaughter (number) 42,447 4,163
Total (number) 613,158 616,704 512,871 422,271
Total value of Exports (A$ million) from Australia to Indonesia 544.46 688.77 578.48 438.30
Average unit price (A$ per cattle) 887.96 1,116.85 1,127.92 1,037.95
Volume male cattle imported by Indonesia (kg)[14] 191.07 186.10 136.83 122.70
Average size of feeder cattle (kg each) 337.79 313.36 274.47 298.65

Table 6 - Australian exports of live cattle to Indonesia

Source:
http://www.agriculture.gov.au/export/controlled-goods/live-animals/live-animal-export-statistics/livestock-exports-by-market

TRQ 2: Potatoes

9. Indonesia has committed to a quota for potatoes - other than seed potatoes and granola, median, nadia and blis potatoes (Indonesia HS Code 0701.10.10 and 0701.90.10) that increases from 10,000 tonnes to 12,500 in the sixth year of the Agreement. The volume of the quota will continue to grow at 2.5 per cent each year thereafter.

10. The in-quota tariff will start at 10 per cent and reduce to 5 per cent in year six. The out of quota tariff rate will be the AANZFTA rate, which is currently 25 per cent, falling to 18.75 per cent in 2025. As of 2017, the MFN rate is 20 per cent, and this would apply where the out of quota tariff was higher.

11. While the overall value of the market for potatoes into Indonesia is relatively constrained, Australia is a major supplier in to Indonesia.

12. Should Australia fill the quota in the first year, even at the unit price of 2018 YTD below, exporters would save 10 per cent, the difference between the MFN and the IA-CEPA Tariff Rate. This would result in a reduction in tariffs of over $750,000.

13. After year six, with the volume increasing and the tariff further decreasing, imports of Australian Potatoes into Indonesia would face a 5 per cent IA-CEPA tariff, as opposed to the 18.75 per cent AANZFTA rate. This would result in a reduction in tariffs of over $1.3 million should the quota be filled.

14. The annual increase in the quota would further increase the benefits with tariffs of A$1.5 million saved in 2030

15. Over the first six years tariffs of A$5.2 million dollars would be avoided on A$48.2 million of exports.

2015 2016 2017 2018 YTD [15]
Value of potatoes exported from Australia to Indonesia (A$) 822,918 3,025,476 2,128,117 1,355,723
Volume of Potatoes exported from Australia to Indonesia (Tonnes) 1,265 4,319 2,875 1,756
Average unit price Australia to Indonesia (A$ per Tonne) 650.53 700.50 740.21 772.05
Value Potatoes imported by Indonesia from World (US$)[16] 3,058,457.37 2,750,621.70 2,896,017.72 1,974,723.50
Volume Potatoes imported by Indonesia (Tonne)[17] 5,484.31 4,307.13 3,928.74 2,870.69
Average unit price Indonesia from World (US$ per Tonne) 887.96 1,116.85 1,127.92 1,037.95

TRQ 3: Carrots

16. Indonesia has committed to a quota for carrots (Indonesia HS Code 0706.10.10) that increases from 5,000 tonnes to 7,500 in the sixth year of the Agreement further increasing to 10,000 in the eleventh year of the agreement. The quota will be eliminated in the sixteenth year, with all imports from Australia being eligible for duty free treatment.

17. The in-quota tariff will start at 12.5 per cent and reduce to 10 per cent in year six before being eliminated in year 11. The out of quota tariff rate will be the 12.5 per cent, half the current AANZFTA and MFN rate which is 25 per cent. The out of quota rate will reduce to 10 percent in year 6, when the AANZFTA rate is 12.5 percent. Finally the out of quota rate falls to 7.5 per cent in year 11, and is eliminated in year 16.

18. Should Australia fill the quota in the first year, at the unit price of 2016 (the last year with significant trade) below, exporters would save 15 per cent, the difference between the AANZFTA/MFN and the IA-CEPA Tariff Rate. This would result in a reduction in tariffs of nearly A$900,000.

19. After year six, with the volume increasing and the tariff further decreasing, imports of Australian carrots into Indonesia would face a 5 per cent IA-CEPA tariff, as opposed to the 12.5 per cent AANZFTA rate. This would result in a reduction in tariffs of over $650,000 should the quota be filled. This is when compared to AANZFTA, when compared with the MFN rate, the annual reduction in tariff is over A$1.3 million.

20. The increase in the quota in year 11 and elimination of the in-quota tariff, would further increase the benefits with tariffs of nearly A$1.5 million saved in when compared with using AANZFTA. In comparison to the MFN rate, the annual reduction in tariff would be over A$2.0 million

21. Over the fifteen years tariffs of A$15.0 million dollars would be avoided in comparison to AANZFTA, and A$21.2 million in comparison to the MFN rate, on A$131.7 million of exports.

2015 2016 2017 2018 YTD [18]
Value of Carrots exported from Australia to Indonesia (A$) 612,609.00 2,645,409.00 43,641.00 1,174.00
Volume of Carrots exported from Australia to Indonesia (Tonnes) 211.31 2,259.36 1.57 0.59
Average unit price Australia to Indonesia (A$ per Tonne) 2,899.10 1,170.87 27,743.80 1,993.21
Value Carrots imported by Indonesia from World (US$)[19] 3,058,457.37 2,750,621.70 2,896,017.72 1,974,723.50
Volume Carrots imported by Indonesia (Tonne)[20] 5,484.31 4,307.13 3,928.74 2,870.69
Average unit price Indonesia from World (US$ per Tonne) 887.96 1,116.85 1,127.92 1,037.95

TRQ 5: Mandarins, Clementines, Wilkings and similar citrus hybrids

22. Indonesia has committed to a quota for Mandarins, Clementines, Wilkings and similar citrus hybrids (Indonesia HS Code 0805.21.00, 0805.22.00 and 0805.29.00) that increases from 7,500 tonnes to 10,000 in the sixteenth year of the Agreement. From the twenty first year imports will be quota and duty free.

23. The in-quota tariff will start at 10 per cent and reduce to 5 per cent in year eleven before being eliminated.in the Sixteenth year. The out of quota tariff rate will be 18.75%, lower than the AANZFTA rate, which is currently 25 per cent and falling to falling to 18.75 per cent in 2025. The out of quota rate will be reduced to 10 per cent in the 11th year and further reduced to 5 per cent in the sixteenth year. As of 2017, the MFN rate is 20 per cent which is lower than the current AANZFTA rate.

24. Should Australia fill the quota in the first year, even at the unit price of 2018 YTD below, exporters would save 10 per cent, the difference between the MFN and the IA-CEPA Tariff Rate. This would result in a reduction in tariffs of nearly A$1.3 million.

25. By the twentieth year, with the volume increasing and the tariff further decreasing, imports of Australian mandarins, etc into Indonesia would be duty free, as opposed to the 18.75 per cent AANZFTA rate. This would result in a reduction in tariffs of nearly A$3.2 million should the quota be filled.

26. Over twenty years, Australia exports of tariffs of Mandarins, Clementines, Wilkings and similar citrus hybrids would avoided tariffs worth A$36.9 million dollars on A$275.3 million of exports.

2015 2016 2017 2018 YTD [21]
Value of mandarins etc. exported from Australia to Indonesia (A$) 6,926,117 9,632,762 6,989,946 4,286,708
Volume of mandarins etc. exported from Australia to Indonesia (Tonnes) 4,183 4,870 3,298 2,530
Average unit price Australia to Indonesia (A$ per Tonne) 1655.94 1977.89 2119.55 1694.39
Value Potatoes imported by Indonesia from World (US$)[22] 104,069,655 51,319,036 104,213,564 60,753,598
Volume Potatoes imported by Indonesia (Tonne)[23] 82,313 39,561 77,009 42,586
Average unit price Indonesia from World (US$ per Tonne) 1264.31 1297.21 1353.27 1426.62

ATTACHMENT 5 - DFAT STAKEHOLDERS CONSULTATIONS

1. ACIL Tasman

2. AGR Matthey

3. ANZ

4. Apple and Pear Australia

5. Architects Accreditation Council of Australia

6. Australia Indonesia Business Council

7. Australia-ASEAN Business Council

8. Australian Aluminium Council

9. Australian Bankers Association

10. Australian Chamber of Commerce & Industry

11. Australian Council for International Development

12. Australian Council for Private Education and Training

13. Australian Council of Trade Unions

14. Australian Council of Wool Exporters and Processors / Private Treaty Wool Merchants of Australia

15. Australian Dairy Farmers

16. Australian Digital Alliance

17. Australian Distillers Association

18. Australian Fair Trade and Investment Network

19. Australian Fodder Industry Association Ltd

20. Australian Food & Grocery Council

21. Australian Forest Products Association

22. Australian Home Entertainment Distributors' Association

23. Australian Horticultural Exporters' Association

24. Australian Industry Group

25. Australian Information Industry Association

26. Australian Institute of Architects

27. Australian Livestock Exporters' Council

28. Australian Manufacturing Workers' Union

29. Australian Meat Industry Council

30. Australian Medical Services

31. Australian Nursing and Midwifery Accreditation Council

32. Australian Peak Shippers Association

33. Australian Petroleum Production & Exploration Association

34. Australian Pharmacy Council

35. Australian Pork Limited

36. Australian Recording Industry Association

37. Australian Services Roundtable

38. Australian Steel Association

39. Australian Steel Institute

40. Australian Sugar Industry Alliance

41. Australian Sugar Milling Council

42. Australian Wool Innovation Limited

43. Ausveg

44. BlueScope

45. BMW Group Australia

46. Business Council of Australia

47. Campbell Bridge SC

48. Canegrowers

49. Cattle Council of Australia

50. Chamber of Commerce and Industry WA

51. Citrus Australia

52. Coca-Cola Amatil

53. Coca-Cola Amatil Indonesia

54. Commonwealth Bank of Australia

55. Communications Alliance

56. Compassion in World Farming

57. Complementary Medicines Australia

58. Consult Australia

59. Copyright Agency Limited

60. Cotton Australia

61. Customs Brokers and Forwarders Council of Australia Inc.

62. Cycad International

63. D. Orriell Seed Exporters

64. Dairy Australia

65. Dairy Industry Association of Australia

66. Dairy Trade Reference Group

67. Department of Agriculture and Food: WA Government

68. Distilled Spirits Industry Council of Australia

69. Electronic Frontiers Australia Inc.

70. Export Council of Australia

71. Federal Chamber of Automotive Industries

72. Financial Sector Union

73. Financial Services Council

74. First State Investments

75. Fisheries Research and Development Corporation

76. Food and Beverage Importers Association

77. Food Innovation Australia Limited

78. Ford Motor Company of Australia

79. Freight & Trade Alliance

80. Future Fund

81. Generic and Biosimilar Medicines Association

82. GM Holden Ltd

83. Government of Western Australia

84. Grain Growers Australia

85. Grains Industry Market Access Forum

86. Group of Eight

87. Horticulture Innovation Australia

88. Humane Society International

89. Indonesia-Australia Business Partnership Group

90. Institute of Public Accountants

91. Institute of Public Accountants

92. Insurance Council of Australia

93. International Education Association of Australia

94. International Legal Services Advisory Council

95. Law Council of Australia

96. Liberty OneSteel

97. Livecorp

98. Manufacturers Trade Alliance

99. Meat & Livestock Australia

100. Media, Entertainment and Arts Alliance

101. Minerals Council of Australia

102. Monash University

103. Motion Picture Association of Australia

104. Music Council of Australia

105. National Farmers' Federation

106. National Farmers' Federation Trade Committee

107. Nursing and Midwifery Council

108. Oxiana

109. Perth USAsia Centre

110. Plantation Products and Paper Industry Council

111. PT ETI Fire Systems

112. Public Health Association of Australia

113. Qantas

114. Queensland Citrus Growers Association

115. Red Meat Advisory Council

116. RMIT University

117. Ronstan

118. Screen Australia

119. Selandia Baru Service

120. Sheep Producers Australia

121. South Australian Government

122. Standards Australia

123. Summerfruit Australia

124. SunRice

125. Sutherland Shire Environment Centre

126. Swisse Wellness

127. TAFE Directors Australia

128. TAFE NSW

129. TAFE Queensland

130. Telstra

131. Torrens University

132. Toyota

133. United Voice

134. Universities Australia

135. University of Sydney

136. Victorian Government

137. Visa

138. Vocus (Nextgen)

139. Weathertex

140. Wellard Rural Exports Limited

141. Wine Australia

142. Winemakers' Federation of Australia

143. World Society for the Protection of Animals

ATTACHMENT 6 - INDONESIA-AUSTRALIA BUSINESS PARTNERSHIP GROUP (IABPG)

Australian Members:

1. Australian Chamber of Commerce and Industry

2. Australia-Indonesia Business Council (AIBC)

3. Ai Group

IA-BPG-consulted Australian stakeholders:

1. Advisian Worley Parsons Group

2. AFS Intercultural Program Australia

3. Australia Indonesia Business Council

4. AIBC IA-CEPA Forum - Adelaide

5. AIBC IA-CEPA Forum - Brisbane

6. AIBC IA-CEPA Forum - Melbourne

7. AIBC IA-CEPA Forum - Perth

8. Air Asia X

9. ANZ

10. Australian Chamber of Commerce and Industry

11. Australian Sugar Industry Alliance

12. BlueScope

13. Chamber of Commerce of the Northern Territory

14. Charles Sturt University

15. Christian Teo and Partners

16. Darwin Port

17. Euromonitor

18. Export Council of Australia

19. GrainGrowers

20. International Energy Agency

21. Lowy Institute

22. Meat and Livestock Australia

23. Minor Hotels

24. Minter Ellison

25. National Farmers' Federation

26. Perth USAsia Centre

27. Standards Australia

ATTACHMENT 7 - ADDITIONAL REPORTS

Joint Standing Committee on Trade and Investment Growth (2017)

1. Inquiry into the growth potential in Australia's trade and investment relationship with Indonesia Leveraging our advantages
https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Trade_and_Investment_Growth/IndonesiaTrade/Report_1

Indonesia - Australia Business Partnership Group (2016)

2. Two Neighbours, Partners in Prosperity - Indonesia-Australia Business Partnership Group Submission towards the IA-CEPA
https://www.australianchamber.com.au/wp-content/uploads/2016/08/2016_ia-bpg_submissions_towards_the_ia-cepa-final_complete.pdf

Indonesia - Australia Business Partnership Group (2012)

3. Position Paper on Considerations towards the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA)
https://dfat.gov.au/trade/agreements/not-yet-in-force/iacepa/Documents/ia-bpg-position-paper.pdf

Centre for International Economics (2009)

4. Estimating the impact of an Australia-Indonesia trade and investment agreement
https://dfat.gov.au/trade/agreements/not-yet-in-force/iacepa/Documents/aus-indon_fta_cie.pdf

Department of Foreign Affairs and Trade, Australia and the Ministry of Trade, Republic of Indonesia (2007)

5. Australia - Indonesia Free Trade Agreement Joint Feasibility Study
https://dfat.gov.au/trade/agreements/not-yet-in-force/iacepa/Documents/aus-indon_fta_jfs.pdf

Attachment D AUSTRALIA-HONG KONG FREE TRADE AGREEMENT

ANALYSIS OF REGULATORY IMPACT ON AUSTRALIA

19 March 2019

PART 1: INTRODUCTION

1. This Analysis of Regulatory Impact on Australia (ARIA) relates to the Free Trade Agreement between Australia and Hong Kong, China (A-HKFTA) and the Investment Agreement between the Government of Australia and the Government of the Hong Kong Special Administrative Region of the People's Republic of China (Investment Agreement), both of which will be signed on 26 March 2019 in Sydney.

2. Negotiations on these two agreements commenced on 16 May 2017. Trade, Tourism and Investment Minister Simon Birmingham and Hong Kong's Secretary for Commerce and Economic Development Edward Yau issued a joint statement announcing the conclusion of the negotiations on 15 November 2018.

3. The FTA is accompanied by an Investment Agreement. This agreement terminates the existing Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments, which has been in place since 1993, replacing it with more modern investment protections. Hong Kong's status as a Special Administrative Region of the People's Republic of China means that the Hong Kong Government is required to consult with the Central People's Government on investment protections, which touch on sovereignty issues. For this reason, Hong Kong negotiates investment protection matters in a separate legal instrument alongside its FTAs.

PART 2: PROBLEM IDENTIFICATION

Hong Kong's economic outlook and Australia's economic relationship with Hong Kong

4. Like Australia, Hong Kong is a sophisticated services-oriented economy and a consumer market with a solid growth rate. Trade is of central importance to the Hong Kong economy: in 2017, goods and services trade in Hong Kong was worth US$1.3 trillion, about four times Hong Kong's GDP.[24] The services sector accounted for 92.4 per cent of Hong Kong's GDP in 2017, providing 88.2 per cent of its total employment in the first three quarters of 2018.[25]

Table 1: Economic indicators, Hong Kong, 2018
GDP US$360.3 billion GDP per capita US$48,231.3
Real GDP Growth 3.8 per cent Population (2017) 7.4 million
Source: DFAT Country Fact Sheet, Hong Kong - Special Administrative Region of the People's Republic of China

5. Hong Kong's "business friendly" regulatory framework, high-quality infrastructure and stable macroeconomic environment have underpinned the city's success as an international commercial hub. Hong Kong's economic outlook remains strong: the IMF has forecast solid growth of 2.9 per cent in 2019. Projected consumption and investment in Hong Kong are expected to remain robust, despite near-term global uncertainties including ongoing US-China trade tensions and the pace of growth in China.[26]

6. Australia supports the "one country two systems" framework, with Hong Kong enjoying a high degree of autonomy, including the right to enter into its own trade agreements. The rule of law, independent judiciary and freedoms that Hong Kong enjoys under the Basic Law are the foundations of its success. This is one reason why Hong Kong has the second largest concentration of Australians overseas after London (around 100,000) and Australia's largest commercial presence in Asia.

7. Hong Kong is a major export destination for Australian goods and services. In 2017-18, Hong Kong was Australia's sixth largest export market for goods and seventh largest export market for services.

8. Hong Kong is also a crucial investment partner for Australia. At the end of 2017, Hong Kong was the fifth largest source of foreign investment in Australia, and tenth largest destination for Australian investment abroad.[27] Table 2 illustrates the substantial value of Australia's trade and economic relationship with Hong Kong.

Table 2: Trade and Investment Relationship - Australia and Hong Kong, 2017-18
Two-way trade volume $18.8 billion Two-way trade rank 12th
Total exports to Hong Kong $14.5 billion Total exports rank 6th
Goods exports to Hong Kong $11.4 billion Goods imports from Hong Kong $1.1 billion
Services exports to Hong Kong $3.1 billion Services imports from Hong Kong $3.2 billion
Growth trend - exports (2013-2018) 6.5% Growth trend - imports (2013-2018) 3.0%
Total Hong Kong investment in Australia (2017) $116.6 billion Total Australian investment in Hong Kong (2017) $47.4 billion
Source: Australian Bureau of Statistics (ABS) catalogue 5368.0.55.003 and unpublished ABS data. Year 2017-18 figures unless specified otherwise. All currencies AUD unless specified otherwise.

9. Hong Kong's stable legal and regulatory environment, liberal policy settings, sophisticated financial markets and well-connected location in Asia have made it an established hub for Australian business seeking to capitalise on Asia's growth in the past decades. The Australian Chamber of Commerce in Hong Kong represents the largest business community outside Australia and is the second largest international chamber of commerce in Hong Kong.

10. Many Australian companies are present in Hong Kong, across a wide range of industry sectors including banking and finance, construction and engineering, food and beverage, education, consumer and retail, logistics and transport, and professional services. According to Australia's International Business Survey 2018, which captured responses from 629 firms representing a wide range of industry sectors, Hong Kong was ranked fourth in the list of most common first markets in East Asia and Southeast Asia for Australian businesses beginning on the path to internationalisation.[28]

11. Despite the current strength of the bilateral trade and investment relationship, not having an FTA and updated investment agreement with Hong Kong poses the following problems for Australia:

Australian goods exporters cannot be legally guaranteed zero-tariff treatment on their goods entering Hong Kong;
Australian services exporters and investors remain exposed to risk, should any policy settings currently applied in Hong Kong be changed in the future, and with no opportunity to secure better access;
Australian businesses are not best placed to take advantage of Hong Kong's status as a key e-commerce hub into mainland China and the wider Asia region for consumer goods and services;
Australia's investment relationship is governed by outdated international investment protection rules, increasing the risk of further investor-state dispute settlement claims against the Commonwealth; and
Australia is deprived of an opportunity to bolster existing FTA networks across the region to deepen liberalisation and economic integration over the long term.

Lack of legal guarantee for Australian merchandise exporters

12. Hong Kong's trade relationship with Australia is governed by its obligations under the World Trade Organization (WTO). While Hong Kong currently imposes no tariffs on imported goods, its WTO market access commitments on industrial and resources products are far less liberal than its applied zero-tariff settings. Hong Kong has left unbound 52.3 per cent of tariff lines under WTO rules.[29] This means that Hong Kong could legally impose a tariff of any rate on these goods, which include key Australian exports, such as gold.

Table 3: Hong Kong's unbound tariff lines on top Australian goods exports in 2017-18
Goods (ranked) Value of exports Unbound tariffs
1 Gold $8 billion Unbound
2 Edible products and preparations $382 million Bound at zero
3 Telecommunication equipment and parts $303 million Majority bound at zero / some unbound
4 Fruits and nuts $162 million Bound at zero
5 Meat (excl beef) $159 million Bound at zero
6 Alcoholic beverages $142 million Bound at zero
7 Pearls and gems $130 million Some bound at zero / some unbound

Cultured pearls (unworked) bound at zero; natural pearls unbound; cultured pearls (worked) unbound; gems unbound

8 Perfumery and cosmetics excluding soap $114 million Perfumes unbound; most cosmetics and soaps unbound
9 Zinc $110 million Some bound at zero / some unbound.

Zinc ores and concentrates unbound; unwrought zinc (containing >=99.9% zinc by weight) bound at zero; unwrought zinc (< 99.9% by weight) unbound; unwrought zinc allows unbound; zinc powders, dust, bars, rods, plates etc. bound at zero.

10 Optical goods $110 million Some bound at zero / some unbound
Source: ABS catalogue 5368.0.55.003 and the WTO tariff database (
http://tariffdata.wto.org/ReportersAndProducts.aspx)

Note: the goods in above categories above are spread across numerous tariff lines. Table indicates "Some bound at zero / some unbound" where some of the applicable tariff lines are bound and others unbound.

Risk for Australian services providers

13. Australia's services trade with Hong Kong is currently governed by the WTO General Agreement on Trade in Services (GATS) regime. It is relatively unhindered, in keeping with Hong Kong's open policy settings that also apply to foreign business operators, including clear and standardised registration, business licensing and operational procedures. As shown in Table 4, the trade in services between Australia and Hong Kong has steadily grown and diversified.

Table 4: Trade in services - Australia and Hong Kong, 2017-18
Services exports $3.1 billion Services imports $3.2 billion
% share of total 3.5% % share of total 3.5%
Rank 7th Rank 8th
Growth trend (2013-2018) 9.4% Growth trend (2013-2018) 6.5%
Top 5 services exports Top 5 services imports
1 Personal travel (excl. education-related) $820 million Transport (incl. passenger, courier and freight) $1.4 billion
2 Education-related travel $798 million Professional services $772 million
3 Transport services (incl. passenger and courier) $613 million Personal travel (excl. education-related) $728 million
4 Professional services $390 million Financial services $162 million
5 Financial services $280 million Business travel $106 million
Source: ABS catalogue 5368.0.55.003 and unpublished ABS data. Year 2017-18 figures unless specified otherwise. All currencies AUD.

14. As highlighted in the submission by the Australian Chamber of Commerce in Hong Kong, there is significant scope to expand Australia's services trade with Hong Kong. Foreseeing a long-term growth trajectory for economies in Asia, the Hong Kong Government is actively seeking to position the city at the centre of value chains for high-quality goods and services supply in the region. Engaging in services trade through the Hong Kong market has the potential to deliver substantial future gains for Australian business.

15. Currently, Hong Kong's market access commitments in relation to services are as agreed in its accession to the WTO in 2000, where it has made only modest undertakings on removing barriers to new entrants. For example, a number of Hong Kong's market access commitments on financial services in the WTO are undermined by the retention of broad National Treatment limitations, allowing Hong Kong to adopt or maintain measures that discriminate against foreign suppliers. By retaining these limitations, Hong Kong could implement legislation restricting the supply or access of Australian financial service providers, preventing ongoing access to this valuable market.

16. The rules in the WTO GATS reflect the nature of doing business in 2000. There is a risk that without an FTA securing modern forms of market access across a comprehensive range of services, Australian providers may increasingly face barriers in accessing Hong Kong. For instance, Australian businesses seeking to provide service virtually, without establishing a physical presence in Hong Kong, need modern rules that facilitate seamless cross-border transfers of data. Such businesses would otherwise increasingly face additional costs in complying with burdensome establishment requirements, such as setting up local computing and storage facilities. This would have especially disproportionate impacts on small and medium enterprises (SMEs) without access to the capital to set up an overseas presence, and place Australian service providers at a disadvantage in Hong Kong's highly competitive and cutting-edge market environment.

Outdated investment rules

17. Hong Kong is a significant investor with a steadily growing investment stock in Australia, as shown in Table 5. With a stock of $13.8 billion in new direct investments alone in 2017, Hong Kong was the second largest source of new foreign direct investment in Australia of any single economy worldwide, behind the US (at $17.8 billion).[30] Hong Kong's investment interests in Australia are diverse: utilities, infrastructure, transport, telecommunications, resources, clean energy and hotels, and increasingly agri-food, major infrastructure and health services.

Table 5: Hong Kong's investment stock in Australia in $ million
2012 2013 2014 2015 2016 2017 % of total in 2017 2017 rank 5-year trend growth
53.2 63.6 73.1 86.3 102.2 116.6 3.6 % 5 17.0%
Source: ABS catalogue 5352.0. All currencies AUD.

18. The investment relationship between Australia and Hong Kong is currently governed by the 1993 Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments (the 1993 Investment Agreement). The investor protection mechanism contained in this Agreement was used, unsuccessfully, by Philip Morris Asia to bring an investor-state dispute against Australia's tobacco plain packaging measure. The updated investment rules reflect contemporary investment policy, including explicit safeguards to protect governments' ability to regulate in the public interest and pursue national security and policy objectives such as public health and safety.

Australia's ability to take up emerging opportunities in Hong Kong

19. Australian businesses trading with Hong Kong have already identified increasing opportunities in the following sectors:

Food and beverages: Hong Kong is an important market for Australian food, wine and other alcoholic beverages and a strategically important trading partner in the Asian region which, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), drives much of the increase in global import demand for agricultural commodities of interest to Australia;[31]
Consumer products: With virtually no local manufacturing, imports dominate Hong Kong's large, lucrative and growing market for consumer products, including beauty and health, fashion, clothing and lifestyle products. In its analysis of Hong Kong's appeal as a destination for consumer products, the Australian Trade and Investment Commission (Austrade) describes Hong Kong as a "shop window" to millions of tourists (44.4 million from mainland China alone in 2017) and an ideal testing ground for products entering the region. For instance, Hong Kong was the second largest export market for Australia's beauty products (cosmetics and perfumery) after New Zealand in 2017-18, representing 14 per cent of the total exports. Australian cosmetics exports to Hong Kong grew by 25.8 per cent in 2017 to a value of $109 million. Australia's exports have more than doubled over the last 5 years;
Fintech: According to the EY Fintech Australia Census 2018, Hong Kong was ranked one of the top four markets for Australian fintech companies for global expansion.[32] Active initiatives taken up by the Hong Kong Government and businesses and major Fintech events in Hong Kong present opportunities for Australian fintech start-ups and enterprises to find investment, partnership, collaboration and customers, and use Hong Kong as a landing pad to expand their businesses. Hong Kong has been actively promoting and allocating significant resources to the Fintech industry, covering financial technologies over a wide range of categories. Australian companies have already set up regional headquarters in Hong Kong to capitalise on the growing demand for fintech services such as cloud-based and big data-enabled e-commerce monitoring services, cybersecurity, and payment and billing systems; and
Education: Hong Kong will remain one of Australia's top markets for international education, particularly in high-quality online and distance education. According to Austrade, the Hong Kong Education Bureau has identified Australia as Hong Kong's second most popular overseas English-speaking study destination with 15 per cent of the market share, with the United Kingdom in first place at 19 per cent. Australia is also the second largest transnational education provider behind the United Kingdom in a highly competitive, open and high cost market, with a strong presence with around 150 Australian programs currently being delivered in Hong Kong.

20. However, without a legal framework locking down tariff-free trade in goods, a liberal services regime and modern rules addressing barriers to contemporary digital and technological developments, there is a risk that Australian companies would be less likely to take up emerging opportunities in Hong Kong, as they would be exposed should it ever choose to tighten its settings in these emerging sectors.

Utilising Australia's FTA networks to promote long-term trade liberalisation

21. Australia has negotiated a network of bilateral and regional free trade agreements as a means of setting shared rules for open and liberal trade and investment flows across the Indo-Pacific region. An ambitious and comprehensive agreement with Hong Kong covering trade in goods, services and investment would complement these agreements. A-HKFTA contributes to the Government's goal under the Foreign Policy White Paper for Australia to have FTAs with countries that account for 80 per cent of our total trade by 2020.

PART 3: OBJECTIVES OF GOVERNMENT ACTION

22. The Government's objective for concluding A-HKFTA and the associated Investment Agreement was to improve conditions for enhancing Australia's competitiveness in Hong Kong, and with the wider region, through securing:

a commitment to bind all tariffs at zero;
increased certainty and greater access for Australian service suppliers, particularly in financial, education, professional (such as engineering, accounting and legal) and transport services;
improved market access for two-way investment in Australia and Hong Kong under modern investment protection rules;
protection of the Government's ability to regulate legitimately on public policy matters;
improved mutual recognition of professional qualifications;
new commitments addressing the importance of digital trade, including in banking and financial services, providing certainty for Australian businesses to transfer data across borders while protecting privacy and consumer rights;
a permanent moratorium on the imposition of customs duties on electronic transactions;
greater opportunities for Australian professionals, such as intra-corporate transferees, seeking to work and live in Hong Kong with family members;
guaranteed access for Australian suppliers to the government procurement markets in Hong Kong;
increased confidence for Australian intellectual property (IP) rights holders and users;
commitments to ensure that the benefits of A-HKFTA are not undermined by anti-competitive practices; and
greater transparency in the making and implementation of laws, regulations and government decisions of each Party.

23. The most viable option available to the Government to achieve these objectives was the negotiation of a bilateral FTA and an investment agreement with Hong Kong. The following section considers other options available to the Government.

PART 4: ALTERNATIVE MEANS BY WHICH TO ACHIEVE THESE OBJECTIVES

No action

24. As explained in Part 2: Problem Identification, not having an FTA and an updated Investment Agreement with Hong Kong poses a number of significant problems to Australia's longer-term trade and investment relationship with Hong Kong. These include the following:

Australian business is exposed to the risk that Hong Kong could legally impose tariffs on Australian goods, and by doing so extend more favourable treatment to Australia's competitors who have already entered into preferential trade agreements with Hong Kong (such as New Zealand);
Without an arrangement to secure open settings and better access to key services markets, Australian services exporters and investors will remain constrained in their ability to take up emerging opportunities; and
The 1993 Investment Agreement currently in force between Australia and Hong Kong contains outdated rules which have been used by a third party investor to challenge an Australian public policy measure. The outdated rules pose an increased risk of a successful ISDS challenge against the Commonwealth.

Regional trade negotiations

25. The Comprehensive Progressive Agreement for Trans-Pacific Partnership (CPTPP) recently entered into force between Australia and Canada, Japan, Mexico, New Zealand, Singapore and Vietnam. Brunei, Chile, Peru and Malaysia continue to work towards ratification. The Regional Comprehensive Economic Partnership (RCEP) has been under negotiation since 2012, between the 10 ASEAN Member States and six ASEAN FTA partners - Australia, China, India, Japan, Korea and New Zealand. These countries are working intensively with the aim of concluding RCEP in 2019. While the CPTPP and RCEP address a comprehensive range of trade and investment market access and rules issues, Hong Kong does not participate in either platform.

26. Meeting Australia's policy interests with Hong Kong through accession to either the CPTPP or RCEP would result in significant delays, and likely to be less focused in delivering the ambitious and comprehensive outcomes formulated bilaterally. While procedures for interested parties to accede to the CPTPP have now been put in place (as of January 2019), these processes will take time, including as existing Parties would need to agree to any potential accession request and market access commitments would need to be negotiated. RCEP also envisages a future accession process once concluded, however with negotiations yet to be concluded or a future agreement ratified, pursing Australia's policy interests with Hong Kong through RCEP would also take a significant amount of time.

27. Initiating other regional FTA negotiations in which Hong Kong and Australia both participate remains a distant prospect. Hong Kong and Australia are Asia-Pacific Economic Cooperation (APEC) members, but APEC is not a forum for negotiating binding, enforceable commitments on trade. Preliminary work is being undertaken within APEC on a proposal for a Free Trade Area of the Asia-Pacific (FTAAP) that could include Hong Kong and Australia. However, FTAAP has varying levels of support from APEC economies and a decision about whether negotiations should be launched is unlikely in the near future.

Multilateral trade negotiations

28. Members of the WTO have not been able to achieve significant market access outcomes since the Uruguay Round, which concluded in the early 1990s. Australia, along with other WTO Members, is looking to commence negotiations on E-Commerce in the WTO with a view to securing strong global rules on e-commerce that facilitate trade and build trust in the online environment. These negotiations have yet to commence and, while Hong Kong signed on to the recent Joint Statement on Electronic Commerce signalling an intent to commence negotiations on trade related aspects of e-commerce, it is difficult to predict the final outcome or timeframe for these negotiations. The diverse membership of the WTO would likely moderate the level of commitments, relative to what can be achieved in a bilateral FTA.

29. There is no multilateral agreement on investment currently under negotiation. A bilateral agreement is therefore the best mechanism available to terminate the existing 1993 Investment Agreement and to lower the risk of ISDS claims being brought against the Government's regulatory measures.

Plurilateral trade negotiations

30. In the absence of multilateral trade negotiations on services, Australia and Hong Kong have been among 23 Parties negotiating a plurilateral Trade in Services Agreement (TiSA). TiSA intended to build on existing WTO rules on trade in services, with the long-term objective being to incorporate those new rules into the WTO. TiSA negotiations stalled with the election of the new US administration, and the US - a Chair of the negotiations - is yet to release its policy position on the Agreement.

PART 5: BENEFITS AND IMPACT

31. Certainty and transparency are important drivers in attracting business to markets, and ensuring they remain. Guaranteed zero-tariffs for Australian exports, improved certainty in the regulatory environment for investors and service providers, enhanced market access for Australian service providers, and rules on data flows and localization of servers are likely to enhance the Australia-Hong Kong business relationship. A balanced investor protection mechanism safeguards the Government's ability to pursue legitimate public policy objectives.

Goods

32. Hong Kong's demand for Australian goods increased by 5.8 per cent in the last five years. Table 6 illustrates the strength of Australia's export trade in goods with Hong Kong.

Table 6: Trade in goods - Australia and Hong Kong, 2017-18
Goods exports $11.4 billion Goods imports $1.1 billion
% share of total 3.6% % share of total 0.4%
Rank 6th Rank 30th
Growth trend (2013-2018) 5.8% Growth trend (2013-2018) - 5.3%
Top 10 goods exports Top 10 goods imports
1 Gold $8 billion Gold $322 million
2 Edible products and preparations $382 million Telecommunication equipment and parts $123 million
3 Telecommunication equipment and parts $303 million Electronic integrated circuits $61 million
4 Fruits and nuts $162 million Pearls and gems $36 million
5 Meat (excl beef) $159 million Jewellery $34 million
6 Alcoholic beverages $142 million Edible products and preparations $28 million
7 Pearls and gems $130 million Printed matter $27 million
8 Perfumery and cosmetics excluding soap $114 million Silver and platinum $23 million
9 Zinc $110 million Prams, toys, games and sporting goods $21 million
10 Optical goods $110 million Household-type equipment $20 million
Source: ABS catalogue 5368.0.55.003 and unpublished ABS data. Year 2017-18 figures unless specified otherwise. All currencies AUD.

33. As stated in earlier parts of this Analysis, Hong Kong does not currently apply tariffs on Australian exports but has the right to increase tariffs on certain Australian goods under the WTO Agreement. The A-HKFTA provides certainty to Australian exporters by binding all tariffs at zero upon entry into force. In the event that Hong Kong increases its applied tariffs under the WTO Agreement, Australian exports will continue to benefit from duty free access to Hong Kong under the A-HKFTA, provided they meet its liberal rules of origin. These rules will also apply to goods imported from Hong Kong into Australia under the A-HKFTA.

34. Australia has made a reciprocal commitment to immediately eliminate all remaining tariffs on goods produced in Hong Kong upon entry into force. Goods imported from Hong Kong, as shown in Table 7, currently face Australia's applied WTO tariffs, which are already very low - ranging from zero to five per cent for non-FTA partners. Further, some products (representing around 12 per cent of tariff lines) already receive a margin of preference due to Hong Kong's developing country status under the Australian System of Tariff Preferences. Given the relevant domestic industries are already heavily exposed to international competition, it is unlikely that the elimination of tariffs on goods imported from Hong Kong would have substantially detrimental impact on their competitiveness.

Table 7: Goods market access outcomes for Hong Kong, 2017-18
Australia's top imports from Hong Kong Applied tariffs
Gold $322 million 971 0%
Telecommunication equipment and parts $123 million 764 Up to 5%

Electronic integrated circuits $61 million 776 0%

Pearls and gems $36 million 667 Gems (various) 0%

Pearls 0%

Jewellery $34 million 681 5%
Source: ABS trade data on DFAT STARS database. All currencies AUD.

35. Traders using the A-HKFTA will have the flexibility to self-certify that their goods meet the A-HKFTA rules of origin, and will continue to have the option to have goods certified by a third party if they so choose. The A-HKFTA also includes provisions to ensure any non-tariff measures are consistent with the WTO commitments made by Australia and Hong Kong, and are not implemented in a way that creates unnecessary obstacles to trade. Australia and Hong Kong have also committed to continue working closely with each other to consider additional mechanisms to facilitate trade.

36. Traded goods are often subject to mandatory technical regulations in the country of import. Standardising requirements for compliance and/or certification reduce uncertainty for producers and exporters, lowering the cost of doing business. A-HKFTA provides mechanisms to facilitate trade in food products, wine and distilled spirits in particular. This creates opportunities to expand Australia's food and beverages exports to Hong Kong, which was worth $1.4 billion in 2017-18 - the second highest in value behind gold.[33] As Australia's food and beverages sector seeks to capitalise on continuing strong demand from Hong Kong and mainland China, it will benefit from the mechanisms agreed under A-HKFTA, which include the following:

Guidance on harmonised and standardised labelling: key consumer information such as product name, country of origin, net contents and alcohol content must be displayed on the wine bottle. This will facilitate trade by minimising any requirements for wine to be re-labelled when it moves between Australia and Hong Kong;
Regulation on food products and food safety assurances: Australian and Hong Kong regulators are required to apply international standards, guidance and recommendations, and to share information on their requirements. Australia's ability to set requirements and standards, including for biosecurity, quarantine, and certification for food products will not be affected. Closer alignment of the Parties' regulatory requirements for food products will facilitate trade by reducing compliance costs for business; and
A mechanism to enhance collaboration between regulators, and to facilitate speedy resolution should consignments of perishables be delayed at the border. This will help to prevent avoidable loss or deterioration of perishable food products.

Services

37. As explained under Part 2: Problem Identification, Hong Kong has applied relatively open market settings to Australian service suppliers operating virtually or with an established presence in Hong Kong, but had not made any legal undertaking to maintain these settings. The A-HKFTA secures Hong Kong's open settings for Australian service suppliers. Furthermore, Hong Kong's services commitments under the A-HKFTA are better than the access it has offered any other trading partner, covering priority sectors such as financial, professional services including legal, engineering and construction services, education and transport, as well as services incidental to mining, manufacturing and energy distribution.

38. For Financial services, the A-HKFTA secures guaranteed market access for Australian insurance and banking providers, including those utilising new forms of financial service delivery. Australia and Hong Kong have also agreed on streamlined establishment requirements for Australian banks seeking to establish in Hong Kong as fully incorporated banks. Australia's regulatory framework, and ability to strengthen regulatory requirements, will not be affected.

39. The A-HKFTA also delivers benefits across a comprehensive range of Australia's services trade with Hong Kong, including:

Legal services: Australia has secured Hong Kong's first ever trade commitments on legal services, guaranteeing cross-border access for provision of Australian and international law on business and arbitration. An associated binding side letter requires the Parties to meet within one year of entry into force of the FTA to further advance these commitments;
Professional services, including engineering and construction services: Hong Kong has guaranteed market access for Australian architects, engineers and accountants. A-HKFTA also sets out a framework to assist professional bodies in negotiating agreements for the mutual recognition of professional qualifications and registration between Australia and Hong Kong;
The A-HKFTA also sets out a framework to make it easier for professional bodies to negotiate agreements for the mutual recognition of professional qualifications and registration between Australia and Hong Kong. Australia and Hong Kong signed a treaty-level side letter, committing to exploring ways to facilitate recognition of existing relevant professional experience to satisfy standards that apply in their respective market for the registration, authorisation, licensing or certification of professional service suppliers;
Education services: the A-HKFTA secures guaranteed market access for Australian education providers, including through any future market reform, for the provision of adult, higher, primary and secondary education services. Australia and Hong Kong have agreed to enhance cooperation between educational institutions and relevant government agencies to encourage cooperation in the areas of quality assurance, recognition of qualifications, online education, distance education and blended learning models;
Transport services: the A-HKFTA secures guaranteed market access for Australian transport and logistics operators, especially the suppliers of road, rail and air transport services. Hong Kong has guaranteed market access for international maritime transport service suppliers (including for passenger services, freight services and vessel maintenance and repair) and for suppliers of services auxiliary to transport, such as stevedores, freight forwarders and customs clearance service providers;
Telecommunication services: Australia and Hong Kong have agreed on modern and high-quality commitments that reflect today's telecommunications environment. They include rules that ensure retail rates are made publically available, which will raise awareness of roaming costs for travellers. Australia and Hong Kong have also agreed to work cooperatively to promote reasonable international mobile roaming rates. The A-HKFTA includes commitments on submarine cable systems, ensuring access to key infrastructure is provided for Australian suppliers at reasonable and non-discriminatory rates; and
Services incidental to mining, manufacturing and energy distribution: the A-HKFTA secures guaranteed market access for Australian suppliers of equipment maintenance and repair and building cleaning services to support the mining, manufacturing and energy distribution sectors.

40. In the A-HKFTA, Hong Kong provides Australia the best treatment in any FTA in relation to preferential temporary entry in the following categories:

intra-corporate transferees (senior managers and specialists) for up to one year plus further stay of up to five years;
installers and servicers for up to three months in any 12 month period; and
business visitors for up to 90 days.

41. Australia made commitments to Hong Kong on preferential temporary entry consistent with Australia's existing immigration and workplace relations frameworks - allowing the Government to maintain control over Australia's labour market and ensure its stability. Australia will provide access to Hong Kong citizens in the following categories:

intra-corporate transferees, including executives or senior managers for temporary stay up to four years and specialists for up to two years, both with the possibility of further stay;
independent executives for up to two years; and
business visitors for up to three months, or 6-12 months for service sellers.

42. For the first time in any FTA, Hong Kong will guarantee entry, stay and work rights for dependants and spouses of Australians granted entry as intra-corporate transferees for a period of greater than 12 months. Australia will provide right of entry and stay and work for dependants and spouses of intra-corporate transferees and independent executives of Hong Kong who have been granted entry for more than 12 months.

Investment

43. Investment provisions are split across the A-HKFTA and a separate Investment Agreement. Together, these agreements will provide a modern regulatory regime to support the robust investment relationship between Australia and Hong Kong. They will facilitate direct investment from Hong Kong, or via Hong Kong, into Australia, and provide important protections to Australian investments in Hong Kong.

44. Under the A-HKFTA and Investment Agreement, Hong Kong has undertaken to extend to Australian investors the most favourable treatment it gives to any other investment partner in a subsequent agreement. The agreements together contain protections for the substantial investments in each other's economies, including:

the customary international law minimum standard of treatment, including fair and equitable treatment and full protection and security;
rules governing expropriation, including the right to prompt and adequate compensation;
protection against discrimination as compared to each Party's own investors, and as compared to investors from third parties;
a guarantee that transfers relating to a covered investment will be able to be made freely and without delay, subject to laws relating to matters such as criminal offences and bankruptcy;
a prohibition on performance requirements such as a requirements to export a given level of goods or to transfer technology or proprietary knowledge; and
protections relating to senior management and board of directors;

45. The A-HKFTA will also promote foreign investment in Australia by liberalising the screening threshold at which private foreign investments in non-sensitive sectors are considered by the Foreign Investment Review Board (FIRB), increasing it from $266 million to $1,154 million. This is consistent with the threshold provided currently to countries for which the CPTPP has come into force, plus China, the Republic of Korea and the United States. Australia has reserved the right to maintain its existing foreign investment review process, including the ability to screen investments in sensitive sectors. Lower screening thresholds of $15 million and $58 million will continue to apply to investments in agricultural land and agribusiness respectively, and investments in other land will continue to be subject to FIRB screening.

46. The Investment Agreement includes modern ISDS provisions which allow investors to directly enforce obligations in the agreement. The ISDS mechanism includes important safeguards to preserve the government's ability to pursue national security and legitimate public policy objectives. Such safeguards include:

a security exception to allow Australia to take measures to protect national security;
exceptions for tax, prudential and macroeconomic instability measures;
important clarifications around the standard of indirect expropriation and the minimum standard of treatment;
general exceptions for health, environmental and other measures; and
explicit recognition that Parties have a right to ensure that investment activity is undertaken in a manner sensitive to environmental, health or other regulatory objectives.

The ISDS mechanism also requires transparency of proceedings, and mechanisms to expedite claims that are manifestly without legal merit.

47. Australia and Hong Kong have agreed to terminate the 1993 Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments, including its provisions for extended protection of existing investments, and replace this with the new Investment Agreement. This avoids "grandfathering" the current agreement's standard of protection for existing investments. Tobacco control measures are explicitly and specifically carved out of the scope of the ISDS mechanism under the new Investment Agreement, making it impossible to bring a claim under that mechanism with respect to such measures.

E-Commerce

48. Most significantly, for the first time, the A-HKFTA sets modern e-commerce rules to govern services trade between Australia and Hong Kong, to facilitate the robust growth of the digital economy. The A-HKFTA includes a number of commitments on data transfer which will benefit Australian businesses exporting goods or services across borders on a digital basis, whether virtually or with a presence in Hong Kong:

a guarantee that electronic transmissions will not attract customs duties;
a commitment to allow the supply of electronic payment services for cross-border transactions;
a guarantee to allow the free flow of data across borders where it is part of business activity; and
a guarantee that businesses will not, as a condition of trade, be forced to build data storage centres, or use local computing centres in Hong Kong.

Commitments guaranteeing free flows of data across borders, not requiring local data storage, and ensuring clear, transparent and effective regulations applied to cross-border data transfer can greatly assist a business's operational capacity and its ability to compete. For instance, the capacity to facilitate electronic payment transmissions for cross-border financial transactions is an indispensable part of international banking and finance services.

Government procurement

49. Under the A-HKFTA, Hong Kong has committed to providing access to its government procurement market at a level equivalent to its WTO Agreement on Government Procurement (GPA) commitments. Australia is acceding to, but not yet a party to, the GPA. This commitment will cover 62 departments and agencies and five non-government public bodies, which account for the majority of Hong Kong's government procurement. Previously Hong Kong only offered access to its non-government public bodies to WTO GPA Members.

50. Australian businesses will have the right to bid for government procurement in all categories of goods and construction services, and many services categories, including

computer and related services;
business services;
transport services;
rental/leasing of ships, aircraft and other transport equipment;
telecommunications and related services; and
environmental services.

A treaty-level side letter provides a mechanism through which Australia and Hong Kong can work together to facilitate industry capability to engage in each other's government procurement markets, including conditions for participation and the related assessment process.

51. Australia has made government procurement market access commitments which do not exceed those included in the WTO GPA, requiring listed Commonwealth and State and Territory entities to follow the rules for procurement covered by the A-HKFTA.

Other rules to improve the business environment

52. The A-HKFTA also includes a number of provisions which help to improve transparency and provide certainty, in order to support the competitiveness of Australian exports and businesses. Highlights include:

rules on customs procedures and trade facilitation building upon the WTO Agreement on Trade Facilitation, including a commitment to allow advance electronic submission and processing of information before goods physically arrive at the port, making it easier for Australian companies to export and do business in Hong Kong; as well as a commitment to provide traders with advice on customs matters, including tariff classification, customs valuation and whether a good meets the A-HKFTA rules of origin;
intellectual property rules building on the WTO Agreement on Trade-Related Aspects of Intellectual Property, including due process mechanisms to support the appropriate granting of geographical indications, which aim to increase confidence for Australian intellectual property rightsholders and users;
a commitment for Hong Kong to maintain legal regimes that target anti-competitive business practices and enforce consumer protection, to ensure that the integrity of market access commitments is not undermined by anti-competitive business conduct;
an undertaking to ensure that information required to establish or maintain Small and Medium Enterprises (SMEs) are published online, and that all laws, regulations and procedures related to all areas of the FTA are published in advance and administered in a consistent, impartial, and reasonable manner; and
rules encouraging regulatory coherence between the two Parties to further facilitate active business engagement between Hong Kong and Australia.

States and Territories

53. The A-HKFTA is expected to have a positive impact on regional Australia through greater legal certainty for exports to Hong Kong. The A-HKFTA removes a risk that Hong Kong could restrict access to its market compared to current policy settings in a way that prejudices Australian trade interests. This will provide certainty for Australian exporters that Hong Kong will continue to provide tariff-free entry to Hong Kong. For service suppliers, the A-HKFTA locks in access and ensure non-discriminatory treatment for Australian service suppliers.

54. In addition to establishing facilitative practices and regulatory certainty, the A-HKFTA will reduce costs and red tape for Australian exporters, service suppliers and investors in Hong Kong, by setting common rules and promoting transparency of laws and regulations. These include more transparent and efficient customs procedures, liberal rules of origin, mechanisms through which to address non-tariff barriers, and simplified rules and technical requirements for products, including wine and food.

55. The A-HKFTA is a high-quality, modern agreement, addressing contemporary trade challenges and providing opportunities for Australia's innovative twenty-first century economy. Small and medium-sized enterprises will benefit from provisions emphasising user-friendliness and accessibility of information on opportunities arising from the A-HKFTA.

56. There are very few WTO rules applying to electronic commerce (e-commerce). The A-HKFTA locks in rules that would facilitate e-commerce as well as ensuring that digital trade will remain free of barriers such as the requirement to locate data storage facilities locally for business transactions that take place in Hong Kong. This will assist regional businesses transacting digital commerce with clients and companies in Hong Kong.

57. The A-HKFTA will also support the expansion of Australia's creative and innovative industries through a common set of intellectual property rules that incentivise research and development and creative endeavour.

Impact on government revenue

58. The estimated loss of tariff revenue for Australia from the A-HKFTA is approximately $5 million in 2019-2020 and $25 million over the forward estimates period until 2022, as a result of revenue foregone from the elimination of all Australian duties, other than excise, on goods imported from Hong Kong. This estimate assumes the A-HKFTA will enter into force in early 2020.

59. Resources for a bilateral negotiation with Hong Kong have been met within existing budgets and staff allocations.

60. There is as yet no method for measuring the positive impact on revenue of continued regulatory certainty for Australian services exporters. It is not feasible to attempt to quantify the benefits of an FTA in this sense.

Dispute settlement

61. The A-HKFTA includes a binding State-to-State dispute settlement mechanism, drawing on previous FTAs and the WTO system, to resolve disputes between the Parties. Certain provisions of the A-HKFTA are excluded from the dispute settlement mechanism (the Technical Barriers to Trade Chapter, Sanitary and Phytosanitary Measures chapter, Competition Policy Chapter and the provisions on regulatory coherence and SMEs in the Transparency Chapter).

62. Furthermore, the dispute settlement mechanism only applies regarding a refusal to grant temporary entry under the Movement of Natural Persons chapter if a Party has developed a pattern of practice and the natural persons affected have exhausted all available domestic remedies.

63. The Investment Agreement includes an investor-state dispute settlement mechanism granting investors access to arbitration where a Party has breached an investment obligation or protection and the investor has incurred loss or damage as a result. The Investment Agreement allows for the protection of Australia's right to regulate for legitimate public welfare and national security objectives, by including appropriate procedural and substantive safeguards and exceptions. These include:

a package of exceptions that preserves adequate policy space for Australia to take the national security measures it needs going forward related to critical infrastructure and maintaining the integrity of telecommunications networks, as agreed between relevant agencies;
a recognition that non-discriminatory regulatory actions designed and applied to safeguard public welfare would not constitute indirect expropriation, except in rare circumstances;
the National Treatment and Most-Favoured Nation treatment obligations applying only in respect of Hong Kong investors or investments that are in "like circumstances" to Australian investors or investments;
a Minimum Standard of Treatment obligation that does not create any additional substantive rights beyond those provided under customary international law; and
the mere fact that an action is taken that is inconsistent with an investor's expectations is explicitly stated not to constitute a breach of the Minimum Standard of Treatment, whether or not there is loss or damage to the investment as a result.

PART 6: CONSULTATION

Business, industry and civil society

64. Stakeholder views were considered throughout negotiations on the A-HKFTA and the Investment Agreement. DFAT commenced stakeholder consultations in 2017 with a call for public submissions. DFAT received 11 submissions, which are published on its website.

65. Following the launch of negotiations in May 2017 and throughout, DFAT received a number of public submissions and correspondence from NGOs, companies, peak industry groups and an individual on a range of issues. DFAT conducted in-person consultation with industry, peak bodies and interested stakeholders across a range of States and Territories during negotiations, as well as with business stakeholders in Hong Kong (which is Australia's leading business base in Asia).

66. DFAT provided updates on the negotiations via its website, and consulted stakeholders and interested members of the public via group email address
(a-hkfta@dfat.gov.au).

States and Territories

67. The proposed treaty action will have an impact on the States and Territories. The Trade Minister wrote to State and Territory leaders seeking endorsement of Australia's services, investment and government procurement offers to ensure State and Territory governments had oversight of the commitments being made at the regional level of government. All State and Territory Governments endorsed including regional-level commitments in the A-HKFTA market access offers. Several non-conforming measures relating to regional governments are included in annexes related to services and investment market access.

Consultations since the negotiations concluded

68. DFAT has continued to consult stakeholders, State and Territory Governments, and interested members of the public, and other Commonwealth Government departments since the conclusion of negotiations on the A-HKFTA was announced on 15 November 2018. DFAT will also continue to make information on the A-HKFTA publicly available in a timely fashion on its website (
https://dfat.gov.au/trade/agreements/not-yet-in-force/a-hkfta) and respond appropriately to emails sent by stakeholders and interested members of the public to the DFAT A-HKFTA email address (mailto:a-hkfta@dfat.gov.au).

69. A number of business stakeholders, including the Australian Chamber of Commerce in Hong Kong, have made public comments welcoming the outcomes of the negotiations.

PART 7: CONCLUSION

70. It is in Australia's interests to enter into the A-HKFTA and the Investment Agreement, given these agreements are expected to:

guarantee free flow of data across borders, and a commitment not to require data to be stored locally;
secure a legal guarantee that Australian exporters will continue to receive Hong Kong's zero-tariff treatment for their goods;
remove any risk associated with adverse changes to Hong Kong's applied policy settings for Australian service suppliers and investors;
secure Australian exporters' competitive position in Hong Kong, as a key market for Australia in its own right as well as its role as a gateway for mainland China and the North Asia region
deliver faster and deeper market access gains than are possible through multilateral or regional trade negotiations;
be consistent with WTO requirements for free trade agreements; and
complement Australia's efforts to seek additional trade liberalisation across the region, through the WTO and regional mechanisms including the CPTPP and RCEP, as well as bilateral FTAs.

PART 8: IMPLEMENTATION AND REVIEW

71. Australia's commitments in the A-HKFTA and the Investment Agreement do not extend beyond those already agreed for other Australian FTAs. As such, minimal changes are needed to Australia's regulatory system to implement the A-HKFTA and the Investment Agreement. Implementation of the A-HKFTA and the Investment Agreement will require the following changes:

The Customs Act 1901, the Customs Tariff Act 1995 and relevant customs regulations need to be amended to incorporate the preferential tariff rates and rules of origin that will apply to goods imported from Hong Kong under the A-HKFTA;
The Foreign Acquisitions and Takeovers Regulations 2015 will require amendment to incorporate the new thresholds for screening investment proposals by investors from Hong Kong; and
Migration (LIN 18/183: Determination of International Trade Obligations relating to Labour Market Testing) Instrument 2018 will need to be amended through a Ministerial Determination under section 140GBA(2) of the Migration Act 1958, to implement Australia's obligations to Hong Kong on entry and temporary stay of intra-corporate transferees and independent executives with respect to Labour Market Testing.

72. The A-HKFTA will enter into force 30 days after the date on which the Parties exchange written notifications that they have completed their respective necessary internal procedures, or on such other date as the Parties may agree.

73. Similarly, the Investment Agreement will enter into force 30 days after the date on which the Parties exchange written notifications that they have completed their respective necessary internal procedures, or on such other date as the Parties may agree. The 1993 Investment Agreement will be terminated when the new Investment Agreement comes into force.

74. To amend the A-HKFTA or the Investment Agreement, both Parties must agree in writing.

75. Either Party may terminate the A-HKFTA by providing 180 days advance notice in writing to the other Party. The Investment Agreement provides for the same termination mechanism, except that following the date of any termination, the Investment Agreement will continue to be in force for a further period of 10 years.

76. The A-HKFTA provides for a Joint Commission which must meet within two years of the date of entry into force. The Joint Commission is charged with reviewing the application and implementation of the A-HKFTA and Investment Agreement, considering proposals for amendment, and other functions as the Parties may agree. A general review of both agreements is to be undertaken within five years of the entry into force of the A-HKFTA, and every five years thereafter.

77.

REGULATORY BURDEN AND COST OFFSET ESTIMATE FOR AUSTRALIA

1. The entry into force of the A-HKFTA is expected to have no regulatory impact for Australian goods exporters to Hong Kong. Australian exporters currently have tariff-free access to Hong Kong and are not required to produce a certificate or origin for their goods. These settings will continue under the A-HKFTA (unless Hong Kong increased its applied MFN tariffs above zero - in which case Australian exporters would need to meet the rules of origin under the A-HKFTA to receive duty free access).

2. Australia requires claims for preferential tariff treatment for goods imported from Hong Kong be supported by a declaration of origin. Unlike certificates of origin, declarations of origin can be completed by the exporter, producer (in Hong Kong), or the importer (in Australia), and they do not need to be purchased or obtained from an issuing body. However, the A-HKFTA provides flexibility for the exporter, producer or importer to obtain a declaration of origin from an issuing body on an opt-in basis.

3. Any regulatory burden is most likely to fall to Hong Kong-based exporters and producers of goods into Australia that choose to trade under the A-HKFTA. Where a declaration of origin is completed by the importer (Australia), there could be a minor compliance cost. In most cases, the terms of individual business contract between exporters and importers would stipulate how a declaration of origin should be completed. As such, it is not possible to estimate the overall compliance cost for Australian importers.

4. Taking the above factors into account, the total average increase in regulatory burden for business is estimated to be minor.

Stephen V. Marks, "Non-Tariff Trade Regulations in Indonesia: Measurement of their Economic

WTO Secretariat

Citrus import permits in 2017 only issued for months (January to April) and are outside Australia's peak export season (May and June).

"Improving Indonesia's Freight logistics a plan for action." Jakarta: The World Bank.

The forecasts come from McKinsey (2012), PWC (2017) and USDA figures from November 2016.

The consuming class is defined as individuals with an annual net income of above $3,600 at 2005 PPP.


https://www.pc.gov.au/research/completed/rising-protectionism/rising-protectionism.pdf


http://www.canegrowers.com.au/page/media/media-releases/2017/tariff-news-from-jakarta-gives-aussie-sugar-a-boost

Indonesia-Australia Business Partnership Group (IA BPG), 31 October 2012, Position paper on considerations towards the Indonesia-Australia Comprehensive Economic Partnership Agreement, available at <
http://dfat.gov.au/trade/agreements/iacepa/Documents/ia-bpg-position-paper.pdf>

IA BPG, August 2016, Two neighbours, partners in prosperity, available at <
https://www.acci.asn.au/resources/two-neighbours-partners-prosperity-indonesia-australiabusiness-partnership-group-submissi>

Based on ABS Catalogue 5368.0.55.006, Characteristics of Australian Exporters, 2016-17

An increase in learning time by 1 hours would reduce savings by $16,702.21 per annumAn increase in completing each CoO by 1 minutes would reduce savings by $83,098.32 per annumAn increase in the price per non-preferential CoO issued by a third-party by 1 dollar would increase the savings by $72,480 per annum

2018 YTD for live cattle exports is until September 2018

Sourced from
https://www.bps.go.id/all_newtemplate.php

2018 YTD for live cattle exports is until September 2018

Sourced from
https://www.bps.go.id/all_newtemplate.php

Sourced from
https://www.bps.go.id/all_newtemplate.php

2018 YTD for live cattle exports is until September 2018

Sourced from
https://www.bps.go.id/all_newtemplate.php

Sourced from
https://www.bps.go.id/all_newtemplate.php

2018 YTD for live cattle exports is until September 2018

Sourced from
https://www.bps.go.id/all_newtemplate.php

Sourced from
https://www.bps.go.id/all_newtemplate.php

Source: World Trade Organization (WTO) Trade Profile, Hong Kong, China (
http://stat.wto.org/CountryProfiles/HK_e.htm)

Government of the Hong Kong SAR 2018 Economic Background and 2019 Prospects 27 February 2019
https://www.hkeconomy.gov.hk/en/pdf/er_18q4.pdf accessed 6 March 2019.

International Monetary Fund, People's Republic of China-Hong Kong Special Administrative Region: Staff Concluding Statement of the 2018 Article IV Consultation Discussions, 2018 (available
https://www.imf.org/en/News/Articles/2018/12/11/ms121218-prc-hong-kong-staff-concluding-statement-of-the-2018-article-iv-consultation-discussions)

Source: Department of Foreign Affairs and Trade (DFAT) data based on ABS catalogue 5368.0.55.003.

Australia's International Business Survey 2018, commissioned by the Export Council of Australia, available
https://www.austrade.gov.au/news/economic-analysis/key-publications/australias-international-business-survey-2018

Source: WTO, Tariffs and imports: Summary and duty ranges, Hong Kong, China (available
https://www.wto.org/english/res_e/statis_e/daily_update_e/tariff_profiles/HK_E.pdf)

Source: DFAT, International Investment in Australia 2017 (available
https://dfat.gov.au/about-us/publications/Pages/international-investment-australia.aspx)

Food demand to 2020, ABARES Conference paper 12.4, March 2012

EY FinTech Australia Census 2018 - Profiling and defining the fintech sector, Ernest & Young Australia, 2018. Available
https://fintechauscensus.ey.com/2018/Documents/EY%20FinTech%20Australia%20Census%202018.pdf

Including unprocessed food and processed food and beverages. Source: ABS trade data on DFAT STARS database.


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