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House of Representatives

US Free Trade Agreement Implementation Bill 2004

Explanatory Memorandum

(Circulated by authority of the Hon Mark Vaile MP, Minister for Trade)

Outline and financial impact statement

The US Free Trade Agreement Implementation Bill 2004 consists of nine schedules that amend relevant Australian legislation to fulfil Australia's obligations under the Free Trade Agreement between Australia and the United States.


Unless specifically noted, the provisions of the Bill will commence on the later of 1 January 2005 or the day on which the Australia-United States Free Trade Agreement comes into force. These provisions will not commence if the Agreement does not come into force.

Schedule 1 - Customs

Schedule One amends the Customs Act 1901 to incorporate the rules for determining whether goods originate in the United States, and are therefore eligible for preferential duty rates. Schedule 1 also provides the Australian Customs Service with the power to conduct verifications of Australian exporters in order to ensure that the goods that they export to the United States have been produced in Australia.

Australian business and the Australian Customs Service have endorsed the "Change in Tariff Classification" (CTC) criteria for the rules of origin as less costly to administer. Where a pure CTC rule was not sufficient for Australian industry (for example in the automotive industry), it has been combined with a regional value content.

Schedule 2 - Agriculture and Veterinary Chemicals

Data Protection is a well-established mechanism in the chemical regulatory regimes of most developed countries, including Australia. Data protection provides protection to certain information provided by a person as part of an application to gain the required approvals and registrations to enable a product to enter the domestic market. Protection is generally provided in the form of limitations upon the use of certain information in particular circumstances, usually relating to the approval or registration of competing products.

The existing data protection regime applies to decisions relating to the approval of an active constituent. This existing regime has proven to be inadequate in encouraging innovation in the Australian market and ensuring domestic access to new technologies that are being developed and used in competing overseas markets. The current regime is being exploited by competitors who are spring boarding off the investment of primary innovators without any form of compensation to the innovator because the existing data protection regime does not apply to decisions relating to chemical products or their labels.

In introducing a new date protection regime, Schedule Two establishes measures to protect the investment of innovators against unfair commercial use by competitors. These measures take the form of limits on the use by the National Registration Authority for Agricultural and Veterinary Chemicals (NRA) of certain information provided to the NRA in considering any subsequent application by a competitor.

The new regime also introduces measures to stimulate innovation in information in support of chemical uses, particularly in minor agricultural use industries such as horticulture, viticulture and aquaculture.

The reforms introduce certain measures to increase the transparency of decision-making within the domestic regulatory regime for agricultural and veterinary chemicals and to stimulate access to protected information by potential competitors under reasonable market conditions.

The terms of the Australia-United States Free Trade Agreement (AUSFTA) are consistent with a suite of proposed reforms to the existing data protection regime that have already been agreed by all State and Territory Governments. In particular, 10 years protection is provided to certain information submitted in support of a marketing approval by a combination of a base period of protection with a capacity to extend to 11 years should certain conditions that assist innovation in minor uses of chemicals in the agricultural sector be satisfied.

Schedule 3 - Australian Geographic Indications for Wine

This schedule amends the Australian Wine and Brandy Corporation Act 1980 to provide specific procedures for the owner of a trademark to object to the determination of an Australian geographical indication (GI) on the basis of pre-existing trademark rights and procedures for the cancellation of an Australian GI.

Schedule 4 - Life Insurance

This schedule amends the Life Insurance Act 1995 to allow foreign life insurance companies to establish branches in Australia for the purpose of carrying out life insurance business in Australia. Currently only entities incorporated in Australia are able to conduct life insurance business in Australia. For an entity to establish a branch in Australia for the purposes of carrying on life insurance business, it must be incorporated in a foreign country, be authorised to carry on life insurance business in that foreign country, and meet the conditions contained in the regulations to the Life Insurance Act 1995. These regulations may include a list of countries, determined by the Government, in which a foreign life insurer must be incorporated and authorised to be eligible to establish a branch in Australia.

Schedule 5 - Foreign Acquisitions and Takovers

The Foreign Acquisitions and Takeovers Act 1975 (FATA) is amended to enable:

exemption from the Act for those acquisitions of interests in financial sector companies, as defined by the Financial Sector (Shareholdings) Act 1998 (FSSA), also covered by powers under the FSSA;
introduction of a screening threshold of $800m, indexed annually to the GDP implicit price deflator, for acquisitions of interests in Australian businesses in non-sensitive sectors (see below);
introduction of a screening threshold of $50m, indexed annually to the GDP implicit price deflator, for acquisitions of interests in Australian businesses in defined sensitive sectors and by the United States Government. The sensitive sectors will include:

transport, including airports, port facilities, rail infrastructure, international and domestic aviation and shipping services provided either within, or to and from, Australia;
the supply of training or human resources or the development, manufacture or supply of military goods, equipment or technology to the Australian or other defence forces;
the development, manufacture or supply of goods, equipment or technologies able to be used for a military purpose;
the development, manufacture or supply of, or provision of services relating to, encryption and security technologies and communications systems; and
the extraction of (or holding of rights to extract) uranium or plutonium or the operation of nuclear facilities;
indexation of the $50 million screening threshold for United States government investments.

Schedule 6 - Commonwealth Authorities and Companies

This schedule amends the Commonwealth Authorities and Companies Act 1997 to empower the Finance Minister to issue directions to the directors of Commonwealth authorities and wholly-owned Commonwealth companies regarding procurement. The directions may apply, adopt or incorporate some or all of the Commonwealth Procurement Guidelines, issued by the Finance Minister under the Financial Management and Accountability Regulations 1997.

Schedule 7 - Therapeutic Goods

This schedule amends the Therapeutic Goods Act 1989, primarily to provide that an applicant seeking to include therapeutic goods in the Australian Register of Therapeutic Goods must provide one of two certificates. Either, they must certify that the applicant does not propose to market those therapeutic goods in a way or in circumstances that would involve an infringement of a patent, or they may certify that the applicant proposes to market the therapeutic good before the expiry of the patent for such goods and that the applicant has notified the patentee about its application to include goods in the Register.

Schedule 8 - Patents

Under the terms of the AUSFTA, the grounds on which a patent may be revoked are restricted to grounds on which the grant of the patent could have been refused. Subsection 138 (3) of the Patents Act 1990 sets out the grounds on which a patent can be revoked. Presently they are broader than the grounds on which the grant of a patent can be opposed. This schedule extends the grounds on which the grant of a patent can be opposed to include the additional grounds that an invention is not useful or was secretly used. The amendments also remove a ground of revocation (non-compliance with a condition of a patent) which is no longer applicable to granted patents. These amendments comply with the obligations under AUSFTA while protecting the existing grounds for revocation under Australian law.

Schedule 9 - Copyright

Schedule Nine introduces a range of amendments to the Copyright Act 1968 (Copyright Act) to give effect to Australia's obligations under Chapter 17 (Intellectual Property Rights) of the Australia - United States Free Trade Agreement ('the Agreement'). Certain amendments are also made to allow Australia to accede to the World Intellectual Property Organisation (WIPO) Copyright Treaty 1996 (WCT) and the WIPO Performances and Phonograms Treaty 1996 (WPPT).

The amendments to the Copyright Act cover the following areas:

New rights - both economic and moral - for performers in sound recordings;
Extension of the term of protection for most copyright material by 20 years;
Alignment of the term of protection of photographs with other artistic works;
Implementation of a scheme for limitation of remedies available against Carriage Service Providers for copyright infringement in relation to specified activities carried out on their systems and networks, providing certain conditions are satisfied;
Wider criminal provisions, including for copyright infringement that was undertaken for commercial advantage or financial gain, and significant infringement on a commercial scale;
New provisions in relation to the unauthorised receipt and use or distribution of encoded program carrying signals;
Broader protection for electronic rights management information; and
Protection against a wider range of unauthorised reproductions.

In addition to the amendments in the Schedules, corresponding regulations will be made to implement some aspects of the limitation of remedies scheme for Carriage Service Providers and for the purposes of Australia's accession to the WCT and WPPT as required by the Agreement.

Financial impact statement

Independent modelling by the Centre for International Economics suggests the most probable effect of the Australia-United States Free Trade Agreement on Australia's real gross domestic product (GDP) is an increase of $6.1 billion per year, or nearly 0.7 per cent above what might otherwise be.

The most probable effect on macroeconomic welfare after a decade, as represented by real gross national product (GNP), is an increase of $5.6 billion per year above what it might otherwise be. Real GNP is a better measure of welfare gain to Australians than real GDP since investment is liberalised as part of the Agreement and additional payments to foreigners are required to service the extra foreign investment. GNP excludes payments to non-residents.

The Treasury has estimated that the financial cost of the Agreement to the Australian Government will be around $190 million in 2004-05, $400 million in 2005-06, $420 million in 2006-07 and $450 million in 2007-08. This estimate is based on the expected loss of tariff revenue from imports from the US and assumes that the Agreement enters into force on 1 January 2005. The estimates do not take account of the scope for additional lost tariff revenue that could arise if imports from the US displace imports from other countries.

These legislative amendments may require some changes to administrative processes and systems. It is expected that, where such changes require additional expenditure, the majority of this expenditure will be absorbed within current appropriations or recovered through existing cost-recovery mechanisms.

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