House of Representatives

US Free Trade Agreement Implementation Bill 2004

Second Reading Speech

Mr VAILE (Lyne - Minister for Trade)

I move:

That this bill be now read a second time.

I am pleased to introduce the implementing legislation for the Australia-United States free trade agreement. This FTA has been several years in the making, including 11 months of face-to-face negotiation. The outcome is an unprecedented opportunity for Australia and Australian exporters.

The agreement will immediately extend and intensify Australia's trade relationship with the world's largest and most dynamic economy and the largest merchandise and services exporter and importer. From the day it enters into force it will deliver real benefits and opportunities for Australian exporters. In the longer term, dynamic gains from the agreement promise to yield even larger benefits to the Australian economy and to Australian families.

Independent economic analysis suggests the FTA will result in a boost to the Australian economy of over $6 billion a year one decade after coming into force and create more than 30,000 additional Australian jobs.

While there are differences of view over the ongoing dynamic effects of liberalisation and deregulation, the critics in this academic debate ignore the practical evidence of the growth and dynamism of the Australian economy that has occurred with previous deregulation and reform and which has seen an economic performance which has outstripped the rest of the developed world for the past several years.

This legislation presents the parliament with its opportunity to emphatically endorse this landmark agreement. Passage of this legislation through the Australian parliament leading to the entry into force of the agreement will see Australian industry benefiting from the immediate elimination of virtually all US tariffs on Australian industrial products. It will deliver the early removal of two-thirds of all US agricultural tariffs (including lamb and horticultural products) and the elimination of a further nine per cent of agricultural tariffs within four years. Parliament's green light to the legislation will deliver significantly improved access conditions for beef and the immediate doubling of Australia's dairy exports to the US market. It will deliver the strong legal protections that will underpin services, trade and Australian investment in the United States.

Of course Australia did not secure all its objectives in the agreement, and neither did the United States. Reaching agreement with the United States government required moderating some of our industry interests in the US market. The outcome on sugar was a particular disappointment. Similarly, United States negotiators wound back some of their ambitions in the interests of concluding the deal. This government did not, however, compromise elements of public policy vital to the wellbeing of Australia and Australians. The government preserved the critical elements of our quarantine regime, the Pharmaceutical Benefits Scheme and the right to ensure local content in Australian broadcasting and audiovisual services.

Let there be no misunderstanding on this point. The agreement I signed in Washington on 18 May this year-and the legislation I am introducing today-does not and will not have any detrimental effect on the PBS. It will not cause drug prices to rise. It will not delay the availability of generic medicines. It does not touch legislation implementing the PBS. The Pharmaceutical Benefits Advisory Committee will remain the gatekeeper to the system, the Minister for Health and Ageing will remain the only authority capable of listing a drug on the PBS, and cost effectiveness will remain the basis against which applications to list a drug will be judged.

The government's agreement to increased transparency and a review process is consistent with current PBS legislation. No change is required to that legislation to effect our commitment to the United States under this agreement.

If a drug is not cost effective, no amount of transparency or review will make it cost effective and it should not, and will not, be listed. If a drug is cost effective, it will and should be listed-and increased transparency in PBS processes can only assist this. In fact, as we have seen in recent years increased transparency in the PBS benefits Australian consumers of pharmaceuticals.

The US Free Trade Agreement Implementation Bill 2004 consists of nine schedules amending relevant Australian legislation to fulfil our obligations under the FTA. The passage of this legislation is the primary process in our domestic implementation-prompt passage will allow us to meet the target date of 1 January 2005 we have agreed with the United States for entry into force.

In detailing the changes to Australian legislation incorporated in this bill, I want to make clear that a number of these changes are consistent with legislation that was already in the pipeline or otherwise reflecting changes already under consideration. In other areas, legislative changes proposed in this bill reflect Australia's own experience of policy and practice and particular Australian circumstances.

Schedule 1 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 and to introduce powers to allow Customs to conduct verifications of Australian exporters to ensure that the goods they export to the United States were produced in Australia.

These new rules have been endorsed by Australian business as a cheaper and easier way to prove origin.

For a long time, stakeholders in the agricultural sector have been arguing that innovation in new chemistry and alternative technologies has been stifled by existing data protection provisions. In May 2003, the Parliamentary Secretary to the Minister for Agriculture, Fisheries and Forestry, Senator the Hon. Judith Troeth, achieved agreement with key stakeholders, including all state and territory governments, on a suite of reforms. These reforms build into the Agricultural and Veterinary Chemicals Code Act 1994 mechanisms encouraging early entry of newer innovation in chemical technologies and develop a system providing additional reward to those innovators who move to support the more vulnerable users within Australia's agricultural sector. The proposed reforms have been strongly supported and keenly anticipated by nearly all stakeholders, including manufacturers and users and all state and territory governments.

The obligations arising from the FTA are entirely consistent with the suite of reforms that had already been developed. Schedule 2 of the bill amends the Agricultural and Veterinary Chemicals Code Act 1994 to implement the first part of Senator Troeth's reforms. It has not been appropriate, nor is it desirable, to inject additional measures into the Australia-US FTA bill that might confuse the debate on the core rationale for its introduction. However, in recognition of the importance of these reforms to a very broad range of stakeholders, the government remains committed to implementing the full suite of reforms in a second bill as soon as is practicable after this bill has been introduced.

Schedule 3 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 on the basis of pre-existing trademark rights and procedures for the cancellation of an Australian geographical indication. This amendment simply codifies the existing practice of the geographical indication committee of the Australian Wine and Brandy Corporation and has been developed in close consultation with the Winemakers Federation of Australia.

Schedule 4 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 will need to 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.

Schedule 5 amends the Foreign Acquisitions and Takeovers Act 1975 to implement changes to foreign investment policy agreed as an outcome of the Australia-US free trade agreement. Specifically, it enables:

exemption from the act for acquisitions of interests in financial sector companies covered by powers under the Financial Sector (Shareholdings) Act 1998;
introduction of a screening threshold of $800 million for acquisitions of interests in Australian businesses in non-sensitive sectors;
introduction of a screening threshold of $50 million for acquisitions of interests in Australian businesses in defined sensitive sectors and by the United States government. The sensitive sectors include media; telecommunications; transport; encryption, security and communications technologies; the development, manufacture or supply of training, goods, equipment or technologies for the Australian or other armed forces, or able to be used for a military purpose; and, the extraction of uranium or plutonium or the operation of nuclear facilities;

Schedule 6 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 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.

These amendments carefully balance the interests of the generic and innovator pharmaceuticals industries in Australia, while ensuring that the primary responsibility for resolving patent disputes remains with the patent holder and the party challenging the validity of a patent. These amendments protect the capacity to springboard generics onto the market, ensuring that the US FTA will not delay the entry of drugs onto the PBS.

Schedule 8 amends the Patents Act 1990 to ensure Australia complies with the obligation in the Australia-US FTA that a patent can only be revoked on the same grounds as it could have been refused. The amendments extend the grounds on which the grant of a patent can be opposed to include an invention not being useful or having been 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 protect the existing grounds for revocation under Australian law.

Schedule 9 introduces a range of amendments to the Copyright Act 1968 to give effect to Australia's obligations under the Australia-US free trade agreement. Certain amendments are also made to allow Australia to accede to the World Intellectual Property Organisation Copyright Treaty 1996 and the World Intellectual Property Organisation Performances and Phonograms Treaty 1996.

The amendments to the Copyright Act provide:

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 profit and significant infringement on a commercial scale;
new provisions for the broader protection of encoded broadcasts;
broader protection for electronic rights management information; and
protection against a wider range of unauthorised reproductions.

These changes are significant. But as I suggested earlier in this statement, it is important to be clear that these amendments do not represent the wholesale adoption of the US intellectual property regime. We have not stepped back from best practice elements of Australia's copyright regime-but we have strengthened protection in certain circumstances-providing a platform for Australia to attract and incubate greater creativity and innovation.

In conclusion, I want to return to the key question at issue for the parliament arising from the tabling of this bill.

The key question is not the precise estimated net benefit to the Australian economy that will flow from this FTA-that is a debate for economic modellers.

It is not trawling again through unsubstantiated complaints about the negative impact of the agreement on the PBS, audiovisual industry and intellectual property users-many of which have been given uncritical airplay by the media over many months.

The government has protected Australia's national interest in these areas. We have retained flexibility to assure that Australian stories are seen on Australian screens now and into the future, we have protected the PBS, and we have created a strong protection regime for intellectual property in Australia which will attract and encourage creativity and innovation-and commercialisation of such innovation.

The crucial question that this parliament does need to understand and to address squarely is: what would happen if it failed to pass this legislation?

Let me make it quite clear what would happen. Delay or dismissal of this legislation will not simply defer the benefits of the agreement. There appears to be a naive view among some opposite that delaying passage of this legislation, or consideration of the agreement as a whole, would afford an opportunity to review at leisure the provisions of this agreement, and even to renegotiate aspects of it. This is a dangerous delusion that ignores the reality of the negotiating process for a treaty with any sovereign government, let alone with the United States. The United States Congress is poised to vote on this agreement. Once that vote is taken-and we are increasingly confident that it will be a positive vote-the idea that we could re-open the text of the agreement, particularly at this stage of the US election cycle, to secure a different outcome is completely out of touch with reality. To delay or reject passage of this legislation would be seen by the United States government and congress as rejection of the only FTA text that was acceptable to the United States.

Just to be clear what that would mean for Australia and Australians, failure to pass this legislation would:

Deny Australian farmers billions of dollars worth of additional market access opportunities. I am an optimistic proponent of the WTO Doha Round, but no-one could seriously believe the FTA market access gains will be delivered by the US in the multilateral process in anything like the time frame established by the FTA.
Failure to pass this legislation would leave Australian exporters of autos, metals, minerals, seafood, paper and chemicals, to name just a few, at a competitive disadvantage against other suppliers from Canada, Mexico, Chile, Singapore and other countries which already enjoy preferential access to the US market.
Failure to pass this legislation would erode Australia's competitive position in the US market over time as other countries, many of them competitors for Australia in the US market, negotiate FTAs with the United States that enhance their own access while ours remains static. Standing still will mean going backwards.
Failure to pass this legislation would strand Australian businesses looking to crack into the $200 billion US federal government procurement market and the additional $200 billion US state government procurement market. They would continue to face mandated discrimination, while their US counterparts face no barriers to selling to governments here.
Failure to pass this legislation would expose our exporters to the vagaries of US global safeguard action under the WTO. The government is proud of its record in getting Australian steel excluded from US safeguard measures. But it was hard work to convince the US government to look at the stand-alone threat from Australian imports and exercise their discretion to exclude those imports from the measures. Under the FTA, this assessment will be done as a matter of course-providing the US administration with the analysis it needs to exclude Australian imports from the beginning.
Failure to pass this legislation would abandon binding US commitments on non-discriminatory treatment that go far beyond the US WTO commitments and provide certainty and predictability for Australian investors and services providers.

Mr Deputy Speaker, this is the most liberal agreement on services and investment the US has ever done-how could we reject it?

I would like to pay tribute to the dozens of officials led by chief negotiator Steve Deady, officials from the Department of Foreign Affairs and Trade and many other government agencies whose professionalism, determination and skill during these negotiations have delivered real and substantial benefits for their country. I would also like to recognise the outstanding work of Australia's Ambassador to the United States, Michael Thawley, and his team, who have parlayed the already strong relationship between Australia and the US to a whole new level with their work on this agreement. Finally, I would like to thank the Australian business community for recognising early on the tremendous opportunity presented by the FTA and for their support and advice throughout the negotiations.

This is an enormous and historic opportunity to secure preferential access to the largest and most dynamic economy in the world. We owe it to future generations of Australians to approve this FTA as soon as possible.

It is overwhelmingly in the national interest and I therefore commend this bill to the House. I present the explanatory memorandum.

Debate (on motion by Ms Macklin) adjourned.