House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Justice and Customs, Senator the Honourable Christopher Martin Ellison)

Outline and impact statement

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

(a)

introduce rules of origin for goods that are the produce or manufacture of a Least Developed Country (LDC), which will enable such goods to have duty- free access to Australia (Schedule 1); and

(b)

introduce new rules of origin for goods that are the produce or manufacture of Singapore, to give effect to the Singapore-Australia Free Trade Agreement (SAFTA). These amendments will enable such goods to also have duty-free access to Australia (Schedule 2).

The amendments in this Bill will be complemented by amendments to the Customs Tariff Act 1995 (the Tariff Act), which are contained in Customs Tariff Amendment Bill (No. 1) 2003.

Least Developed Countries and East Timor

The Doha Ministerial Declaration in November 2001 stated that World Trade Organization members should work towards duty-free access for LDCs.

Following the Doha Declaration, the Government considered removing all remaining tariffs for those countries nominated as LDCs by the United Nations. As part of its consideration, the Government commissioned the Productivity Commission to undertake a technical study to examine the effects of this initiative. The Productivity Commission reported its findings to the Government on 26 August 2002.

On 25 October 2002, at the Asia-Pacific Economic Cooperation Leaders CEO Summit in Los Cabos, the Prime Minister announced Australia's decision to give duty-free access to goods originating in LDCs and in East Timor, with effect from 1 July 2003. This decision demonstrates Australia's strong commitment to opening markets to the world's poorest countries to help them trade out of poverty.

The Productivity Commission subsequently released its Research Report "Removing Tariffs on Goods Originating from Least Developed Countries" on 28 October 2002.

To give effect to the Government's decision to grant duty-free access to LDCs and East Timor, the amendments contained in Schedule 1 to the Customs Amendment Bill (No. 1) 2003 provide rules for determining whether goods are the produce or manufacture of those countries. Amendments contained in the Customs Tariff Amendment Bill (No. 1) 2003 will provide for the duty-free entry of goods meeting those rules.

The amendments contained in Schedule 1 will operate from 1 July 2003.

Singapore-Australia Free Trade Agreement

Formal talks between the Governments of Australia and Singapore to establish a Free Trade Agreement between the two countries began on 15 November 2000. These negotiations concluded in October 2002.

Following finalisation of the text, SAFTA was signed on 17 February 2003. The agreement was tabled in Parliament on 4 March 2003 and is expected to come into force early in the 2003-2004 financial year, subject to Australia's treaty process and the exchange of diplomatic letters.

SAFTA is a comprehensive and wide-ranging agreement that provides Singapore and Australia with more liberal access to each other's goods, services and investments markets. The agreement re-affirms the close relationship between Australia and Singapore and will contribute to greater growth, prosperity and security in the region. It is also consistent with our APEC commitments to broader trade and economic reform, and is a positive initiative to advance the Bogor goals of free and open trade and investment.

To give effect to the duty-free entry of goods under SAFTA, the amendments contained in Schedule 2 to the Customs Amendment Bill (No. 1) 2003 provide rules for determining whether goods are the produce or manufacture of Singapore. The amendments contained in the Customs Tariff Amendment Bill (No. 1) 2003 will provide for the duty-free entry of goods meeting those rules.

These amendments contained in Schedule 2 to the Customs Amendment Bill (No. 1) 2003 also impose obligations on exporters of Australian goods to Singapore and for which a preferential rate of tariff will be claimed, and on people who manufacture or produce such goods.

The amendments contained in Schedule 2 to the Bill will be operative from the day SAFTA enters into force.

FINANCIAL IMPACT STATEMENT

The cost to the Government of removing remaining tariffs from goods of Least Developed Countries and East Timor is estimated to be a maximum of $2.5 million per annum (based on revenue currently collected). Planned tariff reductions in 2005 mean that the revenue foregone past that date would most likely be smaller.

The Singapore-Australia Free Trade Agreement will reduce revenue collections through decreased tariff collections. This is estimated to be $30 million in each of the financial years 2003-04 and 2004-05. However, as SAFTA may not commence on t 1 July 2003, the loss in 2003-04 financial year may be a proportion of this figure. In each of the financial years 2005-06 and 2006-07, the loss to revenue is estimated to be $35 million.

REGULATION IMPACT STATEMENT

Least Developed Countries

Refer to the Productivity Commission Report "Removing Tariffs on Goods Originating from Least Developed Countries", released on 28 October 2002.

Singapore-Australia Free Trade Agreement

PROBLEM IDENTIFICATION

Australia and Singapore have a well developed trading relationship, with Singapore counting as both Australia's 7th largest overall trading partner and 7th largest export market. The value of our merchandise exports to Singapore amounted to A$4.9 billion (or 4.1 percent of Australia's total exports) in the 2001 - 2002 financial year, while service exports to Singapore for 2001 were worth almost A$2.2 billion to Australia. For the same periods, Australia had a merchandise trade surplus with Singapore of almost a billion dollars, and a small services trade deficit ($8 million).

Access for Australian goods exports to Singapore is very open, with few restrictions, but the same cannot be said for services exports. The nature of these restrictions varies from the absence of an enforceable and transparent competition policy and practice to lack of recognition of Australian educational qualifications. There are also restrictions on the operations of Australian financial services exporters that impair their ability to take full advantage of the Singaporean financial services market. The Singapore-Australia Free Trade Agreement (SAFTA) will go some way to overcoming these restrictions, and give Australian service providers a better opportunity to compete successfully in the Singapore market.

While these market access issues particular to Singapore were important considerations, the initiative to negotiate a FTA with Singapore also reflected Australia's broader trade and economic interests in the Asian region. Singapore shares Australia's outlook on the value of trade liberalisation and expanding trade and investment links with regional neighbours. Australia believes the substantive and comprehensive FTA between the two countries will signal strong support for multilateral, regional and bilateral initiatives, help create an open global and regional trading environment and promote strength and stability in the region.

Singapore has completed FTAs with New Zealand, Japan and the European Free Trade Association, and in November 2002 reached agreement in substance on a FTA with the United States. Singapore is also involved in ongoing FTA negotiations with Mexico, Canada, and Korea, as well as the ASEAN/China FTA talks. While Singapore's existing FTAs address the same kind of issues as SAFTA and conform to the same basic model (i.e. chapters on trade in goods, trade in services etc), SAFTA will be a more comprehensive and trade liberalising agreement. For example, Singapore's agreement with Japan excludes agriculture, whereas SAFTA has no exceptions on trade in goods. The details of the US-Singapore agreement are not yet publicly available, but US Government press releases indicate that it will be similar in structure and coverage to SAFTA.

OBJECTIVES

The broad objectives of SAFTA for Australia are to gain improvements in market access for Australian goods and services exporters (particularly services), and promote closer economic integration with the East Asian region. A FTA with Singapore should also provide a stimulus for further liberalisation in the region, and set WTO-consistent standards for any such liberalisation.

OPTIONS

Australia can seek to address the problems identified above (i.e. the barriers to trade it faces world-wide and, in this particular case, in Singapore) through multilateral, regional and bilateral trade negotiations.

The Australian government recognises that the most effective mechanism through which to achieve comprehensive, global trade reform is through multilateral negotiations. The successful, early conclusion of the recently launched Doha Round of negotiations in the World Trade Organization (WTO) is, therefore, the Australian government's highest trade policy priority.

The Australian government remains committed to the achievement of the APEC Bogor goals of free trade and investment in the region by 2010 for industrialised economies and 2020 for developing economies.

Australia has also pursued and continues to pursue its trade liberalisation objectives through the negotiation of Free Trade Agreements (FTAs). Prior to SAFTA, the only other FTA Australia has negotiated was the Australia-New Zealand Closer Economic Relations Trade Agreement (CER), concluded in 1983. Australia is also preparing to commence formal negotiations on a FTA with the United States in February/March 2003, and has commenced negotiations with Thailand on a bilateral FTA.

FTAs that are comprehensive in scope and set high standards in terms of compliance with WTO rules and developing new benchmarks, can complement the multilateral process, creating incentives for other countries to participate in trade liberalisation process. Decisions by the Australian government to negotiate FTAs are based on assessments about the potential for the FTA to deliver greater benefits to the negotiating parties than can be achieved in a similar timeframe through WTO negotiations. The government considers that any proposed FTA must comply with relevant WTO agreements, in particular Article XXIV of the GATT and Article V of the GATS, which state that FTAs must cover substantially all trade.

Given the size and value of the existing trade relationship, Singapore was a strong candidate in East Asia for Australia's first bilateral Free Trade Agreement since 1983. Singapore had the most developed economy and the strongest regulatory framework in South East Asia, and was clearly willing and able to move more quickly than other ASEAN partners. It also lacked the barriers protecting sensitive sectors for trade in goods that would have made FTAs with North Asian economies such as Japan and Korea difficult to initiate. Before SAFTA negotiations were initiated, Singapore had already concluded a bilateral FTA with New Zealand (August 2000), and was negotiating one with Japan. It also launched FTA negotiations with the US in 2000. Apart from indicating Singapore's willingness to pursue bilateral trade liberalisation agreements, this very wide negotiating experience reflects Singapore's capacity to undertake complex trade negotiations.

SAFTA negotiations began in March 2001, following an announcement by Prime Minister Howard and Prime Minister Goh Chok Tong of Singapore on 15 November 2000 that Australia and Singapore had agreed to start negotiations on a FTA.

SAFTA's chapter headings give an indication of the issues that were the focus of the negotiations. These include:

Trade in Goods

-

tariffs on all goods have been eliminated

Rules of Origin

-

negotiatons focused on what percentage of value added of a good would constitute origin, and whether origin would be calculated on the basis of "accumulation" (see the section on Trade in Goods below for more detail)

Trade in Services

negative list (as opposed to positive list) approach taken

removal of discriminatory measures against Australian professionals

-

recognition of more Australian university law schools

Government Procurement

-

improved opportunities for Australian firms to the Singapore GP market

Competition Policy

-

negotiations focussed on gaining agreement on principles covering cartel activity, misuse of market power, mergers and acquisitions, and exclusive dealing

Investment

-

focus was ensuring FTA was consistent with Australia's existing international commitments on investment in the OECD and other forums

E-commerce

-

aim was to establish cutting-edge commitments, including the mutual recognition of electronic accreditation procedures

Intellectual Property

focus was on building bilateral cooperation mechanisms in order to address industry concerns about intellectual property enforcement in Singapore.

A major issue not covered in the negotiations was air services. Separate negotiations for all "Open Skies" agreement between Australia and Singapore were already underway before SAFTA negotiations commenced. These "Open Skies" negotiations were kept separate from SAFTA so as not to needlessly complicate the FTA talks.

IMPACT ANALYSIS

This section analyses the economy-wide impacts of the Singapore-Australia Free Trade Agreement. Firstly, the general macroeconomic impacts are examined to the extent that they can be identified. Next the impact on business is analysed in some detail. The impact on consumers is then considered, before identifying the likely costs and benefits for government of the agreement. Finally, the broader trade policy considerations of the agreement are examined.

Macroeconomic Impacts

An Access Economics study commissioned by DFAT into the costs and benefits of FTA with Singapore ^[F1] was unable to give any quantitative estimates of the likely impact of such an agreement at the macroeconomic level. As will be discussed in detail below, trade in goods between Singapore and Australia is already substantially liberalised, and therefore the impact on the Australian economy of removing the remaining barriers to trade in goods is unlikely to be large. Access Economics expects "the economy would benefit at the margin from lower input costs". ^[F2]

The most important impact of SAFTA for the Australian economy will result from liberalisation of those areas where Australian firms still face restrictions, namely the services sector. But due to the paucity of reliable trade data for services, econometric estimates of the likely growth in Australian services exports resulting from the FTA with Singapore would be unreliable.

Access Economics consequently adopted a survey approach to get estimates of the impact of the FTA on particular services sectors (e.g. financial services and education). These estimates give some insight into the possible gains for some sectors, but they are incomplete (telecommunications firms, for example, were unwilling to give any estimates, citing commercial confidentiality considerations), and therefore cannot be used to get an estimate of the aggregate macroeconomic impact. The researchers also had methodological reservations about such an approach ^[F3] .

Nevertheless, the study indicated that the gains from SAFTA are likely to be substantial for some service sectors and firms (see the Trade in Services section below), although they are not likely to have a heavy impact on macroeconomic aggregates such as GDP, employment or net exports. This is because Singapore, though wealthy, is a relatively small economy (with a population of just over 4 million), and the bilateral trade relationship is already well developed. Thus any dynamic gains from increased economies of scale and other advantages resulting from improved integration of the Australian and Singaporean economies are unlikely to be large. Some firms surveyed by Access Economics (particularly in high technology areas) saw benefits coming from the raising of Australia's profile in Singapore that SAFTA will entail. This will encourage a sharper focus on the Australian economy by Singaporean investors - however, no quantitative estimates of the impact on aggregate investment were made.

SAFTA's Impact on Business

Trade in Goods

The Singapore-Australia Free Trade Agreement will see Australia and Singapore eliminate tariffs on all goods imported from the other country. However, trade in goods between the two countries is already largely liberalised, and therefore the impact on Australian industry of removing the remaining barriers will not be substantial. Following the implementation of SAFTA, Australian beer and stout producers will have duty free access to Singapore, but all other Australian products already enjoy such access.

As Table 1 indicates, a large proportion of Australia's imports from Singapore - 86 per cent - already enter Australia duty free and most of the remainder enter at relatively low rates (only one percent of imports enter at duties higher than 10 percent). Therefore the adjustment effects on Australian industry from removing the remaining tariffs are likely to be small.

As Access Economics found in its survey of Australian 'business' attitudes toward a FTA with Singapore, there could be costs to some individual firms from eliminating tariffs on imports from Singapore, but overall the economy would benefit at the margin from lower input costs ^[F4] .

The basic approach to the Rules of Origin (ROO) for determining eligibility for duty free entry is the 50 percent local content formula adopted from the Australia-New Zealand Closer Economic Relations Trade Agreement. The exceptions to this general rule are goods subject to an Australian Tariff Concession Order (Tariff Concession Orders are available for products not made in Australia), and a list of approximately 100 electrical and electronic items. These goods will be subject to a 30 per cent local content rule.

Australia also recognised the special circumstances of Singapore manufacturing, where offshore processing is a feature, by agreeing to the concept of accumulation. The application of accumulation means that Singapore/Australian content in intermediate goods sent offshore for processing and returned before export, will be allowed in determining origin. Value added during offshore processing will not be allowed. The textiles, clothing and footwear and passenger motor vehicle sectors were excluded from the accumulation rule as it was considered inappropriate to offer ROO concessions to Singapore on these highly protected sectors.

The concessions on ROOs were granted to Singapore in return for concessions from Singapore in other parts of the Agreement. Australian industry was consulted on this matter and supported the final ROO offer.

Australian industry will benefit to the extent that the FTA provides opportunities for Australian industry to gain access to duty free industrial inputs. By the same token, there could be increased competition for Australian industry from duty free products from Singapore although this is not expected to be significant.

*Excludes anti-dumping duties and excise, where payable: these amounted to 1.35 % of the value of total imports from Singapore, and ASFTA will not affect these duties.

#Most Favoured Nation.

?Entry made under the Australian System of Tariff Preferences, applied to developing countries.

?Tariff Concession Order.

The agreement will also affect trade in goods in less direct ways. Costs of trading goods between Singapore and Australia should be reduced by promotion of paperless trading and improvement in visa arrangements for both short and long term business visitors and residents. The provisions on mandatory technical regulations establish a framework for determining equivalence of Australian and Singapore standards and have the potential to reduce the costs of complying with each other's regime. This will build on the existing Mutual Recognition Agreement with Singapore that provides for recognition of test results. The main potential benefit to Australia from these provisions of the FTA will be in the area of facilitating compliance with Singapore's food standards. For Singapore, the main potential benefit will be facilitating entry of cut flowers into Australia.

These cost reductions will allow Australian exporters to become more competitive in the Singapore market. Similarly, they may make imports from Singapore cheaper, creating increased competition for Australian producers of like goods, but also allowing more efficient production for Australian manufacturing firms using such goods as inputs.

2. Trade in Services and Investment

The most significant gains from SAFTA for Australian service providers are in the financial and legal services sectors along with outcomes for education, environmental services and professional services such as architects and engineers. Some of these gains are listed in the box below. Moreover, the agreement binds Singapore's current - in many cases, recently liberalised - regulatory regime in a number of important service sectors, and thus Singapore will not be able to introduce more restrictive measures in these areas, at least with respect to Australian service suppliers.

These gains were achieved much faster than would have been possible under the WTO. Furthermore, the framework of the agreement ensures that commitments are more far reaching than those negotiated under the General Agreement on Trade in Services (GATS). For example, whereas the GATS follows a positive list approach and does not cover all sectors in Singapore, SAFTA uses a negative list under which market access and national treatment obligations apply to all services trade except for measures or sectors specified in annexed lists of reservations. This approach has a liberalising and transparent thrust in that all exceptions must be specifically reserved or they are deemed to be liberalised.

SAFTA is also GATS-plus in relation to domestic regulation. Like GATS, SAFTA respects the right of governments to adopt domestic regulation affecting trade in services, but contains enhanced provisions on transparency and the processes for adopting such regulations reflecting proposals which Australia has put forward in the WTO services negotiations.

Given these outcomes and the related benefits negotiated on investment - including better protection against expropriation and greater transparency regarding investment restrictions applying to Singapore's government-linked corporations (GLCs) - SAFTA creates a more liberal transparent and predictable environment for Australian service exporters and investors in the Singapore market. All this effectively reduces the risk of doing business in and with Singapore, and should lead to increased services exports and investment by Australian providers in one of Asia's most advanced economies.

As noted above, lack of reliable trade data for services makes quantitative estimates of the likely growth in Australian service exports to Singapore resulting from the agreement difficult to predict. Nevertheless, in its survey of Australian business' attitudes to a FTA with Singapore, Access Economics was able to obtain some quantitative estimates of the possible increases in exports for two service sectors. These are around $50 million in additional education services exports per year (compared with $246 million in 1999/00), and up to $60 million for financial services (from a base of $40 million in 2000/01). These figures were reported in August 2001, well before the finalisation of SAFTA, and based on estimates of a few representative firms in each sector without a clear picture of what the agreement would actually deliver. The estimates nevertheless indicate that service firms believe a more liberal and predictable business environment in Singapore will deliver them significant benefits.

It could be argued that in as much as SAFTA will provide similar regulatory transparency and predictability for Singaporean service exporters to Australia, it is possible more Singaporean service providers will be encouraged to enter the Australian market, and Australian service suppliers will face increased competition. However, regulation of the Australian services sector was already highly transparent and predictable by international standards before the SAFTA negotiations, and it is therefore unlikely that the implementation of SAFTA will result in a major increase of Singaporean service providers into any particular sector of the Australian services market. It is clear that most of Singapore's gains from the FTA will come from Australia's elimination of tariffs, not from increased services exports.

In any case, if there are any efficiency gains resulting from increased competition in the services sector these are likely to be passed on in the form of lower prices to Australian businesses consuming the services effected, and thus the overall effect should be beneficial economy-wide.

3. Telecommunications, Government Procurement and Other Areas

Australian telecommunications firms will benefit from SAFTA in that the agreement provides greater transparency of decision making, rights of appeal, more even handed treatment and effective enforcement by the regulator in Singapore, non-discriminatory pricing for interconnection and consultation with industry in development of standards and policy. These provisions address specific concerns raised by Australian telecommunication providers.

SAFTA ensures Australian firms will also have more secure access to Singapore's government procurement market. Although Australia is not a party to the WTO Government Procurement Agreement (GPA), Singapore will match for Australia its commitments under this agreement, guaranteeing non-discriminatory national treatment for Australian firms in tendering for government business with 47 Singapore ministries, agencies and statutory authorities. SAFTA guarantees this access without the limits on thresholds and product coverage that are included in its GPA commitments. The impact at SAFTA's measures relating to government procurement on government, as opposed to business, can be found in the sections on the Commonwealth Government and State and Territory Governments below.

SAFTA also includes a framework to strengthen protection of intellectual property rights in government procurement.

SAFTA includes important outcomes on competition policy, which will encourage strengthening and development of the competition regime in Singapore, and will allow Australia to address specific anti-competitive practices of concern. Furthermore, competitive neutrality provisions will improve the conditions for Australian companies seeking to penetrate and expand in the Singapore market in circumstances where a number of government-linked corporation incumbents have dominant market power. These measures will improve conditions for Australian firms doing business with Singapore.

SAFTA's Impact on Consumers

This is likely to be wholly positive. With the increase in trade of goods between Singapore and Australia, consumers will gain access to a wider range of products, probably at lower prices. Australian consumers are likely to benefit directly from cheaper imports of household electrical and electronic appliances and certain processed foods, for example. Consumers may also benefit indirectly if cost savings to industry from lower input costs (e.g. for chemicals and machinery) are passed on in the form of reduced prices for consumer goods.

SAFTA's Impact on Government

Commonwealth Government

The Singapore-Australia Free Trade Agreement will have two major impacts on the Commonwealth Government. These are related to (i) revenue collection and (ii) reduced regulatory flexibility in some areas.

(i) Table 1 above shows tariff duty collected from imports from Singapore in 2001-2002 of $24.5 million. On this basis, Treasury has estimated the financial impact of SAFTA on the Commonwealth Government. Assuming that SAFTA would enter into force near the beginning of the 2003-2004 financial year, and that imports from Singapore would grow steadily overtime in line with the domestic economy, Treasury produced the forecasts set out below in Table 2 of the FTA's possible financial impact for the Commonwealth Government.

It should be noted that the potential economic growth that SAFTA may generate and any additional taxation revenue resulting from that were not considered in these estimates. Furthermore, it is not possible at this stage to identify to what extent imports from Singapore will not meet the 50 per cent rule of origin (30 percent for a small number of products) in order to qualify for tariff-free entry. If a significant proportion of imports from Singapore does not meet the relevant rules of origin, and hence continue to be subject to tariff duties, then the estimate in Table 2 of SAFTA's impact on Commonwealth Government revenue may be overstated. It should also be noted that these estimates did not take into account possible additional losses in tariff revenue that could arise if imports from Singapore displace imports from other countries. The Agreement's true impact on the Federal Government's tariff revenue will become clearer after SAFTA comes into force and mechanisms to administer rules of origin are established. It should also be noted that, at this stage, Australian Customs cannot predict what resources will need to be devoted to verifying origin, and it is therefore not possible to put a figure on these administrative costs.

(ii) Although Australia's commitments on services (including telecommunications) and investment will not require any changes to existing measures in these areas, SAFTA does include binding commitments that go beyond our existing WTO obligations and limit the Government's flexibility in adopting new regulations in some areas in the future. For example, SAFTA preserves our screening process for foreign investment (through the Foreign Investment Review Board), but binds the current thresholds for triggering prior approval of investment proposals. This is similar to commitments Australia has already made in the OECD. SAFTA also binds the current limits on foreign ownership of Telstra, Qantas, and other Australian international airlines. Hence, after entry into force of the agreement the Government will not be able to revise upward these thresholds and limits without adequately compensating Singapore as set out in the terms of the Agreement. Such compensation would normally be made by undertaking, with Singapore's consent, a new additional commitment under the agreement, possibly in an entirely different sector.

The Government Procurement Chapter provides guarantees of non-discrimination against Singapore firms bidding on Commonwealth contracts. Various types of procurement are excluded from the agreement such as overseas development assistance and exceptions exist, inter alia, for defence equipment, environmental measures, and for the use of government procurement for industry development purposes including measures to assist small and medium enterprises. In essence, the Agreement does not require any change to the Commonwealth Procurement Guidelines as these Guidelines are based on the value-for-money principle of which non-discrimination is an implicit part. Nevertheless, procurement officials will need to be conscious that the Agreement now provides a legal requirement (that did not exist before) not to discriminate against Singaporean firms. Whereas, under Financial Management and Accountability Regulation, agencies have some degree of discretion to set aside the guidelines when executing a procurement, they will not be able to set aside the Commonwealth's obligations under the GP chapter.

2. State and Territory Governments

SAFTA obligations in services and investment will also apply to State and Territory government measures, but gives States and Territories until the first review of the agreement (one year after entry into force) to complete their reservations lists. This is similar to that approach taken by the signatories to the North American Free Trade Agreement (NAFTA), where the Parties were in principle given two years to submit their reservations for states and provinces (although in practice they have not yet done so).

It is not possible at this stage to identify what State and Territory Governments will reserve, but Singapore would expect - and WTO rules would require - that a relatively high percentage of trade-restrictive trade measures would be bound at existing levels. There will be little scope for Singapore to secure the removal of barriers that the States arid Territories are reluctant to lower, given that Singapore has already signed on to the rest of the agreement. However, it was also clear from the course of the negotiations that Singapore's concerns regarding services sector regulation were at the Commonwealth level (in telecommunications regulations, for example), rather than at the State and Territory level.

SAFTA obligations on Government Procurement do not apply to procurement by State and Territory Governments. However, the Commonwealth has undertaken to encourage the State and Territory Governments to consider joining the Agreement by the time of its first review.

Strategic Policy Considerations

SAFTA represents a valuable instrument with which to pursue Australia's goal of engagement and closer economic integration with the East Asian region. Together with the ongoing negotiations toward an Australia-Thailand FTA, SAFTA provides impetus to Australia's continuing efforts to build a closer economic partnership with ASEAN. This in turn will be important in linking Australia to developments that result from strengthened cooperation between ASEAN and Australia's key trading partners in North Asia - Japan, China and South Korea.

CONSULTATIONS

The Trade Minister, Mr Vaile, and DFAT officers undertook extensive public consultations in the lead up to the commencement of discussions on the FTA with Singapore and throughout the subsequent negotiations. These included regular discussion with business and industry, as well as State and Territory Governments and interested non-government organisations. Consultations on SAFTA were frequently part of forums also covering broader trade policy such as the National Trade Consultations, and the Trade Policy Advisory Council.

Consultations with Australian business and industry representatives have taken place in State and Territory capitals, Canberra and Singapore. The Trade Minister held a roundtable discussion with industry leaders at Parliament House on 8 February 2001. DFAT subsequently consulted industry peak organisations such as the Australian Chamber of Commerce and Industry, a wide range of individual firms, and members of the Singapore Australia Business Council.

DFAT negotiators visited State and Territory Governments to speak to Premier and Cabinet and Departments of Commerce, Industry and State Development (and equivalents) in capital cities. There were regular briefings of States and Territories through the National Trade Consultations process. There were also regular consultations on commitments that required State and Territory approval, including roundtables with all States and Territories on 5 September 2001, 26 July 2002 (in Melbourne) and 9 October 2002. Consultations are continuing with State and Territory agencies with a view to finalising their reservations lists. SAFTA was also discussed when DFAT consulted with the Australian Fair Trade and Investment Network - an umbrella for a broad range of NGOs interested in Australia's trade policy - on 22 February 2002.

The stakeholders consulted were broadly supportive of a truly liberalising and comprehensive agreement with Singapore. Australian manufacturers, for example, generally supported the removal of the remaining tariff barriers to Singapore imports because of the opportunities this would present to reduce input costs. There was a degree of concern from particular sectors, e.g. the plastics and chemicals industry, about increased competition from duty free imports from Singapore. However, industry as a whole took the view that removal of tariffs was acceptable provided that the agreement included rules of origin that ensured only goods genuinely originating from Singapore would benefit from preferential arrangements. The ROO provisions in the Agreement were the subject of last minute negotiations and relevant sectors of Australian industry were consulted closely on the offers that were made to Singapore.

IMPLEMENTATION AND REVIEW

Once the finalised SAFTA text completes the current process of Cabinet approval, it can be signed by representatives of the Australian and Singaporean governments. SAFTA would then be tabled in Parliament for examination by the Joint Standing Committee on Treaties.

Once domestic processes are completed, SAFTA would enter into force through an exchange of diplomatic notes with Singapore. Tabling in Parliament at the beginning of the first sitting session in 2003 should enable entry into force by mid-2003. A number of industry organisations have expressed an interest in having SAFTA enter into force at an early date.

The first review of SAFTA will take place one year after entry into force. The States and Territories have been given until this time to complete their reservations lists. After the first review, unreserved State and Territory measures and sectors will be subject to the national treatment and market access provisions of SAFTA.

It is likely that the Trade Ministers of Australia and Singapore, as well as trade officials from both countries, will be involved in the first review. The review will consider the implementation and outcome of SAFTA to date, and any difficulties that have arisen. The Australian delegation will take into account the views of stakeholders such as industry and relevant government agencies.

Subsequent reviews of SAFTA will take place biennially, or as agreed between the two Governments.