House of Representatives

Explanatory Memorandum

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

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.