House of Representatives

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-Thailand Free Trade Agreement, otherwise known as TAFTA. TAFTA was negotiated during eight negotiating sessions conducted in Australia and Thailand from August 2002 to October 2003. The agreement was signed by me and my Thai counterpart, Commerce Minister Watana, in Canberra on 5 July this year, during the historic visit to Australia by Prime Minister Thaksin Shinawatra and nine of his cabinet ministers. That visit underlined the high priority the Thai government attaches to the agreement and the bilateral relationship more broadly.

TAFTA is an outstanding result. It demonstrates the government's commitment to opening up new opportunities for Australian exporters and investors in East Asia and it will link Australia to the second largest and the fastest growing economy in South-East Asia. Thailand's economic performance over the past few years has been strong and Prime Minister Thaksin's government is promoting policies aimed at building a more open and deregulated economy.

TAFTA will be Thailand's first comprehensive free trade agreement with a developed economy. It will be the fourth free trade agreement Australia has negotiated and the second with an ASEAN member. It is also the first free trade agreement between a developed and developing country in South-East Asia and sets the benchmark for future trade liberalisation in the region.

TAFTA is a major market opening agreement. It will lead to the complete elimination of Thailand's significant trade barriers across all sectors (for some tariffs up to 200 per cent) and substantially improve the environment for services trade and investment. It will also improve the regulatory environment in Thailand and promote increased business mobility.

On entry into force, more than half of Thailand's 5,000 tariffs-accounting for nearly 80 per cent of Australian exports-will be eliminated. Over $700 million of current Australian exports to Thailand will benefit immediately from tariff cuts. In the first year alone, we estimate that Australian exporters could save over $100 million in Thai customs duties.

Tariffs not immediately eliminated will be phased down and 95 per cent of all current trade between Australia and Thailand will be completely free by 2010. Longer phase-out periods and special quota arrangements will apply to a small number of agricultural goods. Importantly, the tariff preferences contained in the agreement are available only to Australian exporters and therefore give them an enormous advantage over their competitors in the increasingly sophisticated Thai market. Many Australian companies formerly locked out of that market by high tariffs and quotas will enjoy new opportunities, particularly in areas such as agriculture, processed foods and beverages and in automotive products.

I would like to take this opportunity to highlight some of the key market access outcomes delivered by TAFTA:

On industrial tariffs, Thailand will eliminate immediately its 80 per cent tariff on large passenger motor vehicles and will reduce its 80 per cent tariff on other passenger motor vehicles to 30 per cent, then phasing down to zero in 2010.

Tariffs on all automotive parts, components and accessories, currently up to 42 per cent, will be reduced immediately to a ceiling of 20 per cent and then phased to zero in 2010.

Thai tariffs on machinery and equipment, currently up to 30 per cent, will either be eliminated immediately or phased to zero by 2010.

Thailand will eliminate immediately the current tariffs on wheat (equivalent of 12 to 20 per cent), barley, rye and oats (up to 25 per cent), and the tariff and tariff rate quota on rice.

On beef, Thailand will immediately reduce the tariff to 40 per cent, down from 51 per cent, and for beef offal to 30 per cent, down from 33 per cent. These rates will be phased to zero in 2020.

On dairy, Thailand will immediately eliminate the current tariffs on infant formula, lactose, casein and milk albumin and phase the tariffs on butter fat, milk food, yoghurt, dairy spreads and ice-cream to zero in 2010.

Thailand will provide immediate additional quotas for Australian skim milk powder, liquid milk and cream. And tariffs for butter and cheese will be phased down to zero in 2020.

In the long term, the gains from the Thailand-Australia free trade agreement promise to yield even larger benefits to the Australian economy and to Australian businesses. The Centre for International Economics has estimated that TAFTA will boost the Australian economy by over US$2.4 billion over the first 20 years of its operation.

TAFTA has other important benefits for Australia. To date, Thai tariffs are structured around a series of high tariff peaks, which has forced Australia to export at the low value added end of the production chain. The removal of these tariff peaks under TAFTA will open new opportunities for Australia to export more simply and elaborately transformed manufactures.

Apart from the direct economic benefits, implementation of TAFTA will also enhance Australia's broader trade, economic and security interests in the region. A substantive and comprehensive FTA between the two countries will signal strong support for multilateral, regional and bilateral liberalisation initiatives and will encourage strength and stability in the region.

As Australia already grants tariff-free access to many Thai products, Australia's tariff commitments in the agreement are more modest than Thailand's. Nevertheless, Australia will grant improved access for Thai imports of automotive products, textiles, clothing and footwear, steel and plastics and chemicals, subject to tariff phasing arrangements. These phasing arrangements were developed following extensive consultations with Australian industry groups.

Let me emphasise that TAFTA contains significant protections for sensitive Australian industries. There are two categories of safeguard action available: transitional safeguards, which are available to all goods for the tariff phase-down period, subject to injury being demonstrated as a result of a surge in imports; and so-called special safeguards, which are volume triggered and will apply to certain Australian agriculture and fisheries products from the date of entry into force of the agreement until 31 December 2008. Where imports from Thailand of a sensitive product exceed a specified volume, customs duty at the prevailing general rate may apply for the remainder of the calendar year to imports from Thailand of that product. The Department of Agriculture, Fisheries and Forestry will advise the Australian Customs Service when special safeguard action needs to be taken.

A further protection for Australian industry is the product-specific rules of origin, using a similar model to that used for the Australia-US free trade agreement. TAFTA contains enforcement and compliance provisions to address concerns in relation to possible transhipment of goods.

TAFTA will also bring significant improvements in access for Australian services exporters and investors in the Thai market. Thailand will relax a number of its restrictive conditions relating to visas and work permits for Australian business people and will guarantee non-discriminatory treatment of Australian investments in Thailand. Thailand's minority foreign equity limits have also been lifted for Australia in a number of sectors, notably in mining, distribution, consultancy, maritime and hospitality services.

In the area of sanitary and phytosanitary measures, TAFTA reiterates both countries' WTO commitments and creates a new officials-level committee to regularise consultations. Importantly, there is nothing in the text of the agreement that will compromise the integrity and science based nature of Australia's SPS regime.

TAFTA also includes steps aimed at promoting cooperation, transparency and international best practice in a wide range of areas such as quarantine procedures, intellectual property rights, competition policy, e-commerce, government procurement and industrial standards.

I would like to draw honourable members' attention to the monitoring and review mechanisms that have been built into the agreement. These are intended to provide opportunities to revisit and review various parts of the agreement as circumstances change. We have exchanged a side letter with Thailand, which binds both parties to commence negotiations on financial services, telecommunications services and a range of business mobility issues within three years of TAFTA's entry into force. The review mechanisms reflect the intention of both countries that the agreement should not be static and that modifications should be considered where they would be consistent with the aim of the agreement to boost trade and investment linkages.

TAFTA Implementing Legislation

In order to implement TAFTA, two pieces of legislation require amendment-the Customs Act 1901 and the Customs Tariff Act 1995. Prompt passage of these amendments will allow us to meet the target date of 1 January 2005 we have agreed with Thailand for entry into force. The agreement provides that entry into force will occur 30 days after the parties have advised each other that they have completed their domestic procedures necessary for implementation.

The Customs Amendment (Thailand-Australia Free Trade Agreement Implementation) Bill 2004 contains amendments to the Customs Act 1901. These amendments will give effect to Australia's obligations under chapters 4 of TAFTA. The bill incorporates the rules for determining whether goods originate in Thailand, and are therefore eligible for preferential duty rates.

A product will be considered to originate in Thailand and will, therefore, be entitled to a preferential rate of customs duty if it is wholly obtained within Thailand or if it meets the product specific rule of origin listed in annex 4.1 of the agreement

For most products, the product-specific rule requires a change in tariff classification. In other words, origin will be conferred on a product where the tariff classification of each non-originating material (in this case, a material that originates outside Thailand or Australia) used in the manufacture of the product is different from the tariff classification of the product. The rules are a means of demonstrating that there has been substantial transformation of the non-originating material inputs.

For some products, the rules of origin require a change in tariff classification combined with a regional value content.

The bill includes special consignment provisions, so that goods which undergo any process or operation in another country after leaving Thailand and before arriving in Australia, will not be considered to have originated in Thailand.

The bill includes special certification provisions. Under these provisions, an importer will be entitled to claim a preferential rate of customs duty for a product only if a certificate of origin has been issued for that product before it is imported into Australia.

Finally, the bill will require Australian exporters who claim preferential tariff treatment in Thailand to keep certain records. The same obligation will apply to the Australian producers of these goods.

This bill will be complemented by the Customs Tariff Amendment (Thailand-Australia Free Trade Agreement Implementation) Bill 2004.

This legislation presents the parliament with an opportunity to endorse an ambitious free trade agreement with a major regional partner, to strengthen Australia's important economic linkages with South-East Asia, to set a benchmark for regional trade liberalisation, and to promote Australian exports and jobs.

Mr Speaker, I commend this bill to the House and present the explanatory memorandum.

Debate (on motion by Mr Cox) adjourned.