Australia-US Free Trade Agreement

Electronic copy available at: http://ssrn.com/abstract=2663988 Electronic copy available at: http://ssrn.com/abstract=2663988 AUSTRALIA- UNITED STATES FREE TRADE AGREEMENT 1 Australia-United States Free Trade Agreement ANDREW D. MITCHELL AND TANIA VOON* I. Introduction Former Deputy Director-General of the World Trade Organization (WTO ), Andrew Stoler has described the Australia-United States Free Trade Agreement (AUSFTA) 1 as a 'third wave' free trade agreement 2 (FTA) that goes 'beyond the envelope of 3 the WT0', in the sense that it ventures into areas barely covered in the WTO agreements, like competition, and expands on WTO disciplines in other areas, like services and intellectual property. Going beyond the existing WTO rules does not, of course, necessarily constitute progress, or even greater trade liberalization. In this chapter, we consider the extent to which the AUSFTA represents an improvement on the WTO bargain from the perspective of the two parties as well as the broader WTO membership. Before considering how the AUSFTA came about, we now provide an introductory snapshot of the trading and broader relationship between these two countries. United States (US) trade data indicate that the value of US exports of goods to Australia in 2006 totalled around US$17.8 billion and the value of US imports of goods from Australia amounted to US$8.2 billion. 4 This put Australia • This chapter was finalized in May 2007 .. An earlier version of this chapter was presented at the conference on 'Free Trade Agreements: Where is the World Heading?' hosted by the Bond University Faculty of Law and the Tim Fischer Centre for Global Trade and Finance, Gold Coast, Australia, 10 March 2007. We are grateful for the helpful comments made by participants at that conference. For valuable comments on an earlier draft of this chapter we also thank Ann Capling, Jiirgen Kurtz, Simon Lester, Donald MacLaren, Bryan Mercurio and Matthew Rimmer. All opinions expressed here and any errors are ours. 1 Signed 18 May 2004, in force 1 January 2005. 2 We use the term 'free trade agreements' to refer to bilateral and regional agreements between States or customs territories that focus at least in part on liberalizing trade between the parties, as distinct from the multilateral system established under the WTO. 'FTAs' therefore include free trade areas and customs unions within the meaning of Article XXIV of the General Agreement on Tariffs and Trade 1994. 3 Andrew L. Stoler, 'The Australia-United States FTA as a "Third Wave" Trade Agreement: Beyond the WTO Envelope' in Andrew D. Mitchell (ed.), Challenges and Prospects for the WTO (London: Cameron May, 2005), pp. 253-68 at p. 256. 4 US Census Bureau, 'Foreign Trade Statistics: Trade in Goods (Imports, Exports and Trade Balance) with Australia', 2006, available at www.census.gov/foreign-trade/balance/c6021.html#2007 (last accessed 4 April 2007). 6 7 within the top 15 countries for US exports in 2006. 5 Services trade appears more balanced, with the Australian government reporting exports to the US at approximately AU$5.4 billion for 2005-6 and imports from the US at around AU$7.1 billion. for the same period. The Australian government includes as Australia's 'major exports' to the US bovine meat, alcoholic beverages, personal travel, and 'other business services', and as 'major imports' from the US aircraft, motor vehicles for transporting goods, personal travel, and royalties and licence fees. 6 In the WTO, Australia has complained against the US in two cases formally commenced in the dispute settlement system. Both proceeded to a Panel and then the Appellate Body, which found the US in violation of its WTO obligations/ and they were ultimately resolved when the US implemented the recommendations and rulings of the Dispute Settlement Body (DSB). 8 The US has complained against Australia in four cases, three of which were resolved before reaching the Panel stage, 9 and one of which was the subject of a mutually agreed solution 10 after a Panel had ruled against Australia. 11 Why did Australia so vigorously pursue an FTA with the US? 12 Entry into the AUSFTA was consistent with Australia's general embrace of FTAs across the world in recent years, which is based on a perception that Australia relies on bilateral links 5 US Census Bureau, 'Foreign Trade Statistics: Top Trading Partners - Total Trade, Exports, Imports', December 2006, available at www.census.gov/foreign-trade/statistics/highlights/top/top0612.html (last accessed 4 April 2007). 6 Australian Department of Foreign Affairs and Trade (DFAT), 'United States Fact Sheet', available at www. dfat.gov.au/geo/fs/usa.pdf (last accessed 4 April 2007). For further historical discussion of the AustraliaUS trade and investment relationship, see Australian APEC Study Centre, Monash University, An Australia-USA Free Trade Agreement: Issues and Implications: A Report for the Department of Foreign Affairs and Trade (Canberra: Commonwealth of Australia, 2001), at pp. 9-18. 7 Appellate Body Report, US-Lamb, paras. 1.97 and 1.98; and Appellate Body Report, US-Offset Act (Byrd Amendment), paras. 318-19. 8 WTO, US-Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia: Communication from the United States, WT/DS177/12, WT/DS178/13, 2 October 2001; and WTO, US-Continued Dumping and Subsidy Offset Act of 2000: Status Report by the US - Addendum, WT/DS217/16/Add.24, WT/DS234/24/Add.24, 7 February 2006. 9 WTO, Australia-Measures Affecting the Importation of Salmonids: Notification of Mutually Agreed Solution, WT/DS21/10, G/L/39/Add.1, G/SPS/W/40/Add.1, 1 November 2000; WTO, Australia-Textile, Clothing and Footwear Import Credit Scheme: Request for Consultations by the United States, WT/DS57/1, G/SCM/ D7/1, 9 October 1996; US, Subsidies Enforcement Annual Report to the Congress: Joint Report of the Office of the United States Trade Representative and the U.S. Department of Commerce (February 1999), available at http://ia.ita.doc.gov/esel/seo99.htm (last accessed 4 April2007); and WTO, Australia-Subsidies Provided to Producers and Exporters of Automotive Leather: Request for the Establishment of a Panel, WT/DS126/2, 11 June 1998 (the US withdrew its earlier request for establishment of a Panel while at the same time . requesting the establishment of a new Panel regarding the same subsidies). 10 WTO, Australia-Subsidies Provided to Producers and Exporters of Automotive Leather: Notification of Mutually Agreed Solution, WT/DS126/11, G/SCM/D20/2, 31 July 2000. 11 Panel Report, Australia-Automotive Leather II, paras. 10.1-10.7; and Panel Report, Australia-Automotive Leather II (Article 21.5-US), para. 7.1. 12 Ann Capling, All the Way with the USA: Australia, the US and Free Trade (Sydney: University of New South Wales Press, 2005), at pp. 41-2 and 50-5. 9 ANDREW D. MITCHELL AND TANIA VOON AUSTRALIA- UNITE.P STATES FREE TRADE AGREEMENT to protect the national interest in international trade and investment as well as security. 13 Australia's Department of Foreign Affairs and Trade (DFAT) maintained that an PTA with the US was crucial in protecting national interests, given that the US 'is our largest single trade and investment partner and second-largest export market'. 14 DFAT also expressed the hope that the AUSFTA might prevent or mitigate harmful US policies such as 'Washington's past decisions to protect its lamb and steel industries' and increased subsidies to farmers, 15· and it indicated that the AUSFTA was particularly important given difficulties in the Doha Round of negotiations in the WT0. 16 However, according to the Australian Senate's Select Committee on the AUSFTA, 'Australia's pursuit of a free trade agreement with America ha[ d] as much, if not more, to do with Australia's broader foreign policy with pure trade and ｩｮｶ･ｳｴｭｾ＠ goals'Y · . objectives as it ｾ｛ｩ､｝＠ Why, then, did the US want the AUSFTA? Officially, among other thmgs, the US was concerned with improving access to the Australian market for its agricultural exports, including by limiting Australia's use of sanitary and ｰｨｹｴｾｳ｡ｮｩｲ＠ measures to restrict trade. It also sought to strengthen the US-Austraha alliance for the purpose of the WTO's Doha Round negotiations, especially on agriculture. Like Australia, the US also linked the AUSFTA to its national security interests. 18 An unofficial suggestion is that the AUSFTA was 'payback' for Australia's support of the Iraq war: 19 September 11 may have been what finally led the US to agree to the 20 AUSFTA. In this chapter we explain and evaluate the AUSFTA primarily from an Australian ｾｯｳｴ＠ countries ':ill be in a more or less ｡ｮｬｯｧｾｳ＠ ｰｯｳｩｴｾｮ＠ to perspective, given ｴｨ｡ｾ＠ Australia when negotiatmg an PTA wrth the US. The AUSFTA provides an Illustration of the outcomes that countries with relatively little bargaining and economic power can expect from such an PTA. It also serves as a warning of how even an economically successful developed country may end up sacrificing its welfare, public policies and democratic processes in a dogged pursuit to cement relations with the US, in a manner that would be unlikely in the vigorous negotiating environment of the WTO. We begin by examining the way in which the AUSFTA was negotiated, before turning to some of the substantive outcomes of those negotiatioi).s in key 21 areas· such as goods, services, investment, and intellectual property. Finally, we consider the impact of the AUSFTA to date and its future implications. 8 13 · 14 16 11 DFAT, Advancing the National Interest: Australia's Foreign and Trade Policy White Paper (Canberra: Commonwealth of Australia, 2003); at pp. 7, 9. 15 Ibid. Ibid., at p: 89. See, e.g., Parliament of the Commonwealth of Australia, Joint Standing Committee on Treaties, Report 61: The Australia- United States Free Trade Agreement (June 2004), at para. 2.31 (quoting DFAT). Commonwealth of Australia, Senate Select Committee on the Free Trade Agreement between Australia and the United States of America: Final Report (Canberra, August 2004), at para. 1.24. See also Gavin Goh, Regional Trade Agreements and Australia: A National Interest Perspective, Australian APEC Study Centre, Monash University (May 2006), at p. 20; and Australian APEC Study Centre, Monash University, An Australi,a - USA Free Trade Agreement: Issues and Implications: A Report for the Department of Foreign Affairs ana' Trade (Canberra: Commonwealth of Australia, 2001), at pp. 72-7. 18 !9 20 Letters from Robert Zoellick, USTR, to Senator Robert Byrd and Dennis Hastert, Speaker, United States House of Representatives, 13 November 2002. M. Rafiqul Islam, 'The Australian Policy and Practice of Preferential Bilateral Trade: A Benign or Malign Alternative to the WTO Multilateral Free Trading System?' (2003) 2(2) journal of International Trade Law & Policy 43-61 at 57. See also Linda Weiss, Elizabeth Thurbon and John Mathews, How to Kill a Country: Australia's Devastating Trade Deal with the United States (Crows Nest: Allen & Unwin, 2004), at pp.141-2. Capling, above note 12, at pp. 53-4. II. The negotiating process The AUSFTA began with an announcement by Australia's Prime Minister, John Howard, then Trade Minister, Mark Vaile, and then United States Trade Representative (USTR), Robert Zoellick, on 14 November 2002, that negotiations on an PTA were commencing. 22 DFAT then invited public submissions on the proposed AUSFTA by 15 January 2003. 23 It received around 200 submissions from a range of individuals and bodies. 24 Negotiations then took place in five rounds: 17-21 March 2003 (Canberra), 19-21 May 2003 and 21-25 July 2003 (Honolulu), 27-31 October 2003 (Canberra), and from 1 December 2003 to 8 February 2004 (Washington, DC). 25 The first round of negotiations covered framework issues and the scope of the negotiations, with working groups meeting on the following four broad areas: 'industrial products, agriculture, rules of origin, sanitary and phyto-sanitary measures; standards and technical barriers to trade, trade remedies; services, investment, intellectual property, competition policy; legal and institutional arrangements, including dispute settlement, environment and labour issues' .Z6 In addition to the lead negotiators from the USTR and DFAT, officials involved in the negotiations included (for the US) 'representatives of the Departments of State, Commerce, Treasury, Agriculture, Justice and Labour, along with the US Customs Administration, the US Patents and Trademarks Office, the Federal Trade Commission, and the Environmental Protection Authority' and (for Australia) representatives from the Department of 'Agriculture, Fisheries and Forestry; Attorney-General's Department; the [Australian Competition and Consumer Commission]; Communications, Information, Technology and the 21 22 23 24 25 26 Given space constraints, we are unable to consider all the most important or controversial issues raised by the AUSFTA. John Howard, Australian Prime Minister, 'Address to the Australian Chamber of Commerce and Industry', 14 November 2002; and Mark Vaile, Australian Minister for Trade, Media Release: 'Vaile Hails Breakthrough for Australia- US Trade Relations', 14 November 2002. DFAT, Australia-United States Free Trade Agreement: Guide to the Agreement (Canberra, March 2004), at p.1; and DFAT, 'Australia-United States Free Trade Agreement: Call for Submissions', available at www. dfat.gov.au/trade/negotiations/us_aus_fta_public_submission.pdf (last accessed 4 April 2007). See www.dfat.gov.au/trade/negotiations/us_public_submissions.html (last accessed 4 April 2007). DFAT, Guide to the Agreement, above note 23, at p. I. DFAT, AUSFTA Briefing No. 1 (2003), at p. 1. 10 ANDREW D. MITCHELL AND TANIA VOON AUSTRALIA- UNITE.D STATES FREE TRADE AGREEMENT Arts (DCITA); Customs; Environment Australia; Health and Ageing (DOHA); Industry, Tourism and Resources (DITR); Intellectual Property Australia (IPA) and Treasury'. 27 The second negotiating round took place in seventeen working groups and led to agreement on 'a broad working framework for the agreement, setting out it;s possible chapters'. 28 At a media briefing, chief negotiators from both sides expressed their desire for a comprehensive agreement by the end of 2003 and emphasized that the AUSFTA would not change the framework of Australia's Pharmaceutical Benefits Scheme29 (discussed further below). 30 The third round focused on the provision by each side of market access offers for goods, services and investment and also achieved a 'composite text capturing the views of both parties on nearly all chapters'. 31 DFAT revealed that '[t]he initial US offer on agriculture was not as forward-looking as we had hoped, although the industrials offer had more positive elements'. 32 Following the fourth round of negotiations, which included three days on agriculture, DFAT indicated: start of negotiations until the completion of the final text: 'It does not happen much quicker when the governments of two complex economies seek integration'. 36 Nevertheless, more recently, the US reached an even faster agreement with Korea. 37 According to one official, DFAT engaged in more consultation during the AUSFTA negotiations than it had in the previous ten years. 38 However, the AUSFTA has been subject to severe criticism, even apart from its substantive implications, due to the way in which it was concluded. In part this flowed from the Australian system of government, under which the executive branch negotiates and enters international treaties and the legislative branch subsequently implements those treaties through domestic legislation to the extent necessary. 39 Although some Parliamentary scrutiny of treaties occurs, this is usually only after Australia has signed the relevant treaty. 40 The conclusion of the AUSFTA provides a typical example of the problems this approach may cause in practice. The Australian government agreed to the AUSFTA on 8 February 2004 and signed it on 18 May 2004; Australia's implementing legislation was passed in the House of Representatives on 24 June 2004. Parliamentary scrutiny, through the Joint Standing Committee on Treaties (JSCOT), did not commence until 2 April 2004, when it received its first official briefing on the AUSFTA. 41 That Committee concluded public hearings on 14 May 2004 and tabled its report in Parliament on 23 June 2004. 42 The awkward sequence of events is obvious: 'Within hours of the introduction of the JSCOT report's final presentation to the parliament, and without any debate or consideration of the report's contents, the implementing legislation had been introduced and passed'. 43 The report included a 'dissenting' portion by six members of the Committee (being those Committee members from the opposition: the Australian Labor Party), who: Improved access for Australian beef, sugar and dairy will be essential elements of the agriculture package .... [T]he outcomes of an AUSFTA must not undermine Australia's capacity to continue to meet its social and cultural policy objectives, including maintaining local content rules and funding for Australian film production.... The issue of whether to include an investor-state dispute settlement (ISDS) mechanism in the chapter on investment in the FTA is still being discussed. The US has proposed that such a mechanism be included in the Agreement, but has not yet tabled draft text. 33 During the fourth round of negotiations, the parties were somewhat more reluctant to reveal details of discussions on particular issues, although they indicated their ·confidence in reaching agreement and reiterated that they were making considerable progress. 34 The text of the AUSFTA was agreed on 8 February 2004 and then, in 'a departure from Australia's normal practice', released to the public before editing and signature. 35 This was an unusually fast negotiation- around one year from the 27 29 30 31 33 34 35 Ibid., at p. 4. 28 DFAT, AUSFTA Briefing No. 2 (2003), at p. 2. DFAT, 'Media briefing on the second round of Free Trade Agreement negotiations between Australia and the United States, 19-23 May in Hawaii. Briefing conducted by Australia's chief negotiator Stephen Deady and the United States' chief negotiator Ralph Ives', 23 May 2003. See below section on 'Pharmaceuticals' under section IliA. DFAT, AUSFTA Briefing No. 3 (2003), at p. 2. 32 Ibid., at p.l. DFAT, AUSFTA Briefing No. 4 (2003). DFAT, 'US-Australia Free Trade Agreement Negotiation Press Conference Embassy of Australia. Mr Ralph Ives - US lead negotiator and Mr Stephen Deady - Australian lead negotiator', 5 December 2003. DFAT, Guide to the Agreement, above note 23, at pp. 1-2. 11 Believe [d] an extension of time should have been sought from the Minister for consideration of the Treaty to allow adequate time to review the evidence presented and to prepare the Report of the Committee. . .. Recommend[ed] that binding treaty action should not be taken until adequate opportunity ha[d] been given to consider the necessary legislative, regulatory and administrative action that underpins the implementation of 36 37 38 39 4 Larry Crump, 'Global Trade Policy Development in a Two-Track System' (2006) 9(2) Journal of International Economic Law 487-510 at note 27 (see also p. 498). Office of the USTR, Press Release, 'United States and Korea Conclude Historic Trade Agreement', 2 April 2007 (negotiations commenced in June 2006 and the agreement was completed in April2007). Crump, above note 36, at p. 506. Australian Constitution, sections 51(xxix) and 61; see also, e.g., Minister for Foreign Affairs and Trade v. Magno (1992) 37 FCR 298 at 303 (Gummow J); and Commonwealth of Australia, Final Report, above note 17, at para. 2.12. Commonwealth of Australia, Final Report, above note 17, at paras. 2.17 and 2.30. Parliament of the Commonwealth of Australia, above note 16, at para. 1.10. Commonwealth of Australia, Final Report, above note 17, at paras. 2.6-2.8. 43 Ibid., at para. 2.9. ° 41 42 12 ANDREW D. MITCHELL AND TANIA VOON AUSTRALIA- UNITED STATES FREE TRADE AGREEMENT the Treaty in order to ensure the combination of the Treaty and the associated 44 . domestic action is ... in the national interest. III Substantive obligations Evidently, the dissenting members'. concerns went unheeded. State and territory governments in Australia also complained that they were excluded from too much of the negotiation, particularly in its final stages. 45 Several members of the Senate Select Committee on the AUSFTA (which received more than 500 submissions 46 - far more than DFAT did before concluding the AUSFTA) called for further consultation and Parliamentary debate before the executive signs treaties (especially those involving trade) in future, 47 echoing several previous Australian Parliamentary bodies. 48 However, this Committee was also split along party lines, with these recommendations being endorsed by Labor Senators, and Committee members from the government and other parties making separate statements and recommendations. 49 Not surprisingly, the Australian government largely dismissed most of the Labor Senators' recommendations regarding the consultation process, stating: The Government considers that the objective of ensuring both that the Government is able to energetically pursue opportunities for trade growth, and that appropriate consultation on negotiating objectives is undertaken with the broader community, are best met by current Parliamentary and 50 consultation processes and practices. Ann Capling points to the AUSFTA negotiation as an illustration of the continued 'democratic deficit' in Australian treaty-making, emphasizing the partisan nature of discussions on its benefits, including the JSCOT and Senate investigations. 5 1 44 45 46 47 48 49 50 51 Parliament of the Commonwealth of Australia, above note 16, at pp. 301-2. Ibid. at paras. 3.53-3.61; see also Commonwealth of Australia, Final Report, above note 17, at paras 2.51-2.61 and 2.68; and Parliament of the Commonwealth of Australia, House of Representatives Joint Standing Committee on Foreign Affairs, Defence and Trade, Australia's free ·trade agreements with Singapore, Thailand and the United States: Progress to date and lessons for the future (Canberra, November 2005), at paras. 2.9 and 2.11. See www.aph.gov.au/senate_freetrade/submissions/sublist.htm (last accessed 6 April 2007). Commonwealth of Australia, Final Report, above note 17, at paras 2.30, 2.38, 2.75-2.76 and 2.91-2.92, and pp. 228-9 (Recommendations 2-5 of Labor Senators). Commonwealth of Australia, Senate Foreign Affairs, Defence and Trade References Committee, Voting on Trade: the General Agreement on Trade in Services and an Australia- US Free Trade Agreement (Canberra, November 2003), at para. 3.91 (Recommendation 2); Parliament of the Commonwealth of Australia, Joint Standing Committee on Treaties, Report 42: Who's Afraid of the WTO? Australia and the World Trade Organisation (Canberra, September 2001), at paras. 2.124-2.128; and Commonwealth of Australia, Senate Legal and Constitutional Affairs Committee, Trick or Treaty? Commonwealth Power to Make and Implement Treaties (Canberra, November 1995), at para. 17.4. Commonwealth of Australia, Final Report, above note 17, at. pp. 241-85. Government of Australia, Response to the Final· Report of the Senate Select Committee on the Free Trade Agreement between Australia and the United States of America (Canberra, 2006), at p. 3 (responding to Recommendation 3 of Labor Senators). Ann Cap ling, 'Can the Democratic Deficit in Treaty-Making be Overcome? Parliament and the AustraliaUnited States Free Trade Agreement' in Hilary Charlesworth, Madelaine Chiam, Devika Hovell and 13 A. Goods Key disciplines and scope Chapter 2 sets out the general obligations of AUSFTA Parties regarding trade in goods. The national treatment obligation of Article III of the General Agreement on Tariffs and Trade 1994 (GATT 1994) 52 is 'incorporated into and made a part of this Agreement' .53 Essentially, this means that an AUSFTA Party must not subject products imported from the other Party to internal taxes or charges 'in excess of those applied ... to like domestic products'. 54 In addition, more generally, anAUSFTA Party must treat products imported from the other party 'no less favourabl[y]' than 'like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use'. 55 Obviously, these obligations apply between the U:S and Australia anyway, since both are WTO Members. Article XI of the GATT 1994 is also incorporated in the AUSFTA. Under Article 2.9.1 of the AUSFTA, neither party may 'adopt or maintain any prohibition or restriction on the importation of any good of the other party or on the exportation or sale for export of any good destined for the territory of the other Party' except in accordance with Article XL Article XI includes allowances for ' [e]xport prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting' Party, '[i]mport and export prohibitions or restrictions necessary to the application of standards or regulations for the classification, grading or marketing of commodities in international trade', and certain '[i]mport restrictions on any agricultural or fisheries. product'. Pursuant to Article 2.3, the Parties agree to eliminate customs duties on 'originating goods of the other Party' (identified according to the rules of origin discussed below) in accordance with Annex 2-B and not to increase existing duties or introduce new duties on imports of such goods. Under Annex 2-B, some products already received and will continue to receive duty-free treatment, while others received duty-free treatmentfrom the date the AUSFTA entered into force (1 January 2005). Duties on other goods will be progressively removed by2009, 2013 or 2015. The obligations regarding national treatment, import and export restrictions, and elimination of customs duties do not apply to certain measures specified for each Party in Annex 2-A. For the US, the exempt measures include 'controls by the 52 54 George Williams (eds.), The Fluid State: International Law and National Legal Systems (Sydney: Federation Press, 2005), pp. 57-79 at p. 60. LT/UR/A-1Nl/GATT/1 (signed 15 April1994, in force 1 January 1995). 53 AUSFTA, Article 2.2. GATT 1994, Article III:2. 55 Ibid., Article III:4. 14 United States on the export oflogs of all species'. For Australia, they include certain 'controls on importation of second hand motor vehicles' and certain 'marketing arrangements' for wheat, grain, sugar and rice. For both Parties, actions are exempt where they are authorized by the DSB. This would cover actions taken pursuant to DSB authorization to 'suspend concessions' following a failure to implement adverse recommendations or rulirigs of the DSB in a WTO dispute. 56 Chapter 5 sets out the general rules of origin for goods under the AUSFTA. 57 In particular, these rules apply in determining whether a good produced in the territory of one or both Parties using some materials produced elsewhere is an 'originating good' and therefore eligible for preferential treatment under the AUSFTA. The key criterion for determining whether a good is an originating good is whether 'each of the non -originating materials used in the production of the good undergoes an applicable change in tariff classification' 58 as prescribed in detailed product-specific rules. 59 In other words, have the non-originating materials gone through a sufficient change within the territory of a Party to alter the tariff classification according to which they are imported and exported? A good that fails this test may still be an originating good if the value of non-originating materials used in its ?roduction is de minimis60 or if the good 'otherwise satisfies any applicable regwnal value content', 61 based on certain specified methods. 62 Although Australia had refused the 'change in tariff classification' system in the . Austr al"ra Free Trade Agreement, 63 the US apparently managed to perSmgaporesuade Australia to accept its approach. 64 Australian stakeholders have criticized the outcome as variously over-inclusive65 and under-inclusive, as well as unduly ｾｯｭｰ･ｸ＠ and.ther:by increasing compliance costs. 66 However, over time, the change m tanff classrficatwn system has generally come to be regarded as more certain and less costly than alternative approaches. It is now widespread, appearing in the Thailand-Australia Free Trade Agreement, 67 and also the Australia New Zealand Closer Economic Relations Trade Agreement 68 (ANZCERTA) following a recent amendment. 69 56 ｕｾ､･ｲｳｴ｡ｮｩｧ＠ AUSTRALIA- UNITED STATES FREE TRADE AGREEMENT ANDREW D. MITCHELL AND TANIA VOON on Rules and Procedures Governing the Settlement of Disputes (DSU), LT/UR/A-2/DS/U/1 (signed 15 April 1994, in force 1 January 1995), Article 22.6. :: ｃｾ｡ｰｴ･ｲ＠ 4 contains ｲｾ･ｳ＠ ｾｦ＠ ｯｲｩｧｾ＠ regarding ｴ･ｊ｣ｾｬｳ＠ and apparel. 58 AUSFTA, Article 5.1(b)(i). ｉｾＱ､ＮＬ＠ Annex 5-A. Ib1d., Article 5.2. 61 Ib1d., Article 5.1(b)(ii). 62 Ibid., Article 5.4. 63 Signed 17 February 2003, in force 28 July 2003, Article 3.1. 64 Crump, above note 36, at p. 496. :: ｐｾｲｬｩ｡ｭ･ｮｴ＠ of the Commonwealth of Australia, above note 16, at para. 5.51. ｉｾＱ､ＮＬ＠ at para. 5.50; and Commonwealth of Australia, Final Report, above note 17, at paras. 7.71-7.72. 67 ｓｾｧｮ･､＠ 4-6 July 2004, in force 1 January 2005. 68 S1gned 28 March 1983, deemed to have entered into force 1 January 1983. 69 Exchange of Letters constitu:ing an Agreement ｾ･ｴｷｮ＠ the Government of Australia and the Government of New Zealand to Amend Article 3 of the Australta New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) of 28 March 1983 (Wellington/Canberra, 12-19 December 2006) [2007] ATS 2. 15 Agriculture Article 3.3.1 of the AUSFTA prohibits export subsidies on agricultural goods destined for the territory of the other Party. The Parties also agree to 'work together to reach an agreement on agriculture in the WTO that substantially improves market access for agricultural goods, reduces, with a view to phasing out, all forms of agricultural export subsidies, develops disciplines that eliminate restrictions on a person's right to export, and substantially reduces trade-distorting domestic support'?0 However, the impact of the AUSFTA on agriculture is restricted because safeguard measures in the form of additional customs duties are allowed subject to certain conditions. 71 Further, the US retains the right to impose certain safeguards on horticultural products and beef, in particular circumstances set out in Annex 3-A. Australia's tariffs on most agricultural products were already zero (although its quarantine system blocks many of them), and Australia agreed to eliminate the rest on agricultural imports from the US from the entry into force of the AUSFTA. 72 The US agreed to improve agricultural market access pursuant to several 'tariff rate quotas' under which limited quantities of imports of particular products from Australia are subject to preferential tariffs. The AUSFTA creates several new dutyfree quotas (that is, tariff rate quotas with an in-quota tariff rate of zero) and progressively reduces the out of quota tariff rates for several agricultural products. The duty-free quota for beef will be very slowly increased to an unlimited amount and the out of quota tariff eliminated over seventeen to eighteen years. 73 Similarly long transition periods apply to the duty-free quotas for peanuts, tobacco, cotton and avocados until unlimited amounts are allowed free of duty? 4 The limited increase over time in duty-free quotas for dairy products and the absence of change in the out of quota tariff rate for most dairy products 75 may reflect US concerns about the effects of opening its dairy market to Australian producers. However, some research suggests these potential effects were exaggerated?6 According to Larry Crump, who interviewed 35 of the total of 150 AUSFTA negotiators, as well as other government officials and diplomats who 'did not sit at the table' but were involved in the negotiations/ 7 '[a]griculture was the major AUSFTA issue for Australia', and Australia's most significant agricultural exports to 70 72 73 74 75 76 77 AUSFTA, Article 3.1.1. 71 Ibid., Article 3.4. Ibid., Article 2.3.1, Annex 2-B (Tariff Schedule of Australia). Ibid., Annex 2-B (General Notes to the Tariff Schedule of the US, para. 4(d), and Annex I, paras. 2 and 3). Ibid., Annex 2-B (General Notes to the Tariff Schedule of the US, Annex I, paras. 22-6). Ibid., Annex 2-B (General Notes to the Tariff Schedule of the US, Annex I, paras. 4--21 and 27). See generally Julian Alston, Joseph V. Balagtas, Henrich Brunke and Daniel A. Sumner, 'Supply and Demand for Commodity Components: Implications of Free Trade Versus the AUSFTA for the US Dairy Industry' (2006) 50(2) Australian Journal of Agricultural and Resource Economics 131-52. Crump, above note 36, at pp. 491-2 and 498. 16 17 ANDREW D. MITCHELL AND TANIA VOON AUSTRALIA- UNITI>D STATES FREE TRADE AGREEMENT the US are sugar, beef, and dairy products. 78 The importanc·e of sugar to Australia is reflected in Australia's objectives in negotiating the AUSFTA, as identified !n 2003. Then Minister for Trade Mark Vaile singled out sugar as one of five exports in relation to which Australia sought to remove tariff rate quota restrictions imposed by the US. 79 Yet the AUSFTA does not improve Australia's market access for sugar, for example by increasing the lower tariff rate quota for Australian sugar exports to the US or reducing out of quota tariffs. 80 In explaining the exclusion of sugar from the agreement, DFAT maintains that it was '[f]aced with a decision of whether to walk away from the negotiations' and that 'the Government decided that the potential benefits from AUSFTA as a whole did not justify denying those benefits to the rest of the Australian community for the sake of one- albeit very important- agricultural 81 sub-sector'. In recognition of the AUSFTA's failure to realize expected gains in this sector, Australia has since provided a AU$444 million 'compensation package' to 82 the sugar industry ('a transfer from taxpayers to sugar producers' 83 that was not factored in to government calculations of the benefits to Australia of entering the 84 AUSFTA). However, Australia's capitulation on sugar was not necessarily a prerequisite to entering an FTA with the US, which has provided for a phasing in of unlimited duty-free sugar imports in FTAs with Singapore85 and Chile 86 as well as steady increases in duty-free sugar imports from more competitive sugar-producing countries 87 of Central America. 88 Philippa Dee notes that Australia's final stance on sugar under the AUSFTA contrasts with its position in the WTO, in particular its rejection of the proposal by the US and the European Communities on agriculture at the Fifth WTO Ministerial Conference held in Cancun in September 2003, 89 which she considers could have benefited Australia much more than the AUSFTA. 90 The importance of sugar for Australia is also revealed in its forceful challenge (together with Brazil and Thailand) under the WTO dispute settlement system of EC-Export Subsidies on Sugar. 91 Against this background, Australia's Joint Standing Committee on Treaties described the AUSFTA exclusion of sugar as 'disappointing' arid recommended that Australia 'actively pursue ... increased market access for Australian sugar into the United States' 'through all available channels and in all available fora including the Doha Round'. 92 But, despite DFAT's assurances to the contrary, 93 some query whether Australia's surrender on sugar in the AUSFTA may weaken its position when negotiating on agriculture in this Round. 94 78 80 81 82 83 84 85 86 87 88 Ibid., at p. 496. 79 DFAT, Guide to the Agreement, above note 23, at p. 125. See ibid., at p.16; and Centre for International Economics, Economic Analysis of AUSFTA: Impact of the bilateral free trade agreement with the United States prepared for Department of Foreign Affairs and Trade (2004), at p. 13. . DFAT, 'AUSFTA: Frequently Asked Questions', available at www.dfat.gov.au/trade/negotiations/us_fta/ faqs.html (last accessed 8 March 2007). Commonwealth of Australia, Final Report, above note 17, at para. 10.20; and John Howard, Prime Minister of Australia, Media Release: 'Sugar Industry Reform Programme', 29 April 2004. Philippa Dee, The Australia - US Free Trade Agreement: An Assessment, Pacific Economic Papers No. 345 (Canberra: Australian National University, 2005), at p. 22. Commonwealth of Australia, Final Report, above note 17, at paras. 7.67 and 7.68. United States-Singapore Free Trade Agreement (signed 6 May 2003, in force 1 January 2094), Annex 2B (Schedule of the US), Annex 1, para. 9(a). United States-Chile Free Trade Agreement (signed 6 June 2003, in force 1 January 2004), Annex 3.3 (General Notes: Tariff Schedule of the US), para. 9(a). Dee, above note 83, at p. 36 note 24 (referring to Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua). Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR-US) (signed 5 August 2004, in force for the US and El Salvador 1 March 2006, for Honduras and Nicaragua 1 April 2006, for Guatemala 1 July 2006, and for the Dominican Republic 1 March 2007), Annex 3.3 (General Notes: Tariff Schedule of the US) Appendix I, para. 3(a). Pharmaceuticals Australia's Pharmaceutical Benefits Scheme (PBS) was a sensitive issue for both countries during the AUSFTA negotiations. Australians were very keen to retain the scheme unchanged, while the US sought 'improvements' in this area. 95 The PBS is governed by the National Health Act 1953 (Cth) and associated regulations. Consumers pay a maximum amount for most medicines listed under the PBS, with the remainder of the price of the medicine being funded by an Australian government subsidy. The government currently spends around AU$6 billion on this scheme. 96 The Pharmaceutical Benefits Advisory Committee assesses applications to list drugs under the PBS (taking into account 'the effectiveness and cost of therapy involving the use of the drug ... including by comparing the effectiveness and cost of that therapy with that of alternative therapies, whether or not involving the use of other drugs') 97 and makes corresponding recommendations to the Minister. 98 The Pharmaceutical Benefits Pri<:;ing Authority (an 'independent non-statutory body') reviews prices of items listed under the PBS 'to secure a reliable supply of pharmaceutical products at the most reasonable cost to Australian taxpayers and 89 90 92 93 94 95 96 97 See ICTSD, Agriculture Negotiations at the WTO: Post-Cancun Outlook Report (Geneva: ICTSD, November 2003), at p. 14. Dee, above note 83, at pp. 13 and 38-9. 91 Appellate Body Report, EG-Export Subsidies on Sugar. Parliament of the Commonwealth of Australia, above note 16, at paras. 7.32, 7.35 and 7.37 (Recommendation 7). Commonwealth of Australia, Final Report, above note 17, at paras. 10.22-10.27. Ibid., at para. 10.21. Others suggest that the AUSFTA negotiation itself diverted Australia's negotiating resources and attention away from the discussions on agriculture in Cancun: Crump, above note 36, at pp. 5Q6 and 507 (citing a 'Counsellor to the Delegation of the European Commission to Australia and New Zealand'); cf. Alan Oxley, Free Trade Agreements in the era of globalization: new instruments to advance new interests- the case of Australia, APEC Study Centre, Issues Paper No. 22 (2002), at p. 19. Commonwealth of Australia, Voting on Trade, above note 48, at paras. 6.90-6.98. Pharmaceutical Benefits Scheme, Data and Modelling Section Pharmaceutical Policy and Analysis Branch, Expenditure and prescriptions twelve months to 30 June 2006 (Canberra, 2006), at p. 1. National Health Act 1953 (Cth), s. 101(3A). 98 Ibid., s. 101(3). 18 ANDREW D. MITCHELL AND TANIA VOON AUSTRALIA- UNITJ:lD STATES FREE TRADE AGREEMENT consumers and consistent with maintaining a sustainable pharmaceutical industry in Australia'. 99 Froni the Australian government's perspective, the PBS is designed not to restrict trade but to ensure Australians have access to affordable medicines. 100 Indeed, it has been described as 'a highly effective and efficient public policy device that provides Australian citizens with some of the lowest pharmaceutical prices in the developed 101 world' . From the perspective of US drug manufacturers, the PBS interferes with market pricing and precludes sufficient rewards to encourage or fund research and development, leaving consumers in countries with higher priced drugs, such as the US, to subsidize Australian consumers in this regard. 102 The AUSFTA contains obligations regarding pharmaceuticals and the PBS primarily in Annex 2-C (the goods chapter), an exchange of side letters, and Chapter 17 (the intellectual property chapter, as discussed further below). The concrete obligations relevant to the PBS in Annex 2-C include providing greater transparency and procedural fairness, for example by providing an 'independent review process' on request by applicants affected by recommendations or determinations.103 Australia's Minister for Health and Ageing released details in February 2005 of how the independent review would work. 104 The Parties also agree to greater coordination between their relevant administrative bodies 'with a view to making innovative medical products more quickly available to their nationals'. 105 Under the side letters, Australia provides several additional assurances to the US with express reference to the PBS. In particular, Australia agrees to grant procedural rights to applicants seeking to have a pharmaceutical listed under the PBS such as 'an opportunity to consult relevant officials prior to submission of an application for listing'. Australia also agrees to 'reduce the time required to implement recommendations ... where possible' and to 'provide opportunities to apply for an adjustment to the price of a pharmaceutical under the PBS' .106 According to Crump, '[t]he US was very unsatisfied with this outcome, just as Australia was very unsatisfied with the outcome in agriculture' .107 This is consistent with one commentator's conclusion that ' [t] he fundamental principles that support the PBS remain virtually untouched by the AUSFTA and nothing can be read into the agreement that impairs Australia's ability to deliver fundamental healthcare policy objectives'. 108 Not surprisingly, the Australian government has emphasized that the AUSFTA did not requirechangesto the National Health Act 1953 (Cth) and that the changes that the AUSFTA did require actually improve the PBS by making it 'more accountable and more transparent for all stakeholders'. 109 Nevertheless, some regard the AUSFTA outcome for the PBS (or the fact that provisions relating to the PBS were included at all) as 'amajor concession to the United States brand name . lm . d ustry'110 p h armaceut1ca . B. Services Key disciplines and scope Chapter 10 of the AUSFTA 'applies to measures adopted or maintained by a Party affecting cross-border trade in services by service suppliers of the other Party' .111 Certain areas are excluded from this broad scope, such as air services. Like the General Agreement on Trade in Services (GATS), 112 Chapter 10 does not apply to 'services supplied in the exercise of governmental authority' 113 or government procurement, 114 nor does it impose obligations 'with respect to a national of the other Party seeking access to its employment market, or employed on a permanent 106 99 ° 10 101 102 103 104 105 Pharmaceutical Benefits Pricing Authority, Annual Report for the Year Ended 30 ]une 2006 (Canberra: Commonwealth of Australia, 2006), at pp.1 and 4. Commonwealth of-Australia, Voting on Trade, above note 48 at para. 6.93 (quoting Minister for Health and Ageing, Tony Abbott in 'Drugs Threaten US Trade Deal', The Australian, 27 October 2003). Clive Hamilton, Buddhima Lokuge and Richard Denniss, 'Barrier to Trade or Barrier to Profit? Why Australia's Pharmaceutical Benefits Scheme Worries U.S. Drug Companies' (2004) 4(2) Yale Journal of Health Policy, Law & Ethics 373-85 at 382. Peter Sainsbury, 'Australia - United States Free Trade Agreement and the Australian Pharmaceutical Benefits Scheme' (2004) 4(2) Yale Journal of Health Policy, Law & Ethics 387-99 at 390. See also Maurice Rickard, 'Free Trade Negotiations, the PBS, and Pharmaceutical Prices', Parliament of Australia Research Note No. 32 (10 February 2004). AUSFTA, Annex 2-C, para. 2(f). Tony Abbott, Australian Minister for Health and Ageing, 'Australia- United States Free Trade Agreement (AUSFTA) & the Pharmaceutical Benefits Scheme (PBS): Statement on the Implementation of Australia's AUSFTA Commitments', February 2005, attached to Tony Abbott, Australian Minister for Health and Ageing, Media Release: 'Australia-United States Free Trade Agreement and the Pharmaceutical Benefits Scheme', 4 February 2005. AUSFTA, Annex 2-C, para. 4. "19 107 108 109 110 111 112 113 114 Side letters from .Mark Vaile (Australian Minister for Trade) to Robert Zoellick (USTR) and from Robert Zoellick to Mark Vaile dated 18 May 2004. Crump, above note 36, at p. 496. . . Bryan Mercurio, 'The Impact of the Australia-United States Free Trade Agreement on the ProviSlon of Health Services in Australia' (2005) 26(4) Whittier Law Review 1051-100, at 1096. Abbott, Media Release, above note 104. Thomas A. Faunce, Kellie Johnston and Hilary Bambrick, 'The Trans-Tasman Therapeutic Products Authority: Potential AUSFTA Impacts on Safety and Cost-Effectiveness Regulation for Medicines and Medical Devices in New Zealand' (2006) 37(3) Victoria University of Wellington Law Review 365-90 at 366. See also Thomas A. Faunce, Pharmaceutical Innovation in the AUSFTA: Implications for Public Health Policy in the US and Australia (Canberra: Centre for Governance of Knowledge and Development, Australian National University, 2005), at p. 2; and Peter Drahos, Buddhima Lokuge, Tom A. Faunce, Martyn Goddard and David Henry, 'Pharmaceuticals, Intellectual Property and Free Trade: The Case of the US -Australia Free Trade Agreement' (2004) 22(3) Prometheus 243-57 at 246-7. AUSFTA, Article 10.1.1. . LT/UR/A-1B/S/1 (signed 15 April1994, in force 1 January 1995). AUSFTA, Articles 1.2.22 and 10.1.4(e); cf. GATS, Articles I.l, I.3(b) and I.3(c). AUSFTA, Article 10.1.4(b); cf. GATS, Article XIII:1 (excluding government procurement from the obligations of nationai treatment, MFN treatment, and market access). 20 ANDREW D. MITCHELL AND TANIA VOON AUSTRALIA- UNIT;ED STATES FREE TRADE AGREEMENT basis in its territory'. 115 Unlike the GATS, Chapter 10 specifically excludes subsidies from its scope. 116 The general approach of Chapter 10 involves a 'negative list' or 'top down' approach. In other words, the basic disciplines on trade in services apply to measures in all service sectors except where expressly excluded. The same approach applies in GATS with respect to the most favoured nation (MFN) obligation. 117 However, under GATS, national treatment and market access apply according to a 'positive list' or 'bottom up' approach, i.e. only in sectors for which and to the extent that the relevant WTO Member has included those commitments in its GATS ScheduleY 8 This difference renders the services liberalization under the AUSFTA considerably more significant than that under GATS. Under the AUSFTA, a service sector or measure that is not mentioned is .covered, whereas under GATS, an unmentioned sector is not covered by national treatment or market access. From an economic perspective, a negative list approach is generally preferable, but this may raise concerns about the compliance of future measures with the AUSFTA. In its report before the conclusion of the AUSFTA, the Foreign Affairs, Defence and Trade References Committee of the Australian Senate recommended against negative lists in future bilateral FTAs, 119 stating: time, Parties may not 'restrict oi require specific types oflegal entity or joint venture through which a service supplier may supply a service'. 124 · In accordance with the · negative list approach, the key services disciplines regarding MFN treatment, national treatment, local presence 125 and market access do not apply to 'existing non-conforming measures' that a Party maintains either at a local level of government or the central or a regional level of government to the extent set out in the Party's Schedule to Annex I 126 (with both Parties scheduling all existing non-conforming measures maintained at the regionallevel). 127 A 'ratchet' mechanism applies to these non-conforming measures, 128 such that if a Party amends a non-conforming measure to make it conform more closely with the relevant AUSFTA obligations, the exception continues to apply to the amended non-conforming measure. However, the exception will no longer apply to a nonconforming measure that is amended to become less conforming at any time. 129 Thus, in the words of DFAT, 'the liberalized measure becomes "bound" as part of the Agreement's treaty commitments'. 130 These key disciplines also do not apply to measures that a Party adopts with respect to sectors or activities as set out in its Schedule to Annex II. A small error in the wording of a reservation, or an unanticipated technological development, or the devising of an entirely new service of major significance, could easily result in a country being deprived of the right, and a future government of its responsibility, to make policies about, and to regulate, that service in the national interest. The primary AUSFTA disciplines on services are MFN treatment 120 and national 121 (that is, respectively, according the other Party's service suppliers treatment treatment no less favourable than that accorded to a non-Party's service suppliers or to a Party's own service suppliers in like circumstances). In addition, the obligation regarding local presence states that a Party may not require a service supplier of the other Party to establish an enterprise or to be resident in its territory as a condition for supplying cross-border services. 122 Finally, the market access obligation prohibits Parties from maintaining measures that limit the supply of services, for example limitations on the number of service suppliers, the total value of service transactions or assets, the total number of service operations, or the total number of natural persons who may be employed in a particular service sector. 123 At the same Audiovisual services Australia's Schedules to both Annex I and Annex II include reservations regarding measures affecting audiovisual services. Under Annex I, Australia includes as a nonconforming ｩｲｴｾ｡ｳｵ･＠ (contrary to the national treatment obligation) ' [t] ransmission quotas for local content imposed on free-to-air commercial analogue and digital ... television broadcasting services ... up to 55 percent of programming transmitted annually between 6:00 a.m. and midnight' .131 Under Annex II, Australia reserves the right to adopt or maintain, inter alia: • '[t]ransmission quotas for local content, where more than one channel of programming is made available by a provider of free-to-air commercial television broadcasting services'; 132 • in the case of subscription television broadcasting services, ' [e]xpenditure requirements for Australian production not exceeding 10 per cent of total program expenditure'; 133 and 124 125 126 115 116 118 119 120 AUSFTA, Article 10.1.5; cf. GATS, Annex on Movement of Natural Persons Supplying Services under the Agreement, para. 2. AUSFTA, Article 10.l.4(d); cf. GATS, Article XV. 117 GATS, Article II. Ibid., Articles XVI: 1 and XVII: l. Commonwealth of Australia, Voting on Trade, above note 48, at para. 6.89 (Recommendation 12). 121 AUSFTA, Article 10.3. Ibid., Article 10.2. 122 Ibid., Article 10.5. 123 Ibid., Article 10.4(a). 21 128 129 130 13! 132 Ibid., Article 10.4(b). On the 'local presence' obligation, see above note 122 and corresponding text. AUSFTA, Article 10.6.1(a). 127 Ibid., Annex I (Australia, 1) (US, 12). DFAT, Guide to the Agreement, above note 23, at p. 47. AUSFTA, Article 10.6.1(c). DFAT, Guide to the Agreement, above note 23, at p.47. AUSFTA, Annex I (Australia, 14). As indicated above, if Australia lowers the local content quota it cannot subsequently raise it (see above notes 129 and 130 and corresponding text). AUSFTA, Annex II (Australia, 5). 133 Ibid., Annex II (Australia, 6). 22 ANDREW D. MITCHELL AND TANIA VOON AUSTRALIA- UNIT,ED STATES FREE TRADE AGREEMENT • in the case of free-to-air radio broadcasting services, ' [t] ransmission quotas for local content'. 134 appeared to 'win' this issue in the AUSFTA negotiations, although the US has agreed to similar exceptions in other FTAs as well. 143 Some doubts remain as to whether Chapter 10 applies to Australia's public broadcaster, the Australian Broadcasting Corporation, or whether that body falls within the exclusions for subsidies or ° d government-supp11e serv1ces. 144 Australia also reserves the right to maintain 'preferential co-production arrangements for film and television productions', whereby works covered by such arrangements will receive national treatment, 135 potentially contrary to the MFN obligation. Australia maintains similar MFN exemptions under GATS. 136 The audiovisual industry was reported to create '[t]he most contentious services 37 issue' / reflecting the long-standing problem oftrade and culture. 138 Indeed, the Foreign Affairs, Defence and Trade References Committee explained that it had: encountered vigorous advocacy from screen writers, producers, artists and media workers in favour of strong protection for cultural policies such as quotas of Australian production in television and interests related to audioand the development and delivery of the so-called visual services, ｣ｯｰｹｲｩｾｨｴ＠ 'creative industries.' 13 Although Australia abstained from voting on the new Convention on the Protection and Promotion of the Diversity of Cultural Expressions in the United Nations Educational, Scientific and Cultural Organization (UNESCO) and has not acceded to the Convention, 140 prior to and within the WTO it has supported the notion of some form of special treatment for trade in audiovisual services in recognition of their cultural value. 141 In contrast, in both UNESCO and the WTO, the US has long opposed singling out audiovisual services in this way. 142 Australia therefore 134 136 137 138 139 140 141 142 Ibid., Annex II (Australia, 6). 135 Ibid., Annex I (Australia, 8). WTO, Australia-Final List of Article II (MFN) Exemptions, GATS/EL/6, 15 April 1994. See also WTO, Council for Trade in Services, Australia: Revised Services Offer, TN/S/O/AUS/Rev.1, 31 May 2005, at p. 67. Crump, above note 36, at p. 496. For further discussion of the trade and culture problem in the context of the WTO, see generally Tania Voon, Cultural Products and the World Trade Organization (Cambridge University Press, 2007); Tania Voon, 'A New Approach to Audiovisual Products in the WTO: Rebalancing GATT and GATS' (2007) 14(1) UCLA Entertainment Law Review 1-32; Tania Voon, 'State Support for Audiovisual Products in the World Trade Organization: Protectionism or Cultural Policy?' (2006) 13(2) International Journal of Cultural Property 129-60; and Tania Voon, 'UNESCO and the WTO: A Clash of Cultures?' (2006) 55(3) International & Comparative Law Quarterly 635-52. . Commonwealth of Australia, Voting on Trade, above note 48, at para. 6.112. States parties listed at http://portal.unesco.org/la/convention.asp?K0=31038&language=E&order=alpha (last visited 8 April 2007). GATT, Uruguay Round Group of Negotiations on Services, Working Group on Audiovisual Services, Note on the Meeting of 5 and 18 October 1990, MTN.GNS/AUD/2, 20 December 1990, at paras. 3 and 5; and Australian DFAT, 'Australian Intervention on Negotiating Proposal on Audiovisual Services', Council for Trade in Services Special Session, Geneva, July 2001. GATT, Uruguay Round Group of Negotiations on Services, Working Group on Audiovisual Services, Note on the Meeting of 27-28 August 1990, MTN.GNS/AUD/1, 27 September 1990, at paras. 2 and 26; WTO, Council for Trade in Services, Communication from the United Stater-Audiovisual and Related Services, S/CSS/W/21, 18 December 2000, at paras. 7 and 10(ii); WTO, Council for Trade in Services, Communication from Hong Kong China, Japan, Mexico, the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, and United States: Joint Statement on the Negotiations on Audiovisual Services, TN/S/W/49, 30 June 23 0 Telecommunications, financial services, and electronic commerce Separate chapters app1y to teIecommumcatwns, 145 fi nanCI"al serv1ces, 146 an'd e1ectromc commerce. 147 The telecommunications obligations in Chapter 12 include ensuring 0 0 0 ° that suppliers of public telecommunications services provide number portability for fixed telephony148 and dialling parity, 149 as well as a number of obligations regarding the conduct of 'major suppliers' of public telecommunications services. 150 These kinds of provisions go beyond the basic prohibitions on discriminatory and trade restrictive government measures to address private conduct (which is also covered in Chapter 14 on 'competition-related matters', another example of how the AUSFTA extends beyond the WT0). 151 Chapter 13 imposes specific national treatment/ 52 MFN treatment 153 and market access obligations 154 in relation to financial services, as well as additional obligations on matters such as cross-border supply of financial services 155 and additional exceptions for measures such as 'measures for prudential reasons, including for the protection of investors ... or to ensure the integrity and stability of 143 144 145 148 149 150 151 152 2005, at para. 4; UNESCO, General Conference, Preliminary Report by the Director-General Setting out the Situation to be Regulated and the Possible Scope of the Regulating Action Proposed, Accompanied by the Preliminary Draft of a Convention on the Protection and of the Diversity of Cultural Contents and Artistic Expressions, 33 C/23 (4 August 2095), at paras. 58, 59, 61 and 70; and Robert Martin, 'Final Statement of the United States Delegation', Third Session of the Intergovernmental Meeting of Experts, UNESCO, Paris, 3 June 2005. See, e.g., United States-Chile Free Trade Agreement (signed 6 June 2003, in force 1 January 2004), Annex I (Chile-3); and North American Free Trade Agreement (NAFTA), 32 ILM 289 and 605 (signed 17 December 1992, in force 1 January 1994), Annex 2106. Commonwealth of Australia, Final Report, above note 17, at paras. 6.43-6.47. AUSFTA, Chapter 12. 146 Ibid., Chapter 13. 147 Ibid., Chapter 16. Meaning 'the ability of end-users of public teletomm.unications services to retain, at the same location, existing telephone numbers when switching. between suppliers of like public telecommunications services': AUSFTA, Article 12.25.11. Meaning 'the ability of an end-user to use an equal number of digits to access a like public telecon1munications service, regardless of the public telecommunications service supplier chosen by such end-user and in a way that involves no unreasonable dialing delays': AUSFTA, Article 12.25.3. As defined in AUSFTA, Article 12.25.8. See generally Jane Rennie, 'Competition Regulation in SAFTA, AUSFTA and TAFTA: A Spaghetti Bowl of Competition Provisions' (2007) 13(2) International Trade Law & Regulation 30; Jane Rennie, 'Export Exemptions and the Australia-United States Free Trade Agreement: Legitimate Domestic Protections or Self-defeating Protectionism' (2006) 12(1) Internatibnal Trade Law & Regulation 21; and Andrew D. Mitchell, 'Broadening the Vision of Trade Liberalisation: International Competition Law and the WTO' (2001) 24(3) World Competition: Law and Economics Review 343-65. 155 AUSFTA, Article 13.2. 153 Ibid., Article 13.3. 154 Ibid., Article 13.4. Ibid., Article 13.5. 24 ANDREW D. MITCHELL AND TANIA VOON the financial system' 156 and 'non-discriminatory measures of general application taken by any public entity in pursuit of monetary and related credit policies or exchange rate policies' .157 The negotiation of Chapter 16 on. electronic commerce caused some consternation in Australia, particularly because of its potential relationship with audiovisual services: 'If e-commerce is defined as "all digital products" this is a clear back door way to include cultural industries in a trade agreement'. 158 Article 16.4 does impose non-discrimination obligations (both national treatment and MFN treatment) in relation to digital products, which is defined broadly as 'the digitally encoded form of computer programs, text, video, images, sound recordings, and other products, regardless of whether they are fixed on a carrier medium or transmitted 159 electronically'. However, Article 16.4.4 makes clear that these obligations do not prevent Parties from maintaining measures pursuant to exceptions they have listed in the general services and investment chapters, 'including measures in the audiovisual and broadcasting sectors'. Also, perhaps recognizing the ongoing debate in the WTO over the treatment of audiovisual products, 160 a footnote emphasizes that '[t]he definition of digital products should not be understood to reflect a Party's view on whether trade in digital products through electronic transmission should be categorized as trade in services or trade in goods' .161 The second major discipline imposed in Chapter 16 involves an agreement not to 'impose customs duties, fees, or other charges on or in connection with the importation or exportation of digital products, regardless of whether they are fixed on a carrier medium or transmitted electronically'. 162 This corresponds with but goes significantly further than the WTO informal moratorium on imposing customs duties on electronic transmissions. 163 C. Investment The loudly proclaimed benefits to Australia arising from a liberalised foreign investment regime and from dynamic productivity gains are based on a series of inferences and educated guesses. 164 156 158 159 161 163 164 Ibid., Article 13.10.1. 157 Ibid., Article 13.10.2. Commonwealth of Australia, Voting on Trade, above note 48, at para. 6.121. AUSFTA, Article 16.8.4 (footnote omitted). 160 See above note 138 and corresponding text. AUSFTA, Chapter 16, note 7. 162 Article 16.3 (footnote omitted). WTO, Ministerial Conference, Doha Work Programme: Ministerial Declaration Adopted on 18 December 2005, WT/MIN(05)/DEC, 22 December 2005, at para. 46; and Sacha Wunsch-Vincent, WTO, E-commerce, and Information Technologies: From the Uruguay Round through the Doha Development Agenda, A Report for the United Nations Information and Communication Technologies Task Force (19 November 2004), at para. 40. See also Andrew D. Mitchell, 'Towards Compatibility: The Future of Electronic Commerce Within the Global Trading System' (2001) 4(4) Journal of International Economic Law 683-723. Commonwealth of Australia, Final Report, above note 17, at para. 8.52. AUSTRALIA- UNITED STATES FREE TRADE AGREEMENT 25 Key disciplines and scope Chapter 11 on investment goes much further than the corresponding WTO provisions.165 The whole of Chapter 11 of the AUSFTA applies to measures of a Party relating to investors of the other Party166 (including nationals and enterprises) 167 or to 'covered investments', 168 which are very broadly defined as 'every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk', including assets such as enterprises, shares, intellectual property rights and construction 169 contracts. Measures caught by Chapter 11 are subject to a wide range of obligations. The national treatment and MFN treatment obligations apply with respect to the 'establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments'. Thus, with respect to those matters, each Party must accord investors of the other Party and covered investments 'treatment no less favourable than that it accords, in like circumstances', to its own investors or their investments (national treatment) 170 and to investors of any non-Party or their investments (MFN treatment). 171 In addition, even apart from these non-discrimination obligations, each Party must accord 'covered investments treatment in accordance with the customary international law minimum standard of treatment of aliens, including fair and equitable treatment and full protection and security'. 172 Chapter 11 also imposes significant prohibitions on performance requirements. In general, 173 this means that a Party may not impose requirements 'in connection with the establishment, acquisition, expansion, management, conduct, operation, or sale or other disposition of an investment of an investor of a Party or of a non-Party in its territory' to, inter a:lia, export a certain amount or proportion, use a certain 174 amount or proportion of domestic content, or transfer a particular technology. Additional prohibitions are imposed on conditioning the receipt of an advantage with certain other performance requirements. 175 165 166 167 168 172 173 174 See Agreement on Trade-Related Investment Measures, LT/UR/A-1A/13 (signed 15 April1994, in force 1 January 1995). AUSFTA, Article 11.).1(a). Ibid., Article 11.17.4. Nationals are defined to include permanent residents: AUSFTA, Article 1.2.16; Annex 1-A, para. 1. 171 Ibid., Article 1l.l.l(b). 169 Ibid., Article 11.17.6. 170 Ibid., Article ＱＮｾ＠ Ibid., Article 11.4. Ibid., Article 11.5.1 (see also Annex 11-A). This is subject to certain exceptions, including some analogous to those found in Article XX of GATT' 1994; AUSFTA, Article 11.9.3(c). A.USFTA, Article 11.9.1. 175 Ibid., Article 11.9.2. 26 AUSTRALIA- UNITEp STATES FREE TRADE AGREEMENT ANDREW D. MITCHELL AND TANIA VOON Article 11.7.1 imposes the key discipline in relation to expropriation, as follows: Neither Party may expropriate or nationalise a covered investment either directly or indirectly through measures equivalent to expropriation or nationalisation ('expropriation'), except: (a) (b) (c) (d) for a public purpose; in a non-discriminatory manner; on payment of prompt, adequate, and effective compensation; and in accordance with due process of law. As with the minimum standard of treatment, these conditions on expropriation are 'intended to reflect customary international law concerning the obligation of States with respect to expropriation'. 176 They also correspond in part to provisions in the Australian and US Constitutions. The former takes the form of a limitation on legislative power, in that the Parliament is granted power to make laws with respect to '[t]he acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws'. 177 The latter forms part of the Bill of Rights, stating, 'nor shall private property be taken for public use, without just compensation'. 178 Article 11.7 does not apply to certain actions taken in connection with intellectual property rights. 179 In addition, actions cannot constitute expropriation unless they 'interfer[e] with a tangible or intangible property right or property interest in an investment' .180 A determination of whether an action constitutes an 'indirect expropriation ... requires a case-by-case, fact-based inquiry'. 181 In recognition of each Party's right to regulate within its territory for legitimate policy objectives, Annex 11-B makes clear that, ' [e] xcept in rare circumstances, nondiscriminatory regulatory actions by a Party that are designed and applied to achieve legitimate public welfare objectives, such as the protection of public health, safety, and the environment, do not constitute indirect expropriations'. 182 This provision suggests that an action that adversely affects an investment will fall outside Article 11.7.1 as long as it is for a legitimate regulatory objective and is non-discriminatory. Of course, it may be difficult to distinguish legitimate objectives and to assess whether a given action is in fact designed and applied to achieve such an objective. Therefore, some investors may be put off by the apparent uncertainty that this provision introduces. Chapter 11 also contains explicit exceptions for certain specified measures. Similar to the position under the services chapter, obligations such as those regarding national treatment, MFN treatment and performance requirements do not apply to 'existing non-conforming measure[s]' that a Party maintains either at a local level of government or at the central or a regional level of government to the 183 extent that the measure is included in the Party's Schedule to Annex 1. Moreover, a ratchet mechanism similar to that under the services chapter also applies to investment measures. 184 These key obligations also do not apply to measures a Party adopts with respect to sectors or activities as set out in its Schedule to Annex II. Thus, Australia 'reserves the right to adopt or maintain any measure with respect to 185 investment that accords preferences to any indigenous person or organisation' . Australia's non-conforming measures pursuant to Annex I include limits on foreign interests in Telstra (the country's dominant telecommunications provider, formerly a State monopoly), 'commercial television broadcasting licensee[s]', newspapers, and Australian international airlines including Qantas (the former State airline). 186 Furthermore, perhaps more controversially, the Parties agreed that Australia would list the non-conforming measure involving review by the Australian Foreign Investment Review Board (FIRB) of foreign investments in Australia. However, whereas previously the FIRB reviewed investments in businesses or corporations with assets valued at above AU$50 million, the deal struck under the AUSFTA meant that the FIRB would review such US investments only in certain sectors (such as telecommunications, transport, and military equipment) and in most other cases only where the relevant business or corporation had assets above AU$800 million (with both thresholds indexed annually). 187 Several Australians have raised concerns about this increased threshold, which they argue means that US companies may now acquire the vast majority of Australian companies without . 188 review. > Investment disputes On one view, the AUSFTA investment provisions are, in any case, 'largely unen190 the AUSFTA contains no forceable' .189 In contrast to several other FTAs, 183 184 185 186 187 188 189 176 178 180 Ibid., Annex 11-B, para. 1. 177 Australian Constitution, Article 51(xxxi) (emphasis added). United States Constitution, Fifth Amendment (emphasis added). 179 AUSFTA, Article 11.7.5. Ibid., Annex ll-B, para. 2. 181 Ibid., Annex 11-B, para. 4(a). 182 Ibid., Annex ｬｾｂＬ＠ para. 4(b). 27 190 Ibid., Article 11.13.1(a). DFAT, Guide to the Agreement, above note 23, at p. 56; and AUSFTA, Article 11.13.1(c). AUSFTA, Annex II (Australia, 1). Ibid., Annex I (Australia, 13, 15-16 and 19-20). In relation to Telstra, see also side letter from Mark Vaile (Australian Minister for Trade) to Robert Zoellick (USTR) dated 18 May 2004. AUSFTA, Annex I (Australia, 2-5). See also side letters on the FIRB from Mark Vaile (Australian Minister for Trade) to Robert Zoellick (USTR) and from Robert Zoellick to Mark Vaile dated 18 May 2004; Foreign Acquisitions and Takeovers Regulations 1989 (Cth), reg. 13; and www.firb.gov.au/content/ · US_thresholds.asp (last accessed 29 May 2007). Commonwealth of Australia, Final Report, above note 17, paras. 8.38-8.40. William S. Dodge, 'Investor-State Dispute Settlement between Developed Countries: Reflections on the Australia-United States Free Trade Agreement' (2006) 39(1) Vanderbilt Journal of Transnational Law 1-37 at 26. See, e.g., NAFTA, Chapter 11B; Singapore-Australia Free Trade Agreement (signed 17 February 2003, in force 28 July 2003), Article 14; and Thailand-Australia Free Trade Agreement (signed 4-6 July 2004, in force 1 January 2005), Article 917. 28 29 ANDREW D. MITCHELL AND TANIA VOON AUSTRALIA- UNITED STATES FREE TRADE AGREEMENT mechanism for resolving disputes between one Party and the investor of the other Party regarding the second Party's AUSFTA obligations (that is, 'investor-state dispute settlement'). Article 11.16.1 merely provides that, ifcircumstances affecting dispute settlement under AUSFTA Chapter 11 change, the Parties should be open to consultations with a view to establishing procedures to allow an investor of one Party to submit a Chapter 11 claim to arbitration with the other Party. This provision does not prevent an investor of one Party from submitting to arbitration an action against the other Party to the extent already allowed under the second Party's 191 domestic legal system. However, this avenue is not generally available under 192 US or Australian law. 193 . .. Accordingly, for now, investor-state disputes have to be resolved through the general 'state-state' dispute settlement mechanism established for resolving AUSFTA disputes between the Parties. 194 In other words, Australian investors will need to rely on the Australian government to bring AUSFTA disputes on their behalf regarding US compliance with AUSFTA obligations, and vice versa 195 (a step that Australia may be unwilling to take in any given case, for a variety of broader political or diplomatic reasons unrelated to the particular dispute). 196 Moreover, the international rule on exhaustion of local remedies 197 would probably require these investors to seek a resolution through Australian courts (for example, under section 51 (xxxi) of the Australian Constitution) 198 before resorting to state-state AUSFTA . 199 . d1spute settlement. DFAT contends that the Parties decided not to include an investor-state dispute settlement mechanism in the AUSFTA '[i]n recognition of the Parties' open economic environments and shared legal traditions, and the confidence of investors 200 in the fairness and integrity of their respective legal systems'. Given significant US interests pushing for such a mechanism 201 (other than State government interests who may see investor-state dispute settlement as an intrusion into their spheres of autonomy), 202 this outcome is often perceived as a victory for the Australian negotiators; 203 Australia apparently feared having to defend before a supra-national 204 tribunal large numbers of challenges by US investors (the US being more accustomed to these kinds of challenges through its experience with the North American Free Trade Agreement (NAFTA)) .zos The question nevertheless arises whether Australia paid too high a price, in other areas of the agreement, for this perceived benefit, particularly given that neither US support for nor Australian opposition to an investor-state dispute settlement mechanism was uniform. Alan Oxley, for example, a former Australian Ambassador to the General Agreement on Tariffs and Trade 1947 (GATT 1947) 206 and GATT Chairman, argued vigorously for the inclusion of such a mechanism, 207 while Noah Rubins contends that 'political forces in the US Congress threatened to derail negotiations if investor-state arbitration provisions were not removed', 208 at least in part due to negative experiences 209 in the NAFTA context. 191 192 193 194 196 197 198 199 AUSFTA, Article 11.16.2. Dodge, above note 189, at 25 (referring to United States-Australia Free Trade Agreement Implementation Act, 19 United States Code 3805 (2004), s. 102(c)(l)). See Minister for Immigration and Ethnic Affairs v. Teoh ( 1995) 183 CLR 273, paras-. 25-9 and 34 (Mason CJ and Deane J), paras. 21-3, 29 and 32 (Toohey J), and paras. 3 and 6 (Gaudron J) (treaties that Australia has ratified do not create a direct and independent source of individual rights and obligations under Australian law, although domestic statutes and regulations are to be interpreted, to the extent consistent with their language, in conformity with international law. In addition, treaties may affect the development of the common law in Australia, and ratification of a treaty gives rise to a legitimate expectation, in the absence of contrary statutory indications, that administrative decision-makers will act in accordance with the treaty.); cf. Re Minister for Immigration and Multicultural Affairs ex parte Lam (2003) 214 CLR 1, paras. 98-102 (McHugh and Gummow JJ), paras. 120-22 (Hayne J), and paras. 141-8 (Callinan J). See also Acts Interpretation Act 1901 (Cth), s. 15B(l). This mechanism is discussed in section IVB below. 195 AUSFTA, Article 11.16.2. Dodge, above note 189, at 8-9 and 27-8. See generally C. F. Amerasinghe, Local Remedies in International Law (2nd edn, Cambridge University Press, 2004). This provision states that 'The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to: - ... The acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws'. Dodge, above note 189, at 22-3 and 26. D. Intellectual property The· negotiation between the US and Australia of a free trade agreement ... was a negotiation between the first and 15th biggest economies in the world. On the key issue of intellectual property rights one might have expected 200 201 202 203 204 205 206 208 209 Australian DFAT, Guide to the Agreement, above note 23, at p. 59. See letters from Robert Zoellick, USTR, to Senator Robert Byrd and Dennis Hastert, Speaker, United States House of Representatives, 13 November 2002; William H. Cooper, The U.S.-Australia Free Trade Agreement: Provisions and Implications, CRS Report for Congress (Library of Congress, 12 January 2005), at p. 16; and Parliament of the Commonwealth of Australia, above note 16, at para. 4.22. Intergovernmental Policy Advisory Committee, 'The US-Australia Free Trade Agreement', Report to the President, the Congress, and the USTR (12 March 2004), at pp. 2, 6, 10-11 and 14-15. See, e.g., David Richardson, 'Foreign Investment and the Australia-United States Free Trade Agreement', Parliament of the Commonwealth of Australia Current Issues Brief No. 7 (8 March 2004). Commonwealth of Australia, Voting on Trade, above note 48, at paras. 6.130, 6.132 and 6.134(b); Dodge, above note 189, at 24-6; and Ann Capling and Kim Richard Nossal, 'Blowback: InvestorState Dispute Mechanisms in International Trade Agreements' (2006) 19(2) Governance 151-72 at 157-60. For more· information on the US experience with dispute settlement tribunals under NAFTA, see www. naftaclaims.com/disputes_us.htm, a comprehensive website administered by Canadian trade lawyer, Todd Grierson-Weiler. LT/UR/A-1Nl/GATT/2 (signed 30 October 1947). 207 Capling, above J!Ote 12, at pp. 71-2. Noah Rubins, 'Loewen v. United States: The Burial of an Investor-State Arbitration Claim (2005) 21(1) Arbitration International 1-36 at 34. Capling and Nossal, above note 204, at 161-5. AUSTRALIA- UNITED ST'ATES FREE TRADE AGREEMENT ANDREW D. MITCHELL AND TANIA VOON 30 Australia to do better than Chile (47th), Jordan (90th) or Honduras (lOlst) 210 did in their respective FTAs with the US. It did not. ｾｮｴ･ｬ｣ｵ｡＠ ｰｲｯ･ｾ＠ was the area in which the AUSFTA had perhaps the greatest Impact on Australian la_ws, ｡ｬｾｯｵｧｨ＠ the community protest may have been less ｰｲｯｾｵｮ｣･､＠ th_an that m relatiOn to agriculture and pharmaceuticals. It was a ｾ･ｬ｡ｴｩｶｹ＠ one-s1ded ou:come, in the sense that Chapter 17 significantly strengthens mtellectual property nghts, from whi.ch the US clearly has more to benefit than . a net.Importe_r . of.mtellectual property. 211 For example, in 2004, 1,170,447 Aust r alra, patents for which applicants were US residents were in force. The corresponding number for ｾｵｳｴｲ｡ｬｩｮ＠ residents was 22,502. 212 Many of the provisions of Chapter 17_ ｡ｾｳｯ＠ ｲ･ｱｭｾ､＠ Australia to bring its intellectual property laws closer in line with ex1stmg laws m the US. The AUSFTA exemplifies the trend towards 'TRIPS-plus' FTAs (particularly in ＲＱＳ＠ FTAs of the ｬＡｾＩＬ meaning FTAs including stronger or more rigorous intellectual property proVIsiOns than those contained in the Agreement on Trade-Related Aspects ?flntellectual ｐｲｯｰ･ｾｴｹ＠ ｒｩｧｨｾｳ＠ (TRIPS Agreement). 214 Each TRIPS-plus FTA tends to mcrease the protectwn of Intellectual property rights not only between the FTA partrlers but ｾｯｲ･＠ broadly across the WTO Membership, because the TRIPS Agreement does not mclude a general exemption from the MFN rule215 for FTAs ofth ki d fioun_d m . GATT 1994 and GATS. 216 This means that, in general, a WTO Member · e that n ｰｲｯｖＱ､ｾｳ＠ stronger intellectual property protections to one country must provide these p_rotectwns ｾｯ＠ all WTO _Members. This strengthening of intellectual property rights ｾｉｳｫ＠ ｵｾｳ･ｴｭｧ＠ the delicate balance between providing sufficient incentives for mnovatwn, on the one hand, and preventing anti-competitive conduct and ensuring access to new products and technologies, on the other.2I7 Chapter 17 has been described as 'the largest chapter in the AUSFTA in content and substance'. 218 It is ｮｾｴ＠ possible ｨｾｲ･＠ to discuss all the important aspects of the . ｣ｨ｡ｰｴｾｲＮ＠ However, we wish to mentiOn a few of the chief provisions regarding copynght and patents from Australia's perspective. 210 2!1 212 213 Drahos et a!., above note llO, at 243 (footnote omitted). See generally David Richardson, Intellectual Property Rights and the Australia-US Free Trade Agreem t Department of Parliamentary Services Research Paper No. 14 (Canberra, 31 May 2004). en' World ｉｮｴ･ｬｾ｣｡＠ Property Organization, WIPO Patent Report: Statistics on Worldwide Patent Activities, WIPO Pubhcatwn No. 931(E) (Geneva: WIPO, 2006), at p. 35. See ＿ｾｮ･ｲ｡ｬｹ＠ Carsten Fink and Patrick Reichenmiller, Tightening TRIPS: The Intellectual Property Provzszons of ｒｾ｣･ｮｴ＠ US Free Trade Agreements, World Bank Trade Note No. 20 (7 February 2005)· d Mercuno, :TRIPS-Plus Provisions in FTAs: Recent Trends' in Lorand Bartels and Ortlno (eds.), Regwnal Trade Agreements and the WTO Legal System (Oxford University Press 2006) pp.215-37. ' ' 215 LT/UR/A-1C/IP/1 (signed 15 April1994, in force 1 January 1995). TRIPS Agreement, Article 4. See below section IVC. F"m k an d Re!C . h enm1ller, . above note 213, at p. 8; and Richardson, above note 2ll, at p. 6. Commonwealth of Australia, Final Report, above note 17, at para. 3;1. ｂｲｹｾｮ＠ ｾＺ＠ 217 218 ｆ･､［ｩｾｯ＠ 31 In relation to copyright, the TRIPS Agreement generally requires the term of protection of a work to be no less than 50 years from first authorized publication, 219 where calculated 'on a basis other than the life of a natural person' . However, as a result of the AUSFTA, Australia had to extend its term of copyright protection for literary, dramatic, musical and artistic works from 50 to 70 years after the death of the author or first publication. 220 The principal beneficiaries of this change are US copyright owners such as the Disney Corporation, yet it is difficult to see how it can affect their incentives to create.Z21 Crump writes that a 'Senior Advisor to the Australian Prime Minister reported that this ... issue was sufficiently sensitive to 22 include the judgement of the Prime Minister in the final decision'.Z This is not surprising, given that the Australian government had previously accepted a recommendation by the Intellectual Property and Competition Review Committee that 223 the term of copyright protection not be extended. The AUSFTA also imposes obligations in connection with civil and criminal 24 recently liability for certain copyright-related breaches/ some of which ａｵｳｾｲ｡ｬｩ＠ 225 implemented. For example, AUSFTA strengthens copyright protection by requiring the Parties to impose liability for circumvention of' effective technological measure(s]', being devices intended to control access to protected works or copyright226 and by establishing stringent conditions that internet service providers must 227 · fulfil if they are to avoid liability for copyright infringements. We turn to the impact of the AUSFTA on patents. One ofthe biggest concerns about the intellectual property chapter of the AUSFTA was that it would allow the pharmaceutical industry to .engage in 'evergreening' or prolonged extension of 219 TRIPS Agreement, Article 12. 220 AUSFTA, Article 17.4.4; Copyright Act 1968 (Cth), ss. 33(2) and 33(3); and US Free Trade Agreement Implementation Act 2004 (Cth), Schedule 9, para. 120. 221 Richardson, above note 211, at p. 14. For further discussion, see Matthew Rimmer, 'Robbery under arms: Copyright law and the Australia-United States Free Trade Agreement' (2006) ll(3) First Monday 1-45 at 5-12; and Matthew Rimmer, The United States-Australia Free Trade Agreement & the Copyright Extension, A Submission to the Joint Parliamentary Standing Committee on Treaties (12 April 2004). 222 Crump, above note 36, at p. 505. 223 Intellectual Property and Competition Review Committee, Review of Intellectual Property Legislation under the Competition Principles Agreement, Final Report to ｓｾｮ｡ｴｯｲ＠ the Ron Nicholas Minchin, Minister for Industry, Science and Resources, and the Ron Daryl Williams AM QC MP, Attorney General (Australian Capital Territory: Commonwealth of Australia, September 2000), at p.13; and Government Response to Intellectual Properiy and Competition Review Recommendations: Information Package, p. 1, attached to IP Australia, News Item: 'Release of Government Responses to Recent Reviews of Intellectual Property Legislation', ·28 August 2001. 224 AUSFTA, Articles 17.4 and 17.11. 225 Copyright Amendment Act 2006 (Cth); and Commonwealth of Australia, Senate Standing Committee on Legal and Constitutional Affairs: Copyright Amendment Bill 2006 [Provisions] (Canberra, 2006), at para. 1.2. 226 AUSFTA, Article 17.4.7. See the discussion in Rimmer, 'Robbery under arms', above note 221, at 12-21. 227 AUSFTA, Article 17.11.29. See the discussion in Rimmer, 'Robbery under arms', above note 221; at 21-9. 32 patent rights. 228 This concern stemmed i1;1 part from Article 17.9.8 of the . which requires Parties to allow adjustment of a patent term to compensate 'unreasonable delays in [the] Party's issuance of patents' and, in the case of ｾＧＢﾷｬＮｴＺｵ＠ pharmaceutical products, for 'unreasonable curtailment of the effective patent as a result of the marketing approval process'. This. adds to the duration of patents even though Australia had already extended its patent term generallyfrom 16 to 20 years upon the establishment of the WT0 229 and, subsequently, its pharmaceutical, patent term for up to five additional years. 230 The TRIPS Agreement obliges WTO Members to prevent 'unfair commercial use' of 'undisclosed test or other data, the origination of which involves a considerable effort' when they require the submission of such data as a condition of approving the marketing of certain pharmaceutical products. 231 The AUSFTA goes further,, requiring Parties to prevent third persons (such as generic drug manufacturers); from marketing without consent the same or a similar product on the basis of such data for at least five years from the date that marketing approval is granted for the. · . must also prevent genenc . drug manufacturers from . . 1 pro duct. 232 p artles ongma marketing generic products that are claimed in a patent without the patent owner's consent or acquiescence, for the term of that patent. 233 This may raise the price of PBS and rion-PBS drugs in Australia and unnecessarily delay the introduction of generic versions of patented drugs as the patent reaches an end. 234 The AUSFTA also prohibits parallel imports of patented products. In other words, each Party's laws must provide that the sale or distribution of a patented product outside that Party's territory does not necessarily exhaust the patent owner's rights in that product: the patent owner may prevent the importation of the product without its consent by 'plac[ing] restrictions on importation by contract or other means'. 235 This means that neither Party could in future allow parallel imports in the face of restrictions imposed by the patent owner without violating the AUSFTA, even though the TRIPS Agreement allows WTO. Jyiembers to decide whether to adopt a national or international exhaustion approach. 236 Australia did not allow parallel imports of patented products anyway, but the AUSFTA now prevents it from reforming patent laws to do so. 237 Finally, the AUSFTA restricts the circumstances in which a Party may issue a compulsory licence of a patent to enable a third party to manufacture or export 228 229 230 231 234 235 237 AUSTRALIA- UNITED STATES FREE TRADE AGREEMENT ANDREW D. MITCHELL AND TANIA VOON Matthew Rimmer, 'The Jean Chretien Pledge to Africa Act: patent law and humanitarian aid' (2005) 15(7) Expert Opinion on Therapeutic Patents 889-909 at 900-2. Patents (World Trade Organization Amendments) Act 1994 (Cth), s. 4. Intellectual Property Laws Amendment Act 1998 (Cth), Schedule 1. . TRIPS Agreement, Article 39.3. 232 AUSFTA, Article 17.10.1(a). 233 Ibid., Article 17.10.4(a). Drahos et a!., above note llO, at 250-1; and Mercurio, above note 108, at 1083. AUSFTA, Article 17.9.4. 236 TRIPS Agreement, Article 6. Commonwealth of Australia, Final Report, above note 17, at pp. 259-60 (Australian Democrats Dissenting Report). 33 a product without the consent of the patent holder, for example to address a public health crisis within the territory of the Party or in another country. Whereas the TRIPS Agreement does not prescribe the circumstances in which a WTO Member may grant such a licence (provided that a number of stringent conditions are 238 the AUSFTA precludes fulfilled, such as payment of adequate remuneration), such licences except to remedy anti-competitive practices or 'in cases of public noncommercial use, or of national emergency, or other circumstances of extreme urgency'. 239 Again, Australian law did not make full use of the flexibilities built into the TRIPS Agreement in any case/40 but the AUSFTA removes the possibility of . so m . fu ture. 241 domg In sum, the restrictions that the AUSFTA places on marketing approval for new products, parallel imports, and compulsory licensing all threaten to diminish the potential of generic pharmaceutical products to promote public health within and outside Australia. Ironically, this comes at a time when WTO Members have reached a crucial agreement on allowing compulsory licensing to enable manufacture and export of pharmaceutical products to address the public health needs of 242 Members with insufficient manufacturing capacity in the pharmaceutical sector. At the least, several of the AUSFTA's TRIPS-plus provisions seem contrary to the 'spirit of the Doha Declaration, and will limit the capacity of States to progressively realize the human right to health'. 243 Unlike some other FTAs of the US, the AUSFTA contains no side letter confirming the importance of public health and the 244 intention not to interfere with public health objectives. As in the WTO, intellectual property rights are arguably out of place in an 245 PTA, given that they are not necessarily trade-liberalizing. On the other hand, 238 239 240 241 242 TRIPS Agreement, Article 31(h). AUSFTA, Article 17.9.7.. In contrast, Article 31(b) of the TRIPS Agreement provides that in those circumstances the Member may waive the requirement to 'ma[k]e efforts to obtain authorization from the right holder on reasonable commercial terms and conditions'. These circumstances are not a prerequisite to compulsory licensing per se. See Patents Act 1990 (Cth), s. 133 (as amended by Intellectual Property Laws Amendment Act 2006 (Cth), Schedule 8); and Commonwealth of Australia, Final Report, above note 17, at para. 4.ll9. See Rimmer, above note 228, at 902-3. WTO, Ministerial Conference, Declaration on the TRIPS Agreement and Public Health Adopted on 14 November 2001, WT/MIN(01)/DEC/2, 20 November 2001; WTO, General Council, Implementation of . Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health: Decision of 30 August 2003, WT/L/540, 2 September 2003; and WTO, General ｾｯｵｮ｣ｩｬＬ＠ Amendment of the TRIPS Agreement: Decision of 6 December 2005, WT/L/641, 8 December 2005. See generally Frederick M. Abbott, 'The WTO 243 244 245 Medicines Decision: World Pharmaceutical Trade and the Protection of Public Health' (2005) 99(2) American Journal of International Law 317-58. Carlos M. Correa, 'Implications of Bilateral Free Trade Agreements on Access to Medicines' (2006) 84(5) Bulletin of the World Health Organization 399-404 at 402. See also Fink and Reichenmiller, above note 213, at p. 3. As summarized in Fink and Reichenmiller, above note 213, at pp. 3 and 5. Thomas Cottier, 'The Agreement on Trade-Related Aspects of Intellectual Property Rights' in Patrick F. J. Macrory, Arthur E. Appleton and Michael G. Plummer (eds.), The World Trade Organization: Legal, 34 ANDREW D. MITCHELL AND TANIA VOON Chapter 17 may be seen as one of several areas in which the AUSFTA moves beyond trade liberalization and towards deeper integration through harmonization of regulations and the imposition of positive obligations. Other such areas include telecommunications, as discussed above, competi246 tion, labour and environment. In relation to the latter two areas, each Party agrees to 'strive to ensure that its laws provide for labour standards consistent with [certain] internationally recognised labour principles and rights' ,247 to 'ensure that its laws provide for and encourage high levels of environmental protection',248 and not to 'fail to effectively enforce' its labour or environmental laws 'in a manner affecting 249 trade between the Parties'. This differs considerably from the treatment of labour and environment in the WTO. Although WTO Members recognize the 'objective of sustainable development' and the need 'to protectand preserve the environment', 250 most concrete. provisions regarding labour or environment in the WTO simply allow departures, in certain circumstances, from the usual WTO disciplines like national treatment and MFN treatment, for instance, for measures 'relating to the products of prison labour' or 'relating to the conservation of exhaustible natural resources'. 251 IV. Implementation, impact and prospects A. Economic and political effects and review The AUSFTA is implemented and enforced by DFAT and the Office of the USTR. 252 A Joint Committee was established under the AUSFTA 'to supervise the implementation of this Agreement and to review the trade relationship between the 253 The Joint Committee met for the first time on 7 Minch 2006 in Parties'. Washington, DC, ｣ｯｾｨ｡ｩｲ･､＠ by Mark Vaile (the Australian Deputy Prime Minister and, at that time, Minister for Trade) and Rob Portman (USTR). 254 At that meeting, the Joint Committee identified gains from the AUSFTA to date and reviewed AUSTRALIA- UNITED STATES FREE TRADE AGREEMENT bilateral discussions on specific areas that had been taking place since the AUSFTA . c · lture, 255 SPS measures, 256 pro1esswna c . l servrces, . 157 . entered mto 10rce, namely agncu . 1 . 258 . • l 259 d d' . 260 u £ t t 1 financia services, competitiOn aw, an me rcmes. _ n or una e y, th e Australian Senate's Select Committee on the AUSFTA found little information available to it (let alone the public) regarding the work of the various monitoring 26 groups established under AUSFTA. I According to official reports following the Joint Committee meeting, the AUSFTA has led to substantial economic gains in both countries, including, from the Australian perspective: a 4.5 per cent increase in Australian services exports to the US in 2005; Australian export gains of 19 per cent to 229 per cent in industries from lamb and mutton to co-axial electric conductors; and the creation of a new E-3 262 visa category for Australians and their spouses to work in the US. From the US perspective, the USTR reported a 10.9 per· cent increase in US goods exports to Australia since the AUSFTA entered into force, including exports of pork, fruit and 263 vegetables, rice, wine, machinery, trucks and parts, and aircraft. These official statements may not tell the whole story, just as Australian government studies supporting entry into the AUSFTA in the first place may present a skewed version of the numbers. For example, DFAT commissioned a study by the Centre for International Economics (CIE) that found that the AUSFTA would 264 increase Australia's net national income by AU$359 million per year, whereas Philippa Dee of the Australian National University (in a study commissioned by the Australian Senate's Select Committee on the AUSFTA) 265 made various criticisms of 266 the CIE's modelling and calculated the gain as only AU$53 million per year. 255 256 257 258 259 260 261 246 249 250 251 252 253 254 Economic and Political Analysis (New York: Springer, 2005), vol. I, pp. 1041-120 at pp.l045 and 1054; and Richardson, above note 211, at p. 3. See above note 151 and corresponding text. 247 AUSFTA, Article 18.1.2. 248 Ibid., Article 19.1. Ibid., Articles 18.2.1(a) and 19.2.1(a). Marrakesh Agreement Establishing the World Trade Organization, LT/UR/A/2 (signed 15 April1994, in · force 1 January 1995), Preamble. GATT 1994, Articles XX( e) and XX(g). Committee on Regional Trade Agreements and Council for Trade in Services, Free Trade Agreement between the United States and Australia: Notification from the Parties, WT/REG184/N/1, S/C/N/310, 23 December 2004. AUSFTA, Article 21.1.1. 'Australia-United States Free Trade Agreement: Inaugural meeting of the AUSFTA Joint Committee', 7 March 2006, Washington, available at www.fta.gov.au/default.aspx?FolderiD=416&ArticleiD=992 (last accessed 2 March 2007). 35 262 263 264 265 266 See AUSFTA, Article 3.2 (Committee on Agriculture). See ibid., Article 7.4 (Committee on Sanitary and Phytosanitary Measures) and Annex 7-A (Standing Technical Working Group on Animal and Plant Health Measures). See ibid., Annex 10-A (Working Group on Professional Services). See ibid., Article 13.16 (Financial Services Committee). See ibid., Article 14.2.4 (Joint Working Group on Competition Law and Anti-Competitive Business Conduct). See ibid., Annex 2-C, para. 3 (Medicines Working Group). Commonwealth of Australia, Final Report, above note 17, at para. 1.56. See above note 254. In relation to the E-3 visa, see Department of State, 'Visas: Treaty Trader, Treaty Investor, or Treaty Alien in a Specialty Occupation', United States Federal Register, Vol. 70, No. 170 (2 SeptembeJ:"-2005), at p. 52292. Office of the USTR, Press Release: 'USTR Portman Meets With Australian Deputy Prime Minister Mark Vaile', 7 March 2006. Centre for International Economics, Economic Analysis of AUSFTA: Impact of the bilateral free trade agreement with the United States prepared for Department of Foreign Affairs and Trade (Canberra: CIE, 2004), at p. 82. Commonwealth of Australia, Final Report, above note 17, at para 1.71. Dee, above note 83, at pp. 24-33. Garnaut also identifies assumptions and limitations of the modelling exercises on which DFAT based its predictions: Ross Garnaut, An Australia-United States Free Trade Agreement, Australian National University School of Pacific and Asian Studies, Research Paper (2001), at pp. 14-16. Cf. Alan Oxley, Free Trade Agreements in the era of globalization: new instruments to advance new interests- the case of Australia, APEC Study Centre, Issues Paper No. 22 (2002), at pp. 12-15; and AUSTRALIA- UNITED STATES FREE TRADE AGREEMENT ANDREW D. MITCHELL AND TANIA VOON 'Overall', according to Siriwardana, 'there is a modest welfare loss amounting to U.S.$179 million to the world as a result of the AUSFTA'. 267 These are nevertheless prospective estimates, based on a number of variables and assumptions, and we may have to wait several more years to determine the full and precise impact of the AUSFTA on Australia's economy. Similarly, Australia's Joint Standing Committee on Foreign Affairs, Defence and Trade concluded in Novemb.er 2005 that it was 'too early to assess the performance of Australia's free trade agreements' with Singapore, Thailand and the US. 268 Certain areas covered by the AUSFTA may be subject to additional obligations, deeper integration, or at least further negotiations in the future. For example, the US has agreed to 'initiate a review of measures affecting cross-border trade in the higher education sub-sector for the purpose of providing greater transparency' with respect to certain States. 269 A side letter to the AUSFTA also identifies the 'shared objective of a more liberal air transport agreement between our two countries' and the US 'wish to promote continued liberalization in international air transportation bilaterally'. 270 What about Australia's trade in its own region? On one view, from a diplomatic perspective, the AUSFTA 'send[s] a message across Asia that Australia remains largely a traditional trading ally of the western world'. 271 A concrete economic concern is that the AUSFTA will cause trade diversion, entailing increased imports from the US at the expense of more efficient producers (facing higher trade barriers) in Australia's Asian trading partners, 272 with Australian consumers benefiting from only slightly lower prices and all the tariff revenue forgone by the Australian government remaining instead with .the US producers. 273 On the other hand, Australia has recently entered FTAs with Singapore and Thailand, . curren tly negotratmg . . PTAs wrt . h Ch'ma, 274 Japan275 an d Ma1aysra. . 276 In and it rs 277 addition, Australia is investigating the possibility of an PTA with Korea, and Australia and New Zealand have launched negotiations on a joint PTA with the 278 Association of Southeast Asian Nations (ASEAN). These steps may partially mitigate the political message of the AUSFTA (although not the problem 9f trade diversion). B. Resolving disputes 267 268 269 270 271 272 273 279 Disputes between the Parties regarding the existing AUSFTA rules are governed by Section B of Chapter 21. This section covers disputes 'regarding the interpretation or application' of the AUSFTA or where one Party considers that the other has failed to carry out its AUSFTA obligations or has adopted a measure inconsistent with those obligations. 280 Some matters are excluded from the dispute settlement system, 281 for example certain competition-related disputes. In addition, a form of 'nonviolation complaint' 282 is contemplated in relation to the AUSFTA chapters on national treatment and market access for goods, agriculture, rules of origin, crossborder trade in services, government procurement, and intellectual property 284 rights 283 (arguably among the most important chapters of the agreement). Specifically, a Party may bring a dispute where it considers that a 'benefit' that it 27 4 275 Australian APEC Study Centre, Monash University, An Australia-USA Free Trade Agreement: Issues and Implications: A Report for the Department of Foreign Affairs and Trade (Canberra: Commonwealth of Australia, 2001), at pp. 50-60. Mahinda Siriwardarta, 'The Australia-United States Free Trade Agreement: An economic evaluation' (2007) 18(1) North American Journal of Economics and Finance 117-33 at 125. Parliament of the Commonwealth of Australia, House of Representatives Joint Standing Committee on Foreign Affairs, Defence and Trade, 'Australia's free trade agreements with Singapore, Thailand and the United States: Progress to date and lessons for the future' (Canberra, November 2005), at para. 2.1. Side letters on education from Mark Vaile (Australian Minister for Trade) to Robert Zoellick (USTR) and from Robert Zoellick to Mark Vaile dated 18 May 2004. Side letters from John Byerly (Deputy Assistant Secretary for Transportation Affairs, United States Department of State) to Peter Yuile (Deputy Secretary, Department of Transport and Regional Services) and from Peter Yuile to John Byerly dated 18 May 2004. Islam, above note 19, at 59. Mahinda Si:riwardana, 'Australia's Involvement in Free Trade Agreements: An Economic Evaluation' (2006) 35(1) Global Economic Review 3-20 at 13; Siriwardana, above note 267, at 118-19 and 130; Garnaut, above note 266, at pp. 21-4; and Parliament of the Commonwealth of Australia, above note 16, at para. 2.33 (quoting submission by Garnaut). Dee, above note 83, at pp.l6-18 (see also pp. 37-9). 37 Memorandum of Understanding between the Department of Foreign Affairs and Trade of Australia and the Ministry of Commerce of the People's Republic of China on the Recognition of China's Full ｍ｡ｲｫｾｴ＠ Economy Status and the Commencement of Negotiation of a Free Trade Agreement between Australia and the People's Republic of China (signed 18 April 2005), para. 3. John Howard, Prime Minister o.f Australia, Media Release: 'Australia-Japan Free Trade Agreement', 13 December 2006; and Joint Consultative Committee, Joint Study for Enhancing Economic Relations between Japan and Australia, including the Feasibility or Pros and Cons of a Free Trade Agreement: Final Report (December 2006). See also Ippei Yamazawa, 'Australia-United States Free Trade Agreement and its Implications for Japan', in Muhammed A.B. Siddique (ed.), Regionalism, Trade and Economtc Development in the Asia-Pacific Region (Cheltenham: Edward Elgar, 2007), pp. 71-82. 276 277 278 279 280 282 283 John Howard, Prime Minister of Australia, Media Release: 'Prime Minister of Malaysia', 7 April 2005; and Australian Department of Foreign Affairs and Trade, An Australia-Malaysia Free Trade Agreement: Australian Scoping Study (February 2005). Warren Truss, Australian Minister for Trade, Media Release: 'Australia-Korea FTA Study', 6 December 2006. Joint Declaration of the Leaders at the ASEAN-Australia and New Zealand Commemorative Summit (signed 30 November 2004), para. 2. See also the discussion of investor-state dispute settlement in section IIIC above. AUSFTA, Articles 21.2(a) and 21.2(b). 281 Ibid., Article 14.11. . This concept derives from the WTO. See generally Frieder Roessler and Petina Gappah, 'A Re-appraisal of Non-Violation Complaints under the WTO Dispute Settlement Procedures', in Macrory, Appleton and Plummer, above note 245, pp. 1371-87; Gail E. Evans, 'A Preliminary Excursion into TRIPS and Non-Violation Complaints' (2000) 3(6) Journal of World Intellectual Property 867-88; and Sungjoon Cho, 'GATT Non-Violation Issues in the WTO Framework: Are They the Achilles Heel of the Dispute Settlement Process?' (1998) 39(2) Harvard International Law Journal311-56. These are Chapters 2, 3, 5, 10, IS and 17 respectively. 284 Dee, above note 83, at p.2. ·ANDREW D. MITCHELL AND TANIA VOON AUSTRALIA- UNITED STATES FREE TRADE AGREEMENT could 'reasonably have expected to accrue to it' under one of those chapters 'is being nullified or impaired as a result of a measure that is not inconsistent with this Agreement'. 285 This formulation broadly accords with the concept of non-violation as developed in the WTO, including the wording and interpretation of the equivalent WTO provisions. 286 Aside from the provisions detailing the coverage of the dispute settlement mechanism, certain other provisions affect the scope of AUSFTA dispute settlement. First, an exclusive choice of forum clause provides that, once a Party has chosen the forum for settling a dispute arising under both the AUSFTA and another trade agreement between the Parties (such as the WTO agreements) by requesting a Panel under either agreement, the dispute settlement forum provided under the other agreement may no longer be used. 287 Second, neither Party may provide for private rights of action under its domestic law enabling claims that a measure of the other Party violates the AUSFTA. 288 In certain respects, the AUSFTA dispute settlement mechanism mirrors that of the WTO. For example, disputes begin with mandatory consultations between the 289 Parties and may be resolved by Panels comprising three individuals appointed on an ad hoc basis, 290 who are to interpret the agreement 'in accordance with applicable rules of interpretation under international law as reflected in Articles 31 and 32 of the Vienna Convention on the Law ofTreaties' 291 and then prepare an 'initial report' for consideration by the Parties, followed by a 'final report'. 292 If a Panel rules in favour of the complainant, the AUSFTA contemplates proceedings by the same Panel to determine whether the responding Party ha:s complied with the ruling, 293 the provision of mutually acceptable compensation, 294 and the suspension of benefits by the complaining Party, 295 the level of which may need to be determined by the original Panel. 296 However, dispute settlement under the AUSFTA is different from that under the WTO in several ways. After consultations and before the establishment of a Panel, the Joint Committee will attempt to resolve the matter. 297 Panel hearings are public, subject to the protection of confidential information. 298 This differs from the situation in the WTO, where Panel 'deliberations' and Appellate Body 'proceedings' are to be confidentiarz99 and only two Panel hearings have been partially open to the public by consent of the disputing Parties 300 (although Members including the US support a more open process in WTO dispute settlement generally). 301 The AUSFTA also has no equivalent to the WTO's Appellate Body. 302 Implementation of adverse rulings under the AUSFTA also differs somewhat from the WTO system. AUSFTA Panels may only recommend how to resolve the dispute at the request of the Parties.303 In turn, the Parties are to 'agree on the resolution of the dispute, which normally shall conform with the determinations and recommendations, if any, of the panel'. 304 However, normally the resolution would be 'to eliminate the non-conformity or the nullification or impairment' ,305 which is similar to the usual requirement under the Understanding on Rules and Procedures ｇｯｶｾｲｮｩｧ＠ the Settlement of Disputes (DSU) to 'bring the measure into conformity' with the relevant agreement. 306 As an alternative to suspension of benefits, the AUSFTA provides for the non-complying Party to pay to the complaining Party an 'annual monetary assessment'. 307 Certain WTO Members have called for a similar system of monetary compensation in WTO dispute settlement, 308 which would at least remove the ideological and economic problems associated with suspending 'concessions' against a non-implementing Member (that is, the fact that this kind of retaliation is directly contrary to the theory of comparative advantage on which the WTO is based, 309 and that it hurts consumers and industrial users in the retaliating Member). However, some commentators 'argue that monetary assessments are typically very blunt and poorly targeted ways of correcting particular breaches'. 310 285 286 287 290 291 292 293 294 295 296 AVSFTA, Article 21.2(c). On the prevalence of and problems associated with non-violation complaint mechanisms in FTAs, see generally Locknie Hsu, 'Non-violation Complaints ｾ＠ World Trade Organization Issues and Recent Free Trade Agreements' (2005) 39(2) Journal of World Trade 205-37. GATT 1994, Article XXIII:1(b); GATS, Article XXIII:3; WTO Panel Report, EC-Asbestos, para. 8.283; WTO Panel Report, Japan-Film, paras. 10.41· and 10.61; and GATT Panel Report, EEC-Oilseeds I, para. 144. AUSFTA, Article 21.4. 288 Ibid., Article 21.15. 289 Ibid., Article 21.5 (cf. DSU, Article 4). 'AUSFTA, Article 21.7 (cf. DSU, Articles 6-8 and 11). AUSFTA, Article 21.9.2 (cf. DSU, Article 3.2); and WTO Appellate Body Report, US-Gasoline, pp.16-7. AUSFTA, Articles 21.9.1, 21.9.3 and 21.9.4 (cf. DSU, Article 15). AUSFTA, Articles 2l.ll.3(b) and 21.13 (cf. DSU, Article 21.5). AUSFTA, Article 2l.ll.l (cf. DSU, Article 22.2). AUSFTA, Articles 21.11.2 and 21.11.4 (cf. DSU, Articles 22.2-22.6 and 22.8). AUSFTA, Articles 2l.ll.3(a) and 21.11.4 (cf. DSU, Articles 22.6-22.7). 297 AUSFTA, Article 21.6. 298 299 300 301 302 304 306 308 309 310 39 Ibid., Article 2l.l(a). See also Bryan Mercurio and Rebecca Laforgia, 'Expanding Democracy: Why Australia Should Negotiate for Open and Transparent Dispute Settlement in its Free Trade Agreements' (2005) 6(2) Melbourne Journal of International Law 485-514 at 494-5. DSU, Articles 14.1 and 17.10. USTR, Notice of Public Meeting in the WTO Dispute: European Communities and Certain Member StatesMeasures Affecting Trade in Large Civil Aircraft (DS316), available at www.ustr.gov/assets/Trade_ Agreements/Monitoring_Enforcement/WTO_Airbus_ Case/asset_upload_file527_10870.pdf (last accessed 6 April 2007); and WTO, United States-Continued Suspension of Obligations in the EC-Hormones Dispute (WT/DS320); Canada-Continued Suspension of Obligations in the EC-Hormones Dispute (WT/DS321): Communication from the Chairman of the Panels, WT/DS320/8, WT/DS321/8, 2 August 2005. See, e.g., DSB (Special Session), Contribution of the United States on Some Practical Considerations in Improving the Dispute Settlement Understanding of the WTO Related to Transparency and Open Meetings, TN/DS/W/79, l3 July 2005. DSU, Article 17. 303 AUSFTA, Article 21.9.2 (cf. DSU, Article 19.1). AUSFTA, Article 21.10.1 (cf. DSU, Articles 21.1 and 21.3). 305 AUSFTA, Article 21.10.2. DSU, Article 19.1. 307 AUSFTA, Articles 2l.ll.5-2l.ll.7. See, e.g., DSB (Special Session), Negotiations on the Dispute Settlement Understanding: Proposal by the LDC Group, TN/DS/W/17, 9 October 2002, para. 13. See generally Alan 0. Sykes, 'Comparative Advantage and the Normative Economics of International Trade Policy' (1998) 1(1) Journal of International Economic Law 49-82. Dee, above note 83, at p.ll (cf. p.l3). 40 41 ANDREW D. MITCHELL AND TANIA VOON AUSTRALIA- UNITED STATES FREE TRADE AGREEMENT Where the dispute arises from a Party's failure to enforce labour or environmental laws in a manner affecting trade between the Parties, 311 the monetary assessment may be up to US$15 million per annum (adjusted for inflation? 12 and is to be paid into a fund used for 'appropriate labour or environmental law initiatives, including efforts to improve or enhance labour or environmental law enforcement ... in the territory of the Party complained against, consistent with its law'. 313 This provision strengthens the AUSFTA's focus on labour and environmental matters as creating positive obligations rather than merely justifying exceptions from the usual trade liberalizing rules, as discussed above. Several differences between the AUSFTA and the WTO can be seen as granting more power to the Parties rather than the Panels (which may be seen as quasijudicial decision-makers, as in the WTO). This applies to the inclusion of the additional step of referral to the Joint Committee between consultations and Panel establishment, the absence of an appellate tribunal, and the general approach to leaving the resolution of the dispute to the Parties after the final Panel report is issued. These differences may make the AUSFTA a good illustration. of William Davey's suggestion that 'WTO dispute settlement is viewed as more legitimate because it is less power-based and more rule-based than RTA dispute settlement'. 314 pursuant to Article XXIV:? of GATT 1994, the Understanding on the Interpretation of Article XXIV of GATT 1994, and Article V:7(a) of GATS, that they had 'signed and completed their respective domestic procedures for approval and implemenＳＱＷ＠ tation of the United States-Australia Free Trade ａｧｲ･ｭｾｮｴＧＮ On 11 March 2005, the Committee on Regional Trade Agreements (CRTA) adopted terms of reference to examine the AUSFTA 'in light of the relevant provisions of the GATT 1994 ... and to submit a report to the Council for Trade in Goods'. 318 The Working Party will assess the consistency of the AUSFTA with Article XXIV of GATT 1994 (particularly paragraphs 5 to 8), 319 and the Council for Trade in Services has also referred the AUSFTA to the CRTA for examination under GATS 320 (especially paragraphs 1 to 2 and 4 to 6 of Article V). The secretariat's factual presentation reports regarding the goods and services aspects were released on 11 and 4 June 2007, respectively. 321 Little WTO jurisprudence exists on the meaning of Article XXIV of GATT 1994 and Article V of GATS, probably because WTO Members prefer not to challenge each other's FTAs for fear of facing such challenges in return., Moreover, these provisions are exceedingly complex and ambiguous. 322 This makes it extremely difficult to assess with any certainty whether the AUSFTA complies with these WTO exceptions for FTAs. The two main conditions that the AUSFTA must Although some WTO Members, such as the US in particular, continue to call for increased Member control over WTO disputes, 315 from the perspective of the rule of law this is undesirable. In this sense, the Parties' greater control of AUSFTA disputes may represent a move backwards, towards the more diplomatic system of resolving . d 1sputes un d er t h e GATT 1947.316 And the beneficiary of a more power-based dispute settlement system under the AUSFTA will be, of course; the US (as it would in the WTO). 317 318 C. Conformity with WTO rules 319 Turning to the broader WTO context, on 22 December 2004, the Permanent Missions of the US and Australia to the WTO jointly notified other WTO Members, 312 Ibid., Article 21.12.2. 313 Ibid., Article 21.12.4. ::: Al!S_FTA, Articl;s _18.2.1(a) and ＱＹＮｾＨ｡Ｉ＠ Wilham Davey, Dispute Settlement m the WTO and RTAs: A Comment' in Lorand Bartels and Federico Ortino (eds.), Regional Trade Agreements and the WTO Legal System (Oxford University Press, 2006), pp. 343-57 at p. 356. 315 See, e.g., DSB (Special Session), Negotiations on Improvements and Clarifications of the Dispute Settlement ｕｮｾ･ｲｳｴ｡､ｩｧ＠ on I":proving Flexibility and Member Control in WTO Dispute Settlement: Contribution by Chtle and the Umted States, TN/DS/W/28, 23 December 2002; DSB. (Special Session), Further Contribution of the United States on Improving Flexibility and Member Control in WTO Dispute Settlement, ｔｎｾｄｓＯｗＸＲａ､ＮＱ＠ and Corr.l, 25 October 2005; and DSB (Special Session), Further Contribution of the Umted States on Improving Flexibility and Member Control in WTO Dispute Settlement, TN/DS/W/82/ Add.2, 17 March 2006. 316 See generally, e.g., Joseph H. H. Weiler, 'The Rule of Lawyers and the Ethos of Diplomats: Reflections on the Internal and External Legitimacy ofWTO Dispute Settlement' (2001) 35(2) Journal of World Trade 191-207. ° 32 321 322 Committee on Regional Trade Agreements and Council for Trade in Services, Free Trade Agreement between the United States and Australia: Notification from the Parties, WT/REG184/N/1, S/C/N/310, 23 December 2004. See also Council for Trade in Services, Report of the Meeting Held on 9 February 2005: Note by the Secretariat, S/C/M/77, 16 February 2005, paras. 8 and 10. Committee on Regional Trade Agreements, Free Trade Agreement between the United States and Australia: Terms of Reference of the Examination, WT/REG184/2, 21 June 2005. See, eg, Working Party on the Enlargement of the European Communities: Accession of Austria, Finland and Sweden, WT/REG3/l, 13 March 1995. On the many difficult issues surrounding the exception in Article XXIV of GATT 1994, see generally Nicolas Lockhart and Andrew D. Mitchell, 'Regional Trade Agreements under GATT 1994: An Exception and its Limits', in Mitchell, above note 3, pp. 217-52. See also James H. Mathis, Regional Trade Agreements in the GATT!WTO: Article XXIV and the Internal Trade Requirement (The Hague: TMC Asser Press, 2002); and Joel P. Trachtman, 'International Trade: Regionalism' in Andrew T. Guzman and Alan 0. Sykes· (eds.), Research Handbook in International Economic Law (London: Edward Elgar, 2007), pp. 151-76 at pp.160-72. Council for Trade in Services, Report of the Meeting Held on 9 February 2005: Note by the secretariat, S/C/M/77, 16 February 2005, paras. 11 and 12. Committee on Regional Trade Agreements, Factual Presentation: Free Trade Agreement between the United States and Australia (Goods)- Report by the secretariat, WT/REG 184/3 (11 June 2007); Committee on Regional Trade Agreements, Factual Presentation: Free Trade Agreement between the United States and Australia Ｈｓ･ｲｶｩ｣ｳＩｾ＠ Report by the secretariat, WT/REG184/4 (4 June 2007). See generally Lockhart and Mitchell, above note 319; and Mathis, above note 319. See also Trachtman, above note 319, at pp.160-72; Sungjoon Cho, 'Breaking the Barrier between Regionalism and Multilateralism: A New Perspective on Trade Regionalism' (2001) 42(2) Harvard International Law Journal 419-65 at 450-2; and Roberto V. Fiorentino, Luis Verdeja and Christelle Toqueboeuf, The Changing Landscape of Regional Trade Agreements: 2006 Update, WTO Discussion Paper No. 12 (Geneva: WTO Publications, 2007), at p. 27. ANDREW D. MITCHELL AND TANIA VOON AUSTRALIA- UNITED STATES FREE TRADE AGREEMENT satisfy to fall within the exception for a 'free-trade area' in Article XXIV of GATT 1994 are: ofthe AUSFTA overall for consumer or industry welfare. Instead of highlighting the benefits of liberalized trade as a platform for more ambitious progress at the multilateral level, the AUSFTA may have made Australians wary of further FTAs, particularly with developed countries, as well as trade liberalization more generally, including through the WTO. It has not, on the other hand, curtailed the government's taste for FTAs. We can only hope, as some DFAT officials have assured us, that this was a unique deal based on the particular status of the US and not a preview of bilateral or multilateral agreements to come. 42 [T]he duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free-trade area ... to the trade of Members not included in such area ... shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the 23 formation of the free-trade area .. ? · [T]he duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in . . . . h . . 324 pro ducts ongmatmg m sue terntones. A conclusion as to the consistency of the AUSFTA with these conditions would require an economic analysis of the effect of the AUSFTA on duties and regulations of commerce imposed on non-AUSFTA WTO Members, as well as its effect on duties and regulations of commerce between the US and Australia. The exclusion of particular areas such as sugar from the AUSFTA and the absence of any agreement to refrain from imposing anti-dumping duties on each other's imports325 mean that the agreement evidently does not eliminate duties and restrictive regulations of commerce on all trade between the Parties, but since elimination is required only with respect to 'substantially all the trade', this would not necessarily prevent the AUSFTA from falling within Article XXIV of GATT 1994. Similar but potentially more flexible requirements apply under the Article V exception of GATS. 326 V. Conclusion A common sentiment in Australia regarding the AUSFTA is that Australians were the losers in the agreement and that the government surrendered more than was necessary in a bid for political favour with the US. This feeling, which stems largely from the substance of the bargain in areas such as agriculture and intellectual property, was exacerbated by the manner in which the Australian government appeared to rush the agreement through, paying insufficient attention to community interests and concerns. Although, in the end, Australia managed to retain the substance of public policy mechanisms such as the PBS and local content quotas for audiovisual services, while resisting the US push for an investor-state dispute settlement mechanism, this was not enough to satisfy many Australians of the worth 323 325 326 GATT 1994, Article XXIV:S(b). 324 Ibid., Article XXIV:8(b). See AUSFTA, Article 2.10.1. This differs from the situation, for example, under the Protocol to the Australia New Zealand Closer Economic Relations-Trade Agreement on Acceleration of Free Trade in Goods (signed and in force 18 August 1988), Article 4.2. GATS, Articles V:1 and V:4. 43