Australia: HG makes submissions to the Joint Standing Committee on Treaties on ChAFTA

Agribusiness Alert: 28 July 2015
Last Updated: 5 August 2015
Article by Nicole Radice and Lea Fua

On 27 July 2015, HopgoodGanim Lawyers Partner, and head of the firm's Agribusiness practice, Nicole Radice, and Senior Associate Lea Fua appeared as witnesses before the Joint Standing Committee on Treaties (JSCOT). HopgoodGanim Lawyers was invited to make submissions in respect of the Free Trade Agreement between the Government of Australia and the Government of the People's Republic of China (ChAFTA) from an Agribusiness perspective.

Our submissions to JSCOT are set out below.

Chapter 2 – Trade in Goods

Chapter 2 of ChAFTA requires Australia and China to eliminate and not increase or introduce new customs duty on imports of an originating good from either country.

An exception to this is found in Article 2.14 which allows China a Special Agricultural Safeguard Measure. This measure allows China to apply additional customs duty where certain triggers are met in relation to the import from Australia of:

  • Fresh, chilled, and frozen bovine carcasses and meat; and
  • Sweetened and unsweetened milk and cream in solid forms.

Australia is China's dominant beef supplier with 57% of the import market. Tariffs on beef imports which currently range from 12% to 25% will be eliminated over nine years.

Between 2013 and 2014, Australia exported 161,000 tonnes of beef to China worth $787 million. China can avail itself of the safeguard measure where Australia's exports exceed a set annual safeguard trigger volume. The trigger volume starts at 170,000 tonnes and increases each year. The safeguard measure, if it is triggered, allows China to apply additional customs duty on the beef and dairy products.

Given the growth in Australian beef exports to China, the risk here is that the trigger is reached and China is able to apply additional customs duty. While there is a review process to consider removal of the safeguard, the process for this is not clearly set out in ChAFTA.

The availability of the safeguard measure to China is concerning and a clear process for the removal of the safeguard should be articulated.

Foreign investment in Agriculture

Investment in Australian Agriculture is not dealt with directly in ChAFTA but is set out in the Foreign Investment Policy of the Foreign Investment Review Board (FIRB) and will potentially be set out in proposed amendments to Australia's Foreign Acquisition and Takeovers Act.

Australia's need for foreign investment in Agriculture is no more clearly demonstrated than in the Agricultural Competitiveness White Paper which was recently released by the Federal Government. The white paper sets out the Government's policy approach to Agriculture, which includes a $4 billion commitment to the policy.

Under Australia's Foreign Investment Policy, foreign persons must seek prior approval for a proposed acquisition of an interest in rural land where the cumulative value of rural land that the foreign person and any associates already holds exceeds, or immediately following the proposed acquisition is likely to exceed, $15 million.

The Investment Policy also provides that the cumulative $15 million threshold will apply to all privately-owned investors except those from the United States, New Zealand, Chile, Singapore and Thailand. Private investors from these countries are subject to the following higher investments thresholds in Agriculture:

  • for Singaporean and Thai investors acquiring a substantial interest in a primary production business valued above $50 million; and
  • for United States, New Zealand and Chilean investors acquiring a substantial interest in a primary production business valued above $1.094 billion.

Investments in agriculture by foreign state-owned enterprises will continue to require mandatory pre-approval by FIRB regardless of the country of origin.

The Investment Policy also states that the Federal Government intends to introduce legislation which will require that, from 1 July 2015, foreign persons and foreign government investors holding interests in agricultural land must register those interests with the Australian Taxation Office (regardless of value of that land).

In respect of Chinese investments in Australian rural land, it is not clear whether the ChAFTA will result in an increase in the current threshold of $15 million for private investors to a level which aligns with private investors from other countries with which Australia has entered into free trade agreements.

Clearly, the Government intends to monitor more closely the acquisition of interests in Australian rural land by foreign persons and will ensure that the rural land register that is being proposed is an open and transparent method to do so.

However, the threshold for the acquisition of an interest in rural land by Chinese private investors should align with the current threshold levels which are available to private investors from the United States, New Zealand and Chile. Given the significant trading relationship between Australia and China and the proposed rural land register, a higher threshold for acquisitions of rural land by Chinese private investors is justified.

The Federal Government is proposing an overhaul of Australia's foreign investment laws. Under this overhaul it is currently being proposed that application fees will be introduced. Currently, applications to FIRB do not attract any application fees.

For investments in Agriculture, the following application fees are being proposed:

  • For rural land valued at $1 million or less – an application fee of $5,000 will apply
  • For rural land valued at greater than $1 million – an application fee of $10,000 incremental per $1 million in rural land value which will be capped at $100,000
  • Investments in Agribusinesses – an application fee of $25,000 or $100,000 where the proposed investment is greater than $1 billion.

For those private investors acquiring an interest in Agribusinesses which have substantial landholdings, it would be concerning if the proposed new application fees would result in those foreign investors having to pay not only an application fee for the acquisition of interests in rural land, but also the acquisition of interest in an Agribusiness.

Further clarity is required in relation to the FIRB application fees which are proposed to apply to investments in rural land and Agribusinesses.

Chapter 9 - Investments

National Treatment

Article 9.3 of ChAFTA deals with the reciprocal national treatment by each country of the investments of investors of the other country.


  • Australia shall accord to investors of China treatment no less favourable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, management, conduct, operation and sale or other disposition of investments in its territory; and
  • China shall accord to investors of Australia treatment no less favourable than that it accords, in like circumstances, to its investors with respect to the expansion, management, conduct, operation and sale or other disposition of investments in its territory.

The key difference in the requirement for each of the countries to apply reciprocal national treatment is that:

  • Australia is required to apply to an investor from China treatment no less favourable than it accords to Australian investors with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments in its territory; while
  • China is only required to apply equal national treatment to "the expansion, management, conduct, operation and sale or other disposition of investments in its territory";
  • The critical difference here is that there is no requirement on China to apply equal national treatment to investments by investors of Australia which is the "establishment and acquisition" of investments in China.

The difference (as the terminology suggests) here is that Australian investments in China which covers the "establishment and acquisition" of Australian investments in China may not receive equal national treatment by the Chinese government under the ChAFTA.

Future work program

The Investment Chapter is yet to be finalised and is on-going. In this respect, Chapter 9 sets out a future work program that a Committee on Investment is to look into. This committee is to be established.

Article 9.9 of ChAFTA requires the parties to undertake a review of the investment legal framework, as set out in ChAFTA, no later than 3 years after the date of entry into force of ChAFTA.

Australia and China are required to commence negotiations on a comprehensive Investment Chapter which will reflect the outcome of the review to be undertaken.

The future work program will include further articles to be added which will deal with:

  • Minimum standard of treatment;
  • Expropriation;
  • Transfers;
  • Performance requirements;
  • Senior management and board of directors;
  • Investment-specific state to state dispute settlement; and
  • The application of investment protections and ISDS to services supplied through commercial presence.

This presents an opportunity for community consultation for the further articles to be added.

Australia and China entered into the Australia-China Bilateral Investments Treaty in 1988 which affords certain protections to investments made by Australian and Chinese investors in each other's territory such as protection from unlawful expropriation and an obligation on the host state to ensure fair and equitable treatment towards investment.

It is assumed that the future work program is intended to agree on further articles in the Investment Chapter which will replace the Australia-China BIT; however this should be clarified.

Chapter 15 – Investor-State Dispute Settlement

A number of Australia's other bilateral free trade agreements also include Investor-State Dispute Settlement (ISDS) provision, and there have been some concerns raised in relation to the inclusion of ISDS provisions in the ChAFTA.

Put generally, ISDS allows a private investor to take action against a government as a result of policy changes by that government which has an adverse impact on the investor's investments. ISDS provisions are intended to reduce the political risks to foreign investors of government actions. They are additional to a country's regular legal system for settling disputes, and other mechanisms available to business to reduce their foreign risks, such as insurance and specific company-to-government agreements.

The Australian Government has been the subject of only one ISDS arbitration action so far; namely, the action by tobacco company Philip Morris against the Australian government as a result of plain packaging laws introduced by the Gillard Government in 2011. Other countries have also been subject to ISDS arbitration including for example:

  • In Germany in 2011 when a Swedish energy company commenced action against Germany claiming 1.4 billion euro as a result of strict restrictions on a coal-fired power plant. The same company has also commenced another ISDS claim against Germany as a result of Germany's decision to phase out the use of nuclear power;
  • The Canadian province of Quebec has placed a moratorium on fracking which has resulted in the revocation of exploration licence of an American resource company which is now suing the Canadian government for USD$230 million.

The key risks associated with ISDS provisions are as follows:

  • The quantum of claims under ISDS provisions are substantial and have the potential to adversely affect the wider economy if the claim is successful and compensation is paid;
  • ISDS action against a government, or the threat thereof, can affect government policy or, as in one case against the Government of Canada, require a government to change its policies;
  • ISDS cases are presided over by a tribunal of usually three arbitrators and not a court. The arbitrators are not bound by precedent (although in our experience they pay respect to legal precedent), however, this creates uncertainty in how decisions can be arrived at.

It should be noted that ISDS is also available to protect Australian investors who are investing overseas in countries with whom we have a bilateral agreement.

It would be useful for an independent body such as the Productivity Commission to be commissioned to look into the value of ISDS provisions for encouraging foreign investment into Australia and the risks involved.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Nicole Radice
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