Australia: How does the China-Australia Free Trade Agreement (ChAFTA) really impact the Australian labour market?

The China-Australia Free Trade Agreement (ChAFTA) is the single largest trade agreement Australia has negotiated. It was concluded after almost ten years of negotiation with our largest trading partner.

At present there is considerable uncertainty whether the enabling legislation for ChAFTA will be passed by federal Parliament, amid strong opposition to aspects of the deal from the Labor Party and the trade union movement.

Much commentary, and the political debate on ChAFTA, has focused on contentious provisions governing the temporary entry of Chinese workers into the Australian labour market.

In this extended Corrs Thinking Piece, we examine the impact of ChAFTA on local labour by comparing its provisions with the current 457 visa regime for temporary skilled workers and other FTAs entered into by Australia in recent years.

CHAFTA PROVISIONS ON LABOUR MOBILITY AND TEMPORARY ENTRY

Article 10.4(3) of the ChAFTA chapter on 'Movement of Natural Persons' provides that neither China nor Australia will impose a cap on temporary entry visas nor 'require labour market testing, economic needs testing or other procedures of similar effect as a condition for temporary entry'. The policy of labour market testing for 457 visa applications was reintroduced by the Rudd Government with effect from November 2013 (by which time the Abbott Government had been elected to office).

The proposed removal of labour market testing under ChAFTA would mean that in relation to Chinese 457 visa applicants, there would not be any requirement for an employer to prove a skills shortage in the Australian labour market or difficulty recruiting Australian workers.

These provisions of ChAFTA apply across various categories of temporary entrants listed under Annex 10-A, including 'contractual service suppliers' - defined as persons with 'trade, technical or professional skills and experience' who are engaged or employed by a Chinese enterprise supplying a service in Australia. This category would encompass the skilled workers currently covered by the 457 visa subclass for temporary employment under a standard business sponsorship arrangement.

HOW CHAFTA ALTERS THE STANDARD 457 VISA REGIME

Notwithstanding the removal of labour market testing, Art 10.4(2) of ChAFTA preserves the requirement that temporary visa applicants 'follow prescribed application procedures for the relevant immigration formality' and 'meet all relevant eligibility requirements for such temporary entry'. As such, all other requirements for standard 457 visa applications would apply, including the following:

  • Sponsorship obligations: to acquire approval as a sponsor, an employer must satisfy specified training benchmarks to demonstrate an ongoing commitment to training Australian workers (with sanctions applicable for failing to do so).
  • Market salary rate: Sponsors can only nominate specified occupations eligible for the 457 visa which are periodically revised by the Department of Immigration and Border Protection (DIBP); and must show that they will provide 457 visa nominees with no less favourable terms and conditions than those of an equivalent Australian worker. This ensures that overseas workers are not exploited or used to undercut local employment conditions.
  • The temporary skilled migration income threshold (TSMIT): The market salary rate of 457 visa nominees must be greater than an annually indexed TSMIT, to ensure that they will earn enough money to be self reliant in Australia.
  • Skills and language proficiency requirements: 457 visa applications are assessed by DIBP to ensure applicants meet necessary occupational qualifications and English language proficiency.

Aside from the removal of labour market testing, ChAFTA does not create any further exemptions in respect of 457 visa requirements for Chinese workers. Art 10.4(5) of the treaty explicitly preserves 'the requirements needed to carry out a profession or activity according to the applicable laws and regulations in force'. The overarching scope and purpose of the existing 457 visa program will therefore continue to be the basis for implementing Australia's specific commitments on labour mobility under ChAFTA.

THE 'CONCESSIONAL' VISA REGIME INTRODUCED BY THE CHAFTA INVESTMENT FACILITATION AGREEMENT MEMORANDUM OF UNDERSTANDING

Two additional Memoranda of Understanding (MOUs) were also negotiated as part of the ChAFTA package. While the MOU on Work and Holiday Visa Arrangements is uncontroversial, the MOU on 'Investment Facilitation Agreements' (IFAs) has been contested for its inclusion of further labour mobility provisions. These are designed to promote Chinese investment in major infrastructure development projects in Australia, by increasing access to skilled overseas workers where suitable labour cannot be found locally. The MOU outlines three steps to facilitate these temporary labour arrangements.

First, project companies must meet certain eligibility requirements to establish IFAs:

  • They must be registered Australian businesses making significant infrastructure investments in Australia in specified sectors, with an expected capital expenditure of more than $150 million.
  • They must be at least 50 percent owned by a Chinese enterprise; where no single enterprise owns 50 percent or more of the project company, a Chinese enterprise must hold a substantial interest of at least 15 percent.

Secondly, subject to a Department of Foreign Affairs and Trade (DFAT) assessment of eligibility, the project company heading the major infrastructure development project enters into direct negotiations with DIBP for an umbrella 'project agreement' arrangement concerning temporary overseas labour needs for the project. These are privately negotiated contractual arrangements. Depending on the nature of the project, the project company may obtain concessions under the 457 visa regime for proposed overseas workers, in respect of:

  • eligible occupations;
  • English language proficiency requirements;
  • qualifications and experience requirements; and
  • the terms and conditions of the TSMIT.

While there is no labour market testing requirement at this stage, the project company is expected to provide clear evidence of genuine labour market needs and their workforce strategy, stakeholder consultation and a 'strong business case' to support such requests.

Thirdly, after a project agreement is concluded, direct employers contracted by the project company can enter into individual labour agreements for 457 visas with DIBP which sit under the umbrella project agreement. It is at this stage that they may be subjected to labour marketing testing, and provide evidence of domestic recruitment activity and that no Australian workers have been made redundant in the last six months. The labour agreement may also be subject to a cap on annual visa nominations, monitoring of ongoing labour market needs and compliance with sponsorship obligations including training for Australian employees.

The overall effect of the MOU on IFAs is that ChAFTA does not give large Chinese investors the unfettered ability to import temporary labour. Rather, the treaty provides a secondary discretionary framework for DIBP to allow flexible concessions – in addition to the standard 457 visa regime – should the local labour market be unable to keep up with the demands for labour in large infrastructure development projects. It preserves labour market testing in these circumstances and ensures that Australian workers are given first priority.

This MOU does not technically form part of the formal treaty and its terms can be altered or re-negotiated by future governments. Given the weight public debate has placed on ChAFTA's temporary labour provisions, DFAT has issued clear details on the process of project and labour agreement approval.1 However, these processes will remain outside the purview of parliamentary scrutiny and will be a matter of private negotiation between DIBP and Chinese owned project companies under the IFA program.

LABOUR MARKET TESTING – OTHER CONSIDERATIONS

ChAFTA is the first time an Australian FTA has explicitly abolished labour market testing as a temporary entry requirement. However, labour market testing exemptions have been provided for visa applications from specific countries as a result of a number of negotiated agreements with Australia's other trading partners.

Under preferential trade agreements with Thailand, New Zealand, Chile, Korea and Japan,2 Australia already permits 457 visa nominations for contractual service suppliers from these countries without labour market testing, for varying periods of temporary stay, and does not impose any quotas on visas granted under these agreements. Exemptions from labour market testing also apply where the visa nominations are for current employees of associated entities of visa sponsors in these countries and other member countries of the Association of Southeast Asian Nations (ASEAN).

Commentators have also noted that both Liberal and Labor Governments have made efforts to entice foreign-owned entities investing in large scale projects, by allowing easier access to temporary overseas workers.3 In 2011, the Labor Government introduced Enterprise Migration Agreements (EMAs) to facilitate access to semi-skilled temporary workers on resources and mining projects that were worth more than $2 billion in capital expenditure and had a peak workforce of more than 1500 workers.

Proposed EMAs were viewed favourably by the Gillard Government for major resources developments such as the Roy Hill Project. Project proponents had considered a contingency for foreign skilled labour as necessary due to labour and skill shortages that existed at the height of the resources investment and construction boom. As the commodity prices boom started to dissipate, capacity returned to this sector of the labour market and the need for an EMA and use of foreign skilled labour also dissipated.

Similar labour market conditions arise infrequently and even when foreign skilled labour needs to be utilised for a major project there is no evidence to support a view that this will make any discernible difference to employment opportunities for Australians.

The complexity associated with meeting visa requirements, mobilising foreign nationals to work in Australia as well as paying them in accordance with local market rates along with the additional costs of other benefits that the sponsor employer is required to pay under 457 visa rules (e.g. private health insurance and travel costs) make it unlikely that this will ever be used by a major project participant except to deal with a labour market shortage. This dynamic is unchanged whether under the proposed ChAFTA arrangements, a range of other recent FTAs with Australia or the existing 457 visa regime.

Aside from international trade-based exemptions, the 457 visa regime already exempts a list of occupations from labour market testing. In effect, testing only applies to a minority of 457 visa holders in trade occupations classified in the 'Level 3' skills category. It has been noted that ChAFTA's abolition of labour market testing would only affect a minority of Chinese 457 visa holders who make up a small percentage of the 457 visa program: out of a total of over 38,000 457 visas granted between July 2014 and March 2015, only 6000 were in the Level 3 skill category. Of these, 2569 primary 457 visas were granted to Chinese citizens, of whom only 10 percent were subject to labour market testing.4

WILL CHAFTA FALL THROUGH?

ChAFTA was tabled in federal parliament on 17 June 2015 following the conclusion of negotiations with China, and will be subject to a public inquiry conducted by the Joint Standing Committee on Treaties (JSCOT). Treaty-implementing legislation was introduced to Parliament on 16 September 2015.

However, ChAFTA could be defeated in the Senate as Labor has opposed the treaty in its present form, on the basis that it does not provide adequate safeguards for Australian jobs. There is also concern that China will not be open to renegotiating the labour standards of the agreement.

In the face of a campaign portraying ChAFTA as an attack on 'Australian jobs', the Government has been at pains to emphasise that the ChAFTA labour mobility provisions do not in fact detract from the obligation of project companies under the IFA MOU regime to provide Australians with the first opportunity for employment.

Overall, though, there are significant holes in the arguments of those currently opposing ChAFTA and inconsistency with their silence in relation to similar labour market mobility provided for in other recent FTAs, as our analysis of the provisions of the treaty and supporting documents has shown.

Footnotes

1Information Note on Movement of Natural Persons Provisions: Joint Standing Committee on Treaties – China-Australia Free Trade Agreement, 17 August 2015.

2Under section 140GBA(1)(c) of the Migration Act 1958 (Cth), labour market testing requirements for visa nomination must not be inconsistent with Australia's international trade obligations. See Legislative Instrument IMMI 14/107 – Migration Act 1958: Determination of International Trade Obligations Relating to Labour Market Testing, which lists the following international trade agreements under which imposition of labour market testing for specific classes of persons would be inconsistent: Protocol on Trade in Services in the Australia-New Zealand Closer Economic Relations Trade Agreement, Thailand-Australia Free Trade Agreement, Korea-Australia Free Trade Agreement, Japan-Australia Economic Partnership Agreement.

3'Under free trade agreement, Chinese workers can avoid labour-market tests', Sydney Morning Herald, 4 September 2015.

4DIBP statistics cited in 'Relaxed labour test mirrors ALP's deal with Chile', The Australian, 3 September 2015.

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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