Australia and Singapore share a rich history, with both nations being a party to the Singapore-Australia Free Trade Agreement since it came into force on 28 July 2003. However, this long-standing relationship experienced another significant development with the signing of the Trans-Pacific Partnership agreement (TPP) on 4 February 2016, after more than five years of negotiations. It is expected that the TPP will, amongst other things, have a significant positive impact on the investment and financial services industries of Australia and Singapore.
What is the TPP?
The TPP is a regional free trade agreement between Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam (Participating Countries).
Some of the main aims of the TPP include:
- establishing a comprehensive regional agreement that promotes economic integration to liberalise trade and investment;
- establishing a predictable legal and commercial framework for trade and investment;
- promoting transparency, good governance and the rule of law; and
- creating the foundation of a Free Trade Area within the Asia Pacific.
The TPP consists of thirty chapters that cover a range of industries including investments, financial services, telecommunications, agriculture and e-commerce.
Australia and Singapore – Investment
Australia and Singapore already share a rich investment history, with Singapore's investment in Australia amounting to AU$80.2 billion, and Australia's investment in Singapore totalling AU$50.7 billion, in 20141. Singapore is Australia's biggest trade and investment partner in the Association of Southeast Asian Nations - ASEAN 2.
However, as a result of the TPP, there is significant potential for this bilateral investment to increase, as chapter nine of the TPP (concerning investment) includes a series of basic protections that are likely to increase investor confidence amongst Australian and Singaporean investors. Some of these basic protections include the following:
- National Treatment principle – which essentially requires each Participating Country to treat investors of another Participating Country and covered investments 3 no less favourably than it treats its own investors and the investments of its own investors, in "like circumstances", with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments;
- Most-Favoured-Nation Treatment principle – in essence, this requires each Participating Country to treat investors of another Participating Country and covered investments no less favourably than it treats investments and investors of any other country (including those which are not a party to the TPP), in "like circumstances" with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments;
- Transfer provisions – these provisions require each Participating Country to allow payments (for example, contributions to capital and distributions) relating to covered investments to be made freely and without delay into and out of its territory. However, a Participating Country may choose to prevent or delay a transfer through the equitable, non-discriminatory and good-faith application of its own laws, which may relate to such things as bankruptcy or criminal offences; and
- Investor-State Dispute Settlement provisions – which create an avenue for resolving disputes between investors and the Participating Countries.
Australia and Singapore – Financial Services
The Australian financial services industry includes banking, insurance and funds management, and generated a total of $3.3 billion in cross-border exports for Australia in 2014 4. Similarly, Singapore's financial services sector includes banking, capital markets, wealth management and insurance, and has more than 200 banks who call Singapore home with total assets of approximately US$2 trillion 5.
Chapter eleven of the TPP houses the financial services provisions and, similar to the investment chapter, it contains sections concerning the National Treatment and Most-Favoured-Nation Treatment principles in relation to financial institutions, financial service suppliers and investments in financial institutions. However, in addition to these basic protections, chapter eleven includes:
- Market access provisions – which introduce an obligation on Participating Countries not to impose limitations or restrictions on (amongst other things) the number of financial institutions, the total value of financial service transactions or assets, or the types of legal entities or joint ventures that a financial institution may supply a service through, subject to certain exclusions;
- New financial services – under this provision each Participating Country is obliged to permit a financial institution of another Participating Country to supply a new financial service in its territory, provided it would allow its own financial institutions to do so in like circumstances, without adopting a law or modifying an existing law, subject to certain exclusions;
- Mutual recognition of prudential measures – where a Participating Country recognises the prudential measures of another Participating Country or any other country (which is not a party to the TPP), that Participating Country shall provide other Participating Countries with the opportunity to demonstrate that they have equivalent regulation (including the implementation of such regulation) and oversight; and
- Portfolio management provisions – which states that a Participating Country shall allow a financial institution from another Participating Country to provide investment advice and portfolio management services (excluding trustee services and certain custodial and execution services) to collective investment schemes 6 located in its territory.
In light of the above developments, and chapter 11 of the TPP generally, there are additional opportunities for Australian and Singaporean financial services providers to increase their participation in each other's financial services markets through reduced regulatory restrictions, and the ability to provide certain financial services on a cross-border basis.
While the TPP has been signed by the Participating Countries, it still needs to be ratified prior to it coming into effect.
In Australia, the TPP was tabled in Parliament on 9 February 2016. Under the Australian treaty-making process, the Joint Standing Committee on Treaties will need to examine the TPP and report back to Parliament 7. Following which, Parliament must then consider and subsequently pass any legislation or amendments to existing legislation that may be necessary to implement the TPP .
However, in Singapore, ratification of the TPP will occur when it is approved by the Cabinet, and any necessary legislative changes are approved by Parliament 9.
The TPP will come into effect sixty days after all of the Participating Countries have notified the New Zealand government (in its capacity as 'Depository' of the TPP) that they have completed their domestic ratification processes 10. If this has not happened within two years of 4 February 2016 (being the date the TPP was signed), the TPP will come into force sixty days after this period, provided at least six of the Participating Countries (who account for eighty five percent of the collective GDP of the Participating Countries) have ratified the TPP 11.
3A Participating Country's investments that have been established, acquired, or expanded in a different Participating Country's territory as at (or after) the date the TPP has come into force.
6For Australia, a "managed investment scheme" as defined under section 9 of the Corporations Act 2001 (Cth), subject to certain limitations. For Singapore, a "collective investment scheme" as defined under the Securities and Futures Act (Cap. 289), subject to certain conditions.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.