WT/TPR/M/312/Add.1

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ANSWERS TO QUESTIONS FROM THE GOVERNMENT OF CHINA

Report by the Secretariat WT/TPR/S/312

Page 12, Para 1.1

The economy has now entered a transition period towards mining production and export as well as to broader-based drivers of activity in non-resources sectors.

Question 1

Please specify the non-resources sectors that the government aims to promote in this economic restructuring?

Answer

The Australian Government is aware of the challenges faced by the economy as it continues the transition to broader based non resources drivers of growth over the short-to-medium term.

While the Australian Government does not aim to promote any individual sector of the economy, it does, however, aim to facilitate structural adjustment through policies that enhance the flexibility and competitiveness of the economy more broadly.

Page 14, Para 1.2

A seemingly overvalued exchange rate, i.e. above most estimates of its fundamental value, presents, to some extent, a source of uncertainty for both economic activity and inflation; it remains subject to a number of downside risks, including changes in prices of key commodities exports, as well as future relative international interest rate movements. Tough reform seems required to avoid falling living standards. The main external risks include the pace of growth in China over the medium term, commodity price developments, and surges in global financial market volatility.

Questions 2 & 3

  • Has the overvalued exchange rate affected the overall economy and trading environment of Australia? Please give examples.
  • What measures has Australia taken or will it take to deal with or avoid problems arising from the overvalued exchange rate?

Answers

A stronger dollar helped the economy adjust to rising commodity prices during the mining investment boom without sparking inflationary pressures, just as a weaker dollar will assist the transition to growth in other sectors as commodity prices and resources investment ease from recent highs.

A high Australian dollar presents challenges for Australian businesses exposed to international competition. However, a high dollar also brings benefits for businesses and households. Australian businesses can purchase cheaper imported intermediate inputs, and take the opportunity to invest in imported machinery and equipment to lift future productivity and competitiveness. Benefits also flow to consumers, who can purchase cheaper imported goods and services.

Since it was floated in 1983, the value of the Australian dollar has been determined by market factors. The floating exchange rate acts as a shock absorber for the Australian economy, helping to moderate changes in the global economy and facilitating a smoother course for the Australian economy when patterns of production and growth change at home.

The most important contribution the Government can make is to run disciplined and prudent fiscal policy, to relieve upward pressure on interest rates and the exchange rate.

Page 19, Para 1.12

To ease the tax burden on businesses and on SMEs in particular, simplified and more generous amortisation rules allowing "carry back" losses to offset past taxable income have been in place since July 2012. According to the OECD, the tax structure is relatively inefficient; the general consumption tax burden is relatively low (below OECD average) while headline corporate income tax is comparatively high (above OECD average) for a capital-importing country like Australia (section 3.4.1.2).

Question 4

How will Australia further relieve the tax burden of SMEs? What measures will be taken to better safeguard the interests and reduce the tax burden of foreign-invested SMEs in Australia?

Answer

Australia is keenly aware of the burden that the tax system places on small and medium enterprises, particularly with respect to compliance and complexity. The Government's objective is to achieve a better tax system that delivers taxes that are lower, simpler and fairer, including for SMEs. To achieve this we have commenced a discussion and review process which will ultimately deliver a white paper on tax reform. This process will promote a community-wide conversation on how we can create a tax system that supports higher economic growth and living standards, improves our international competiveness and adjusts to a changing economy and new opportunities."

Page 26, Para 2.3

However, higher screening thresholds for non-sensitive sectors are increasingly being incorporated into RTAs. As at the time of Australia's previous Review, proposed investments are almost always allowed, but conditions are often attached, particularly in the real estate sector.

Questions 5 & 6

  • What are the departments involved in the review of foreign investment in Australia?
  • Which RTAs have incorporated "higher screening threshold"? Specifically which investment areas have been covered?

Answers

The Foreign Investment Review Board is a non-statutory body to advise the Treasurer on Australia's Foreign Investment Policy and its administration. The Board's functions are advisory only. The Treasury provides secretariat services to the Board and is responsible for the day to day administration of the arrangements. As part of the assessment process, Treasury consults with relevant government agencies when reviewing foreign investment proposals.

Responsibility for making decisions rests with the Treasurer.

Australia's regime for foreign investment screening with Free Trade Agreement (FTA) partners has been developed in the context of each individual negotiation.

The general screening thresholds are listed below:

  • Acquisitions of 15 per cent or more in Australian businesses valued above $252 million;
  • Acquisitions of rural land where the cumulative value of rural land that the foreign person already holds exceeds, or immediately following the proposed acquisition is likely to exceed, $15 million;
  • All direct investments, establishment of new businesses and land acquisitions by foreign government investors.
  • The FTAs that are currently in force where Australia has made investment commitments include:
  • Australia New Zealand Closer Economic Relations 1983
  • Singapore Australia Free Trade Agreement 2003
  • Thailand Australia Free Trade Agreement 2005
  • Australia United States Free Trade Agreement 2005
  • Australia Chile Free Trade Agreement 2009
  • Korea Australia Free Trade Agreement 2014
  • Japan Australia Economic Partnership 2015

The thresholds listed below apply instead of the general screening thresholds above.

Country / Foreign investment screening regime commitments
Chile / $1,094million (indexed annually) for most business acquisitions and developed commercial realestate (including agriculture). $252million for business acquisitions in prescribed sensitive sectors.
Japan / $1,094million (indexed annually) for most business acquisitions and developed commercial realestate. $252million for business acquisitions in prescribed sensitive sectors.$15million (cumulative) threshold for investments in agricultural land and the provision has been made to apply a $53million threshold for agribusiness investments.
Korea / $1,094million (indexed annually) for most business acquisitions and developed commercial realestate. $252million for business acquisitions in prescribed sensitive sectors.$15million (cumulative) threshold for investments in agricultural land and the provision has been made to apply a $53million threshold for agribusiness investments.
New Zealand / $1,094million (indexed annually) for most business acquisitions and developed commercial realestate (including agriculture). $252million for business acquisitions in prescribed sensitive sectors.
Singapore / $50million for primary production businesses.
Thailand / $50million for primary production businesses.
United States / $1,094million (indexed annually) for most business acquisitions and developed commercial realestate (including agriculture). $252million for business acquisitions in prescribed sensitive sectors.

Note: China will receive the same thresholds as Japan and Korea when the China-Australia FTA enters into force.

Page 28, Para 2.12

Current procedures do not provide for an independent and transparent analysis of the final text of a proposed agreement after negotiation but before signing. Although it is not a constitutional requirement, treaties are in practice put before Parliament's Joint Standing Committee on Treaties post signature, but pre-ratification, allowing for review by this body.…… A tabled treaty is accompanied by a National Interest Analysis (NIA) and a Regulatory Impact Statement (RIS), if it affects business or restricts competition.

Questions 7 & 8

  • A trade (investment) agreement is subject to the review of Australian Parliament and accompanied by the NIA and the RIS post-signature but pre-ratification. How will the problems identified in this process be addressed, if any?
  • Does Australia have any plan to adjust and modify the current procedures to make it more independent and transparent?

Answers

Committees of the Australian Parliament have oversight and the ability to review all of Australia's FTAs, and to report to the Australian Parliament including prior to entry into force. The Government thoroughly considers all findings and recommendations of the Committees, in light of the public interest, and may seek to rectify any concerns that may be identified prior to ratification. Australia's FTAs can be further amended, and reviewed as they are implemented including through "built-in agendas" in many cases. The Government continues to consult closely on Australia's FTAs, and as part of this ongoing engagement is always looking at ways to make the current procedures more transparent, without compromising the confidence required in negotiating FTAs.

Page 32, Para 2.28

Concerns have been expressed by the business community about the relatively high cost of labour in Australia and the need for a more flexible approach to granting visas so as to engage skilled and semi-skilled foreign workers where needed. Concerns have also been raised regarding high levels of regulatory burden, particularly in the areas of industrial relations, employment, occupational health and safety, and compliance with various tax payment requirements. Transport costs and shortcomings have also been identified as an impediment to trade and the operational efficiency of businesses.

Question 9, 10 & 11

  • What specific measures has the Australian Government taken to introduce skilled foreign workers? How the effective are these measures? In addition to safety factors, what elements are considered by Australia in granting visas to skilled workers?
  • What measures has Australia taken or will it take to reduce the regulatory burden that is prevalent in the country?
  • What measures has Australia taken or will it take to improve transport conditions in Australia?

Answers

The Temporary Work (Skilled) visa (subclass 457) programme is Australia's temporary skilled migration programme. The programme allows employers to address labour shortages by enabling businesses to sponsor skilled workers from outside Australia when an equivalently skilled and experienced Australian cannot be found. It is uncapped, demand driven and designed to be responsive to immediate business needs. The Australian Government is committed to ensuring the 457 programme remains flexible and responsive to the economic cycle in line with employer demand.

Businesses operating in Australia can sponsor skilled overseas employees under the 457 programme through:

  • the standard business sponsorship arrangement; or
  • a labour agreement, resource sector labour agreement, designated area migration agreement, enterprise migration agreement.

International businesses that have a contractual obligation to perform work for, or provide services to, an Australian business, can sponsor skilled overseas employees under the 457 programme through an overseas business sponsorship.

To be eligible for a 457 visa, workers must meet visa application requirements, such as demonstrating a good level of English proficiency and holding the requisite skills necessary to perform the nominated occupation.

Further information is available from the Department of Immigration and Border Protection's website at:

While well designed and targeted regulation can contribute to economic growth and minimise risks for the community, removing unnecessary regulation can help increase Australia's productivity.

To reduce the stock of existing regulations, the Government has a red tape reduction target of $1 billion per year for businesses, individuals and community organisations. Since the 2013 election, the Government has announced more than $2.45 billion in red tape savings. To stem the flow of new regulation, all regulatory proposals must be accompanied by a Regulation Impact Statement and regulatory burden costing, and any burden imposed by a new regulation must be offset.

The way regulators engage with people is just as important as what the regulations themselves impose. To review regulator behaviour, the Government has developed a Regulator Performance Framework that will apply from 1 July 2015.

In relation to the issues raised in the pre-amble to this question, the recent Productivity Commission inquiry into Public Infrastructure (the Inquiry) found that there was limited evidence of large cost differentials in infrastructure between Australia and comparable countries. In particular, the Inquiry concluded that skills shortages were unlikely to be a major cost driver for large infrastructure projects in Australia. However, the Inquiry did identify a need for reforms to achieve better labour and construction markets.

In response to these issues, the Australian Government has committed to acting to improve workplace relations in the construction industry through the re-establishment of the Australian Building and Construction Commission, a specialist regulator with increased powers to address unlawful industrial action, unlawful picketing, coercion and discrimination.

Additionally, the Australian Government has undertaken reforms to the Australian Government Building and Construction OHS Accreditation Scheme (the Scheme), which came into effect on 1 January 2015. These changes to the Scheme are designed to cut regulatory burdens on builders, boost competition and ensure that safety standards are enhanced. Arrangements now exist under the scheme that allow both international and domestic builders who have not yet been accredited under the Scheme to participate in Australian Government-funded construction, if participating in joint ventures with accredited builders. The Federal Safety Commissioner, who is tasked with the enforcement of the Scheme, will also undertake consultations to identify further opportunities to improve access for international firms in order to increase competition and utilisation of international expertise, while ensuring competitive neutrality for domestic firms.

Australia's large land mass and dispersed population centres mean that transportation costs can be significant. The Australian Government is committed to improving the productivity of the transport sector, including though: investments - a record AUD $50 billion investment in infrastructure and better project prioritisation and selection, supported by a national infrastructure audit and 15-year plan; deregulation – removal of inefficient and unnecessary transport regulations, and a nationally consistent approach for rail, maritime and heavy vehicle regulation; coastal shipping - review of options to improve the competitiveness and efficiency of domestic shipping; and foreign investment - the Government is actively seeking to attract and retain foreign investment for infrastructure to build Australia's infrastructure capabilities.

Page 32, Para 2.31

Australia has also implemented reforms to its Regulatory Impact Analysis (RIA) Framework in order to limit the flow of new regulations. For several years, policy-makers have been required under this Framework to draw up a Regulation Impact Statement (RIS) before a decision is taken either to introduce or abolish a regulation. In March 2014, the Commonwealth Government made changes to RIS requirements designed to support the Government's red tape reduction target (see above). Key changes introduced were that all Cabinet Submissions now require a RIS and all RISs must quantify the regulatory costs to business, community organizations and/or individuals of new regulations and identify offsetting regulatory costs. Agencies are encouraged to issue an early RIS assessment to assist consultation. The Office of Best Practice Regulation (OBPR) is charged with administering the RIA requirements.

Question 12

According to the new RIS requirements, all RIS must quantify the regulatory costs to business, community organizations and individuals before deciding on introducing or abolishing a regulation. Please introduce the main contents of the RIS and its effects in the society?

Answer

The content of a RIS depends on the type of Regulation Impact Statement (RIS) prepared.

A long form RIS contains answers to all seven RIS questions, analysis of genuine and practical policy options, analysis of the likely regulatory impact, evidence of appropriate public consultation, a formal cost-benefit analysis; and a detailed presentation of regulatory costings and offsets.

A standard form RIS contains answers to all seven RIS questions, analysis of genuine and practical policy options, analysis of the likely regulatory impact, evidence of appropriate public consultation, and a detailed presentation of regulatory costings and offsets.

A short form RIS contains a summary of the proposed policy and any options considered, an overview of the likely impacts and an outline of regulatory costs and cost offsets.

The seven RIS questions are:

  • What is the policy problem you are trying to solve?
  • Why is government action needed?
  • What policy options are you considering?
  • What is the likely net benefit of each option?
  • Who will you consult about these options and how will you consult them?
  • What is the best option from those you have considered?
  • How will you implement and evaluate your chosen option?

Further information on the content of RISs can be obtained at ris.dpmc.gov.au

The Australian Government Guide to Regulation sets out ten principles for Australian Government policy makers. The first principle is that regulation should not be the default option for policy makers: the policy option offering the greatest net benefit should always be the recommended option. The second principle is that regulation should only be imposed when it can be shown to offer an overall net benefit.

Page 33, Para 2.33

Under the Australian Jobs Act 2013 (which entered into force on 27 December 2013) and its accompanying Australian Jobs (Australian Industry Participation) Rule 2014, proponents of major projects in Australia with a capital expenditure of $A 500 million or more, are required to prepare and implement an Australian Industry Participation (AIP) plan. This should outline how such projects will provide full, fair and reasonable opportunities for Australian industry to supply goods and services