ASEAN-CER Integration Partnership Forum

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ASEAN-CERIntegration Partnership Forum

• Kuala Lumpur
• Saturday 25 June 2011

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Overview of Economic Integration Between
Australia and New ZealandWhat HappenedHow it
Happened

• Presentation for
• Integration Partnership Forum
• Kuala Lumpur, 25 June 2011
• Robert Scollay
• APEC Study Centre
• University of Auckland

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Australia-New Zealand Economic Integration

• A Success Story
• But
• Success did not come easily
• especially in the early years
• Always more to be done
• Focus first on manufactures, agriculture and
  services followed
• Free movement of labour
• a given throughout the process
• ? one of the cornerstones of ANZ economic
  integration

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(No Transcript)
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Summary Three Make-or-Break Moments

• Establishment of ANZCERTA 1983
• framework for a comprehensive FTA
• initial caution, timidity
• early implementation encountered many
  difficulties
• 1988 Review of ANZCERTA
• breakthrough to a comprehensive FTA
• beginning of path toward a single market
• Statement of intent on Single Economic Market
  2009
• confirmation of single market as the ultimate goal

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Before ANZCERTA

• ..there was
• the original NAFTA (NZ-Australia FTA)
• Positive list
• Limited coverage
• Increasingly difficult to extend
• Reached end of useful life by early 1980s

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First Make-or-Break Moment Establishment of
ANZCERTA 1983

• Negative list agreement for free trade in goods
• Furiously opposed by manufacturers
• (Free Trade with Australia A Step Too
  Far)
• Very cautious initially
• extensive negative list, special arrangements for
  agricultural products
• lengthy phase-out periods for tariffs and NZs
  QRs
• investment deliberately excluded, no coverage of
  services
• Initial implementation difficult with some
  bickering
• but meantime
• both countries began embracing comprehensive
  economic reform, including unilateral MFN tariff
  reduction programmes
• business gradually became more enthusiastic
• (CER The Way Ahead)

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Second Make-or-Break Moment1988 Review of
ANZCERTA

• End of the FTA Phase
• acceleration of free trade in goods
• extension to free trade in services on negative
  list basis
• Beginning of the Single Market Phase
• elimination of anti-dumping on trans-Tasman trade
• commitment on working to harmonise customs and
  quarantine procedures
• initial agreement on government procurement

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Gradual Accumulation of Building Blocks for the
Single Market

• 1990s
• agreement on standards, accreditation, quality
  assurance
• joint accreditation system for conformity
  assessment (JASANZ)
• joint food standards and food standards authority
• mutual recognition of standards and occupational
  qualifications (TTMRA)
• enhanced arrangements on government procurement
• double tax agreement
• work on business law harmonisation
• flow-on issues related to people movement
  addressed (eligibility for welfare benefits,
  state-funded medical treatment, pensions cost
  implications for each government)
• services
• most remaining sectors progressively removed from
  the negative list
• implementation issues addressed in some sectors
• Early mid-2000s
• single market concept placed on the agenda
• focus on business law, competition and securities
  regulation issues
• progress relatively slow
• ANZ Leadership Forum began meeting 2004
• focusing support of business leaders in both
  countries

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Third Make-or-Break MomentCommitment to a
Single Economic Market

• Joint Statement of Intent on SEM 2009
• strong focus in initial work programme on
  competition and regulatory issues (including
  enforcement), also IP
• some elements completed, others nearing
  completion
• other important issues remain to be resolved
• Major recent developments
• adoption of new rules of origin 2009 (switch from
  RVC to CTC)
• Treaty on Court Proceedings and Regulatory
  Enforcement 2009
• Investment Protocol 2011
• beginning to fill a major gap in integration
  arrangements
• progress on investment previously held back by
  various concerns over
• precedent setting
• relation to broader investment policies
• erosion of tax bases via application of dividend
  imputation provisions in both countries

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How It HappenedFeatures of the Australia-NZ
Integration Process

• Leadership and Process
• Political leadership at highest level (PMs) was
  crucial at make-or-break moments
• Maintaining momentum through ups and downs
  facilitated by
• close working relations at official level across
  many government functions
• periodic setting of broad objectives to be
  pursued through well-defined processes
• Objectives specified in broad terms rather than
  as detailed blueprints
• often outcome focused

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ASEAN CER Integrated Partnership
ForumEvolution of CER to SEMGeoff
MillerPrincipal Adviser, Markets Group,
Department of the Treasury, Australia
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Single Economic Market

• a geographic area comprising two or more
  countries in which there is no significant
  discrimination in the markets of each country
  arising from differences in the policies and
  regulations adopted by each country

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Scope of the SEM

• Business law (cross-border insolvency, company
  registration, mutual recognition of securities
  offerings)
• Prudential regulation (seamless banking,
  insurance, banking crisis and failure
  management)
• Superannuation (portability, interaction between
  the retirement income systems)
• Taxation (double tax agreements)

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SEM Institutional Arrangements

• the participation of New Zealand Ministers and
  officials in relevant Australian Ministerial
  Councils
• the Trans-Tasman Working Group on Court
  Proceedings and Regulatory Enforcement (2003)
• the Trans-Tasman Auditing and Accounting
  Standards Advisory Group (2004)
• the annual Australia New Zealand Leadership Forum
  (2004)
• the Joint Trans-Tasman Council on Banking
  Supervision (2005)
• the Mutual Recognition of Securities Offerings
  Treaty (2006)
• the MoU on the Coordination of Business Law
  (2000, revised in 2006 and 2010) and
• the Trans Tasman Outcomes Implementation Group
  (2009).

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Memorandum of Understanding

• SEM is governed by the Memorandum of
  Understanding between the Government of New
  Zealand and the Government of Australia on the
  Coordination of Business Law
• The MOU sets out a framework of principles and a
  range of shared practical outcomes for developing
  cross border economic initiatives.

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Memorandum of Understanding

• Original MOU signed in 1988 as the MOU on
  Business Law Harmonisation
• In 2000 old MOU replaced by a MOU on the
  Coordination of Business Law
• MOU on the Coordination of Business Law was
  revised and resigned in 2006 and 2010.

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Vision of a single economic market

• No focus or sense of unity in purpose
• Harder to achieve legislative harmony
• Seemingly intractable issues around differing
  legal systems or sovereignty issues
• Time for a new approach

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A new approach to the SEM

• Not identical laws but shared outcomes
• Shared outcomes could be achieved in any way each
  country felt necessary or appropriate
• In August 2009, a Joint Statement of Intent
  Single Economic Market Outcomes Framework
  together with a framework of principles and
  outcomes proposals

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A framework of principles

• persons in Australia or New Zealand should not
  have to engage in the same process or provide the
  same information twice
• measures should deliver substantively the same
  regulatory outcomes in both countries in the most
  efficient manner
• regulated occupations should be able to operate
  seamlessly between each country
• both Governments should seek to achieve economies
  of scale and scope in regulatory design and
  implementation
• products and services supplied in one
  jurisdiction should be able to be supplied in the
  other
• the two countries should seek to strengthen joint
  capability to influence international policy
  design
• outcomes should seek to optimise net Trans-Tasman
  benefit.

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The work program

• Insolvency law
• Financial reporting policy
• Financial services policy
• Competition policy
• Business reporting
• Corporations law
• Personal property securities law
• Intellectual property law
• Consumer policy

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Trans-Tasman Outcomes Implementation Group

• Ensure that the necessary processes are in place
  to advance the work
• Monitor progress towards meeting the agreed
  outcomes
• Identify areas of risk and seek to resolve
  issues
• Report regularly to both Governments on progress
  in achieving the outcomes and
• Make appropriate recommendations in relation to
  any changes to the initial list of proposed
  outcomes.

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TTOIG website

• www.treasury.gov.au/ttoig/

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Case study Cross-border insolvency

• Australia adopted the United Nations Committee on
  International Trade Law (UNCITRAL) Model Law on
  Cross-Border Insolvency (Model Law) by passage of
  the Cross-Border Insolvency Act 2008
• New Zealand adopted the Model Law by its earlier
  legislation, the Insolvency (Cross-border) Act
  2006

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Case study Cross-border insolvency

• Although the Model Law provides an extremely
  flexible generic framework for governing
  cross-border insolvencies between countries with
  greatly differing legal systems, that flexibility
  can come at the cost of efficiency
• The pure legislative approach to harmonisation
  through model laws or strict alignment of laws
  did not lead to the expected harmonisation of
  regulation

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Conclusion

• Aligning legislation in many cases would not and,
  in the case of Australia and New Zealand, did not
  result in regulatory harmonisation
• Harmonisation can occur when each country commits
  itself to achieving a shared outcome
• The mechanism for delivering that outcome is a
  means to an end, and not the outcome itself

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A Business Perspective on Cross Border Agreements

• Reflecting the Australia New Zealand CER/SEM
  Experience
• Kerry McDonald

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Context for negotiations

• Business is the engine of an economy.
• It operates within the framework of government
  laws, policies and international agreements.
• This framework has a critical influence on the
  competitiveness and performance of business and
  strength of the economy.

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• Business is now, of necessity, much more mobile,
  shifting investment readily in response to the
  competitiveness of different locations.
• Success in the intensively competitive globalized
  economy requires this.
• So, it is important, in terms of outcomes, that
  governments engage with business to understand
  its needs when developing the policy framework,
  including cross border agreements.

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Related business perspectives

• As a businessman, when you understand what is
  possible you become impatient with anything less.
• In the modern World the speed of decision making
  has accelerated dramatically. A 90 to 180 day
  decision horizon often replaces one previously
  defined in years.
• It is often a struggle for policy makers to
  appreciate this.

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The Evolution of the A-NZ Process

• The attitudes and role of business varied
  markedly through the process, with important
  implications for the rate of progress and the
  level of business support or frustration.
• 50 years ago, pre-globalisation the CER
  initiative was largely political, with some
  business support.
• Business generally was less outward looking, more
  reliant on subsidies and protection, and cautious.

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• Over time both economies became more focused on
  reducing subsidies and increasing competition and
  competitiveness.
• In parallel, business became more engaged with
  and supportive of the CER process - but initially
  to maximize the gain for its home-base economy
  and minimize and loss of protection or other
  adverse impacts.

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• Then, over the last 2 decades, with increasing
  globalisation and the rapid growth of Emerging
  Economies, the A-NZ business view shifted
  strongly, reflecting greater exposure to and
  awareness of international competition, its
  challenges and opportunities.

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• It became a much more aligned, single view,
  across both economies, on steps needed to improve
  the competitiveness of both economies, in the
  face of globalisation we are in this
  together!
• And, business became much more engaged and active
  with the CER/SEM processes, and increasingly
  impatient with slow-moving political leadership.

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• The powerful unifying force was the competitive
  pressures in the market on both economies.
• It also sharpened the business focus on the
  domestic competitiveness benefits of leveraging
  off the CER/SEM change process to improve
  domestic policies and align them cross border.

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• The CER/SEM processes became a vehicle for
  addressing domestic policy inefficiencies and
  barriers to competitiveness.
• The dominant business view became we want the
  best, most efficient policy, whether its from
  Australia or NZ or elsewhere.

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• NZ business was apprehensive of As greater size,
  but increasingly focussed on the necessity and
  benefits of closer engagement with the larger
  economy.
• Some, mainly regulated, domestically focussed
  businesses, felt threatened and responded
  accordingly but were a distinct minority.

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The focus of the CER/SEM processes

• The initial focus was reducing trade barriers,
  especially tariffs.
• It evolved progressively to include non-tariff
  barriers and behind the border measures, such as
  standards, regulatory policies and processes,
  financial markets, investment, qualifications,
  tax harmonisation, etc.

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• But, many of these changes were very slow and of
  limited scope.
• Post tariff reductions behind the border
  issues became more difficult as the benefits were
  more complex and domestic constituencies, which
  were less attuned to the importance of
  competitiveness, more resistant.

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• On the other hand these issues, well handled,
  tended to have substantial competitiveness
  benefits.

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The handbrake of politics

• As issues became more politically difficult
  progress slowed dramatically, in spite of the
  intense pressure on business to become more
  competitive, and from business for faster CER/SEM
  progress.
• In spite of the strong A-NZ business alignment
  post-CER progress has been slow.

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The consequences

• CER meant major gains for business and the two
  economies, from tariff reductions and improved
  border processes and the increasing alignment of
  standards, financial markets, regulatory
  processes, and so on.
• In NZ, and perhaps to a lesser extent in
  Australia, it was part of a process of
  transformation to a more outwardly focussed,
  competitive economy.

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• It probably also contributed to a closer social
  alignment, including in sport and culture a
  stronger sense of shared opportunities and risks.
• In A-NZ business there is now a much stronger
  focus on the capability and performance of
  people, rather than their nationality.

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• However, the slow pace of progress over at least
  the last decade has been costly for the two
  economies - probably NZ in particular.
• And the political reluctance was mirrored in the
  modest pace of domestic reform to improve
  competitiveness.

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• The externally focussed, resource based sectors
  in the two economies are strong.
• This contrasts with the non-resource based parts
  of the two economies.
• In NZs case the output of the vital tradables
  sector (goods and services) peaked in about 2006
  and has declined steadily since

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• This reflects, to a substantial extent, a lack of
  competitiveness and the pressures of foreign
  competition.
• In this context, the very slow progress with
  CER/SEM initiatives is directly relevant.
• Such issues are not unique to Australia and New
  Zealand.

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Session One QA

• Ambassador David Taylor
• New Zealand

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Services IntegrationExperiences of
CERChristopher FindlayUniversity of Adelaide
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Why services integration matters

• Context of services industry development
• Services sector grows with rising income levels
  demand and supply side factors
• But also there are new business models in
  services supply chains matter like they do in
  goods
• Gains from international business
• Gains from specialisation and access to variety

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Why services integration matters (cont.)

• Costs in trading systems
• Links to trade facilitation
• Participation matters
• Value of reducing the costs of entering the
  trading system
• Competition is the goal

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Challenges of services reform

• Challenges
• Nature of barriers
• Agencies involved,
• Continuing concerns about market failure,
  including the nature of competition
• How can trade agreements help?
• Binding policy, guiding principles, schedules
• Concerns about diversion and competition
• Links to domestic reform

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Approach in CER

• negative list
• definitions
• market access
• national treatment,
• access to the agreement
• coverage of modes
• mutual recognition
• best endeavours

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Assessments

• benchmark agreement compared to others
• good coverage
• horizontal reservations not significant
• liberal rule of origin
• movement of people
• talking points
• inscriptions, investment, business law
• impact studies work in progress

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Lessons

• Wider reform matters - services reform best
  driven by domestic reform agenda
• Leadership is important define the goal
• Engagement from within an important driver
  which can be mobilised
• Continuing process as times change and shocks
  occur

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Australia and New ZealandEstablishing joint
bodies

• Marc Mowbray-dArbelaAssistant
  SecretaryLegislative Review BranchDepartment of
  Finance and DeregulationAustralia

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Options for countries wishing to achieve a common
approach to a particular activity

• Unilateral reform in one country to align its
  practices with another countryor
• Bilateral non-legally binding undertakingsor
• Bilateral legally binding commitments- such as
  the establishment of a joint body

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Australia New Zealand Therapeutic Products
Authority (Proposed)

• A joint body to replace 2 existing bodies
• Purpose to regulate common standards for
  therapeutic goods in both countries
• Would have an enforcement role in both countries

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Difficulties

• Involved both countries adjusting some of their
  normal internal approaches.
• Whole process took much longer and was more
  difficult than anticipated

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Advantages

• Trade off was there would be considerable
  advantages for both countries
• Lower compliance costs for business
• Lower administration costs for both governments
• Increased regulatory effectiveness
• Greater strategic understanding

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Lessons learned

• Consider more than one option for cooperation
• Dont under-estimate the task
• Differences between jurisdictions matter
• Identify clear net benefits
• Ensure clear political authority

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Lessons learned

• 6. Agreements and decisions reached need to be
  scrupulously recorded
• 7. There is a need for dispute resolution
  mechanisms
• 8. Always bear in mind that the parties are
  sovereign nations and we have different political
  systems

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Lessons learned

• 9. Seek and use specialist knowledge across
  respective bureaucracies
• 10. Apply existing organisational governance
  principles

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Lessons learned

• Paper jointly developed in 2007 by New Zealand
  and Australia
• Title Arrangements for Facilitating
  Trans-Tasman Government Institutional
  Cooperation
• http//www.finance.gov.au/publications/arrangement
  s-for-facilitating-trans-tasman-co-operation/index
  .html

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Looking forward

• In most economic activity there will be a
  presumption in favour of cooperation
• Need to be alert for any unintended consequences
  for the other party
• Specifically, Australia and New Zealand recently
  agreed to resurrect the joint Therapeutic
  Products Authority project

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CER/SEM Lessons Learned

• Simon Murdoch
• Former Chief Executive, Department of Prime
  Minister and Cabinet
• Former Secretary of Foreign Affairs and Trade
• New Zealand

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Integration Partnership Forum

• Saturday 25 June 2011
• Kuala Lumpur