C O N F I D E N T I A L SECTION 01 OF 03 CANBERRA 000903

NOFORN
SIPDIS

STATE PLEASE PASS USTR/BELL

E.O. 12958: DECL: 09/12/2018
TAGS: ETRD ASEAN AS
SUBJECT: AUSTRALIA-NZ-ASEAN FTA: ANNOUNCED, BUT AUTOS STILL
TO BE RESOLVE

REF: CANBERRA 100

Classified By: CLASSIFIED BY ECON COUNSELOR EDGARD KAGAN, REASONS 1.4 (
B, D)


1. (C) Summary: Ministers announced the ASEAN-Australia-New
Zealand Free Trade Agreement on August 28, slated to be
signed in December. However, Australia is still negotiating
on autos and auto parts with Malaysia and Indonesia. The
Australians see this as a quality FTA, with each country
committing to zero tariffs on items comprising over 90% of
its trade. ASEAN countries collectively are Australias
largest trade partner. Australia will contribute to a work
program as part of the FTA package. Politically, it is a new
link between Australia and its Southeast Asian neighbors,
demonstrates the Rudd Government,s commitment to
multilateral trade liberalization, and should improve access
for Australian businesses. End Summary.


2. (SBU) Australia Trade Minister Simon Crean announced
August 28 in Singapore that Australia had concluded
negotiations with New Zealand and the countries of ASEAN on a
region-wide ASEAN-Australia-New Zealand Free Trade Agreement
(AANZFTA). The terms of the agreement have not yet been made
public - and despite Crean's characterization of negotiations
as "concluded," there are in fact some issues to handle
before the agreement can be signed, expected to be December.
The joint press release referred to market access issues to
be resolved among some members. Specifically, the
outstanding issue is between Australia and Malaysia and
Australia and Indonesia on automobiles and parts.

DEAL ANNOUNCED BUT...


3. (C) Mike Mugliston, Head of the Asia Trade Task Force at
the Department of Foreign Affairs and Trade, briefed econoff
on the status of talks on September 12, confirming press
reports that the final issues to resolve are autos and auto
parts. There is a final agreement, Mugliston said, and all
12 participants are clear that there will be "no backsliding"
from what was agreed to in Singapore in August - but there is
room to improve commitments. Mugliston said that the
decision to "conclude" negotiations while leaving room for

more talks on autos was because several ASEAN members and New
Zealand wanted to be able to announce agreement in August -
New Zealand in particular because of its upcoming elections.
Despite the agreement only New Zealand has submitted a final
schedule of tariff commitments. Services negotiations have
been concluded.

THE FINAL HURDLE - AUTOS


4. (C/NF) Mugliston said the goal was to conclude auto talks
with Indonesia and Malaysia by the end of September, to allow
time for drafting final language, Cabinet approval, and
signature in December. He said they were making some
progress on cars and parts with Indonesia. Indonesia wanted
more commitments from Australia on textiles, which Mugliston
said might be forthcoming as part of a deal on autos. Talks
with Malaysia, however, have gone nowhere. Mugliston said
that he had been pleased with how negotiations went with the
Philippines on cars and parts. He said that the Philippines
had actually approached Tokyo to see whether Japan would be
upset if they offered better access to Australian car and
parts manufacturers than Japan has in its FTA with the
Philippines; the GOJ apparently confirmed this would not be a
problem and Australia and the Philippines have reached
Qproblem and Australia and the Philippines have reached
agreement. Mugliston hopes Indonesia will do the same.
Mugliston said that, although the Thai-Australia FTA (TAFTA)
would not be superceded by the AANZFTA, as tariff commitments
and rules of origin provisions of the AANZFTA come into play,
auto exporters will have the choice of which FTA to export
under, and would naturally move to the less-restrictive
AANZFTA to export to Thailand.


5. (C) When asked whether failure to get concessions on autos
from Malaysia would be a deal-breaker, Mugliston said it was
up to the Government to decide. He implied though that he
thought the Rudd Government would probably approve the deal,
given the gains in other sectors and the progress on autos
with Indonesia, the Philippines, and Thailand. The primary
focus in the AANZFTA for Australia has been to reduce

CANBERRA 00000903 002 OF 003


tariffs, leaving non-tariff trade barriers for later.
Mugliston said that the GOA was disappointed that it could
get nothing on government procurement; again, Malaysia was
the big obstacle. Understanding that procurement would be
very difficult (no agreement even among the ASEAN members on
this, Mugliston noted), the GOA made the tactical call to
drop procurement and pursue a deal on automobiles.


6. (SBU) This is an important issue for Australia, where
automobiles have been in the news lately, given the closure
of Mitsubishi,s plant in Adelaide (ref A), job cuts by both
Ford and Holden (General Motors), pressure to delay
Australia's scheduled reduction of tariffs on autos in 2009
from 10% to 5%, and a high-profile GOA-commissioned review on
Australia's auto sector. Tariffs on Australian-made autos in
Indonesia, Malaysia and the Philippines range from 30% to
80%, and from 15% to 30% on components. The small Australian
auto sector wants to be able to link into regional supply
chains, both as sources of components and to export them.
That in Mugliston's view is the real commercial benefit for
of the AANZFTA for Australia's automotive sector.

GOOD DEAL WITH MAJOR TRADE PARTNERS


7. (U) AANZFTA will be important for Australia; ASEAN and New
Zealand are big trading partners. Taken collectively,
according to Department of Foreign Affairs and Trade (DFAT)
statistics, the ten ASEAN countries accounted for A$71
billion (currently A$=US$.80), 16% of Australia,s total
trade in 2007, which makes it a larger trade partner than
China (13%), Japan (12%) or the US (11%). ASEAN members in
2007 accepted 11% of Australia,s goods exports (A$18
billion) and 15% of services (A$7 billion). Trade between
ASEAN and Australia has been growing at an average of 10% per
year since 1997. New Zealand is also a major trading partner
- in 2007 two-way Australian-New Zealand trade was A$16
billion, or 8.8% of Australia's total trade, making New
Zealand the fifth-largest trading partner. However,
Australia and New Zealand already enjoy a very close and open
trade and investment relationship; AANZFTA will do relatively
little to liberalize trans-Tasman trade.


8. (SBU) Mugliston expanded on this. Indonesia, he said,
would have zero tariffs on 93% of line items; Malaysia goes
to zero on 96%, Philippines on 94%, and the others on at
least 96%. Overall, Mugliston said, this would cover at
least 90% of trade for each signatory.


9. (U) In a data sheet on the AANZFTA, DFAT noted that this
is the most comprehensive FTA that ASEAN has agreed to. It
includes provisions covering trade in goods and services,
intellectual property, competition policy, and economic
cooperation. It specifically provides for the reduction or
elimination of tariffs over time, and for scheduling market
access commitments for services for each country. Australia
and New Zealand will usually have the shortest period to
implement commitments; the least developed ASEAN members
(Burma, Cambodia, and Laos) will have the most time.

ECONOMIC COOPERATION COMPONENT


10. (C) Announced along with the AANZFTA was a A$20-25
million work program over five years to help some ASEAN
members to implement their obligations. Mugliston specified
that this would be in the form of a separate MOU, signed at
the same time as the FTA. He expected Australia would have
Qthe same time as the FTA. He expected Australia would have
to commit most of the money for the program (which would be
in addition to existing GOA assistance to ASEAN), although he
expected Singapore to kick in as well. He said some of the
projects being considered included ones on intellectual
property, on setting up and funding a unit within the ASEAN
secretariat to implement the FTA, and on developing rules of
origin. Mugliston said the GOA was reluctant to agree to
this, but the ASEANs made it clear early on that without an
economic cooperation component, there would be no AANZFTA.
And, Mugliston added, Indonesia was now pressing the GOA for
a separate bilateral program.


11. (C) Comment: This is a significant deal for Australia.
Politically, it brings them closer to their Southeast Asian
neighbors. Economically, although imperfect it should
increase opportunities for Australian business in the

CANBERRA 00000903 003 OF 003


570-million-people strong ASEAN market. It will mark an
accomplishment for the Rudd Government and Trade Minister
Crean (Crean chief of staff David Garner said Crean saw this
as a good deal), and reinforces their election campaign
argument that multilateral trade agreements are their
preferred path to trade liberalization.

MCCALLUM