AUSTRALIA: An Introduction to International Trade/WTO
The Domestication of International Trade Law
Australia’s economy is highly globalised, with trade accounting for more than 40% of nominal GDP. So it is unsurprising that Australia has been an avid and enthusiastic supporter of the multilateral trading system – in disputes as well as in negotiations and monitoring.
Indeed, in 2020, Australia reversed a decades-long reluctance to take offensive disputes to the WTO. Australia mounted successful complaints against Canada on wine (DS537) and India on sugar subsidies (DS580), as well as initiating still-incomplete disputes with China on wine (DS602) and barley (DS598). Australia’s forced embrace of trade litigation will continue throughout 2023 in its defence of a multiple-measures complaint brought by China (DS603). Australia has supported the development of alternative mechanisms for WTO review to overcome the inconvenience of the non-functional Appellate Body.
In addition to its engagement in dispute settlement with its major trading partners (including as an active third party), Australia has taken a proactive role in brokering new rules on e-commerce and remains an important player in WTO committees and trade policy reviews.
All is not well at the international trade law level, however. The WTO, in typical ageing Gen X fashion, has tried to improve its current-day relevance – not easy for an organisation whose treaty was last refreshed in 1995. Progress has been furtive and unconvincing, and the challenges of international security fractures and national economic self-interest remain.
Domestic Solutions for International Problems
As a result of this, domestic initiation of rules that individualise the regulation of cross-border commerce are replacing international initiation of rules that standardised cross-border commerce.
Countries are legislating on topics that are not dictated by the multilateral rules-based system, or which the rules no longer “suit”. There has been a massive increase in the comparative and extraterritorial law questions we are fielding – questions such as “Our country has a border carbon measure coming, does Australia have one too?” and “Do we have to comply with a product recall law of Australia just because we’re on the internet?”. Legal innovation in one country is being shared and adapted at ground level rather than being agreed multilaterally and imposed by overarching authority.
Clients that operate in multiple jurisdictions need to navigate the idiosyncrasies of regulations targeted at the same issue. They need to know where their goods and services come from (and are going), as well as the multitude of restrictions, permits, requirements and implied terms that could apply.
Autonomous sanctions
The Russia–Ukraine conflict has caused a significant increase in trade and investment restrictions. Despite moving in concert, countries are sanctioning different people for different reasons. The domestic legal systems that regulate government actions such as these have different pathways and are producing different results. In Australia, we are seeing administrative appeals by individuals who feel they have been unfairly sanctioned – adjudged under laws that are “deferential” towards executive decisions.
Comparatively, EU sanctions litigation is more merits-based, given the backdrop of human rights and economic freedoms that Australia surprisingly lacks. The extraterritorial reach of Australia’s sanctions rules requires vigilance by multinational and cross-border actors with varied operations – not only because they are Australian companies but also even if they have Australian staff. Domestic stakeholders are finding it difficult to understand and implement their sanctions obligations. Financial institutions need to comply with complex rules and face severe penalties if they “get it wrong”, thereby causing business to be frozen through caution rather than legal compliance.
Supply chain security and national security
COVID-19 restrictions and world power trade tensions have created major trade obstacles. “National security” reasons for interventions in trade and investment are frequent even if tenuous. The phrases “supply chain security” and “national security” are now used interchangeably – with the US’ Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (the “CHIPS Act”) being the supreme category-killer.
In Australia, security concerns have had an impact on critical minerals investment, gas and energy exports, and steel production. International insecurity, made real by the Russia–Ukraine conflict and fluctuating tensions in east Asia, has caused a ramping-up of Australia’s export controls. Australia’s pact with the UK and the US (AUKUS) and the four-sided Australia, India, Japan and US alliance (QSD) have placed pressure on bureaucrats to do more to protect sensitive data flows and regulate dual-use goods and embedded technologies.
Modern slavery
Australia may follow the US and Canada in imposing bans on forced labour products. Bills before Parliament prior to the election in 2022 have again been presented for debate by the Green Party and independents. Potentially, Australian forced labour laws may echo those imposed by the US, where products from certain regions are presumed to be forced-labour products and importers are required to prove otherwise. This extends to inputs in the products, making information about products just as valuable as the products themselves.
Data and privacy
Rules on e-commerce, data localisation and privacy are trending in individual countries on a fragmented basis. Australia has advocated for uniformity at the global level as both the co-convenor of the WTO’s e-commerce negotiations and in its bilateral FTA negotiations. These are worthwhile endeavours but have done little to tame the wild digital economy.
There were several high-profile data breaches in Australia in 2022, amplifying long-enduring calls to reform Australia’s privacy laws. Australia now has a law that would allow it to sanction individuals responsible for “significant cyber-incidents” – the consequences of which would probably not concern many hackers without international co-operation also being improved.
Climate action
Australia’s historic attitude to climate action can be characterised as a softly murmured “Yeah, it’s a tough one”, followed by an attempt to change the subject. That is no longer the case, however. Voters recognised it as a serious issue, and politicians now believe it is a serious issue too. How will this manifest in a regulatory sense? Will Australia adopt an EU-style carbon border tax?
Some consider that without a border tax on carbon, Australian jobs and industry could be lost to imports from countries with worse standards. Others warn a carbon-border adjustment mechanism may be exploited for industry protection, which would cause a further retreat from trade liberalisation. The WTO “panel police” are shy of going against the tide of sustainability but have no international standards to judge whether a GATT Article XX general exception justifies an environmental trade restriction.
Making Local Moves but Still Reaching Out for Collaboration
Plurilateral agreements will continue to be relevant in 2023. The Regional Comprehensive Economic Partnership (RCEP) had its staggered entry into force in 2022. India, having dropped out from the RCEP towards the end of negotiations, has a leave pass for re-entry. The Australia–India Economic Partnership entered into force on 29 December 2022.
The RCEP and the Comprehensive and Progressive Agreement for a Trans–Pacific Partnership (CPTPP) include rules and procedures for settling disputes about trade and investment commitments. In 2022 we saw the first dispute settlement proceedings under CPTPP, which was a complaint brought by New Zealand against Canada on dairy tariff rate quotas. Investors and traders, take note – this heralds a possible turn to the mega-regionals of the Asia–Pacific region as an alternative forum to the WTO.
Meanwhile, Australia–EU FTA negotiations continue at escargot pace. The Indo–Pacific Economic Framework for Prosperity negotiations – joined by Australia on 9 September 2022 – has a scope of work that reinforces our assessment of the new trade agenda. It will focus on commitments in digital trade, supply chains, clean energy, decarbonisation and infrastructure, and tax and anti-corruption.
Trade regulation around the world is increasingly untethered from international convention. Countries are going their own way. Australia will continue to regret the downgrading of the WTO’s influence and strive for plurilateral solutions, while also innovating domestically to keep up with emerging challenges. Will this ultimately lead to regulatory cross-border cohesion, or divergent and unnavigable rules? Whatever the outcome, businesses really need a good partnership with their legal advisers.