Jurisdiction - Australia
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Australia – Revised Foreign Investment Guidelines For Korea And Japan.

16 April, 2014

 

 
  • South Korean and Japanese investment into Australia is to benefit from revised guidelines, increasing the threshold at which approval is required.
  • Some sensitive sectors remain subject to lower thresholds and special rules.
  • Investments between Australia and Korea will benefit from international dispute settlement mechanisms. In contrast, the agreement with Japan is reported not to incorporate such mechanisms.
  • Significant tariff reductions on goods and market access for service providers with both Japan and Korea.

 

Overview


The Australian Government has recently successfully negotiated free trade agreements with both Korea and Japan. These agreements create a framework for greater trade and capital flows. 


The Korea-Australia Free Trade Agreement


The Korea-Australia Free Trade Agreement (KAFTA) was concluded in December 2013, with the full text of the agreement released last month. 


The KAFTA covers a wide range of matters. From an Australian perspective, the elimination of tariffs on a wide range of Australian exports was a major element of the KAFTA. The Australian Government has reported that from entry into force, 84% by value of Australia’s exports to Korea will enter Korea duty free. Another important element of the KAFTA is that it significantly liberalises the ability of certain Australian service providers to access Korean markets. The KAFTA includes Investor-State Dispute Settlement (ISDS) mechanisms which apply to investments made between Australia and Korea (for more details on how these work, see Leon Chung’s article Trans-Pacific Partnership Agreement above), as well as other provisions designed to reduce non-tariff trade barriers and red-tape. 


Revised Foreign Investment Guidelines – Korea


The KAFTA provides revised foreign investment guidelines for Korean investment into Australia, largely mirroring the position afforded to investment from the United States and New Zealand. 


In summary:

 

  • The basic threshold before a proposed investment is subject to review by the Foreign Investment Review Board and the Treasurer will be raised to AUD 1,078m.
  • Investments in certain sensitive sectors will require approval below that threshold. These sectors include investments of 5% of more in media companies, investments of more than AUD 248m in the telecommunications sector, the transport sector and certain defence relates activities. Investments in uranium, and agricultural land and businesses, will also have special rules applied.
  • The existing rules as to financial sector investments as contained in the Financial Sector (Shareholdings) Act 1998 (Cth) have been preserved, as have certain other specific restrictions, such as regards Telstra and CSL.
  • Governmental investment also remains subject to special rules.
 

The KAFTA is expected to come into force in late 2014, after it navigates the domestic treaty making processes of both Australia and Korea. 


The Japan-Australia Economic Partnership Agreement 


On 7 April 2014, Australia and Japan concluded negotiations for an Economic Partnership Agreement. The Japan-Australia Economic Partnership Agreement (JAEPA) is said to be the most liberalising bilateral trade agreement that Japan has concluded to date, with Australia being the first major agricultural exporter to unlock Japan’s high import barriers.
From an Australian perspective, the JAEPA covers the elimination of tariffs on a wide range of Australian exports, including key agricultural products such as beef. JAEPA is anticipated to give many Australian producers and exporters a significant competitive advantage, with more than 97 per cent of Australia’s exports to Japan to receive preferential access or enter duty-free once JAEPA is fully implemented. 


It has been reported that ISDS mechanisms will not be included in JAEPA.


JAEPA will come into force following domestic approval processes in Australia and Japan later this year. It is anticipated that Prime Minister Abe will sign the agreement on his planned visit to Australia in June.


Revised Foreign Investment Guidelines – Japan


Although the full text of JAEPA will not be released until after it is signed by Prime Minister Abe, JAEPA is expected to provide revised foreign investment guidelines for Japanese investment into Australia, in some respects mirroring the position agreed in the KAFTA and afforded to investment from the United States and New Zealand.
In summary:

 

  • The basic threshold before a proposed investment is subject to review by the Foreign Investment Review Board and the  Treasurer will be raised to AUD 1,078m.
  • Investments in agricultural land and businesses are also likely to have special rules applied.

 

herbert smith Freehills

 

For further information, please contact:

 

Tony Damian, Partner, Herbert Smith Freehills
[email protected]


Lewis McDonald, Partner, Herbert Smith Freehills
[email protected]


James Robinson, Partner, Herbert Smith Freehills
[email protected]

 

Homegrown International Trade Law Firms in Australia

 

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