MINERALS COUNCIL OF INDONESIA-AUSTRALIA COMPREHENSIVE ECONOMIC PARTNERSHIP AGREEMENT

23 AUGUST 2019 TABLE OF CONTENTS

EXECUTIVE SUMMARY ...... 3 BENEFITS OF TRADE AND INVESTMENT LIBERALISATION ...... 5 TRADE OPPORTUNITIES ...... 8 INVESTMENT OPPORTUNITIES ...... 15 ISDS PROVIDES INVESTMENT CERTAINTY TO AUSTRALIA AND INDONESIA ...... 19

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 2 EXECUTIVE SUMMARY

Open markets and reduced barriers to trade are especially important to Australia’s minerals and its Equipment and Technology Services (METS) sector. Mining is by far Australia’s largest export – and the resources sector generates more export revenue for Australia than all other sectors put together. In the 2018-19 financial year, resources accounted for 58 per cent of Australia’s total export revenue, a record high of $278 billion. The value of foreign direct investment in Australia’s resources sector has increased tenfold between 2001 ($36.8 billion) and 2018 ($365.3 billion) – 38 per cent of FDI in Australia, and the number of working directly in the mining sector tripled from 79,500 to around 240,000 in that period. Deloitte Access Economics estimates that in 2015-16 that the total economic contribution of the mining and METS sector together was $236.8 billion, which supported 1.1 million jobs across Australia or 10 per cent of total employment. Despite this, Australia’s and Indonesia’s trade relationship continues to fall short of its potential. Indonesia remains Australia’s 14th largest trading partner worth $17.6 billion in 2018. Indonesia is already a sizeable market for Australia’s resources and basic metals exports. Crude petroleum was Australia’s largest export to Indonesia in 2018, worth $827 million. Exports of minerals and basic metals manufactures were also worth around $1.9 billion in 2018. This was mainly comprised of four commodities – ($747 million), ($190 million), aluminium ($156 million) and ($128 million). Coal, aluminium and zinc in particular have had strong recent growth. The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) will provide direct benefits to Australian business in the form of reduced tariffs on goods exports to Indonesia, greater access for Australian services in the Indonesian market, reduced trade costs through more streamlined customs and administrative arrangements, and greater certainty and stability around two- way investment links between Australia and Indonesia.

In relation to mining commodities and related manufactures, Indonesia agreed to reduce tariffs on remaining iron ore and steel lines that were not eliminated under the ASEAN-Australia-NZ Free Trade Agreement (AANZFTA) from as high as 20 per cent to five per cent or less by 2025. Indonesia has also eliminated an additional 124 tariff lines on steel not already removed under AANZFTA, including guaranteeing market access for 250,000 tonnes per annum of certain hot and cold rolled steel lines imports from Australia. This tonnage will grow at five per cent per annum in perpetuity.

However IA-CEPA’s greatest value to Australia’s minerals industry is largely in relation to opportunities it provides Australia’s METS sector. Austmine estimates that the METS sector generates around $90 billion in revenue each year. Australia exported $1.7 billion of services to Indonesia in 2018. However, METS exports are difficult to quantify, as they can be classified as construction, engineering or business services or education. Nonetheless, it is estimated that at least 140 Australian-based METS companies export equipment, products or technology to the Indonesian market, including at least 40 ASX-listed companies. Indonesia consistently rates as the top or second top priority market for many METS companies. METS firms doing business in Indonesia range from big contract miners that provide whole-of-mine services, to niche firms that provide highly specialised services such as fuel management, mines communications and mining software. Indonesia’s commitments provide ongoing certainty for Australia METS firms. Indonesia has never made commitments in a trade agreement on mining services before, and has allowed Australian companies to own up to 67 per cent of mining services companies based in Indonesia, up from 49 per cent. This includes contract mining, defined as ‘mining and related services rendered on a fee or contract basis at metallic, non-metallic and coal mining sites.’ The MCA has consistently called for a liberal and orderly international investment regime in Australia, with consistent application of rules and thresholds, in order to instil public and investor confidence. In

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 3 that regard, the MCA welcomes the investor-state dispute settlement framework included in the agreement. This framework strengthens and modernises the existing Australia-Indonesia Bilateral Investment Treaty, which came into force in 1993.

Finally, in the current global environment of rising protectionism – and where the rules-based global trading system is coming under ever increasing pressure – trade and trade agreements become fundamental to constructive engagement, regional stability, development and economic growth across our region. Trade is a force for stability, and the ratification of IA-CEPA is an important step to help promote continued trade liberalisation and cooperation in the Indo-Pacific region.

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 4 BENEFITS OF TRADE AND INVESTMENT LIBERALISATION

Benefits of trade and investment liberalisation to Australia’s economy Australia has long enjoyed the benefits international trade and investment. Trade now accounts for 42 per cent of economic output and one in every five jobs in Australia rely on trade.1 Trade liberalisation over the past 35 years has increased the income of the average Australian family household by an estimated $8,448 per year.2 The increased income is a consequence of reduced tariffs on imported goods and services and the contribution of trade liberalisation to economic growth. Lower tariffs give greater purchasing power, and therefore benefit the living standards of lower income households.3 Open markets and reduced barriers to trade are especially important to Australia’s minerals and its Mining Equipment and Technology Services (METS) sector. Mining is by far Australia’s largest export industry – and the resources sector generates more export revenue for Australia than all other sectors put together: in the 2018-19 financial year, resources accounted for 58 per cent of Australia’s total export revenue, a record high of $278 billion.4 Liberalised international investment arrangements have also been critical for Australia’s economic development. With the annual gap between national savings and investment averaging around 4 per cent of GDP over the last four decades, Australia has relied on foreign investment to build and expand local businesses, create jobs and boost economic growth.5 International investment has long funded the exploration, resources projects and technologies that make Australia a leading exporter of minerals. Importantly the money invested in Australia’s mining sector stays in Australia. For example, 77 per cent of foreign investment in Australia’s iron ore operations remains in Australia as payments to suppliers or taxes and royalties to governments.6 At the end of 2018, foreign economies had a total of $3.5 trillion invested in Australia, including $968 billion in foreign direct investment (FDI).7 The value of foreign direct investment in Australia’s resources sector has increased tenfold between 2001 ($36.8 billion) and 2018 ($365.3 billion) – 38 per cent of FDI in Australia, and the number of Australians working directly in the mining sector tripled from 79,500 to around 240,000 in that period.8 The Reserve Bank of Australia estimates that entire resources industry will spend about $100 billion more over the next five years just to sustain those investments, not including further expansions.9 Increased global protectionism and importance of trade liberalisation For these reasons, it is in Australia’s national interest to support continued trade liberalisation, access to international investment and open markets, particularly in the current global environment of rising protectionism and where the rules-based global trading system is under increasing pressure. The ratification of IA-CEPA is therefore an important step to help promote continued trade liberalisation and cooperation. This is an important mechanism to resist increased protectionism both in the Indo- Pacific and globally.

1 Department of Foreign Affairs and Trade, Composition of Trade 2016-17, Canberra, January 2018; ABS, Australian National Accounts: National Income, Expenditure and Product, December 2017, Cat No 5206.0; Centre for International Economics, Australian trade liberalisation: Analysis of the economic impacts, Report prepared for the Department of Foreign Affairs and Trade, Canberra, October 2017, p. 8. 2 Centre for International Economics, ibid. pp. 13-14. 3 See World Trade Organization, About the WTO (accessed 19 August 2019) 4 ABS Cat No 5368, International Trade in Goods and Services, September 2018 5 Treasury, ‘Foreign Investment into Australia’, Treasury Working Paper 2016-1, January 2016, p 10. 6 Port Jackson Partners, Iron ore: the bigger picture, policy paper commissioned by the Minerals Council of Australia, 7 July 2015, p. 22. 7Department of Foreign Affairs and Trade, Australian Industries and Foreign Direct Investment (accessed 19 August) 8 ibid. 9 Australian Bureau of Statistics, Private New Capital Expenditure and Expected Expenditure, Australia, Dec 2018, ABS cat. no. 5625 released 28 February2019; Keaton Jenner et al., ‘Mining Investment Beyond the Boom’, Reserve Bank of Australia Bulletin, March 2018, p. 10.

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 5 US actions such as pulling out of Trans-Pacific Partnership negotiations, renegotiation of the North American Free Trade Agreement and the Korea-US Free Trade Agreement, US s.232 national security investigations on steel, aluminium, and auto parts and US-China trade tensions, have gained significant media coverage. And these current tensions will impact all players in the global trading system, including Australia. The International Monetary Fund has revised down global growth due to the ongoing trade tensions as well as a slowing global economy. In its latest World Economic Outlook, the IMF estimates that global growth will slow to 3.2 per cent this year, 0.1 percentage point slower than forecast in April, and down from 3.6 per cent last year and 3.8 per cent in 2017.10 Furthermore, these trade actions are likely to have direct impact on Australia’s mineral exports, including to key trading partners in Asia. As the Reserve Bank of Australia identifies, there is a broad correlation between global economic growth and commodity prices, given their extensive use in global industrial production: so a drop in global economic activity usually results in reduced demand for commodities, and therefore lower prices.11 This has further implications for Australia’s overall economic prosperity given resources are overwhelmingly Australia’s largest exports. Global trade and economic integration has slowed over the past decade, along with a decline in global trade (from a peak of 61 per cent of GDP in 2008 to 58 per cent in 2018).12 Global flows of foreign direct investment also fell by 13 percent in 2018, to their lowest level since the global financial crisis.13 While geographical shifts in economic activity and changes in aggregate demand have contributed to the global slowdown in trade, part of this decline is due to a trend towards global protectionism.14 Developed and developing countries alike are already pulling back on the rapid globalisation that has dominated two decades of economic policymaking. According to the Global Trade Alert Database, discriminatory trade actions by G20 economies have risen steadily since 2012, with a surge in 2018.15 Anti-dumping measures and import tariffs were the two most widely used instruments, together accounting for around 30 per cent of all of measures imposed.16 Trade agreements play an important role in boosting trade and maintaining trade liberalisation and market opening. The array of agreements to which Australia is a party extend across bilateral, multilateral and regional trade agreements and include the Comprehensive and Progressive Trans- Pacific Partnership (CPTPP), the AANZFTA and Australia’s network of more than a dozen bilateral free trade agreements. For example, in relation to the CPTPP, modelling17 commissioned by the Minerals Council of Australia found that the agreement alone would:  Increase Australia’s national income by $15.6 billion  Boost Australia’s exports by $29.9 billion  Generate additional direct investment into Australia of $7.8 billion and additional overseas investment by Australian businesses of $26 billion  Lift real wages with higher wage gains for lower-skilled workers.

10 International Monetary Fund, World Economic Outlook, July 2019: Still Sluggish Global Growth, July 2019 (accessed 19 August 2019). 11 See Michelle Cunningham and Emma Smith, Exploring the Supply and Demand Drivers of Commodity Prices, Bulletin – June 2019, Reserve Bank of Australia, (accessed 19 August 2019). 12 See Vanessa Gunnella and Lucia Quaglietti, The economic implications of rising protectionism: a euro area and global perspective, European Central Bank, ECB Economic Bulletin, Issue 3/2019, 25 April 2019 (accessed 19 August 2019) 13 United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2019, 12 June 2019, p.3 14 Vanessa Gunnella and Lucia Quagliett, op cit. 15 Global Trade Alert Database (accessed 19 August 2019). 16 Vanessa Gunnella and Lucia Quagliett, op cit 17 Peter A. Pertri, Michael G. Plummer, Australia will Gain from Continued Asia-Pacific Trade Integration commissioned by the Minerals Council of Australia, 5 September 2018, pp.10-14

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 6 These trade liberalisation reforms including under the CPTPP and IA-CEPA directly benefit Australia’s minerals industry – as well as the agriculture and processing sectors – as it ‘further deepens Australia’s relationship with Asia’ and ‘ to higher net exports of primary goods and services and early processed goods’.18 These gains under the CPTPP would be further enhanced if more economies in the Indo-Pacific – including Indonesia – joined the CPTPP in the future so that the agreement becomes ‘CPTPP-16’. Under this scenario, the income gains would be $22.1 billion for Australia and $584 billion globally.19 The same modelling found Australia’s other regional free trade agreements, such as IA-CEPA, would further enhance the CPTPP’s trade and income benefits to Australia, as it would increase demand

‘for inputs from Australia into production chains [including in] Vietnam and other ASEAN countries’20 and boost regional economic integration, as the two agreements work hand in glove to

‘make it easier to meet rules of origin and the costs of compliance can be spread over more trade’.21 IA-CEPA will boost the value of Australia’s economic relationship with one of the fastest-growing economies in the Indo-Pacific, with some estimates suggesting it could become the world’s fifth largest economy by 2030. As outlined in the Government’s 2017 Foreign Policy White Paper, Indonesia is of first order importance to Australia, both as a major bilateral partner in its own right and as a country that will influence the shape of the regional order.22 Trade liberalisation and macroeconomic reforms have been underlying factors for Indonesia being one of the fastest-growing economies in the Indo-Pacific since the turn of the century. Indonesia has maintained a stable economic growth, which consistently remained within a narrow range of 4.9 to 5.3 per cent for the last 14 quarters.23 Moreover, trade and international investment has been a strong contributor to Indonesia’s economic growth since the Asian Financial Crisis in the late 1990s. Its GDP per capita has risen from US$807 in 2000 to US$3,877 in 2018 – and has more than halved the percentage of the population living in poverty in 1999, to 9.8 per cent in 2019.24 IA-CEPA will provide direct benefits to Australian business in the form of reduced tariffs on exports of goods to Indonesia, greater access for Australian services in the Indonesian market, reduced trade costs through more streamlined customs and administrative arrangements, and greater certainty and stability around two-way investment links between Australia and Indonesia. Trade agreements can boost trade because they reduce trade costs by cutting and removing tariffs, easing non-tariff barriers and streamlining customs and other administrative procedures and costs associated with trade.25 In addition to these benefits, IA-CEPA can deliver broader and longer-term strategic benefits for Australia and its economic, political and cultural links with Indonesia, other ASEAN countries and the wider Indo-Pacific. In terms of the evolving Asia-Pacific trade architecture, IA-CEPA will be a building block, along with the CPTPP (and a possible Regional Comprehensive Economic Partnership). In fact, IA-CEPA could provide a further impetus for Indonesia to continue to pursue its trade liberalisation agenda. Indonesia – along with Thailand – has recently expressed interest in joining the CPTPP at some point (in the future) after it has addressed some reform issues26 and has already participated in the agreement’s enlargement discussions27. This could ultimately be another step towards the long-term goal of a Free Trade Area of the Asia-Pacific (FTAAP).

18 ibid 19 ibid 20 ibid 21 ibid 22 , 2017 Foreign Policy White Paper, p.41 23 The World Bank, June 2019 Indonesia Economic Quarterly: Oceans of Opportunity, 1 July 2019 (accessed 19 August 2019) 24 The World Bank, The World Bank in Indonesia: Overview, last updated 8 April 2019 (accessed 19 August 2019) 25 Head, K. and Thierry Mayer, ‘Gravity Equations: Workhorse, Toolkit and Cookbook’, in Gita Gopinath, Elhanan Helpman and Kenneth Rogoff (eds), Handbook of International Economics: Volume 4, Elsevier, 2014, pp. 131-95. 26 CNBC, Indonesia is on path to joining the Trans-Pacific Partnership, finance minister says, 18 April 2018 (accessed 23 August 2019) 27 Peter A. Pertri, Michael G. Plummer, op cit, p.6

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 7 TRADE OPPORTUNITIES

Australia-Indonesia trade relationship Australia’s and Indonesia’s trade relationship continues to fall well short of its potential. Despite the cultural ties, geographic proximity, world’s fourth largest population and world’s 10th largest economy (in terms of purchasing power parity), Indonesia is Australia’s 14th largest trading partner, with two- way trade worth $17.58 billion in 2018.28 Indonesia was Australia’s 14th largest export market and its 12th largest source of imports in 2018. The two-way goods trade is dominated by resources (examined in the next section). Indonesia currently takes around 2 per cent of Australia’s total merchandise exports and around 1.8 per cent of services exports. While this a growth of 7.4 per cent from 2017, the two-way trade relationship has only had a 1.9 per cent five year trend growth.29

Table 1: Australia’s trade with Indonesia, 2018

Merchandise Services Total goods and services (A$ billion) (A$ billion) (A$ billion)

Exports from Australia 6.82 1.70 8.52

Imports from Indonesia 5.00 4.07 9.06

Two-way trade 11.82 5.77 17.58

Source: Department of Foreign Affairs and Trade, Indonesia economic factsheet 2018. Role of mining in trade with Indonesia Indonesia has had an impressive average GDP growth rate of 5.5 per cent since 2010, which in turn has seen a considerable expansion of the middle class as well as impressive growth in infrastructure and manufacturing base. The World Bank estimates that Indonesia’s GDP growth will continue until at least 2022. This means that, with its young and fast-growing population and expanding middle class, demand for energy and materials will in turn continue to grow.30 This creates significant opportunities for Australian minerals exports. As Indonesia continues to industrialise, its requirements for thermal and metallurgical coal, steel, , aluminium, and other metals will continue to increase. That will in turn result in an increase in demand for these processed minerals and metals that Australia’s minerals sector is well-placed to supply. Indonesia is already a sizeable market for Australia’s resources and basic metals exports. Crude petroleum was Australia’s largest export to Indonesia in 2018, worth over $827 million. 31 Australia’s exports of minerals and basic metal manufactures to Indonesia were worth around $1.9 billion in 2018, making it a significant resources market for Australia. Coal was Australia’s fifth largest export to Indonesia in 2018 ($747 million) in 2018. There were also significant exports in iron ore ($190 million), aluminium ($156 million) and zinc ($128 million).32

28Department of Foreign Affairs and Trade, Australia's trade in goods and services 2018, Last updated May 2019 using ABS catalogue 5368.0 and 5368.0.55.003 (March 2019 data). 29 ibid. 30 The World Bank, June 2019 Indonesia Economic Quarterly: Oceans of Opportunity, 1 July 2019 (accessed 19 August 2019) 31Department of Foreign Affairs and Trade, Australia's trade in goods and services 2018, Last updated May 2019 using ABS catalogue 5368.0 and 5368.0.55.003 (March 2019 data). 32 ibid.

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 8 Coal exports –metallurgical and thermal together – have grown by 110 per cent over the past five years, as Indonesia continues to scale up its electricity and manufacturing sectors. Aluminium, zinc, unwrought and ferrous metal scrap have grown strongly in recent years.33 Indonesia’s energy forecast Indonesia’s rising per capita income and population and planned industrial growth will to substantial increases in demand for electricity over the next decade and beyond. It is expected that Indonesia will remain the world’s largest thermal coal exporter, at least for the next five years. Indonesia’s electricity consumption per capita is still very low, at 957 kWh per capita in 2017.34 However, Indonesia’s domestic demand continues to grow strongly. It is expected that by 2030m Indonesia’s consumption per capita is 2,440kWh per capita, which is still less than Thailand’s current level. Around 18 gigawatts of coal-fired plants are expected to commence operations from 2019-2022.35 The International Energy Agency (IEA) notes in its central scenario that:

Coal production drops by 10% to 340 mtce [million tonnes of coal equivalent] in 2040 due to depletion of the best resource sites. The share of production serving growing domestic coal demand increases from 18% in 2017 to around 46% in 2040 at the expense of exports.36

This presents opportunities for future Australian thermal coal exports to Indonesia. This is expected to occur notwithstanding measures to improve energy efficiency that has already seen Indonesia introduce minimum energy performance standards for some appliances. The principal implication for Australia is that Indonesia’s net exports of coal are expected to decrease markedly from 308 mtce in 2017 to 255 mtce in 2025 and then further to 182 mtce by 2040. 37 Somewhat surprisingly, Australia’s coal exports to Indonesia are not already confined to metallurgical coal, but include a sizeable value ($237 million in 2018) of thermal coal.38 This may be a consequence of domestic demand for Australia’s higher quality coal, either directly for use in power plant technologies requiring this, or for blending with Indonesian thermal coal for on-sale to other markets. Opportunities for minerals and metals exports to Indonesia Indonesia’s continued economic growth, including further urbanisation and a growing middle class, provides further opportunities for Australia to continue to grow its mineral exports to Indonesia. For example, steel manufacturing and imports will continue to grow strongly in Indonesia as the country continues to modernise. Currently per capita steel use is very low at 61.8 kilograms (compared to 347.2 kilograms for Malaysia). Total usage has been growing slowly, but the Indonesian Iron and Steel Institute expects usage to be up by almost 70 per cent on 2016 levels by 2025.39 Indonesia’s steel production is well short of usage: just 5.2 million tonnes in 2017, less than one third of apparent steel use.40 Similarly, as mentioned above, Indonesia’s coal reserves are predominantly for use in thermal power plants: metallurgical coal is imported. Australia supplied 82 per cent of this market in 2018, up from 76 per cent in 2017. Russia and China are the main competitors.41

33 ibid 34 PwC, Power in Indonesia: Investment and Taxation Guide, 6th edition, November 2018, p.72 35 Indonesia’s Electricity Supply Business Plan (RUPTL) 36 IEA, World Energy Outlook 2018, OECD/IEA, Paris, 2018, p.223. 37 IEA, World Energy Outlook 2018, OECD/IEA, Paris, 2018, p.224. 38 Department of Foreign Affairs and Trade, Australia's trade in goods and services 2018, Last updated May 2019 using ABS catalogue 5368.0 and 5368.0.55.003 (March 2019 data). 39 The Indonesian Iron and Steel Industry Association, ‘Indonesia Steel Industry: Development and Opportunities’, Paris, 29 September 2017, pp.3-4 40 Data on production and usage are from World Steel Association, Steel Statistical Yearbook 2018, November 2018, Tables 1, 39. The figure for apparent steel consumption is in terms of crude steel equivalent. 41 Nikkai Asia Review, Russia to take on Australia and Indonesia in Asian coal market, 16 September (Accessed 19 August)

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 9 Removal of mining-related tariffs under IA-CEPA Coal exports to Indonesia were made duty free under AANZFTA signed in 2009, as are mineral and energy exports more generally. Nonetheless, Indonesia agreed to reduce tariffs on remaining iron ore and steel lines that were not eliminated under AANZFTA – which were as high as 20 per cent – to five per cent or less by 2025. Indonesia also eliminated an additional 124 tariff lines on steel not already removed under AANZFTA, including guaranteed market access for 250,000 tonnes per annum of certain hot and cold rolled steel lines imports from Australia, growing at five per cent per annum in perpetuity. Indonesia also agreed to the immediate elimination of five per cent tariff on copper cathodes – imports from Australia were worth $48.5 million in 2017. Opportunities for Australia’s METS sector The importance of mining in Australia’s economy means that thousands of METS businesses have emerged to support and supply the mining industry. Australia is recognised as a world-leader in innovative mining technologies and services. Deloitte Access Economics estimates that in 2015-16 that the total economic contribution of the mining and METS sector together was $236.8 billion, which supported 1.1 million jobs across Australia or 10 per cent of total employment.42 The mining and METS sector accounts for more than 15 per cent of Australia’s GDP. Austmine estimates that the METS sector generates around $90 billion of revenue each year. Exports are a key component of the METS industry, with over half of all businesses operating in the METS sector exporting products, services or technology to mines around the world. It is estimated that at least 140 Australian-based METS companies export equipment, products or technology to the Indonesian market, including at least 40 ASX-listed companies. For many firms, through a number of industry surveys, Indonesia consistently rates as the top or second top priority market. A 2016 Australian International Business Survey (AIBS) found that eight per cent of METS respondents described Indonesia as one of their top two markets – second only to the United States (13 per cent). Prior surveys by Austmine and the AIBS also ranked Indonesia as either the top or second most important market..43 Mining services Australia is recognised as a world-leader in innovative mining technologies and services, and there is already a strong Australian METS sector presence in Indonesia. For example, 60 per cent of the world’s mining computer software is already developed in Australia. 44 Services exports by METS firms to Indonesia are difficult to quantify. Australia exported $1.7 billion of services to Indonesia in 2018. However, METS exports are difficult to quantify, as they can be classified as construction, engineering or business services or education. METS firms doing business in Indonesia range including MCA members such as Thiess (part of the CIMIC Group, which provides services to several major coal projects, including the Melak mine in East Kalimantan), McMahon Holdings that provide whole-of-mine services (including the Batu Hijau, Martabe, Tujuh Bukit, Langkawi and Lhoknga projects)45 and Orica which exports explosives and blasting services to Indonesia. Other METS companies include RPM Global (geological and mine planning services, as well as geotechnical analysis and resource estimation). There are also a number of niche firms that provide highly specialised services such as fuel management, environmental management, mines communications and mining software. For

42 Deloitte Access Economic, Mining and METS Engines of economic growth and prosperity for Australians, prepared for the Minerals Council of Australia, 29 March 2017 43 ibid., p.21. 44 Austrade, Mining Software and Specialised Technologies, September 2013 (accessed 21 August 2019) 45 McMahon Holdings, key projects (accessed 19 August 2019)

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 10 example, Australian consultancy firm Earth Systems was involved in work at a coal mining terminal in East Kalimantan to treat acid drainage and facilitate the use of stormwater for suppressing dust and wash-down operations. Generally, by contrast with the position for mining commodities, barriers to Australia’s exports of including mining and construction services to Indonesia, including non-tariff measures (NTMs), are consistently considerable. Indonesia is rated the second most restrictive country in the OECD in relation to barriers to services trade.46 Data for individual sectors indicate that it was among the five most restrictive regimes for mining and quarrying, legal services, engineering and accounting and auditing – all sectors relevant to mining and METS firms. Construction services had a moderate score on the 2018 index. However, the metals, machinery and other minerals sector was relatively open.47 Furthermore, in sharp contrast to a number of other developing and emerging countries, as well as the OECD, Indonesia’s mining FDI regime has become less open over time. Indonesia moved from ranking the 12th most restrictive regime in 1997 of 45 countries for which data were available, to the third most closed in 2018.48 Table 2 shows some business services that could be provided by METS firms. However, this data represents transactions between Australian residents and non-residents and fails to capture services delivered by commercial presence (as when a contract miner, or a METS firm specialising in environmental solutions for mines, supplies mining services through a locally incorporated enterprise).

Table 2: Selected Australian Services Exports to Indonesia ($million)

2013 2017 2018 2013-18 Annual growth (per cent) Maintenance and 24 6 10 -16 repair services, n.i.e. Construction 222 0 services Financial services 11 12 9 -4 Intellectual property 24 5 4 -30 charges, n.i.e. Telecom, computer 73035 38 and information services Professional, 141 118 74 -12 technical and other business services Source. ABS, International Trade: Supplementary Information, Calendar Year, 2018, Catalogue 5368.0.55.004 IA-CEPA will deliver some useful outcomes on services, including in relation to mining and mining services. The provisions of the principal services chapter include general commitments:

46 The OECD advises, however, that the foreign equity limit for accountancy was cut from 49 per cent to 20 per cent in 2018. The magnitude of this change does not appear to be fully reflected in the OECD scoring method in this sector, though the index for foreign equity limits did go from 0.321 in 2017 to 0.332 in 2018. 47 ibid 48 ibid

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 11  On national treatment (that is no less favourable treatment than to its own service suppliers in like circumstances), most-favoured-nation treatment (no less favourable treatment than accorded to any non-party in like circumstances)  Market access (ruling out limits, such as on the number of service providers or the value of services transactions)  Local presence (ruling out a requirement to establish a representative office as a condition for supplying a service by a method other than commercial presence).49 As outlined in Table 3, there are some positive commitments in relation to contract mining, mine site preparation and construction services that provide added certainty by binding levels of access and ownership.50 Similarly, there are new commitments covering the movement of natural persons to Indonesia.51 These commitments provide ongoing certainty for Australia METS firms. Indonesia has never made commitments in a trade agreement on mining services before. Indonesia has allowed Australian companies to now own up to 67 per cent of mining services companies based in Indonesia, up from 49 per cent. This includes contract mining, which is defined as ‘mining and related services rendered on a fee or contract basis at metallic, non-metallic and coal mining sites.’52 Similarly, Indonesia has committed to allow Australians to own up to 67 per cent for most construction-related work, including mine site construction and engineering and surveying services, which covers a range of engineering services relevant to mining – up from 49 per cent. This is also the case for a wide range of technical testing and analyses services, including testing of minerals.53 Nonetheless, barriers remain in a number of mining services exports, particularly in areas such as in site preparation and contract mining. Indonesia’s IA-CEPA schedules still requires priority given to Indonesian workers and sub-contractors – even though some construction projects can require highly skilled personnel that may not be available to work immediately on a project. This can lead to delays in some projects. Mining equipment exports from Australia are also better supported through mining services outcomes in areas such as engineering and legal services. In that regard, Indonesian commitments for services such as allowing up to 67 per cent of engineering and construction service companies, which have significant crossover or supporting functions to mining services.54 Table 3: IA-CEPA: Selected mining service-related sectors55 Category Limitations on Market Access and National Treatment Site preparation work for Commercial presence requires a joint venture and is subject to an mining economic needs test. Foreign ownership is to be no more than 67 per cent (up from 49 per cent). Priority must be given to hiring Indonesian sub-contractors and workers

Contract mining services Commercial presence requires a joint venture and is subject to an (includes contract mining, economic needs test. Foreign ownership is to be no more than 67 per defined as ‘mining and cent up from 49 per cent). Priority must be given to hiring Indonesian related services rendered on sub-contractors and workers. a fee or contract basis at

49 Department of Foreign Affairs and Trade, Indonesia-Australia Comprehensive Economic Partnership Agreement, Chapter 9: Trade in Services (accessed 19 August 2019) 50 ibid 51 ibid 52 Department of Foreign Affairs and Trade, Indonesia-Australia Comprehensive Economic Partnership Agreement, Annex II: Schedule of Indonesia (accessed 19 August 2019) 53 ibid. 54 ibid. 55ibid.

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 12 metallic, non-metallic and coal mining sites)

Engineering-related For commercial presence, there is a joint venture requirement and consulting services for foreign ownership is to be no more than 67 per cent (up from 49 per subsurface and surface cent). Geospatial data and information can only be processed offshore surveying, or map-making if the necessary skills and equipment are not available in Indonesia. services

Various types of construction Commercial presence requires a joint operation or joint venture and services foreign ownership is to be no more than 67 per cent. The most senior management in a representative office shall be Indonesian. Foreign service suppliers can only provide services that require high risk, high technology or high capital (known as ‘qualification big’).

Source. IA-CEPA, Annexes I and II. Mining technology and equipment The value of mining equipment and technology exports to Indonesia are also difficult to estimate. Much equipment used by the mining sector can have dual or multiple uses and the statistical codes used to classify trade are typically not fine enough to determine where the export is being used. However, Table 4 follows previous chapters by listing some commodities that could include mining equipment. The biggest item is pumps and parts of pumps.

Table 4: Australian Exports to Indonesia that Could Include Mining Equipment: 2018 $ million

Product Description (abbreviated) Exports

Basic chemical manufacturing/explosives 1.0

Rubber manufactures and headgear 7.2

Railway manufacturing. 6.4

Professional, scientific, electronic equipment, of which: 13.0 - - - - - surveying instruments and appliances (7.2)

Electrical equipment 4.1

Iron and steel articles <0.1

Machinery and mechanical appliances, of which: 223.4 - - - - - various pumps and parts of pumps (91.2) - - - - - machinery for sorting, screening etc. earth, ores or minerals; (70.9) machinery for agglomerating mineral fuels, plastering materials; machines for forming foundry moulds - - - - - parts for boring and sinking machinery (17.9) - - - - - parts for lifting, handling, loading and unloading machinery (17.9)

Vehicles of a kind which might be used in mining. 10.6

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 13 Product Description (abbreviated) Exports

Total for possible METS products 265.6

Source. ITC Trade Map Database.

I-A CEPA therefore further supports Australia’s minerals sector by locking-in duty-free access for Australia’s mining equipment and manufacturing exports to Indonesia. Movement of natural persons Australian METS’ biggest export are service capabilities, so being able to easily bring people in and out of countries quickly and efficiently will save time and money. The MCA welcomes some improvements to the movement of natural persons, noting that this continues to be a difficult and politically sensitive issue in Indonesia. While the MCA would like to have seen further developments in Indonesia’s Schedule of Movement of Natural Persons in Annex 12-A, we acknowledge that this is an important first step and that there may be opportunities for further improvements in this area in future reviews of the agreement. As discussed further under IA-CEPA’s investment chapter, the agreement’s commitment that ‘either Party shall require that an enterprise of that Party that is a covered investment appoint to a senior management position a natural person of any particular nationality’, assists in the appointment of senior personnel to help run a project.56

56 Department of Foreign Affairs and Trade, Indonesia-Australia Comprehensive Economic Partnership Agreement, Chapter 14: Investment (accessed 19 August 2019)

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 14 INVESTMENT OPPORTUNITIES

Australia-Indonesia Investment Relationship At the end of 2018, foreign economies had a total of $3.5 trillion invested in Australia, including $968 billion of foreign direct investment (FDI). Australia at the end of 2018, on the other hand, had invested $2.5 trillion overseas, including $461 billion in FDI. Australia and Indonesia’s investment relationship significantly lags the two-way trade relationship. Australia’s total investment in Indonesia was worth $5.6 billion at the end of 2018.57 Cumulative foreign direct investment by Australia in Indonesia was $2.3 billion at the end of 2018, well down on the peak of $7.5 billion at the end of 2017 and well below levels in some neighbouring countries. The proportion of Australian direct investment in Indonesia going to the mining sector is unclear but is likely to be a significant proportion of total investment. Direct investment by Indonesia in Australia has generally been small. Indonesian inward FDI into Australia was only $1 million at the end of 2018, while total investment is estimated at around $1 billion.58 Australian mining investment opportunities in Indonesia Indonesia’s barriers to foreign investment in mining projects are generally the greatest impediment for the mining sector looking to engage in Indonesia. The OECD FDI Restrictiveness Index which measures barriers on a scale of zero (no barriers) to one (completely closed) shows Indonesia as having the third most closed regime among 69 countries for which 2018 data are available.59 The Indonesian Government has undertaking a range of policies that ensures that Indonesian government maintain majority ownership of mineral resources, and requiring international mining companies to divest their majority ownership. Indonesian law requires divestment down to not more than 49 per cent foreign ownership over a ten year period. For example, completed the sale of its entire interest in the Grasberg copper mine to Indonesia’s state mining company, (PT Indonesia Asahan Aluminium (Persero)), Indonesia’s state mining company, and Freeport McMoRan Inc at the end of 2018.60 Several Australian miners still operate in Indonesia. For example:  Nusantara runs the Awak Mas Project in Sulawesi through its 100 per cent owned subsidiary PT Masmindo Dwi Area  Cokal has coal tenements in Kalimantan and is seeking to build a company specialising in metallurgical coal  Newcrest has a 75 per cent stake in the Indonesian company PT Nusa Halmahera Minerals, the owner and operator of the Gosowong gold and mine), although it too has commenced the sale process of its stake61.

57 Department of Foreign Affairs and Trade, Indonesia Economic Factsheet (accessed 19 August 2019) 58 ibid 59 See OECD, ‘FDI Regulatory Restrictiveness Index’ at https://stats.oecd.org/Index.aspx?datasetcode=FDIINDEX . 59 OECD, FDI Restrictiveness Index (accessed 19 August 2019) 60 Rio Tinto, Notice to the ASX/LSE, Rio Tinto completes sale of Grasberg interest, 21 December 2018 (accessed 19 August 2019) 61 Financial Review, Newcrest goes for gold with Gosowong sale, 18 August 2019 (accessed 21 August 2019)

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 15 Table 5: Comparison of commitments between IA-CEPA and Australia-Indonesia BIT

Issue Safeguards IA-CEPA62 BIT63

National Each Party shall accord to investors of the other Party Ch 14, Article X Treatment treatment no less favourable than it accords its own 14.4(1-3)) investors in relation to investments in their territories

Most-Favoured Each Party shall accord to investors of the other Party Ch 14, Article Article IV Nation treatment no less favourable than it accords other 14.5(1-3)) Treatment countries in relation to investment in their territories

Prohibition of Guarantee investors and their investments will not Ch 14, Article X Performance have requirements imposed such as export quotas, 14.6(1-3) Requirements domestic content requirements or restriction of sales in a particular territory

Minimum Guarantee investors and their investments are Ch 14, Article Article 3(2) standard of accorded a minimum standard of treatment in 14.7(1-4)) treatment accordance with applicable customary international law, including an obligation to provide due process in court proceedings and provide “fair and equitable treatment” and ‘full protection and security’

Transfers Require that investment-related capital transfers Ch 14, Article Article 9(1) should be allowed to occur freely and without delay 14.7(1-3)) and (2) (subject to a country’s legal requirements)

Treatment in In the event of armed conflict or civil strife, each Party Ch 14, Article Article V Case of Armed shall accord to investors of the other Party, treatment 14.8 (1-2) Conflict or Civil no less favourable than that it accords, in like Strife circumstances, to its investors

Senior Ensures that the investor is not required to appoint an Ch 14, Article X Management officer of a particular nationality to a senior 14.10(1-2)) and Boards of management position (does not extend to boards or Directors other committees unless it ‘impairs the ability of the investor to exercise control over its investment’)

Expropriation The right to compensation for certain types of Ch 14, Article Article VI and expropriation and protection against discrimination – 14.11 (1-5) nationalisation with payment to be made without delay and equivalent to fair market value of the investment immediately before the expropriation took place (but exempts licence in relation to IP rights). Also allows payment of any accrued interest

Subrogation If a Party makes a payment to an investor of that party Ch 14, Article Article VIII under a guarantee, insurance or other form of identity 14.12 (1-2) – then the other Party who territory covered the investment must recognise the subrogation

62 Department of Foreign Affairs and Trade, Indonesia-Australia Comprehensive Economic Partnership Agreement, Chapter 14: Investment (accessed 19 August 2019) 63 Australian Treaty Series 1993 No 19, Agreement between the Government of Australia and the Government of the Republic of Indonesia concerning the Promotion and Protection of Investments, and Exchange of Letters (accessed 19 August 2019)

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 16 Relaxation of Indonesia’s foreign ownership provisions would have been a welcomed development. But the MCA appreciates that the Australian Government attempted to extend this provision during the FTA’s negotiations. The MCA welcomes commitments in IA-CEPA outlined in Chapter 14 – and summarised in Table 5 – that provide greater certainty for Australian investors, including providing greater certainty for Australian investors by limiting the scope for Indonesia to make key regulations governing foreign investment more restrictive in the future, for example on minimum capital requirements.64 These are a significant improvement to the existing bilateral investment treaty – and reduce sovereign and political risk for investors from both Australian and Indonesia. The MCA also supports commitments under the agreement regarding national treatment (Article 14.4) which ensures

Each Party shall accord to investors of the other Party treatment no less favourable than it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments in its territory.65 Furthermore, as mentioned, with the significant capital and time required for the development and operation of a mining project, the MCA welcomes commitments under Article 14.11 that any expropriation or nationalisation would ensure ‘payment of prompt, adequate and effective compensation’ and be equivalent to the fair market value of the expropriated investment at the time when or immediately before the expropriation was publicly announced, or when the expropriation occurred’.66 Finally, the inclusion of prohibition of performance requirements under Article 14.6 is an important commitment for Australian mining companies looking to invest in Indonesia. Indonesian Ministries have used a variety of instruments, including export duties, export bans and licensing, to encourage international companies to increase the level of domestic resource processing. Furthermore the Indonesian Ministry of Energy issued a decree requires that coal producers sell 25 per cent or more of their output to power stations at US$70 per tonne or less.67 Therefore, Article 14.6 provides greater investment certainty for future projects in Indonesia, by ensuring that neither Party shall, in connection with the investment impose or enforce any requirement:  To export a given level or percentage of goods or services  To achieve a given level or percentage of domestic content  To purchase, use or accord a preference to goods produced in its territory or to purchase goods from persons in its territory  To relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such investment.68

Indonesian investment in Australia One sizeable investment by Indonesian firm Mach Energy occurred when it bought the Mt Pleasant mine in the Hunter from Rio Tinto for US$220 million. Another big investment in the mining sector occurred in 2018 when Indonesian coal miner PT Adaro Energy, as part of a consortium with private equity firm EMR Capital, acquired Rio Tinto’s 80 per cent equity in ’s Kestrel coal mine for

64 Department of Foreign Affairs and Trade, Indonesia-Australia Comprehensive Economic Partnership Agreement, Outcomes: Investment (accessed 19 August 2019) 65 Department of Foreign Affairs and Trade, Indonesia-Australia Comprehensive Economic Partnership Agreement, Chapter 14: Investment (accessed 19 August 2019) 66 ibid 67 PwC, Mining in Indonesia: Investment and Taxation Guide, 10th edition, May 2018, p.72 68 Department of Foreign Affairs and Trade, Indonesia-Australia Comprehensive Economic Partnership Agreement, Chapter 14: Investment (accessed 19 August 2019)

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 17 US$2.25 billion69 (The remaining 20 per cent is owned by Mitsui Coal Australia). Adaro (with 48 per cent of Rio’s share) and EMR (52 per cent) will jointly manage the mine: Adaro is reported to have plans to double its metallurgical coal production, with added investment in infrastructure.70

69 P. Ker, ‘Noodle maker Salim Group makes an unlikely entry into Australian coal’, Australian Financial Review, posted 27 October 2017. 70 See Rio Tinto, ‘Rio Tinto agrees sale of Kestrel mine to EMR and Adaro for $2.25 billion’, Notice to LSE and ASX, 27 March 2018; V Zhou, ‘Rio Tinto lets go of remaining Australian coal assets’, Australian Mining, 2 August 2018; S Yuniarni, “Adaro Expects to Double Production at Australia’s Kestrel Coal Mine’, Jakarta Globe, 17 July 2018.

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 18 ISDS PROVIDES INVESTMENT CERTAINTY TO AUSTRALIA AND INDONESIA

IA-CEPA’s Investment Chapter contains investor-state dispute settlement (ISDS) provisions (Chapter 14, Section B). These provisions will allow investors to seek mediation and arbitration where they claim that a government has breached the investment commitments it has made under the agreement. An ISDS mechanism provides greater comfort and investor certainty for both Indonesian and Australian investors alike. It also reduces sovereign and political risk – and, for the mining sector, provides greater certainty for what can be millions or billions of dollars of capital. Anti-trade activists frequently argue that ISDS provisions allow foreign investors to challenge government policies in areas such as the environment or healthcare. However, ISDS provisions do not create a wide-ranging ability for foreign investors to challenge any government policies. In fact, the ISDS provisions under IA-CEPA provide greater certainty to both Australia and Indonesia. However, arguments mounted by anti-trade groups over ISDS often give examples from investment disputes under older ISDS provisions in agreements to which Australia is not a party, such as the North American Free Trade Agreement (NAFTA) negotiated in the early 1990s. Compared to these older provisions, the modern ISDS provisions of agreements like IA-CEPA – as well as the CPTPP and the updated Singapore-Australia Free Trade Agreement include extensive safeguards and protections for public policies. The Committee can be satisfied that the IA-CEPA ISDS provisions are state-of-the-art in terms of safeguards to protect public policy, to ensure investment disputes are resolved in a transparent, accountable and fair manner and to address community concerns over ISDS. In evaluating these scare campaigns, the Committee could also consider Australia’s actual experience with ISDS. Australia is already covered by ISDS provisions in investment treaties which date back to 198871 (Australia is a party to a BIT with each of Argentina, China, Czech Republic, Egypt, Hong Kong, Hungary, Indonesia, Laos, Lithuania, Pakistan, PNG, Peru, Philippines, Poland, Romania, Sri Lanka, Turkey and Uruguay).72 Australia has already entered into a number of investment treaties with some of its key trading partners through recently completed FTAs. The CPTPP (entered into force in December 2018), Korea-Australia FTA (entered into force December 2014), China-Australia FTA (entered into force in December 2015) – as well as FTAs with Thailand, Chile, Singapore and ASEAN – all contain ISDS mechanisms. In the 30 years Australia has been subject to these provisions, no Australian law, regulation or public policy has had to be changed due to ISDS. In fact, in all that time under all those agreements, there have only been two ISDS claims against Australia. The first of these claims was the Phillip Morris challenge to Australia’s tobacco plain packaging legislation under the 1993 Australia-Hong Kong Investment Promotion and Protection Agreement. This claim was unsuccessful and legal costs were awarded against Phillip Morris73 (although Honduras and the Dominican Republic since appealed to the WTO Appellate Body in August 201874). The second claim was initiated in 2017 by APR Energy and a number of other US investors. This case involved a commercial dispute (arising out of the ANZ Bank’s seizure of the claimants’ power turbines, which were leased to Forge Group and recovered by ANZ as property for payment of

71 Senate Foreign Affairs, Defence and Trade Legislation Committee, Additional Estimates 2015, 26 February 2015, Answers to Questions on Notice/In Writing, Question No 131 72 Department of Foreign Affairs and Trade, Australia’s bilateral investment treaties (accessed 19 August 2019) 73 Permanent Court of Arbitration, Phillip Morris Asia Ltd v Commonwealth of Australia, Final Award Regarding Costs, 8 March 2017. 74 Department of Foreign Affairs and Trade, WTO Disputes - Tobacco Plain Packaging, updated October 2018 (accessed 19 August 2019)

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 19 Forge’s debt upon its insolvency) rather than Australian policies or regulations. APR Energy dropped its claim against the Australian Government in April 2019.75 On the other hand, ISDS provisions also protect Australian investments internationally. And for the minerals industry, the capital commitments can run into billions of dollars. Since 2010, at least three disputes in the public domain have been initiated by Australian claimants under a BIT: one against each India, Pakistan and one against Indonesia.76 In these cases, arbitral tribunals found in favour of White Industries against India and Tethyan Copper against Pakistan, but in the case of Churchill Mining and Planet Mining, the International Centre for Settlement of Investment Disputes found in favour of Indonesia.77 As mentioned above, Australia already has ISDS provisions in the existing Australia-Indonesia bilateral investment treaty (BIT) – Agreement between the Government of Australia and the Government of the Republic of Indonesia concerning the Promotion and Protection of Investments78 – which entered into force in 1993. In fact, as Table 6 outlines below, IA-CEPA’s investment rules provide greater certainty to both Australia and Indonesia compared to an investment treaty that is 26 years old. However IA-CEPA’s investment chapter strengthens safeguards, which are not specifically outlined in the BIT. IA-CEPA contains significant and procedural safeguards that protects both Australian and Indonesian governments from any challenges to public policies regarding health (including Medicare and Pharmaceutical Benefits Scheme), environmental protection, social welfare, education, social services, welfare policy, government service delivery, cultural and heritage protection and conservation policies and the decisions of the Foreign Investment Review Board.79 The procedural safeguards ensure that any claims, disputes or arbitrations under the IA-CEPA ISDS provisions will be conducted in an open and transparent manner and will be subject to clear procedural rules and legal standards. ISDS provisions provide investment certainty for international investments. This makes Australia a more attractive destination for investors and provides greater certainty for investment overseas which in the case of the minerals sector can be significant. It is important to ensure that foreign investors are broadly treated the same as domestic investors, subject to specific exceptions and carve outs. From the MCA’s perspective, this is crucial in ensuring greater certainty and stability for Australian investors abroad. This will help reduce the risk of protectionist investment measures, such as discrimination and expropriation and ensuring a minimum standard of treatment. In that regard, ISDS provisions including under IA-CEPA are important, as they provide a mechanism for disputing parties to seek relief or compensation, particularly in relation to expropriation of assets and investments. This provides greater investment certainty and reduces sovereign risk. Without ISDS provisions, investors would have to rely on state-to-state consultations to resolve any disputes about breaches of the investment commitments. Disputes under ISDS provisions must involve breaches of the substantive investment commitments made under the relevant agreement such as the commitments not to expropriate property without adequate compensation or not to discriminate against foreign investors compared to domestic businesses. Furthermore, as noted above, Australia has listed an extensive series of non-conforming measures or exceptions, covering a wide range of existing public polices, legislation and regulations. ISDS provisions cannot be used to challenge such non-conforming measures.

75 The Advertiser, APR Energy fails to sue Australian Government, taxpayers left to foot the bill, 19 April 2019 (accessed 19 August 2019) 76 White Industries Australia Limited v. Republic of India, UNCITRAL; Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan, ICSID Case No. ARB/12/1; Churchill Mining PLC and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and 12/40; 77 The Times, Indonesia row topples Churchill Mining, 31 March 2019 (accessed 19 August 2019) 78 Australian Treaty Series 1993 No 19, Agreement between the Government of Australia and the Government of the Republic of Indonesia concerning the Promotion and Protection of Investments, and Exchange of Letters (accessed 19 August 2019) 79 Department of Foreign Affairs and Trade, Indonesia-Australia Comprehensive Economic Partnership Agreement, Outcomes: Investment (accessed 19 August 2019)

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 20 Table 6: Comparison of investment safeguards between IA-CEPA and Australia-Indonesia BIT

Issue Safeguards IA-CEPA80 BIT81

Consultations Either Party may request consultations with respect to Ch 14, Article Article XI (1) any dispute arising under this Agreement. And in the 14.22 (1-3) event of an investment dispute, disputing parties will and Ch 20, as far as possible resolve the dispute through Article consultation. The Responding Party shall accord due 20.5(1)) consideration to a request for consultations

Conciliation If the dispute cannot be resolved within 180 days, the Ch 14, Article X disputing Party may initiate a conciliation process, 14.23 (1-3) which shall be mandatory for the disputing investor, with a view towards reaching an amicable settlement

Claim by an If an investment dispute has not been resolved by Ch 14.24 Article XI (2) investor of a consultations the disputing investor may submit a party claim for arbitration

Selection of The tribunal shall comprise one arbitrator appointed by Ch 14, Article Article XII (3) Arbitrators each of the disputing parties and a third arbitrator of a 14.27 (1-7) national of a non-Party

Arbitrator An ISDS mechanism which provides investors with Ch 14, Article X independence access to an independent arbitral tribunal to resolve 27(2) disputes for breaches of these investment rules

Establishment The Complaining Party may request the establishment Ch 20, Article X of Panels of a panel to consider a dispute arising under this 20.7(1) Agreement if the Responding Party does not reply to a request for, or enter into, consultations

Compensation Compensation and the suspension of concessions or Ch 20, Article Article V and and other obligations are temporary measures available in 20.14(1) Article Suspension of the event that a panel finds that the Responding Party VII(1)(e) Concessions has failed to carry out its obligations under IA-CEPA or other Obligations

Expenses Unless the Parties otherwise agree, each Party to a Ch 20, Article Article XII (6) dispute shall bear the costs of its appointed panellist 20.16(1 and and its own expenses and legal costs – and equally 2) share the costs of the chair of the panel and other expenses associated with the conduct of the proceedings

Transparency In relation to arbitration, requirement that hearings are Ch 14, Article X of proceedings open to the public, and documents filed in arbitration, 31(1-3) as well as the tribunal’s decision, will be made public (except commercially sensitive information)

Exclusion of No claims can be made that is frivolous or manifestly (Ch 14, X claims without legal merit. Article 21(1)

80 Department of Foreign Affairs and Trade, Indonesia-Australia Comprehensive Economic Partnership Agreement, Chapter 14: Investment (accessed 19 August 2019) 81 Australian Treaty Series 1993 No 19, Agreement between the Government of Australia and the Government of the Republic of Indonesia concerning the Promotion and Protection of Investments, and Exchange of Letters (accessed 19 August 2019)

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 21 Issue Safeguards IA-CEPA80 BIT81

Time limit In relation to arbitration, time limits (of 3 ½ years) on Ch 14, Article X bringing a claim 26(1)

Arbitrator In relation to arbitration a requirement for arbitrators to Ch 14, Article X independence comply with rules on independence and impartiality, 27 including on conflicts of interests Annex 14-A

Public services No can claim be made that is ‘designed and (Ch 14, X – health and implemented to protect or promote public health’ – Article 21(1), environment which includes the Pharmaceutical Benefits Scheme, Footnote 21 Medicare Benefits Scheme, Therapeutic Goods ((Ch 8, Administration and Office of the Gene Technology Section B, Regulator footnote 17))

Social services Australia and Peru have an inherent right to regulate ((Annex II – X and education on social services established or maintained for a Schedule of public purpose, such as social welfare, public Australia) education, health, transport, housing and public utilities

Arts and Limitations on ISDS claims with respect to creative ((Annex II– X heritage arts, Indigenous traditional cultural expressions and Schedule of other cultural heritage Australia – page))

FIRB Limitations on claims against Australia’s foreign ((Annex II– X screening investment framework, including decisions of the Schedule of Foreign Investment Review Board Australia – page))

Minerals Council of Australia: Indonesia-Australia Comprehensive Economic Partnership Agreement | 22