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FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC 0125
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHKO/AMEMBASSY TOKYO 3180
RUEHWL/AMEMBASSY WELLINGTON 5428
RUEHDN/AMCONSUL SYDNEY 3767
RUEHBN/AMCONSUL MELBOURNE 5566
RUEHBAD/AMCONSUL PERTH 3839
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

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