15 Oct 2015
The Trans-Pacific Partnership: Emerging E&R opportunities for Australia
by Graham Taylor, Samy Mansour, Mary Konstantopoulos
The Trans-Pacific Partnership Agreement should benefit Australia's exports of resources and associated goods and services.
The Australian Government hopes the Trans-Pacific Partnership Agreement (TPP) will bring enormous benefits to Australia in the Asia Pacific Region. In a global context, where Australia already has existing trade agreements with some of the TPP countries, the TPP presents an opportunity to diversify the Australian economy, particularly in the energy and resources sector.
Our current energy and resources trade with TPP countries
The TPP countries are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Australia's exports of resources and energy products to TPP countries were worth almost $47 billion in 2014, representing 30% of Australia's total global exports.
Last year, our top three exports to TPP countries were liquefied natural gas, coal and iron ores and concentrates (which made up the lion's share of exports at approximately $37.9 billion). In the other direction, the top two imports from TPP countries were refined petroleum and crude petroleum (representing approximately $21.4 billion).
Elimination of tariffs
The TPP will remove barriers to Australian exports of goods, services and investment and eliminate 98% of all tariffs including for manufactured goods, resources and energy. Coupled with the lock-in of duty and quota free access which Australia already has in several TPP markets for coal, iron ore and liquefied natural gas, key opportunities for Australian exports will include:
- iron ore, copper and nickel to Peru;
- butanes, propane and liquefied natural gas to Vietnam (worth $9 billion in 2014) through eliminating tariffs within seven years of the TPP coming into force;
- refined petroleum to Vietnam (worth $11 million in 2014), previously subject to a 20% tariff; and
- iron and steel products to Canada and Vietnam where tariffs will be eliminated over a 10 year period.
New exploration, extraction and production opportunities
Mining and energy exploration is focused on the Asia-Pacific region with Canada, Chile, Mexico, Peru and the United States making up 40% of worldwide exploration budgets in 2014. New commercial opportunities for Australia will emerge through:
- Mexico, for the first time, allowing foreign companies to participate in its energy sector. The liberalisation of Mexico's oil and gas and electricity sectors is expected to attract up to $20 billion of additional foreign investment per year including from Australia. For the first time, Australian companies will be able to bid to participate in the exploration, production, processing and distribution of oil, gas and geothermal resources in Mexico. Australia will also have a new opportunity to bid for government procurement opportunities with PEMEX;
- Brunei Darussalam and Vietnam locking in future reforms to local content regimes or committing to a level playing field between Australia and foreign suppliers providing goods and services in the mining, oil and gas sectors;
- prohibitions on introducing new export taxes and commitments for the elimination of existing export taxes in Malaysia and Vietnam; and
- new rules on large state-owned enterprises like CODELCO, PETRONAS, VINACOMIN and PETROVIETNAM which will help Australian providers compete fairly for contracts.
Mining Equipment, Technologies and Services (METS) and energy services
Currently, over 50% of companies in Australia's $90 billion METS sector export their goods and services. Exports now exceed $27 billion or approximately 30% of the sector's revenue. Australian companies will have the opportunity to expand their exports ‒ specifically:
- manufacturers and exporters of mining equipment will benefit from duty-free access for their exports. In Mexico, for example, tariffs of up to 15% on Australian exports of mining equipment will be eliminated. In addition, the TPP will lock in tariffs at zero in countries where Australian exports already have duty-free access;
- Brunei Darussalam, Mexico and Vietnam have committed to guarantee access for Australian METS and oilfield goods and services providers. In Vietnam, expanding offshore exploration and production has created a steadily growing market for oil and gas equipment which provides opportunities for Australian mining equipment and services organisations; and
- Australian suppliers will now have the chance to bid for government procurement opportunities with entities in Peru's government-owned electricity and hydro power sectors.
Energy and resources investment opportunities
TPP countries have committed not to introduce new foreign investment screening regimes or have extended higher preferential investment screening thresholds to Australian investors. Australian investments into Canada of below C$1.5 billion will now be exempt from investment screening processes.
The TPP will also promote foreign investment in resources and energy in Australia by increasing the screening threshold at which private foreign investments in the mining and energy sectors are considered by FIRB from $252 million to $1,094 million for all TPP counties (except in relation to uranium and plutonium extraction and nuclear facilities).
While this sends a positive message to investors generally, it will not affect the existing foreign investment notification requirements for:
- acquisitions of interests in Australian urban land or Australian urban land corporations or trusts, where notification is required irrespective of value;
- foreign government investors making a "direct investment" in Australia (ie. any investment ultimately made by foreign government investor that provides it with potential influence or control over the target entity or asset), starting a new business, or acquiring any interest in land, irrespective of value, where notification will still be required; or
- investors who wish to be involved in the extraction of (or the holding of rights to extract) uranium in Australia, where the current $252 million threshold will apply.
Finally, the TPP will also liberalise investment regimes in the mining and resources sectors. For example, Canada will now allow Australian investors to apply for an exemption from the 49% foreign equity limit on foreign ownership of uranium mines, without first seeking a Canadian partner.
Next steps for the TPP
Although the shape of the TPP has been agreed, there is still some way to go before it is in effect.
First, we are yet to see the final text, although the TPP parties are finalising arrangements for the release of the TPP text which will occur swell in advance of signature.
In order to become operational, the TPP will then need to be translated into several languages and each participant will need to complete their respective legal processes and ratify the TPP.
Nonetheless, energy and resources participants should consider the increased opportunities for import and export of their products and review their marketing arrangements in light of the TPP.