Kelvin Thomson (Wills, Australian Labor Party) Share this | Link to this | Hansard source

On behalf of the Joint Standing Committee on Treaties, I present the committee’s report, incorporating a dissenting report, entitled Report 107: treaties tabled on 20 August and 15 September 2009.

Order that the report be made a parliamentary paper.

Report 107 of the Joint Standing Committee on Treaties reviews 10 treaty actions:

• one taxation agreement with New Zealand;
• two taxation agreements with Jersey;
• one taxation agreement with Belgium;
• three agreements for the reform of the International Monetary Fund and the World Bank;
• a recasting of the Chapeau Defense Agreement with the United States;
• an agreement with the Republic of Singapore concerning the use of Shoalwater Bay training area; and
• a minor treaty action amending the Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade.

The committee has recommended that binding treaty action be taken for the three IMF and World Bank agreements in report 104, which was tabled on 9 September this year. In this report, the committee expresses support for the remaining agreements and recommends that binding treaty action be taken in each case.

The committee has made additional recommendations on the three agreements to reform of the IMF and the World Bank and the recasting of the Chapeau Defense Agreement. Consequently, I propose to direct most of my remarks to these treaties.

The three treaties for the reform of the International Monetary Fund and World Bank are the:

• Proposed Amendment of the Articles of Agreement of the International Monetary Fund to Enhance Voice and Participation in the International Monetary Fund;
• Proposed Amendment of the Articles of Agreement of the International Monetary Fund to Expand the Investment Authority of the International Monetary Fund; and
• Proposed Amendment of the Articles of Agreement of the International Bank for Reconstruction and Development (the World Bank) to Enhance Voice and Participation in the International Bank for Reconstruction and Development.

Participation in the IMF and the World Bank is based on a voting system that provides a guaranteed minimum number of votes for each member nation, and additional votes based on relative economic weight of each member country.

These additional votes are called ‘quotas’. Quotas are allocated using a formula that incorporates the GDP, openness, economic variability and the international reserves of each member nation.

The number of quota votes has increased significantly since the establishment of the IMF and the World Bank, while the basic vote allocation for each member nation has remained the same. Consequently, there has been a shift in the balance of power within these institutions towards the countries with greater economic weight.

The two voice and participation amendments aim to redress this imbalance by increasing the number of basic votes allocated and then fixing the proportion of basic votes to quota votes in perpetuity. The change will result in a decline in the voting power of the countries with larger economies.

The voice participation amendments were recommended by the governing bodies of the IMF and the World Bank in 2008. While these are commendable reforms, there is a broad recognition within the international community that they do not go far enough, and they have attracted criticism from larger developing economies.

In light of this criticism, the IMF released the final report of the Committee on IMF Governance in March this year. The report recommends, amongst other things, that the next review of voting power be brought forward from 2013 to spring 2010.

The governance reform recommendations appear to have had some impact. The Department of the Treasury advised the committee that the G20 group of nations has agreed to bring forward the next review of voting power to January 2011 and that there is an expectation that that quota vote increase for small economies will be substantial.

The committee believes Australia should continue playing a significant role in improving the legitimacy of the IMF. As a consequence, the committee recommends the Australian government should make use of its profile in the international community to support reforms that improve confidence in the IMF’s decision-making process.

The World Bank has gone some way further in progressing its voice and participation reforms. On 6 October the Development Committee of the World Bank released a proposal to increase the quota of votes allocated to developing countries to at least 47 per cent. This proposal will be considered by the board of governors in the northern spring of 2010. The committee recommends Australia support this proposal.

I will now turn to the IMF investment authority amendment, which will permit the IMF to diversify its income base.

The IMF’s income can, at present, only be derived from the marketable obligations of member nations. In other words, the IMF relies on interest payments from loans made to member countries for its income.

The new funding model combines income from lending activities with new sources of income, including a mandate to invest funds.

The IMF Board of Governors has indicated that the investment policies will reflect the public nature of the funds to be invested and include safeguards to ensure that the broadened investment authority does not lead to actual or perceived conflicts of interest.

The committee is of the view that additional safeguards are necessary to ensure that the IMF’s investment strategy does not conflict with its goals of international economic stability and fostering growth and economic development. In particular:

• IMF funds should not be invested in such a way as to endanger those funds through high-risk investments;
• IMF funds should not be used to invest in the manufacture of arms or military equipment; and
• IMF funds should not be used to invest in environmentally damaging industries.

The committee has recommended accordingly.

I now turn to the recast Chapeau Defense Agreement, amending the agreement which came into effect on 1 December 1995.

The original Chapeau Defense Agreement clarified the legal status of liability claims between the Australian Department of Defence and the United States Department of Defense as a result of death, injury or damage to property that occurred as a consequence of cooperative research, development, test evaluation or production programs and the provision of logistic support.

The amended agreement’s origins are in advice from the United States Department of Defense that, contrary to a previous understanding, United States law requires the United States Department of Defense to have agreements binding in international law covering all personnel programs.

In other words, a treaty would be required for each personnel program involving an Australian citizen placed with a United States defence organisation or a United States citizen placed with an Australian defence organisation.

There are currently 28 bilateral arrangements, relating to 400 Australian personnel placed with the United States defence organisation, and 102 United States defence personnel placed with the Australian defence organisation. None of these 28 documents are legally binding under international law. As a consequence, they do not meet the requirements for cooperation under United States law.

The Australian Department of Defence determined that the most efficient way to accommodate the United States’s requirement was to amend the existing Chapeau Defense Agreement to incorporate terms and conditions covering the exchange, secondment and liaison of personnel between the two nations’ defence organisations.

The amended Chapeau agreement will extend the application of the Chapeau Defense Agreement’s terms and conditions to cover personnel loans, secondments, exchanges and liaison officer activities.

During the public hearing into the amended agreement, committee members expressed their concern that Australian personnel may be subject to the death penalty if convicted of certain offences in the United States as a result of the amended Chapeau Defense Agreement.

In response, the Department of Defence advised that the agreement did not provide for immunity from the United States criminal law for ADF members who are serving in the United States and participating in defence commitments under the agreement.

In other words, an ADF member could be subject to the death penalty if sentenced to that penalty by a United States court following conviction for an offence committed in the United States.

The committee has in the past expressed some concern about treaties for defence cooperation exposing the Australian defence personnel to laws and regulations that do not meet the Australian community’s expectations for the treatment of sentenced prisoners.

The committee remains of the view that the Australian government should be doing its best to ensure that defence personnel convicted of a crime while serving in another country should not be subject to penalties harsher than those applied to similar crimes in Australia, and has recommended accordingly.

I now turn to the agreement with the Republic of Singapore concerning the use of Shoalwater Bay training area.

The agreement provides the Singapore armed forces with access to the Shoalwater Bay training area to conduct unilateral training activities, in particular Singapore’s major annual exercise, Exercise Wallaby.

The primary concern in relation to this agreement is the potential environmental damage caused by the exercises.

The committee notes that while the prevailing community view is that the department is strongly committed to environmental awareness and to protecting Shoalwater Bay, there were some concerns expressed about the impact of fire on the Shoalwater Bay training area. Vegetation burning should not be so regular as to damage rainforest and make the area more fire prone.

There are also various tax treaties included in this report. The committee considered the taxation agreement with:

• New Zealand in relation to reducing the barriers to bilateral trade and investment;
• Jersey in relation to offshore tax evasion and the exchange of information relating to taxes; and
• Belgium to bring our agreement into line with the OECD tax standards.

These agreements will encourage international economic relationships and increase transparency and fairness in the tax system. The committee supports all these tax treaties.