Impact Publications : Aircargo_243
Page 22 • AirCArgo AsiA-PACifiC • JUNE-JULY 2016 ANDREW HUDSON Par tner, Gadens Melbourne. E: firstname.lastname@example.org GUEST WRITER By Andrew Hudson THe TAgline for one famous sci-fi film was “in space, no- one can hear you scream”. Well, the UK’s Brexit vote (to quit the EU) and Australia’s Federal elec- tion - individually and together - have created a lot of screaming! Brexit alone has raised concerns in terms of potential outcomes. There is even uncertainty as to how it will be effected. Article 50 of the EU 2007 Lisbon Treaty contains a very general exit mechanism that suggests it will be done by negotiation and agreement, but there is little further detail. This makes Australia’s proposed Free Trade Agreement (FTA) with the EU uncer- tain — given that Australia’s largest trading partner within the EU is the UK, andtheUKwillnotbeintheEU–ifthe Brexit vote translates into a resignation from the bloc. The outcome of Australia’s Federal election also has created doubt - in particular for the FTA agenda. While the two major political parties shared similar positions on the FTA agenda, they differed on important items. While the FTAs themselves do not need to be ‘approved’ by Canberra, they are still subject to review by the Joint Standing Committee on Treaties (JSCOT) and require the passage of some imple- menting legislation. This process will pose real issues for the government if the new JSCOT is critical of the FTA or the new Senate requires large compro- mises to pass the enabling legislation. So, on the basis that there is to be ongoing political uncertainty in many important areas affecting trade, what will be some of the consequences? - Political and economic uncertainty is kryptonite to investment and trade. In the absence of certainty, many Brexit makes the Australia-EU FTA more complex and also increases any investment risks parties could elect not to proceed with investments or transactions. The position becomes even more diffi- cult if the area of uncertainty arises during the course of an investment or a transaction (such as with Brexit), in which case parties may make an assessment of their ability to with- draw from their investments. - One response to uncertainties in politics and trade is to adopt defen- sive responses. (A recent report by the WTO claims there has been a significant increase in protectionist trade measures by G20 member countries apparently in response to economic and political uncertainty.) - A lot of companies will be looking at Article 50 of Brexit to decide if it provides any certainty on the way the UK may exit Brexit (it doesn’t). Those same parties will ask whether Brexit delivers an opportunity to exit their commercial arrangements via ‘force majeure’ or perhaps accord- ing to other legal concepts including ‘uncertainty and frustration’. - Uncertainty is a reminder that ‘comprehensive due diligence’ is required to assess and manage risks before undertaking investment or en- tering into agreements. For example, if a trade agreement underpinning investment is terminated or varied, or the ‘sovereign risk’ of a change in government is present and it could cause potential expropriation of investment or refusal to allow the repatriation of funds or investment, then the proposed deal may need to include more ‘exit’ provisions. - In our context the handling of the TPP will represent an important ‘litmus test’ as to the approach of our new parliament which will inform future negotiations of other pro- posed FTAs. The previous JSCOT Inquiry into the TPP was terminated by the double-dissolution and it may be continued or started afresh by the ‘new’ JSCOT. That approach to review and the debate in Parliament will be a good guide. Some of those debates were present in the passage of the ChAFTA legislation and the level of debate may now be more intense – unless of course the major parties can agree to support all the deals and take out the impact of the Greens and Independents. Hopefully, in the very near future, there will be further certainty deliv- ered in terms of the trade and invest- ment impacts of Brexit. Closer to home, the sooner that the Australian federal government, (whatever form that takes), can confirm its econom- ic, political and legal agenda and the nature of our trade agenda with our overseas trading parties, the better.