23 October 2015

Labour mobility under ChAFTA – political compromise or sensible business?

This article was written by Andrew Gray.

The political impasse over the labour mobility provisions of ChAFTA has been resolved by the Government and the Labor party agreeing to additional labour safeguards. This article examines what has been agreed and the implications and opportunities for business under the labour mobility provisions of ChAFTA.

The key benefits for employers under ChAFTA include: 

  • simplified entry requirements for certain categories of workers moving between Australia and China which should facilitate the movement of labour between the two countries (including intra group transfers);  
  • the introduction of Investment Facilitation Arrangements (IFAs) for Chinese enterprises undertaking large infrastructure projects in Australia. IFAs provide a framework for concessions from the standard 457 visa program to be approved by the Department of Immigration and Border Protection which should make it easier for employers involved in approved infrastructure projects to address genuine labour or skills shortages through the use of foreign workers.

What is all the fuss about?

The labour mobility provisions of ChAFTA have been politically contentious and presented a real obstacle to the implementation of ChAFTA and securing the economic benefits which will flow from liberalising trade between Australia and China.

The provisions are fiercely opposed by the union movement particularly the CFMEU who ran a high profile campaign against the provisions including advertisements in prime time television asserting that ChAFTA would allow “Chinese companies to bring in their own workers leaving Australian workers without a hope” and that Australian jobs and working conditions would be jeaopardised.

The key elements of the labour mobility provisions of ChAFTA are reviewed below.

Temporary entry rules

Under Chapter 10 of ChAFTA, has made specific commitments that allow Chinese citizens in the following categories to enter Australia:

  • business visitors - for up to 1 year depending on the purpose of the visit;
  • intra-corporate transferees being executives, skilled specialists and managers who are employed by a Chinese enterprise with an Australian branch or subsidiary - for up to 4 years;
  • independent executives of an enterprise headquartered in China establishing a branch or subsidiary in Australia – for up to 4 years;
  • contractual service suppliers – for up to 4 years;
  • installers or services of machinery or equipment under a contract where installation/servicing by the supplier is a condition of purchase of the machinery/equipment - for up to 3 months.

ChAFTA provides that entry of the above persons should not be subject to caps, labour market testing or economic needs testing but may still be subject to visa application procedures and other eligibility requirements.

Investment Facilitation Arrangements

ChAFTA included a Memorandum of Understanding (MOU) addressing the establishment of IFAs.

IFAs permit a project company for certain infrastructure projects to negotiate concessions against standard visa requirements with the Department of Immigration and Border Protection (DIBP).

IFAs will be available for projects with a capital expenditure exceeding $150m where a Chinese enterprise either majority owns or holds a substantial interest in the project.

Once an IFA is approved for a project both the project sponsor and contractors on the project may enter into labour agreements approved by the DIBP with streamlined visa processing requirements and concessions against standard visa sponsorship requirements. The concessions which may be granted include the relaxation of English language requirements, skills requirements and the minimum threshold wage which must be complied with for workers approved under the labour agreement known as the Temporary Skilled Migration Income Threshold (TSMIT). Although some concessions are permitted, employers are still required to comply with Australian labour laws and standards.

Labour agreements are already a feature of the Australia visa system in certain recognised areas of economic need such as regional areas, meat processing and in the form of enterprise migration agreements available for substantial resources projects (for example the highly publicised agreement contemplated for the Roy Hill mine project).

Work and holiday visa arrangements

ChAFTA also included a MOU on work and holiday visa arrangements under which Australia will grant visas for up to 5,000 Chinese work and holiday makers annually.

Skills assessments

ChAFTA included side letters which remove the requirement for mandatory skills assessments for certain occupations bringing China into line with most other countries. Skills assessments are discretionary (not mandatory) for countries except for a list of 10 nominated countries which presently includes China (and other countries including Brazil, PNG and Zimbabwe).

Union opposition to ChAFTA

The union movement vocally opposed the above measures on the grounds that they present a risk to local Australian jobs and working conditions. The major areas of concern for the unions include:

  • the removal of labour market testing requirements for Chinese individuals under the standard visa process (particularly for the categories of contractual service suppliers) and for workers entering under concessional visa arrangements pursuant to an IFA. Labour market testing conditions require employers to demonstrate there is a labour shortage and a need for the employer to fill the role with a foreign worker. Labour market testing is a requirement for sponsorship for some skill qualifications under the current standard 457 visa sponsorship scheme. However, it is worth noting that many skill classifications are exempt and current free trade agreements with other trading partners (eg Japan and Korea) contain similar exemptions to that proposed by ChAFTA;
  • the removal of mandatory skills assessment with unions suggesting this would lead to unqualified and untrained workers entering Australia which would present a risk to safety and work standards.

The Government’s position in response was that the current visa system provides adequate safeguards to address the union concerns. By way of example, the DIBP policy for the approval of labour agreements requires the employer to demonstrate a labour shortage and need as a condition of approval. The standard visa conditions for workers in an occupation which require a licence provide that the worker must not work until such licence has been obtained.

Labor's proposed amendments

The Labor party also shared some of the unions concerns and threatened to block the legislation implementing ChAFTA. Ultimately the Labor party took a pragmatic approach of developing a package of legislative amendments which provided enhanced safeguards (as a matter of legislation not policy) but would not require re-negotiation of any aspects of ChAFTA. Labor released its proposed amendments last week. The amendments proposed by Labor included the following additional safeguards:

  • requiring labour market testing as a condition of approving workers entering under labour agreements;
  • codifying in legislation the conditions which must be satisfied for approval of a labour agreement by the DIBP;
  • increased reporting by the DIBP regarding labour agreements to ensure program transparency;
  • prescribing the TSMIT (the minimum wage threshold for workers entering under 457 visas or concessional labour agreements) in legislation and increasing the TSMIT from $53,900 to $57,000 and requiring annual indexation of the TSMIT;
  • imposing additional criteria and conditions for 457 visas in occupations where it is mandatory to hold a particular licence or registration including requirements to:

    • not perform work until the licence is obtained;
    • obtain the required licence within 60 days of arriving in Australia; and
    • provide the DIBP with evidence of obtaining the licence.

Labor stopped short of addressing all of the demands for change being made by the union movement. However, significantly, Labor’s proposed changes were not limited to arrangements flowing from ChAFTA but would apply to the existing regime for approval of labour agreements and the standard 457 business sponsorship stream more generally including the proposed increase of the TSMIT and new licencing conditions. The proposed increase in the TSMIT drew criticism particularly from rural and regional employers who claimed that the increase in the TSMIT would make many jobs currently filled by foreign workers under the 457 sponsorship scheme ineligible for sponsorship.

The compromise

In a rare instance of bipartisanship both Labor and the Government announced on Wednesday that they had reached an agreed position on additional safeguards which would result in Labor voting in favour of the legislation implementing ChAFTA. The Government went so far as to say that Shadow Minister Wong and her staff “deserve credit for the work they have done on behalf of the Opposition”. The finer details have not been released but it seems the compromise position will involve at least the following elements:

  • the additional safeguards will be implemented through amendments to the regulations to the Migration Act as opposed to legislative amendment or any attempt to re-negotiate the treaty arrangements;
  • an employer seeking to sponsor a worker under a labour agreement will have to demonstrate that they have made “recent and genuine efforts to recruit local Australian workers first” – the Government has indicated this is simply a codification of the existing policy requirement. Labor has described it as a “new legal requirement … that requires labour market testing for all work [labour] agreements”;
  • additional criteria will be introduced for companies seeking approval of a labour agreement – presumably these additional criteria will reflect the conditions proposed by the Labor party relating to demonstrating economic need for the labour agreement and the plans the employer will develop to address local skill shortages;
  • increased reporting by the DIBP regarding the number of labour agreements approved and the number of workers entering under these;
  • a new legal requirement that the market salary rate which must be paid for workers under standard 457 visas use rates prescribed by enterprise agreements as the salary benchmark (this is disclosed in Labor’s media release but not in the Government statement);
  • the TSMIT will not be increased as proposed by Labor but an “evidenced-based review” into the TSMIT rate will be conducted to determine the appropriate threshold amount and whether this should be subject to indexation;
  • visa conditions for overseas tradespersons will be amended to make it clear that the tradesperson must obtain the applicable licence required by Commonwealth, State or Territory law within 90 days of entry and obligations to notify the DIBP if the licence is revoked.

The above arrangements appear to be a sensible political compromise to ensure the implementation of ChAFTA. Labor has departed from the union movement in key areas to ensure the benefits of ChAFTA can be achieved. This has left unions unhappy and drawn criticism from the CFMEU, ETU and the ACTU.

One particularly interesting aspect of this compromise is that many of the elements above will apply to the visa system generally and not just ChAFTA related arrangements. For example the requirements proposed by Labor will apply to all categories of labour agreements under the current system and not just those implemented under an IFA introduced by ChAFTA. 

The current system provides for Designated Area Migration Agreements, Enterprise Migration Agreements and Meat Industry Labour Agreements. Past governments had seen the need for these type of concessionary agreements to respond to particular issues in the Australian labour market. There does not appear to have been any serious consideration given to whether the viability of these arrangements will be impacted by these changes – presumably the answer is there will be no impact if all the new rules are doing is codifying existing policy as claimed by the Government. 

However, it is unclear how the “labour market testing” requirement will be implemented for labour agreements. If it is implemented via an assessment of labour market conditions as the time of approving the agreement then it is unlikely to change the status quo and the utility of labour agreements. On the other hand, if testing will be required before approving the nomination of an individual worker under a labour agreement then the streamlined visa processing which is currently associated with labour agreements will be seriously undermined and the utility of these arrangements may be impacted.

Further, the implications of adopting enterprise agreement rates as a salary bench mark for standard 457 visas do not appear to have been considered. This may be not be a significant change given the current market rate assessment has regard to an employer’s industrial conditions but there does not appear to have been any detailed analysis of this change.

The visa system has been subject to comprehensive review and reform in recent years and the current system is a product of this. While the current system is far from perfect there is always a risk that politically expedient compromises may have unintended consequences on the operation of the current system.

The washup – what are the benefits for employers?

The current work visa system in Australia is complex and the process of sponsoring a foreign worker to work in Australia can be a costly and time consuming one for employers. The labour mobility provisions under ChAFTA should go some way to easing the burden of this process for Chinese enterprises in Australia and Australian employer looking to access the Chinese labour market.

The commitments given around guaranteed entry for certain categories of employees (eg intra-corporate transfers) should reduce some of the complexity and red-tape that applies to the movement of workers into Australia and offer benefits for Chinese enterprises looking to use their own employees in Australia.

Further, the establishment of IFAs may provide a viable means for employers to use foreign labour to address labour shortages on large infrastructure projects across a range of industries including food and agribusiness, resources and energy, transport, telecommunications, power supply and generation, environment and tourism. 

The IFAs have much lower approval requirements than enterprise migration agreements introduced by the previous Government to address labour shortages on large resources projects which have not been utilised by employers. However, whether IFAs benefit employers in practice will depend both on how “labour market testing” requirements will be applied to these agreements and also the approach the DIBP takes to negotiating and approving concessions to the standard visa program under these arrangements. 

This being said, any Chinese enterprise conducting a large infrastructure project in Australia should consider whether an IFA will offer benefits such as lower labour costs and greater labour flexibility for projects which may be impacted by labour or skills shortages particularly projects in remote or regional areas.

Key contacts

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China
Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    With a large increase in fees proposed in the FIRB reform package, investors will be thinking twice about investing in Australia and when to make their approach to FIRB.

    02 October 2020

    Into A New Era: Changes and Challenges in the Foreign Investment Legal Regime of China

    15 March 2019

    The new German Foreign Trade Regulation took effect on 29 December 2018 and marks the preliminary end of a vivid public, political debate in Germany.

    05 February 2019

    The Bureau of Industry and Security issued a rule amending EAR by adding forty-four Chinese entities to the Entity List.

    09 August 2018

    You may also be interested in...

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.