The Chinese-Oz FTA and Australian immigration policy

To be honest, I thought there would be more of an uproar about the Abbott’s decision to include migration in the Chinese-Australian FTA. Instead, mostly silence. The Australian chipped in with this effort from Ewin Hannan. Unfortunately all the article does is underscore just how poorly most of the media understand non-asylum immigration policy in Australia.

From what I can tell, there are two things to note about the Chinese-Oz FTA and migration.

An “Investor Facilitation Arrangement” (IFAs) has been created for Chinese organisations who have a capital investment of more than $150m. The IFA will create a formal contract between the company and the government to modify the standard conditions of the 457 visa program.

An important point to begin with is that this process already exists in migration law. Companies can negotiate “labour agreements” which are a contract between an organisation and the government using 457 visas. A labour agreement typically allows two exemptions; the hiring of ‘semi-skilled’ workers and a small loosening of English language standards. These contracts take years to negotiate and are spurned by most employers as not worth the effort. From memory, there are only 150-200 of these contracts in the entire labour market.

The IFA process introduced under the FTA is basically a streamlining of this process for Chinese companies with a capital investment over $150m. From the government’s public comments, there will be no exemptions on salary requirements currently mandated under 457 visa regulations.

What was announced was the default option when you do not want to introduce legislation because the politics are too hard: put everything into policy and contracts. To be honest, I’d be surprised if there were more than a handful of these contracts in place before the next election. They might end up covering anywhere between 1,000 and 5,000 workers who would not have been able to come to Australia within the standard system.

To answer Mr. Hannan’s question about the lack of detail from the government, this is simply because nothing significant is going to happen until a company requests a contract and negotiations begin. Sure, they could have done a better job explaining what was happening but I don’t believe they are actively hiding anything either.

The second subject of note is the introduction of a Working Holiday Maker agreement Chinese citizens. What I found interesting is if you look at the December 2013 report from the Working Holiday Maker report (page 4) you will notice China is not on the list of countries where negotiation is underway. Given the Chinese-Oz FTA has been in negotiation for 10+ years, this might be a sign that Working Holiday Makers were included very late in the piece. Perhaps the government stood firm on other types of immigration and this was used as a compromise? Who knows.

There will be 5000 places per year for young, educated Chinese people to spend one or two years in Australia “backpacking”. While Working Holiday Makers can tell employers to get nicked and remain in the country, they are excluded from addition protections found in the Migration Act for 457 visa holders. Instead they fall completely under the Fair Work Act along with everyone else. My gut feeling says the majority of exploitation of temporary migrant workers likely occurs in the WHM program. It’s impossible to generate even an educated guess on the magnitude of this issue given the complete lack of information on the program. The lack of capacity to enforce regulation in marginal parts of the labour market is the main reason exploitation is likely to occur. Both the ALP and the Coalition fail on this score over the past decade. When you only have a handful of inspectors and compliance officers trying to enforce complicated regulation on a program of over 100,000 people and 30,000 businesses, of course you’ll see mistreatment and abuse.

China was always going to have a capped number given their population size. However it is interesting to compare the maximum possible number of Chinese working holiday makers with other countries whose citizens use the program. Here is the number of visa holders from various countries who were in Australia on 31 December 2013:

United Kingdom 30880
Taiwan 28572
South Korea 23059
Germany 19278
France 16680
Italy 11780
Ireland 10104
Hong Kong 9331

I wonder what Chinese policy-makers think of the 5000 hard cap given there are nearly double that number of Hong Kong migrants in the program at the moment? Given there were a total of 178,982 working holiday makers in Australia on 31 December 2013, another 5000 is not going to make much of a dent in terms of actual labour market outcomes.

On the one hand, it was good to see there wasn’t a massive stink about this. Migration should be included in trade agreements (although it would be better at a regional level). Placing some some solid policy infrastructure around migration policy can help countries muddle through expanding their openness. Australia has a role to play in the region here as the movement of people is only going to increase a policy priority in the coming decades. What happens when China starts opening up a skilled migration program because of their demographic transition? It will be better for Australia to be inside the tent when that day comes and these are the baby steps necessary towards that point in time.

This doesn’t mean everything is hunky dory in the 457 visa program. The most pressing issue to be concerned about – which I haven’t seen raised once in national media – is the freezing of the Temporary Skilled Migration Income Threshold at $53,900 for up to two years.

By refusing to index the salary floor for temporary migrants, the government is squeezing real incomes for migrant workers. Further, they are creating an incentive to hire overseas workers instead of Australians given ‘market wages’ for migrants are not rising in line with the labour market. This has horrible medium- and long-term consequences yet the mechanics of these processes are so poorly known we do not hear about it.

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2 thoughts on “The Chinese-Oz FTA and Australian immigration policy

  1. Hi Henry,

    Good contribution on the topic. A few comments regarding matters you have raised:

    – IFAs: While I understand a limited number were approved under Labor rumour has it that 70+ have been approved since the last election. I do not believe DIBP make statistics on LAs public but this suggests the current government is supportive of these type of agreements and the IFA proposal could result in a larger number of IFAs than your analysis suggests.

    – TSMIT: While I am absolutely supportive of the principle that temporary migrants need to be guaranteed a living wage the TSMIT appears to be a particularly blunt instrument for achieving this end. As has been stated around the TSMIT time and again, is supposed to to take into account the social security and other government benefits migrants do not receive.

    To date the TSMIT has been indexed at the same rate as the Average Weekly Earnings published by the ABS. However I am not aware of any on-going efforts to ensure that the TSMIT is representative of what a migrant requires to live in Australia, or where the base figure originally came from by we have arrived at the $53,900 figure.

    Another factor which shows TSMIT to be a troublesome concept is that it does not take into consideration family composition, location or variation of costs between rural and urban areas. Clearly the funds a single adult needs to live in regional Victoria differ from a family of five living in Perth. How can TSMIT be said to meet the above purpose in these two scenarios?

    I think the TSMIT figure needs to be revisited to determine the income required by migrants to live in Australia in a decent manner without recourse to social security and how to address the issue of variation across regions and family composition.

    • Thanks Jackson.

      The stats on LAs come mostly via Senate Estimates. Typically someone asks how many are on the books and how many are being negotiated. From memory, there hasn’t been a large increase but I could definitely be wrong on that. I would imagine that a Coalition Government would sign more than an ALP government. I do doubt though how many IFAs for Chinese owned businesses would be able to be signed before the next election, a handful I’d imagine.

      On the TSMIT. I’m not aware of any ongoing efforts. To be honest, the original salary figure in 2009 was simply an extension of the old ‘minimum salary’ requirements. There is no justification for the current figure, it is arbitrary in nature.

      I think the current process has its flaws but I could caution against creating anything too complicated, such as individual variations across regions and family composition. This stuff is really difficult to work in actuality instead of as an idea. How would it be enforced? How would it be determined? Further, would it generate incentives for poor migration outcomes? I can imagine families be discouraged by employers just to get a job given lower TSMIT requirements. This would be a bad outcome. Incentives built into the system must take account of this. The more detailed, the more complicated, the more likely it is there will be perverse outcomes.

      I think the current system manages to balance these risks pretty well but not perfectly. I think the lack of indexation is a real problem however because of the signal it sends to employers and the damage it can inflict on migrants (particularly at the lower end of the income and skill spectrum for people in retail and hospitality).

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