What difference is the Chinese-Australia Free Trade Agreement going to make to migration?

I’ve been pretty unimpressed with the coverage of the Chinese-Australia Free Trade Agreement. A central question has been missing from an avalanche of think-pieces, FactChecks and hot-takes.

What difference will the agreement make if it is passed compared to the status quo we are living in now?

This is my best attempt to answer this question.

  • The removal of labour market testing for Chinese citizens

There are three types of occupations in the 457 visa program: Skill Level 1, Skill Level 2 and Skill Level 3. The first two categories do not attract labour market testing. An employer can hire an overseas worker without advertising the job, regardless of the country of origin. Only Skill Level 3 occupations require labour market testing. Using visa grant data from the Department, there were 6207 Skill Level 3 visas granted from July 2014 to March 2015, from a total of 38,134 visas in the program. Using current trends, this means 84 per cent of the 457 visa program is not subject to advertising jobs (source: visa grants pivot table).

In 2014-15 to March 2015, there were 2569 primary 457 visas granted to Chinese citizens. Of these, 269 were classified as “Skill Level 3”, those subject to labour market testing. The Agreement will remove this requirement. These 269 visas are equal to 0.7 per cent of the 457 visa program from July 2014 to March 2015. It may be the case that removing the requirement to labour market testing will induce more migration. However I find this unlikely as wages and economic growth have traditionally been a much greater influence on 457 visa trends. Further, there was no labour market testing from 2001 to 2013.

My best guess is that based on current trends, at most an additional one per cent of the 457 visa program will be exempt from labour market testing if the Agreement passes.

The Agreement also means Australia cannot cap the number of standard 457 visas granted to Chinese citizens. This is exactly as today, given the entire 457 visa program is uncapped and has been since its inception in 1996. This is a common clause found in past FTAs. The highest number of 457 visas granted to Chinese citizens in any financial year was 2012-13 at 3727, equal to 5.4 per cent of visas that year.

  • The removal of mandatory skills assessment for Chinese citizens.

Mandatory skills assessment is where a government-approved Registered Training Organisation supervises an exam to certify a visa applicant has the skills relevant for the nominated occupation.

This only applies to citizens from the following countries: Brazil, China (including Hong Kong and Macau), Fiji, India, Papua New Guinea, Philippines, South Africa, Thailand, Vietnam, Zimbabwe.

Further, the visa applicant must be nominated in one of the following 28 occupations: Automotive Electrician [321111]*, Fitter-Welder [323213], Baker [351111], Joiner [331213]*, Cabinetmaker [394111]*, Metal Fabricator [322311]*, Carpenter [331212]*, Metal Machinist (First Class) [323214]*, Carpenter and Joiner [331211], Metal Fitters and Machinists (not elsewhere classified) [323299], Chef [351311], Motor Mechanic (General) [321211]*, Cook [351411], Panelbeater [324111], Diesel Motor Mechanic [321212]*, Pastrycook [351112], Driller [712211], Pressure Welder [322312], Electrical Linesworker [342211], Sheetmetal Trades Worker [322211], Electrician (General) [341111]*, Technical Cable Jointer [342212], Electrician (Special Class) [341112]*, Toolmaker [323412], Fitter (General) [323211], Vehicle Painter [324311], Fitter and Turner [323212], Welder (First Class) [322313].

(Source: Trades Recognition Australia)

The Chinese-Australia Free Trade Agreement will remove the mandatory skills assessment for 10 of these occupations (those starred above). The total number of Chinese visa holders nominated in these 10 occupations from July 2014 to March 2015? Fifteen. 15.

For all countries subject to mandatory skills assessment, not just Chinese citizens, a total of 353 visas have been granted  in these 10 occupations. Therefore on current trends, the Agreement will remove mandatory skills assessments for 4.2 per cent of those who are currently subject to them for these 10 occupations.

However, and importantly, a total of 1184 visas have been granted in these 10 occupations for the program as a whole. This means over 70 per cent of 457 visas granted in these 10 occupations are not subject to mandatory skills assessments. If one were to retroactively apply the Agreement for 2014-15, a total of 15 Chinese citizens would have joined them.

I should note also that while the mandatory skills assessment has been removed from the visa process, all visa holders must comply with standard licensing and registration requirements. The visa process also requires they present their qualifications and experience. Visa processing officers may request a mandatory skills assessment if they believe they do not believe the bona fides of a visa application.

  • The introduction of Investor Facilitation Agreements (IFA)

Unlike the two changes above, this change cannot be tested against current trends. An IFA is a framework to facilitate individual contracts between employers and governments that governs labour mobility outside of the standard 457 visa program.

These contracts already exist. The Minister for Immigration has broad powers under the Migration Act to approve these contracts. They are available to any employer in the country regardless of industry or investment origin. Historically, the time taken to conclude a contract negotiation is between 6 and 12 months.

The two main purposes of the contracts are to slightly lower the English language requirement for visa holders and to allow the sponsorship of Skill Level 4 occupations, lower skilled occupations not allowed under the standard 457 visa program. These contracts typically cover regional and rural areas where attracting labour is more difficult.

Unfortunately, I cannot find the number of labour agreements currently in operation. This goes to the long-standing conservatism inherent in the Department of Immigration around transparency. However at Senate Estimates in February 2014, the Department of Immigration and Border Protection noted 51 had been signed in the previous 6 months.

I believe the IFA under the Chinese-Australia Free Trade Agreement is an attempt to streamline negotiations for these contracts, to reduce the length of time for approval. How many new migrants should be expected through this process?

The Roy Hill project is a good historical example. The Roy Hill Enterprise Migration Agreement covered 1715 positions for a $9.5bn project with a total workforce of 8000. However the threshold to enter into an IFA is much lower. A project must be valued at $150m, not $2bn.

Using the same ratio as Roy Hill, a construction project with 150 workers worth $150m may see about 30 positions covered by an IFA. Applications for these contracts will require detailed estimates of workforce and local training. The majority of these workforces will come from people already in Australia. Negotiations will clearly stipulate the number and type of occupations. The contracts will attract serious attention in Senate Estimates, creating pressure to ensure any agreement is limited in its scope.

I estimate between 10-15 of these agreements will be signed in the 12 months after the Chinese-Australia Free Trade Agreement is finalised. The government will want to show the process works but will not want this to be subject to an ongoing campaign. If 50 agreements signed between September 2013 and February 2014 remains the trend, then 10-15 Chinese IFAs would be a 10-15 per cent of the total number of agreements signed.

If an average of 30 migrants per contract is in the ballpark, this will see 300-450 workers who would otherwise have not entered Australia. This would be equal to about 0.8 per cent of the expected total number of 457 visa grants for that period.

There are substantial unknowns here. These unknowns are what is driving the campaign against the Chinese-Australia Free Trade Agreement. For example, if demand for these contracts exceeds what is expected, this signals the threshold investment level is likely too low. If the number of workers per contract is significantly higher than existing contracts, this signals something is amiss.

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