Korea-Australia Free Trade Agreement Update

On 4 September 2014, the Australian Joint Standing Committee on Treaties (Committee) submitted its report and recommendation on the adoption of the Korea-Australia Free Trade Agreement (KAFTA) as Australian law.

The majority of the Committee supported the adoption of KAFTA as Australian law, and recommended that binding treaty action be taken by the Australian Government. The Committee was satisfied that the implementation of KAFTA would provide substantial economic benefit to Australian businesses, industry and the broader community. In particular, the report states that:

“KAFTA is expected to be worth $5 billion in additional income to Australia between 2015 and 2030 and to provide an annual boost to the Australian economy of approximately $650 million after 15 years of operation. In its first year of operation, it is expected to create 1,700 jobs. 84 per cent of Australia’s current exports (by value) will enter Korea duty free. In addition to substantial tariff reductions, KAFTA is expected to significantly increase market access and improve Australia’s competitive advantage for a range of Australian exporters.”

KAFTA aims to facilitate increased bilateral investment between both countries by, among other things, increasing the monetary threshold before which Korean investments (in non-sensitive sectors) are reviewed by Australia’s Foreign Investments Review Board (FIRB). KAFTA also provides an investor-state dispute settlement (ISDS) framework. ISDS provisions generally provide protections against political risks such as expropriation of investment assets or profits and discrimination as between cross-border and national investors.

The Senate Standing Committee on Foreign Affairs, Defence and Trade is reviewing KAFTA and is expected to table its report by 4 October 2014.

The full text of the Committee’s report is available here. Further articles on KAFTA can be found here.

For further information, please contact Lewis McDonald, Partner, Seoul, Shane Kyriakou, Partner, Melbourne or Robert de Boer, Partner, Sydney or your usual Herbert Smith Freehills contact.

Reporting by extractive companies on government payments – early UK implementation from 1 January 2015

Two EU Directives were passed in 2013 which mandate annual reports on payments to governments by companies in the extractive industries which are incorporated or listed in the European Union.

The UK government has issued its response paper following its consultation on implementing the provisions of the Accounting Directive. It sets out how those aspects of the law over which EU Member States have some control, including timing of implementation of the requirements, format and timing of publication of reports, and the penalty regime, will be addressed in the UK.  The UK Financial Conduct Authority has also now issued its corresponding consultation paper (CP14/17) on amendments to the Transparency Rules to implement the equivalent provisions in the Transparency Directive and apply them to companies listed in the UK.

In the UK, the requirements will be implemented earlier than required and will apply to listed and other large extractive companies for financial years beginning on or after 1 January 2015.

We have produced detailed briefings on the EU Directives and on early UK implementation. If you would like a copy of either or both, please contact Sarah Hawes, Professional Support Consultant, London.

A new mining law for Mozambique

The Mining Law 20/2014 of 18 August 2014 (the New Mining Law) came into force in Mozambique on 22 August 2014 replacing the previous mining regime under Mining Law 14/2002 of 26 June 2002 (except in relation to mining contracts that were in force prior to 22 August 2014).¹

The New Mining Law was precipitated by the broad political consensus that Mozambique and its citizens have not benefitted sufficiently from the increase in mining activity and investment in Mozambique. It was developed based on the Government's 2013 Policy and Strategy for Mineral Resources (Resolução No 89/2013 de 31 de Dezembro) which, although continuing to identify foreign investment as a key factor, makes it clear that creating benefits for Mozambican nationals is the primary goal of legislative reform. It is also designed to bring mining legislation in Mozambique in line with international best practice.

The New Mining Law is expected to have far reaching consequences for investors in the mining sector in Mozambique. Key changes to the mining regime made by the New Mining Law include:

• the provision that new mining contracts must provide for State participation in the mining operations (no minimum of maximum percentage participation is specified),
• the introduction of local content requirements; non-nationals must "associate" themselves with a Mozambican national in order to provide goods and services to mining operators,
• the introduction of domestic supply obligations that give the Government the right to buy minerals at market price for use in the local industry if Mozambique's commercial interests so require,
• a broad provision that all transfers of mining rights, whether direct or indirect, are subject to approval by the Ministry of Mineral Resources (MIREM),
• the introduction of signing bonuses for mining concessions awarded through public tender;
• the requirement that the details of new mining contracts (except for strategic and competitive information) must be published in Mozambique's Official Gazette (Boletim da República),
• the discontinuation of the tax stabilisation provision which featured in the previous mining law. The New Mining Law explicitly excludes matters relating to tax from mining contracts. This may mean the Government will no longer be able to provide tax stability or deductibility undertakings in mining contracts,
• the reduction of the maximum period for exploration licences from 10 to 8 years. and
• the introduction of a requirement for concession holders to start production within 48 months of the issuance of a mining concession. Under the previous law, production had to be started within 36 month of the issuance of a DUAT (right to use and enjoy land) and an environmental permit. 

The New Mining Law will apply in tandem with other relevant legislation; for example, a new tax regime for Mining Production Tax is due to be approved in the near future. In addition, the law on Public Private Partnerships, Large Scale Projects and Company Concessions 15/2011 of 10 August 2011 (the Mega Projects Law), although not specific to mining, will still apply to mining projects.

Herbert Smith Freehills is not qualified to advise on Mozambique law. This article is based on our literal reading of the new law, and our practical experience of working on mining projects in Mozambique.

Endnote

1. A mining operator may opt for its pre-existing mining contract to be governed by the new law or if a pre-existing contract and the previous law are silent on aspects that are dealt with in the New Mining Law, then the New Mining Law shall apply to those parts of the relevant contract.

For further information, please contact Adekanmi Lawson, Solicitor and Kemi Adekoya, Trainee Solicitor, Paris or your usual Herbert Smith Freehills contact.