Negotiations began today in Dili between Australia and the United Nations Transitional Administration in East Timor (UNTAET) over the Timor Gap treaty.
The treaty, which was originally struck between Australia and Indonesia without East Timorese input, divides up the rich gas and oil resources of the gap.
But East Timor, dependent on foreign aid for its entire budget, would benefit by hundreds of millions of dollars if it gained more access to the gap's resources by a shift in the boundary between itself and Australia.
Already UNTAET has warned it will take Australia to International Court of Justice if negotiations do not favour East Timor.
Labor foreign affairs spokesman Laurie Brereton said it appeared the government was going to take a less than generous approach to the negotiations.
He said Labor backed a boundary between Australia and East Timor equi-distant from both nations.
"Such a settlement would place major gas and petroleum reserves within East Timor's maritime boundaries and constitute a just outcome consistent with the law of the sea," he said in a statement.
Democrats' foreign affairs spokesperson Vicki Bourne said she favoured a proposal which would give 90 per cent of all revenue from gap development to East Timor.
"Revenue from the resources in the Timor Gap will contribute a substantial and long-term income to the East Timorese economy," she said.
"The Timor Gap negotiations provide Australia with a timely opportunity to make a meaningful and tangible commitment to East Timor's future economic viability."
But backing a boundary based on the law of the sea would throw out Australia's international boundaries with Indonesia and Papua New Guinea.
It may also pave the way for challenges to Australian fishing waters.
A spokesman for Foreign Affairs Minister Alexander Downer said Australia
was entering into the negotiations in good faith.