Many would recall the excitement associated with the announcement in November 2014 that Australia and China had agreed to enter into the China – Australia Free Trade Agreement (ChAFTA

ChAFTA finally signed

At that time, there was a release of general information on "headline" commercial benefits to be delivered through the ChAFTA.  However, since that time we have been waiting for the text on the ChAFTA which was finally released yesterday (17 June 2015) at the time it was signed on behalf of the parties.   I have only had the opportunity for a brief review of the terms of the ChAFTA but thought I would issue some comments on some of the more practical aspects which may affect those affected, whether dealing with goods or services.

Any FTA is a compromise – the nature of FTA negotiation

However, before providing the commentary it is worth recalling that the ChAFTA, like other FTAs will not represent a perfect agreement with all the benefits and provisions to which the parties were aspiring.

As with all agreements, an FTA such as the ChAFTA represents the deal which Australia could secure with China at this stage after 10 years of hard negotiations.  Clearly Government believed that this was the best deal that could be done and that further delay and negotiations would not deliver a better deal, especially taking into account that other (competing) countries are moving towards their own deals which could reduce our competitive position without the ChAFTA being concluded.

Accordingly, the ChAFTA does include a number of compromises for the perceived larger good – there will no doubt be many who believe that certain benefits should have been pressed harder or we have conceded too much ground on some issues.   Ultimately though, the ChAFTA is a significant achievement with room for it to be developed over time through many review provisions included in the ChAFTA and I can only hope that importers and exporters of goods and services and their service providers take full benefit.

Issues of immediate interest

So, to some of the interesting issues (well, to me)

  • Signing of ChAFTA does not mean that it is in effect.  There are a number of steps before commencement both here and in China.  For us, that includes review of the ChAFTA before our Joint Standing Committee on Treaties (JSCOT) with a "National Interest Analysis" and the passage of legislation required to enable the ChAFTA (mainly for Customs provisions).  The passage of the legislation will lead to review by many Parliamentary Committees and Inquiries which will also afford the opportunities for review and comment by those affected and/or concerned.  China also needs to follow its own domestic processes.  It is only after that has happened in both countries and they exchange Diplomatic Notes that it will take effect.  No dates confirmed but early guesses suggest late this year.
  • There are 17 main Chapters, many of which have their own detailed Annexes and a number of "side letters" in Annex IV to Chapter 17 on "Final Provisions".  These cover issues such as skills assessment and licensing, financial services, education, legal services and transparency rules on Investor – State Dispute Settlement (ISDS).
  • There are also 2 MOU and a further side letter on Traditional Chinese Medicine negotiated at the same time but not forming part of ChAFTA.
  • The tariff commitments of both countries are included in Schedules on Tariff Reduction Commitments.  As usual these are lengthy and set out tariff reductions based on tariff classifications and how the rates reduce either immediately or over time from the commencement of the ChAFTA. Exporters and importers and their service providers will need to refer to the Schedules to identify tariff commitments and benefits under ChAFTA.
  • 17 Chapters is less than the number of Chapters in recent FTA such as KAFTA and JAEPA.  ChAFTA does not include Chapters on Environmental or Labour issues such as in other FTA.  Importantly, there is no Chapter on Government Procurement.  Such issues are excluded from the Services Chapter and Article 16.8 only includes a commitment from the parties to start work on Government Procurement as soon as possible after China completes accession to the WTO Agreement on Government Procurement, with a view to concluding reciprocal commitments on the topic.
  • There are a number of instances where general commitments to liberalisation are subject to negotiated exceptions.  This includes the "carve out" of certain goods from tariff or quota reduction and the ability to impose safeguards against adverse domestic effects from the ChAFTA whether on a unilateral or negotiated basis and whether in relation to trade in goods and services or in relation to investment flows.  Further, certain aviation services are excluded from the operation of ChAFTA in favour of other liberalisation arrangements pursuant to the review of the Annex on Air Transport Services under the GATS.
  • Article 16.6 though includes a significant provision allowing parties to impose "Measures to Safeguard The Balance – of Payments".  This reflects that if a country is in serious balance – of payments and external difficulties or under threat it can adopt certain restrictive measures.  In some cases the measures much comply with WTO or IMF standards (as appropriate) and otherwise only as necessary to deal with the issue on a non – discriminatory basis.  While attention can be given to specific sectors which are essential to economic development, the measures are not to be imposed merely for protection.
  • The "Trade in Goods" Chapter and related Chapters on Rules of Origin and Customs Procedures and Trade Facilitation are essentially as expected based on other FTA.  This includes the provisions we have recently seen in the KAFTA and JAEPA regarding consignment of goods so that they cannot leave customs control while passing through third countries and can only be subjected to limited work in those third countries.  However the Certificate of Origin provisions are different to that which we have recently seen.    The provisions reflect that CoO must generally be issued by "Authorised Bodies" (Government of private sector).  If a party wishes to use their own "Declaration of Origin" they can do so but only after having secured an "Advance Ruling" in relation to the goods and that the goods correspond with that Ruling and there has been no change to the production of the goods.  This will place an impediment on importers and exporters over and above that which currently apply under other FTAs.
  • The ability to impose anti – dumping, countervailing and safeguards measures is preserved by the ChAFTA which also provides for a "High Level Dialogue on Trade Remedies".  There are also more extensive provisions on transparency and consultation on the notification of proposed countervailing measures and opportunities to discuss the proposed measures.  This possibly reflects Chinese concerns on the increase in such measures in Australia.
  • An "FTA Joint Commission" is established together with our Committees of specific issues for ongoing work to develop ChAFTA and to work as part of the general review.
  • There are a number of ISDS provisions including the general one in Chapter 15 and an extensive and specific one for disputes on investment measures in Chapter 9.  The detail needs further review but in general they appear to reflect best practice and include reference to conducting the disputes according to international standards.  Certain "sensitive" provisions are excluded from the ISDS such as in relation to quarantine provisions and restrictions.
  • Services and Investment receive detailed attention in the ChAFTA associated with considerable liberalisation.  I will deal with these in a separate commentary.

More detail will follow both in writing and in a proposed webinar with the CBFCA.  Otherwise, we will keep you informed but I would suggest you "watch the skies" and confer with affected clients on how to implement the benefits under the ChAFTA from day one.