China is Australia’s number one trading partner, with two-way flow of goods and services exceeding $150 billion last year. Australia and China came to a Free Trade Agreement (FTA) this week, which will ensure that 85% of all Australian exports will enter China tariff-free, such figure rising to 93% within four years, and to 95% when the FTA is in full force in the next decade. Australia is expected to benefit from the FTA to the amount of $18 billion over the next 10 years.
The FTA is an ambitious and bold document. However, Australian businesses will need to position themselves to look at and understand how the details of the FTA will be applied in practice. Notwithstanding this, the importance of the FTA is less in its detailed provisions and more in the signal that it sends that both China and Australia are prepared to break down barriers for business. China will become, in terms of tariff barriers, the most open market that Australia exports to. Australia, for its part, has stepped back from its negative approach to Chinese investment. It has raised the thresholds for private investors so that they are the same as those that apply to the US, and has relaxed restrictions upon senior Chinese workers. Invariably a key area that will disappoint will be around the liberalisation of services.
It is unlikely that Australia will be given a “leg up” over other countries as many commentators seem to imagine. Many of the concessions in the FTA around services are those that are already available to other foreign investors. Those that are not will probably be toned back so that they are consistent with the current liberalisation, or further liberalisations will be pushed through by China over the next year. Notwithstanding this, the fact remains that this is the most far reaching free trade agreement that China has signed with any country. Of itself, the signing of the FTA should signal a new era of engagement between Australia and China. Further, Australia has secured from China a “most favoured nation” status, which means that any future trade concessions granted by China to other countries will also be granted to Australia, but this will not apply to commodities that are not covered by the FTA (see below for a list of commodities that are not covered).
Snapshot of the FTA
We set out below the key takeaway points in relation to each of the key industry sectors affected by the FTA.
Click here to view tables.
Industries that miss out
Australian rice, sugar, wheat, oil seeds and cotton industries will miss out on benefits at this time, so if China agrees anything with the USA or Europe in respect of these industries, Australia will be at a disadvantage. However, the FTA is subject to review in 3 years. There will be no changes to Australia’s risk-based quarantine measures as a result of the FTA.