Australia and China FTA key outcomes
Australia and China have signed a landmark Free Trade Agreement (FTA) which will mean that more than 85% of Australian goods exports will be tariff free upon entry into force. The figure will rise to 93% in four years and 95% on full implementation. Some of these goods are currently subject to tariffs of up to 40 per cent.
The key outcomes of the FTA along with the press release from the Australian Prime Minister’s office are outlined below.
Agriculture and processed food
China buys more of Australia’s agricultural produce than any other market. In 2013, this market was worth around $9 billion to Australian farmers and the broader agricultural sector.
Trade is growing strongly, but there are opportunities for greater and more profitable trade. The Australian Bureau of Resource Economics and Sciences predicts China will account for 43 per cent of all growth world-wide in agricultural demand to 2050.
ChAFTA provides Australia with an advantage over our major agricultural competitors, including the United States, Canada and the European Union. It also counters the advantage Chile and New Zealand currently enjoy through their FTAs with China reached in 2006 and 2008.
In agriculture and food, the Australian Government has secured:
- The removal of all tariffs on our dairy products (which can be as high as 20 per cent) within four to 11 years.
- The removal of tariffs of 12 to 25 percent on beef over nine years.
- The removal of tariffs on live animal exports of 10 per cent within four years.
- The removal of tariffs on sheepmeat of 12 to 23 per cent over eight years.
- The removal of tariffs of 14 to 20 per cent on wine over four years.
- The removal of tariffs on all horticulture products, ranging up to 30 per cent, most within four years.
- The immediate elimination of the three per cent tariff on barley.
- An Australia-only duty free quota for wool in addition to continued access to China’s WTO wool quota.
- The removal of tariffs on seafood, including of 15 and 14 per cent respectively on rock lobster and abalone, over four years.
- The removal of tariffs across a range of processed foods including fruit juice and honey.
- The removal of tariffs of 5 to 14 per cent on hides, skins and leather over two to seven years.
There are no changes to Australia’s risk-based quarantine measures as a result of ChAFTA.
As part of joining the World Trade Organization (WTO) in 2001, China already allows generous imports of rice, wheat, cotton and sugar with generally low tariffs imposed within a quota. Australian exporters have unrestricted access to these allowances (notwithstanding, Australia does not have technical quarantine market access for rice).
China has not provided further liberalisation of these products in any of its FTAs, on the basis they are significantly sensitive staples. It has also not granted Australia, or any of our competitors, additional access for rapeseed and vegetable oils, on the same basis. However, China has agreed to a built-in review process three years after entry into force to review the Agreement, including market access.
Resources, Energy and Manufacturing
In 2013, Australia exported over $85 billion worth of resources, energy and manufactured products to China. On entry into force of the Agreement, 92.9 per cent of China’s current imports of these products from Australia will enter duty free, with most remaining tariffs removed within four years. On full implementation of the Agreement, 99.9 per cent of Australia’s current resources, energy and manufacturing exports will enjoy duty free entry into China.
In resources, energy and manufacturing, the Australian Government has secured:
- The removal of tariffs on all resources and energy products: including on coking coal (metallurgical coal for steel making) (currently subject to a 3 per cent tariff) on the first day of the Agreement, and non-coking coal (thermal/steam coal for power generation) (6 per cent) within two years.
- The removal of tariffs on transformed resources and energy products, such as refined copper and alloys (unwrought) (currently subject to 1 and 2 per cent tariffs), aluminium oxide (alumina) (8 per cent), nickel mattes and oxides (3 per cent), unwrought zinc (3 per cent), copper waste and scrap (1.5 per cent), unwrought aluminium (5 and 7 per cent tariffs), aluminium waste and scrap (1.5 per cent), unwrought nickel (3 per cent), other mineral substances (3 and 5 per cent tariffs), and titanium dioxide (6.5 and 10 per cent tariffs) – many upon the Agreement entering into force.
- The removal of tariffs of up to 10 per cent on pharmaceuticals, including vitamins and health products, either on entry into force or phased out over four years.
- The removal of tariffs within four years for other manufactured products, including car engines (currently subject to a 10 per cent tariff), plastic products (6.5 to 14 per cent), diamonds and other precious stones (3 and 8 per cent tariffs), orthopaedic appliances (4 per cent), aluminium plates and sheets (6 and 10 per cent), make-up and hair products (6.5 to 15 per cent), centrifuges (10 per cent) and pearls (21 per cent).
ChAFTA provides greater certainty for Australian exporters by locking-in zero tariffs on major exports such as iron ore, gold, crude petroleum oils, and liquefied natural gas (LNG).
ChAFTA improves the transparency of non-tariff measures (NTMs) and ensures such measures do not create unnecessary obstacles to bilateral trade. A specific mechanism to review and address NTMs on a case-by-case basis will be established.
ChAFTA preserves full access for Australian producers to trade remedies available under the WTO, including anti-dumping and countervailing measures.
China is Australia’s largest services market, with exports in services valued at $7 billion in 2013.
In ChAFTA, China has offered Australia its best ever services commitments in an FTA (other than China’s agreements with Hong Kong and Macau). Most valuably, this includes new or significantly improved market access for Australian banks, insurers, securities and futures companies, law firms and professional services suppliers, education services exporters, as well as health, aged care, construction, manufacturing and telecommunications services businesses in China.
Today, services constitute around 72 per cent of Australia’s economic activity. The Agreement guarantees existing market access for Australian services suppliers in a wide range of other priority sectors in one of the world’s fastest growing services markets. ChAFTA includes a framework to advance mutual recognition of services qualifications and to support mutual recognition initiatives by professional bodies in Australia and China.
- Australian law firms will be able to establish commercial associations with Chinese law firms in the Shanghai Free Trade Zone (SFTZ). This will allow them to offer Australian, Chinese and international legal services through a commercial presence, without restrictions on the location of clients.
- China has committed to deliver new or improved market access to Australian financial services providers in the banking, insurance, funds management, securities, securitization and futures sectors.
- A future work program will deliver on-going market access in the financial services sector as China pushes ahead with economic reform and liberalisation.
- Alongside these new financial services commitments, the respective central banks of China and Australia have also signed a Memorandum of Understanding facilitating the establishment of an official renminbi (RMB) clearing bank in Sydney. The clearing bank provides a more direct means of facilitating cross-border RMB transactions between Australian and Chinese entities than was previously available, and will improve the efficiency of cross-border RMB transactions.
- Education services
Within one year of commencement, China will list on an official Ministry of Education website all Australian private higher education institutions registered on the Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS).
- This will add 77 institutions to the existing 105 Australian institutions on the website providing an important and trusted source of information to potential Chinese students who today make up 29 per cent of our international student market, injecting $4 billion to the Australian economy.
- In addition, Australia and China will continue to discuss options to:
- Facilitate student and teacher exchanges between both countries.
- Increase marketing and recruitment opportunities for Australian education providers in China.
- China has agreed to guarantee new access for Australian companies investing in value-added telecommunications services in the SFTZ with improved foreign equity limits, now allowing for wholly Australian-owned companies supplying domestic multi-party communication (DMPC) services, application store services, store and forward services, and call-centre services.
Tourism and travel-related services
- China has guaranteed that Australian service suppliers will be able to construct, renovate and operate wholly Australian-owned hotels and restaurants in China.
- Australian travel agencies/tour operators are also able to establish wholly Australian-owned subsidiaries in China for tours within China for both domestic and foreign travellers.
Health and aged care services
- In its best ever offer in a FTA on hospitals and aged care, China will permit wholly Australian-owned hospitals and aged care institutions to be established in China. This greatly expands the private health sector’s wide offering of medical services through East Asia.
Construction and engineering services
- China will provide new market access to Australian companies undertaking joint construction projects with Chinese counterparts in Shanghai. Australian companies will be exempted from business scope restrictions, allowing them to undertake a wider range of commercially-meaningful projects.
- China has made its first ever FTA commitment on manufacturing services, guaranteeing access for wholly Australian-owned companies to provide contract manufacturing services covering a wide range of manufactured products.
Mining and extractive industry services
- In best-ever FTA commitments, China will allow Australian service suppliers to provide technical consulting and field services in coal bed methane and shale gas extraction.
- China has also guaranteed access for consulting services related to exploiting oil and gas resources, as well as iron, copper and manganese resources in cooperation with Chinese partners.
Architecture and urban planning services
- In the best offer China has made to a FTA partner, China will take into account Australian experience in assessing applications for higher-level qualifications, allowing Australian architectural and urban planning firms to obtain more expansive business licences to undertake higher-value projects in China.
- In the best offer China has made to a FTA partner, China will permit Australian maritime transport service suppliers to establish wholly Australian-owned ship management enterprises in the SFTZ.
- China has also provided Australia commitments equivalent to the best it has provided to any other trade partner on air transport services, including the coverage of ground handling, airport operation and specialty air services.
Other services sectors
- Australian providers will benefit from new Chinese commitments allowing them to offer a range of services, including through subsidiaries based in China that can be wholly Australian-owned, in the following sectors: software implementation, research and development, services incidental to manufacturing, building cleaning, printing of packaging materials, translation and interpretation services, real estate, and environmental services.
Business and skilled worker mobility
ChAFTA will support increased trade and investment between the two countries by reducing barriers to labour mobility and improving temporary entry access within the context of each country’s existing immigration and employment frameworks and safeguards.
ChAFTA will provide improved access for a range of Australian and Chinese skilled service providers, investors and business visitors, supporting investment and providing business with greater certainty. Innovative new Investment Facilitation Arrangements (IFAs), which will operate within the framework of Australia’s existing visa system, will also provide greater flexibilities for companies to respond to unique economic and labour market challenges. IFAs will be available for large infrastructure projects above $150 million, strengthening investment in this key area and leading to the creation of jobs and increased economic prosperity for all Australians.
Chinese investment in Australia has been growing strongly in recent years up from $3 billion, 10 years ago, to around $32 billion today. Total Chinese investment in Australia is now nearly as much as the total Chinese investment in the United States. Increasing numbers of Australian businesses are entering the Chinese market with great success, with banking and wealth management the leading sector of Australian direct investment in China. ChAFTA improves opportunities for investors in both countries.
ChAFTA will promote further growth of Chinese investment into Australia, in particular by raising the screening threshold at which investments in non-sensitive sectors by private sector entities from China are considered by the Foreign Investment Review Board (FIRB) from $248 million to $1,078 million.
The Government has retained the ability to screen Chinese investments at lower thresholds for sensitive sectors, including: media, telecommunications and defence-related industries. Consistent with the promise made by the Coalition at the last election, the Government will be able to screen investment proposals by private investors from China in agricultural land valued from $15 million and agribusiness from $53 million.
FIRB will continue to screen all investment by Chinese State-Owned Enterprises, regardless of the transaction size. ChAFTA does not change these arrangements in any way.
The investment obligations in ChAFTA can be enforced directly by Australian and Chinese investors through an Investor-State Dispute Settlement (ISDS) mechanism, helping to promote investor confidence. The ISDS mechanism includes safeguards to protect governments’ ability to regulate in the public interest and pursue legitimate public welfare objectives such as public health, safety and the environment.
A range of China’s services market access commitments relating to the delivery of services in China through the establishment of a commercial presence represent a significant improvement in the investment environment for Australian services firms.
Work and Holiday Arrangement
Alongside ChAFTA, Australia and China have also completed negotiations on a Work and Holiday Arrangement (WHA) under which Australia will grant visas for up to 5,000 Chinese work and holiday makers annually. The WHA will increase demand for tourism services and support the development of Australia’s tourism sector, particularly in rural Australia.
ChAFTA includes additional commitments which:
- Provide a framework for the growth of electronic commerce between Australia and China.
- Reaffirm existing international intellectual property obligations and provide a framework for future cooperation.
- Promote cooperation and coordination between relevant agencies on competition policy.
- Provide for future negotiations on access to China’s government procurement market.
- Facilitate trade through streamlined customs processes.
The official statement from the Prime Minister’s office as published on the Australian government’s website is as follows:
“Landmark China-Australia Free Trade Agreement
17 November 2014
Minister for Trade and Investment
The landmark China-Australia Free Trade Agreement (ChAFTA) will unlock substantial new benefits for Australians for years to come.
ChAFTA will add billions to the economy, create jobs and drive higher living standards for Australians.
Australian businesses will have unprecedented access to the world’s second largest economy. It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment.
Building on trade deals already concluded with Korea and Japan, ChAFTA forms part of a powerful trifecta of agreements with Australia’s three largest export markets that account for more than 61 per cent of our exports of goods.
More than 85 per cent of Australian goods exports will be tariff free upon entry into force, rising to 93 per cent in four years. Some of these goods are currently subject to tariffs of up to 40 per cent.
On full implementation of ChAFTA, 95 per cent of Australian goods exports to China will be tariff free.
Australian households and businesses will also reap the benefits of cheaper goods and components from China such as vehicles, household goods, electronics and clothing, placing downward pressure on the cost of living and the cost of doing business.
Significantly, tariffs will be abolished for Australia’s $13 billion dairy industry. Australia’s beef and sheep farmers will also gain from the abolition of tariffs ranging from 12-25 per cent and all tariffs on Australian horticulture will be eliminated.
Tariffs on Australian wine of 14 to 30 per cent will go within four years, while restrictive tariffs on a wide range of seafood, including abalone, rock lobster, and southern bluefin tuna will also cease within four years.
Tariffs will also be removed on a range of Australian resources and energy products, including the eight per cent tariff on aluminium oxide on the first day of the Agreement, benefitting our exports worth around $1.3 billion a year. The tariffs on coking coal will be removed on day one, with the tariff on thermal coal phasing out over two years.
Tariffs will be also eliminated on a wide range of Australian manufactured goods, including pharmaceutical products and car engines.
The Australian Government has secured the best ever market access provided to a foreign country by China on services, with enormous scope to build on an export market already worth $7 billion.
Legal services, financial services, education, telecommunications, tourism and travel, construction and engineering, health and aged care services, mining and extractive industries, manufacturing services, architecture and urban planning, as well as transport, among others, will all benefit from being able to do business in China more easily.
A key feature of ChAFTA is a built-in mechanism to allow for further liberalisation and the expansion of market access over time, including a first review mechanism within three years. This places Australia in a strong position to secure additional gains as China undergoes further economic reform into the future.
ChAFTA contains investment provisions which will boost and diversify our bilateral investment relationship with China. The Chinese Government estimates total outbound investment of US$1.25 trillion (A$1.44 trillion) over the next 10 years.
ChAFTA will promote further Chinese investment in Australia by raising the Foreign Investment Review Board (FIRB) screening threshold for private companies from China in non-sensitive areas from $248 million to $1,078 million.
Consistent with the promise made by the Coalition at the last election, the Government will be able to screen investment proposals by private investors from China in agricultural land valued from $15 million and agribusiness from $53 million.
Furthermore, FIRB will continue to screen proposed investments by Chinese State Owned Enterprises regardless of value. These provisions are consistent with Australia’s trade agreements with Korea and Japan.
ChAFTA will also contain an Investor State Dispute Settlement (ISDS) mechanism. This will enable Australians to invest in China with greater confidence. The ISDS provisions contain strong safeguards to protect the Australian Government’s ability to regulate in the public interest and pursue legitimate welfare objectives in areas such as health, safety and the environment.
With a view to maximising the benefits of the FTA for business, Australia and China have also agreed to review their bilateral taxation arrangements, including relief from double taxation.
Negotiations for a free trade agreement with China commenced under the Howard Government in 2005 and languished between 2007 and 2013.
China is Australia’s largest two-way trading partner in goods and services (valued at more than $150 billion in 2013), our largest goods export destination ($95 billion in 2013), and our largest source of goods imports ($47 billion in 2013). China is Australia’s largest services export market ($7 billion in 2013).
ChAFTA assures the future competitiveness of our exports. Trade and Investment Minister Andrew Robb and Commerce Minister Gao Hucheng today signed a Declaration of Intent in the presence of Australian Prime Minister Tony Abbott and Chinese President Xi Jinping at Parliament House in Canberra.
Both countries have undertaken to conduct respective legal reviews of the concluded text and prepare Chinese and English language versions for signature in 2015.
17 November 2014”