Australia: Australian dairy at the core of landmark Australia-China free trade agreement

After a decade of negotiations, President Xi Jinping and Prime Minister Tony Abbott have concluded negotiations for a historical free trade agreement (FTA) between China and Australia, with the Australian agriculture, and in particular the dairy sector, set to benefit strongly.

Trade and Investment Minister Andrew Robb and Chinese Commerce Minister Gao Hucheng signed a Declaration of Intent in respect of the FTA yesterday, undertaking to prepare the legal texts in both languages for official signing in 2015.

This article provides a summary of the provisions of the FTA that will be of particular application or importance to the Australian dairy industry. You can read about the FTA more generally here, and about its impact on the financial services sector here.

Federal Trade Minister Andrew Robb has described the FTA as "the dairy deal"; an acknowledgement of the fact that the Australian dairy sector, which is worth about $13 billion per annum to the national economy, is at the core of the agreement, which will outline a deal which most regard as a superior outcome to that secured by New Zealand in its 2008 free trade agreement with China.

"This is better for Australian agriculture," Prime Minister Abbott said, "it's at least as good for our agriculture as New Zealand got about six or seven years ago - and their dairy exports to China have gone up from under half a billion to over three billion."

The 10% to 20% tariffs currently applied across the dairy sector will be phased out over the next decade, with the 15% tariff on infant formula to be phased out over four years.

Importantly, most Australian dairy products will not be subjected to the protective safeguards which currently apply to New Zealand dairy exports to China. The New Zealand safeguards provide that once a quota is reached, tariffs once again apply. The only Australian dairy product that the safeguards will apply to is whole milk powder.

Parliamentary Secretary to the Prime Minister, Josh Frydenberg, previously said the FTA will be worth up to $18 billion to the Australian economy over the next few years and "up to 95 per cent of our exports over time will enter the Chinese market tariff free". As trade has blossomed between Australia and China, the Government now believes $18 billion is a conservative estimate.

A summary of the phasing out of tariffs under the FTA is set out below:

It is important to note that, while the FTA generally provides Chinese investors with greater access to Australian assets and projects (whereby private Chinese investors will have the standard foreign investment review threshold increased from $248 million to $1.087 billion, in line with Australia's free trade agreements with New Zealand, Japan, Korea and the United States), agricultural land over $15 million will face foreign investment review scrutiny, as will agribusinesses over $53 million and all investment proposals by state owned enterprises.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.