Australia: Chatting about ChAFTA (China-Australia Free Trade Agreement)

Last Updated: 27 November 2014
Article by Sam Cottell

Following the G20 Conference in Brisbane on 17 November 2014, Australia and China entered into a declaration of intent to enter into the Chinese-Australia Free Trade Agreement (ChAFTA).

The declaration was executed by Australia's Minister for Trade and Investment, Andrew Robb, and China's Commerce Minister, Gao Hucheng, in front of both Australian Prime Minister Tony Abbott and Chinese President Xi Jinping. This was part of a broader suite of 14 commercial agreements signed between the two countries, worth an estimated $20 billion.i This landmark event followed over nine years of protracted negotiations between the two countries in relation to a free trade agreement, which is expected to be signed in early 2015, with an opportunity to review in a further three years' time.

China is one of Australia's most significant trading partners, and is Australia's largest export market.ii With two-way trade between Australia and China worth AUD$150 billion in 2013 alone,iii ChAFTA presents opportunities for deeper business engagement between our countries. The incentives presented as part of ChAFTA include reducing the tariffs currently levied on Australian exports to China as well as providing additional investment concessions estimated to be worth AUD$18 billion.iv

Championing certain Australian industries

The long road to the finalisation of ChAFTA has ostensibly focused on negotiating concessions on the various trade barriers, foreign investment regulations and service liberalisation between the two countriesv. Upon full implementation, 95% of Australian goods exported to China will be tariff free within ten years, and some 85% of exports will feel the immediate impact of the concessions upon the signing of

Australian industries set to benefit from ChAFTA include:

  • banking, securities, futures, insurance and other financial service providers who will have unprecedented access to Chinese marketsvii;
  • the tourism industry, which has been guaranteed the ability to construct, renovate and operate wholly-owned hotels and restaurants in China, thus bolstering investment opportunitiesviii;
  • healthcare providers will be permitted the establishment of wholly-owned hospitals and aged care facilities in Chinaix; ;
  • key service providers including law firms will be able to establish commercial associations with Chinese firms in the Shanghai Free Trade Zone;x
  • wine exporters, currently subject to tariffs levied by China of between 14%-20%, will be among the first to benefit with the elimination of tariffs within four yearsxi;
  • the dairy industry (worth AUD$351 million in exports to China in 2013xii) which will enjoy the complete abolition of tariffs (currently up to 20% on some dairy products) within four to eleven yearsxiii;
  • beef farmers who will see the current tariffs of 12%-25% levied on Australian beef removed over the proceeding nine yearsxiv;
  • sheep farmers will see a slightly better deal, with the current tariffs of between 12-23% levied on Australian sheepmeat removed over the next eight yearsxv;
  • the horticulture sector, which includes, for example, vegetables, fruit, grapes, nuts, mushrooms, nursery, turf, cut flowers and extractive crops, will see all tariffs on horticulture eliminated.xvi

Whilst ChAFTA will provide increased opportunities for certain sectors, Australian sugar and rice growers have not received incentives or tariff reductions under this arrangement. Similarly, grain exporters will not see significant changes in the tariffs except barley exporters, who will enjoy the immediate removal of the current 3% tariff on barley immediately upon signingxvii, and sorghum, which will have its 2% tariff levy removed immediately upon signing.xviii

Channelling Chinese Investment

Under ChAFTA, China is set to benefit from increased access to the Australian market, which in turn will stimulate foreign investment opportunities within Australia.

Relevant features include:

  • the increased threshold for Australian investment approval (through the Foreign Investment Review Board (FIRB)) which will be lifted from $248 million to $1.078 billion (except for government-owned enterprises or agriculture);xix
  • the ability for Chinese owned companies registered in Australia undertaking investment projects valued over $A150 billion to negotiate increased labour flexibilities through new Investment Facilitation Arrangements. This will allow Chinese investors to bring in workers where there is a demonstrable skills shortage, thus allowing for project-based labour agreements. This will operate on a case-by-case basis, within the parameters of Australia's existing visa system xx and where there is a need to demonstrate a labour market need;xxi
  • Australian Education institutions are to be listed on the official Ministry of Education website in China, which may generate an increase of Chinese students in Australia's international student market, as well as possible marketing and recruitment opportunities.xxii

However, all State owned enterprises will remain subject to FIRB approval for their investment into Australiaxxiii The Government has also retained the ability to screen investments in protected sectors such as media, telecommunications, defence-related industries, agricultural land and agribusiness.xxiv

Reasons to be chuffed about ChAFTA

The ChAFTA concessions are seen by many as the most comprehensive given by China to any developed nation, and "ChAFTA will add billions to the economy, create jobs and drive higher living standards for Australians," stated Andrew Robb, Australia's Minister for Trade and Investment.xxv

Australia's investment strategy has had a strong focus toward greater investment in North Asia, complemented by the Australia-Korea and Australia-Japan free trade agreements, the finalisation of ChAFTA will see significant expansion of Australia's economic presence in this lucrative and ever-growing region. Given the importance of China as Australia's key trading partner[xxvi] - there are billions of reasons to be chuffed with ChAFTA!




























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