It took a decade of negotiations spanning three
governments, but in late 2014, Australia and China finally
concluded a Free Trade Agreement ("FTA"). Corporate &
Commercial Lawyer, Sam Bassingthwaighte, looks at the likely impact
of the FTA.
WHAT HAPPENS NOW?
For the FTA to take effect, the two governments need to go
through their respective domestic treaty making processes,
including converting the terms of the FTA into legal text and
passing the legislation through parliament. This ratifying process
is likely to be completed towards the end of 2015.
The FTA with China, on the back of the recent FTAs with South
Korea and Japan, means that significant trade barriers, covering
more than 61% of Australia's export of goods, will be removed
immediately or incrementally over a number of years.
WHAT DOES FTA MEAN?
Until the full details and substance of the Australia-China FTA
are finalised and released to the public, it is difficult to
accurately assess the impact it will have on our economy. Initial
forecasts suggest the FTA will increase Australia's economy by
$18 billion over the next decade – although there is some
debate as to whether this is too conservative or optimistic.
According to Trade Minister, Andrew Robb, the overwhelming majority
of Australian exports to China will eventually become tariff free,
and there is no doubt that trade with China, our largest export
market in both goods and services, will increase once the FTA
With the resources industry presently accounting for the
majority of Australia's exports to China, the removal of
tariffs on some resource commodities will clearly benefit many
Australian resource companies.
Some cost of living expenses for Australians should decrease, as
consumers will have access to cheaper household goods, electronics,
vehicles and clothing from Chinese companies.
Service providers, manufacturers and agricultural producers who
already export to China will be allowed greater access to the
markets in which they operate; and with fewer trade barriers in
place, companies that do not currently export to China may now have
reason to do so.
The agriculture industry, in particular, stands to benefit
significantly from the reduction in trade barriers. China currently
buys more of Australia's agricultural produce than any other
market, and this trend is set to continue with the implementation
of the FTA creating competitive advantages over our major
agricultural competitors such as the United States and Canada. The
National Farmer's Federation has said that the industry could
conceivably see a tripling in agricultural exports to China within
Trade Minister, Andrew Robb, has described the FTA as the
"dairy deal", highlighting the widely held view that the
Australian dairy sector and its $13 billion annual value is at the
core of the agreement. Interestingly, all dairy products, except
whole milk powder, will not have the tariff safeguards that were
implemented in the 2008 FTA between China and New Zealand. Those
safeguards ensure that once a certain trade quota is reached, the
tariffs on that particular product will once again apply. This is a
great outcome for the Australian dairy industry and the benefits of
an absent tariff safeguard should be substantial.
CLICK HERE FOR MORE INFORMATION ON THE KEY AGRICULTURAL AND
CHINESE INVESTMENT INTO AUSTRALIA
While Chinese investment in previous years has largely been
confined to resources, sectors such as agribusiness, health, aged
care, tourism and infrastructure will start to command greater
interest from investors. The FTA will facilitate increased
investment by allowing privately owned Chinese entities to invest
in non sensitive sectors in amounts up to $1,078 million (up from
$248 million) without review by the Foreign Investment Review Board
("FIRB"). However, while the FTA in general provides
Chinese investors with greater access to Australian assets and
projects, agricultural land over $15 million, agribusinesses over
$53 million and all investment proposals by Chinese state owned
enterprises (regardless of the transaction size) will still be
subject to foreign investment review scrutiny by the FIRB.
SOMETHING TO REMEMBER.
The removal of tariffs and the opening up of the trade lines
with China, a country that already accounts for nearly a third of
our total exports, will have a positive effect on Australia's
domestic market and should promote even greater Chinese investment
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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