China: ChAFTA 2014: The winners, the thresholds and the opportunities

Last Updated: 20 November 2014
Article by Paul Schroder

The much anticipated China Australia Free Trade Agreement (ChAFTA) was announced earlier today. ChAFTA secures Australia's competitive position with our largest trading partner and lays the foundation for a deeper and stronger long-term strategic partnership.

It's a major step forward, sending a strong and unmistakable message that Australia is committed to developing a deeper engagement – economically, politically and socially – with China, and vice versa.

This is the first agreement that China has concluded with a developed economy and the most comprehensive compared to any other nation. While some industries and products may have missed out, it is important to look at the big picture and remember that today's announcement is not an end-point, but rather a base from which to build on. Australian businesses have been granted unprecedented access to the fastest growing markets in the world, unlocking billions of dollars of exports.

Process going forward

While the Governments should be congratulated on reaching this significant milestone, the hard work is not over. Signing ChAFTA is just the first step. Now ChAFTA's benefits need to be sold to the community. The Chinese and Australian Governments have adopted a letter of intent to reach an agreement. It is expected to be finalized in two months after which the agreement will be subject to ratification by parliament. There's also a process to be followed on the Chinese side.

This process cannot be left purely on the shoulders of Government. Business must actively support the case for ChAFTA and proactively engage with businesses in China to explore opportunities for integrated partnership models that encompasses the entire value chain from research and development all the way through to marketing and sales, moving away from the purely transactional model that thus far been the hallmark of our commercial relationship with China.

Australia won't enjoy this competitive position for long before other nations receive similar if not better trade concessions. The sooner ChAFTA gets ratified, the sooner the benefits will flow. Once ratified the key changes we can look forward to include:

  • removal and reduction of tariff barriers;
  • relaxation of Australian regulatory barriers to Chinese investment; and
  • facilitation of Australian investment into China.

While it will still be some time before the benefits of this agreement materialize the significant opportunities which will open up for key sectors of the economy are not to be underestimated.

1 Removal and reduction of tariff barriers

The Australian agriculture and mining, energy and resources industries have been confirmed as two big winners with the elimination of a host of tariffs and the planned phase down of many more.

Agriculture

ChAFTA will deliver significant tariff cuts for various agriculture exports particularly dairy, beef, sheep meat, live animal exports, wine, seafood and horticulture, providing Australian farmers with a huge advantage. Most of these tariff cuts are to be implemented within 4 to 9 years, with tariff cuts for barley and some grains becoming effective immediately on day one of ChAFTA. China will review the position on rice, wheat, cotton and sugar 3 years after ChAFTA comes into force.

ChAFTA is expected to boost Australia's already substantial $9 billion agriculture and fishery exports into China. This new playing field is also expected to attract additional Chinese and other foreign investment into the Australian agriculture sector.

Mining/ energy and resources

Once ChAFTA is in force 92.9% of China's imports of resources, energy and manufactured products from Australia will enter duty free. Within four years this should increase to 99.9%.

Of key interest to coal producers is that the 3% tariff on coking coal, introduced in October, will be removed on day one of ChAFTA. This will be a welcome reprieve for local coal producers under pressure if it can be implemented quickly. The thermal coal industry will be disappointed to learn that it will be up to 2 years after ChAFTA before the 6% tariff also introduced in October will be removed.

Outside of coal, transformed resources and energy products such as refined copper and alloys as well as major exports iron ore, gold and liquefied natural gas will also see the removal of tariffs.

2 Relaxation of Australian regulatory Barriers

FIRB

Australia has matched the same threshold as the US, Japan and Korea for private Chinese investors. This means investment proposals below the $1.078 billion threshold will not require FIRB approval. Investments by SOEs and SWFs will require approval regardless of size.

Consistent with the approach in the current FTAs, ChAFTA does not impact the sensitive sectors which include defence related materials and activities, communications, transport, media, most land as well as uranium and plutonium extraction. Likewise, for the threshold to apply the investment must come directly from China.

Foreign Government Investment

China hoped to see its SOEs and SWFs treated as private enterprises for investment purposes. Although we have seen relaxations allowing for less than 10% passive investments by foreign government related investors, the Government has resisted introducing a blanket exemption for foreign government investment activities under ChAFTA. This is consistent with all of the FTAs. The Australian Government has signaled a review of the position after 3 years.

Rural Land and Agribusiness

The Australian Government went to the previous election on a platform that included a substantial lowering of the rural thresholds under the foreign investment regime.

The ChAFTA includes the Australian Government's proposed new rural thresholds of A$15 million for rural land and A$53 million for agribusiness interests. This is also consistent with the Japanese and Korean FTAs.

Investor-state dispute mechanism

ChAFTA will contain an Investor-State Dispute Settlement (ISDS) mechanism. This protects investors against States changing investment rules and is aimed at promoting investor confidence. The ISDS will contain carve outs for legitimate regulation objectives. This balancing approach is consistent with other modern investment protection treaties (such as the Canada-China bilateral investment treaty). It is particularly encouraging for Chinese investment in Australia because it marks a change from the previous Australian Government's avoidance of ISDS mechanisms.

Labour

ChAFTA will introduce measures to reduce some of the barriers to labour mobility between Australia and China through changes to each country's existing immigration and employment structures. These changes are expected to provide improved access for a range of Australian and Chinese skilled service providers, investors and business visitors.

Specifically, certain Chinese owned companies registered in Australia undertaking certain infrastructure projects above $150 million will also be able to negotiate increased labour flexibilities in some cases (called Investment Facilitation Arrangements). These arrangements will operate within Australia's existing immigration system and will still need to meet minimum Australian employment laws and standards.

3 Facilitation of Australian investment into China

In addition to the relaxations for all investors announced by the NDRC earlier in November in the form of a draft Catalogue for the Guidance of Foreign Investment Industries to be implemented across China, ChAFTA has given the Australian services industry a big leg up in the form of market access in China. This is especially the case for Australian financial and professional service suppliers, education, health and aged care suppliers.

Health and aged care suppliers

Soon wholly Australian-owned hospitals and aged care institutions can establish in China. We expect Australian service providers to seize these opportunities. Early movers are already set to benefit from these changes with Ramsay Health Care announcing on Friday a 50/50 joint venture with Chinese hospital operator Jinxin. Ramsay hopes to finalise its partnership with Jinxin early next year. No doubt Australian corporates will continue to partner with experienced locals as they launch into unfamiliar markets – at least now there is regulatory flexibility on the terms of the venture.

SFTZ

A number of opportunities have been presented in the Shanghai Free Trade Zone (SFTZ), which we expect to become a focal point of Australian investment as a result. For example in the SFTZ Australian law firms can tie up with Chinese law firms, there will be new access for investment in value-added telecommunications services with improved foreign equity limits, and maritime transport service suppliers can establish wholly owned ship management enterprises.

Financial Services

The outcomes achieved for financial services are much more positive than many commentators had expected. Australian banks and financial services companies have gained enhanced access to the China's growing domestic market. The streamlined licensing requirements and approval process will allow Australian banks and financial institutions to operate on a more level playing field.

This is an important step towards opening up China's services market more deeply and broadly. While we do not think this will result in Australian financial service providers going head to head with domestic Chinese businesses in their own markets, we do expect Australian banks, insurers and financial service providers to take advantage of the concessions to access China's emerging service industries before they are offered to competitor nations.

There are also encouraging commitments on transparency, regulatory decision-making and streamlining of licencing in China. A financial services committee will be established facilitating cooperation between Chinese and Australian financial regulators. ASIC and the China Securities Regulatory Commission have agreed to strengthen cooperation and improve mutual understanding of Australia's and China's respective regulatory frameworks. Both countries have identified a range of areas for further cooperation.

Along with the simultaneous announcement that an official renminbi clearing bank will be established in Sydney, this will underpin ever greater flows of trade and investment between Australia and the fast growing economies of China and Asia.

The SFTZ is an important testing ground for further liberalisation of financial services, including a greater role for foreign banks and financial service providers. With two of the four major Australian banks established in the SFTZ (ANZ and Westpac), Australia is placed to take early advantage of opportunities provided by China's opening up. Reforms within the SFTZ are, however, moving slowly with Chinese authorities continuing to release further details.

Private Equity

One of the less expected announcements today is the cooperation between Australia and China in relation to the export of Australia's leading PE fund services. Australian PE funds have outperformed the S&P/ASX 300 Index on a public market equivalent basis over the last ten years by a significant margin demonstrating that the asset class is a long-term driver of returns. Australian PE funds also play an important role in the innovation system. These same Australian PE funds being able to capitalise on future investment opportunities in China directly and through their portfolio investments will deliver long term benefits to China and Australia

Education

China is already the Australian education sector's largest export market (worth $4 billion in 2013). The sector has received a real boost from ChAFTA.

Australian institutions will have more opportunity to set up an establishment in China to build their brand and network. Specifically, all CRICOS-registered Australian higher education providers will be listed on the Chinese Ministry of Education's website within one year of ChAFTA entering into force. This increases the number of Australian institutions on the website from 105 to 182, with the potential for further additions. This website provides Chinese students and employers with quality and fraud assurance, and listed institutions were favoured by 88% of Chinese higher education students in 2013.

Additionally, improved mutual higher education qualification recognition and enhanced mobility of students, researchers and academics at school, tertiary and research levels are expected to be agreed in the form of memoranda of understanding.

Legal services

Close to our heart is the announcement that Australian law firms will be able to tie up with Chinese law firms in the SFTZ. There will also be various legal services cooperation initiatives, a number of which flow from our input and submissions. We are delighted with the outcome and welcome the competition which vindicates our strategy. We'll continue to use our first mover advantage to facilitate a stronger long-term relationship between Australia and its largest trading partner.

As China moves from manufacturing, to services, to integrated business models, people mobility will be a key issue. Integrated businesses (such as our own) must have more flexibility. The opportunities presented by ChAFTA will only be available in the short term. As of today, all Australian businesses will be a better position than any of our global competitors. However the concessions given will soon become the norm for other countries. It's for Australian businesses to use their first mover advantage.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions