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A snapshot of the China Australia Free Trade Agreement – what we know and what’s still to be discovered

26.11.2014

On 17 November 2014 the Australian Prime Minister, Tony Abbott, and the Chinese President, Xi Jinping, signed a declaration of intent for the China Australia Free Trade Agreement (known as “the ChAFTA”).

Since the signing of the declaration the Australian Government has been releasing highlights of the agreement via drip-fed news releases in an attempt to build enthusiasm among the Australia business community. Generally, this strategy has been successful and most Australian businesses have embraced the ChAFTA as an “historic agreement…that puts many of our most important sectors on a more competitive footing internationally, and gives Australian companies enormous scope to boost trade and create jobs”.[1]

In this China Messenger, Emilie Franklin and Macky Markar provide a snapshot of the important provisions of the ChAFTA and look at the key information that is still to be released.

What we know – at this stage it’s good news

The ChAFTA provides opportunities for business in both Australia and China. Chinese private investors will benefit from an increase in the threshold limit of Australia’s Foreign Investment Review Board – Chinese private investments will be given the same treatment as investors from the United States and New Zealand.

On the Australian side, business will benefit from significant reductions in tariffs, especially in the energy, resources and manufacturing sectors. These tariff reductions will be advantageous for business in Australia and China, and should result in increased trade and investment between the two countries.

Critically, the detail of the tariff reductions has not been included at this stage and so Australian businesses will need to be alert to the opportunities for future trade and investment with China.

Here are some of highlights that have been released so far by the Australian Department of Foreign Affairs and Trade:

Investment and tariffs

  • 92.9% of all China’s imports of resources, energy and manufacturing from Australia will enter China duty-free from the commencement of the ChAFTA. When ChAFTA is fully implemented this will increase to 99.9%.
  • The Foreign Investment Review Board review threshold will be increased to $1.087 billion (up from $248m) for private Chinese investors into Australia. There will be exceptions to this new threshold for agriculture, sensitive industries and China’s State Owned Enterprises.
  • Investor State Dispute Settlement will be implemented, allowing foreign investors to initiate disputes directly against a government that breaches certain obligations under the ChAFTA.

Services

  • Australian businesses will be able to construct and operate hotels, restaurants, aged care facilities and selected other services within China.
  • There will be increased access for Australian businesses into China’s notoriously guarded financial sector, allowing financial service providers to access banking, futures and securities and certain investments.
  • Australian insurers will have access to China’s third-party motor vehicle insurance scheme.
  • Architectural and urban planning professionals will gain reciprocal recognition of qualifications.
  • The number of Australian educational providers being promoted by the Chinese government will be increased from 77 to 105.
  • Law firms will be able to establish commercial associations with Chinese law firms in the Shanghai Free Trade Zone.
  • An official Chinese currency clearing bank will be established in Sydney, allowing overseas trading of China’s currency in Australia and improving efficiency of cross border Chinese currency transactions.

Minerals

  • The 3% tariff on coking coal exports will be abolished from the commencement of ChAFTA.
  • The 6% tariff on thermal and other coal will be phased out over two years.
  • Tariffs on all transformed resources and energy products will be removed.

Food

  • All tariffs on dairy products will be removed within 4 to 11 years.
  • Tariffs on beef will be removed over 9 years.
  • Tariffs on horticulture will be removed over 4 years.
  • There will be no tariff reductions for rice, wheat, cotton, sugar, rapeseed/vegetable oils – these are sensitive products and will continue to be protected.
  • Australia will receive an exclusive duty free quota on wool.

Labour

Chinese businesses will be able to import skilled labour on projects greater than $150 million if there is a skills shortage in that field. This labour will be brought on ‘skilled migrant’ visas and must comply with Australian workplace regulations and standards.

There will be opportunities for Australian and Chinese businesses to use this new mechanisms strategically, although the full detail of this program may be more restrictive in the final version of the ChAFTA.

What you don’t know may actually hurt

The detail of the ChAFTA is still to be released and it is likely that the final agreement will not be formally executed until well into 2015. Following the release of the final agreement, the provisions will not come into effect until they have been enacted through legislation in both China and Australia. The process of enshrining the ChAFTA into domestic law will be a simpler and more efficient process in China than it will in Australia. The Australian parliament will debate many of the provisions and there is likely to be multiple senate committees to investigate the more controversial sections. For example, we anticipate significant debate in relation to the effect that tariff reductions and reduced investment scrutiny will have on Australian agribusiness.

Furthermore, there are significant details of the ChAFTA that are still to be released by the Australian and Chinese governments:

  • There will be an extensive chapter in the ChAFTA dealing with intellectual property, although no details of this have released at this stage. The protection of intellectual property rights and enforcement against infringements will be business-critical for Australians doing business in China.
  • The new rules relating to competition policy will impact Australian and Chinese business and should be carefully reviewed.
  • New government procurement policies will be included in the ChAFTA – this is significant for Australian businesses as the Chinese government is the largest consumer in China of Australian goods and services.

Most importantly, at this stage the information that has been released has been general and does not include the details necessary for businesses to capitalise on the opportunities under the ChAFTA. It is truly a case of “watch this space” for businesses trading and investing (or simply investigating) between Australia and China.

For more information, please contact Christopher Hewitt or Emilie Franklin on +61 7 3367 6900 or christopher.hewitt@moulislegal.com or emilie.franklin@moulislegal.com

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.

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[1] Jennifer Westacott, China – Australia Free Trade Agreement a Historic Opportunity (17 November 2014) Business Council of Australia <http://www.bca.com.au/newsroom/china-australia-free-trade-agreement-a-historic-opportunity>