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With China and Australia signing off on the China-Australia Free Trade Agreement in June, a raft of new opportunities present themselves for those interested in expanding into the market of our biggest trading partner. It’s time to start enrolling in those Mandarin classes!

The Free Trade Agreement gives Australia unprecedented access to this notoriously restrictive market. It’s important to note, however, that China is negotiating similar agreements with other nations. It may be necessary to invest heavily and capitalise on the benefits of free trade when a ‘first-mover’ advantage still exists.

Our guide to the Agreement and what it means for business is below.

Introduction

Once this Agreement comes into force (it’s not yet effective; internal processes must be completed to introduce the Agreement as law in both China and Australia), Australia stands to gain considerably. China is Australia’s largest trading partner with two-way trade valued at over $160 billion. This agreement will only encourage growth in trade. Under the agreement, above 85% of Australia’s exported goods to China will enter tariff-free, rising to 93% in four years and 95% when the Agreement is fully operational.

Who benefits?

Both primary producers and service providers receive significant benefits under the agreement. Manufacturers get a slice of the pie as well.

Agriculture – tariffs on agricultural goods and processed foods will have tariff elimination expedited. For example, all tariffs on beef will be eliminated within nine years. While tariffs on dairy will last only another 4-11 years (including infant formula, ice cream and lactose), sheep and goat meat tariffs will discontinue within eight years. Meanwhile, pork will have tariffs eliminated within four years. For all the budding vinos in China, Australian wine (and spirits) will have tariffs eliminated within four years, so ditch that overpriced Penfolds Grange.

For the miners – we were never going to agree on anything without large benefits to our primary producers! Mineral commodities mostly have an elimination of tariffs of up to 10% (e.g. zinc, copper, nickel) and existing zero taxes on gold, iron ore and crude oil are locked in. It will lead to the immediate removal of the current tariff on coking coal while tariffs on thermal coal won’t exist for more than two years.

Manufacturers (we still have any?) – manufacturers get tariff removals within four years on a broad range of Australian manufactured goods (including medical devices, car engines, and pharmaceutical products).

Healthcare and aged services – wholly-owned Australian hospitals can be created in the cities of Shanghai, Beijing, Tianjin as well some listed provinces. Aged care facilities can be established throughout China with no requirement to give the Chinese government a stake.

Financials – the red tape is a little tighter around China’s purse-strings. Australian financial service providers are only allowed to establish joint ventures with Chinese companies (with up to 49% Australian ownership) in China.

Education – higher education providers can keep attracting ever more Chinese students with the agreement to list providers on an important Ministry of Education website.

Where’s the catch?

Given the Chinese Government’s massive meddling in the recent Chinese stock price free fall, we know that the Chinese haven’t lost their penchant for market intervention. Is the free trade agreement, in fact, free?

Of course not! The Chinese Government still gets to restrict trade in many ways.

If imports of milk powder and beef exceed certain thresholds, China can trigger customs duties. Thresholds (measured in tonnes) are currently at 170,000 for beef and 17,500 for milk powder. Some wriggle room still exists with review mechanisms inserted to allow for the removal of thresholds if, upon assessment, it is concluded that Australian imports have not caused significant injury to the domestic industry.

A threshold of 30,000 tonnes of clean wool per year has been set, increasing by 5% year on year.

So not all bad. The majority of our goods can be sent to China tariff-free now or very shortly in the future.

Conclusion

In summary, the introduction of the China-Australia Free Trade Agreement is a significant milestone in our relationship with our greatest trading partner. It paves a way to strengthen our relations and forge new pathways into a relatively restrictive market, giving us unmatched access to the market. However, businesses need to take advantage of these concessions soon to secure first-mover advantage as China is busy obtaining similar agreements with its significant partners elsewhere in the world. For legal advice on how this or other trade agreement could affect your business, get in touch with LegalVision on 1300 544 755.

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