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Victoria

Key Outcomes from the ChAFTA

20 November 2014

Dear ACBC Victoria Members and Friends
 
For your ready reference, below are the key outcomes from the Free Trade Agreement (ChAFTA). Prime Minister Abbott and President Xi announced the conclusion of negotiations for the China-Australia Free Trade Agreement (ChAFTA) on 17 November 2014. Trade and Investment Minister Robb and Commerce Minister Gao signed a Declaration of Intent to work towards signature of the Agreement. ChAFTA lays an historic foundation for the next phase of Australia's economic relationship with China.
Agriculture and processed food
China buys more of Australia’s agricultural produce than any other market. In 2013, this market was worth around $9 billion to Australian farmers and the broader agricultural sector.
Trade is growing strongly, but there are opportunities for greater and more profitable trade. The Australian Bureau of Resource Economics and Sciences predicts China will account for 43 per cent of all growth world-wide in agricultural demand to 2050.
ChAFTA provides Australia with an advantage over our major agricultural competitors, including the United States, Canada and the European Union. It also counters the advantage Chile and New Zealand currently enjoy through their FTAs with China reached in 2006 and 2008.
In agriculture and food, the Australian Government has secured:
  • The removal of all tariffs on our dairy products (which can be as high as 20 per cent) within four to 11 years.
  • The removal of tariffs of 12 to 25 percent on beef over nine years.
  • The removal of tariffs on live animal exports of 10 per cent within four years.
  • The removal of tariffs on sheepmeat of 12 to 23 per cent over eight years.
  • The removal of tariffs of 14 to 20 per cent on wine over four years.
  • The removal of tariffs on all horticulture products, ranging up to 30 per cent, most within four years.
  • The immediate elimination of the three per cent tariff on barley.
  • An Australia-only duty free quota for wool in addition to continued access to China’s WTO wool quota.
  • The removal of tariffs on seafood, including of 15 and 14 per cent respectively on rock lobster and abalone, over four years.
  • The removal of tariffs across a range of processed foods including fruit juice and honey.
  • The removal of tariffs of 5 to 14 per cent on hides, skins and leather over two to seven years.
  • There are no changes to Australia’s risk-based quarantine measures as a result of ChAFTA.
As part of joining the World Trade Organization (WTO) in 2001, China already allows generous imports of rice, wheat, cotton and sugar with generally low tariffs imposed within a quota. Australian exporters have unrestricted access to these allowances (notwithstanding, Australia does not have technical quarantine market access for rice).
China has not provided further liberalisation of these products in any of its FTAs, on the basis they are significantly sensitive staples. It has also not granted Australia, or any of our competitors, additional access for rapeseed and vegetable oils, on the same basis. However, China has agreed to a built-in review process three years after entry into force to review the Agreement, including market access.
Resources, Energy and Manufacturing
In 2013, Australia exported over $85 billion worth of resources, energy and manufactured products to China. On entry into force of the Agreement, 92.9 per cent of China’s current imports of these products from Australia will enter duty free, with most remaining tariffs removed within four years. On full implementation of the Agreement, 99.9 per cent of Australia’s current resources, energy and manufacturing exports will enjoy duty free entry into China.
In resources, energy and manufacturing, the Australian Government has secured:
  • The removal of tariffs on all resources and energy products: including on coking coal (metallurgical coal for steel making) (currently subject to a 3 per cent tariff) on the first day of the Agreement, and non-coking coal (thermal/steam coal for power generation) (6 per cent) within two years.
  • The removal of tariffs on transformed resources and energy products, such as refined copper and alloys (unwrought) (currently subject to 1 and 2 per cent tariffs), aluminium oxide (alumina) (8 per cent), nickel mattes and oxides (3 per cent), unwrought zinc (3 per cent), copper waste and scrap (1.5 per cent), unwrought aluminium (5 and 7 per cent tariffs), aluminium waste and scrap (1.5 per cent), unwrought nickel (3 per cent), other mineral substances (3 and 5 per cent tariffs), and titanium dioxide (6.5 and 10 per cent tariffs) - many upon the Agreement entering into force.
  • The removal of tariffs of up to 10 per cent on pharmaceuticals, including vitamins and health products, either on entry into force or phased out over four years.
  • The removal of tariffs within four years for other manufactured products, including car engines (currently subject to a 10 per cent tariff), plastic products (6.5 to 14 per cent), diamonds and other precious stones (3 and 8 per cent tariffs), orthopaedic appliances (4 per cent), aluminium plates and sheets (6 and 10 per cent), make-up and hair products (6.5 to 15 per cent), centrifuges (10 per cent) and pearls (21 per cent).
  • ChAFTA provides greater certainty for Australian exporters by locking-in zero tariffs on major exports such as iron ore, gold, crude petroleum oils, and liquefied natural gas (LNG).
ChAFTA improves the transparency of non-tariff measures (NTMs) and ensures such measures do not create unnecessary obstacles to bilateral trade. A specific mechanism to review and address NTMs on a case-by-case basis will be established.
ChAFTA preserves full access for Australian producers to trade remedies available under the WTO, including anti-dumping and countervailing measures.
Services
China is Australia’s largest services market, with exports in services valued at $7 billion in 2013.
In ChAFTA, China has offered Australia its best ever services commitments in an FTA (other than China’s agreements with Hong Kong and Macau). Most valuably, this includes new or significantly improved market access for Australian banks, insurers, securities and futures companies, law firms and professional services suppliers, education services exporters, as well as health, aged care, construction, manufacturing and telecommunications services businesses in China.
Today, services constitute around 72 per cent of Australia’s economic activity. The Agreement guarantees existing market access for Australian services suppliers in a wide range of other priority sectors in one of the world’s fastest growing services markets. ChAFTA includes a framework to advance mutual recognition of services qualifications and to support mutual recognition initiatives by professional bodies in Australia and China.
      Legal services
  •       Australian law firms will be able to establish commercial associations with Chinese law firms in the Shanghai Free Trade Zone (SFTZ). This will allow them to offer Australian, Chinese and international legal services through a commercial presence, without restrictions on the location of clients.
Financial services
  •       China has committed to deliver new or improved market access to Australian financial services providers in the banking, insurance, funds management, securities, securitization and futures sector.A future work program will deliver on-going market access in the financial services sector as China pushes ahead with economic reform and liberalisation.
  •       In addition, China and Australia signed, on 17 November, a Memorandum of Understanding designating an official RMB clearing bank in Sydney, allowing overseas trading of China’s currency in Australia for the first time, improving the efficiency of cross-border RMB transactions.
Education services
  •       Within one year of commencement, China will list on an official Ministry of Education website all Australian private higher education institutions registered on the Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS).
  •      This will add 77 institutions to the existing 105 Australian institutions on the website providing an important and trusted source of information to potential Chinese students who today make up 29 per cent of our international student market, injecting $4 billion to the Australian economy.
  •      In addition, Australia and China will continue to discuss options to:
  • Facilitate student and teacher exchanges between both countries.
  • Increase marketing and recruitment opportunities for Australian education providers in China.
Telecommunications services
  •       China has agreed to guarantee new access for Australian companies investing in value-added telecommunications services in the SFTZ with improved foreign equity limits, now allowing for wholly Australian-owned companies supplying domestic multi-party communication (DMPC) services, application store services, store and forward services, and call-centre services.
Tourism and travel-related services
  •       China has guaranteed that Australian service suppliers will be able to construct, renovate and operate wholly Australian-owned hotels and restaurants in China.
  •       Australian travel agencies/tour operators are also able to establish wholly Australian-owned subsidiaries in China for tours within China for both domestic and foreign travellers.
Health and aged care services
  •       In its best ever offer in a FTA on hospitals and aged care, China will permit wholly Australian-owned hospitals and aged care institutions to be established in China. This greatly expands the private health sector’s wide offering of medical services through East Asia.
Construction and engineering services
  •       China will provide new market access to Australian companies undertaking joint construction projects with Chinese counterparts in Shanghai. Australian companies will be exempted from business scope restrictions, allowing them to undertake a wider range of commercially-meaningful projects.
Manufacturing services
  •       China has made its first ever FTA commitment on manufacturing services, guaranteeing access for wholly Australian-owned companies to provide contract manufacturing services covering a wide range of manufactured products.
Mining and extractive industry services
  •       In best-ever FTA commitments, China will allow Australian service suppliers to provide technical consulting and field services in coal bed methane and shale gas extraction.
  •       China has also guaranteed access for consulting services related to exploiting oil and gas resources, as well as iron, copper and manganese resources in cooperation with Chinese partners.
Architecture and urban planning services
  •        In the best offer China has made to a FTA partner, China will take into account Australian experience in assessing applications for higher-level qualifications, allowing Australian architectural and urban planning firms to obtain more expansive business licences to undertake higher-value projects in China.
Transport services
  •       In the best offer China has made to a FTA partner, China will permit Australian maritime transport service suppliers to establish wholly Australian-owned ship management enterprises in the SFTZ.
  •       China has also provided Australia commitments equivalent to the best it has provided to any other trade partner on air transport services, including the coverage of ground handling, airport operation and specialty air services.
Other services sectors
  •       Australian providers will benefit from new Chinese commitments allowing them to offer a range of services, including through subsidiaries based in China that can be wholly Australian-owned, in the following sectors: software implementation, research and development, services incidental to manufacturing, building cleaning, printing of packaging materials, translation and interpretation services, real estate, and environmental services.
Business and skilled worker mobility
ChAFTA will support increased trade and investment between the two countries by reducing barriers to labour mobility and improving temporary entry access within the context of each country’s existing immigration and employment frameworks and safeguards.
ChAFTA will provide improved access for a range of Australian and Chinese skilled service providers, investors and business visitors, supporting investment and providing business with greater certainty. Innovative new Investment Facilitation Arrangements (IFAs), which will operate within the framework of Australia’s existing visa system, will also provide greater flexibilities for companies to respond to unique economic and labour market challenges. IFAs will be available for large infrastructure projects above $150 million, strengthening investment in this key area and leading to the creation of jobs and increased economic prosperity for all Australians.
Investment
Chinese investment in Australia has been growing strongly in recent years up from $3 billion, 10 years ago, to around $32 billion today. Total Chinese investment in Australia is now nearly as much as the total Chinese investment in the United States. Increasing numbers of Australian businesses are entering the Chinese market with great success, with banking and wealth management the leading sector of Australian direct investment in China. ChAFTA improves opportunities for investors in both countries.
ChAFTA will promote further growth of Chinese investment into Australia, in particular by raising the screening threshold at which investments in non-sensitive sectors by private sector entities from China are considered by the Foreign Investment Review Board (FIRB) from $248 million to $1,078 million.
The Government has retained the ability to screen Chinese investments at lower thresholds for sensitive sectors, including: media, telecommunications and defence-related industries. Consistent with the promise made by the Coalition at the last election, the Government will be able to screen investment proposals by private investors from China in agricultural land valued from $15 million and agribusiness from $53 million.
FIRB will continue to screen all investment by Chinese State-Owned Enterprises, regardless of the transaction size. ChAFTA does not change these arrangements in any way.
The investment obligations in ChAFTA can be enforced directly by Australian and Chinese investors through an Investor-State Dispute Settlement (ISDS) mechanism, helping to promote investor confidence. The ISDS mechanism includes safeguards to protect governments’ ability to regulate in the public interest and pursue legitimate public welfare objectives such as public health, safety and the environment.
A range of China’s services market access commitments relating to the delivery of services in China through the establishment of a commercial presence represent a significant improvement in the investment environment for Australian services firms.
Work and Holiday Arrangement
Alongside ChAFTA, Australia and China have also completed negotiations on a Work and Holiday Arrangement (WHA) under which Australia will grant visas for up to 5,000 Chinese work and holiday makers annually. The WHA will increase demand for tourism services and support the development of Australia’s tourism sector, particularly in rural Australia.
Other outcomes
ChAFTA includes additional commitments which:
  •        Provide a framework for the growth of electronic commerce between Australia and China.
  •       Reaffirm existing international intellectual property obligations and provide a framework for future cooperation.
  •       Promote cooperation and coordination between relevant agencies on competition policy.
  •       Provide for future negotiations on access to China’s government procurement market.
  •       Facilitate trade through streamlined customs processes.
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For detailed information on the outcomes of the Agreement, please visit Understanding the Agreement.