Australia and China reach landmark FTA

Australia and China reach landmark FTA

Australia and China have finally agreed on a landmark free trade agreement (FTA) that will pave the way for large-scale Chinese investments in Australia by removing investment barriers, while boosting Australian sales of resources and agricultural produce.

To be signed next year, the FTA, which Canberra called a "game-changer", was also heralded as the best agreement yet on services secured by a foreign country from China.

Despite a fourfold increase in trade over the past decade, Australia said the new deal would "supercharge our trade with China".

"It's a good day for Australia, a good day for China, a good day for consumers and ultimately a good day for workers," Australian Prime Minister Tony Abbott told reporters in Canberra while standing alongside Chinese President Xi Jinping.

Mr Xi is on a state visit to Australia after attending the Group of 20 summit in Brisbane at the weekend.

The deal - a decade in the making - will allow about 85 per cent of Australian exports to enter China tariff-free, with the figure rising to 93 per cent within four years and 95 per cent within a decade. Most Australian tariffs on Chinese goods will be removed within four years.

China is Australia's largest trading partner and a voracious buyer of its abundant minerals and food. Two-way trade already worth over A$150 billion (S$170 billion) a year is expected to rise as tariffs are gradually eased.

Chinese private-sector investments in Australia will now be subject to review only if they are worth A$1.1 billion or more. The current threshold is A$248 million. Such investments are scrutinised by the Foreign Investment Review Board to ensure they are in the national interest. The change is a big win for Chinese firms but will not apply to investments by state- owned enterprises.

Australian Trade Minister Andrew Robb yesterday signed a Declaration of Intent with Chinese Commerce Minister Gao Hucheng in a ceremony watched by Mr Abbott and Mr Xi.

The deal positions Australia, with its surfeit of land and resources, to boost exports of dairy products, wine and meat, as well as minerals such as copper and aluminium.

Dairy, beef, sheep and goat tariffs will be removed over nine years, while most mineral tariffs will be eliminated either immediately or in the short term. Coal tariffs will be phased out over the next two years.

For its part, China will have a greater ability to invest in Australia and will be able to further boost exports of consumer goods.

A significant feature of the deal is that it removes barriers on services, so that businesses in the finance, legal, tourism, construction and health-care sectors will be able to operate more easily in both countries. Australian service exports to China are worth about A$7 billion a year. But the deal will still need to be reviewed by parliamentary inquiry and legislation will need to be passed.

Analysts said Australia has so far benefited greatly from China's rapid growth, which has relied on exports of Australian resources, but the trade deal will now help Australia to benefit from China's rising middle class.

Dr Wei Li of the University of Sydney Business School said the two countries are well-suited to such a trade deal because they have few areas of competition.

She said both could work together as partners in the "regional and global value chain". China could boost exports of low-cost consumer goods to Australia, she said, while Australia could boost exports of high-end, research-intensive goods such as health-care and biotechnology products or mining and transport machinery.

"The two countries really complement each other, in terms of industries and resources," she said.

"China sees Australia as a regional partner, not as a potential competitor. This could benefit Australian companies, which could partner Chinese companies and have access to the Chinese and global markets."

Meanwhile, a free trade deal between China and South Korea should be effective in the second half of next year if all goes well, a top Chinese Commerce Ministry official said in Beijing yesterday, according to a Reuters report.

Both countries last week said they had "effectively" reached an FTA, ending negotiations that started in 2012.

"Next year, in the first half of the year, we hope both sides will be able to formally sign an agreement," China's Assistant Commerce Minister Wang Shouwen told reporters.

"If all goes smoothly and in line with our hopes, then next year, in the second half of the year, the China-South Korea free trade agreement potentially could be formally implemented."

This article was first published on November 18, 2014.
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