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17 Nov 14
Australian and Chinese trade agreement announced

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After nearly 10 years and 21 rounds of negotiations the Australian/Chinese trade agreement (ACTA) has finally been concluded.

On Monday Prime Minister Tony Abbott announced that a declaration of intent was to be signed by Trade Minister Andrew Robb and Chinese Commerce Minister Gao Hucheng paving the way for the formal treaty to be introduced. This milestone has been long anticipated by many sectors within the Australian economy, particularly in recent times by the resources and energy sector and the agriculture sector.

Background
China is Australia’s number one export destination with more than 36% of Australia’s exports bound for China.  The total trade relationship between China and Australia is worth $141,805 million.  The chief exports are iron ore, gold, coal and copper.  In addition, Australia’s provision of services to China also ranks highly making up 12.5% of Australia’s total services exports, totalling $6,881 million.

China’s total investment in Australia is estimated to be a significant $31,899 million.

Key goals
It was the intention of the negotiations to reach an agreement which would:

  • remove tariff and non-tariff barriers to Australian imports into China
  • reduce regulatory barriers which restrict the provision of services to China, and
  • encourage foreign investment in Australia.

These three goals have all been achieved in part although not to the extent some groups wished.

Tariffs
The ACTA provides for the gradual reduction of tariffs on 85% of all Australian exports to China increasing to 95% of all goods in 10 years time.  Australian coal producers are also winners under the agreement with the newly introduced 3% tariff on coking coal (worth approximately $6 billion) to be removed immediately upon the ACTA taking effect.  The 6% tariff on thermal coal (introduced earlier this year to combat pollution in China) will be phased out over a two year period from the date of the agreement.  Tariffs will also be removed from minerals such as Zinc, alumina, nickel, copper and uranium.

Australian exports of rice, sugar, cotton and wheat have not benefited as much as they might have.  This was essentially a trade off, with Australia refusing to reduce oversight of state owned enterprises investing in Australia.

Services
Regulatory controls, which have constrained the provision of services by Australian companies to China, have been relaxed to an extent.  Banks, insurance companies and law firms will now be able to operate more freely in the Shanghai free trade zone.

Foreign Investment Review Board
Similarly to the Japanese/Australian trade agreement and Korean/Australian trade agreement finalised earlier this year, the Chinese threshold for Foreign Investment Review Board (FIRB) approval for business assets has been increased to $1,078 million.  This increased threshold does not apply to the acquisition of certain types of land or landholding companies.

Under the agreement, private Chinese investors will need FIRB approval for the acquisition of farm land with an aggregate value of $15 million or more (reduced from $248 million).

Controversially, the Australian Government rejected proposals to reduce FIRB’s scrutiny of Chinese state owned enterprises by FIRB.  This has been a point of significant tension between Australia and China as it is viewed as unnecessarily and unfairly constraining Chinese investment.  The ACTA is required to be reviewed in three years which may present an opportunity for this position to be reviewed.

Despite the agreement not being as comprehensive as some would have liked, it is a big step forward for Australia in ensuring one of its main trading relationships continues to grow.  The ACTA is estimated to have a potential benefit of $18 billion to the Australian economy.

The increase in the FIRB threshold to $1,078 million for private acquisitions of business assets will make it less onerous for Chinese companies to become involved in the Australian marketplace. This agreement will be an important mechanism in allowing Australian producers in various sectors access to what is still one of the fasting growing markets in the world.  
 

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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