A Free Trade Agreement (“FTA”) is an agreement between two or more countries to provide trade free from export and import duties. The removal of trade duties results in a greater flow of goods between the countries, and increased profitability in the industries that are included in the scope of the FTA.
The Abbott Government has negotiated a number of FTAs with Australia’s key trade partners, including Japan, Korea and, most recently, China. The new FTAs are in addition to those already in place with New Zealand, United States, Malaysia, Singapore, Thailand, Chile and the ASEAN countries. Several others are still being negotiated.
What is ChAFTA?
On 17 November 2014, the negotiations surrounding the China-Australia Free Trade Agreement (“ChAFTA”) were concluded. ChAFTA is expected to be executed, ratified and implemented within the next 12 months.
It will see the elimination of trade tariffs for a number of Australian exports, including for agricultural goods. Suppliers of crops and other goods that are exported to China are set to benefit from an increased demand in Australian produce as a direct result of ChAFTA.
What benefits will ChAFTA have for the Australian agricultural sector?
China will remove the tariffs (over a number of years on a staged basis) that were previously imposed on Australian beef, sheep meat, dairy, wool, wine, hides, skins, leather, nuts, fruits, vegetables, seafood, grains, processed foods, pork and live animal exports. Most of these tariffs will be removed between four and nine years after implementation, except for those on barley and some other grains, which will be removed on the day ChAFTA is implemented.
Australian produce has a global reputation for being of very high quality and is in demand throughout the world.
By removing the trade duties on these products, China will benefit from easier and cheaper access to our produce. In return, Australian producers will be able to capitalise on China’s ever-increasing population and their growing demand for food.
According to initial guidance from the Department of Foreign Affairs and Trade, the terms of ChAFTA are currently the most favourable of any FTA that China has entered into. Australia should capitalise on the competitive advantage over producers from the United States, Europe and other key trade players.
For example, in the Chinese dairy market, Australia is currently competing with New Zealand, the United States and Europe. Following the implementation of ChAFTA, Australia will receive preferential access to the Chinese market as the only country in the world that can provide unlimited supplies of duty-free cheese, butter and milk products whereas New Zealand for instance, is subject to restrictive safeguard measures on a wide range of dairy products.
The implementation process
The negotiations of ChAFTA have been officially completed, but there is still a long way to go until it is in force and the agricultural sector can benefit from the removal of trade restrictions between the two countries.
For example, the agreement will need to be translated into Chinese and both versions will need to be signed by the Parties.
The agreement will then need to be ratified by both Parliaments so that it is binding on both countries. Once ratification has occurred, each country’s trade practices will need to be changed in accordance with the terms of ChAFTA.
Both the legal and practical implications will take time, and it is expected that the whole process will be implemented by late 2015.
From the date that ChAFTA officially comes into force, it will still take between four and nine years for most of the trade tariffs to be removed, meaning that the full benefits of ChAFTA are unlikely to be realised before 2024. However, by this time, 95% of Australian exports to China will be tariff-free.
DW Fox Tucker has a strong interest and expertise in the agribusiness sector. So please don’t hesitate to contact us if you have any questions in relation to ChAFTA or commercial issues in agribusiness more generally.
This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.