ChAFTA: The China-Australia Free Trade Agreement

Now that the dust has settled, there is a bit more clarity about the China-Australia FTA that was agreed two weeks back, on Monday the 17th of November. So here’s a review of what is known, and what is not known, about the China-Australia FTA.

China Australia 2013 Trade and Investment. Source: DFAT

The first important point worth noting is that Australia and China have not actually technically signed a FTA, but have instead signed a ‘Declaration of Intent’ to complete FTA negotiations and eventually sign a final agreement on a China-Australia FTA. This might seem like a needlessly technical point, but it is worth noting that there are currently no final documents that comprise all the details of the China-Australia FTA, which means that for everyone who only has public knowledge to go on, and isn’t privy to the very secretive backroom trade negotiations (which is effectively everyone; from the citizens of Australia and the citizens of China, to the media and opposition political parties), then all we can currently do is guess what real impacts this FTA will have. The Australian government and DFAT have released what they claim are the outlines and overall shape of the FTA, and unsurprisingly they have said that the deal is a massive boon for Australia, with effectively no downsides.

So all the important details, that reveal all the real gains and losses, and all the real winners and losers, will only be made known in the future, namely sometime next year, however there is still no actual set date. Therefore only in 2015 sometime, when the ChAFTA commences and starts impacting Australia’s economy, will the parliament and the Australian public be able to scrutinise what has been negotiated in secret for over a decade. Hopefully there are no devils in the details 1.

 

What is known about ChAFTA? Trade minister Andrew Robb stated that ‘more than 85 per cent of Australian goods exports will be tariff free upon entry into force [that is, in 2015], rising to 93 per cent in four years. Some of these goods are currently subject to tariffs of up to 40 per cent. On full implementation of ChAFTA, 95 per cent of Australian goods exports to China will be tariff free’ 2.

Meanwhile for China, 95% of all tariffs will be phased out after 4 years, including tariffs on important Chinese exports such as household electronics, footwear, clothes and cars. The threshold for the Foreign Investment Review Board (FIRB) to screen private investments from China has quadrupled from $248 million to a little over $1 billion, however on the sensitive issue of investment from Chinese state owned enterprises (SOEs) there has been no changes, meaning that all investments from Chinese SOEs will continue to be screened by FIRB, regardless of the size of those investments 3 4. But because China regards the SOEs investment issue as pretty important, it has been reported that the governments of Australia and China might rediscuss the issue in a couple of years, along with the sensitive issues of Australian rice, wheat, cotton and sugar being exported into China. Further details on investment are that Chinese investment in Australian agriculture and agribusiness will have low thresholds for FIRB review, as the Coalition promised during the last election, with $15 million and $53 million thresholds respectively. Other industries deemed ‘sensitive’, such as defence, the media and telecommunications, will also require Chinese investments below $1 billion to get approval from FIRB 5 6.

 

Two final matters that are set to generate further discussion are Chinese workers coming to Australia and the Investor State Dispute Settlement (ISDS) clause. On the former point, the president of the ACTU very candidly said ‘It’s very difficult not to sound xenophobic in this situation. Don’t get me wrong; there are bona fide skills shortages where they can’t get labour, the trade unions are really very supportive of skilled migration. But we have fears that they have lowered the threshold so low, the current system doesn’t work well, and this could be a real problem for Australian workers’, with the ACTU president citing the rather well known cases of Chinese labour in Africa and the Pacific nations. The retort from Trade minister Andrew Robb is that the FTA will have labour provisions that are ‘exactly the same as the provisions that existed when labour was in power’, meaning that this FTA won’t have less tests for Chinese labour  to enter Australia to work. Jobs are always a much talked about topic, so expect more to be said about this issue 7 8.

On the latter issue of the ISDS clause that would potentially allow Chinese companies to sue the Australian government, expert Dr Kyla Tienhaara has contended that ‘corporations can challenge pretty much anything under these agreements’, and that ‘investor state dispute settlements are not the appropriate forum for companies to sue governments. These things should happen under the existing democratic processes and court systems that we have.’ Yet again Trade minister Andrew Robb came out on the defensive for his FTA, and stated that ‘the ISDS provisions contain strong safeguards to protect the Australian Government’s ability to regulate in the public interest and pursue legitimate welfare objectives in areas such as health, safety and the environment’, with the suggestion being that there is no real risk with this clause due to how they have negotiated it 9.

 

Overall, despite important details lacking and some issues worth keeping an eye on, it looks like cautious optimism is warranted, and further integration will take place between the economies of Australia and China. It is thus understandable that economist Saul Eslake of Bank of America Merrill Lynch Australia has said ‘this, to a much greater extent than some other agreements we’ve signed and some other agreements that China has signed, has the great potential to be a win-win for both sides’, with Australia’s access to services industries in China being a notably big gain. Eslake went on to state that ‘I would hazard the guess that the benefits to Australia from this agreement will be greater than the $18 billion that was calculated nine years ago’. While Dan Rosen, a former White House advisor who worked on China’s historic accession to the WTO, said that this FTA could similarly be a historic moment: ‘the China-Australia FTA is a harbinger of China’s coming international economic policy directions’ 10 11.

So it looks like China will be deepening economic relations with the world in new ways, and Australia will be at the forefront of this new engagement. Just how complementary trade and investment between Australia and China is for both countries will be witnessed in the coming years.

 

References

1 http://www.abc.net.au/news/2014-11-18/china-australia-fta-may-create-losers-as-well-as-winners/5898784

2 http://trademinister.gov.au/releases/Pages/2014/ar_mr_141117.aspx

3 http://www.businessspectator.com.au/article/2014/11/18/china/reality-check-china-australia-fta

4 http://www.smh.com.au/national/china-wins-more-flexibility-in-foreign-investment-but-not-for-state-owned-companies-20141117-11ohrx.html

5 http://www.smh.com.au/national/china-wins-more-flexibility-in-foreign-investment-but-not-for-state-owned-companies-20141117-11ohrx.html

6 http://www.afr.com/p/special_reports/opportunityasia/investments_cap_lifted_to_for_chinese_pLJtLHrngOzNo4mqtLN6pL

7 http://www.abc.net.au/news/2014-11-18/china-australia-fta-may-create-losers-as-well-as-winners/5898784

8 http://www.theaustralian.com.au/business/in-depth/labor-and-unions-raise-concerns-over-china-free-trade-deal/story-fnpebfcn-1227126663740

9 http://www.smh.com.au/business/chinese-corporations-allowed-to-sue-australian-government-under-free-trade-agreement-20141118-11p9lz.html

10 http://www.theage.com.au/federal-politics/political-news/australias-gains-at-chinas-expense-signal-new-free-trade-agreement-landscape-20141121-11raff.html

11 http://www.abc.net.au/news/2014-11-18/china-australia-fta-may-create-losers-as-well-as-winners/5898784

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