The Australia-China Free Trade Agreement Is Being Flagged As A Huge Win For The Services Sector And Agriculture

President of the Peoples Republic of China Xi Jinping and Prime Minister Tony Abbott in Canberra. Mike Bowers – Pool/Getty Images

Australia and China have signed a free trade agreement (FTA), shaving or eliminating tariffs, opening both markets to easier access and expanding two-way business.

The agreement, which took almost a decade of negotiation to close, will mean that up to 95% of Australia’s exports, including including wine, beef, seafood, dairy products, zinc, nickel, uranium and coal, will eventually have tariff-free access the huge and growing China market.

Coming back the other way, clothing, electronics and household goods are expected to be cheaper to the consumer as tariffs on goods shipped to Australia from China are removed.

China will also get a relaxation in the rules for investment.

The level for Chinese investment by a private company in Australia, without Foreign Investment Review Board approval, will be raised to $1.087 billion from $248 million, in line with other Australian free trade agreements.

Chinese state-owned enterprises will continue to need to apply to the Foreign Investment Review Board for all investment approvals.

The agreement is currently a Declaration of Intent, which will be turned into a legal document to formalise the FTA.

The deal, which will be reviewed in three years to take account of the evolution of China’s economy, is expected to be worth about $18 billion over the next few years.

Prime Minister Tony Abbott said the agreement will add billions to the economy, create jobs and drive higher living standards for Australians.

“Australian businesses will have unprecedented access to the world’s second largest economy,” he said. “It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment.”

Australian agricultural producers and services industries are big winners.

Dairy producers, already representing a $13 billion industry, are set to knock down the 15% tariffs on the massive Chinese infant formula market within four years.

This is the equivalent to New Zealand’s free trade deal which makes that country the largest dairy exporter to China.

Broader dairy tariffs set to be phased out over nine years.

Beef tariffs of 12%-to-25% are to be phased out over nine years and lamb will lose its 23% over eight years.

Australian wine exports will to fall to zero from 14%-to-30% over the next four years.

Barley, seafood, skins, leather and horticultural products will see tariffs eliminated over coming years.

In mining, tariffs on alumina, zinc, nickel, copper and uranium are to be removed. Coking coal tariffs of 3% will be go and the 6% tariff on thermal coal will be lifted after two years.

For services, Australians will get greater access to Chinese private hospitals and nursing homes, tourism operators will be able to be buy restaurants and hotels and Australian insurance companies will get access to the third-party insurance market.

Two-way trade with China is about $150 billion. Here’s how trade has grown:

Paul Bloxham, chief economist HSBC, says Australia’s services exports to China are currently around $7 billion, only 4% of total exports to China.

He says there is significant scope for service exports to pick up in coming years, given services account for the bulk of Australia’s output and as a developed economy, the services sector has high productivity and HSBC has flagged the deal as paving the way for a shift from mining to dining.

The agreement on services is being billed by the Abbott government as the best deal China has given on its FTA agreements

Although Australia’s trade ties to China are already strong, most of this trade is currently in minerals and energy.

“The free trade agreement should help to encourage growth in Australian exports of agricultural products and services to China’s rapidly growing middle classes,” Bloxham says.

“This should help to support Australia’s great rebalancing act, from mining investment led growth towards the non-mining sectors of the economy.

“Australia’s FTA with China should help support a dining boom as the mining boom comes to its end.”

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