Australia, China Finish Trade Talks

20 November 2014

Australia and China finished their negotiations for a bilateral trade pact on Monday, in a move that has been welcomed as a “historic” achievement by officials from both sides.

The news, which was confirmed following meetings between Chinese President Xi Jinping and Australian Prime Minister Tony Abbott in Canberra, caps nearly a decades’ worth of talks, though the deal will still need to undergo a full legal scrubbing on both sides before it can be opened for signature.

The latter is expected in 2015, according to a statement on the Australian premier’s website. In the meantime, the trade ministers of the two respective countries have inked a declaration of intent geared toward advancing this process.

News of the agreement also comes fast on the heels of two major international summits held in the region, one hosted by China and the other by Australia.

Both summits – the former being the annual Asia-Pacific Economic Cooperation (APEC) leaders’ week, the latter the G-20 leaders’ gathering – focused heavily on the need to promote growth-oriented measures that would strengthen the global economic recovery, still in its fragile stages. In both instances, trade deals were raised as one avenue for working toward this goal.

“The success of Australia’s G-20 presidency owes a very great deal to China’s like-minded leadership of APEC over the past year,” Abbott told Australian parliamentarians in Canberra on Monday, shortly before Xi took the floor for his own speech.

“Australia was only able to mobilise G-20 members to make specific policy commitments to deliver inclusive growth and jobs and freer trade because China was already pursuing similar goals,” Abbott added, referring to the release by G-20 members of national growth plans aimed at boosting the coalition’s collective GDP. (See related story, this edition)

Agricultural tariffs, review mechanism

Under the terms of the China-Australia accord, known otherwise as ChAFTA, tariffs on over 85 percent of Australian goods exports will be eliminated when the deal enters into force. Four years later, this number will rise to 93 percent of goods exports.

Among some of the notable provisions in the pact are those involving farm trade, given Australia’s status as a major agricultural exporter. For instance, the deal will phase out Chinese import tariffs on Australian dairy products, as well as on beef and sheep products.

Canberra has repeatedly said that it wanted at least the equivalent that New Zealand received in its own agricultural pact with Beijing, a statement that Australian Trade Minister Andrew Robb reiterated as recently as last week.

Australian access to Chinese agricultural markets had reportedly been among the more difficult areas of the talks, along with Beijing’s request for an easier approval process for foreign investment, including those by state-owned enterprises.

The deal will also feature an investor-state dispute settlement mechanism (ISDS), which provides a legal platform for foreign companies to file a case against a host country in front of an international tribunal if the company finds that one of its key protections – such as against expropriation or discrimination – has been violated.

These provisions have become a lightning rod for debate in recent years, with proponents citing the need to protect investors from instances of unfair practices and the need to set improved international standards in the area. Opponents, in turn, have questioned whether the design of these tools could, if done incorrectly, open the door to lawsuits against public policies aimed at issues such as health and environmental protection.

On services, the deal is also expected to yield major openings, with Australian officials remarking that it will provide their country with the best market access that China has ever granted in this area. Among the various services sectors covered in the scope of the deal are legal services, financial services, telecommunications, mining and extractive industries, and transport, to name a few.

For manufactured goods, as well as pharmaceuticals, tariffs will also be lifted. The agreement will also have a built-in review mechanism in order to allow for additional market access over time, with the first review due three years after the deal’s enactment.

Coal tariffs to be removed

Another notable provision of the pact, officials say, will be the removal of tariffs on various Australian mineral resources and energy products.

Notably, Chinese tariffs on imports of both coking coal and thermal coal from Australia will be removed. For the former, these will be lifted upon the trade pact’s entry into force; for the latter, these will be phased out over a two-year period.

Beijing’s decision to impose these tariffs on such imports – which did not apply solely to Australia – came just a few weeks ago, and was reportedly greeted with surprise and frustration by Australian officials, though some suggested at the time that the trade negotiations could resolve them. Coal is the island country’s single largest export to China. (See Bridges Weekly, 16 October 2014)

Series of trade deals

Just over a year ago, the Australian premier – then only just beginning his tenure – pledged that his government would complete ongoing trade negotiations with Japan, South Korea, and China, respectively, within the course of 12 months.

In the time since, the Australia-South Korea deal has been signed, though still requires ratification, while Canberra’s negotiations with Tokyo were finalised in April. (See Bridges Weekly, 17 April 2014 and 10 April 2014, respectively)

With negotiations on this latest deal done, the Abbott government has said that it intends to next complete talks with another major Asian trading partner – India.

“If all goes to plan – and no one, if I may say so, has ever made the Indian bureaucracy perform as Prime Minister [Narendra] Modi did in Gujarat – by the end of next year, we will have a free trade deal with what is potentially the world’s largest market,” Abbott told his country’s parliament, shortly before Modi was due to address lawmakers this week.

ICTSD reporting; “Free trade agreement: Dairy farmers set to be big winners in deal between Australia and China,” ABC NEWS AUSTRALIA, 17 November 2014; “Tony Abbott seals free trade deal with Beijing,” THE AGE, 17 November 2014; “Australia and China seal major free trade deal,” BBC NEWS, 17 November 2014.

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