ChAFTA: The Details

27 Nov 2014

In the light of the G20, Australia has announced a momentous deal with one of the world’s largest economies.

The Australian government secured a Free Trade Agreement (FTA) with China, paving the way to strengthening economic diplomacy within the Asia Pacific, named the ChAFTA.

An FTA is an international treaty that takes down barriers between two or more countries. The objective is to strengthen commercial ties and foster economic integration and growth.

This deal has been in the works since 2005, instigated by the Howard government.

The agreement enables various Australian industries and services to export and expand into China.

China is Australia’s largest two-way trading partner in both goods and services. Eighty five per cent of Australian exports will enter China tariff-free, with this figure expected to rise.

There are several industries which are set to benefit most from this significant agreement. The identified winners from the ChAFTA include the dairy industry, wool, beef and sheep, wine, and more, with tariffs set to be broken down progressively over the next decade.

Dairy was labelled the number one winner of the negotiations, as China is Australia’s second-largest market for dairy exports, worth $351 million. The deal is expected to produce similar outcomes to New Zealand’s dairy deal with China, which was profitable for New Zealand’s dairy industry.

Many other services will also benefit from this agreement. Tourism and travel, legal services, finance services, education, telecommunications, construction, mining and aged care services are heralded as these to benefit from ChAFTA.

Professor Paul Frijters of The University of Queensland’s School of Economics believes ChAFTA will be particularly beneficial for the coal industry.

“With the coal tariff off the table, the coal industry is also a winner. As will be the selected large companies that get easier access to skilled migrant visas,” Professor Frijters said.

ChAFTA affords Chinese businesses easier access to invest in Australia.

“This matters to them as they [Chinese investors] have about $4 trillion in surplus to invest abroad and there is not enough for them to buy,” Professor Frijters stated.  

Among the benefits of ChAFTA, problems have also been highlighted. The deal has come under scrutiny from several stakeholders.

The stakeholders include Federal Opposition and the Greens, who have brought attention to a particular clause which may enable Chinese corporations to sue the Australian government. The controversial provision will be presented as the ‘investor-state dispute settlement,’ or ISDS, which will cover investor complaints ranging from taxes, land zoning, and banning dangerous chemicals.

This provision may encourage investors to sue the Australian government over any future energy legislation which may inhibit their business.
Sugar cane, wheat, cotton, rice, maize are some of the Australian farming sectors that the deal did not address, placing them at a disadvantage to other farming industries.

Professor Frijters believes that ChAFTA may be a hastily compiled FTA, aimed at fulfilling one of the Abbott Government’s main election promises.

“The announced FTA is pretty flimsy as many of the important things are simply not in it (some main farming crops, but also Australian manufacturing, IP and other areas). It is more like a one-third FTA really, meant to allow Abbott to claim he has kept his election promise,” Professor Frijters said.

The fine details of ChAFTA will be revealed in 2015. Legal reviews by both China and Australia will be carried out, then ChAFTA will be implemented.