Briefing

Brisbane, 10 December 2014

Today – we will cover

• FTA Overview• Agriculture and processed food• Resources & Energy• Manufacturing• Investment & FIRB• Services• People movement issues• Implementation Timeline

FTA Overview• Free trade agreements are used by businesses, large and small, by exporters,

importers and investors.

• FTAs offer preferential treatment in partner countries for Australian goods, in theform of tariff elimination or reduction.

• This increases the competitiveness of products in those markets, especiallycompared to competitors from countries that do not receive preferentialtreatment under an FTA.

• Accessing goods benefits requires compliance with the rules of origin under theagreement. Step-by-step guides are available for each agreement on entry intoforce.

• FTAs may also address customs and trade facilitation matters, to provideexpeditious, predictable, transparent and simplified customs administration forimporters and exporters.

Conclusion ofChina-Australia FTA negotiations

• On 17 November China & Australia signed a Declaration ofIntent formalising the conclusion of the China-AustraliaFree Trade Agreement (ChAFTA)negotiations.

• Both sides have undertaken to prepare legal texts of theAgreement for signature.

• It is hoped that the Agreement will unlock significantcommercial opportunities for Australia.

• China is Australia's largest export market for both goodsand services, accounting for nearly a third of total exports,and a growing source of foreign investment.

Agriculture and processed food• China buys more of Australia’s agricultural produce than any other market.

• In 2013, this market was worth around $9 billion to Australian farmers andthe broader agricultural sector.

• The Australian Bureau of Resource Economics and Sciences predicts Chinawill account for 43 per cent of all growth world-wide in agriculturaldemand to 2050.

• ChAFTA provides Australia with an advantage over our major agriculturalcompetitors, including the United States, Canada and the European Union.

• It also counters the advantage Chile and New Zealand currently enjoythrough their FTAs with China reached in 2006 and 2008.

Agriculture and processed food• The removal of all tariffs on our dairy products (which can be as high as 20

per cent) within four to 11 years.

• The removal of tariffs of 12 to 25 percent on beef over nine years.

• The removal of tariffs on live animal exports of 10 per cent within fouryears.

• The removal of tariffs on sheepmeat of 12 to 23 per cent over eight years.

• The removal of tariffs of 14 to 20 per cent on wine over four years.

• The removal of tariffs on all horticulture products, ranging up to 30 percent, most within four years.

Agriculture and processed food• The immediate elimination of the three per cent tariff on barley.

• An Australia-only duty free quota for wool in addition to continuedaccess to China’s WTO wool quota.

• The removal of tariffs on seafood, including of 15 and 14 per centrespectively on rock lobster and abalone, over four years.

• The removal of tariffs across a range of processed foods includingfruit juice and honey.

• The removal of tariffs of 5 to 14 per cent on hides, skins andleather over two to seven years.

Agriculture and processed food• There are no changes to Australia’s risk-based quarantine measures as a

result of ChAFTA.

• As part of China joining the World Trade Organization (WTO) in 2001,Australian exporters have unrestricted access to allowances in rice, wheat,cotton and sugar.

• China has not provided further liberalisation of these products in any of itsFTAs, on the basis they are significantly sensitive staples.

• It has also not granted Australia, or any of our competitors, additionalaccess for rapeseed and vegetable oils, on the same basis.

• However, China has agreed to a built-in review process three years afterentry into force to review the Agreement, including market access.

Resources, Energy and Manufacturing• In 2013, Australia exported over $85 billion worth of

resources, energy and manufactured products to China.

• On entry into force of the Agreement, 92.9 per cent ofChina’s current imports of these products from Australiawill enter duty free, with most remaining tariffs removedwithin four years.

• On full implementation of the Agreement, 99.9 per cent ofAustralia’s current resources, energy and manufacturingexports will enjoy duty free entry into China.

Resources & Energy• The removal of tariffs on all resources and energy products:

including on coking coal (metallurgical coal for steel making)(currently subject to a 3 per cent tariff) on the first day of theAgreement, and non-coking coal (thermal/steam coal for powergeneration) (6 per cent) within two years.

• The removal of tariffs on transformed resources and energyproducts, such as refined copper and alloys (unwrought) (currentlysubject to 1 and 2 per cent tariffs), aluminium oxide (alumina) (8per cent), nickel mattes and oxides (3 per cent), unwrought zinc (3per cent), copper waste and scrap (1.5 per cent), unwroughtaluminium (5 and 7 per cent tariffs), aluminium waste and scrap(1.5 per cent), unwrought nickel (3 per cent), other mineralsubstances (3 and 5 per cent tariffs), and titanium dioxide (6.5 and10 per cent tariffs) - many upon the Agreement entering into force.

Resources & Energy• Locking-in zero tariffs on major exports such as iron ore,

gold, crude petroleum oils, and liquefied natural gas (LNG).

• ChAFTA improves the transparency of non-tariff measures(NTMs) and ensures such measures do not createunnecessary obstacles to bilateral trade.

• A specific mechanism to review and address NTMs on acase-by-case basis will be established.

• ChAFTA preserves full access for Australian producers totrade remedies available under the WTO, including anti-dumping and countervailing measures.

Manufacturing• The removal of tariffs of up to 10 per cent on

pharmaceuticals, including vitamins and health products,either on entry into force or phased out over four years.

• The removal of tariffs within four years for othermanufactured products, including car engines (currentlysubject to a 10 per cent tariff), plastic products (6.5 to 14per cent), diamonds and other precious stones (3 and 8 percent tariffs), orthopaedic appliances (4 per cent),aluminium plates and sheets (6 and 10 per cent), make-upand hair products (6.5 to 15 per cent), centrifuges (10 percent) and pearls (21 per cent).

Investment• Chinese investment in Australia has been growing strongly in recent years

up from $3 billion, 10 years ago, to around $32 billion today.

• Total Chinese investment in Australia is now nearly as much as the totalChinese investment in the United States.

• ChAFTA improves opportunities for investors in both countries.

• The investment obligations in ChAFTA can be enforced directly byAustralian and Chinese investors through an Investor-State DisputeSettlement (ISDS) mechanism, helping to promote investor confidence.

• The ISDS mechanism includes safeguards to protect governments’ abilityto regulate in the public interest and pursue legitimate public welfareobjectives such as public health, safety and the environment.

Investment - FIRB• ChAFTA will promote further growth of Chinese investment into Australia, in

particular by raising the screening threshold at which investments in non-sensitivesectors by private sector entities from China are considered by the ForeignInvestment Review Board (FIRB) from $248 million to $1,078 million.

• The Government has retained the ability to screen Chinese investments at lowerthresholds for sensitive sectors, including: media, telecommunications anddefence-related industries.

• The Government will be able to screen investment proposals by private investorsfrom China in agricultural land valued from $15 million and agribusiness from $53million.

• FIRB will continue to screen all investment by Chinese State-Owned Enterprises,regardless of the transaction size. ChAFTA does not change these arrangements inany way.

Services• China is Australia’s largest services market, with exports in services valued

at $7 billion in 2013.

• This includes new or significantly improved market access for:

– Legal services– Financial services– Education services– Telecommunications services– Tourism and travel-related services– Health and aged care services– Construction and engineering services– Manufacturing services– Mining and extractive industry services– Architecture and urban planning services– Transport services

People movement issues• The ChAFTA commitments on the movement

of natural persons are aimed at supportingincreased trade and investment, reducingbarriers to labour mobility and improvingtemporary entry access. ChAFTA will provideimproved access for a range of Chinese skilledservice providers, investors and businessvisitors.

People movement issues - Changes• Under the ChAFTA Australia will provide guaranteed access to Chinese citizens

under the following categories:

– Intra-corporate transferees and independent executives for up to four years, includingexecutives, managers and specialists

– Contractual service suppliers for up to four years; this will include guaranteed access for up toa combined total of 1,800 per year in four occupations: Chinese chefs, WuShu martial artscoaches, Traditional Chinese Medicine practitioners and Mandarin language tutors

– Installers and servicers for up to three months and– Business visitors for up to 90 days, or six months for business visitors who are service sellers.

• There is a commitment from both China and Australia to increase transparencywith the procedures and requirements of the immigration process and to processapplications expeditiously.

• To better facilitate the entry of temporary workers associated with trade andinvestment, there will also be increased co-operation in the areas of skillsrecognition and licensing.

People movement issues –Work and Holiday Arrangement

• Australia and China have also completednegotiations on a Work and Holiday Arrangement(WHA) under which Australia will grant visas for upto 5,000 Chinese work and holiday makers annually.

• The WHA will increase demand for tourism servicesand support the development of Australia’s tourismsector, particularly in rural Australia.

People movement issues –Investment Facilitation Arrangements

• Through a Memorandum of Understanding allowing for Investment FacilitationArrangements (“IFA”) Chinese owned companies registered in Australiaundertaking large infrastructure development projects above $150 million will beable to negotiate certain workforce requirements for specific projects. Thenegotiation of these agreements will mirror the arrangements for Australianbusiness, being done on a case-by-case basis under arrangements similar to theformer Enterprise Migration Agreements.

• IFAs will provide flexibility for companies to respond to the specific economic andlabour market challenges related to large infrastructure development projects.They reflect the Government’s focus on strengthening infrastructure developmentand attracting investment, leading to the creation of jobs and increased economicprosperity for Australian nationals.

• IFAs will operate within the framework of Australia’s existing Temporary Work(Skilled) visa (subclass 457) system. The nationalities of eligible overseas workersunder IFAs will be non-discriminatory and an IFA will not allow Australianemployment laws or wages and conditions to be undermined.

Other outcomes• ChAFTA includes additional commitments which:

– Provide a framework for the growth of electroniccommerce between Australia and China.

– Reaffirm existing international intellectual propertyobligations and provide a framework for futurecooperation.

– Promote cooperation and coordination between relevantagencies on competition policy.

– Provide for future negotiations on access to China’sgovernment procurement market.

– Facilitate trade through streamlined customs processes.

Implementation Timeline• The next steps, in accordance with normal Australian treaty-making processes, are:

– Signature of the Agreement, which will take place once both sides have completed the legal review andtranslation of the text of the Agreement.

– The text of the Agreement, accompanied by a National Interest Analysis, will then be tabled in the AustralianParliament for 20 joint sitting days.

– Following tabling, the Joint Standing Committee on Treaties (JSCOT) will conduct an inquiry into theAgreement and will report back to Parliament.

– Legislation will be introduced to make any necessary amendments to existing legislation, and will beconsidered by the Parliament.

– Relevant Regulations would also be amended in due course.

• During this time, the Chinese Government will undertake its own domestic treaty-makingprocesses.

• When Australia and China have completed their domestic processes, both countries will exchangediplomatic notes to certify that they are ready for the Agreement to enter into force.

• 30 days after this exchange or on a date otherwise agreed, ChAFTA will enter into force.

Appendices– Legal services– Financial services– Education services– Telecommunications services– Tourism and travel-related services– Health and aged care services– Construction and engineering services– Manufacturing services– Mining and extractive industry services– Architecture and urban planning services– Transport services

Legal services

• Australian law firms will be able to establishcommercial associations with Chinese lawfirms in the Shanghai Free Trade Zone (SFTZ).

• This will allow them to offer Australian,Chinese and international legal servicesthrough a commercial presence, withoutrestrictions on the location of clients.

Financial services• China has committed to deliver new or improved market access to

Australian financial services providers in the banking, insurance, fundsmanagement, securities, securitization and futures sectors.

• A future work program will deliver on-going market access in the financialservices sector as China pushes ahead with economic reform andliberalisation.

• Alongside these new financial services commitments, the respectivecentral banks of China and Australia have also signed a Memorandum ofUnderstanding facilitating the establishment of an official renminbi (RMB)clearing bank in Sydney. The clearing bank provides a more direct meansof facilitating cross-border RMB transactions between Australian andChinese entities than was previously available, and will improve theefficiency of cross-border RMB transactions.

Education services• Within one year of commencement, China will list on an official Ministry

of Education website all Australian private higher education institutionsregistered on the Commonwealth Register of Institutions and Courses forOverseas Students (CRICOS).

– This will add 77 institutions to the existing 105 Australian institutions on thewebsite providing an important and trusted source of information to potentialChinese students who today make up 29 per cent of our international studentmarket, injecting $4 billion to the Australian economy.

• In addition, Australia and China will continue to discuss options to:

– Facilitate student and teacher exchanges between both countries.– Increase marketing and recruitment opportunities for Australian education

providers in China.

Telecommunications services• China has agreed to guarantee new access for

Australian companies investing in value-addedtelecommunications services in the SFTZ withimproved foreign equity limits, now allowingfor wholly Australian-owned companiessupplying domestic multi-partycommunication (DMPC) services, applicationstore services, store and forward services, andcall-centre services.

Tourism and travel-related services• China has guaranteed that Australian service

suppliers will be able to construct, renovateand operate wholly Australian-owned hotelsand restaurants in China.

• Australian travel agencies/tour operators arealso able to establish wholly Australian-ownedsubsidiaries in China for tours within China forboth domestic and foreign travellers.

Health and aged care services• China will permit wholly Australian-owned

hospitals and aged care institutions to beestablished in China.

Construction and engineering services• China will provide new market access to

Australian companies undertaking jointconstruction projects with Chinesecounterparts in Shanghai.

• Australian companies will be exempted frombusiness scope restrictions, allowing them toundertake a wider range of commercially-meaningful projects.

Manufacturing services• China guarantees access for wholly Australian-

owned companies to provide contractmanufacturing services covering a wide rangeof manufactured products.

Mining and extractiveindustry services

• China will allow Australian service suppliers toprovide technical consulting and field services in coalbed methane and shale gas extraction.

• China has also guaranteed access for consultingservices related to exploiting oil and gas resources, aswell as iron, copper and manganese resources incooperation with Chinese partners.

Architecture and urbanplanning services

• China will allow Australian architectural andurban planning firms to obtain moreexpansive business licences to undertakehigher-value projects in China.

Transport services

• China will permit Australian maritimetransport service suppliers to establish whollyAustralian-owned ship managemententerprises in the SFTZ.

• China has also committed on air transportservices, including the coverage of groundhandling, airport operation and specialty airservices.

Other services sectors• Australian providers will benefit from new

Chinese commitments allowing them to offer arange of services, including through subsidiariesbased in China that can be wholly Australian-owned, in the following sectors: softwareimplementation, research and development,services incidental to manufacturing, buildingcleaning, printing of packaging materials,translation and interpretation services, realestate, and environmental services.