what we think

On June 17 2015, the Chinese-Australian Free Trade Agreement (ChAFTA) was signed to promote the growth of Sino-Australian trade, which accumulated a total trade revenue of around $AUD160 billion in 2013-2014. The deal also implements a new set of trade regulations, providing better access for a myriad of Australian originated products in the Chinese market, by ensuring that 95% of Australian products exported to China will become duty-free.

The current (non-official) Chinese Tax Tariff commitments would ensure that the majority of Chinese tariffs imposed Australian goods would be reduced to 0% within 5 years.

Gradually Lowering of Duties

It should be noted that although the main purpose of the agreement is to provide products of Australian origin with duty free benefits, only a certain amount of goods would immediately become tax free following the deal (A-0* category), whereas other goods, such as Milk and Cream (depending on type) would fall under the B12* or C12* categories.

A-0 - the base rate of duty for originating goods in category “A-0” shall be eliminated and bound at zero for products of Australian origin from entry into force of the Agreement

A-5 - the base rate of duty for originating goods in category “A-5” shall be reduced to and bound at zero for products of Australian origin over five (5) equal annual stages beginning from entry into force of the Agreement

B-12 - the base rate of duty shall be reduced to and bound at zero for products of Australian origin over twelve (12) equal annual stages beginning from entry into force of the Agreement

C-12* - the base rate of duty shall be reduced to and bound at zero for products of Australian origin over twelve (12) equal annual stages beginning from entry into force of the Agreement, and the special agricultural safeguard mechanism in Article 2.14 (Special Agricultural Safeguard Measures) of Chapter 2 (Trade in Goods) shall apply

Tariff Example

Men’s or Boys’ cotton Jackets and Blazers (knitted or crotched). This falls under the so-called A-5 category with a base rate of 16%, which means that as soon as the deal is effective, there would be 20% annual reduction from the base rate until it the new rate is 0%:

Base Rate (prior to deal)                     = 16% Tariff

Year 1 (First year of the new deal)    = 12.8% Tariff

Year 2 (First year of the new deal)    = 9.6% Tariff

Year 3 (First year of the new deal)    = 6.4% Tariff

Year 4 (First year of the new deal)    = 3.2% Tariff

Year 5 (First year of the new deal)    = 0% Tariff

Country Specific Tariff Quota

The Country Specific Tariff Quota will limit the quantity of certain products receiving duty-free treatment annually; the exceeding (remaining) amount would be taxed at base rate. As of now, China has only established a Country Specific Tariff Quota on the certain wool products from Australia (base rate 38%).

No Exemption on Certain Products

Although most products will receive duty-free treatment over a given period of time, the remaining 5% of products that would continue to be taxed at base fare (Category D) include but not limited to commodities such as agricultural products and natural resources. These exported products of Australian Origin include some of the following:

Most Top Export Products Exempted

In 2013-2014, the top Australian exports to China included iron ores and concentrates ($AUD 57.0b), coal ($AUD 9.3b), gold ($AUD8.1b) and copper ($AUD 2.1b).  With the exception of SOME coal related products, these exports of Australian Origin will be placed under the A-0 category and would receive duty-free benefits immediately. It should be noted that some of these products were already subject to lower duties or exemptions.

Work Permits

Finally the ChAFTEA has established that independent Executives and Contractual Service Suppliers can be issued a Chinese work permit for a period of 4 years. Australian Installers and Servicers can be granted a stay of up to 3 months.

Will ChAFTA stimulate Australian export to China?

For certain products, the ChAFTA will result in immediately or gradually lowering of duties. It is foreseeable that the Australian export of these products will increase in the coming years, as China becomes a more attractive market now that lower import duties on these products result in either competitive sales prices or higher margins.

Robin Tabbers