Explanatory Memorandum
(Circulated by authority of the Minister for Immigration and Border Protection the Honourable Peter Dutton MP)Trade impact assessment
172. ChAFTA will strengthen and deepen Australia's substantial and highly complementary economic relationship with China, leading to significant opportunities for Australia in the world's second largest economy. Improved market access in both China and Australia will increase the price competitiveness of each other's products, contributing to greater trade. New access for Australian service providers to China's large and growing services market will facilitate more Australian services exports across a broad range of services. Australian businesses will gain new access to the Chinese economy as it transitions toward a consumption-based model. Enhanced protections and certainty for bilateral investments will attract additional Chinese investment to Australia, as well as Australian investment to China, in a more diverse range of sectors.
173. China is Australia's largest trading partner and export market. Australian and Chinese two-way trade in goods and services was $159.7 billion in 2013-14, accounting for 24 per cent of Australia's total trade. Australian exports to China were valued at $107.6 billion, or 32 per cent of all Australian exports. Total goods exports in 2013-14 were valued at $100.1 billion, with iron ores and concentrates ($57.0 billion) the largest export category, followed by coal ($9.3 billion) and gold ($8.1 billion). In 2013-14, China was Australia's largest services export market, at $7.5 billion or 13 per cent of total services exports. Services exports to China were dominated by education-related travel services of $4.1 billion in 2013-14.
174. Australia imported goods and services were worth $52.1 billion from China in 2013-14. In 2013-14, goods imports accounted for $50.1 billion and comprised a diverse range of products, including telecommunications equipment and parts ($4.9 billion), computers ($4.8 billion) and furniture, mattresses and cushions ($2.2 billion). Services imports were valued at $2.1 billion in 2013-14, with travel services accounting for $1.2 billion.
175. The elimination of tariffs under ChAFTA is expected to increase the volume and value of Australia's bilateral trade with China, particularly in product categories that will be most liberalised. Improved market access for Australian agricultural products will likely result in increased Australian exports of these products. Likewise, elimination of Australian tariffs on imported telecommunications equipment and parts, computers, furniture and other consumer goods from China will increase the competitiveness of Chinese-made products, potentially leading to greater import volumes of these goods from China.
176. In addition to the benefits associated with increased bilateral trade, the preferential access for Australian products under ChAFTA will restore Australian producers' competitive position against producers from countries that already have FTAs with China.
177. At the end of 2013, Chinese investment in Australia was valued at $31.9 billion, with direct investments accounting for $20.8 billion. Australian investment in China was $29.6 billion, with direct investment accounting for $6.4 billion. While China is still a relatively modest source of foreign investment, Chinese investment into Australia is growing rapidly. ChAFTA will encourage greater and more diverse Chinese investment into Australia by raising the thresholds at which private Chinese investment in non-sensitive sectors are subject to screening by the Foreign Investment Review Board.
178. The main affected stakeholders in Australia are:
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- producers and exporters, particularly in agriculture, whose products become more competitive in the Chinese market as import restrictions are reduced or eliminated;
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- consumers, who will have access to cheaper imports and broader choice of Chinese-made products under ChAFTA;
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- importers, who will have improved access to cheaper inputs from China and will be able to source and offer an increased choice of goods;
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- manufacturers, who will face increased competition from Chinese-made goods,
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- service providers, who will gain new access to the significant and growing Chinese market across a broad range of services industries; and
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- the broader community, including businesses, which will benefit from attracting greater Chinese investment for projects and ventures in Australia.
179. ChAFTA is consistent with Australia's trade policy objectives as it is a high-quality trade agreement that substantially liberalises Australia's trade with a major economy and it complements multilateral and regional trade liberalisation. ChAFTA is consistent with Australia's existing international commitments, including those under the WTO Agreement.
CONSULTATION
Business, industry and civil society
180. DFAT commenced stakeholder consultations in 2004, with a call for public submissions as part of a feasibility study into the benefits and costs of an FTA between Australia and China. Following the launch of negotiations in 2005 and throughout the negotiating period, DFAT received over 260 submissions from individuals, NGOs, companies and peak industry groups on issues relevant to the negotiations.
181. In addition to seeking submissions from interested parties, DFAT, in conjunction with relevant Commonwealth agencies, conducted an extensive program of direct consultations and discussions with more than 700 stakeholders in Canberra, around Australia and in China since 2004 to ensure that their views informed development of the Government's negotiating strategy. DFAT officials had ongoing consultations with NGOs and industry, including through a large number of one-to-one and small group meetings and industry roundtables. There were also a number of large roundtable meetings held with peak organisations representing industry, professional bodies and other interested groups. These consultations helped identify commercially significant impediments to increasing Australia's exports to, and investment in, China. Following each negotiating round, DFAT provided stakeholder updates on the progress of the negotiations and sought further views ahead of the next round. Submissions were accepted throughout the course of negotiations.
182. Consultations revealed broad support for a bilateral trade agreement with China. Most businesses and industry groups, as well as State and Territory governments, argued a trade agreement would help achieve better access to the Chinese market for Australia. Some industries, particularly in agriculture, mining, finance and investment, viewed a trade agreement as an important element in securing Australia's competitiveness in China. They expressed a strong desire that a bilateral trade agreement both enable existing trade to grow and also create new export opportunities.
183. Australian agricultural stakeholders were consulted extensively throughout the course of the negotiations, including through close communication with peak industry bodies, particularly in the closing stages of the negotiations. Agricultural stakeholders reinforced the need for an agreement that would enable them to take full advantage of the potential of the Chinese market.
184. Australian Government officials engaged frequently with, among others, the National Farmers' Federation, Meat and Livestock Australia, Dairy Australia, the Office of Horticultural Market Access, Seafood Trade Advisory Group, Australian Wool Innovation, the Grains Market Access Forum, Grain Growers, Ricegrowers' Association of Australia, Canegrowers, Australian Pork Limited, the Australian Nut Industry Council, Australian Horticulture Exporters Association, the Australian Wine and Grape Authority, and the Australian Food and Grocery Council.
185. Many peak bodies and individual businesses have expressed their support for ChAFTA, including Dairy Australia, Meat and Livestock Australia, the Nut Industry Council, the Office of Horticultural Market Access, the Australian Food and Grocery Council and the Australian Grape and Wine Authority.
186. Some agriculture industry bodies and companies have expressed disappointment with elements of the outcome, particularly where their products have been excluded from further concessions. The sugar industry is disappointed China did not provide liberalisation of the raw sugar trade. Rice and grain industry bodies have expressed disappointment concerning the products excluded from the FTA but acknowledged that Australia already faced low tariffs on rice and grains through WTO tariff rate quotas. Industry bodies have acknowledged the importance of the future work program agreed under ChAFTA to consider further improvements on market access.
187. The resources sector expressed strong support for an FTA with China. The Minerals Council of Australia (MCA) and the NSW Minerals Council considered that an FTA would strengthen the bilateral minerals and energy trade and eliminate tariffs which impose costs for traders in both countries. The MCA considered an FTA would be an important contributor to Australian prosperity over the next three decades. The Australian Forest Products Association also described the positive potential of an FTA for the forestry sector.
188. The steel and aluminium industries and the textiles, clothing and footwear sector expressed concerns about the impact of Chinese imports on local manufacturing. These concerns were taken into account when negotiating the phasing outcomes on a number of products in those sectors and negotiating the retention of our trade remedies arrangements.
189. In light of the announcements by Toyota, Ford and Holden of their intention to end motor vehicle manufacturing in Australia, the Federation of Automotive Products Manufacturers (FAPM) said an FTA with China would need to offer manufacturers of high-value components an opportunity to restructure their business and enter global supply chains. However, FAPM warned that the maturing Chinese market would make entry by Australian components difficult.
190. Submissions were received from a range of services industry bodies and peak professional services bodies over the course of negotiations, and consultations were held, including on specific FTA outcomes, with interested parties. The stakeholders which expressed a strong interest in services outcomes included: the Australian Chamber of Commerce and Industry; Australia China Business Council; Insurance Group Australia; the Law Council of Australia and a number of individual law firms; accounting peak bodies; Engineers Australia; Australian Institute of Architects; Business Development Services Australia; Universities Australia; Telstra; Media Entertainment and Arts Alliance; Qantas; and the major Australian banks.
State and Territory Governments
191. From the outset in 2004, the then Minister for Trade contacted State and Territory Premiers and Chief Ministers seeking comments on the feasibility of a bilateral FTA with China. Thereafter State and Territory governments were consulted through the regular Senior State and Territory Trade Officials' Group (STOG) and Commonwealth-State-Territory Standing Committee on Treaties (SCOT) meetings. DFAT officials provided regular updates to State and Territory representatives of premiers and industry departments prior to or following key events such as negotiating rounds and broad industry consultations.
192. During the negotiations, DFAT worked closely with State and Territory governments to finalise schedules of non-conforming measures in relation to services and investment commitments at the regional level. In September 2014, the Trade Minister wrote to Premiers and Chief Ministers seeking the cooperation of states and territories to ensure that these schedules accurately reflected their requirements. Consultations with states and territories continued up until conclusion of the FTA. State and Territory governments were consulted through the Ministerial Council on International Trade and Commonwealth-States Standing Committee on Treaties meetings and visits by ChAFTA negotiators to State and Territory capitals.
Commonwealth Government agencies
193. In accordance with a whole-of-government approach, DFAT ensured relevant Commonwealth Government agencies were regularly and extensively consulted throughout ChAFTA negotiations. Agencies were consulted through regular inter-departmental committee meetings and through active participation by relevant agencies in the negotiating rounds. DFAT's website was also regularly updated after ChAFTA negotiating rounds, facilitating wide dissemination of information to government stakeholders.