China free trade agreement ‘big win’ for Australia

Australia had a big win last week with the ratification of a free trade agreement (FTA) with China according to Alan O’Brien of Bord Bia’s Shanghai Office.

He said the deal which was 10 years in the making represents a big win for Australian dairy and meat sectors, with tariffs being phased out over the next 10 years (4 years for dairy in line with the New Zealand FTA).

China is Australia’s largest trading partner, with 20% of Australian imports coming from China, and 36% of exports going to China.

O’Brien says under this deal China will benefit from easing of restrictions on foreign direct investments, with core benefits in mining, energies and agriculture.

He says the Chinese market is currently worth €6.37bn to Australia’s agrifood sector, however, the country’s share of China’s import market has more than halved over the last 10 years, dropping from 6% to 3% of the overall import market, with countries including New Zealand, France, Indonesia and Brazil increasing share across key sectors, primarily meat and dairy.

Australia is a strong player in China’s dairy market but, as highlighted by Rabobank (2014), the country has been marginalised as a major exporter due to a decrease in Australia’s overall dairy production according to O’Brien.

He said this FTA will increase Australia’s competitive position in China, especially with regard to New Zealand, its core competitor in powders and commodity products.

O’Brien said tariffs on Australian dairy products are expected to be brought in line with New Zealand; all being phased out by 2019. He highlighted that the deal will also impact Europe’s competitive position across key commodities, including infant formula.

In terms of beef O’Brien said unlike the FTA for dairy products, the meat sector, including beef and pork, will see tariffs phased out slowly over a 10 year period.

Last year Australia dominated China’s beef import market, accounting for 51% of China’s total imports of 282,890 MT (New Zealand accounting for 12.4%). According to O’Brien this deal will strengthen the country’s already strong position (general beef tariff currently 25% versus New Zealand 5.6% -all phased out by 2025).

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