Dairy and meat industry boost from new China FTA deal

Posted by AFN Staff Writers on 19th November 2014
Dairy and meat industry boost from new China FTA deal
Dairy and meat industry boost from new China FTA deal

A new Free Trade Agreement (FTA) has been finalised between Australia and China, with the Australian dairy and meat industries expected to benefit.

Australian Prime Minister Tony Abbott finalised the “landmark” agreement with Chinese President Xi Jinping on Monday afternoon.  The Government said the China-Australia Free Trade Agreement (ChAFTA) would “unlock substantial new benefits for Australians for years to come”.

Trade and Investment Minister Andrew Robb and Commerce Minister Gao Hucheng signed a Declaration of Intent in the presence of Australian Prime Minister Tony Abbott and Chinese President Xi Jinping at Parliament House in Canberra.

Both countries have undertaken to conduct respective legal reviews of the concluded text and prepare Chinese and English language versions for signature in 2015.

“Australian businesses will have unprecedented access to the world’s second largest economy,” said Prime Minister Tony Abbott and Federal Minister for Trade and Investment in a joint statement. “It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment,” they said.

Building on trade deals already concluded with Korea and Japan, ChAFTA forms part of a trifecta of agreements with Australia’s three largest export markets that account for more than 61 per cent of Australia’s exports of goods.

More than 85 per cent of Australian goods exports will be tariff free upon entry into force, rising to 93 per cent in four years. Some of these goods are currently subject to tariffs of up to 40 per cent.

On full implementation of ChAFTA, 95 per cent of Australian goods exports to China will be tariff free.

The Australian Government said households and businesses would also reap the benefits of cheaper goods and components from China such as vehicles, household goods, electronics and clothing, “placing downward pressure on the cost of living and the cost of doing business”.

Dairy, beef and lamb to benefit

Significantly, tariffs will be abolished for Australia’s $13 billion dairy industry. Australia’s beef and sheep farmers will also gain from the abolition of tariffs ranging from 12-25 per cent and all tariffs on Australian horticulture will be eliminated.

Tariffs on Australian wine of 14 to 30 per cent will go within four years, while restrictive tariffs on a wide range of seafood, including abalone, rock lobster, and southern bluefin tuna will also cease within four years.

Farmers welcome China-Australia FTA

The National Farmers’ Federation (NFF) has welcomed the announcement of a free trade agreement with China, which the NFF said would “cement Australian agriculture’s place in the world’s biggest market” and provide millions of dollars in export value to Australian farmers.

NFF President Brent Finlay said the deal recognises agriculture as one of the nation’s economic pillars and will further expand the excellent trading relationship that Australian farmers have with China already.

“China is already our major trading partner with Australian farm exports doubling in five years to be valued at over $7 billion in 2013,” Mr Finlay said. “The agreement is an outstanding achievement that will build on Australia’s important trading future with China and provide significantly improved international market access for Australian agricultural goods.

“Based on our own growth and the New Zealand experience we could conceivably see a tripling in agricultural exports to China within the decade,” Mr Finlay said. “We must strive to take full advantage of the improved outcomes,” he said.

“The landmark agreement will see the elimination of tariffs on Australian lamb, beef, horticulture and dairy products to China. It’s an enormous achievement that will deliver increased options and improved returns for Australian farmers,” Mr Finlay said.

Tariffs on dairy products such as cheese, milk powder and butter will be phased to zero, resulting in millions of dollars in tariffs saved. Similarly, tariffs for products like strawberries, potatoes, cut flowers and other horticulture products will be reduced to zero over five years. In the red meat sector, Australian lamb and beef will see an elimination of tariffs across the board, including products like skins and hides.

“After almost ten years of negotiations, we are pleased that the Australian and Chinese Governments have reached an agreement largely equivalent to the outcomes New Zealand achieved with China,” Mr Finlay said. “This presents Australian farmers with not only a level playing field, but more opportunities to market product resulting in increased incentive to invest, innovate and grow,” he said.

Meat tariffs to be eliminated

The Australian red meat and livestock sectors will benefit by $11 billion from the elimination of tariffs negotiated under the China-Australia Free Trade Agreement, according to industry representative body the Meat and Livestock Association (MLA).

Under the Agreement, the tariffs currently levied on Australian beef of 12-25 per cent will be eliminated over 9 years; sheepmeat and goat meat tariffs of between 15-23 per cent will be eliminated over 8 years; the tariffs on offals of 12-25 per cent will be eliminated over 4-10 years; the 5-14 per cent tariffs on hides and skins will be eliminated over 4-8 years; and the 10 per cent tariffs on live cattle and live sheep eliminated over 4 years.

Once fully implemented, the MLA said an FTA with China has the potential to boost the gross value of beef production by $270 million annually by 2024. Out to 2030, the total benefits for beef will approach $3.3 billion.

For the sheepmeat sector, the potential benefits are more than $150 million each year by 2024 – with the value over the next 16 years being in excess of $1.8 billion.

As China is a destination for nearly 90 per cent of Australia’s sheepskin exports and 80 per cent of cattle hides, elimination of these tariffs, as well as those on offal, will add $436 million a year by 2024 across both beef and sheepmeat – and out to 2030, these benefits could total $6 billion.

“These ChAFTA benefits will add significant value to the Australian red meat and livestock industry and complement the gains derived from the other FTAs Australia has concluded to date,” Chairman of the Australian Red Meat ChAFTA Taskforce David Larkin said.

“The current tariffs imposed on Australian beef, sheepmeat and co-products exported to China represent an annual tax on the supply chain of around $826 million,” Mr Larkin sais. “The gradual removal of this cost burden will positively impact the profitability of Australian cattle and sheep producers, processors and exporters, not to mention alleviation of the inflated prices paid for Australian red meat and associated products by Chinese customers and consumers,” he said.

Mr Larkin said the Australian red meat industry has been at a “distinct competitive disadvantage” in China given the very low tariffs that major competitor, New Zealand, has benefited from following the 2008 New Zealand-China FTA.

“With New Zealand beef and sheepmeat gaining tariff free entry by 2016, it was vital that Australian red meat products were afforded similar (albeit lagging) access arrangements,” Mr Larkin said.

FTA a “game-changer” for Australian dairy, Fonterra

New Zealand-based dairy giant Fonterra’s Australian business has welcomed the China-Australia FTA, saying that expanding market access was “critically important” to the future profitability of the entire Australian dairy supply chain.

“This is a good time to be in dairy,” said Judith Swales, Managing Director Fonterra Australia. “The FTA will be a game changer for Australian dairy,” she said.

“The FTA presents all sorts of opportunities,” Ms Swales said. “For our Australian farmers, it will give them the confidence to invest in their businesses and confidence that the whole industry is supporting them in providing access to our biggest export market,” she said.

Ms Swales said the deal would bring Australian milk closer to the Chinese consumer – a market that represents 30 per cent of global dairy imports and is the world’s largest dairy importing country.

“We know that more milk is required to satisfy this demand and that all products in all forms are possible,” Ms Swales said.

Fonterra already has a strong presence on the ground in China with farming hubs, long-standing customer relationships and successful brands, foodservice and ingredients businesses.

“To be globally relevant, we have to succeed in China,” Ms Swales said. “It remains our key market and central to our strategy. For example, our Darnum plant in Gippsland is world-class and its output is strongly sought after to meet the growing demand for infant nutrition in China,” she said.

FTA could spell profits for Australian vegetable growers

The China-Australia FTA has also been welcomed by Australian vegetable growers’ representative body AusVeg. Tariffs on horticultural products being imported into China will be removed within the next four years under the FTA.

Under the current arrangement Australian vegetable exports are taxed at 10 to 13 per cent on average in China.

“The FTA could potentially open up Chinese export markets for the Australian vegetable industry and provide further opportunities for expansion and profitability,” said Andrew MacDonald, AusVeg spokesperson. “This agreement will cement China as a key destination for Australian vegetable exports, and it is hoped that this will benefit regional communities across the country by creating jobs and boosting economies,” he said.

Mr MacDonald said until now vegetable esports to China had been low and market access “difficult”.

“While decreasing tariffs is an important step, we need to aim toward better market access through continued work in breaking down phytosanitary barriers, and other bureaucratic hurdles, this is a key focus for AusVeg,” Mr MacDonald said.

In 2013-14, Australia exported more than $2.5 million worth of vegetable products to China. This translated to an increase of vegetable exports to China by almost 50 per cent, compared to the previous year.

Tariffs removed from other Australian exports

Tariffs will also be removed on a range of Australian resources and energy products, including the eight per cent tariff on aluminium oxide on the first day of the Agreement, benefitting our exports worth around $1.3 billion a year. The tariffs on coking coal will be removed on day one, with the tariff on thermal coal phasing out over two years.

Tariffs will be also eliminated on a wide range of Australian manufactured goods, including pharmaceutical products and car engines.

The Australian Government said it had secured the “best ever market access” provided to a foreign country by China on services, with enormous scope to build on an export market already worth $7 billion.

Legal services, financial services, education, telecommunications, tourism and travel, construction and engineering, health and aged care services, mining and extractive industries, manufacturing services, architecture and urban planning, as well as transport, among others, will all benefit from being able to do business in China more easily.

Further expansion of market access built in to agreement

A key feature of ChAFTA is a built-in mechanism to allow for further liberalisation and the expansion of market access over time, including a first review mechanism within three years. The Australian Government said this placed Australia in a strong position to secure additional gains as China undergoes further economic reform into the future.

ChAFTA contains investment provisions which the Australian Government said would “boost and diversify” the bilateral investment relationship with China. The Chinese Government estimates total outbound investment of US$1.25 trillion (A$1.44 trillion) over the next 10 years.

Australian Government to screen Chinese agricultural investment in Australia

ChAFTA will promote further Chinese investment in Australia by raising the Foreign Investment Review Board (FIRB) screening threshold for private companies from China in non-sensitive areas from $248 million to $1,078 million.

The Government said it wouldl be able to screen investment proposals by private investors from China in agricultural land valued from $15 million and agribusiness from $53 million.

Furthermore, FIRB will continue to screen proposed investments by Chinese State Owned Enterprises regardless of value. These provisions are consistent with Australia’s trade agreements with Korea and Japan.

ChAFTA will also contain an Investor State Dispute Settlement (ISDS) mechanism. The Australian Government said this would enable Australians to invest in China with greater confidence. The ISDS provisions contain safeguards to protect the Australian Government’s ability to regulate in the public interest and pursue legitimate welfare objectives in areas such as health, safety and the environment.

With a view to maximising the benefits of the FTA for business, Australia and China have also agreed to review their bilateral taxation arrangements, including relief from double taxation.

The Australian Government said China was Australia’s largest two-way trading partner in goods and services (valued at more than $150 billion in 2013), Australia’s largest goods export destination ($95 billion in 2013), and Australia’s largest source of goods imports ($47 billion in 2013). China is Australia’s largest services export market ($7 billion in 2013).