China-Australia Free Trade Agreement: A Guide for Importers and Exporters
The China-Australia Free Trade Agreement (ChAFTA) entered into force on 20 December 2015, enhancing Australia’s economic relationship with its closest trading partner. Currently, Australian businesses enjoy a competitive advantage over other countries in China, as Australia is one of the few developed nations to secure a free trade agreement with our northern neighbour.
If you are an importer or exporter looking to use the ChAFTA to your advantage, this is the right article to read.
- We’ll look at what the ChAFTA is;
- highlight the benefits of the Agreement and;
- outline the documentation you’ll need to take advantage of its terms.
What is the China-Australia Free Trade Agreement?
The ChAFTA is one of Australia’s many free trade agreements struck with countries around the world. Australia and China have for many years had a strong economic partnership, and this only improved with the signing of the 2015 Agreement.
China sees free trade agreements as a way to open up their market to external pressures and rapidly reform their domestic markets. They view agreements as an effective method of integrating into the international economy, strengthening their co-operation with other nations on both political and economic fronts. China currently has 24 agreements in the works, 16 of which have already come into effect.
What are the benefits of the China-Australia Free Trade Agreement?
The benefits of ChAFTA to importers are expansive. Some of them include:
- The ability to import goods from China with little to no tax obligations;
- The increased ability to source goods from overseas cheaply, and retail them at profitable margins in Australia; and
- A significant removal and reduction of tariffs – for example, the 5% tariff on Chinese manufactured products like electronics is to be gradually phased out.
There’s also a range of benefits enjoyed by exporters and other business seeking to expand in China, such as:
- The removal of tariffs on a number of Australian commodities such as coal of around 3-10% in a very short space of time,
- The removal of tariffs of between 3-14% on a number of manufactured exports;
- The ability for Australian companies to take a majority stake in joint ventures based in China providing services in markets such as forestry and agriculture; and
- The removal within two to nine years of tariffs up to 30% for beef, pork, live animals, wine, seafood and other goods.
You can read more about the benefits in the discussion of the ChAFTA in our blog on Australia’s free trade agreements.
Why is the China-Australia Free Trade Agreement important for Australian businesses?
This Agreement is important for Australian businesses largely due to the sheer number of advantages it offers for companies seeking to do business, or already doing business, in China. A huge number of industries were granted significantly improved Chinese market access. These included banks, insurance companies, law firms, healthcare providers, telcos and education service providers. Furthermore, China has committed to removing barriers to Australians working in China.
Businesses will need to take advantage of this as China’s and Australia’s economy are now undeniably interlinked. It was estimated by PriceWaterCoopers chief economist Jeremy Thorpe in August 2019 that, if China’s GDP growth declined by 3-5 percentage points, Australia would lose over half a million jobs and around $140 billion in income. This may seem surprising, as Australia is only China’s 13th largest trading partner (coming after countries such as the United States, Japan, South Korea and Germany).
There are already a number of large Australian companies that operate in China in industries like mining, financial services, retail, media and healthcare. Mining giant BlueScope is currently the largest Australian employer in China with around 1,500 staff members in four cities. Woolworths has also operated in China for a number of years, launching its online stores and allowing for Chinese customers to directly order their goods. Even Australian surfing brand Billabong predominantly manufactures its goods in China.
Case study: Woolworths, eCargo and Tmall Global
E-commerce exports into China were one of the first markets to take advantage of ChAFTA.
In January 2016, only a month after ChAFTA came into effect, Woolworths announced that it had launched its online store Tmall Global in China.
It initially hired eCargo, an online commerce company, to construct its Woolworths brand on Tmall Global. At the time, eCargo’s chief executive commented that “the food and groceries segment will experience huge growth in the coming years between Australia and China as cross border trade restrictions ease and the China Australia free trade agreement takes effect”.
The company has enjoyed significant success since its inception, with 20% of all retail sales online in China (compared to just a mere 7% in Australia) as of August 2018.
What documents do you need to benefit from the China-Australia Free Trade Agreement?
In order to benefit from the ChAFTA, Australian companies need to satisfy a number of documentation requirements.
The most important of these is supplying a Certificate of Origin. These certificates declare the details of the country in which the goods you are importing were made. They must be issued by the country of origin’s authorised agency and will need to be given to a customs authority in the receiving country. You can learn more about the Certificate of Origin in our easy-to-read guide.
Note that, for exporters to China, Australia’s authorised bodies are:
- the Australian Chamber of Commerce and Industry (ACCI);
- the Australian Industry Group (AIG); and
- the Australian Grape and Wine Authority (AGWA) (for wine and wine-related products).
For importers of goods into Australia, China’s authorised bodies are:
- the General Administration of Customs of China; and
- the China Council for the Promotion of International Trade.
I’ve never benefited from Australia’s free trade agreement with China. What do I do?
If you have been exporting to China after the Agreement was signed in 2015 but have not been benefiting from features such as reduced tariffs, you may be entitled to the benefit of a duty refund.
How do I claim a refund?
You can only claim a refund on the if:
- you are making a claim for goods imported within the last four years
- You can supply a certificate of origin from the correct governing body
Even if you meet the above criteria, you cannot claim a refund on the Scheme if:
- You are unable to provide a certificate of origin
- The country of origin does not have a free trade agreement in place with Australia
- the import duty has already been refunded.
How is the Coronavirus affecting free trade with China?
The Coronavirus outbreak that hit China in December 2019 has had a significant impact on trade with our most important trading partner, which we discuss in detail in our Coronavirus blog.
Numerous industries, especially retail, hospitality and tourism, have been hugely impacted. This has involved the cancellation of hundreds of flights as would-be travellers around the world cancel their holiday plans, causing the subsequent closing down of restaurants and the cancellation of accommodation bookings. TIME Magazine described the economy in China as “grinding to a halt”.
The outbreak has resulted in many Chinese governing bodies closing throughout the Chinese New Year Period. This is because the holiday period was extended throughout February 2020.
This has unfortunately meant that goods are arriving without Certificates of Origin, causing extended periods of delay with imports. These delays have been further exacerbated by many port workers staying home due to the extended holiday period.
In these circumstances, we advise exporters to apply for a duty refund once a certificate of Origin is obtained.
Asialink Chairman The Hon Andrew Robb AO of the University of Melbourne said that ChAFTA was a reflection of China’s offering to Australia of “its best-ever market access commitments on services, other than China’s agreement with Hong Kong and Macau”.
It’s therefore no surprise that the Agreement offers Australian business a perhaps unprecedented level of opportunity for growth. Whilst the recent Coronavirus epidemic has unfortunately stifled free trade with China, this will pass. Australian businesses should consider the Agreement’s terms and get in touch with their customs broker to discuss what opportunities they can seize.