China, Australia Sign Free Trade Agreement

By Lauren Dodillet

Chinese President Xi Jinping and Australian Prime Minister Tony Abbott met last week in Canberra to sign a landmark Free Trade Agreement (FTA) between their two countries. A decade in the making, the deal gives China the opportunity to jumpstart service-oriented economic reform and allows Australia to shift its export focus to food and agricultural exports.

The FTA will affect many Australian industries—notably agriculture, coal, and services—by removing tariffs on 95 percent of Australian goods. The Sydney Morning Herald reports that Australian dairy exports to China will be duty-free in four years, tariffs on wine will drop by 14 to 30 percent, and other agrarian products, which make up 93 percent of the value of Australian exports, will see tariffs reduced to zero by 2019. The coal tariffs China recently levied on Australian coal will be gone in six years.

For China, the FTA allows Chinese laborers to work in Australia for Australian wages. The deal also lowers tariffs on industrial goods, and creates an RMB-based clearing bank in Sydney, which will speed up Australian dollar to RMB transactions and promote the international use of Chinese currency. Private Chinese firms also won the investment threshold shared by Australia’s other trade partners, allowing companies to invest nearly $861 million before their investments are reviewed.

During Xi’s visit, leaders also pledged to work together to counteract climate change. Their memorandum of understanding outlines the creation of a working group dedicated to sharing energy efficiency and emissions data and related technology.

The China-Australia FTA is Australia’s third FTA this year, following similar deals with Japan and South Korea. This deal is the most extensive deal of its kind between China and a western nation, and showcases China’s proclaimed commitment to strengthening soft power in the region. Other examples include China’s recent detente with Japan and its major climate change deal with the United States.

China and Australia have already enjoyed strong economic ties: China purchases nine times as many Australian products as the United States does. China is Australia’s biggest trading partner, and up to $129 billion in goods and services are exchanged annually.

(Photo by Stefano Lubiana via Flickr)