Recent progress in Australian trade deals: ChAFTA, RCEP, the EU and India

Global trends in international trade policies

At the end of last year, we forecast that a global shift towards protectionist policies could be on the horizon.  Since then, we have witnessed some indications of a trend in this direction.  As one example, in February this year, Donald Trump signed executive orders to withdraw the US from the Trans-Pacific Partnership (TPP) which was largely expected to create excellent opportunities for Australian businesses.

For Australia, where international trade is a vital component of economic prosperity, this trend has been seen by many observers as a concerning prospect.  For decades, trade liberalisation and economic reform have been at the heart of Australian Government policy. 

Despite this apparent global trend, the Australian Government has continued to pursue an active position of trade liberalisation, which has reaped, and will reap, rewards for Australia.

ChAFTA: an example of Australia's success from trade liberalisation

An excellent example of the benefits Australia has received from trade liberalisation is the outcomes of the China-Australia Free Trade Agreement (ChAFTA), which has delivered positive results for Australian businesses.  15 months since the commencement of ChAFTA, China is clearly Australia's largest trading partner and is growing in significance as an investor into Australia.  As Malcom Turnbull recently pointed out in his speech to the Premier of China, Australia's ties with China have never been more important or dynamic than they are today. 

Since the ChAFTA entered into force on 20 December 2015, nearly all (96%) of Australia's goods exports to China are now eligible to enter duty-free or with preferential access.  The agricultural industry is one such area that has achieved benefits from this close relationship with China.  At the end of March, Australia and China signed the Joint Statement on Enhancing Inspection and Quarantine Cooperation between Australia and the People’s Republic of China, an agreement estimated to be worth $400 million per year for Australia’s meat industry and a significant boost for regional employment.

Under the ChAFTA, the existing tariffs of 14%-20% on Australian wine are expected to be eliminated within two years and, as a result, Australian exports of wine to China have grown significantly - $520 million worth of wine was exported from Australia to mainland China in 2016, up from $370 million in 2015.

Updates on recent Australia trade agreements

In the last few months, there has been progress for Australia in achieving further trade deals, including:

• the entry into of the Declaration of Intent regarding Review of Elements of the China-Australia Free Trade Agreement in March 2017;
• the progress of negotiations on the Regional Comprehensive Economic Partnership (RCEP) in February to March 2017; and
• the successful conclusion of a free trade agreement scoping study agreement between Australia and the European Union.

Declaration of Intent to review elements of ChAFTA

Further to the benefits earlier outlined in relation to the ChAFTA, the Australian and Chinese governments have entered into a Declaration of Intent, which acknowledges the increased opportunity which has been achieved from this agreement.  The declaration recognises that ChAFTA has been strongly utilised by businesses in both countries and shows that over 85% of eligible 2016 bilateral merchandise trade has benefitted from lower tariffs.

This declaration is essentially an agreement by China and Australia to commence reviews of commitments made in:

• Chapter 8 of the ChAFTA (Trade in Services);
• Chapter 9 of the ChAFTA (Investment); and
• the Memorandum of Understanding on the Investment Facilitation Arrangement, which was concluded in June 2015 (MOU).

Chapter 8 of ChAFTA allows parties to modify, or add to, commitments made in the WTO General Agreement on Trade in Services that includes amendments to the scope of commitments, regulations and barriers to trade in services.

Chapter 9 of ChAFTA was a short-form agreement that was intended to be expanded through a commitment to commence negotiations for a future comprehensive investment chapter.   This is another significant area of importance for Australia - for example, according to the Chinese Government, direct investment into Australia from China grew by 56% in 2016 over 2015, to $4.8 billion.

China is Australia's largest services export market and it is positive news that both China and Australia have committed to review these chapters and consider how to progressively liberalise trade in services, and investment.

The MOU contained in the ChAFTA has also been flagged for review, which will more effectively facilitate Chinese-funded infrastructure projects in Australia.

Progress towards a Regional Comprehensive Economic Partnership

As for regional agreements, negotiations for the RCEP - which involves 16 countries and almost half of the world's population (including China) - remains a strategic goal for Australia.  The Seventeenth Round of Negotiations were held in February and March this year in Japan.  According to reports, the negotiations have been challenging given the involvement of countries ranging from advanced industrial economies to developing countries.  The eighteenth round of RCEP negotiations will be held in May 2017 in the Philippines.

A potential Australia-EU and an Australia-UK FTA?

In April this year, the Australian government announced that Australia and the European Union had successfully concluded a joint scoping exercise on a Free Trade Agreement (FTA) between the two economies after a year of consideration.  Having completed this scoping exercise, a negotiating mandate is now to be agreed before commencing the process towards a mutually beneficial FTA.  This is significant as this means Australia is one step closer towards a potential FTA with the EU, Australia's second largest trading partner and the largest source of foreign investment.  In 2015-16, two-way trade with the EU was worth $95.6 billion and total investment from the EU was worth almost $1 trillion. 

Although trade with the UK may decrease post-Brexit, it is worth noting that Australia and the UK have formally announced a bilateral Trade Working Group in September 2016, which will involve a working group from each country that will meet twice a year.

Getting India trade talks back on track

Although FTA talks with India reportedly stalled prior to December 2016, Australian Prime Minister Turnbull has recently announced that a top-level inquiry into the economic potential of engaging with India has been commissioned.  Earlier in April, Mr Turnbull visited New Delhi where FTA talks with the Prime Minister of India, Narendra Modi were reportedly a key focus of discussion. 

Conclusion: watch this space

It is critical for a business's success to navigate the rules of international trade and position themselves accordingly.  Despite what seems to be a global trend towards protectionist policy and anti-globalisation, from the recent events, it is clear that Australia is actively pursuing trade with other economies with good reason.  Given the blow from the US withdrawing from the TPP, Australia's other various trade deals have increased in their importance.

Australian businesses involved in trade and foreign investment, or those who are seeking to attract foreign capital, should prepare for the changing landscape and continue to stay abreast of the changes yet to come.