World Economy

Australia, China Sign Landmark Free Trade Deal

Australia, China Sign Landmark Free Trade DealAustralia, China Sign Landmark Free Trade Deal

Australia hailed a free-trade agreement with China that it says provides unparalleled access to the services market of the world’s second-largest economy.

The deal, once signed in 2015, will mean 85 percent of Australian goods exports to China will be tariff free, rising to 95 percent when fully implemented, Prime Minister Tony Abbott said. Tariffs will be removed from some resources and energy including aluminum oxide and coking coal, and phased out on thermal coal over two years, Bloomberg reported Monday.

Australian Prime Minister Tony Abbott and Chinese President Xi Jinping signed a memorandum of understanding clinching the agreement during a ceremony in parliament in Canberra.

"This has been a 10-year journey, but we have finally made it," Abbott said.

Xi Jinping also addressed the nation’s parliament. Xi praised the deal, while pledging to deepen cooperation with Australia, reaffirmed China's willingness to resolve territorial disputes with its neighbors through diplomatic means.

"As long as we have our long-term and the larger interests in mind, increase positive factors and remove obstacles we will certainly forge a closer and more comprehensive strategic partnership between us," Xi said.

The deal “will add billions to the economy, create jobs and drive higher living standards,” Abbott said. “It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment.”

Australia is the most China-dependent developed economy in the world, with exports to the nation accounting for 5.3 percent of gross domestic product, according to Commonwealth Bank of Australia, as two-way trade reached about A$150 billion ($132 billion) in 2013. Policy makers want to rebalance growth drivers from resources to other areas like services, which account for 70 percent of GDP but just 17 percent of exports.

Best-Ever Access

“The Australian government has 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 A$7 billion,” Abbott said.

The China-Australia Free Trade Agreement (ChAFTA) will ease investment rules for Chinese private companies in Australia by raising the Foreign Investment Review Board’s screening threshold in non-sensitive areas to A$1.08 billion from A$248 million. The new level is the same as that for Japan and South Korea, which also signed free trade agreements with Australia this year.

Investment Screening

Abbott said the government will be able to screen proposed investment from China in agricultural land valued from A$15 million and agribusinesses from A$53 million. FIRB will continue to screen proposed investments by Chinese State Owned Enterprises regardless of value, he said.

The Chinese government estimates total outbound investment of $1.25 trillion over the next 10 years.

“A key feature of ChAFTA is a built-in mechanism to allow for further liberalization and the expansion of market access over time, including a first review mechanism within three years,” Abbott said. “This places Australia in a strong position to secure additional gains as China undergoes further economic reform in the future.”

Australia boosted imports of Chinese products by 14 percent to a record A$4.8 billion in September from August, with its biggest purchases comprising electronics, toys and clothing. Chinese buyers are helping fuel a jump in Australian house prices and overtook Americans to become the biggest purchasers of real estate in the year through June 2013, official data show.

China, South Korea FTA

China aims to sign a free trade agreement (FTA) with South Korea next year, a senior official said on Monday, after most of the negotiations were completed.

The two countries announced on the sidelines of an Asia-Pacific summit in Beijing last week that they had effectively secured a pact that will remove tariffs on more than 90 percent of goods. But some details have yet to be finalized, AFP quoted them as saying.

"The two sides next will hold working-level talks on a few technical issues and complete all negotiations within this year," Wang Shouwen, a Chinese assistant commerce minister, told reporters at a briefing on Monday. "(We) will strive to sign an agreement as soon as possible next year," he said, adding the deal was expected to take effect from the second half of 2015.

The FTA would remove tariffs on 92 percent of Chinese goods exported to South Korea and 91 percent of South Korean goods imported by China within 20 years, according to a previous announcement by Seoul.

China is currently South Korea's biggest trading partner and export market, and two-way trade stood at around $228.8 billion last year according to Seoul's figures.

Wang said South Korea is China's third largest individual country export destination. The two neighbors started trade negotiations in 2012 but progress has been delayed by differences on the extent of market opening.