If you hadn’t heard, Australia completed a massive free trade deal with China. The two-way trade deal was driven by China’s incredible appetite for natural resources and energy, while Australia is looking to buy cheaper manufactured Chinese products. Negotiations on the trade deal began back in 2005 and stalled under the previous Labor government. I am told once the Australians voted in Tony Abbot in 2013, he imposed a target to sign a deal with the Chinese by the end of this year. The Trade Agreement is the third that Australia has reached this year following agreements with both Japan and South Korea. Looks like Australia is making some big headway in regard to foreign trade. Under the new deal, China has agreed to:
Coal import tariffs and higher duty taxes that had been imposed on Australian coal are going to be lifted: the coking duty will be cut to zero and the thermal coal duty to 4% from 6%…then phased out in the following two years.
Agricultural exports from Australia including beef, most grains and seafood will see import tariffs cut to zero between now and 2021.
Private Investment is being accorded to the Chinese at the same threshold as US and Japanese. This means proposals of as much as A$1 billion will not require Foreign Investment Review Board approval. The key issue of investment by China’s state-owned enterprises has been deferred in order to get the deal done.
Overall, China wants greater access to Australia’s natural resources, while Australia wants greater exporting opportunities for sugar, rice and other agricultural exports. The problem is this new bond with Australia will eventually put more pressure on US exporters. It’s not yet clear just how much of an impact this deal will have on US grain exports to China. What is clear is that this deal solidifies already deep trade ties between the two nations. Australia is already the most China-dependent developed economy in the world, with exports to the Aussie nation accounting for 5.3% of their GDP. Last year alone, China supplied A$205 of Australia’s A$256 billion of imports and bought more than 35% of their exports. Personally, I’m happy to see our friends down under inking the deal, but it simply reiterates the fact China is branching out and looking for more partners and providers of natural resources. (Source: Bloomberg)