Australian Trade Minister Andrew Robb and Chinese Commerce Minister Gao Hucheng today signed the China-Australia Free Trade Agreement (ChAFTA) in Canberra, following the signing of a Declaration of Intent in November 2014 during Chinese President Xi Jinping’s visit to Australia (see our articles: Australia and China conclude free trade agreement and Australia China FTA to be concluded by year end).

The full text of ChAFTA was also released today and can be found here. The implications are discussed below.

China is Australia’s top trading partner, with total two way trade of goods and services exceeding A$160 billion in 2013-14 (see China-Australia Free Trade Agreement – Department of Foreign Affairs and Trade).

Under the terms of ChAFTA, more than 85% of Australian goods exported to China will be tariff free from day one of the agreement rising to 95% on full implementation. Tariffs will be progressively abolished for Australia’s A$13 billion dairy industry and there will also be a gradual phase out of current tariffs ranging from 12 – 25% for Australia’s beef and sheep farmers. Tariffs will also be removed on almost all Australian resources and energy products, including the 8% tariff on aluminium oxide and current tariffs on coking coal that will both commence on the first day of ChAFTA. Thermal coal tariffs will be phased out over two years. (See Australia signs landmark trade agreement with China, Press Release, Minister for Trade and Investment).

Similarly, there will be a phasing out of tariffs on 95% of all Chinese goods imported to Australia such as clothing, footwear, household electronics and cars within 4 years. (See ChAFTA – Understanding the Agreement, Department of Foreign Affairs and Trade).

ChAFTA also includes investor-state dispute settlement (ISDS) mechanisms which will allow investors from either state to commence arbitration proceedings against the host state in the event that there is a dispute relating to a qualifying investment. The inclusion of ISDS mechanisms is significant in given the current level of public debate on this issue which has arisen in the context of a number of ongoing free trade negotiations.  A detailed analysis of the ISDS provisions in the ChAFTA and other FTAs will be published on this blog.

After Australia and China have completed their domestic approval processes, both countries will exchange diplomatic notes to certify that they are ready for ChAFTA to enter into force. ChAFTA will enter into force 30 days after this exchange, or on a date otherwise agreed. (See ChAFTA – Understanding the Agreement, Department of Foreign Affairs and Trade.)

The signing of ChAFTA is the third free trade agreement concluded by the Australian Government with the major economies of North Asia since coming into power in 2013. The Japan-Australia Economic Partnership Agreement (JAEPA) entered into force on 15 January 2015 and the Korea‑Australia Free Trade Agreement (KAFTA) entered into force on 12 December 2014.  We discuss the implications of the JAEPA, as well as the KAFTA in our previous articles. (See Japan Australia Economic Partnership Agreement to enter into force and KAFTA ratified by Korean National Assembly).

For further information, please contact Leon Chung, Partner, Edwina Kwan, Senior Associate or your usual Herbert Smith Freehills contact.

Leon Chung
Leon Chung
+61 2 9225 5716
Edwina Kwan
Edwina Kwan
Senior Associate
+86 10 65355106