Holloway believes the agreement presents a good opportunity for Tasmania, the wine industry and boutique vineyards like Delamere. “It is going to present opportunities that we might not have otherwise,” he says. “As an industry, and in particular in Tasmania, it is going to allow much greater flow of food and produce into China.”
However, Holloway thinks the potential benefits of the agreement are likely to be conditional on Chinese on-sellers and distributors passing on the reduced costs to customers. “Prices are inflated. We would expect to see a far greater
volume of wines sold in China if we are able to see prices coming back to a more realistic price point in China,” he notes.
Reaping the benefits
China is already Australia’s largest market for agriculture and fisheries, with exports worth about $9 billion a year. Under ChAFTA, this sector has gained unprecedented access to the huge Chinese consumer market. For winemakers like Holloway, tariffs on wines will be gone in four years and winemakers are not the only ones who stand to benefit.
Australian dairy farmers are also big winners under the new deal. Trade Minister Andrew Robb made dairy his top priority and insisted on better terms for Australia than the current China–New Zealand agreement. Tariffs on dairy products such as infant formula and fresh milk will be removed over four to 11 years.
Australian cattle farmers have good reason to smile about the new agreement, too. Beef is a politically charged issue, but Beijing has agreed to eliminate tariffs on beef imports – currently ranging from 12 to 25 per cent – within nine years.
Service with a smile
Apart from big wins in agriculture, major breakthroughs in services sector liberalisation have surprised many analysts.
In financial services, Australian insurers are allowed to access China’s lucrative statutory third-party liability motor vehicle insurance market. China is the world’s largest market for car passengers, adding 20 million new vehicles per year. The agreement will also make it easier for banks to conduct business related to the renminbi (RMB), China’s national currency and one of the world’s fastest growing currencies.
Under ChAFTA, professional services providers such as lawyers and architects will have greater access, as well as better recognition of their qualifications. Unfortunately, there’s no word on direct benefits for the accounting profession in the information made available by the government so far. It is still in the process of drafting the formal agreement, which is not expected for a few more months.
However, there is an interesting provision in the new deal that commits both governments to review bilateral taxation agreement, and this will deal with issues such as double taxation and the prevention of tax evasion. Given the large inflow of wealthy Chinese business migrants to Australia and Beijing’s declared crackdown on tax dodgers, this could become an interesting practice area for the profession.
Carpe diem
After many years of negotiations (talks of a free trade agreement began with China under the Howard government in 2005), it is now up to the Australian business community to take action and translate the resultant opportunities into growth and increased profit.
One worrying fact is that Australians have a less than stellar record when it comes to actually using free trade agreements (FTAs).
A recent Economist Intelligence Unit (EIU) survey of business owners shows that Australia has one of the lowest usage rates of FTAs in the Asia–Pacific region. Only 19 per cent of Australian companies surveyed by the EIU actually used these agreements. However, 75 per cent of those who have used FTAs say their exports have increased.
Why don’t people use them more often then? One of the big reasons is many businesses are put off by the complexity of such agreements, which often comprise hundreds of pages of dense legal texts, annexes and tariff schedules. They are about as exciting as a calculus textbook.
The government is aware of the problem. David Landers, Austrade’s general manager for East Asia Growth Markets, says the commission is working with a range of stakeholders to promote the awareness of the FTAs and highlight their relevance. “There are a lot of resources out there for SMEs to take advantage of,” he says, “but we fi nd almost unbelievably that many businesses don’t even know these programs exist.”
The Export Market Development Program, for example, encourages small and medium businesses to develop export markets; the grant can reimburse up to 50 per cent of eligible export promotion expenses above $5,000.
“It still comes back to SMEs to take action,” says Landers. “You still have to build distribution, you still have to build your brand, you still have to adapt your products to the market, and you still have to understand who the new Asian consumer is.”
E-commerce growth
Landers also suggests that businesses should take advantage of the booming e-commerce sector in China. McKinsey estimates China’s total e-commerce market size to be worth US$295 billion, larger than the US’s US$270 billion.
Landers says Austrade will release a guide on e-commerce in China to help SMEs crack Australia’s largest export market. “E-commerce is growing so rapidly in China across multiple channels,” he says. “It is a very non-invasive and low-cost way of entering China.”
One of Canberra’s biggest ChaFTA concessions to Beijing is to lift the foreign investment screening threshold to $1.094 billion for private enterprises. At the same time, in February 2015 the government announced fees for foreign nationals who buy residential property in Australia. While this applies to all foreign nationals, the foreign investment review board says that China was the number one source of foriegn capital investment in 2013, to the tune of $6 billion.
Work to be done
While ChAFTA heralds a signifi cant and historic chapter in Australia’s economic relationship with China, exporters like Delamere’s Holloway and Austin know that bringing those new opportunities to fruition will require time and effort. The couple are upbeat about the potential of the Chinese market but are also realistic about the immediate benefi ts of the new trade agreement.
“For us, it is very much a long game and we don’t have huge expectations on the varietal and style that we are making now,” says Holloway. “We expect our wines to become far more desired and approachable in the future as Chinese palates become more developed.”
BREAKOUT BOX:
ChAFTA timings
After almost a decade in the making, the declaration of intent for a free trade agreement was signed by Australia and China on 17 November 2014. ChAFTA will start 30 days after both governments complete their respective domestic legislative processes. The Australian Government has not given a firm starting date, but this process is expected to take months. At time of writing, ChAFTA was not yet in effect.
