The Free Trade Agreement between Australia and China (hereinafter referred to as “the Agreement”) is Australia’s 11th free trade agreement and China’s 14th free trade agreement.

In 2014, with a population of 23 million, Australia’s GDP was estimated at US$1,454 billion, while that of China, with a population of 1,364 million, was US$10,360 billion. Averaged over the period 2012-2014, the Parties’ trade (goods and services) to GDP ratio was 41.1 for Australia and 46.9 for China.

Merchandise trade

In 2014 Australia’s merchandise exports amounted to US$241 billion (1.27% of global exports) and imports amounted to US$237 billion (1.24% of global imports). In the same year China’s merchandise exports amounted to US$2,342 billion (12.33% of global exports) and imports US$1,959 billion (10.26% of global imports). Australia was the world’s 16th largest exporter and 17th largest importer of merchandise, while China was the largest exporter and 3rd largest importer. The structure of the Parties’ merchandise exports and imports are different, with Australia exporting mainly fuels and mining products (representing 63% of its total exports) while mainly importing manufactures (71% of its total imports). China’s exports and imports are largely manufactures (representing 94% of its total exports and 60.1% of its total imports).

Developments in global and intra-Party trade: Data reported to the UNSD Comtrade database show diverging pictures. A bilateral trade deficit is reported for Australia until 2009 when Australia’s exports to China are reported to substantially outnumber its imports from China, while data reported for China show a trade deficit for China’s trade with Australia during the whole period (2000-2014). At the global trade level, Australia experienced a trade deficit until 2008 since when it has registered a trade surplus. In the case of China a constant trade surplus is observable, with a momentary setback for both exports and imports in connection with the financial crisis in 2009.

Based on 2014 trade data, China was Australia’s largest source of imports and largest destination for exports, while Australia was China’s 7th largest source of imports and 12th largest export destination.

In terms of commodity structure of trade between Australia and China, and between each Party and the world, during the period 2011-2013, machinery (41.5%), textiles (11.8%), and miscellaneous manufactured products (10.1%) together accounted for 63.4% of Australia’s imports from China, while these three sectors were Australia’s 1st, 9th and 10th global imports representing overall only 31.4% of Australia’s total imports to the world (representing respectively 24.7%, 3.6% and 3.1% of Australia’s global imports). These three categories of products corresponded respectively to China’s 1st, 2nd and 4th largest global exports (corresponding together to 60.5% of China’s global exports).

Mineral products represented almost three quarters of China’s imports from Australia (74.7%). Minerals also represents Australia’s top global export (57.4% of Australia’s export to the world), and China’s 2nd largest global import (representing 24.1% of China’s imports from the world).

Trade in services and investment

In 2014, Australia’s shares of total commercial services exports and imports were 1.08% and 1.30% respectively, while China’s share was 4.71% of world exports and 7.98% of world imports of services. With total commercial services exports of US$53 billion, and imports of US$62 billion, Australia was the world’s 14th largest exporter and importer of commercial services. China was both the 3rd largest exporter (US$232 billion) and importer (US$382 billion).

Global trade in commercial services for Australia and China (based on the period 2005-2014): For both Parties, the available sets of data show an overall deficit in trade in commercial services with the world. In the case of Australia, Travel, transport and other business services represent the three mainly traded services, in terms of both exports and imports. While this is also the case for China, services classified under charges for the use of intellectual property and insurance and pension services also represent an important proportion of China’s overall global exports. Based on data provided by Australia for bilateral trade in services with China during 2012-14, Australia’s major imports include transport and travel services while exports are mainly classified under travel services. During the three year period before entry into force of the Agreement Australia ran a stable surplus in its services trade with China.

Foreign direct investment stocks and flows with the world during the period 2000-2014: FDI flows of both Parties with the world has grown steadily in the case of China, while fluctuating during the period for Australia, with however a major setback (in both inward and outward FDI flows) reported in 2005. Based on data reported by Australia, it was a net recipient of FDI for the period considered. The same trend can be observed based on data reported by China, though the order of magnitude differs. Complete data on bilateral FDI are not available.

Characteristic elements of the agreement

Background Information

The Agreement was signed on 17 June 2015 and notified on 26 January 2016 under Article XXIV:7(a) of GATT 1994 and Article V:7(a) of GATS (see document WT/REG369/N/1 - S/C/N/858). Its conclusion follows the Trade and Economic Cooperation Framework between China and Australia, adopted in 2003, and is also consistent with the APEC goals and principles.

The Agreement establishes a free trade area (Article 1.1). The text of the Agreement, together with its annexes, is available here or download below.

The Agreement is composed of 17 Chapters. A number of Annexes, including the Parties’ tariff elimination schedules and the lists of reservations on cross-border supply of services and establishment (non-conforming measures) and of specific commitments on trade in services also form part of the Agreement. Side letters on specific issues complement the text of the Agreement. The Agreement also includes memoranda of understanding on an investment facilitation arrangement, and on a work and holiday visa arrangement.

The Parties shall undertake a general review of the Agreement, with a view to furthering its objectives, within three years of the date of entry into force of the Agreement and at least every five years thereafter (Article 16.5).

Provisions on trade in goods

Chapter 2 of the Agreement covers trade in goods. It is complemented by Chapters 3 through 7, which also contain disciplines applicable to trade in goods.

Chapter 2, inter alia, governs the elimination of customs duties according to the Parties’ Schedules. It also confirms the applicability of Article VII of the GATT 1994 and the WTO Customs Valuation Agreement (Article 2.6), and prohibits the Parties from adopting or maintaining a measure that is inconsistent with the WTO Import Licensing Agreement (Article 2.8).

A Committee on Trade in Goods is established to address tariff and non-tariff barriers to trade in goods between the Parties (Article 2.15). It shall, among other functions, review Parties’ non-tariff measures in certain circumstances to ensure that unnecessary obstacles to trade are not created (Article 2.7). The Committee shall submit an initial progress report on its work relating to non-tariff measures, including any recommendations, within one year of the date of entry into force of the Agreement. The Committee shall also review the implications of each periodic Harmonized System amendment and promptly recommend any necessary amendment to the Parties’ Schedules of tariff concessions under the Agreement and/or the Annex containing the product specific rules of origin.

Provisions on trade in services and investment

Chapter 8 contains disciplines on trade in services, while Chapter 9 covers investment. Annex III to the Agreement constitutes an integral part of the Parties’ commitments under these two Chapters. For Australia, it includes market access commitments scheduled on a negative list basis. For China, it includes market access commitments scheduled in a positive list basis.

Chapter 10 complements the rules and disciplines on trade in services and investment as applied to measures affecting the movement of natural persons of a Party into the territory of the other Party.

A review clause is contained in Article 8.24. The Parties shall consult within two years of the date of entry into force of the Agreement and every two years thereafter, to review the implementation of Chapter 8 and consider other trade in services issues of mutual interest, with a view to the progressive liberalization of the trade in services between them. In case of unilateral liberalization by a party, the other party may request consultations to discuss the measure. As mentioned below, after the entry into force of the Agreement, at a time to be mutually agreed by them, the parties shall initiate a next round of negotiations on trade in services.

The Agreement established a Committee on trade in services (Article 8.20), as well as contact points (Article 8.21). It also established a Committee on investment (Article 9.7).