Free trade agreements don’t guarantee a free ride

Free trade agreements don’t guarantee a free ride article image

The recent announcement regarding China’s new cross-border e-commerce regulatory changes, in the public’s view, may have taken some of the shine off the China-Australia Free Trade Agreement (ChAFTA), which came into effect only four months ago.

In this situation it is important to remember that ChAFTA does not guarantee smooth sailing for all those doing business with China.

ChAFTA will, however, continue to mean that Australian exporters can benefit from freer trade with our largest trade partner.

Our FTA with China removes barriers to trade in goods, services and investment and strengthens our cultural, social and political relationship.

Under ChAFTA, more than 86 per cent of Australia’s goods exports to China (by value in 2014) enter duty free, and this percentage will rise to 94 per cent by 1 January 2019 and 96 per cent when the agreement is fully implemented.

China’s new policies, announced around the same time of Australia Week in China, will mean that products bought on cross-border e-commerce platforms will be subject to import tariffs instead of the lower “parcel” tax rate.

A “positive list” of goods has also been published that specifies which products are allowed to be imported via the country’s free trade zones.

Timely reminder

Analytical agency, China Policy, suggests in a recent article that the new regime “ain’t so bad” and will ultimately promote market growth and improved logistics, which will benefit foreign exporters.

While the full implementation and impact of the new regulations are yet to be seen it’s a timely reminder for those looking to enter China or expand their existing operations, that ChAFTA, even with all of its benefits, does not guarantee a smooth ride.

ChAFTA has given Australian exporters in many sectors a competitive advantage over exporters from other countries and Australia’s premium quality products are in high demand. We have seen this trigger companies to dive in head first without fully understanding the risks of doing business in that market.

That course of action doesn’t often end well. It is imperative that companies wanting to do business in China take a long term approach and do their homework.

While there is a lot of hype around the opportunities in China, each company, depending on their individual circumstances and export experience, should first of all seriously consider whether China is the right market for them.

Significant hurdle

Both the tariff and non-tariff barriers should be considered as non-tariff barriers can actually pose a more significant hurdle than tariff barriers in some cases.

The ECA has been educating companies on the ins and outs of exporting and importing for more than 60 years and we know it’s not easy.

When expanding globally, it is important that business take the right steps to protect themselves legally and financially and put in place measures to overcome the practical barriers.

Those that take a long term approach and do their homework, are better positioned to reap the rewards – and the rewards can be great.

When looking at a market like China, you have to understand that this is an incredibly difficult market to do business with.

The more you prepare yourself for mitigating the risks and the more you understand the nuances of the political environment the better positioned you will be to succeed. 

Lisa McAuley is CEO Export Council of Australia (ECA). Stacey Mills-Smith is Trade Policy & Research Manager, ECA.


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