Update on Australia’s key trade arrangements – TPP and ChAFTA

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With shifts in international politics and sentiment, it is timely to revisit the current status of the Trans-Pacific Partnership Agreement (TPP) and the China-Australia Free Trade Agreement (ChAFTA), and their potential impact on investment to and from Australia.

Trans-Pacific Partnership Agreement

Background

The TPP was proposed to be a trade agreement between twelve trans-pacific countries, comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam and was signed by these nations on 4 February 2016.

Its goal was to eliminate or reduce tariff and non-tariff barriers across substantially all trade in goods and services between the member nations. The TPP also aimed to address issues such as the development of production and supply chains, the digital economy and greater regional integration.

Current status and Australia’s position

On 30 January 2017, the United States formally stated that it no longer intended to be a party to the TPP and that it will have no legal obligations arising from its signature in February 2016. The withdrawal of the United States from the TPP was a significant set-back and meant that the TPP will no longer enter into force in its current form. Gaining access to the United States (which accounted for approximately 62 per cent of the GDP of the TPP member nations) was a key incentive for those nations to participate in the TPP.

Following the withdrawal of the United States, Australia’s Senate Foreign Affairs, Defence and Trade References Committee recommended that the Australian government defer binding treaty action in respect of the TPP. 

In May 2017, representatives from the eleven outstanding signatories to the TPP reaffirmed the strategic importance of the TPP. The representatives agreed to assess options to bring the TPP into force, including facilitating membership for the original signatories.  The ministers of the relevant nations are to meet on the margins of the APEC Economic Leaders Meeting in November 2017 to further discuss the TPP. 

China-Australia Free Trade Agreement

Background

ChAFTA was signed by the Australian and Chinese governments on 17 June 2015, and entered into force on 20 December 2015. ChAFTA is a significant free trade agreement for Australia given that China is Australia’s largest two-way trading partner in goods and services. 

Key highlights of ChAFTA include:

  • Tariffs: elimination of tariffs on a number of key Australian exports;
  • Most Favoured Nation (services): “Most Favoured Nation” provision which states that China will extend to Australia no less favourable treatment in areas relating to certain services than it might grant to other countries, and vice versa; and
  • Foreign investment into Australia: increased Foreign Investment Review Board (FIRB) screening thresholds for certain types of investments by certain Chinese investors, including investments by private Chinese investors in non-sensitive sector businesses (the threshold of which increased from AU$252 million to AU$1,094 million).1

Current status and Australia’s position

On 24 March 2017, China and Australia signed a “Declaration of Intent regarding Review of Elements of the China-Australia Free Trade Agreement”. 

Under this document, China and Australia will commit to reviewing the services and investment elements of ChAFTA and the Investment Facilitation Arrangement Memorandum of Understanding by the end of this year. Following these reviews, it is envisioned that Australia and China will further reduce trade barriers and facilitate free trade between them.

The progress of liberalising trade arrangements with Australia’s key trading partners will continue to be somewhat uncertain, particularly given recent global political and economic shifts. However, recent developments with the TPP and ChAFTA demonstrate that Australia, under its current government, remains committed to facilitating trade liberalisation, particularly with economic partners in the Asia-Pacific.


1Certain other types of investment (e.g. investments in agricultural land, agribusiness, sensitive sector businesses and certain types of land) are subject to lower thresholds.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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