Australia has signed a Free Trade Agreement (ChAFTA) with China designed to lock in existing trade and allow for future growth and access to the country.
“The Agreement secures better market access for Australia to the world’s second largest economy, improves our competitive position in a rapidly growing market, promotes increased two-way investment and reduces import costs. It is a win for households and businesses alike,” trade minister Andrew Robb said, following the signing of the agreement.
This new agreement will see more than 85 per cent of Australian goods exported to China tariff free, rising to 95 per cent after full implementation of the ChAFTA.
In regards to mining, tariffs will be removed from close to all Australian resources and energy products exported to China, including an eight per cent existing tariff on aluminium oxide and all tariffs on coking coal as of today.
However the tariffs on thermal coal are slated to be slowly phased out over a period of two years.
Mining resources make up four out of the top five exports to China, with iron ore (worth $57 billion); coal (worth $9.3 billion); gold (worth $8.1 billion); and copper (worth $2.1 billion) rounding out the list.
The agreement has been welcomed by the Minerals Council of Australia.
“The Free Trade Agreement will deliver early and practical dividends, including the elimination of tariffs that add nearly $600 million in costs to the bilateral minerals and energy trade,” MCA chief Brendan Pearson said in a statement released today.
“The agreement will eliminate the three per cent coking coal tariff immediately, and the six per cent tariff on thermal coal within two years,” he added.
“All remaining tariffs on minerals commodities will be eliminated. These apply to a wide range of products including alumina, zinc, nickel, copper and uranium.”
The dropping of these tariffs is a major win for Australia as the coal market slows, and overall consumption drops in line with a weakening price as well as newly erected barriers to trade following a snap decision last year by China to introduce levies in order to support its ailing coal industry.
The decision saw tariffs of between three and six per cent introduced from October 15 last year.
The move was a surprise one for miners, after China had brought in import taxes on coal, excluding metallurgical coal, at six per cent in 2005 before it eventually removed them altogether in 2007.
The new move was an effort to support the nation’s failing coal industry, and followed the Chinese Government’s announcement of a tightening of quality in its coal imports in September that year.
It is understood around 70 per cent of Chinese coal mining companies are operating at a loss, according to China’s own Coal Industry Association, with its chair Wang Xianzheng stating that this figure is only likely to increase.
He went on to say more than half of Chinese coal companies are even struggling to pay their workers.
China’s National Development and Reform Commission also issued new proposed guidelines dealing with import restrictions at different coal quality threshold levels.
This move was first telegraphed in 2013, after China’s National Energy Administration drafted regulations to ban the import and domestic delivery of poor quality thermal coal to help curb its rampant pollution levels.
Under the initial drafts the regulations would ban coal with a net calorific value of 4540 kilocalories per kilogram or less, which would favour Australian coal at the expense of our main coal competitor Indonesia.
The government looked to limit the use of imported coal with more than 40 per cent ash and three per cent sulphur in from the start of this year.
On top of this the country has also instituted a reduction in thermal coal consumption levels by 160 million tonnes over the next five years, further tightening the criteria for imported coal.
The ChATFA is understood to remove many of these barriers.
However it is not all in Australia’s favour.
It is understood that the FTA will also allow China to bring skilled labourers to work on major Australia projects, though Robb has previously insisted that this is no different to current existing legislation.
“It means that if there are no Australian labourers available – and it won't be labourers, it will be skilled workers – for a particular project, they will be able to apply to get an investment facilitation agreement,” he said.