Australia’s FTA with China: Better to grow slowly than to stand still

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17 November 2014 | By Andrew Lumsden (Partner)

After a long gestation, China and Australia are expected to sign a free trade agreement (FTA) this afternoon. For Australia, this agreement holds the promise of securing a greater share of the world’s largest market as well as deepening bilateral relations.

Reports suggest China is agreeing to a broad range of concessions that will exceed the estimated A$18 billion of benefits to Australia over 10 years.

But what does the FTA mean for Australian businesses on the ground? While “$A18 billion over 10 years” sounds impressive, the key question is how will that benefit be realised practically?

Australian agriculture, horticulture and services industries are likely to be the big local winners from the FTA - reaping the benefits of lower tariffs and more open access to China’s markets.

Improved access for health, education and financial services, as well as lower tariffs for dairy, beef and wine are particularly encouraging. Over time, it’s expected up to 95% of Australia’s exports will enter the Chinese market tariff free.

But while the FTA is a giant step forward in trade relations between China and Australia, it is not an end in itself. The FTA is a platform that gets us an entry into the most promising market in the world. But it doesn’t guarantee China’s consumers or businesses will be interested in buying what we have to offer.

“Brand Australia” needs to emerge. In a crowded global market of producers looking to engage with the world’s fastest growing market Australia needs a focused strategy with long and medium term objectives that are realistic, achievable but not easy. It requires the coming together of the best brains in government and industry and a shared understanding of who we are, what we want to be famous for and how that fits with the “Chinese dream".

Can we build out products like wine (now worth some $200 million) and other horticultural products, seafood and other goods to include health and aged care service providers or even financial services companies?

What should our marketing pitch be to China and how can we leverage off our strengths? How can we use the FTA as a platform to build another robust, substantial and enduring export market?

In building a strategy, Australia can take lessons from New Zealand which has had an FTA with China since 2008. For New Zealand, the FTA has been a remarkable success, with the Kiwi dairy industry being the primary beneficiary. Exports to China quadrupled in the four years between 2008 and 2012 and China has already overtaken Australia as New Zealand’s largest export market.

Behind this export growth is, “NZ Inc.,” the brand that markets New Zealand’s export product. It’s a clean, green image that holds real currency in China.

So, now after 10 long years Australia will have a China FTA too. What will Brand Australia mean to China’s rising middle class? By 2015, more than one quarter of the Chinese population is expected to earn between 100,000 and 200,000 RMB ($A19,000 to $38,000). Will Australian-branded products and services feature in their lives?

In order to fully capitalise on the opportunity that an FTA with China represents, the hard work must now begin. In coming articles we will explore the detail of what the proposed FTA means and how Australian business can capitalise on this historic initiative.




The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


Contacts

Andrew Lumsden

Partner. Sydney
+61 2 9210 6385

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