Australia's trade deals: the year in review, and the year ahead

By Ken Ooi, Samy Mansour and Simon Brady

23 Nov 2017

Australia has continued to pursue an open market strategy and promote free trade over the year. There have been a number of key developments that offer opportunities for Australian businesses who are across the changes and are ready to respond, with potential opportunities in 2018.

Even with indicators of a potential global shift towards protectionist policies at the end of last year, Australia has continued to pursue trade agreements successfully and demonstrate its interest in an open markets approach to international trade in 2017. Since our last progress update on Australian Free Trade Agreements (FTAs), Australia has made progress in a number of areas worth noting.

In addition, numerous important negotiations in 2017 have paved the way for a number of new trade agreements to be finalised in the near future.

Trans-Pacific Partnership: closer but not there yet

Although the US decided not to join the Trans-Pacific Partnership (TPP), the remaining 11 nations had reached a high level understanding of the core elements to form the basis of a Comprehensive and Progressive Agreement for the TPP (CPTPP). This agreement represented a shift in geopolitical ideologies, demonstrating Japan's ambitious leadership strategies and China's focus on multilateralism, and was in stark contrast to the Trump administration's inward-looking approach to trade.

This new iteration of the original TPP came close to finalisation at a recent meeting in Vietnam.

Unfortunately for the rest of the CPTPP participants, Canada's Prime Minister Justin Trudeau decided not to agree at the last minute, stating that he did not want to "rush into an agreement". On a positive note however, Mr Trudeau did state that there were a number of improvements that had been made to the original TPP, and that a CPTPP would assist Canada in its renegotiation of the North American Free Trade Agreement.

Australia remains hopeful that Canada will be persuaded. From Australia's perspective, there are a number of benefits that would flow from the CPTPP. Studies conducted by the Peterson Institute for International Economics show that even without the participation of the United States, Australia's national income and exports would increase by 0.5% and $29 billion respectively. Trade Minister Steve Ciobo has also stated that a fully functional CPTPP would create a more liberalised trade environment amongst the participating nations, and potentially 19 new FTAs over the next couple of years.

Signing of the PAFTA

In November 2017, Australia finalised the Peru-Australia Free Trade Agreement (PAFTA), which will facilitate Australia's presence in Latin America. This agreement represents a major milestone with one of Latin America's fastest growing economies. The PAFTA will eliminate 99% of the tariffs that affect Australian exporters entering the Peruvian market, with Australian sugar exporters expected to benefit the most, given 30% of Peru's sugar imports are from Australia.

The PAFTA will also mean that Peru has duty-free access to Australian lamb, wine and a variety of horticultural products. It is hoped that the PAFTA will contribute to the continued growth in trade between the two countries, noting the 51.2% increase in trade between Peru and Australia in 2016.

Update on the Singapore Australia Free Trade Agreement (SAFTA)

The modernisation of the SAFTA has continued in both countries, with the introduction of legislation in Singapore to give Australian-originating goods a preferential tariff. Changes to tariffs have also been made at the Australian end where there are now excess-equivalent rates for obtaining duty-free access to Singaporean-originating goods.

Negotiations for the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA)

As part of the on-going negotiation process for the finalisation of the IA-CEPA, Australia and Indonesia have recently agreed on a variety of different tariff reductions for goods in the agricultural and sugar industry. These reductions will mean more favourable importing tariffs imposed on raw sugar from Australia and herbicides/pesticides from Indonesia.

Quarterly negotiations held between Australia and Indonesia have led to the establishment of groups such as the Indonesia-Australia Business Partnership Group (IABPG). The IABPG ultimately acts as the vehicle through which businesses from both nations can discuss their long-term domestic and international trade objectives. Given the above successes, representatives from Australia and Indonesia have suggested that the IA-CEPA could be finalised by the end of 2017.

China Australia Free Trade Agreement (ChAFTA) Update

In March, the Minister for Trade, Tourism and Investment, Steve Ciobo, and Chinese Commerce Minister, Zhong Shan, signed a Declaration of Intent regarding Review of Elements of the China-Australia Free Trade Agreement. The Declaration announced the commencement of reviews of services and investment commitments under ChAFTA, as well as a review of the operation of the Investment Facilitation Arrangement MOU concluded alongside the Agreement.

Negotiations for the Australia Hong Kong Free Trade Agreement (A-HKFTA)

Negotiations for the enactment of the A-HKFTA commenced on 16 May 2017. Australian objectives include the continuation of zero tariff levels charged on Australian goods imported into Hong Kong, as well as the facilitation of greater regulatory certainty for the protection of e-commerce products and IP rights that are affiliated to businesses operating out of the region. Successful implementation of these objectives would likely increase the current $16.3bn two-way trade.

Japan-Australia Economic Partnership Agreement (JAEPA) Update

The JAEPA continues to be one of Australia's most effective and beneficial agreements. This continued success with our second largest trading partner has been further supported with a fourth round of tariff cuts - 97% of all Australian products are now entering Japan duty-free, benefitting numerous Australian industries.

To date, wine and beef exports are up 12% and 38.5% respectively, and the strong growth experienced in each of these industries will likely contribute to continued negotiations and reductions throughout 2018. Trade between Australia and Japan currently sits at $61.1bn.

Signing of the Pacific Agreement on Close Economic Relations (PACER Plus)

PACER Plus was signed on 14 June 2017. This FTA, which has been entered into by Australia, New Zealand and eight Pacific Island countries, will facilitate both trade and development throughout the region. It is also hoped that each Pacific Island nation will establish a more stable and prosperous trading environment, allowing Australia to strengthen its political and economic relationship with the region generally.

Commissioning of the India Economic Strategy

In September of this year, the Turnbull Government commissioned the India Economic Strategy to provide a mechanism for Australia and India to work towards enhanced economic growth. The Government has asked for public submissions on the strategy with this important trading partner. We can expect more detail shortly of the submissions and a timeline for continuing negotiations throughout 2018.

United Kingdom / EU relations

Australia continues to reassess its relationship with the UK and the possibility of an FTA post-Brexit.  Malcom Turnbull has demonstrated his intent to pursue this idea, stating that "as Britain moves to completing its exit from the EU, we will stand ready to enter into an FTA as soon as the UK is able to do so".

On the other side of the coin, the UK currently serves as a gateway for Australia to access the broader EU market, and Brexit would likely reduce this benefit, so Australia must consider trade agreements with surrounding nations such as Ireland, which some believe could replace the UK as Australia's first point of entry into Europe.

Looking forward

Following a relatively successful year of trade negotiations in 2017, Australia currently has 10 FTAs in force. This will increase to 11 once Australia formally ratifies the PAFTA.

In 2018, we can expect progress towards the signing of the IA-CEPA and CPTPP, as well as continuing negotiations with India and the UK.

Australian businesses should remain abreast of the FTAs in place and upcoming proposed changes to ensure their international strategies are appropriate and ready to meet both the opportunities and challenges that changes in international trade laws and agreements bring.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.