As with all such agreements, there is an air of optimism as to how by stimulating the economy in such a way, new jobs will be created and living standards can be improved. This is also the case in Australia and it is quite understandable. Despite all kinds of indications that the Chinese economy might be under pressure, it is still the biggest economy in the world when it comes to purchasing power, and managing preferential terms for imports and exports is a big deal.
“More than 85% of Australian goods exports will be tariff-free upon entry, rising to 93% in four years. On full implementation, 95% of Australia goods exports to China will be tariff-free.”
Agricultural products will also benefit (see article for details). Earlier this year I shared some detail on beneficial European market access for South African agricultural products such as sugar, wine, ethanol, fruit, flowers and some dairy. This agreement allows duty-free importation into the EU of amongst others 150 000 tons of sugar, 80 000 tons of ethanol and 110 million litres of wine. The Australian-China deal does, however, abolish duties as a whole for the Australian dairy industry as well as horticulture. Beef and sheep farmers get discounted tariffs of up to 25% and the current tariffs on Australian wine of between 14% and 30% as well as seafood will go as a whole within the next four years.
Definitely a wonderful opportunity for Australia and it will be interesting to see how the agreement impact on South African exports to China. Wine is of course what I am interested in, but the agreement also benefits the energy products such as coal. South Africa’s exports of coal to China has basically come to a standstill since April this year. The reason seems to be that because of its economic slowdown, China orders fewer energy sources in general, especially from remote markets such as South Africa.
I enjoy focusing on the positives, but there are some warning signs when the world’s biggest purchasing power is scaling down and is signing free trade deals with countries closer to it – especially if those countries supply similar goods such as energy sources and agricultural products.
Since 2010 China has become South Africa’s biggest trading partner and Chinese investment in South Africa is well documented. While agreements of cooperation have been signed, a free trade arrangement with our Brics partner has not yet materialised.
The African Development Review states the current status: “China’s trade with South Africa has become more important in recent years, and a SACU-China free trade agreement has been proposed to further strengthen this trade relationship. This paper examines the relevance of this proposed trade policy for further enhancing bilateral trade flows and development in SACU. The paper finds that tariff liberalization alone is inadequate for successful trade integration, as it benefits mostly South Africa only and harms some of SACU’s internal and external trade and its welfare through trade diversion. Measures to improve trade complementarity, reduce barriers to intra-industry trade, and implement parallel MFN trade liberalization should also be undertaken by SACU in order to achieve successful trade integration with China.”
See the accompanying image showing China’s current free trade agreements.