Effect of China―Australia free tradeagreement (FTA) on China

[Abstrac]t： On December 20， 2015， the China-Australia free trade agreement （FTA） took effect， which means that the development of China-Australia trade relationship opened a new era. Accordingly， this paper from the perspective of macroeconomic and various industries， and from primary industry， secondary industry and tertiary industry to analyze the effect of China-Australia FTA.

[Key words]： China-Australia FTA

1. Introduction

According to WTO statistics in 2012， the regional trade arrangements recorded in WTO is 511 which there are 319 in force. On November17， 2014， after negotiating the China-Australia trade and economic relations entered into a new stage， and formed the closer trade partnership in comprehensive aspects. The organization of the paper as follows： Section 2 provides a survey of what free trade zone is considered to be and literature review； Section 3 represents history background between China and Australia and the situation of China-Australia trade； Section 4 shows us the contents of China-Australia FTA； Section 5 analyzes the effect of China-Australia FTA on China from primary， secondary and tertiary industry； Section 6 gives concluding remarks.

2. The definition of free trade zone and literature review

（1） The definition of free trade zone

Free trade zone is one of the main forms of regional economic integration， which refers to two or more countries through the conclusion of a treaty to eliminate tariff barriers and quantitative restrictions. The target of free trade zone among members is to abolish tariffs and other trade barriers， to achieve complete freedom of movement within the region， but each member state still retains the original barriers against non-member countries.

（2）Literature review

Gilbert and Wahl （2001） use GTAP model to assess the welfare effects of three different regional trade liberalization brings to different countries. Zhou shudong （2006） uses GTAP model and find China-Australia trade liberalization is beneficial to improve bilateral trade and increase the volume of China’s export. Yang jun （2005） also uses GTAP model and find China and Australia exits economic interaction and China-Australia trade liberalization is useful to improve the welfare. These studies provide some references to study the effect of China-Australia FTA from different perspectives.

3.The situation of China-Australia trade

China and Australia established diplomatic relations in 1972. Especially， after entering the 21st century， China and Australia signed a "framework trade between China and Australia" to promote economic and trade cooperation.

Table 1 ： China-Australia’s export and import trade from

From table 1， in 2013， the total imports and exports from China to Australia is $136.38 billion. Precious metals and products to China is Australia’s second largest category of export commodities， exports $4.76 billion， accounting for 7.4% of total Australian exports to China； textiles and raw materials exports to China is Australia's third largest category of goods， exports of $1.99 billion. While imports from China， mainly mechanical and electrical products， textiles， furniture and other products， from January to September 2014， total imports $20.76 billion， accounting for 61.8% of China from Australia's total imports. From the above discuss， China is Australia's largest trading partner， while continuing to maintain the status of Australia's largest export market and largest source of imports.

4.The contents of China-Australia FTA

China-Australia FTA covering not only traditional trade in goods， trade in services， investment and rules， but also includes e-commerce， government procurement and other high-level "21st century economic and trade issues".

（1） In the field of trading in goods， China and Australia each side holds 84.5% of the export volume of products to achieve zero tariffs immediately； after tax transitional period， Australian tariffs for all products to China ultimately achieve zero tariff， zero tariff items and trade volume accounted for both the proportion will reach 100%； Chinese tariffs on most products Australian team eventually reduced to zero， zero tariff items and trade volume accounted for 96.8% and 97% respectively.

（2） In the field of trading in services， Australia's commitment to China in the manner of a negative list to open service sector， becoming China's first country to make a negative list trade in services commitments in the world； China places a positive list approach to opening up the services sector in Australia. China committed to allow the financial sector， legal services and other services area open to Australia， a substantial relaxation of the Australian industry access.

（3） In the field of investment， since the commencement of the agreement， China and Australia will give each other most favored nation treatment， to increase market access and transparency in business investment. Australia promised to reduce investment review threshold which Chinese companies invest in Australia， and under a $1.094 billion investment plan without through foreign investment review board approval， which will be conducive to Chinese enterprises.

5. Analyzes the effect of China-Australia FTA on China’s primary， secondary and tertiary industry

（1） Primary industry

China and Australia is important partner in agricultural products trade. Moreover， China is the third largest market that Australia export agricultural products and Australia is China’s ninth largest trade partner. China exports agricultural products from Australia accounted for 10.96% of China’s total export from Australia.

Table 2： China and Australia trade general situation of agricultural products （unit： a hundred million dollars）

From the table 2，from 1998 to 2008 China’s agricultural imports from Australia keep rising， only drop in 2003 and 2006， and $6.83 billion in 1998 rise to $2.934 billion in 2008. China’s agricultural imports from Australia increased rapidly in 2000 and 2004 ， reaching 56.39% and 98.61% respectively. Imports of agricultural products in 2008 breakthrough $29 billion. In terms of primary industry， there are broad prospects of cooperation between China and Australia.

（2） Secondary industry

After the construction of the FTA， the space of tariffs decrease is limited， so China's industrial products especially the number of light industrial products in Australia will be increased. As for heavy industry products， China's exports to Australia facing the competition from Europe， America， Japan and other economies. For China’s imports， because of the establishment of the FTA， the price of raw materials such as coal， ore would reduce. In the meantime， rapid development of China's economy led to the product demand rapid increase， coupled with the Chinese consumer demand for high quality consumer goods more and more high， so China's imports from Australia's primary raw materials and semi-finished products will have a certain degree of increase， and probably exceed China’s manufactured goods exports to Australia.

（3）Tertiary industry

Australia's commitment to China in the manner of a negative list to open service sector， becoming China's first country to make a negative list trade in services commitments in the world. There exits an chance that Chinese companies are able to access to Australia. Before that， however， Australia has advantage on service trade.

Table 3： China to Australia goods trade deficit and service

稻堇丛矗喊拇罄亚国家统计局

From table 3， China for Australia is facing the twin deficits of trade in goods and services. The total deficit reached $66.397 billion， and the amount of service trade deficit in 2013 is 3.37 times than 2004. In 2013 compare with Australia-China's trade deficit in services accounted for 4% of total China’s trade deficit in service ， Australia is one of the main sources of China's service trade deficit.

As for China and Australia， their personnel exchanges will be more convenient after signing FTA. The number of Chinese tourists and students to Australia will increase and bring new development opportunities to the Australian education and tourism industry.

Concluding remarks

This paper has demonstrated that China-Australia FTA has effect on China from primary， secondary and tertiary industry. Our major findings are summarized as follows： First， both China and Australia would benefit from FTA. Second， the implementation of China-Australia FTA marks the economic and trade relations between two countries into a new era. However， this paper is only a superficial research about the effect of China-Australia FTA and there are remain many unresolved questions. It still need more detailed quantitative evidence to understand further the impact of FTA.

References：

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