Not the least significant aspect of ChAFTA is its clause elevating Australia to “Most Favoured Nation” (MFN) with China. The MFN status carries a unique signature in the global trade arena, and Australia is expected to gain significant economic advantages by aligning itself in this manner with its long-time trade partner. A review of the steps and considerations that went into the development of ChAFTA and its included MFN clause might be helpful for enterprises that are contemplating a foray into the new trade opportunities those documents offer.
The Chinese and Australians have been trading partners since the establishment of the Colony in 1788. Over the next 160 years, Chinese immigration to the country expanded and contracted, as the political situations in both countries shifted. The vitality of the friendship was invigorated in the 1930’s and 1940’s, as China faced conflicts with Japan, and Australia, noting the threat, allied with China against the approaching Japanese. The allied arrangement continued through the course of the war and represented a dominant element in the defeat of the Axis armies in Southeast Asia in 1945.
MFN Confers Partnership
The MFN status was developed after World War II (WWII) as a hedge against the political power blocs that emerged from the ashes of World War I (WWI). These alliances among small groups of countries created uneven trade imbalances which caused excessive damage to unpartnered neighbor countries. They are considered to be one of the fundamental causes of the second global conflict, causing the world to split into two defensive forces, the Axis powers, and the Allies.
To avoid these exclusionary and potentially predatory partnerships from developing in the future, the WWII victors signed a pact that established “normal trade relations” among them – a system of equal trading terms among countries in the pact that hold the MFN status. The terms of any one agreement between two members are carried over to trade activities among all members. The World Trade Organization (WTO) assumed management of the principle at its establishment in 1995. The “free trade agreement” is an exception to the WTO MFN status and allows the establishment of separate trade deals between countries with similar or advantageous trading opportunities.
China’s Designation of MFN Status
China’s designation of Australia as an MFN means Australia will benefit from agreements, including free trade agreements (FTA’s), that China may enter into with other nations. China currently holds FTAs with 12 other political entities besides Australia: Pakistan, Chile, New Zealand, Singapore, Peru, Costa Rica, Iceland, Switzerland, Korea, Hong Kong, Macao, and ASEAN (Association of Southeast Asian Nations). The ChAFTA potentially opens opportunities for Australian enterprises to access these markets as well. In the future, Australia may also reap the benefits of Chinese trade deals yet to be signed, such as those currently in negotiations with the European Union (EU) and the United States (US).
When ChAFTA was announced in mid-2015, Australian leaders heralded it as an unprecedented demonstration of China’s new willingness to do business with a developed economy. Virtually eliminating the competing industries from the EU and U.S. industries, the Australian deal signals a potential bonus to Australian coffers of as much as $AU24 billion over the next decade. Already, China imports nine times as much from Australia as it does from the US, a number certain to rise with ChAFTA in place.
Additionally, much of the anticipated growth will be from China’s growing demand for services. Legal services, access to education, tourism, hospitality, health care and aging support services are all included in the markets opening up to Australian providers through ChAFTA.
Expanded Opportunity for Investments in Australia
The financial river will flow in both directions, as well. The base of the Chinese economy is shifting from manufacturing to services, as its middle-class clamors for opportunities offered to citizens of other developed nations. Already, http://usa.chinadaily.com.cn/business/2015-03/13/content_19804190.htm And China’s explosive online retail sales sector is expected to enjoy the benefits of ChAFTA, too. The Chinese online retail market is larger than that of the US, accounting for almost half a trillion US dollars in 2014. With a larger, more respected presence in the country, Australian retailers should see a jump in their Chinese shipping logistics over the coming years as a consequence of the China-Australian free trade act.
The full effect of ChAFTA will not be recognized, perhaps, for years, while each element rolls out into the joint China-Australian marketplace. As you contemplate how to maneuver your enterprise through the options offered by ChAFTA, give me a call. I’m happy to help you make the best of what looks like a fantastic opportunity.
If you are interested in knowing more about China, download the first free chapters of my book here.