For Australian lawyers, ChAFTA’s December 20, 2015, commencement date marked the opening of vast new markets. The launch of the China-Australia Free Trade Act signalled the first-ever FTA commitment to cross-border legal services between China and another country (except only for Hong Kong and Macau). With the addition of “Most favored Nation” status, China has elevated its relationship with Australia and secured Australian entrepreneurial access to Chinese markets across more than a dozen industries.
Emergence of Australian-Chinese Legal Associations
As a bilateral trade and investment agreement, ChAFTA builds on work done by both sides of the agreement over the past decade. Since 2008, the Law Council of Australia (LCA) has been working with its Chinese counterparts to establish closer ties between the two legal professions. Considering that Australia is one of China’s biggest trading partners, the amount of business exchanged between the two countries is enormous. Until ChAFTA, however, legal work done on joint projects had to be done by separate lawyers from their separate jurisdictions.
Pre-ChAFTA, there were different sets of rules applied to foreign and Chinese law practices. Foreign law firms could set up representative offices and conduct legal work with regard to their home country jurisdiction. However, they were not permitted to practice People’s Republic of China (PRC) law, nor were they permitted to establish arrangements with Chinese law firms to provide services on an integrated basis.
The new rules permit associations between Chinese and Australian law firms similar to the arrangement currently existing between lawyers from Hong Kong and mainland China, pursuant to the Closer Economic Partner Arrangement (CEPA). For eligibility, the newly formed, associated firm must maintain an office in the Shanghai Free Trade Zone (SFTZ) and work on an integrated basis through shared office space and resources.
For Australian lawyers, these associated firms can now offer Australian, Chinese and international legal services to clients anywhere in China. Australian lawyers will be able to practice both Australian and international law from the Chinese location. Chinese lawyers will be able to practice Chinese and international law on behalf of Australian clients without risking their certifications.
To free up the mobility of employees between the countries, CHAFTA also provides for three reciprocal secondments per company between the two countries, so Australian lawyers can work in China while maintaining their Australian employee status. The anticipation of secondments opens the opportunity to better clarify that status and its legal consequences to home entities and host entities.
A “secondment” position is created when an international employee is sent to work on a project within China, but while retaining status as a home-country employee. Because of advantageous home-country benefits, many international enterprises keep these “home” employees on the payroll while they continue their employment on Chinese “host” shores. However, the tax consequences of this arrangement have been confusing and inconsistently applied, leading to lawsuits. ChAFTA provides a mechanism for the LCA and the All China Lawyer’s Association (ACLA) to together develop recommendations for secondments between Chinese and Australian law firms. The secondment standards established by the two legal organizations may provide taxation guidelines for other multinationals with employees working at Chinese sites.
Newly Accessible Industry Markets
ChAFTA also opens doors to industries likely to benefit from these cross-border legal services. In addition to traditional legal services, banks, insurance companies, professional services providers, and securities and futures providers will be seeking legal council regarding properly connecting their goods and services to the newly opened Chinese markets. Other industries anticipating servicing China’s growing consumer economy include educational services, health care (especially elder care), construction and telecommunications services. Entering these markets will be easier for foreign companies as well, as ChAFTA also includes infrastructure to recognize international qualifications of service providers, and to seek additional avenues for advancing recognition initiatives set up by foreign profession services bodies.
There’s no way to know if China might open its markets to other trading partners to the same extent as it has to Australia. What is certain is that ChAFTA offers an extraordinary opportunity for Australian enterprise to capitalize on the close friendship that iexists between the two long-time trading partners.
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