Submission to ChAFTA Post-Implementation Review

China FTA Coordinator
Regional Trade Agreements Division
Department of Foreign Affairs and Trade
RG Casey Building, John McEwen Crescent Barton ACT 0221
Via: ua.vog.tafd@atfanihc

Dear China FTA Coordinator

RE: ChAFTA Post-Implementation Review
GrainGrowers welcomes the opportunity to make a submission to the China-Australia Free Trade Agreement (ChAFTA) Post-Implementation Review.

GrainGrowers is a voice for Australian grain farmers with grower members across the country. We work to build a more profitable and sustainable grains industry for the benefit of Australian grain farmers. Our key pillars are policy and research, alongside leadership and events designed to build on the knowledge and capability of our growers. Our growers are at the heart of all that we do and the focus of our work.

We are a powerhouse of regional Australia with 22,000 farm businesses growing around 45 million tonnes of grains, oilseeds and pulses each year for domestic and global customers. There are over 100,000 people directly employed in our sector and we look after around 22 million hectares of land. Grains constitute around 22% of Australian agriculture’s gross value of production. Our grains, oilseeds and legumes are in high demand for livestock feeds, pharmaceuticals, biofuels, and more.

This submission discusses:

1. ChAFTA outcomes and new trade opportunities;
2. Grains sector expectations for ChAFTA and implementing of the ‘ ‘inbuilt agenda’;
   and
3. Maximising the ChAFTA opportunity.

Key Points

• Free Trade Agreements (FTA) are a necessary tool for developing and improving bilateral relations, driving economic growth, enhancing efficiency, and promoting greater fairness. GrainGrowers believes that FTAs should be the gold standard for continued trade and investment between countries.
• ChAFTA secured minor new market access for Australia’s grains exports.
• The promise of increased trade for grains for which tariffs were reduced is yet to be fulfilled.
• ChAFTA’s ‘inbuilt agenda’ is yet to deliver improvements in goods trade.
• ChAFTA has proved ineffective in providing greater certainty for Australia’s grains exports to China.
• To strengthen our grains trade with China, the Australian Government should:
  • Establish and promote an innovative joint strategic partnership to enhance corporation and trade outcomes.
  • Continue to seek to engage with the Chinese government including through high-level meetings;
  • Convene the ChAFTA Committee on Trade in Goods to secure new market access outcomes for wheat;
  • Regularly convene ChAFTA’s Committee on Sanitary and Phytosanitary (SPS) Measures and encourage good faith discussions that seek to quickly resolve SPS issues based on science and proactively address potential SPS trade barriers;
  • Undertake the mandated review of non-tariff barriers and include recommendations for resolving them;
  • Increase resources dedicated to negotiating import protocols;
  • Explore ChAFTA’s Joint Commission meeting to seek to resolve the barley dispute; and,
  • Increase support for industry efforts to deliver in market commodity promotion and technical support.

1. ChAFTA outcomes and new trade opportunities

ChAFTA secured the following tariff reductions for Australian grains exports to China:

• elimination of the 3% tariff on barley;
• elimination of the 2% tariff on sorghum;
• elimination of the 2% tariff on oats, buckwheat, millet and quinoa;
• elimination of tariffs of up to 7% on pulses (lentils, chick peas, faba beans, lupins) over 4 years; and,
• elimination of the 10% tariff on malt and wheat gluten over 4 years

While relatively small gains, these tariff cuts are important considering the bulk of Australia’s grains exports operate on thin margins. Notwithstanding the latest trade issues with barley, the 3% reduction on a $1.3billion market was of considerable benefit to the trade of barley. When competing with exports from countries where grain farmers receive significant government support1 , the benefits of tariff reductions on grains exports can materially improve our competitiveness and commercial outcomes.

While these tariff cuts were welcome, ChAFTA failed to secure any new access for two of Australia’s most important export crops – wheat, Australia’s largest grain export, and canola.

Australia’s wheat exports continue to be constrained by China’s policy to achieve self-sufficiency in staple foods including wheat2 . Trade is limited by a WTO MFN tariff quota of 9,636,000 MT (equal to 7.7% for China’s forecast wheat consumption for 2020-21) with an out-of-quota tariff of 65%. The quota, of which 90% is allocated to Chinese state trading enterprises, has never been filled3 .

ChAFTA also did not secure any new market access for Australian canola exports, another important export crop. While China removed its WTO tariff quota on canola seed in 2006, it introduced new biosecurity requirements in 2009 that continue to constrain the trade and which ChAFTA did not address.

Outside barley, Australia’s grains exports to China did not increase following entry into force of the free trade agreement (Chart 1). The reduced tariff on pulses was welcome but achieved no new market access as China is yet to agree an import protocol for Australian pulses (other than mung beans). The promise of new trade for sorghum, oats and specialty grains has not, as yet, been fulfilled.

Barley exports were already increasing before ChAFTA was concluded. China’s investigation and subsequent decision to impose prohibitive anti-dumping and countervailing duties on Australian barley reduced barley exports in 2018 and has effectively closed the $1.3billion4 market from mid-2020. Despite clear evidence that Australian barley was neither dumped nor were Australian farmers the beneficiary of countervailing duties, ChAFTA includes no effective mechanism to ensure due process with regard to antidumping and countervailing investigations. These duties which will remain in place for up to five years, will continue to impact on prices and markets across the Australian grains sector.

2. Grains sector expectations for ChAFTA and implementation of the ‘inbuilt agenda’

Despite minor gains in market access, the Australian grains sector welcomed ChAFTA as the basis for improved future trade relations. GrainGrowers submission to the Joint Standing Committee on Treaties 2015 inquiry into the proposed ChAFTA noted:

The deal is … a critical step in underpinning the very important and mutually beneficial Australia - China trade relationship and because it provides the basis on which to enhance trade into the future6 .

To that end, the agreement includes provisions aimed at continuing discussions on ways to remove impediments to trade, including improving market access outcomes. The ‘Fact Sheet’ released by the Department of Foreign Affairs and Trade at the time lists the following committees and review commitments relevant to grains exports:

• Committee on Sanitary and Phytosanitary Measures – to meet at least every two years including to review implementation of the SPS chapter, establish working groups and address issues that may arise.
• Ongoing review of non-tariff barriers to trade in goods, with an initial progress report including any recommendations, within one year.
• Committee on Trade in Goods – to meet as necessary including to review implementation of goods chapters, consult on accelerating tariff elimination and address tariff and non-tariff barriers.
• Review of agricultural safeguard measures including in the last stage of application of respective trigger levels, with a view to removing the measures.
• Review of origin documentary requirements to commence within three years, including consideration of developing an electronic origin data exchange system and introducing additional trade facilitative measures.
• Periodic review of customs procedures to explore options for simplification.
• Committee on Technical Barriers to Trade (TBT) – to meet at least every two years including to review implementation of the TBT chapter, establish working groups to address issues and develop recommendations to supplement the chapter.
• High-level Dialogue on Trade Remedies tasked with exchanging information on trade remedies / anti-dumping issues.

The grains sector placed particular value on the Committee on Sanitary and Phytosanitary measures as biosecurity measures were, and remain, major impediments to trade. It appears ChAFTA’s goods committees are not meeting regularly and the reviews related to goods trade mandated under ChAFTA are yet to take place. According to the DFAT website, the last meeting of the SPS Committee was held over 2 years ago and the Joint Commission over 3 years ago.

ChAFTA Joint Committee meetings

• Committee on Trade in Goods - TBC, 2018
• FTA Joint Commission - TBC, 2018
• Committee on Sanitary and Phytosanitary - 1 June 2016
• Committee on Trade in Good - 23 January 2017
• FTA Joint Commission - 21 February 2017
• Committee on Technical Barriers to Trade - 19 May 2017
• Committee on Sanitary and Phytosanitary Measures - 9 November 2017

In order to maximise the opportunity promised by ChAFTA, it is critical these committees and reviews are convened more regularly, include industry input, have substantive agendas and secure agreement on commercially meaningful outcomes.

3. Maximising the ChAFTA Opportunity

The size of China’s population and continuing economic growth means it will remain an important trade partner for Australia for the foreseeable future. Historically China has been a significant market for Australian barley and while other major crops have other primary markets, China’s importance and potential cannot be overstated. The Australian grains industry continues to seek opportunities for increasing exports to this market.

The need to constantly manage international market risks (including changes in domestic and international production, consumer demand, biosecurity risks, and political intervention) also means opening and locking in access to as many commercially viable markets as possible. This is critical to the long-term profitability of the Australian grains sector.

To date, ChAFTA has proven that even with an FTA, there are still barriers to market access that need addressing to effectively expand Australia’s grain trade with China. While the agreement includes committees and reviews for improving trade, there are no incentives to employ those mechanisms.

GrainGrowers acknowledges that the implementation of trade agreements requires both parties to engage in good faith. In order to maximise the opportunities created by ChAFTA GrainGrowers considers the following actions by the Australian Government necessary to help strengthen our grains trade with China.

The Australian Government should:

• Continue to seek to engage with the Chinese government including through high-level meetings;
• Convene the ChAFTA Committee on Trade in Goods to secure new market access outcomes for wheat;
• Regularly convene ChAFTA’s Committee on Sanitary and Phytosanitary Measures and encourage good faith discussions that seek to quickly resolve SPS issues based on science and proactively address potential SPS trade barriers;
• Undertake the mandated review of non-tariff barriers and include recommendations for resolving them;
• Increase resources dedicated to negotiating import protocols;
• Employ ChAFTA’s Joint Commission meeting to seek to resolve the barley dispute; and,
• Increase support for industry efforts to deliver in market commodity promotion and technical support.

In conclusion while there are improvements that could be made to ChAFTA, FTAs are a necessary tool for developing and improving bilateral relations, driving economic growth, enhancing efficiency, and promoting greater fairness. We encourage the Australian Government to adequately resource an ambitious agenda to deliver enhanced trade and market access outcomes for the Australian grains industry.

Should you require any further information in relation to this submission, please do not hesitate to contact Amelia Shaw, GrainGrowers Rural Affairs Policy Manager at amelia.shaw@graingrowers.com.au.

Your sincerely,

David McKeon CEO,
GrainGrowers Limited