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China FTA safeguard sting

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Queensland Country Life | 2 April 2019

China FTA safeguard sting

WITH Australia now well advanced in its progression through the tariff reduction schedule for beef in the China-Australia Free Trade Agreement (ChAFTA), elimination of tariffs is now only five years away (Jan 1, 2024) but the little known sting in the tail is that the special agricultural safeguard measure will continue at least until 2031 and then there is the possibility of a further six-year extension after that.

This is highly significant because the trigger tonnages in the safeguard are not overly generous in light of the escalating beef trade to China.

If safeguard is triggered, tariff reverts to the lesser of WTO most-favoured-nation (MFN) applied rate of customs duty in effect on the date the safeguard measure is applied or the original base rate of the tariff reduction schedule.

In Australia’s case the base rate for chilled or frozen bone-in or boneless cuts was 12 per cent, while chilled or frozen carcases/half carcases were 20 and 25pc respectively.

Tariff rates applicable this year under the FTA reduction schedule are 6pc for chilled or frozen bone-in/boneless cuts and 10-12.5pc for carcases. That could mean a 6 to12.5pc increase in tariff later this year for Australia’s beef exports to China if safeguard is triggered.

The likelihood of this happening can be judged from recent export statistics. According to the Department of Agriculture and Water Resources, Australia exported 162,682 tonnes (shipped weight) of beef to China in 2018, a 48pc increase on 2017.

But that seems to have just been a warm-up, with the first three months of 2019 compounding that gain by a further 67pc increase period-to-period. That means the safeguard which is set at 174,454t this year could trigger by October if anything like the current flow of product is maintained.

Also, the current level of exports to China equates to a notional full-year figure of around 230,000t but the safeguard is not scheduled to reach that level until 2029. In fact it will be 2024 before the safeguard even reaches 200,000t. That suggests Australia may find itself constantly butting up against safeguard in the Chinese market from here on, much as happens in our beef trade with Korea.

Compare this to our near-neighbour and beef export competitor New Zealand who very cleverly got their FTA with China in place by 2008 and saw their beef tariffs drop to zero by 2016. Probably because a boom in beef exports was not on the radar at that time, China did not require a safeguard and none was written into the NZ-China FTA.

Clearly the Chinese saw things differently by the time they got into negotiations with Australia. Similarly, if and when China elects to engage in FT negotiations with the South American beef giants Brazil, Argentina and Uruguay, safeguard will undoubtedly be on the agenda.

In the meantime those countries remain the three largest global beef exporters to China and as WTO members attract the relevant MFN customs duty for the type of product supplied.

Latest information from WTO website indicates that current MFN rates remain the same as the base rates described above.


 source: Queensland Country Life