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Beyond the Bale : December 2014
MARKET INTELLIGENCE 55 CHINA–AUSTRALIA FREE TRADE AGREEMENT (FTA) The well-publicized Free Trade Agreement (FTA) recently agreed upon between Australia and China is expected to have little, and any immediate, impact on the current trading conditions in the Australian wool market. Despite the public announcement of the FTA, Australian and Chinese governments will have to finish writing the text of the FTA in both English and Chinese and then signed off upon, following legal reviews of the completed versions in 2015. Once that happens, the agreement will then be implemented. Prior to the FTA being officially signed, it is understood that the current arrangements that all Australian wool imported into China will attract the one per cent tariff and any wool imported into China above the allocated global quota of 287 million clean kg will still be subjected to the 38 per cent Tariff Rate Quota (TRQ). Significantly, only in 2006 and 2007 has the full allocation of the quota been exhausted, whereby the 38 per cent tariff kicks in. Whilst Australia had originally sought negotiation of a 100 million clean kg CSQ (Country Specific Quota), the agreed upon FTA includes a final figure of 30 million clean kg CSQ from Australia, which will be tariff free and be increasing incrementally by five per cent per annum for eight years, at an assumed compounded rate. This will see the CSQ rise to 46 million clean kg (estimated) by the year 2023. All wool exports to China from Australia in excess of the 30 million clean kg CSQ will then be subject to a one per cent tariff, up to the 287 million clean kg global Quota. (Yet to be clarified is if the 30 million clean kg is an addition to the global quota allocation of 287 million clean kgs, or whether it has to fit within that total.) How the Australian CSQ tariff free allocation of 30 million clean kg is allocated or managed each year remains unknown, but if the New Zealand model is used as a template, it can be assumed that the first 30 million clean kg imported that year will be the tariff free component. The 30 million clean kg CSQ means relatively very little in reduction of overall percentage cost to the industry. Whilst any lowering of costs to Australian wool growers is always a welcome relief, the savings to all of industry will be an estimated AU$3.32 million per annum, based on the current EMI of 1047ac clean/kg and CIF (cost of insurance and freight) delivered Chinese mill costs of around 60ac clean/kg and a US dollar versus AU dollar exchange rate of 0.87. A review of market access issues is also flagged within the FTA announcement and will be conducted in three years, whereby the wool industry representatives are able to again push for the abolition of the quota system entirely. In other agriculture and food areas that may be of consequence to woolgrowers: • The removal of all tariffs on our dairy products (which can be as high as 20 per cent) within four to 11 years. • The removal of tariffs of 12 to 25 percent on beef over nine years. • The removal of tariffs on live animal exports of 10 per cent within four years. • The removal of tariffs on sheepmeat of 12 to 23 per cent over eight years. • The removal of tariffs on all horticulture products, ranging up to 30 per cent, most within four years. • The immediate elimination of the three per cent tariff on barley. • The removal of tariffs on seafood, including of 15 and 14 per cent respectively on rock lobster and abalone, over four years. • The removal of tariffs across a range of processed foods including fruit juice and honey. • The removal of tariffs of 5 to 14 per cent on hides, skins and leather over two to seven years. MARKET INTELLIGENCE REPORT CHINA’S TEXTILE EXPORTS GAINED DOUBLE-DIGIT GROWTH IN OCTOBER China’s textile and garment exports achieved a double-digit growth in October, according to the trade data released by China’s General Administration of Customs (GAC). Textile and garment exports rose 10.2 per cent year on year in October to USD26.54 billion, with textile exports up 13.8 per cent to USD9.75 billion, and garment exports up 8.2 per cent to USD16.79 billion. On month-on-month basis, total exports fell seven per cent from September, with textile exports remaining the same amount and garment exports down 11 per cent. In the first ten months, textile and garment exports came to USD248.42 billion, up 6.3 per cent year on year, with textile exports up 5.8 per cent to USD92.85 billion and garment exports up 6.7 per cent to USD155.57 billion. China's total exports came to USD206.87 billion in October, up 11.6 per cent from a year earlier, and total imports rose 4.6 per cent year on year to USD161.46 billion, resulting in a monthly trade surplus of USD45.41 billion. For the January-October period, China's total exports and imports hit USD3.53 trillion, up 3.8 per cent. Trade surplus during the period stood at USD277.11 billion, up 38.5 per cent year on year. During the January-October period, trade with the European Union, China's largest trading partner, saw the fastest growth of 9.8 per cent year on year, and trade with the United States, China's second-largest trading partner, was up 5.5 per cent. China-ASEAN trade went up 7.4 per cent year on year. China’s external trade environment might slightly improve next year but it still faces uncertainties, the Ministry of Commerce said in a report published in early November, and the combined exports and imports growth of 3.8 per cent in the first 10 months suggests China will miss its trade growth target of 7.5 per cent for a third consecutive year.