Australia opens China’s services market with free trade accord

Australia hailed a free-trade agreement with China that it says provides unparalleled access to the services market of the world’s second-largest economy. The deal, once signed in 2015, will mean 85 percent of Australian goods exports to China will be tariff free, rising to 95 percent when fully implemented, Prime Minister Tony Abbott said. Tariffs will be removed from some resources and energy including aluminum oxide and coking coal, and phased out on thermal coal over two years.

The deal “will add billions to the economy, create jobs and drive higher living standards,” Abbott said Monday in a statement. “It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment.”

Australia is the most China-dependent developed economy in the world, with exports to the nation accounting for 5.3 percent of gross domestic product, according to Commonwealth Bank of Australia, and two-way trade reached about A$150 billion ($132 billion) in 2013. Policymakers want to rebalance growth drivers from resources to other areas like services, which account for 70 percent of GDP but just 17 percent of exports.

“This should help to support Australia’s great rebalancing act,” said Paul Bloxham, chief Australia economist at HSBC Holdings PLC in Sydney. “Although mining will continue to be an important part of Australia’s export basket, dining is also expected to support Australia’s growth. Australia’s FTA with China should help support a dining boom as the mining boom comes to its end.”

Australia’s exports to China need to adjust as the government in Beijing engineers a transition to consumption-led growth from fixed investment. That will require Australia to market its services to China rather than relying on resources dug up from the ground.

“The Australian government has secured the best-ever market access provided to a foreign country by China on services, with enormous scope to build on an export market already worth 7 billion Australian dollars,” Abbott said.

The deal will ease investment rules for Chinese private companies in Australia by raising the Foreign Investment Review Board’s screening threshold in non-sensitive areas to 1.08 billion Australian dollars from 248 million. The new level is the same as that for Japan and South Korea, which also signed free trade agreements with Australia this year.