Australia, China Sign Historic Free Trade Pact

Australia and China inked a free trade agreement that was touted by both countries as a historic occasion on Wednesday. The China-Australia Free Trade Agreement, or ChAFTA, which still needs to be ratified, is expected to reduce import tariffs both ways.

This part of the deal, many media reports say, could face opposition from the Australian workforce. "This agreement will give our nations unprecedented access to each other's markets," Australia’s Prime Minister Tony Abbott was quoted as saying.

The agricultural, services and mining sectors are affected. The Abbott government claimed the agreement will secure a better market for Australia to the world’s second largest economy, promote two-way investment and reduce import costs. The country will also improve its competitive position in the global market, according to the agreement. Tariffs will be eliminated on a number of Australian resources and energy products, as well as manufactured goods.

China is Australia’s largest trading partner. A speech by Chinese Ambassador to Australia, Ma Zhaoxu, at a 2014 China-Australia Economic Forum in Guangzhou noted that the two-way trade between China and Australia was $141.76 billion in 2013, while Australian export to China reached $100 billion.

The ambassador’s speech also stated that one out of every three dollars of Australian export goes to China. Fifty-four out of every 100 tonnes of China’s imported iron ore come from Australia. Australian service export to China amounted to $7 billion and Chinese students and tourists created 80 percent of the value.

The pact, when it finally comes into effect, will boost mutual trade by 2035. The deal will also allow Australia to get cheaper prices for Chinese manufactured products. Presently Australian businesses are imposed tariffs of up to 40 percent on goods exported to China.

Potential benefits will also spill over to car engines and pharmaceutical products through tariff cuts. Australia can also have a much easier access to investments in China in banking, health and aged care sectors.

The agreement will also be removing barriers to Australian agricultural exports including beef, dairy, lamb, wine and seafood. Australian businesses will also have better chances of joint ventures in China’s service in agriculture, forestry, hunting and fishing in China.

China is a big driver of mining growth in Australia. In 2006, Australia exported 247,000 kilotonnes of iron ore, a key component of steel, almost half of which went to China (129,000 kilotonnes). By 2013, the export rose to 579,000 KT and with China getting 441,000 KT.

Several Australian mining companies rely on China and other economies hungry for metals. Chinese demand not only affects Australia’s mining sector; other countries like Russia and Indonesia are also exporters of base metals. Australia is also one of the top nickels producing country, it joins countries like Russia, Canada, New Caledonia, Indonesia and Cuba as the largest producers in the world.

Fast Market reports that that global nickel production was around 1,590,000 tonnes in 2011. The production, however, is smaller compared to copper and aluminium. Global demand might be higher and increasing in a faster pace, but production can keep up with emerging mineral explorers such as Amur Mineral Corporation’s (London AIM: AMC)

Amur Minerals is a developing mineral exploration company focused on base metal projects in the far east of Russia. The company's principal asset is the Kun-Manie sulphide nickel, copper project located in the Amur Oblast. It has JORC resources in excess of 830,000 nickel equivalent tonnes.

Contact the writer: a.lu@ibtimes.com.au