China-Australia Free Trade Agreement: Implications for Australian agriproducts trade and farm economies

The trade between Australia and China was minimal prior to 1972; however substantial increase in merchandise trade occurred from the 1970’s through to 2011-12, which was generated through the continuous development of economic relationships between the two countries. The China-Australia Free Trade Agreement (ChAFTA) became enforced on the 20th December 2015 to strengthen the relationship between the two countries with a view to expanding their export and import industries. Specifically, ChAFTA includes the elimination or reduction of trade barriers between the countries in the form of tariffs or quotas. Removal of trade barriers will enable Australian local industries to explore new markets and investment opportunities. In particular, the agreement will provide major preferential market access for Australia with an advantage over its major agricultural competitors, including the United States, Canada and the European Union. The barriers to Australian agricultural exports will be removed across a range of products including beef, lamb, pork, dairy, wine, hides and skins, horticulture, barley and other grains, seafood and processed food. This paper reviews the potential benefits of free trade with China in relation to major agricultural commodities and their possible impacts on the development of farm economy and regional Australia. Analysis shows ChAFTA will be beneficial to increase the welfare in Australia but varies across the regions. Overall merchandise export trade is dominated by Western Australia along with low proportion of import merchandise trade with China, which shows WA will take more advantage of ChAFTA compared to other States and Territories. However, benefits received for specific sectors are varying across the States and Territories. Result revealed Victoria will be benefitted more from dairy (whole milk production); Queensland will be benefitted more from beef and New South Wales (NSW) will be benefitted more from summer crops, sheep meat, oilseed crops and wool compared to other States and Territories. In addition, this paper also analyses the possible impact of ChAFTA on excluded commodity (wheat) using Revealed Comparative Advantage (RCA) index. Result shows higher RCA on Australian wheat to trade with China compared to the world and other countries which having free trade agreement with Australia. In addition, among different States, South Australia has more RCA on wheat trade with China followed by Victoria, Western Australia and New South Wales. Therefore, it would be worthy to start negotiation for preferential FTA on wheat with China.