Exporters have work cut out for them under China FTA*

The words “China” and “biggest” seem inextricably linked in the Australian lexicon. China is Australia’s biggest source of imports and our biggest destination for exports – two-way trade is now valued at more than $150 billion dollars and it is growing at roughly four percent per year. For many specific products (such as iron ore) it is by far our biggest market. And China is now almost our biggest source country for tourists with more than one million visitors venturing down under and outback last year (it was only just pipped by New Zealand which had 1.3 million visitors cross the ditch last year). And China was our biggest source of foreign direct investment during 2015-16 (though it is still not the biggest overall investor in Australia, coming a distant fifth on those numbers).

China is big and getting bigger for Australia, you might say.

Unfortunately, the same isn’t true in China. For Chinese the words Australia and big are only linked in the Mandarin word for Australia – the “da” in “Aodaliya” being the character for “big”. In every other sense we are small to the Chinese. Indeed, we are China’s seventh largest merchandise trading partner only because of our exports of minerals there.

This reality makes our relationship disproportionate. And it is hampering the potential offered by the China-Australia Free Trade Agreement (ChAFTA). Thanks to ChAFTA, 96 percent of Australia’s goods for export to China are now eligible to enter duty-free or with preferential access.

But the truth is ChAFTA is yet to deliver on its full promise.

Exporters, particular in the farm sector are finding free trade is easier said than done.  Indeed, you might say the devil is in the detail of the agreement. For example, Australian exporters have found considerable difficulty dealing with the Chinese import customs bureaucracy, which is having difficulty accepting electronic transfers of documents from Australia in spite of ChAFTA. (This is in stark contrast to countries like Pakistan, which has a free trade agreement whereby its electronic documents are automatically approved by Chinese authorities.)

Further complications have ensued because local Chinese importers have been unaware of ChAFTA and its implications for their businesses. They have ended up paying duties on Australian products because it is cheaper than leaving it in storage while they sort out the paperwork. And then they have been unaware that they can claim back the duties within one year of payment in these circumstances. They don’t necessarily learn these lessons and avoid the problems with the next import. Rather they might consider alternative sources of supply from countries that have well established free trade agreements in place.

The Australian business community is lobbying Canberra to address these teething issues with the agreement.

In the meantime almost every exporter (big and small) has a story to tell about the nightmares they have encountered in the China market.

But even after the wrinkles have been ironed out of the agreement, there will be problems. Even after a fully free trade agreement is in place – and trust me if an agreement takes years to negotiate and is governed by hundreds of pages of legal gobbledygook, there’s nothing free about it  – Australian exporters will experience considerable challenges in the market.

China is not an easy place in which to do business. The “China-is-our-Eldorado” lobby like to promote the success stories. But I can tell you for every success there are a half-a-dozen other businesses picking themselves up from the gutters of the yellow brick road.  If you want to understand how tough a market China is you should read a book like American businessman and author Sam Goodman’s Where East Eats West. His book tells how he failed in several business ventures in China because he didn’t understand the local culture and business practices, despite speaking fluent Chinese. He found himself eaten alive in the very real shark tank business world that is China.

It is true – Chinese consumers want what Australia has to offer, clean and green food and agriculture products. But that doesn’t mean everything you get in to China is going to automatically sell. Before it goes onto supermarket shelves or sells across online trading platforms you will need a Chinese name for it – a name that you better market test because of regional linguistic differences that could make your product a household joke rather than an aspirational brand. You’ll also need marketing and distribution to get product to move. And you better have a finger on the pulse of government policies and regulations – things like labelling laws have a nasty habit of changing and you can get caught flatfooted.

Would be exporters should stop seeing the China Australia Free Trade Agreement as a panacea and get down to some hard yakka if they want to succeed in what really is the world’s toughest market.

 

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*By Alistair Nicholas, Executive Vice President – Director Special Projects at Powell Tate Australia. Alistair was based in Beijing China from 2000 to 2013, assisting foreign companies in the market. He is a former Austrade Trade Commissioner and trade advisor to the Federal Coalition. This
article was published in The Land on 4 July 2017.

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