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China and Australia agree FTA

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World Coal,

China and Australia have concluded negotiations for a bilateral free trade agreement (FTA) that will exempt Australian good from Chinese import tariffs. On the surface, ChAFTA – as the agreement is known - is good news for Australia’s miners, particularly the coal sector, which faced the prospect of renewed tariffs on both thermal and metallurgical coal imports.

According to Wood Mackenzie, the Australian mining sector is currently subject to US$600 million/year of import tariffs across a wide range of commodities. These include coal, copper, nickel, alumina, aluminium and zinc. In theory these industries all stand to gain from the FTA; however, Wood Mackenzie senior analyst, Ben Willacy, reckons that in reality, the benefits will be limited.

“Thermal coal is currently subject to a 6% tariff,” explained Willacy in a recent research note. “This will not be removed immediately but will be phased out over two years. This could impose costs of around US$ 600 million for 2015 – 16.”

The tariff on metallurgical coal will be removed immediately but as “coal tariffs were only implemented in October […] there is little genuine gain for coal exporters,” continued Willacy.

The agreement also does not eliminate non-tariff measures, such as the coal import quotas China has imposed on its major utilities this year. A continuation of these policies into next year would hit Australian exporters of thermal coal, particularly when combined with the remaining tariff on thermal coal imports.

The FTA will now be reviewed by both countries before it is signed and passed into law. Until then, current import tariffs will remain in place.

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