Hong Kong and Australia Sign New FTA – China Briefing

On March 26, 2019, Hong Kong and Australia signed a Free Trade Agreement (HKAFTA) and a complementary Investment Agreement (IA). After almost two years of negotiations, Australia and Hong Kong have formalized their trade relationship, which was previously governed by their obligations under the World Trade Organization (WTO) Agreement.
The HKAFTA addresses trade in goods, services, investment, intellectual property, government procurement, competition, and other related areas. It will cover approximately AUD 18.8 billion (US$13.2 billion) worth of bilateral trade and is expected to play an important role in providing more favorable market access and legal certainty between the two economies.
Hong Kong has traditionally been the gateway to mainland China and other Northeast Asian economies, and mainland China is Australia’s largest import and export trade partner. This shared and complementary focus has formed the foundation of the Hong Kong-Australian economic relationship – with investment, trade, and business ties all playing a significant role.
“This new FTA will likely see a boost in the flow of trade and services between Hong Kong and Australia and will help promote Hong Kong’s competitiveness as an investment destination,” said Paul Dwyer, Head of the Australian Desk and International Tax and Transfer Pricing at Dezan Shira & Associates.
The Hong Kong-Australia relationship is a long standing one, driven by strong import-export markets, business presence in each other’s economies, and people-to people links. According to Australia’s Department of Foreign Affairs and Trade, Hong Kong is Australia’s twelfth largest trading partner overall; it was the fifth largest source of FDI in 2018.
The goods import-export market forms a fundamental component in the Australia-Hong Kong trade relationship. In 2017-18, Hong Kong’s imports from Australia was valued at AUD 11.4 billion (US$7.84 billion) while Australian exports to Hong Kong amounted to AUD 1.1 billion (US$700 million). Major Australian goods imports in Hong Kong were gold, edible products and preparation, and telecom equipment.
Despite its relatively modest population, the Hong Kong import market is a strategic one for the Australian economy, with Australian goods exported to Hong Kong exceeding that of the New Zealand, Singapore, Indonesia, and UK combined. Hong Kong is a major entrepôt in global trade and trade with China.
In addition, over 100,000 Australians live in Hong Kong and around 96,000 people born in Hong Kong now live in Australia.
Hong Kong is also one of the most popular East Asian bases for Australian businesses. Currently, over 600 Australian businesses, including the four major banks (National Australia Bank, Commonwealth Bank, Australia and New Zealand Banking Group and Westpac), have their offices there.
Under the HKAFTA, a reciprocal elimination of import tariff will be enforced on all goods originating from Australia and Hong Kong.  Some goods, such as consumable goods, are now also available to enter the market via simplified procedures.
For example, wine products will be subject to a streamlined labeling process and a more transparent set of regulations. While food regulators in both economies have been tasked with minimizing delays at the border. Improvements have also been made to the bilateral market access and the general business environment.
Service providers in industries, such as financial, professional, accounting, engineering, construction, education, transport and logistics are now guaranteed market access and treatment no less favorable than local service provider counterparts, under like circumstances.
The HKAFTA also allows deeper financial ties to be forged, as Australian banks in Hong Kong will now able to access streamlined establishment requirements in Hong Kong.
Moreover, business travel will be made easier through the agreement as temporary entries will now be granted to Hong Kong and Australian business travelers to improve ease of doing business in each location.
In terms of investment, Australia has agreed to increase its monetary threshold for screening Hong Kong investments, such that it will be consistent with the threshold of other Australian FTA partners.
In addition, the Investment Agreement, which is a standalone document signed on the same date, establishes a minimum standard of treatment and avenue of remediation to protect both sides against discrimination.
Under the IA, the newly established Investor-State Dispute Settlement mechanism will provide investors from Hong Kong and Australia with an independent arbitral tribunal to resolve disputes relating to breach of investment rules.
The HKAFTA aims to safeguards many of the liberal trade policies currently adopted by Hong Kong and Australia and commits both economies to the elimination of all tariffs. This will bring relief to manufacturers, suppliers, and businesses alike.
Under the HKAFTA, doing business will be made easier through streamlined procedures while new forms of trade will be strengthened through more transparent regulations.
“Given recent global trade tensions, the recently concluded Hong Kong-Australia Free Trade Agreement represents a significant milestone in the bilateral trade relationship between Hong Kong and Australia,” Dwyer said.
This is the first time the two economies have put into effect an independent FTA – a pivotal step in recognizing and officiating their long-standing bilateral relationship, while simultaneously paving the way for more future economic links and opportunities.
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China Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in DalianBeijingShanghaiGuangzhouShenzhen, and Hong Kong. Readers may write to china@dezshira.com for more support on doing business in China.
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