16 April 2019
Australia set to open gates for Hong Kong
Hong Kong and Australia signed a Free Trade Agreement (FTA) and an Investment Agreement on 26 March which will enter into force after the two governments complete their respective internal procedures. The agreements will give Hong Kong companies legal certainty of market access and national treatment for a comprehensive range of services in the Australian market, and allow Hong Kong to have better access to the pool of Australian talent, adding to the city’s strength as a services platform.
All tariffs on goods originating from Hong Kong and Australia will be eliminated, while the harmonisation of the technical requirements for the food-product and wine trade is set to make Hong Kong a trading and distribution hub for Australian products. Other benefits of the FTA include easier arrangements for business travel, as well as provisions to access each other's government procurement markets, effective protection of intellectual property rights, and promotion of competition.
Trading hub role
Hong Kong and Australia have agreed to eliminate all tariffs on goods originating from both places once the FTA comes into force, which generally requires a change in tariff classification or a regional value content (RVC) requirement of 40%. The procedure for claiming tariff-free treatment is simple, only requiring a declaration of origin form completed either by the producer, exporter or importer.
As a major services economy, Hong Kong has very little local production. In 2018, Hong Kong’s domestic exports to Australia amounted to HK$671 million, representing just 1.9% of its total exports to the country. Currently, Australia’s applied duties average 2.5%, while some consumer products such as textiles, clothing and leather goods are subject to a maximum 5% duty. According to Hong Kong’s Trade and Industry Department, Australia’s commitments will result in an annual tariff savings for Hong Kong of about HK$16 million.
In fact, Hong Kong exporters, which mostly have production bases in Mainland China, have benefited from Australia’s FTA with China (ChAFTA), which entered into force in 2015. After progressive tariff cuts, all mainland exports to Australia have been duty-free since 1 January 2019. ChAFTA has taken modern trading practices into account and allows the use of transport and distribution hubs in third-party locations (such as Hong Kong) for the consignment of goods. Exporters who ship products through a third country/territory will enjoy tariff-free treatment, providing a range of conditions are met.
Australia has also entered into FTAs with New Zealand, Singapore, the United States, Thailand, Chile, ASEAN, Malaysia, Korea and Japan. Australia is also one of the 11 signatories to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Hong Kong does not currently apply any tariffs on goods imported from Australia. In order to facilitate imports of Australian goods, the two governments have harmonised the technical requirements for food products and wine, the two major product groups exported from Australia to Hong Kong. Specifically, the two governments have standardised wine labelling requirements, which will reduce uncertainty for wine producers and exporters. On food products, the two governments have agreed to establish a mechanism to facilitate speedy resolution should consignments of perishable goods be delayed at the border. These agreements on non-tariff barriers are set to strengthen Australian exporters’ confidence in Hong Kong as a trading and distribution hub and a channel for satisfying the growing demand in the Guangdong-Hong Kong-Macao Greater Bay Area.
Both Hong Kong and Australia are service-based economies. In 2017, Australia was Hong Kong’s seventh-largest services trading partner, with services trade amounting to HK$44 billion. The key utilised service sectors are transport, professional, financial services, personal and business/education-related travel.
The FTA commitments in services trade encompass some 140 sub-sectors, including those under professional services, business services, transport services, financial services, and telecommunications services. In the designated sectors, Hong Kong service providers will enjoy market access, including the right to establish businesses in Australia, treatment no less favourable than local service providers in similar circumstances and any additional liberalisation measures that Australia offers to other economies under the terms of any future FTAs. Accompanying the FTA are a number of side letters committing the two governments to work on mutual recognition of professional qualifications and registration.
Compared with its commitments under the World Trade Organisation (WTO), Australia has opened 40% more services sectors to Hong Kong. These include research and development services in natural sciences and engineering, technical testing and analysis services, services incidental to manufacturing, various environmental services and, in particular, the full range of arbitration, conciliation and mediation services and certain rail transport services, which Australia has not offered to its other FTA partners, except New Zealand.
Hong Kong’s commitments to Australia likewise cover a wide range of services, with WTO-plus commitments in various sectors. These commitments will provide certainty to Hong Kong service suppliers as they enter the Australian market and give the city better access to Australia’s talent pool, which is crucial in making Hong Kong a services platform in the region.
Investment screening raised
Hong Kong and Australia have also signed an Investment Agreement, which supersedes an earlier one signed in 1993. Under its terms, Australia has committed to raising the monetary thresholds for screening of investments by Hong Kong investors, from A$266 million (US$189 million) to A$1,154 million (US$819 million), which will provide a level playing field between Hong Kong and other foreign investors investing in Australia. Investors from both economies will also benefit from modern provisions on treatment and protection under the new Investment Agreement.
As of the end of 2017, Australia was ranked eighth among Hong Kong's destinations for outward direct investment, with stock of HK$134 billion, and was ranked 17th among Hong Kong's sources of inward direct investment, with stock of HK$33 billion.