An Assessment of the ChAFTA and Its Implications: A Work-in-Progress Type FTA with Selective Innovations?

Abstract

This paper explores two questions of the recent China-Australia FTA (ChAFTA): what is the approach of the ChAFTA? What are the challenges to the ChAFTA? It argues first that the ChAFTA adopts a problem-solving approach to harvest “low-hanging fruit” (e.g. tariff cuts). Containing WTO-based and WTO-friendly rules, it focuses on trade and investment facilitation through market liberalization and carefully written good governance norms. In spite of its short form investment chapter, the agreement is not as shallow as one may first think. It stimulates development concerning, among other things, regulatory issues (e.g. regulatory transparency and cooperation in financial services, regulatory autonomy in investment), the negative list approach for services and investment, investor-state dispute settlement, and the investment facilitation arrangement. The development appears to be often affected by the position of Australia. Second, the ChAFTA will meet challenges in implementation and future negotiations. The former includes vague rules, soft obligations, the considerable need for wide-ranging cooperation, and the usage rate. The latter is probably the complexity of legal issues, as well as internal (including sensitive issues such as labor mobility and review of investment by Chinese SOEs) and external uncertainties (including the WTO law, the US-China investment treaty negotiations). Finally, the future of the ChAFTA depends on bilateral cooperation in FTA implementation, and the political willingness to develop a rule-based system. The ChAFTA could bring an incremental paradigm shift of China’s FTAs, which will carry vast implications for China’s participation in international economic legal order.

Keywords: China-Australia Free Trade Agreement, trade, investment, RCEP, WTO