Melbourne. Australian coal will be exempt from controversial new import tariffs imposed by China when the two countries sign a free trade pact, Treasurer Joe Hockey said after a meeting in China, although the timing of a deal has yet to be finalized.
Australia and China are trying to seal a free trade agreement (FTA) before the end of this year after nearly 10 years of negotiations, in a bid to boost two-way trade already worth more than A$150 billion ($132 billion).
Amid the talks, Beijing stunned Australia this month by imposing a 3 percent tariff on coal used in steel mills and 6 percent tariff on coal used in power stations, hitting A$9 billion worth of exports from Australian miners already reeling from a slump in prices.
“Once we have an FTA, it will be abolished. The quicker we get an FTA, the quicker the tariffs will go,” Hockey said after meeting Chinese Finance Minister Lou Jiwei in Beijing on Tuesday.
“I think on both sides we are now more determined to get this done. I suspect it has caused some embarrassment to some people in China and it is a source of frustration for us, but there is a way through.”
China took nearly a quarter of Australia’s metallurgical coal exports in the year to June 2014, and about a fifth of its thermal coal exports, used in power stations.
The tariffs will put coal exports from Australia at a disadvantage to its biggest rival, Indonesia, which is exempt under China’s free trade pact with the Association of Southeast Asian Nations.
“The immediate elimination of tariffs on Australian coal exports is a key objective for the sector and we understand the Minister for Trade Andrew Robb will be seeking to secure that outcome as negotiations come to a conclusion over the next month,” the Minerals Council of Australia’s coal director Greg Evans said in an emailed statement.
However, industry sources in China said Beijing may want to prolong free trade talks to keep the tariff in place in order to aid its domestic miners, who are struggling with weak prices in face of a big increase in exports from Indonesia and Australia.
“The question is when China and Australia can sign off on the FTA and I think there is more room for China to drag its feet,” said a senior executive at a large Western trading house.
“There is a lot more production capacity coming onstream next year and demand is still going to be weak, so I think they will need to give local miners a bit more time and more wriggle room before allowing imports in again,” he said.
Unions saw the sudden imposition of the tariffs as a bargaining tactic as Beijing presses Australia to lower foreign investment hurdles and ease limits on the number of Chinese who can be brought in to work on Chinese-owned projects.
“What do we get in return for all of this? A commitment from China to drop a tariff they had no intention of keeping in the first place,” Michael O’Connor, national secretary of the Construction, Forestry, Mining and Energy Union, said in a statement.
Trade talks have been hampered by Beijing’s concerns over opening its markets to Australian food and its worries about Australia’s tough approval process for foreign investment by China’s state-owned enterprises.
Canberra wants its biggest trading partner to give Australian businesses access to key industries in which foreign investment is currently restricted.
Robb is likely to seek to set the same thresholds for China on private investment and agricultural investment as it has established in free trade deals with Japan and South Korea, a trade official with knowledge of the talks said.
That would imply investments of up to A$1 billion would not be subject to review by Australia’s foreign investments watchdog and investments of up to A$15 million in farm land and A$53 million in agribusinesses would not face scrutiny.
“We’re taking an approach where in terms of investment, we don’t favor discriminatory trade policy,” the Australian trade official told Reuters earlier this month.