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China-Australia Free Trade Agreement: Lost orders may be returned



“After the agreement is signed, the company’s sales volume is expected to increase 4 to 6 times in the next year.” After the China-Australia Free Trade Agreement was officially signed on June 17, Zhang, General…

“After the agreement is signed, the company’s sales volume is expected to increase 4 to 6 times in the next year.” After the China-Australia Free Trade Agreement was officially signed on June 17, Zhang, General Manager of the International Trade Department of Inner Mongolia Spring Snow Cashmere Co., Ltd. The tree looked very excited. At the end of November last year, Zhang Shu went to Australia to participate in the China Textile and Apparel Exhibition (referred to as the Australia Exhibition). The day before the exhibition, he learned that China and Australia had jointly announced the substantial conclusion of the China-Australia Free Trade Agreement negotiations. This makes many exhibitors excited and looking forward to it.
High costs lead to high clothing prices in Australia
Although a 4 to 6-fold increase sounds very attractive, Zhang Shu pointed out that the biggest feature of Australian market orders is their small size. Even with such a large increase, the total volume is still small. He said: “Orders received by companies here usually cannot require minimum order quantities, let alone a turnover of hundreds of thousands or even millions of dollars. Although there are no large orders in the Australian market, according to statistics, 1/10 of Australians Consumers are wearing Chinese-made clothing, which gives companies confidence. On the other hand, the Australian market is small but sophisticated and has strong spending power. Our company mainly exports cashmere products, and it is the right way to sell to this market.” That’s why he was so excited about the official signing of the China-Australia Free Trade Agreement. In Zhang Shu’s view, mid- to high-end products still have great potential for consumption growth in small and sophisticated markets, especially after tariff reductions and exemptions are achieved for textiles and clothing. The advantages of the product will be more obvious.
As we all know, clothing prices in Australia are relatively high. Ms. Zhang, who has studied in the country for many years, said that the price of one piece of clothing in Australia can be purchased in China, and the price of the same fast fashion brand is higher in Australia than in Europe and the United States. A survey released by Global Information Corporation confirms this statement. Australian consumers spend more than 35% more than consumers in other countries when purchasing international fashion brand products. For example, consumers buy a men’s basic T-shirt from the American brand Gap in a Melbourne store for AU$24.95, while the brand sells for only AU$16 on the official British website, a price difference of 36%. In Melbourne’s Topshop store, a T-shirt costs 26 Australian dollars, which is 28% more expensive than the 18.60 Australian dollars in the British store. The price of Zara’s printed sleeveless T-shirt is 29.95 Australian dollars in the Melbourne store, while the price on the US website is only 22 Australian dollars, a price difference of about 26%. International retailers say expensive shipping and labor costs are to blame for the price difference. The report shows that logistics costs in Australia are relatively high, and coupled with tariffs, local operating expenses, etc., prices in this region are significantly higher than in other regions.
According to the Australian Research Institute’s comparison of the sales prices of international goods in Australia with global pricing, it was found that not only fast fashion brands, but also almost all goods in Australia are 1 to 1.7 times higher than other overseas countries. Clothing products are more expensive than the global average. The price is 142% higher. James, chief economist of the Commonwealth Bank of Australia, said that due to factors such as transportation and tariffs, many imported goods have increased the selling prices of their products to Australia, using the price increase to transfer operating costs to consumers.
In this regard, Lu Qi, general manager of Jiangsu Nantong Meideng International Trading Co., Ltd., said: “There is no way, because of tariffs and the rising labor costs in China, the prices of products sold to Australia can only go up. After the tax reduction, Australia will Prices for imported products from China should be reduced.”
A $1 disadvantage becomes a $3 advantage
According to industry experts, before the signing of the free trade agreement, Australia imposed a tariff of about 5% on most Chinese textiles, and the tariff on clothing was basically about 10%. After the free trade agreement takes effect, more than 85% of textile products will immediately enjoy zero tariffs. Within 3 years, more than 90% of clothing products will gradually be reduced to zero tariffs.
In fact, Australia is not a high-tariff country, but since Southeast Asia has become China’s largest competitive partner in recent years, and Australia and ASEAN have signed a free trade agreement, this 10% tariff reduction is particularly important. Industry experts pointed out: “In the past two years, trade between China and Australia has developed rapidly and the scale of trade has continued to expand. China has always maintained its position as Australia’s largest source of imports. However, it is not difficult to see from the proportion of Chinese exports in the Australian market. Our market share is declining year by year. In 2010, textiles and clothing imported from China accounted for about 65% of the Australian market, 63.62% in 2012, 62.38% in 2013, and about 60% last year. The continuous decline is not only due to the labor force Rising costs have reduced price competitiveness, and the establishment of a free trade area between Australia and ASEAN has given Southeast Asian countries, which originally had lower labor costs than China, more advantages. But now that the China-Australia Free Trade Agreement has been signed, we and ASEAN countries have at least Standing on the same starting line, Chinese garment export companies have increased their price competitiveness by 10% compared to the past.”
Lu Qi said: “In the past two years, some of our orders have been transferred to other countries in Southeast Asia, and the company has been troubled by this. I believe that this phenomenon will improve after the tax reduction.” Similarly, Jiangsu Haiqi Great Wall Co., Ltd. Wang Gensheng, manager of the fifth textile department of the Co., Ltd., optimistically predicts that after the signing of the agreement, some orders that have been transferred to other countries will likely return. He said:“After all, Chinese workers have strong advantages in both technology and production efficiency. For those orders with high technical content and complex processes, buyers do not originally want to get them from places other than China, but they are forced by the high cost in my country. Now with the benefit of tax exemption, I believe Australian buyers will be more willing to purchase from China. ”
In the past two years, some of Great Wall’s Australian orders have also been transferred. One buyer transferred 60% of its business in China to Bangladesh. Based on the labor cost difference between China and Bangladesh, Wang Gensheng calculated that importing a piece of clothing from China costs $1 more than importing from Bangladesh. Now, after the China-Australia Free Trade Agreement comes into effect, this $1 price difference will no longer exist. “Take clothing that costs US$30 to US$40 per set as an example. Eliminating the 10% tariff means that the cost of each set of clothing can be reduced by US$3 to US$4. Subtracting the difference in labor costs in Southeast Asia, the price of Chinese products even has an advantage.”
The lack of talent may benefit only 20% of companies
Although, from a theoretical perspective, China-Australia trade is wonderful, industry experts warn that in fact, it is difficult to achieve the expected results after the free trade agreement takes effect. “If companies make full use of the free trade agreement, it will definitely improve the trade exported to Australia. However, based on experience, it is expected that only 20% of export companies will ultimately benefit. The reason is that first, many companies do not know this The second is that in order to obtain tax-free treatment, companies need professionals who understand the rules to handle relevant matters, including filing applications, providing documents, etc. This process is relatively complicated, and small trading companies may not have the corresponding talents.”
Many companies said that although they knew about the signing of the China-Australia Free Trade Agreement, they were not clear about how to implement it and how to apply. Some companies even said: “If the importer does not request tax exemption, we will not apply for it, mainly because the application procedures are very troublesome.”
Experts said that the China-Australia FAT is a relatively liberalized free trade agreement signed between my country and other countries. Compared with the China-South Korea Free Trade Agreement signed a few days ago, there are fewer restrictions. For example, there are restrictions on rules of origin. As long as the exported textiles and clothing meet the regional value content ≥ 40% or meet the conditions for changing the tariff classification, China and South Korea The free trade agreement imposes compliance restrictions on rules of origin, which require multiple conditions to be met at the same time. In addition, the China-Australia Free Trade Agreement has a short transition period. After it takes effect, a large part of the products of both countries can immediately enjoy tax-free benefits, making it relatively easier for both parties to benefit. Enterprises should have confidence in the China-Australia Free Trade Agreement, actively strive for the benefits it brings, and reserve relevant talents as soon as possible. After all, China has signed 14 free trade zones, involving 22 countries and regions, and there will be more in the future. Reserving talents in relevant fields is a once and for all matter.

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Author: clsrich

 
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