15 May, 2017
With the Australian economy and export growth feeling pressure, rocketing food sales to China buck the trend as Chinese consumers gain a growing appetite for Australian food. An unprecedented volume of food and beverages is now sold online and offline to China from Australia. Imported products are wide-ranging, from meat to fish, from alcohol to baby formula.
New sales channels, such as cross-border e-commerce, have been embraced by Australian sellers as well as by consumers in China, a country with over 450 million online shoppers. However, as the market grows, so does the competition and regulation.
The China-Australia Free Trade Agreement (ChAFTA)
The ChAFTA, which came into force on 20 December 2015, marked a historic stride forward in economic cooperation between Australia and its largest trading partner, China. The agreement benefits a wide spectrum of sectors in Australia, and, in particular, it will phase in a series of tariff reductions for agricultural produce and processed food over the next few years. Most notably, the tariffs on beef, sheep and goat meat, dairy products and wines and spirits (which account for the bulk of Australia’s food export into China) will be progressively eliminated. Of these, beef and certain dairy products are subject to a discretionary safeguard if imports exceed an annual volume. These “safeguard” trigger volumes increase each year and have been set well above the highest historical annual export levels to China. Eliminating the tariffs places Australian food in an advantageous position compared with its competitors.
Strict food import regime
In the face of increasing food safety issues, the China Food and Drug Administration (CFDA) has introduced a scheme which requires manufacturers of imported food to register with CFDA and satisfy certain criteria before importing food. All importers and exporters of food to China are required to make a filing with CFDA. The regime currently covers almost all types of meat, aquatic products and dairy products. In 2016, CFDA further tightened control over baby formula products by requiring that all baby formulas be registered with CFDA. Each manufacturer may register up to 9 formulas. The registration requirements involve submitting robust materials to show that the criteria are met and, in some cases, onsite inspection by CFDA personnel is required. Several Australian food manufacturers have already registered with CFDA.
Shifting regulations on cross-border e-commerce
As the import regime gets tougher on foreign food, a rapidly growing volume of food finds its way into the Chinese market via cross-border e-commerce sales. The total transaction value of the China cross-border e-commerce market reached US$9.2 billion in 2016. Sellers and consumers in the online market are attracted by the low tariff rate and, more importantly, the exemption from the regulatory requirements applicable to traditional import routes into China, such as through registration with CFDA.
Since March 2016, the Chinese authorities have published a series of regulations aimed at extending normal import tariffs and regulatory requirements to goods imported into China via cross-border e-commerce channels. The new regime caused a backlash among the cross-border e-commerce sellers both in China and abroad and was put on hold indefinitely just a few days before Premier Li 's visit to Australia and New Zealand in March 2017. It is hoped that goods imported into China via cross-border e-commerce can continue benefiting from the low tariffs and regulatory exemption.
Australian food exporters have now entered a new era in selling food to China. In the face of regulatory challenges, the progressive elimination of tariffs benefits Australian food companies.
For those who are more sensitive to the regulatory requirements, cross-border e-commerce has opened up a channel that allows Australian food exporters and manufacturers to sell directly to Chinese consumers. We would expect more and more Australian food sellers to seize the opportunities and the food sales to China to grow at an even faster pace in the coming years.
For further information, please contact:
Karen Ip, Partner, Herbert Smith Freehills
karen.ip@hsf.com
