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Hong Kong- Australia Free Trade and Investment Agreement

May 31, 2019

Hong Kong has cemented its ranking as the most economically free market in the world by signing its fourth trade deal in the past 18 months, despite a global backdrop of increasing protectionism.[1]

Hong Kong and Australia signed a Free Trade Agreement and Investment Agreement (the “Agreement”) on 26 March 2019 which covers a wide range of areas, including liberalising bilateral free trade in goods, trade in services, investment, intellectual property, government procurement, competition and other related areas. The Agreement has been described as a pragmatic and forward-looking treaty, which seeks to provide practical guidelines for use and implementation.

Is a Free-Trade Agreement Necessary?

Hong Kong is Australia’s fifth largest source of foreign investment; their sixth largest services trading partner; and its leading business base in East Asia. Currently, Australia’s trade relationship with Hong Kong is governed by Hong Kong’s obligations under the World Trade Organisation (“WTO”) Agreement on market access to goods, services and investment which are more restrictive than its liberal market setting. Hong Kong and Australia committing to a bi-lateral free trade agreement would allow them to expand the scope of their trade obligations towards one another and enhance favourable market access and investment flow between the two places beyond what is already facilitated under the WTO Agreement.

Free Trade in Goods

Hong Kong does not currently apply tariffs to goods imported from Australia, however, it has the legal right to do as an independent WTO member. The Agreement secures tariff free entry of goods into both markets for products originating from either country, whereby each party shall accord national treatment to the goods of the other party. It is estimated that Hong Kong will enjoy HK$16 million annually in tariff savings under the new Agreement.

However, Hong Kong exporters will need to comply with preferential origin rules in order to claim zero import tariffs for exports to Australia. Hong Kong producers and exporters will have to complete a declaration of origin with respect of the goods being exported. The Agreement provides for a simple procedure for obtaining the declaration, which can be completed by the exporter, producer or importer and need not follow any prescribed format. 

On the other hand, imports from Australia are not required to be accompanied by a declaration of origin.

Free Trade in Services

Hong Kong is predominantly a services-based economy similar to Australia. Presently, Hong Kong maintains a relatively open market setting for incoming Australian service suppliers, whether they are making virtual transactions or want to establish a brick and mortar presence. However, under the WTO Agreement Hong Kong can legally change the way it treats international service suppliers by restricting their entry and practice in Hong Kong.

Under the Agreement, about 140 service sectors, in Hong Kong and Australia will enjoy the following benefits in each other’s market:

  1. Access to the market of the other party and being treated no less favourably than local service providers under like circumstances;
  2. Automatic privileged of enjoying any additional liberalisation measures which the other party offers to other economics under any of its respective future free trade agreements; and
  3. Business visitors, intra-corporate transferees and independent executives of either country will be granted temporary entry into Australia or Hong Kong respectively, as well as their dependents.[2]

Financial Services

On trade in financial services, including banking and insurance services, the Agreement reduces regulatory restrictions on Australian firms already established in or looking to access the Hong Kong market and vice versa. Recognition has been given to modern banking systems that place a heavy reliance on the ability to securely transmit and store data. The Agreement seeks to protect and maintain privacy requirements, whilst allowing businesses to transfer information across-borders, and also does not require businesses to store data locally, thereby vitiating the need to establish local computing facilities.

Professional Services

Professional services including legal, accounting, engineering and architectural services often have to contend with authorisation and licensing requirements in other jurisdictions in order to practice their respect service. The Agreement encourages relevant professional bodies to continue to work together on mutual recognition of professional qualifications required for registration as a matter of priority.  

Importantly, Australia has committed to liberalising its full range of arbitration, conciliation and mediation services, which they have never offered to any of its other free trade partners apart from New Zealand.

Transport Services

As supply chains are become increasingly globalised and complex, businesses are naturally looking to outsource parts of transport and logistical activities to third-party providers. Under the Agreement, Hong Kong has offered Australian transport suppliers better treatment than any other free-trade partner in the past, including guaranteed market access for Australian suppliers of flight training and some ground handling services.

Whilst both Australia and Hong Kong have signed the Agreement, the provisions contained therein will only come into effect at the domestic level when Hong Kong and Australia have completed their respective internal ratification procedures. As of now, no proposed date of ratification has been suggested by either party to the Agreement.

For any enquiries related to this article, please contact  Mr. Michael Lintern-Smith.

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