TARIFFS on Australian beef exports to China will shortly rise to 12 percent of the value of each product for the remainder of 2024, as our beef exports again trigger the country’s Safeguard market protection provisions.
The Safeguard mechanism was negotiated back in 2015 as part of the China Australia Free Trade Agreement, and has triggered at least four times since then as exports have dramatically expanded. Nine years ago when the FTA agreement was struck, it was never foreseen that Australia’s beef exports into China would take off as they have. Australia first triggered the limit in 2018, again in 2019 and 2020, and most recently in late 2023.
Australian Trade analysts anticipate that the Safeguard mechanism may be triggered this year any time between the next few days, and mid-October, leaving three months of shipments exposed to higher tariffs before the ‘calculation clock’ is reset in January.
According to the latest data released by China’s General Administration of Customs, ChAFTA volumes for Australian beef trade to the end of July had reached 161,442t, leaving less than 41,000t of the 2024 beef safeguard level (202,240t) to fill.
With recent export volumes averaging around 15,000-20,000t per month, the Safeguard Mechanism is likely to trigger well before the end of October, and possibly, a lot sooner.
History suggests that exporters and importers ramp-up trade volume in advance of the mechanism being triggered, to try to minimise the added cost impost. The trigger time is subject to GACC’s announcement, and does not necessarily align with the release of monthly trade data. August trade data is due for release by GACC on 20 September – which may turn out to be a significant date.
In simple terms, triggering the tariff would mean an Australian beef item costing A$15/kg landed today, would have to make $16.80/kg after the tariff is added. The way import tariffs work, the cost is paid by the importer, but in reality, the additional cost tends to be ‘absorbed’ along the supply chain, with exporters and importers renegotiating prices, importers copping a shorter margin, and some of the cost being borne further along the chain.
“Typically, when the Safeguard has been triggered in the past, it has not really slowed down trade volume to China out of Australia, but margins are obviously affected, and there may be some change in the profile of what’s sold,” a trade analyst told Beef Central.
“On higher value product, it’s perhaps a little easier to absorb the tariff impact, but on commodity beef, not so much.”
With the US bidding Australian product away from other export markets this year, that outcome may get challenged during the closing quarter of 2024, an export meat trade source said.
While China has the discretion to ignore the activation of the Safeguard, this has never happened in previous episodes.
The likelihood of the tariff being enacted is made worse, because in an effort to escape the tariff, some product (last year, around 24,000t) is ‘carried over’, to count against the new year quota the following year.
This year’s CHAFTA quota should have been 202,240t, but the inclusion of the 24,000t of ‘carry-over’ from last year has reduced that figure to 178,417t.
While ChAFTA in-quota tariff has been and will remain 0pc from 2024 onwards, under the agreement the safeguard and its associated volumes will remain in place until 2031, growing each year up to 249,000t in 2031.
The SafeGuard tariff increase applies to muscle meat only, with offals operating under a separate tariff-free quota agreement which is less likely to be triggered this year, trade contacts said.
Interesting given many processors received permission to export quite recently after being banned for some time. So what was the truth through this time?
The mechanism (similar to that used in Australia’s FTAs with the US, Japan and Korea) has been in place since the agreement was struck back in 2016, Geoff. The trigger number was about 20pc higher than anything Australia had ever exported to China before, and absolutely nobody foresaw how the China market would take off for beef exports since 2018 like it has. Editor