Ben Smith, Minter Ellison - Capitalising on the Opportunities presented by Free Trade Agreements
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Transcript of Ben Smith, Minter Ellison - Capitalising on the Opportunities presented by Free Trade Agreements
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Capitalising on the opportunities presented by Free Trade Agreements with Asia
Presented by Ben Smith
Partner, Minter Ellison
30 October 2014
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Overview
1. The regulatory environment
2. JAEPA
3. KAFTA
4. Future opportunities with China
5. Taking advantage of opportunities
6. Joint ventures
7. M&A activity
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The regulatory environment
• World Trade Organisation (WTO)
• Most Favoured Nation Rule
• Agriculture stalls Doha Round
• Free trade agreements (FTAs) – what are they?
• Bilateral, regional, multilateral
• Criticisms
• Gaps in coverage
• Power of bigger economies
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The regulatory environment
• 7 bilateral FTAs in force
• Includes the USA, NZ and Singapore
• Japan-Australia Economic Partnership Agreement (JAEPA)
• Korea-Australia Free Trade Agreement (KAFTA)
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The regulatory environment
• Multilateral negotiations – TPP, RCEP
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Overview
1. The regulatory environment
2. JAEPA
3. KAFTA
4. Future opportunities with China
5. Taking advantage of opportunities
6. Joint ventures
7. M&A activity
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JAEPA
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JAEPA
• Overview
• 2nd largest trading partner; $70B two-way trade
• JAEPA – 8 July 2014
• Complimentary trade relationship
• Third arrow of ‘Abenomics’
• Good relationship - PM Abbott and PM Abe
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JAEPA
• Agriculture and food sector
• Over $4B agricultural exports to Japan
• Beef – $1.4B
• Japan: 8% immediately; 39% to 19-23% gradual
• Dairy - $452M
• Immediate duty free quotas on cheese; elimination on lactose, yoghurt and ice-cream
• Grains – $770M
• Immediate duty-free and quota free access for wheat and barley
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• Agriculture and food sector
• Sugar – $200M
• Immediate and progressive tariff removal on raw sugar
• Wine - $42M
• Japan: immediate for bulk; gradual 15% decline for bottled
• Seafood ($200M), horticulture ($111M) and processed foods ($172M)
• Rice excluded, but otherwise comprehensive
JAEPA
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• Investment
• Japan 3rd largest investor – $130B in 2013
• FIRB and Australia’s foreign investment policy
• FIRB threshold increased from $248m to $1078m for non-sensitive sectors
• Agricultural land ($15m) and Agribusiness ($53m) thresholds remain
• Symbolic or real?
JAEPA
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Overview
1. The regulatory environment
2. JAEPA
3. KAFTA
4. Future opportunities with China
5. Taking advantage of opportunities
6. Joint ventures
7. M&A activity
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KAFTA
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KAFTA
• Overview
• 4th largest trading partner; $30B two-way trade
• KAFTA – 8 April 2014
• 84% duty free (on entry); 99.8% (on completion)
• Core benefits similar to JAEPA
• Tariff reductions
• Greater market access
• Increase FIRB threshold
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Overview
1. The regulatory environment
2. JAEPA
3. KAFTA
4. Future opportunities with China
5. Taking advantage of opportunities
6. Joint ventures
7. M&A activity
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Future opportunities with China
• Australia’s largest trading partner - $150B in 2013 (double of Japan)
• Negotiations commenced 2005 – 21st round
• Issues
• AUS wants same agriculture outcomes as NZ
• China wants:
• Consistent $1B FIRB threshold – even for Chinese SOEs
• Chinese workers for Chinese investments
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Future opportunities with China
• Opportunities from changing demographics
• Increasing prosperity of 1.35 billion population
• Increasing middle class
• Changing consumption trends – high protein diet
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Future opportunities with China
• Learn from NZ-China FTA
• Dairy increased $3.7B in 2008-13 period
• NZ made significant concessions
• China largest customer; NZ largest supplier
• Food safety critical
• China FTA will help, but not a necessity
• Key driver of success = safe and healthy food
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Overview
1. The regulatory environment
2. JAEPA
3. KAFTA
4. Future opportunities with China
5. Taking advantage of opportunities
6. Joint ventures
7. M&A activity
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Taking advantage of FTA opportunities
• Keep doing what we are good at
• Produce high quality, safe and trusted food
• Maintain and improve biosecurity regime
• Leverage our competitive advantages
• Good position to expand into Asia
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Taking advantage of FTA opportunities
• Challenges to realise benefits
• Complex ‘rules of origin’
• Long lead-in times
• Exclusions from coverage
• Behind the border barriers
• Lack of information
• Partnerships can help realise benefits
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Overview
1. The regulatory environment
2. JAEPA
3. KAFTA
4. Future opportunities with China
5. Taking advantage of opportunities
6. Joint ventures
7. M&A activity
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Joint ventures
• Greater benefits than M&A
• Example – Interflour
• CBH (Australia) and Salim Group (Indonesia)
• Wheat sourced in WA milled and sold in SEA
• Capability and contacts
• Access to SEA flour market
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Joint ventures
• Risks in joint ventures
• Due diligence
• Incorporation or strategic alliance
• Disputes and choice of law
• Sovereign risk
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Joint ventures
• Partnerships with the Government – Ord River Project
• Ongoing since 1945
• WA State Government and Kimberley Agricultural Investment (China) partnership
• Lease and development of new stage of project
• $200M investment = 50 year lease
• Future opportunities will be available
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Overview
1. The regulatory environment
2. JAEPA
3. KAFTA
4. Future opportunities with China
5. Taking advantage of opportunities
6. Joint ventures
7. M&A activity
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M&A Activity
• Introduction
• Opportunity to exit
• Access to capital rather than access to markets
• Port Jackson Partners Report1
• $9B capital gap now
• $600B capital for growth needed by 2050
• $400B capital for farm turnover needed by 2050
1 ANZ Insight Port Jackson Partners Limited Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand (Oct 2012)
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M&A Activity
• Recent activity
• Cotton
• Sino-Japanese consortium – Cubbie Station
• Grains
• Sumitomo – Emerald Grain
• Mitsubushi – Olam Grain Australia
• Mitsui – Plum Grove
• Beef
• Santori (part of Indonesian Japfa group) – NT beef properties
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M&A Activity
• Alternatives to M&A
• Innovative options
• Off-take agreements and leases - investment without ownership
• An opportunity, not a foregone conclusion
• Sumitomo Mitsui loan to Amaggi (Brazil)
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Questions?
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