Trade deal sails on slow boat to China
The Australian | May 25, 2010
Trade deal sails on slow boat to China
Rowan Callick
IT is five years this week since Australia began, with high hopes, its long march towards a free trade agreement with China.
Last Thursday, Trade Minister Simon Crean, on his seventh visit to China in two and a half years, launched the new Australia Unlimited brand campaign at the Shanghai expo.
But Australia’s capacity to cut through the barriers and broaden its trade with China remains strictly limited. No big breakthroughs have occurred in the five years and 14 rounds of negotiations, and none is expected in the next round, in Beijing from June 28.
Since the talks started, Australia’s exports to China have doubled. But the goods we sell have been dominated even more heavily by a handful of categories — iron ore, coal, wool and copper.
The range of products China buys has hardly grown.
Services make up 70 per cent of Australia’s economy, but the proportion of our service exports to China is just 10.7 per cent, with 87 per cent of these coming from Chinese students and tourists.
Former prime minister John Howard had to grant China the controversial label of "market economy" as a condition for getting the FTA talks under way.
Australia was the first industrialised country after New Zealand to grant China this status. Since then, China has concluded an FTA with New Zealand, and Australia with the Association of South East Asian Nations. Crean last week met the country’s top economic planner, Zhang Ping, chairman of the National Development and Reform Commission.
"I was able to confirm with him that the political will exists to conclude the FTA with China," Crean says.
"We know that China wants an FTA with Australia because we have an advanced economy which is highly complementary with China’s, and without the complications of political rivalry.
"Both sides should take a bold approach, drawing strength and confidence from the way our economies weathered the global financial crisis.
"There is appreciation of how difficult it is for a country at China’s stage of economic development to make the full range of commitments needed to meet the test of our requirements for a high-quality FTA."
Agriculture is particularly difficult, although Australia did succeed in including rural products in its recent FTA with ASEAN.
Crean says it is important "not to put all our eggs in one basket". FTA talks are also proceeding with Japan and South Korea.
And Crean has initiated a "two-track strategy" with China, which includes negotiating economic co-operation deals with regional centres there.
Opposition trade spokesman Warren Truss says the lack of progress is very disappointing. "People had an expectation that Kevin Rudd’s ’special relationship’ with China would lead to some sort of progress, but the opposite has been the case," he says.
"The talks stalled entirely for over a year, and in some respects the whole relationship has gone backwards."
Truss, a former minister, says that in his experience, once detailed talks resumed with the Chinese bureaucracy, "there were always reasons that things couldn’t be done". He says the Howard government always insisted on "a comprehensive and high-quality agreement".
This included agriculture. "There are only 110,000 of us farmers compared with millions in China, so they have nothing to fear from us." He does not believe any single issue has halted progress, "but probably more than anything it’s services".
China has been reluctant to open this area to foreign and private domestic investment as it has done with manufacturing.
Truss says: "We won’t have a fully robust relationship until we are more than a quarry for China. Our exports should be a broader mix."
Frank Tudor, national chairman of the Australia China Business Council, says research shows that an FTA could benefit each country by $100 billion.
While the World Trade Organisation’s Doha round is floundering, "it’s important we make progress in FTAs — if we don’t, other countries will".
He says Australian companies have to be a part of China’s growth story in terms of domestic consumption of services and of high-quality imported products. Australia is important to China "because of our proximity, and the scale of our resources, which lock in our relationship".
He says the lack of a deadline for the talks makes progress harder.
"But do our members understand the difficulties? Do they still support the FTA? Absolutely."
Peter Gallagher, managing director of trade consultancy Inquit, recalls Chinese officials saying "we must be sensitive to the concerns of other WTO members" before FTA talks began in Sydney in 2001.
He is indicating that China will not offer preferential concessions to Australia that jeopardise important US or Japanese interests.
Gallagher says: "The year-long hiatus in the negotiations in 2009 is no doubt due to the sapping of initiative on both sides, and probably to the cooler patch in bilateral relations.
"But it’s difficult to see any new impetus to agreement since the talks resumed in March.
"In fact the likelihood of agreement seems to have receded.
"The recession in China may have slightly redressed the rural/coastal wage imbalance.
"But I suspect Beijing is still extremely sensitive to any measures that might depress local produce prices, or even seem to do so."
He says that Australia is not offering concessions that China really needs, if it needs any.
"The Chinese recently succeeded in breaching our Great Wall of Apples, ahead of the poor old New Zealanders. So quarantine barriers are shrinking.
"And the decision on Australian automobile and parts protection means tariff barriers are going to fall more or less on schedule."
He says bilateral FTA negotiations are difficult because there is no support from like-minded partners. "There’s just no getting away from staring at each other across the table.
"Even if neither side is expecting a great success from these talks, I am guessing that neither wants to see them end in disappointment. That would be an unwelcome foreign policy reversal."
Both sides could decide what they want and can do, agree and declare victory, he says. "But I suspect the outcome would look so trivial that neither side would find it saved much face."
Andrew Stoler, executive director of the institute for international trade at Adelaide University, says Australia needs an FTA for access for its services and farm products, which looked "doable" five years ago.
But China "was probably never very deeply interested", using the launch of talks as a bargaining chip for market economy status.
"Curiously, the penny has never dropped with the Chinese negotiators that their services sector could be dramatically enhanced through the technology transfer. . . from world-class Australian firms."
Australia’s best "carrot" is probably related to resource investment, he says, but he doubts China would be willing to offer much in return for Canberra liberalising its rules.
