Free trade agreement with China

Over the last year or so I orga­nized sev­er­al meet­ings between a group of busi­ness­es, indus­try asso­ci­a­tions and senior trade offi­cials to dis­cuss prepa­ra­tions for the nego­ti­a­tions. There is mod­est enthu­si­asm and a great deal of scep­ti­cism about the pro­posed agree­ment among busi­ness groups. In con­trast to the US agree­ment, many busi­ness­es ques­tion whether there are real ben­e­fits on offer from the Chi­nese side to a small trad­ing part­ner that has, for the most part, noth­ing new to offer. Our tar­iff bar­ri­ers are already low, our ser­vices mar­kets rel­a­tive­ly open (not to labour of course, from any direc­tion), our invest­ment poli­cies rea­son­ably lib­er­al. Chi­na will not secure much from Aus­tralia that it does not already have, and has to think care­ful­ly about extend­ing ben­e­fits to a small trad­ing part­ner that it may wish to refuse to the USA or to Japan. Access to Chi­na’s con­sumers, how­ev­er, must be bought at a pre­mi­um price. Unlike the USA that is in sev­er­al respects more open to trade than Aus­tralia, Chi­na has a host of priv­i­leged mar­kets and ‘sen­si­tive’ inter­ests that it pro­tects by restrict­ing access to dis­tri­b­u­tion net­works, finan­cial facil­i­ties and a host of reg­u­la­to­ry approvals. Aus­tralian offi­cials have argued that Chi­na’s inter­ests in a deal with Aus­tralia are based on its wish to ‘try out’ a mod­ern region­al trade agree­ment with an un-threat­en­ing neig­bour. The ben­e­fit that Chi­na seeks, they claim, is expe­ri­ence. That argu­ment, although it may seem plau­si­ble to offi­cials, rings few bells with the mar­ket­ing depart­ments or even the Board­rooms of Aus­tralian busi­ness. For some time the Chi­nese have been polite­ly attempt­ing to ‘man­age’ Aus­tralian expec­ta­tions (see my “report”: from last year’s Syd­ney con­fer­ence on the pro­posed agree­ment), par­tic­u­lar­ly on agri­cul­ture. Fur­ther­more, in years when food and fiber sup­ply from Aus­tralia have been affect­ed by drought and com­mod­i­ty prices gen­er­al­ly have been affect­ed by the declin­ing U.S. dol­lar (to which Chi­na’s cur­ren­cy is pegged), our share of the Chi­nese mar­ket has been slip­ping. bq. Aus­tralian exports to Chi­na grew in val­ue by 20.6 per cent last year, far behind the over­all pace of Chi­na’s glob­al import growth of 36 per cent. Sim­i­lar­ly, Aus­tralian imports from Chi­na expand­ed in val­ue by 25.7 per cent, com­pared with Chi­na’s over­all export growth of 35.4 per cent last year.  So Aus­trali­a’s share of Chi­na’s trade is shrink­ing. An expert on Chi­na’s econ­o­my, Arthur Kroe­ber, edi­tor of the Chi­na Eco­nom­ic Quar­ter­ly, said the deal “prob­a­bly has mar­gin­al eco­nom­ic ben­e­fit and more sub­stan­tial polit­i­cal ben­e­fit”. “Syd­ney Morn­ing Herald”: No won­der busi­ness is con­tain­ing it’s rap­ture. I pre­dict that his­to­ry, how­ev­er, will give today’s agree­ment a more promi­nent note.

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