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”:http://www.inquit.com/article/313/what-china-wants-in-a-free-trade-agreement 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”:http://smh.com.au/news/World/Let-the-free-trade-talks-begin/2005/04/18/1113676706358.html 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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