Peru jumps the China FTA queue

Part of the prob­lem is that that Aus­tralian gov­ern­ment offi­cials went into them with the wrong idea about what Chi­na want­ed from the agree­ment. But the chief dif­fi­cul­ty all along has been that we want more from the Chi­nese than they want from us.

The talks between Aus­tralia and Chi­na were final­ly launched—after a year-long, heat­ed, dis­hon­est debate about the alleged need for penal­ty-pro­vi­sions in dump­ing cas­es brought against Chi­na. At the time, I con­vened an infor­mal busi­ness-sup­port group—that fell apart over the anti-dump­ing issue—with the help of some com­pa­nies at the big end of town.

Although some senior Aus­tralian offi­cials appar­ent­ly bought the flat­ter­ing, diplo­mat­ic assur­ance from Chi­na that they want­ed to ‘learn’ from the expe­ri­ence of nego­ti­at­ing a high-qual­i­ty FTA with a small, friend­ly, econ­o­my, I thought that was, to put it polite­ly, a quaint idea.

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p>There were oth­ers, how­ev­er, who held a more hard-head­ed view about the dif­fi­cul­ty of achiev­ing ‘free trade’ between us, con­sid­er­ing what Aus­tralia would ask Chi­na to con­cede. One top Chi­nese offi­cial broad­ly hint­ed to us, before the talks start­ed, that we would have trou­ble get­ting what we want­ed, on agri­cul­ture espe­cial­ly. On that sub­ject, I pro­duced one of the ear­ly analy­ses (paper, slides) warn­ing that Chi­na was

  1. most­ly self-suf­fi­cient in food, and
  2. high­ly sen­si­tive to the polit­i­cal impact of the rur­al-urban wage dis­par­i­ty, and
  3. very like­ly to trav­el the famil­iar pol­i­cy route from ini­tial­ly tax­ing, to pro­tect­ing and sub­si­diz­ing, food pro­duc­tion as its econ­o­my grew wealth­i­er.

In oth­er words, there was no rea­son to think that that Chi­na would read­i­ly embrace a ‘free trade’ deal with a major pro­duc­er of grains, meat and puls­es such as Aus­tralia. Not at least with­out excep­tions for ‘sen­si­tive’ agri­cul­tur­al prod­ucts, long time-frames for imple­men­ta­tion, safeguards…and all the oth­er para­pher­na­lia of a leisure­ly adjust­ment to free-trade.

It was appar­ent that Chi­na want­ed an agree­ment that would con­firm and maybe con­sol­i­date good over­all rela­tions: a for­eign-pol­i­cy objec­tive with obvi­ous ben­e­fits for resource-sup­ply secu­ri­ty. An agree­ment such as they now have with Peru.

Chi­na would also, no-doubt, wel­come some fur­ther con­ces­sions from Aus­tralia on for­eign-invest­ment pol­i­cy—like those we con­ced­ed to the USA—and more sym­pa­thet­ic, or at least straight-for­ward, treat­ment by Aus­tralian quar­an­tine author­i­ties.

But there are few oth­er mar­ket gains for Chi­na in this agree­ment. The anti-dump­ing prob­lem has been fixed. Access to the Aus­tralian tex­tiles and gar­ment mar­ket has improved and will be vir­tu­al­ly ‘free’ (5% tar­iff) in five years time even with­out an agree­ment. Motor-vehi­cles and parts, too.

China’s eco­nom­ic gains at home from dis­crim­i­na­to­ry lib­er­al­iza­tion of agri­cul­ture and ser­vices imports from Aus­tralia will be very mod­est in com­par­i­son with their rate of macro-eco­nom­ic growth and will be polit­i­cal­ly dif­fi­cult to swal­low; just as our removal of the ‘non-mar­ket econ­o­my’ anti-dump­ing test was polit­i­cal­ly dif­fi­cult despite being eco­nom­i­cal­ly incon­se­quen­tial.

My guess is that Aus­tralia and Chi­na will even­tu­al­ly reach a set­tle­ment because they would be embar­rassed to do oth­er­wise. On that basis, Aus­tralia should con­tin­ue to hold out for a high-qual­i­ty agree­ment, at least on access for ser­vices and agri­cul­ture, that con­cedes to the Chi­nese things that would be good for us too; such as an invest­ment frame­work agree­ment.

But I would not be sur­prised if we slip a few more places in the queue in the mean­time.

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