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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