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China, Australia inch closer to FTA
talks
BEIJING - China and
Australia may be one step nearer to launching
talks on a free trade agreement (FTA), and a
feasibility study to be released this month
strongly proposes the deal.
"China and
Australia are highly complementary in economy and
trade, and an FTA between the two sides would
benefit both countries and largely promote a
bilateral cooperative relationship for mutual
prosperity," Ma Xiuhong, China's vice-minister of
commerce, cited the report as saying. Ma said the
feasibility study has been conducted smoothly over
the past 15 months and is now at its "final
stage". Chinese and Australian experts have been
working on the study since the two countries
signed the Trade and Economic Framework in October
2003 during Chinese President Hu Jintao's visit to
Australia.
Australia is the largest
developed country trying to reach an FTA deal with
China, which has been trying to establish FTAs
with the 10-member Association of Southeast Asian
Nations (ASEAN), the six-member Gulf Cooperation
Council and the five-member South African Customs
Union, Chile and New Zealand. A specific timetable
for the FTA has not been announced but analysts
said it could be expected in April, when
Australian Prime Minister John Howard visits
China.
Geoff Raby, deputy secretary of the
Department of Foreign Affairs and Trade of
Australia, said that following the completion of
the feasibility study, the two governments would
decide "whether or not to take the historical step
of launching the FTA negotiations... Both
governments will give careful consideration to the
results, and weigh all elements to reach the
decision."
Australia will first have to
decide whether to treat China as a market economy.
China is now Australia's third-largest trading
partner, second-largest export market and
second-largest origin of imports. Trade between
China and Australia has been growing rapidly over
the past few years. Chinese figures show that
two-way trade reached US$20.39 billion in 2004, up
50.3% from a year ago, double the figure in 2002
and more than 230 times the figure when the two
countries established diplomatic relations in
December 1972.
Service trade between the
two countries has also experienced a big growth.
The service trade volume in education hit $250
million in 2003. About 60,000 Chinese students are
studying in Australia. As the negotiations
approach, China has proposed that special
attention be given to agriculture and service
trade in the negotiations. Ma said a
China-Australia FTA would exert a "relatively big
pressure" on China's agriculture and service
sectors because they are quite vulnerable, being
less developed than Australia's.
Earlier
this year, Australian Trade Minister Mark Vaile
had said he was confident that Australia can
secure a free trade deal with China by the end of
2007. "If we launch one when the prime minister
meets President Hu Jintao, I think there's a very
strong possibility that we can complete it before
the end of 2007," Vaile had said. Everyone wants
to dance with the world's boom economy. And
Australia has its name top of China's dance card.
Australia is all but certain to begin negotiations
very soon. Australia's Department of Foreign
Affairs and Trade (DFAT) even anticipates the
green light within a few weeks. Those in trade
circles expect the FTA to be bigger, more
difficult, and perhaps more important, than
Australia's recent deal with the United States.
The key reason is China's population of 1.3
billion potential consumers, and a middle class
larger than the entire population of the US,
offering business opportunities on a scale
hitherto unimaginable.
As China becomes
richer and its middle class bigger, the
opportunities to sell products and services there
will grow almost exponentially. In merchandise
trade alone, China has now become Australia's
second biggest trading partner - although China is
certainly enjoying more from that partnership.
Australia's trade in goods deficit with China hit
a record $5.4 billion for the first seven months
of the current financial year, equaling the total
deficit for 2003-04 of $5.4 billion. While
Australian exports to China have grown 22.2%, or
$1.2 billion, so far this year, imports from China
have skyrocketed 32.2%, or $3 billion. By
comparison, exports to the US grew just $6 million
to $5.4 billion over the same period, while
imports climbed 6% to $12.3 billion.
HSBC
senior economist John Edwards said both Australia
and China are keen to knock down the trade
barriers. He said China would be keen to clip
Australia's textile, clothing, footwear and motor
vehicle tariffs. It also has an interest in
opening up the investment supply chain,
particularly in the key metals, minerals and
energy sectors. Some minerals are likely to be
extracted, such as copper, while others, such as
gold, are not.
Australia, for its part,
would want to clean up the bureaucratic maze that
is a major hazard of the Chinese economic playing
field. "Australia would be looking for easier
access and a faster track into the Chinese
economy, and use the FTA to work through those
difficulties," Edwards said. Australia will be the
largest economy to gain a free trade deal with
China if the negotiations are successful.
But European and American firms are
already well entrenched in Shanghai, Beijing and
other parts of China. Edwards said Australian
firms, particularly in the manufacturing area,
were unlikely to make large gains even under an
FTA. The biggest winners, he believes, will be
those in the services sector, in areas such as
property and finance. "Services is where the
growth is going to be in China over the next 20
years, much larger than the growth in
manufacturing. If Australian firms can get a foot
in with services, they could get ahead of
competitors from Europe and the US."
Indeed, most in the Australian business
community are keen on a Sino-Australian FTA.
Companies, including Qantas, Holden, BHP Billiton
and Alcoa, have joined groups such as Minerals
Council, Dairy Australia and the Australian Food
and Grocery Council to back the agreement. These
groups hope an FTA would overcome some of the
problems inherent in China, such as banking and
investment regulations. Bureaucracy, particularly
where there are conflicts between provincial, city
and central governments, are a major headache.
Standards and testing, and the protection of
business rights - particularly in relation to
contracts - are also key issues. And then there
are the genuine concerns in Australia about what
an FTA might mean for Australia's manufacturing
sector.
China is currently forcibly
restricting exports of its super-cheap textiles
and clothing sectors, to ensure it does not wipe
out other low-cost producers. The Australian
Industry Group's chief executive, Heather Ridout,
said her members were daunted by the prospect of
China's unfettered access to the Australian
market. "Our members are very clearly worried
about China taking their markets, it has been very
aggressive in terms of taking market share away
from Australia and the rest of the world," she
said recently. Her group has expressed concerns
over the market economy status issue.
Australia, if it reaches an FTA deal, will
have to grant China market-economy status,
something that neither the European Union nor the
US is prepared to do. Conferring market economy
status makes it more difficult to challenge a
country under anti-dumping rules. Many Australian
manufacturers believe socialist/communist China is
so competitive because it maintains
state-sponsored internal subsidies. There is also
growing concern about Australia's ability to
manage four concurrent bilateral trade
negotiations on top if its heavy commitment to the
World Trade Organization (WTO) talks.
By
comparison, the United States, which has a far
larger bureaucratic resource base than Australia,
is involved in six ongoing bilateral trade
negotiations. These include the substantial Free
Trade of the Americas deal, and those with
southern Africa, Oman, Andean, Thailand and
Panama. But Australian Trade minister Vaile said
resources have been built up to deal with the
Australia-US FTA, and his department could handle
the coming talks. "We have every confidence that
the resources available in DFAT at the moment will
be able to accommodate what we have coming before
us as well as the multilateral negotiations," he
said.
It took more than 12 months to
negotiate the US-Australia FTA and then six months
more to massage the legislation through
parliament. That was between two English-speaking,
capitalistic countries with very similar legal
systems. China presents a lot more potential
problems. But Australia can't wait to shake a leg
with the new dance partner all the same.
(Asia Pulse/XIC) |
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