Australia and China are widely expected to announce a free trade agreement (FTA) in the next week on or before Monday, when the Chinese president, Xi Jinping, addresses parliament in Canberra.
If it comes off, it will mean the Abbott government has completed bilateral agreements with China, Korea and Japan in one year, albeit finishing deals started by previous governments.
While the FTA has been nearly 10 years in the making – negotiations began in 2005 – Tony Abbott showed his hand after he came to government by declaring that he wanted the negotiations done within the year.
Labor’s trade spokeswoman, Penny Wong, the Greens and others, such as Australian Industry Group’s Innes Willox, have urged the government not to rush into a deal for the sake of a self-imposed deadline. Willox has said the AIG welcomes a good deal, not just “any deal”.
Wong used another house metaphor to get the point across: “If you’re going to sell your house ... and you tell the market that you want to sell it in a year, that isn’t the best negotiating position.”
Negotiators, particularly in the agricultural sector, have been looking closely at the 2008 China New Zealand trade agreement, which is considered the basis for any free trade agreement. It provided big wins for New Zealand dairy, for example, with a more than tenfold increase in exports to China.
But in recent days the government has been talking less about the agricultural sector and more about the “services” industries, such as tourism, finance, education, law and accounting, as the big winners in the trade deal.
“These agreements today are not just about trade, they’re also about services, and there are tremendous opportunities for Australian law firms, accounting firms, educational providers and others to make more of this great market and, likewise, there are opportunities for Chinese people in Australia,” Abbott said.
As with all trade agreements, the negotiations are secret, but here are some of the sticking points.
Labour
The Chinese government is seeking concessions for Chinese workers on Chinese investment projects in Australia. Labor has said it would endorse the deal only if it retained labour market testing requirements for temporary migration to ensure business is not allowed to import workers on lower wages and conditions.
The trade minister, Andrew Robb, said there was “no prospect” for lower-wage workers coming into Australia where skills currently receive a certain wage level.
“We’ve got protocols in Australia for people who are employed in all sorts of areas as to wage levels that are there by law and Australian law will apply,” Robb said.
He did foreshadow that all Australia bilateral trade agreements have covered “movement of natural persons, particularly things such as mutual recognition, easier recognition of skill sets and whatever, so again those issues have been under consideration”.
Investment
Like the Trans Pacific Partnership Agreement, there has been much conjecture as to whether the China FTA will include the controversial Investor State Dispute Settlement (ISDS) clause, which grants foreign companies the right to sue the government under international law. This is particularly controversial as Australia faces a legal case by Philip Morris International based on a Hong Kong trade treaty over Australia’s tobacco plain packaging laws, even though the company already lost the case in the Australian high court.
Two weeks ago, a former Australian ambassador to China, Geoff Raby, predicted China would want an ISDS and Australia would grant it. The Greens senator Peter Whish-Wilson said rushing the deal would have huge ramifications for Australia’s interests.
“Having the dangerous and undemocratic ISDS provisions in the China deal would mean subjugating the Australian legal and parliamentary system to Chinese state-owned enterprises and shady international arbitration panels,” Whish-Wilson said.
“If the Foreign Investment Review Board [Firb] process was exposed to ISDS then we would lose control of our ability to block investments that weren’t in the national interest.”
The government is reportedly considering granting greater access for Chinese investors generally in return for greater access to Chinese markets.
State-owned enterprises
China is looking for better treatment for investment by Chinese state-owned enterprises, which have a tighter review criteria under the Firb. Robb has lauded the role of foreign investment, including by state-owned enterprises, in the Australian economy.
“There is significant state-owned investment now,” said Robb. “It’s been to the great benefit to Australia back over the last 14 years. For goodness sake, it got us through the global financial crisis and has been an enormous contributor to wealth in Australia.”
Minerals
The Australian minerals council wants the immediate elimination of tariffs on Australian exports of minerals and energy commodities to China, valued at $15.5bn annually. These tariffs range between 1.5% and 10%, and if applied at current rates they add nearly $590m in costs to the bilateral minerals and energy trade this year.
Red meat
The National Farmers Federation’s Brent Finlay is hoping for gains in the Chinese market for Australian red meat, including beef, lamb and mutton. A live export deal separate to the FTA is in the wind, which has the potential for 1m live cattle to be shipped to China each year. However, the agriculture minister, Barnaby Joyce, said the initial numbers were more likely to be 30,000 to 40,000 a year. Last year Australia’s total live exports were 1.1m. Robb said the live export deal and the free trade agreement were feeding off each other as they worked towards a conclusion on both deals. Australian beef currently attracts a tariff of up to 25%, while sheep meat attracts tariffs of up to 15%.
Horticulture
The horticulture industry is looking for the removal of tariffs from fruit and vegetables. Fresh vegetables attract a tariff of about 10%. Claire McClelland, the assistant manager of export development for Ausveg, which represents 9,000 vegetable growers, said it was hoping for a tariff reduction to zero, similar to the China-NZ FTA which achieved zero tariffs in four years. Once a removal of tariffs is achieved, the industry is hoping to determine protocols to allow producers to send direct to China. The protocols govern how the produce is treated, and if not handled correctly can mean the produce is rejected.
Sugar
Sugar growers appear set to lose out in the China FTA due to a reluctance by the Chinese government to put Chinese sugar producers offside. Warren Males, economist for industry body Canegrowers, said he remains “hopeful and optimistic” that there will be some inclusions for sugar growers to take advantage of some markets, though he would not elaborate on the details. If Australia did win a relaxation on tariffs and quotas, we would be the first country to do so, which indicates the magnitude of the task. China places a 15% duty on the first 1.94m tonnes and then a 50% duty on anything above the quota. China imports 4m tonnes of sugar, of which 200,000 tonnes come from Australia. But the market is growing rapidly as the Chinese diet moves closer to the western diet. China consumes 12-13kg of sugar per head per year, compared with the Asian average of 20kg and the Australian average of 50kg.
Services
Australian service sectors are keen to win access to the Chinese market. One sector waiting eagerly for news of the China FTA is the education industry, which considers Australia’s student visa application fees a significant hurdle for Chinese high school and tertiary students to study abroad. Australian non-refundable visa application fees cost $535 each, with no guarantee of a place. This compares with A$200 in New Zealand, A$150 in Canada and A$350 in the United States. If students want to continue to study in another Australian course once here, they pay another A$700 extension fee. Phil Honeywood, chief executive officer of the International Education Association of Australia, said fees played into the decision making process of overseas students. The association would also like the see more places for paid and unpaid internships and an acknowledgment that Australian and Chinese students, travelling both ways, are a low immigration risk and should be treated as such by both governments.
After 10 years of negotiations, even when the deal is done, it still needs the approval of parliament, including the Senate, which may be the government’s biggest challenge yet.
