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Trade deal with China? Yes, but…

The FTA with China has been under negotiation for 10 years. Even so, writes Innes Willox, Australia must stick to its guns and be willing to take that little bit of extra time to secure the right final deal.

Important benefits can be generated both for Australia and for China by putting in place a well-designed Free Trade Agreement (FTA). However, many Australian businesses fear the risks inherent in a hastily agreed agreement for President Xi’s visit for the G20 meeting on 16-17 November.

Manufacturers are especially wary that a quick deal could come at a cost to them and the broader economy.

A well designed FTA could help deepen commercial relationships and extend benefits beyond our outbound trade in mineral products, agricultural goods and services. It could and should include advantages for the local manufacturing sector and opportunities for its exporters.

Manufacturers are painfully aware that they cannot compete with China in terms of price. China has the advantage of a huge pool of cheap labour. But Chinese exporters have other significant advantages. Australian businesses compete directly or indirectly with the powerful state-owned enterprises that still play a major role in the Chinese economy. China gives state-owned enterprises and Chinese businesses preferences in local and export markets, hidden subsidies, transport and energy cost advantages and financial support.

Australia’s manufacturers want an FTA to require Chinese enterprises to compete on fair and non-discriminatory terms. They want transparency in Chinese regulations and requirements. They want provisions covering the full variety of advantages afforded to Chinese exporters. But there is no confidence that a quickly agreed FTA will adequately deal with these entrenched Chinese practices.

There are reports that China wants Australia to weaken our WTO-compliant dumping and countervailing duty arrangements. China has the highest number of anti-dumping actions taken by Australian business. The current anti-dumping system contributes to Australian efforts to ensure that international trade remains fair through a process designed to level the “playing field”, which has been distorted by overseas suppliers. It is critical that Australian industry is able to continue to take action to counter the negative impact of illegal under-pricing through the retention of an effective anti-dumping system. Given the characteristics of the Chinese economy, it is essential that the system retains the ability to use ‘surrogate’ methodology.

In the recent FTAs with Korea and Japan, Australian manufacturers have come out second best in terms of phasing out tariffs. Local manufacturers face immediate detriments and very little by way of compensating benefits. This is in stark contrast to the often considerable concessions to our partners’ producers, such as extended periods for the phase-down of tariffs on agricultural products.

Several things are needed to ensure an Australia-China FTA delivers to its full potential. We should have a sober and independent re-examination of the economy-wide and sectoral impacts of an agreement. Our negotiators need to become much more active and open in building their understanding of the Australian impacts of proposals. They need to ensure that non-tariff barriers are fully taken into account. And they need to be as insistent as their counterparts on provisions – such as orderly tariff phase-downs – that give businesses adequate opportunity to adjust.

No doubt it will be argued that we need to finalise this agreement as soon as possible to secure some largely undisputed sectoral benefits. However, this misses the point that FTAs need to be considered in their entirety. Benefits for some sectors should not be at the expense of other sectors.

The FTA with China has been under negotiation for 10 years. There should be no unseemly rush in the next weeks to conclude an FTA which is not clearly in the interests of the whole Australian economy.


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