Free Trade Agreement (FTA)

Australia was the first country to initiate a bilateral FTA process with China, with talks beginning in May 2005 following a joint feasibility study and Australia’s decision to grant China ‘market economy status’ under World Trade Organisation rules. It was estimated then that a goods-only FTA would add US$18 billion to bilateral GDP over ten years. But discussions entered a stalemate from mid-2007, and formal agreement on CHAFTA took place only after twenty-one rounds of negotiations. Finally, Australia and China signed a Declaration of Intent to conclude the China-Australia Free Trade Agreement (CHAFTA) on 17 November 2014, after a number of other countries and regions.

Australian objectives in pursuing an FTA included gaining preferential market access to the Chinese agricultural and services sectors, neither of which China had previously been willing to expose to foreign competition — a notable exception being the agricultural export concessions granted by China to New Zealand under their 2008 FTA, which prompted the Australian agricultural sector to become a vocal advocate for an FTA.

Correspondingly, Chinese demands for greater investment access and more short-term working visas proved electorally unpopular and politically unpalatable for both Coalition and Labor governments in Australia. The FTA also faced stiff opposition from the Australian manufacturing industry and unions, who fear competition from cheap Chinese goods and labour. In mid-2012, the deadlock in negotiations prompted then trade minister Craig Emerson to announce that Australia would pursue only a partial FTA focused upon agriculture. However, when Kevin Rudd replaced Julia Gillard as prime minister in July 2013, he reprioritised the signing of a comprehensive FTA.

After Prime Minister Tony Abbott [topic link page] met with Chinese President Xi Jinping at the APEC summit in October 2013, he declared that an FTA was a foreign policy priority to be completed within twelve months. Trade Minister Andrew Robb visited China numerous times in 2014 to progress discussions. Yet many Australian observers warned that various policy decisions of the Abbott government [topic page link] could endanger FTA negotiations. These worrisome decisions included: enhancing military cooperation with the US [topic page link: Pivot]; deepening political and security ties with Japan [topic page link: Defence]; refusing Beijing’s invitation to join the China-led Asian Infrastructure Investment Bank [topic page link] when it was launched in October 2014; lowering the ‘national interest’ assessment threshold for foreign agricultural investment [topic page link]; continuing the ban on Huawei [topic page link] participation in the National Broadband Network (NBN); and, causing diplomatic disputes over Chinese territorial claims. Despite such concerns, CHAFTA was successfully concluded.

The Abbott government trumpeted CHAFTA as a ‘historic’ development taking the Australia-China relationship to ‘another level’, and the media hailed it as ‘the deal of a lifetime for Australia’s economy’. Robb described CHAFTA as the most advanced bilateral FTA with China ‘by a long shot’ and the ‘best ever’ on services. (It is hoped that CHAFTA will help diversify Australia-China trade away from resources and energy). Benefits granted to Australia by China include the removal of tariffs on ninety-five percent of exports — including dairy, beef, lamb, seafood, wine and commodities — and unique preferential market access for service-providers in the education, finance, healthcare, legal and tourism sectors. In return, Australia has committed to removing tariffs on all Chinese imports, allowed Chinese firms to import skilled labour unavailable in Australia and raised the review threshold for private Chinese investment from A$248 million to A$1.08 billion. In March 2015, it was revealed that China had granted Australia ‘most favoured nation’ status in CHAFTA, meaning Australia automatically enjoys any extension in trade benefits that China grants to others.

However, as of July 2015, CHAFTA had not yet been completely finalised. China is still resisting Australian demands for greater access to wool, cotton, wheat, sugar, rice and oil seeds markets. Australia has declined to change the automatic review threshold for investment in Australia by Chinese state-owned enterprises. Both sides have agreed to review CHAFTA in three years’ time so as to postpone decision-making on these politically sensitive issues. In the meantime, the final text of the current deal was agreed to by both countries in June 2015 and must now be assessed by Australia’s parliamentary Joint Standing Committee on Treaties and the standing committee of China’s National People’s Congress before it can be signed and implemented. Some analysts think China cooperated with Australia because it believes that economic incentives can gradually induce greater Australian accommodation of Chinese regional leadership. Whether this accommodation will occur remains to be seen.

Both Taiwan and Hong Kong [topic link page: Australia and Australians in Greater China] have recently expressed interest in signing FTAs with Australia. The Australian government has not pursued invitations from either area to commence negotiations. It claims that departmental resources are fully employed in other trade agreements, but commentators suggest that political sensitivities mean Canberra will only enter such talks once CHAFTA has been completely finalised.

Links

Arts, Culture and Creative Industries

Australia and the American ‘Pivot to Asia’

Australia and the Asian Infrastructure Investment Bank

Australia and Xi Jinping’s Corruption Crackdown