Emerson says China free trade deal overrated
By Michael Janda and staff
3 April 2012
Trade Minister Craig Emerson says a free trade agreement with China is overrated.
Talks between the two countries began nearly seven years ago but have faced a number of problems, particularly around agricultural trade.
Dr Emerson says he wants to speed up the process but says other improvements are needed in Australia’s relationship with China.
"Free trade agreements, I think frankly, are overrated in what they can achieve in terms of a relationship between Australia and China," he said.
"Not everything happens at the central government and not everything is made impossible by a regulation or a law.
"The real obstacle often is just simply understanding and experience, and I think that’s what we should should be encouraging in the commercial world."
Dr Emerson has made the comments in a speech to the National Press Club to explain the benefits of having a good economic relationship with China.
He says Australia will continue to seek changes to trade barriers because it would benefit both countries.
"From China’s point of view, it’s got an emerging food security issue - 1.32 billion people, an extremely intense desire to be able to feed those 1.32 billion people on staple products - rice, wheat, other grains," he said.
Dr Emerson’s remarks came as the Australia-China Business Council released a report into trade between the two countries.
The report, prepared by Allen Consulting, found that last financial year the countries engaged in around $113 billion worth of trade, or $13,470 per Australian household.
And Australia’s commodity exports have it coming out ahead, with around $70 billion in exports to China compared to $43 billion in imports.
Dr Emerson says Australia’s exports were more than just commodities.
"Last year manufactures comprised 6 per cent of total Australian exports to China, with the majority around $2 billion worth being sophisticated manufactured exports," he said.
"In fact, over the last decade exports of sophisticated manufactured goods to China increased by 230 per cent."
He says even the rise in cheap Chinese imports has had a positive effect for Australians.
"In the last 20 years real prices for imported furniture, handbags, clothes, shoes and medical products have roughly halved and have fallen by about two-thirds for computers, telephones and other electrical goods," he said.
"Since the independent Reserve Bank of Australia targets inflation in the setting of monetary policy, the availability of cheap Chinese imports helps keep downward pressure on interest rates."
The biggest benefits have flowed to Western Australia, with around $58,000 worth of trade per household between that state and China, mostly driven by commodity exports.
But the Australia-China Business Council’s chairman, Frank Tudor, who is based in Perth, says he would like to see the development of a more balanced relationship.
"The issue in the long term for us is the volatility in what is the commodities market and our dependence on it and we should be doing everything we can to diversify the economy," he said.
"One of the things that we’re advocating for, as the Australia-China Business Council, is to see whether we can’t open the doors to more investment flowing from Australia into China."
He acknowledges that is easier said than done, with the Chinese Government choosing to protect many industries dominated by businesses it owns.
"It seeks to protect its national interests in those sectors that it thinks deserve that treatment," he said.
"But outside of that, there’s still lots of things that could be opened up through such an agreement as the Free Trade Agreement."
Associate Professor John Lee from Sydney University says even a free trade agreement will not guarantee access to many Chinese markets for Australian companies.
"Even if we can get something signed on a piece of paper, the reality is that Australian companies won’t get great access to the Chinese political economy," he said.
"If you actually look at how the Chinese economy works, the government has essentially reserved around a dozen sectors of the economy for national champions and state enterprises to compete in and thrive.
"And they essentially will block out foreign companies and domestic private companies and they do this for political reasons in order to try to bulk up the state-owned sector."
He says Chinese state-owned or influenced companies may take advantage of a free trade agreement to make strategic investments in key Australian industries.
"Probably about four in every five dollars of inbound Chinese investment is by a state-owned enterprise and these SOEs invest for strategic and political reasons in addition to commercial ones," he said.
"I think there is no doubt about that and obviously those security issues that have come up will increasingly come up if there’s more Chinese investments."