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Blow to China’s bid to join trade pact

The Australian Financial Review | 2 May 2024

Blow to China’s bid to join trade pact

by Andrew Tillett

The Productivity Commission has concluded that letting China into the trans-Pacific free trade pact would deliver negligible economic benefit for Australia, a finding that won’t help Beijing’s bid to join the club.

A discussion paper by the commission concludes that Australia’s network of multilateral and bilateral free trade agreements across Asia and the Pacific means the nation would get little benefit if China or the US joined the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

China has been lobbying hard to join the 11-member CPTPP, arguing incorporating the world’s second-largest economy would enhance regional economic integration and benefit all countries in the pact.

CPTPP members are split over China’s application, amid rising strategic tensions. Japan has been most vocal in opposition while Singapore has said China was welcome to join provided it met the standards and requirements of the agreement.

The Albanese government has made clear China needs to meet the standards, and it should not expect to be admitted while it continued to impose trade sanctions on Australia exports. Restrictions remain on lobster and beef exports.

China’s commerce ministry in March said it had consulted all members over its application and was committed to fostering an “open, fair and competitive environment” for foreign companies.

“We have proactively aligned our policies and legislation with the CPTPP rules in relevant areas and are well-prepared for market access offers in goods trade, trade in services and investment,” a spokesman said.

But the commission’s modelling downplays the economic benefits from China’s accession to the CPTPP, concluding they are “small but positive”.

China’s real GDP would only rise by 0.05 per cent if it joined the CPTPP. Across CPTPP members, the average GDP increase would only be 0.04 per cent. In Australia it would be just 0.01 per cent. The big winners would be Canada and Mexico, which do not have free trade deals with China.

Australian exports to China would actually fall as Canadian, Mexican, Peruvian and Chilean producers could take advantage of lower tariffs to increase sales to China.

The commission found the biggest economic gain for Australia would come from unilaterally abolishing all remaining tariffs on imported goods. This would grow real gross domestic product by 0.07 per cent nationally.

The report said while Australian tariff rates were relatively low by world standards, this masked wide discrepancies between goods, with manufactured products hit with a higher rate of duties.

Tariffs raised just under $US1 billion ($1.53 billion) but removing them unilaterally would increase GDP and reduce compliance costs for business.

Other gains could come if India could be persuaded to join the Regional Comprehensive Economic Partnership by itself or with South Asian neighbours Sri Lanka, Bangladesh and Pakistan, the commission found. This would lift Australia’s GDP by 0.05 per cent, while broadening the US-led Indo-Pacific Economic Framework to include tariff reductions would add 0.03 per cent to Australia’s GDP.

 source: The Australian Financial Review