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Free trade match kick-off

The Australian

Free trade match kick-off

It’s round one as our team of negotiators take to the field, writes China correspondent Rowan Callick

May 22, 2006

WINNING the soccer World Cup in Germany next month would be a cinch compared with winning special access to Chinese markets for Australian farmers, investors and service providers.

Thus, much hangs in Beijing this morning on the cool mind and professional experience of Ric Wells, our diplomatic equivalent of Mark Viduka, as he leads Australia’s team in to the first serious round of Free Trade Agreement negotiations with China.

After four sessions mostly consisting of the exchange of information, these talks starting today will see Australia place more of its cards on the table, in the form of a template of the ultimate document - although without yet all the targets we’re aiming for, especially in sensitive areas for the Chinese including investment and government procurement.

By seeking agreement on the major section headings to be covered by the text of the agreement - such as quarantine, services, standards, dispute settlement - Australia intends that the framework of a truly comprehensive FTA will be laid down. China may offer its own template, but is as likely to let Australia, which has more experience of bilateral agreements, take the lead in this area.

But while the words are important, they are fairly straightforward. It’s the numbers that hold the key.

The next round, in August, probably in Canberra, will start to address market access for goods, including tariff reductions for agriculture, with each country listing what it is prepared to concede, and what advances it is seeking from the other side. Preliminary discussions will probably be held on especially sensitive commodities including wool, wheat, sugar, cotton and rice, and on tariff rate quotas.

Market access for services, which the Chinese have viewed as particularly problematic, will not be considered in August. But Canberra is determined not to let the talks on goods and services get far out of synch, and views it as crucial that the targets for services come under consideration at the final negotiations for the year, probably in November.

If services and investment are allowed to drift too far away from discussion of goods, the danger is that China will ask Australia to conclude a deal on goods first, as it has done with Chile and the 10 members of the Association of South East Asian Nations - instead pencilling in an in-principle agreement that some time later, when the appropriate star sign is in the ascendant and no one can think of anything better to do, we’ll take up services and investment again.

While China’s Premier, Wen Jiabao, on his recent visit to Perth and Canberra spoke of the broad range of skills, services and products that Australia could offer, it is our resources that take centre stage - and right and left stage - in his Government’s perception of the relationship.

The agreements Wen signed on uranium in Canberra point in the ideal direction, as far as Beijing is concerned, with access to strategic commodities arranged and guided by government. So, a deal on goods alone would be fine for Beijing. That’s also why Australia is seeking to insist on this FTA being a single, comprehensive undertaking. To achieve that, some of the heavy lifting has to start pretty soon, in terms of the "hard chapters".

Last month, leading Australian service providers flew to a conference in Beijing to underline to the key Chinese departments and agencies that Australia’s stress on creating a comprehensive FTA was not a mere negotiating tactic. It was a result of the intensity of the pressure created by Australia’s own industry, much of which is already established in China but running into frustrating barriers.

Two more FTA conferences are due this year, to back up the negotiations and to demonstrate the extent of business support. The first, in Shenzen on June 28, will focus on resources and be attended by Prime Minister John Howard when he goes there to celebrate the arrival of the second liquefied natural gas shipment from the North West Shelf. The other, on agriculture, will be held in Xi’an in September.

Alan Oxley, director of China Business Focus, a coalition of major Australian companies pressing for a favourable FTA result, says his group wants improved behind-the-border conditions. "The area where there is the best prospect of delivering gains is wool, where the barriers are still significant," Oxley says, even though China has already become Australia’s biggest market.

But he fears "there is little reason the Chinese would pay much attention to what Australia asks for" in services. And even if progress was agreed, services would remain more susceptible than the trade in goods to interference and regulation, and "until there’s a better level of governance the trade risks will remain high".

A report by the Economic Analytical Unit of the Department of Foreign Affairs & Trade concludes that "an efficient and competitive services economy has yet to emerge in China", and that "counterfeiting and piracy remain at very high levels".

Vice Commerce Minister Wei Jianguo, in a largely positive speech to the Beijing services conference, spoke of opening up markets "on the basis of WTO commitments". Australia wants China to go well beyond the World Trade Organisation, which it joined in 2001.

But Wei’s position at least means the two sides are starting to talk turkey. The zones for discussion are coming into focus for both sides.

As well, the preparedness of China’s negotiators to embrace comprehensive deals may be aided by the work of leading trade experts Andrew Stoler - a former WTO deputy head now based in Adelaide - and Peter Gallagher. Both have been providing Australian-funded training in Beijing for trade experts.

As the political and economic relationship continues to warm overall, the Chinese are heightening their own expectations from the FTA.

Skilled Chinese workers are already gaining ready enough access to Australia, making investments in Australian resource projects more comfortable for their new Chinese owners.

The negotiations will now, however, see China push for unskilled labourers to gain visas, as its construction companies bid more confidently for tenders on a broader front than just supporting Chinese resource investment. That hits a particularly awkward spot for Australia, although it can’t be denied that we are short of workers in critical sectors and locations.

 source: The Australian