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Give and take as China inches towards trade talks

Sydney Morning Herald

Give and take as China inches towards trade talks

By John Garnaut

20 April 2005

Australia has recognised China as an "equal trading partner" under anti-dumping laws but will give negotiating concessions to China because it is a developing economy.

A joint feasibility study into a possible free trade agreement between the two countries, released yesterday, found a preferential trade deal would deliver on average an increase of about 0.04 per cent in GDP a year to each country in the decade to 2015.

Added together, it says the present value of the annual benefits amounts to $24.4 billion for Australia and $83 billion for China.

The study also projects that Australian goods exports to China would increase by $4.3 billion, or 14.8 per cent, a year by 2015 while liberalisation of investment between the two nations would add $1.2 billion to GDP.

A separate modelling report provided by economists at Monash University, Nankai University and the Chinese Academy of Social Sciences found that a trade deal would cause 180,000 Chinese farmers and 34,000 miners to lose their jobs.

The report also found that 1500 Australian textile workers and 400 workers in the car industry stand to lose their jobs.

But the job losses are projected to be balanced by job gains in other sectors as result of trade liberalisation.

Less optimistic assumptions originally provided by the modellers were not included.

But the feasibility study, released only after painstaking negotiations about wording and presentation, reflects the deep difficulties Australian officials have already faced in pursuing free trade in farm products.

The first negotiation "principle" says the two sides should negotiate as equal trade partners and should do so only after Australia has recognised China as a market economy. The designation will aid China in its worldwide battle against restrictive anti-dumping laws.

But another key negotiation principle requires that negotiators take account of the disparities in economic development between the two countries, particularly in relation to sensitive products and industries.

Specifically, the study says a possible trade deal "could also take into account the impact of further liberalisation on the development of China’s dairy production and farmers’ incomes".

The sentence is reproduced seven times in the contexts of cotton, dairy, poultry, wool, wheat, sugar and canola.

Liberalisation of China’s services sector will also be heavily contested, with the study showing services reform would add $1.6 billion to Australian GDP by 2015 and and account for half of the expected benefits to China, or $7.7 billion.

The negotiations will proceed in a tumultuous Chinese farm policy environment. Conflicting objectives are pursued by the departments of agriculture and commerce and the National Development Reform Commission.

Export restrictions to contain domestic food prices have been contradicted by policies to boost farm incomes including import restrictions, tax cuts and subsidies.

Sources close to the study said the result for farmers was likely to mirror that achieved by last year’s agreement with the US, where liberalisation in key sectors was phased in over two decades and subject to "safeguard" clauses to protect American farmers from Australian competition.