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Why We Want an FTA with China (Australia)

The Age, Melbourne

Why we want an FTA with China

17 August 2004

The reasons have more to do with strategy than access to markets, says Tim Colebatch

On Saturday The Sydney Morning Herald travel section informed readers that Slovenia is "one of Europe’s best-kept secrets". The next day, our own Sunday Age broke the news that Potsdam is "Germany’s best-kept secret".

Personally, I’m all in favour of newspapers breaking secrets. In fact, we journos see it as one of our core responsibilities. But these secrets just don’t rate. You can find Slovenia on any map of Europe. I’ve had friends and neighbours who told me openly they were from Slovenia. And the Slovenian Government has never banned any of its officials from telling a Senate committee of Slovenia’s existence.

The best-kept secrets are not excuses for travel junkets, but serious conspiracies to hoodwink the public. In some ways, the worst part of the Big Lie of the 2001 election campaign was that public servants complied with the Government’s aim to ensure that voters were not told that, in fact, no refugee children were thrown overboard.

That became the best-kept secret of Australian politics, which any conscientious public servant could have exposed. Instead, all those informed became complicit in the deception wrought on voters - because to have let the truth out would have hurt the Government’s election chances. And the public service is now more a ministerial service, an extension of the minister’s office whose mission is to implement the Government’s priorities and keep the minister from harm.

Last week in Sydney, a valuable conference co-sponsored by the Department of Foreign Affairs and Trade revealed one Government priority that is hardly its best-kept secret. Now that the US free trade agreement has been pocketed, the Government is determined to negotiate a free trade agreement with China, and will pay what it takes to get it.

The conference, organised by trade consultant Alan Oxley and Monash University’s Australian APEC Study Centre, brought together an excellent range of speakers from both countries to discuss the implications of Australia’s next big free trade agreement - which is likely to be very different from the one just completed with the US.

The two governments are now jointly carrying out a "scoping study" to determine whether to proceed to negotiate an agreement. It would be China’s third free trade agreement after one signed with its satellite Hong Kong and one about to be negotiated with New Zealand. But the Chinese Government has made it clear that it will enter negotiations only if Australia first declares China to be a "market economy".

More of that in a moment. Four key messages emerged from the Sydney conference:

1. The Government is as determined to get a free trade agreement with China as it was to get one with the United States. The difference is that with China, the real motivation is not political, but strategic, seizing an opportunity to lock in a good relationship with the one country that could ever feasibly pose a real threat to us.

2. For the Chinese, similarly, this agreement is not primarily about securing access to Australia’s markets, which they already have in spades. It is about securing Australia’s support as a close US ally on two issues that matter to it: opposition to independence for Taiwan, and removing China’s pariah status in world trade as a "non-market economy".

3. China, like the US, is unlikely to offer us free trade. Just as the US will keep trade barriers on Australian ships, textiles, beef, dairy, sugar, peanuts and more than 30 other products, China’s former chief trade negotiator Long Yongtu told the conference that key sectors such as agriculture, banking and insurance were "sensitive", and warned of a backlash if negotiations went too far.

4. The Australian Government knows all this, and will not let it stand in the way of a deal. It is willing to override the objections of manufacturers to meet China’s terms by granting it market economy status.

This is an obscure, complex issue, but we’d better get used to it. In Australia, the US and Europe, China is defined as an economy in which prices are not set by the market. This allows authorities to apply unique tests to Chinese products accused of being "dumped" - sold for less than they cost to produce - in our markets.

China deeply resents this discrimination. Beijing economist Yo Yongding said more than 600 anti-dumping actions had been launched against Chinese firms, with 70 per cent ending in heavy penalties. Long Yongtu declared emphatically: "China is a market economy."

But manufacturers, led by the Australian Industry Group, warned that granting market economy status could leave them defenceless against Chinese firms dumping products here.

Trade experts Daniel Moulis of Freehills and Andrew Stoler of the University of Adelaide argued that they had misunderstood the anti-dumping laws, and recognising China as a market economy would make little or no difference. But the argument still has far to run.

But the Government has chosen its side. It’s no longer a secret.

Tim Colebatch is economics editor of The Age.