Australia enters dragon's den
China’s stellar economic growth story continues. Gross domestic product (GDP) climbed 9,5% in the first quarter this year and industrial production was up 16,2% on the same quarter last year.
No wonder then that the Chinese are looking to Australia — the world’s largest exporter of aluminium and coal, and the second-biggest exporter of commodities such as coal, nickel and iron ore — to help fuel its long- term economic expansion.
The Australians are happy to oblige. Last week Australian Prime Minister John Howard and Chinese President Hu Jintao announced the countries would commence negotiations for a free trade agreement that is designed to expand the A$22-billion trading relationship that exists between them.
It is the first time China has announced it will negotiate a bilateral free trade deal.
The prospect of an Australia-China free trade deal, said to be worth A$82-billion to both countries’ GDP over 10 years, has been welcomed by key industry groups in Australia.
The National Farmers Federation, the main agricultural sector lobby group, says a free trade deal would help farmers export more wool, cotton, grains and red meat to China.
The major mining industry lobby group, the Minerals Council of Australia, and two of the leading business bodies, the Business Council of Australia and the Australian Chamber of Commerce and Industry, think such a deal is in Australia’s best long-term interests.
But there are some influential voices in Australia who are not so sure. Professor Ross Garnaut says: “When you negotiate a bilateral [free trade agreement], you emphasise the protectionist elements and not the free trade elements. We saw that in the discussions in China this week, where the Chinese were at pains to say that they were on the defensive on agriculture and would resist liberalisation there. We were at pains to say we were on the defensive in textiles and would resist liberalisation there.”
The other major concern, one expressed by the influential Australian Industry Group (AIG) that represents the manufacturing and service sectors, is that Australia has done something that neither the European Union or the US is prepared to do at this stage — grant China “market economy” status. This means treating China as though it is a free market economy, even though the evidence suggests this is not the case.
Critics of the move to grant China market economy status point to the fact that, since 1999, Australia has investigated nine anti-dumping complaints made by Australian businesses against China. In four of those cases, which include steel products and chemicals, anti-dumping measures have been imposed.
Last year the AIG published the results of a survey of 850 manufacturing companies’ attitudes towards China, which found a staggering 90% of companies are restructuring their business in response to the pressures being generated by Chinese growth rates of 8% a year.
But more worrying for the Howard government, 55% of these businesses see China as a competitive threat in the Australian domestic market although 44% view China as an opportunity for sourcing low cost inputs. Only 13% viewed a free trade agreement with China as being beneficial to their company.
The AIG’s chief executive, Heather Ridout, says that despite China’s accession to the World Trade Organisation four years ago, “on non-tariff areas such as intellectual property on technical barriers and government regulatory arrangements, China is falling far short of its commitments”.
The Australian Council of Trade Unions, which represents two million workers, also fears a fully-fledged Australia-China free trade agreement.
Under an Australian-Chinese free trade deal, both the automotive and textile industries sectors stand to lose. The free trade deal scoping study estimates that 3 000 of Australia’s 22 000 clothing manufacturing workers will lose their jobs if a free trade deal goes ahead.
Neither Howard nor Hu Jintao was prepared to set a deadline for completion of the free trade deal.
Despite Howard’s glee last week at being the first country to secure Chinese agreement to a bilateral free trade deal, he might find that actually realising an agreement will be a very tough assignment. The Chinese are notoriously tough negotiators and Howard faces an election in 2007.