What would a high quality China free trade agreement look like?

15 October 2014

Published atwww.chifley.org.au

Australia risks signing up to a sub-standard free trade agreement with China because the Abbott Government is more interested in the politics than in the economics of trade.

Tony Abbott is increasingly looking like a soft touch in negotiations with Australias trading partners.

First he accepted an agreement with Korea which included Investor State Dispute Settlement provisions opening the Australian Government to compensation claims by Korean investors for changes in local policies.

Then he signed a deal with Japan which managed to disappoint just about every sector of Australias agriculture industry.

Now Mr Abbott has made a tactical blunder in his approach to trade negotiations with Beijing.

By setting a deadline of securing a deal this year, the Prime Minister has put Australias negotiators under pressure to accept a deal, any deal, at any cost.

Mr Abbotts tactical misstep has been exposed by the news that just as he is trying to finalise a trade deal with China, Beijing has imposed punitive new tariffs on coal, Australias second largest export to the Chinese market.

Labor supports trade liberalisation because it drives economic growth, creates jobs and improves the living standards of Australian consumers.

But trade deals are not all made equal.

A genuinely liberalising agreement with China has the potential to deliver significant benefits to Australia.

By contrast, a poor-quality deal struck to meet a political deadline would lock in uncompetitive outcomes for Australian businesses in one of our most important markets for years to come.

It has been reported that Mr Abbott hopes to sign an FTA with Chinas President Xi Jinping following the G20 summit in November.

If an agreement is announced, it will be important to look through the spin and assess its substance.

Labor believes a high-quality FTA with China should meet the following benchmarks.

Onagriculture, any deal must be New Zealand-plus it should ensure Australian farmers are on a competitive footing with their Kiwi counterparts under New Zealands FTA with China.

This will require China agreeing to eliminate or significantly reduce its tariffs on a wide range of Australian farm goods.

Onindustrial goods, any FTA must eliminate or significantly reduce Chinese tariffs on Australian manufactured products.

Forservicesthere need to be commitments to remove discrimination and open the Chinese market to Australian services ranging from banking and insurance to environmental and mining services.

But it needs to go further by tackling the significant impact of Chinese non-tariff barriers on Australian exporters.

This will require non-discriminatory application of Chinese regulations to Australian businesses compared to their Chinese competitors.

A China FTA also needs to ensure our businesses do not face unfair competition from subsidised Chinese goods so it must not weaken Australias dumping, countervailing duties and safeguards arrangements.

Oninvestment, the agreement should encourage greater flows of capital between China and Australia.

It should increase the threshold for Foreign Investment Review Board screening of Chinese investments in Australia in non-sensitive sectors to $1.078 billion (in line with the threshold for investment from the United States and New Zealand, and as agreed with Korea and Japan).

The Abbott Government should resist pressure from the Nationals to impose lower thresholds for Chinese investment in agriculture.

In return, China should ease its restrictions on Australian investments such as the regulations in its minerals sector which make it more difficult for Australian companies to develop high-quality resources in China.

There should be noInvestor State Dispute Settlementprovisions in any FTA with China.

Provisions onmovement of peopleneed to get the balance right between fostering employment opportunities for Australians while ensuring local businesses can secure the skills they need.

That means Australia should retain the ability to require employers to show there are local skills shortages if they wish to use temporary migration to fill positions.

FTAs negotiated by the former Labor Government reserved the right to require labour market testing for appropriate occupations and skill levels.

The Abbott Government should adopt a similar approach with China this is sound policy and will contribute to community acceptance of an agreement which is in Australias long-term interests.

If Mr Abbotts China FTA falls short of these benchmarks, it will be another case of the Prime Minister talking big only to bring home an inferior trade deal.