Straggle Muster 154 - 6/5/2005

Chris Russell, Farmingshow Australian Correspondent

Is the Proposed Free Trade Agreement with China actually free.Who wins??

This month I was tempted to devote my column space to a discussion of the virtues of having a tough backline (like the Waratahs last Saturday for example) but not wanting to sound like a crowing Aussie I will resist such a temptation and focus on the much more topical issue of a potential free trade agreement with China...or is it free?

The Prime Minister announced in April that negotiations will commence on a free trade agreement between Australia and China. The big winner in such an agreement would undoubtedly be Australian agriculture. With China accounting for over a quarter of total world economic growth their demand for resources, agricultural products and services in particular should grow significantly. The recent feasibility study concluded that the net gain to the Australian economy would be over $A18 billion in the next ten years and over $US64 billion to the Chinese GDP with our exports to China raised by $A3.2 billion in 2015 - but many fear that the costs could be significant in jobs in manufacturing industries.

Australia already has a very liberal approach to tariffs as it aggressively chases WTO targets - with average tariffs as at 1 January 2005 being only 3.5% compared with China's average tariff level of 9.9%. However China's tariffs on agricultural goods average over 15%. Included in this are over quota wool at 38% duty and over quota wheat at 65%. While the exports to China that are within the allocate quota have only 1% duty, the quota levels are quite restrictive (287,000 tons of wool for example) and the benefits of an FTA that would completely remove quotas and penalty tariffs on excess product will not only enhance market share but also expand the use of wool in particular in the rapidly growing textile industries. The Western Australian Farmers federation has warned that Chinese negotiators may wish to exclude agriculture from any deal - but most believe that no Australian government would commit to any deal which do not include agricultural products.

On the manufacturing front however, the unions fear the immediate loss of over 1,000 jobs in Sydney alone as two car part manufacturers have announced they will either shut down or move to Asia in anticipation of any FTA being ratified. In the clothing industries some reports have suggested that some 12% of workers could lose their jobs.

Piracy of intellectual property is also a massive problem in China with over 90% of "copyright" goods sold in China being counterfeit.

On the other hand - with 60 % of our mineral exports already destined for China it is hard to imagine how much further this could grow but industry specialists say the potential from an FTA would be "an almost incomprehensible scale of opportunity."

So - on balance, where does the weight of advantage lie. The answer as they say "lies in the soil" - with agriculture and minerals the biggest winners. Sure there will have to be careful consideration of other barriers as part of the package - unnecessary administrative of labelling requirements, export-dumping controls currency regulation which artificially raise the price of our products through controlled exchange rates and the fear that the first item you sell may be the last with counterfeiters rife throughout China. However to have unrestricted access to one of the most rapidly growing economies in the world has to be a carrot that even the greatest pessimists cannot shy away from. Like any two way agreement it wont be "free" but properly formulated and negotiated - the feasibility study (http://www.dfat.gov.au/geo/china/fta/) shows that it should be "win-win" and one would hope that this will not be lost on the negotiators as they remove any "devils from the detail".

Chris Russell
Animal Nutritionist
Farmingshow Australian correspondent

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