A free trade agreement (FTA) is an international treaty that removes barriers to trade between two or more countries.
They allow stronger trade and commercial ties to develop between countries, contributing to increased economic integration. They can cover entire regions with multiple participants or link just two countries.
The Chinese-Australia FTA, which was struck this week, is an agreement to lower trade barriers – such as tariffs on imported goods, and restrictions on labour and investment – between China’s and Australia’s economies
It is a big deal for Australia.
Australia has recently signed FTAs with South Korea and Japan, and combined these three countries account for more than 61 per cent of Australia’s exports of goods.
We don’t know.
The government has not said how many jobs the FTA will create because it does not know either.
And the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) say it has not had the opportunity to conduct an analysis of the employment impact of the FTA because the details have not be released fully.
However, economists generally say the FTA should lead to an increase in Australian jobs because local companies that export to China will have an incentive to produce and export more, or to expand into China with new offices and shopfronts. The huge markets in China present a tantalising prospect.
Tim Harcourt, from UNSW’s Australian School of Business, says if the China-Australia free trade deal “takes off” it will also likely have positive implications for Australian workers beyond an increase in employment.
“Most of my research shows – from past FTAs – that companies that export to China compared to those that don’t will pay a lot higher wages, have better health and safety conditions, and better employment security,” Mr Harcourt said.
When the deal is eventually signed and implemented, Australian consumers ought to enjoy cheaper household goods, electronics and clothing from Chinese companies, while Chinese vehicles and component parts will also be cheaper. Those things will help to reduce the cost of living in Australia.
It contains unprecedented access for Australian service providers across most sectors including health, tourism and travel, financial, engineering, legal, education, telecommunications, construction, aged care services, mining and extractive industries, manufacturing, architecture, urban planning and transport. It’s a long list.
The FTA also contains significant wins for the horticulture, agriculture, wine, dairy, wool and beef industries.
For example, tariffs of 12 per cent to 25 per cent on beef will be removed over nine years. The removal of tariffs on about 30,000 tonnes of Australian wool has been welcomed by the wool industry. Tariffs on Australian wine of 14 to 30 per cent will go within four years, while restrictive tariffs on a wide range of seafood, including abalone, rock lobster, and southern bluefin tuna will also be abolished within four years.
Dairy is being hailed as the biggest winner.
The dairy industry is calling it a ‘game changer’ for Australia. The access given to Australian diary producer is being compared favourably to the past deal struck between China and New Zealand (and that deal has been heralded as one of the reasons why New Zealand’s economy is performing so well these days, relative to other comparable countries).
Australian sugar, wheat, canola, cotton, rice and maize producers got nothing. Those products were non-negotiable from China’s perspective.
Cotton, sugar and rice producers will have to wait at least three years until tariffs on their products are reviewed (as part of a built-in review mechanism).
Sugar is seen as one of the biggest losers from the deal.
The government says it had to set these industries aside in the negotiations in order to push the agreement forward. It says these products will be revisited in future years to see if progress can be made.
First, the Australian and Chinese governments will have to finish writing the text of the agreement. Then the agreement will have to be signed.
Both countries will conduct legal reviews of the “concluded text” and prepare Chinese and English language versions for signature in 2015. Once that happens, the agreement will then be implemented. And the implementation will take years, with some tariffs reduced immediately but others phased out over years.
It will also be revisited in coming years to try to come to an agreement on products that were impossible to negotiate this time around (such as sugar, wheat and canola).
The long implementation process means the full effect of the FTA won’t be known for more than a decade.
As an example of the phase-in process, consider how Trade Minister Andrew Robb tried to sell the agreement on Monday. He said more than 85 per cent of Australian goods exports to China will be tariff-free when the agreement is signed next year, and this will rise to 93 per cent within four years. Then eventually, on full implementation of the FTA, 95 per cent of Australian goods exports to China will be tariff-free.
Not only has the Abbott government left key agricultural products out of the agreement, it has also made it easier for Chinese businesses to import Chinese labour to work on China-led projects. The government says it will only allow that to happen if China can’t find Australian workers to fill those roles, but unions are sceptical.
The government has also included a controversial clause in the deal that will allow Chinese corporations to sue the Australian government if the government introduces laws or regulations that damage the profits (or ‘future profits’) of Chinese companies.
Dr Kyla Tienhaara, from the Regulatory Institutions Network at the Australian National University, says Australia will have to revisit its trade agreement with Japan now, because that deal stipulated that if such a clause was included in an FTA with China then it would like to have one too.
Ms Tienhaara says it also means Australia will almost certainly have to include a similar clause in its Trans-Pacific Partnership agreement with the US.
There are ripple effects to all of these things.
It’s a tough one.
The government says it is surprised at how well it did (though you would expect them to say that), and big business seems very happy with the deal, except for industries that missed out altogether (like sugar and wheat).
Critics are pointing to the inclusion of the ISDS clause as a big mistake because it could reduce the sovereignty of Australia’s government while setting a precedent for the Trans-Pacific Partnership with the US.
Economists say the deal appears to be a good one overall because it will allow Australian service providers unprecedented access to a huge market at a time when the economy desperately needs to switch from mining to non-mining parts of the economy.
It’s been in the making since 2005 when negotiations began with the Howard government.
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