The long march to free trade 

Last Updated:2014-11-12

By Geoff Raby 


Tony Abbott and Andrew Robb seem to have done what has eluded four prime ministers (Rudd twice) and four trade ministers before them. The formal signing of the Australia-China bilateral free-trade agreement next week in Canberra during the visit of China’s President Xi Jinping is a major milestone in the bilateral relationship and a further step towards deeper regional economic integration. 


When the idea of an FTA was first raised by the Howard government, China was only Australia’s fifth-largest export market, behind Japan, South Korea, the US and New Zealand. Excluding Japan, today China is bigger than all these combined. 


The Australia-China FTA has been 11 years in the making: nine of negotiations preceded by two years of preparatory negotiations to convince the Chinese of the merits of doing an FTA with Australia. It’s the longest continuous trade negotiation Australia has ever undertaken, including the Uruguay Multilateral Round, which lasted seven years and resulted in the creation of the World Trade Organisation. 


The results from the FTA will inevitably be more much modest. Why then has it taken so long to conclude, especially as our competitors, such as New Zealand and Chile, did theirs so quickly? 


An important part of the answer can be found in the political controversies surrounding the start of negotiations and how these shaped the approach of Australian negotiators. 


Benchmark agreement 


Talks with China began in 2003 soon after finalising our FTA with the US, which was a significant achievement. It seemed like a good idea to build on the momentum achieved and to balance that agreement with one with China. 


The Australia-US agreement, with its broad sectoral coverage and regulatory chapters, then became a benchmark, but one that could never be achieved with a developing country like China. 


The China negotiations began amid two political controversies. One was the old debate over multilateral versus bilateral and plurilateral trade deals. A bevy of well known and publicly active trade economists and think tanks came out strongly against an FTA with China (they had also done so against the US FTA). 


Yet for some reason the intensity of opposition over China was greater. It may have been because as China had just recently joined the WTO, it was now being diverted from the true path of multilateralism. 


Howard had also again confounded the Labor side of politics by showing he was capable of bold initiatives in Asia – when he was so often characterised as the prime minister who couldn’t deal with Asia. 


Seriously complicating the politics was China’s pre-condition that Australia grant it “market economy" status. Opposition spokesperson on trade Simon Crean campaigned strongly against this, saying we were giving up our negotiating coin. However, the reality was that the coin had no value if negotiations could not start. And China had made it clear, as it did with our competitors, that without “market economy" status there would be no negotiations. 


Tangled arguments 


Domestic arguments over this became impossibly tangled. “Market economy status" was widely misunderstood to be some sort of subjective judgment on whether or not China conformed to certain market-economy norms, whereas in fact it dealt only with a technical aspect in the WTO’s anti-dumping and countervailing duties agreement. In any event, Australia was already treating China as a market economy in practice. 


The Labor opposition, together with the unions and some sections of industry, campaigned strongly against the China FTA. Giving China “market economy status" also upset the US and drew criticism from the EU. 


In response, the Howard government’s enthusiasm for the negotiations began to wane even before they had begun. But not to proceed at a late stage in the process would have been seen to be caving into pressure and a victory for the opposition. So a formula was found by the trade bureaucrats. Taking the American FTA as the gold standard, our objective became to achieve a “fully comprehensive, WTO-consistent, liberalising, high-quality" FTA. 


Under this formula, interest groups could rest assured that (unlike in the US FTA with sugar), there would be no sectorial carve-outs and everyone would get something. In the process, Australia would become a protean agent of deeper reform and liberalisation in China thereby in part answering the multilateralist lobby. The FTA would help to remake China in our own, liberal trending,image. 


Unfortunately, China did not understand what we wanted from the negotiations. And to the extent they did, they did not like it very much. China repeatedly asked us to keep things simple and provide a list of what was wanted in terms of market access. New Zealand and Chile did this and concluded theirs quickly. 


For some years, we have had no option but to shift our position from the original offensive agenda to a defensive one in order to protect our market share in areas such as diary, sheep meat and wine. Whether or not our negotiators have secured the same treatment for Australia’s exports as New Zealand, and whether there is much substance in the services chapters, or whether there will be a negative public reaction to the concessions on investment, the agreement will provide a platform on which to build. 


Andrew Robb, who before entering Parliament was an occasional participant in public discussion groups on market economy status and an early supporter of an FTA with China, has brought a focused and pragmatic approached to the negotiations. He has managed to get the trade bureaucrats to retype the page and secure what we can at this time with the opportunity to do more in future negotiations. 


It is fitting that the China FTA, which was begun by a Coalition government, is successfully concluded by one. 


Geoff Raby is Chairman and CEO of Geoff Raby & Associates and a former Australian Ambassador to China. 


This article first appeared in the Australian Financial Review: