by Rémy Davison
Forget APEC. That is so 1997. Prime Minister Abbott has recently established an ambitious – not to mention exceedingly optimistic – deadline of 12 months to conclude a Free Trade Agreement with China.
If he succeeds, he will have triumphed where Mark Vaile, Simon Crean and Craig Emerson failed: to persuade Beijing to provide Australia free trade access to its vast markets.
In April 2013, after eight years and 19 rounds of negotiations, the Gillard government abandoned Australia-China FTA talks, due to Beijing’s complete disinterest in expanding market access to Australian firms, demonstrating the limits of the Canberra-Beijing commercial axis. Subsequently, Gillard and Rudd sought a modest agricultural trade agreement with China, although neither made much progress.
What are the chances the Coalition can secure a wide-ranging FTA with China without playing lay-down misère?
As an avid cyclist, Mr Abbott is clearly a subscriber to the bicycle theory of free trade.
The principle of bicycle theory is simple: keep pedalling. Or you’ll fall off.
More accurately, if countries stop pushing free trade and signing new trade agreements then there will be back-pedalling, which closes markets and prompts protectionism.
C. Fred Bergsten, who developed the theory in the 1970s, writes:
“I’m fond of something called the bicycle theory, which says that trade policy has to either be moving ahead, toward greater liberalisation, or it topples in the face of protectionist pressures from individual sectors. To hold back the protectionist slide and curb restrictive pressures from vested parochial interests you need to couch trade policy in the broader context.”
In other words, a minimalist Free Trade Agreement is better than nothing, because it will inevitably lead to spill-over into other industry sectors. Business will vote with its feet to demand it and government will acquiesce.
This is part of what Paul Krugman called the ‘new regionalism’ in the 1980s – firm and market-led integration as opposed to top-down, state-led trade agreements. This, Krugman argued, was a market-based reaction to the ‘new economic geography’ of the late 20th century, driven by the economics of specialisation, regional production chains and the new international division of labour.
Abbott’s attempt to reboot the Australia-China FTA process appears heavily redolent of the Howard government’s sign-at-all-costs Australia-US FTA. In 1999, DFAT dismissed the notion of an AUSFTA, citing Washington’s intransigence over beef and sugar imports.
As late as the final Federal Cabinet meeting debating the AUSFTA’s terms, trade minister Mark Vaile argued that, without sugar, the FTA wasn’t worth having. But Cabinet prevailed and the deal was struck – for domestic political purposes, Howard’s critics argued. Nevertheless, the AUSFTA liberalised over 97 per cent of two-way trade between the US and Australia.
So what might an Australia-China FTA look like?
First, China wants enhanced FDI access. What does China invest in? Property, port infrastructure and resources. Dig it up. Ship it out.
The Rhodium Group predicts that Chinese FDI will rise to a remarkable US$1–2 trillion by 2020. Australia is heavily dependent upon importing capital, and constant FDI flows and foreign credit are required to support its growth, employment, infrastructure and living standards. China reportedly wants the FDI threshold raised to $AUD1 billion, the same investment access US firms obtained under the AUSFTA.
Second, Australia wants to export not only more resources to China (mainly black coal, LNG, steel, copper, aluminium and iron ore), but also energy-intensive products like plantation timbers and construction materials (mainly cement).
Third, food exports are also a potential growth industry. DFAT and Primary Industries estimate that Chinese food imports will rise 24 per cent over next 20 years. Australian lamb, wheat, dairy and red wine exports are also increasing.
Fourth, in the services sector, education exports are going great guns. 19% of Australia’s international tertiary students are from China – it is our largest single education export market in a AUD$16 billion industry. In this sector, we compete with increasingly-aggressive UK and US institutions. In 2009, pundits predicted a collapse in international enrolments. But whereas Indian applications fell markedly, Chinese applications did not.
Fifth, tourism is another key growth sector, and travel agencies are among the very few wholly foreign-owned businesses in China. In 2010, China-sourced tourism revenue was AUD$3.2 billion. By 2020, it is predicted to rise to AUD$9 billion. In 2013 alone, an estimated one million Chinese tourists will visit Australia.
To FTA or not to FTA?
Broadly-speaking, most Australian manufacturing sectors oppose an FTA, due to a variety of factors – including lower quarantine and environmental regulations, lower safety standards, and the comparative advantage China has in labour costs and economies of scale. Manufacturing trade is already heavily in China’s favour, with the trade imbalance at approximately 10:1.
There is also widespread concern about how long China will take to appropriate foreign technologies and undercut Australian companies in areas such as high-tech products and professional services.
The bottom line? DFATers and Australian firms are likely quivering in their (imported) boots. Because if Mr. Abbott does a Howard redux, then he may sign something – anything – to get Xi Jinping’s name on the dotted line.
Dr Rémy Davison is the Jean Monnet Chair in Politics and Economics in the School of Political and Social Inquiry, and Associate Director of the Monash European and EU Centre.
This article originally appeared on The Conversation.
Find out more:
Seeing borders from the perspectives of criminology and visual arts
Associate Professor Leanne Weber joined visual artists and curators to discuss contemporary borders at a public … Continue reading Seeing borders from the perspectives of criminology and visual arts
BOb at the launch of the OSCE Gender Equality Platform for Border Security and Management
Rebecca Powell, Managing-Director of Monash’s Border Crossing Observatory, attended and presented at the Launch Meeting of … Continue reading BOb at the launch of the OSCE Gender Equality Platform for Border Security and Management
New report on legal responses to intimate partner homicide
Dr Debbie Kirkwood and Dr Danielle Tyson, both research fellows in Criminology in the School … Continue reading New report on legal responses to intimate partner homicide
Indigenous reconciliation is hard, it re-opens wounds to heal them
Paul Muldoon, Monash University Australia is being held back by its unresolved relationship with its … Continue reading Indigenous reconciliation is hard, it re-opens wounds to heal them
Experience and Di Natale position the Greens as a formidable election force
Narelle Miragliotta, Monash University Late last year, federal Greens leader Richard Di Natale expressed his … Continue reading Experience and Di Natale position the Greens as a formidable election force
Monash Gender Peace and Security secures Linkage Grant
In a success for Monash Arts research, the Gender, Peace and Security Initiative has recently secured a major ARC Linkage … Continue reading Monash Gender Peace and Security secures Linkage Grant
More federal funding for national security than for women’s security
Today the Age published an opinion piece by the Gender and Family Violence team about … Continue reading More federal funding for national security than for women’s security
Federal budget fails Australian women and children by neglecting family violence
As Dr Kate Fitzgibbon explains in her latest piece in The Conversation, the 2016 Federal Budget … Continue reading Federal budget fails Australian women and children by neglecting family violence
Survey to shape Victoria’s response to family violence
Monash University is urging professionals across the state to help shape the way Victoria responds … Continue reading Survey to shape Victoria’s response to family violence
Morrison’s message is light on ideology and strong on soothing ahead of the election
Shaun Carney, Monash University Who among us, watching Joe Hockey deliver his “lifters and leaners” … Continue reading Morrison’s message is light on ideology and strong on soothing ahead of the election
State by state, it’s still Malcolm Turnbull’s election to lose
Nick Economou, Monash University Even though it is not yet official, the 2016 election is … Continue reading State by state, it’s still Malcolm Turnbull’s election to lose
What we know and suspect about the causes of Parkinson’s disease
Dr Narelle Warren from Monash Arts School of Social Sciences is part of a team of health researchers and scientists who are looking at the causes of Parkinson’s disease