tag:theconversation.com,2011:/uk/topics/chafta-13573/articlesCHAFTA – The Conversation2017-01-18T00:18:09Ztag:theconversation.com,2011:article/712742017-01-18T00:18:09Z2017-01-18T00:18:09ZXi Jinping may be preaching trade, but China’s opening up has slowed<p>When it comes to offering global economic leadership, the divergence in narrative and optics coming from the US and China could hardly be starker.</p>
<p>On Tuesday Chinese President Xi Jinping became the first Chinese leader to <a href="https://www.nytimes.com/2017/01/10/world/asia/davos-china-xi-jinping-trump.html?_r=0">attend</a> a meet of the World Economic Forum (WEF), where he also delivered a keynote address <a href="http://www.smh.com.au/business/world-business/chinas-president-xi-jinping-defends-globalisation-in-davos-speech-20170117-gttdwi.html">warning</a> against protectionism. Accompanying him were the <a href="https://www.bloomberg.com/politics/articles/2017-01-10/china-s-xi-to-address-world-economic-forum-meeting-in-davos">heavyweights</a> of China’s now huge private sector, including Wang Jianlin, China’s richest person and chairman of property developer Dalian Wanda, and Jack Ma, boss of internet and e-commerce giant, Alibaba. </p>
<p>President-elect Trump, meanwhile, did not <a href="https://www.bloomberg.com/politics/articles/2017-01-13/trump-team-shunning-davos-gathering-of-world-s-economic-elite">send</a> a single official representative to the WEF. During his campaign, he also <a href="http://www.economist.com/news/leaders/21710249-his-call-put-america-first-donald-trump-latest-recruit-dangerous">repeatedly promised</a> to put “America first”. One way he plans on doing this is by withdrawing the US from the <a href="https://theconversation.com/brexit-trump-and-the-tpp-mean-australia-should-pursue-more-bilateral-trade-agreements-71330">Trans-Pacific Partnership</a> (TPP). Trump has <a href="http://www.abc.net.au/news/2016-11-22/trump-vows-to-withdraw-from-tpp-trade-deal/8045236">described</a> the TPP, a multilateral trade deal that includes Australia, as “a potential disaster”. </p>
<p>But this narrative doesn’t give an accurate picture of international trade and investment. China has opened up considerably, but this has slowed recently.</p>
<h2>China has liberalised trade</h2>
<p>President-elect Trump has <a href="http://time.com/4386335/donald-trump-trade-speech-transcript/">derided</a> China’s being admitted to the World Trade Organisation (WTO) in 2001 as a one-sided deal that “enabled the greatest job theft” in the history of the US. </p>
<p>This is misguided. China did receive enhanced access to foreign markets, including the US. But WTO entry also forced open China’s own market.</p>
<p>Consider that in 1997 China <a href="http://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/1997/Summary">had</a> a trade-weighted average tariff rate of 15.1%. For agricultural products it was 41.4%, while for non-agricultural goods it was 13.2%. </p>
<p>But by the time China had finished implementing its WTO-pledged tariff reductions in 2006, the average tariff rate covering agricultural goods had been <a href="https://www.wto.org/english/res_e/booksp_e/tariff_profiles08_e.pdf">slashed</a> to 16.0%, while for non-agricultural goods it was 4.6%. The overall figure fell to 5.0%. </p>
<h2>Liberalisation is slowing</h2>
<p>Last November, shortly after Trump’s election victory, Xi Jinping addressed the Asia Pacific Economic Cooperation (APEC) meeting in Peru. He <a href="http://www.globaltimes.cn/content/1019023.shtml">said</a> openness was vital for the prosperity of the region and declared that, “China will not shut its door to the outside world, but open itself even wider”. </p>
<p>It’s here where a gap opens between China’s rhetoric and its own reform achievements, undermining its authority to exercise global leadership. </p>
<p>After implementing its WTO commitments, further progress has slowed to a crawl. The <a href="https://www.wto.org/english/res_e/booksp_e/tariff_profiles16_e.pdf">latest data</a> show the overall average tariff rate is now 4.5%, still more than double the level in the US. And there are a host of other <a href="https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/january/ustr-releases-2016-report-congress">complaints</a> from foreign governments and producers about trade barriers that take non-tariff form. </p>
<p>It’s a similar story for international investment. The Organization for Economic Cooperation and Development (OECD) <a href="http://stats.oecd.org/Index.aspx?datasetcode=FDIINDEX">compiles</a> an index of restrictions that countries apply to foreign direct investment (FDI). </p>
<p>In 1997, China’s index value stood at 0.625, the highest of any country that was ranked. By 2006, this had fallen to 0.447, still very high but a substantial drop. Another decade on and the index is at 0.386, four and half times higher than in the US, on par with Myanmar and surpassed only by the Philippines. </p>
<p>To be sure, at least with respect to trade, China has continued to meaningfully open its economy on a bilateral basis. China <a href="http://fta.mofcom.gov.cn/english/">now has</a> free trade agreements with 10 countries, including Australia, as well as one with the Association of South-East Asian Nations (ASEAN). </p>
<p>The <a href="https://theconversation.com/china-australia-trade-agreement-a-compromised-victory-43396">China-Australia Free Trade Agreement</a>, which came into force at the end of 2015, provides numerous examples of loosened trade.</p>
<p>Since the beginning of this year, Australian wine has <a href="http://dfat.gov.au/trade/agreements/chafta/official-documents/Pages/official-documents.aspx">entered</a> China with a tariff of just 5.6%. Wine exporters from other countries are hit with 14%. In just two more years Australian wine will enter China duty-free. It’s perhaps no surprise then that Australian wine exports to China <a href="http://www.agriculture.gov.au/abares/display?url=http://143.188.17.20/anrdl/DAFFService/display.php?fid=pb_agcomd9abcc20161213_e6rJc.xml">leapt</a> by 55% last year.</p>
<h2>More to do</h2>
<p>While this might be good news for Australia, China will need to extend such concessions far more broadly if it is to be widely embraced as the new champion of an open world economy. </p>
<p>In what may turn out to be a significant development, earlier this month China’s state media <a href="http://www.china.org.cn/business/2017-01/07/content_40056446.htm">reported</a> the government had approved new measures, soon to be released, that would open up more sectors of the economy to foreign investment. </p>
<p>Increasing the likelihood that China will step up to a genuine leadership role is that international trade and investment enjoys popular support within the country. In a 2014 <a href="http://www.rieti.go.jp/en/events/bbl/14092401.pdf">survey</a> by the Pew Research Center, 67% of Chinese said that trade creates jobs, compared with just 15% in the US. Only 10% of Americans said trade increases wages, while 61% of Chinese said it did. Chinese were also relatively more comfortable with foreign companies buying domestic ones. </p>
<p>This optimism towards globalisation is an attitude <a href="http://www.economist.com/blogs/graphicdetail/2016/11/daily-chart-12">seen throughout Asia</a>. </p>
<p>With both major political parties in Australia also of the view that an open economy best serves the national interest, trade policy here is likely to become more aligned with developments in our own neighbourhood rather than in the US or a Brexit-ing Europe. </p>
<p>Further encouraging this is a simple fact that would have even President-elect Trump’s local supporters nodding their heads in approval. Far from a trade deficit leading to accusations of Australian jobs being stolen, Asia is the source of our <a href="http://dfat.gov.au/trade/resources/trade-statistics/Pages/trade-time-series-data.aspx">biggest trade surplus</a>. Last year the countries of the region, led by China, bought A$44 billion more from us than we bought from them.</p><img src="https://counter.theconversation.com/content/71274/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James Laurenceson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Xi Jinping is the first Chinese leader to attend the World Economic Forum and used his speech to denounce protectionism. But China’s trade liberalisation has stalled recently.James Laurenceson, Deputy Director and Professor, Australia-China Relations Institute (ACRI), University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/643162016-08-24T20:24:46Z2016-08-24T20:24:46ZDespite China free trade agreement Australian beef producers are missing out<p>Despite a free trade agreement dropping tariffs from Australian beef imports to China, Australia’s ability to supply China has gone backwards. <a href="http://data.daff.gov.au/data/warehouse/agcomd9abcc004/agcomd9abcc20160621_5B9fz/AgCommodities201606_Tables_v1.0.0.xls">In 2014-15, the volume</a> of Australia’s beef exports to China fell by 28%. And <a href="http://statistics.mla.com.au/Report/List">according to the latest data</a> from Meat and Livestock Australia, in the first seven months of 2016, Australia exported 33% less than the same period in 2015. </p>
<p>The cattle and beef trade is a poster child for Australia’s next-generation engagement with China. But an <a href="http://www.australiachinarelations.org/content/sino-australian-cattle-and-beef-relationship">independent report</a> explains the complexity of the industry preventing Australian beef producers from benefiting.</p>
<p>China’s growing demand for beef stems from its middle class, which will continue to expand for decades to come. Between 2011-12 and 2013-14, the <a href="http://www.agriculture.gov.au/abares/publications/display?url=http://143.188.17.20/anrdl/DAFFService/display.php?fid=pb_agcomd9abcc004201312_11a.xml">volume of our beef exports</a> to China increased 20-fold. The report emphasises this spike in trading was mostly a coincidence of short-term factors.</p>
<p>Drought conditions in Australia led to a jump in slaughter numbers. But this also meant that when the rains returned, herds needed to be restocked. </p>
<p>The Chinese market has also proven quirky. Demand suffered from an anti-corruption drive launched at the end of 2012 that slashed banqueting by government officials. Beef was a popular luxury item on the menu. </p>
<p>Most Chinese are not acquiring an everyday taste for beef. A <a href="http://www.agriculture.gov.au/SiteCollectionDocuments/agriculture-food/food/publications/food-consumption-trends-in-china/food-consumption-trends-in-china-v2.pdf">different study</a> found that while the average urban Chinese was eating 28% more beef in 2010 than 2000, they still consumed eight times more pork, a relative preference that hadn’t changed. </p>
<p>Some of the much-heralded trade policy breakthroughs may also not be as liberating as hoped. </p>
<p>In July last year a new health protocol was struck that made Australia the only country legally able to export live feeder and slaughter cattle to China. Agriculture Minister Barnaby Joyce <a href="http://www.abc.net.au/news/2015-07-20/australia-to-earn-242b-from-live-cattle-exports-to-china3a-jo/6635030">said that within a decade</a> the head of cattle going to China could reach one million a year, up from around 120,000. </p>
<p>While the health protocol makes a live cattle trade technically possible, its details make the logistics costly. The <a href="http://www.australiachinarelations.org/content/sino-australian-cattle-and-beef-relationship">latest report’s authors</a> consider that exports on any significant scale – let alone one million head a year – are highly unlikely.</p>
<p>Animal welfare is <a href="http://www.australiachinarelations.org/content/sino-australian-cattle-and-beef-relationship">less a concern for live cattle exports</a> to China. This is because large and modern feedlots and abattoirs will take ownership of cattle, unlike the small, individual butchers seen throughout Southeast Asia. </p>
<p>In December 2015, the Chinese government <a href="http://dfat.gov.au/trade/agreements/chafta/fact-sheets/Documents/fact-sheet-agriculture-and-processed-food.pdf">committed to eliminating</a> tariffs on imports of Australian beef, as part of the historic <a href="https://theconversation.com/au/topics/chafta-13573">China-Australia Free Trade Agreement</a>. </p>
<p>But even the free trade agreement may not provide an advantage for long. Food price inflation and the fact that beef is a staple food for some of China’s minorities, are causing the Chinese government to abandon protection for the domestic industry generally. </p>
<p>While Australia has a head start, competition is rising. Singled out for special mention by the report is Brazil. In 2012, Brazilian exports to China were suspended due to disease but market access was regained in the middle of 2015. By September 2015, the volume of Brazilian frozen beef exports to China already exceeded that from Australia. </p>
<p>Australian beef producers also need to worry about Uruguay, Canada, Argentina, the US and even India. </p>
<p>Despite all these challenges, the report is fundamentally optimistic in its outlook.</p>
<p>China’s own beef industry – which produces three times more output than Australia’s – is shrinking as farmers take up more lucrative opportunities elsewhere in the economy.</p>
<p>Urbanisation also still has a long way to run . Only 56% of China’s population living in cities, compared with 89% in Australia. The average Chinese urban dweller consumes four times as much beef as their rural counterpart. </p>
<p>And for all the talk of a slowing Chinese economy, the emergence of China’s middle class remains on track. The <a href="https://www.oecd.org/dev/44457738.pdf">OECD says</a> between 2009 and 2030, its ranks will swell by more than 850 million. Compare that with only an additional 16 million in Europe. </p>
<p>We could still sabotage of our own chances. </p>
<p>The report concludes that Chinese investment in Australia’s beef industry, from farms to abattoirs, would help to make the trade potential a reality. Earlier this month Tony Mahar, chief executive of the National Farmers Federation, <a href="http://www.afr.com/opinion/farmers-need-fdi-government-needs-to-sell-the-community-on-its-benefits-20160815-gqsiyx">made the same point</a> in arguing for fewer restrictions on foreign investment in the agricultural sector as a whole. </p>
<p>Just a few weeks ago, Treasurer Scott Morrison approved the sale of the Carlton Hill cattle station to a Chinese buyer. The new owner <a href="http://www.abc.net.au/news/2016-08-03/carlton-hill-sells-to-chinese-interests/7685622">immediately leased back</a> the station’s cattle production operations to the previous owner, Australia’s Consolidated Pastoral Company, recognising the experience and expertise they had in running the business. </p>
<p>But for Treasurer Morrison it was a <a href="http://www.lowyinterpreter.org/post/2016/05/03/Knockback-of-Dakangs-bid-for-Kidman-cattle-stations-doesnt-bear-scrutiny.aspx">different story</a> back in March when he rejected a Chinese bid for S Kidman and Co. That’s money still sitting in Shanghai. Instead it could be here, hard at work making more beef to sell to China.</p><img src="https://counter.theconversation.com/content/64316/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James Laurenceson works for the Australia-China Relations Institute (ACRI) at the University of Technology Sydney, which commissioned the University of Queensland's China Agricultural Research Group to write a report on the Sino-Australian beef and cattle relationship. The content of this article is based on the findings of that report.
</span></em></p>Australia is not mustering the exports of beef it should under the China-Australia Free Trade Agreement, a new report finds.James Laurenceson, Deputy Director and Professor, Australia-China Relations Institute (ACRI), University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/619082016-07-17T20:08:08Z2016-07-17T20:08:08ZA labour dump is unlikely under the China Australia free trade agreement<p>Fears that the Chinese Australian Free Trade Agreement (ChAFTA) will lead to a flood of Chinese workers in Australia are unfounded. The amount that China invests overseas is not linked to the flow of Chinese labour and in fact Australia could stand benefit from the investment the agreement will promote.</p>
<p>The Chinese and Australian governments negotiated ChAFTA with <a href="https://www.austrade.gov.au/Australian/Export/Free-Trade-Agreements/chafta">the goal</a> of supporting future economic growth, job creation and higher living standards through increased capital investment and exchange of goods and services, including access to labour markets. </p>
<p>After exactly one year of ChAFTA’s ratification, questions have been raised about the benefits and risks of opening the flow of people looking for jobs between Australia and China. </p>
<p>The temporary migration of workers is dealt with in chapter 10 of ChAFTA. It entails not only economic possibilities, but also the overall social and cultural issues related to the movement of labour between the two countries.</p>
<p>Most of the concerns from Australians about how ChAFTA deals with labour migration stem from the inclusion of Article 10.4.3, which says that neither side shall: </p>
<blockquote>
<p>“impose or maintain any limitations on the total number of visas to be granted to natural persons of the other Party; or require labour market testing, economic needs testing or other procedures of similar effect as a condition for temporary entry”.</p>
</blockquote>
<p>Critics of this maintain that labour provisions in the ChAFTA offer too much leeway for Australian businesses to import Chinese workers in spite of the protection of Australian workers. On the other hand, ChAFTA advocates argue that Australian workplace laws and standards still apply to this deal, as specified in the associated Memorandum of Understanding (MOU) on an Investment Facilitation Arrangement (IFA). </p>
<p>ChAFTA critics, such as those who fear that <a href="http://www.abc.net.au/news/2015-11-30/wade-visa-and-industrial-sector-traps-lurk-in-the-chafta/6985106">visa and industrial sector traps lurk in the ChAFTA</a>, or that <a href="http://www.smh.com.au/business/workplace-relations/chafta-has-opened-door-to-unqualified-workers-20160602-gpajfz.html">ChAFTA has opened door to unqualified workers</a>, also argue that ChAFTA is yet another example of the Chinese government pushing for Australia to allow imported Chinese labour, which is assumed to be a common practice in Chinese economic activities around the world. They link the agreement to the recent <a href="http://www.australianmining.com.au/news/free-trade-agreement-means-more-chinese-work-visas">lobbying of high-level Chinese officials</a> for the further opening of the Australian labour markets. </p>
<p>However, the reality of recent economic data shows otherwise. <a href="http://www.kpmg.com/ES/es/Internacionalizacion-KPMG/Documents/China-Outlook-2015.pdf">A KPMG report</a> argued that ChAFTA will spur Chinese investment in a number of key Australian industries such as agriculture, animal husbandry, food processing and infrastructure. The report also states that in return for investment, Chinese companies receive high-quality resources, technologies and experience. </p>
<p>This dynamic shows the fundamental end game of the Chinese-Australian economic partnership, a mutually beneficial flow of capital in exchange for complementary services. From this perspective, an opening of the Australian labour market to Chinese workers looks less concerning.</p>
<p>China offers <a href="http://infrastructureaustralia.gov.au/policy-publications/publications/files/Australian_Infrastructure_Plan.pdf">much-needed large-scale infrastructure</a> at a time when Australia is in need of the competitive advantages due to its budgetary restrictions and slow growth. In fact, the Chinese Government is now <a href="http://www.mofcom.gov.cn/article/b/g/201507/20150701061179.shtml">promoting international cooperation</a> to match the production capacity of Chinese industries with existing global demand, focusing particularly on countries whose economic structures are turning less labour-intensive, that is fast-developing countries, but also post-industrial economies like Australia. </p>
<p>China is reversing the flow of foreign investment (less inbound, more outbound) to find a more effective way to approach the end of the era of low-end manufacturing. This reversal is evident in the data of the Chinese Ministry of Commerce analysed by <a href="https://home.kpmg.com/cn/en/home/insights/2015/01/china-outlook-2015.html">KPMG</a>, which shows a downward trend in foreign direct investment (FDI) in China, going from a 6% annual growth in 2010 to a 12.3% decrease in 2014, when the ChAFTA’s negotiations were completed. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/128951/original/image-20160701-30638-1hq6nfv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/128951/original/image-20160701-30638-1hq6nfv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=310&fit=crop&dpr=1 600w, https://images.theconversation.com/files/128951/original/image-20160701-30638-1hq6nfv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=310&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/128951/original/image-20160701-30638-1hq6nfv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=310&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/128951/original/image-20160701-30638-1hq6nfv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=390&fit=crop&dpr=1 754w, https://images.theconversation.com/files/128951/original/image-20160701-30638-1hq6nfv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=390&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/128951/original/image-20160701-30638-1hq6nfv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=390&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">FDI growth.</span>
<span class="attribution"><span class="source">KPMG, China Outlook 2015, data from Chinese Ministry of Commerce</span></span>
</figcaption>
</figure>
<p>One of the great misconceptions about <a href="http://knowledge.wharton.upenn.edu/article/chinas-investments-in-africa-whats-the-real-story/">China’s international business policy</a> is to positively correlate its outbound flows of capital investment and labour. In other words, it is a myth that China necessarily dumps the labour markets of the countries receiving its foreign investment. </p>
<p>In fact, the latest statistics released by the <a href="http://english.mofcom.gov.cn/article/statistic/">Chinese Ministry of Commerce</a> show no evidence of correlation between overseas flows of Chinese labour and capital (in the form of foreign direct investment and turnover of overseas contracted project) for the five years before the ratification of the ChAFTA. The chart below clearly shows the lack of correlation between <a href="http://english.mofcom.gov.cn/article/statistic/foreigntradecooperation/">Chinese labour and capital overseas</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/128952/original/image-20160701-30664-7sxw6g.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/128952/original/image-20160701-30664-7sxw6g.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=329&fit=crop&dpr=1 600w, https://images.theconversation.com/files/128952/original/image-20160701-30664-7sxw6g.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=329&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/128952/original/image-20160701-30664-7sxw6g.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=329&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/128952/original/image-20160701-30664-7sxw6g.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=414&fit=crop&dpr=1 754w, https://images.theconversation.com/files/128952/original/image-20160701-30664-7sxw6g.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=414&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/128952/original/image-20160701-30664-7sxw6g.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=414&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Chinese labour and capital overseas.</span>
<span class="attribution"><span class="source">Chinese Ministry of Commerce</span></span>
</figcaption>
</figure>
<p>Interestingly, since 2011, the total number of Chinese workers going overseas has slowed when compared with combined capital flows (i.e. turnover of overseas contracted projects and foreign direct investment). A possible explanation for this trend is the ongoing urbanisation and industrialisation of China that is driving major upgrades to national infrastructure, which in turn leads to high demand for low skilled labour in China. </p>
<p>This trend is significantly increasing the cost of Chinese labour, making Chinese firms engaged overseas more likely to employ locally in the long term, even in more developed countries where wages have stopped growing and unemployment is rising.</p>
<p>All of this argument around ChAFTA highlights the need to thoroughly consider the threefold nexus between labour, migration and free trade. This may be a step forward to realise that domestic immigration laws cannot effectively harness the globalised flow of labour that multilateral trade law systems require.</p><img src="https://counter.theconversation.com/content/61908/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Giovanni Di Lieto does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The free trade agreement between Australia and China won’t mean an influx of Chinese workers, but rather an increase in Chinese investment which could be key to some Australian industries.Giovanni Di Lieto, Lecturer, Bachelor of International Business, Monash Business School, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/577392016-04-13T07:39:10Z2016-04-13T07:39:10ZPolitics podcast: Hugh White on Turnbull’s China visit<p>Malcolm Turnbull will visit China this week in his first time there as prime minister. The two-day trip, including Shanghai and Beijing, will juggle trade and political issues. ANU professor of strategic studies Hugh White tells Michelle Grattan that Turnbull will be primarily focused on the economic agenda.</p>
<p>“Turnbull is one of those who remain bullish about China. He thinks its economic prospects remain bright and he sees it as the principal source of economic opportunities for Australia over the next few years and indeed decades,” White says. </p>
<p>White believes Turnbull is downplaying the strategic challenges Australia faces in its relationship with China in an era in which US primacy will no longer remain uncontested. </p>
<p>“If we want to remain a military middle power in an Asian century, in which we can no longer assume that the Americans are going to be the dominant player, then we are going to have to spend a higher proportion of our GDP on defence than we have,” he says. </p>
<p>He suggests defence spending needs to rise to 3.5%-4% of GDP. At present it is just under 2%.</p><img src="https://counter.theconversation.com/content/57739/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Malcolm Turnbull will visit China this week in his first time there as prime minister. The two-day trip, including visits to Shanghai and Beijing, will juggle trade and political issues.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/503612015-11-11T19:22:25Z2015-11-11T19:22:25ZWe lose more than we gain in moving away from multilateral trade<figure><img src="https://images.theconversation.com/files/101224/original/image-20151109-7521-170y0aq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The global multilateral trade regime is being challenged by a plethora of regional trade deals.</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>If you struggle to understand the domestic impact of current trade negotiations such as the <a href="http://dfat.gov.au/trade/agreements/tpp/official-documents/Pages/official-documents.aspx">Trans-Pacific Partnership</a> (TPP) and <a href="https://ftaportal.dfat.gov.au/">China Free Trade Agreement</a> (ChAFTA), it is not you; it is them. </p>
<p>The multilateral system is under challenge from a surge of bilateral and regional trade deals that are raising concerns about transparency, efficacy, national interest, development pathways and human rights. </p>
<p>This is why many in the Australian policy commentators and academics have urged the Turnbull Government to release a <a href="http://www.ceda.com.au/2015/11/formal-trade-policy-needed-to-guide-future-negotiations-">formal trade policy</a>.</p>
<p>All nations, including Australia, claim they want an open, predictable, non-discriminatory, and rule-based multilateral trading system centred on the World Trade Organization (WTO). Yet the universal consensus is that the trade system is in deep trouble. Important global trade negotiations stall while regional preferential trade agreements proliferate, often likened to noodle bowls or spaghetti. The WTO website lists 276 Regional Trade Agreements currently in force, and the figure is rising. </p>
<p>The DNA of trade is changing, with most trade experts urging reforms to the WTO to adapt to the new world of global value chains, integrated global standards, and transnational investment flows. With global manufacturing, goods are now “made in the world” rather than in a single country. </p>
<p>Economists are urging liberalisation of trade in services - but as we enter into a service and knowledge-driven economy, these negotiations has proven particularly slow and difficult. </p>
<p>One reason is the economic fundamentals of trade are changing. While trade growth grew by 3.1% in 2014 and 4% in 2015, it grew more slowly than global production and remains significantly lower than long-term average growth rates. Many economists are conflicted about the economic benefit derived from FTAs in particular. </p>
<p>Another reason is that the geo-politics of trade is changing. As the WTO reaches its 20th anniversary, many member countries are worried about a clash among blocs - such as the BRICS (Brazil, Russia, India, China, South Africa) versus the OECD (Organisation of Economic Cooperation and Development) nations. The TPP leaves out China by design, which is why so many foreign policy experts are wary.</p>
<p>This all means that as economic diplomacy has achieved a certain primacy for Australia in 2014–15, trade has become an increasingly sophisticated and difficult negotiating area. </p>
<p>Australia has pursued the TPP and bilateral free trade agreements with Korea, Japan and China with vigour and considerable success. These deals do not always have the social support required, due to concerns they will be “Trojan Horse” deals allowing undue influence in user-based intellectual property regimes, labour and technology transfer. In particular, Investor State Dispute Settlement (ISDS) clauses allowing international corporations to limit nation-state sovereignty in public health, have caused a great deal of public concern. </p>
<p>Trade deals now often deal with regulatory compatibility between nations (harmonisation or mutual recognition) rather than tariff preferences. This includes areas like product standards, that more directly affect consumers. DFAT vigorously contests these concerns.</p>
<p>Department of Foreign Affairs and Trade (DFAT) Secretary Peter Varghese <a href="http://dfat.gov.au/news/speeches/Pages/an-australian-world-view-a-practitioners-perspective.aspx">suggests</a> we should focus on the “meta challenge of Australian foreign policy” - namely, “How do we maximise economic opportunity and minimise strategic risk as the Indo-Pacific region becomes more powerful?” </p>
<p>We must think more deeply about whether it is possible to spread risk and be nimble while still strengthening the multilateral system, and while engaged in the complex game of modern trade negotiations. </p>
<p>Trade Minister Andrew Robb needs to <a href="http://trademinister.gov.au/releases/Pages/2015/ar_mr_151105.aspx">make the case</a> for trade liberalisation in clearer terms. Rather than a “trust us” approach which dismisses “fear-mongers”, we need a public conversation about the possible winners and losers, along with an explanation as to why the agreement is in the nation’s best interest. An alien looking at Australia’s trade debates in 2015 might not recognise us as committed to trade liberalisation. </p>
<p>What are some of the long-term consequences of the trend towards bilateral and plurilateral trade agreements? Are they <a href="http://e15initiative.org/wp-content/uploads/2015/02/E15_RTAs_Proposals-Analysis_Final.pdf">building blocks or stumbling blocks</a>? The best-case scenario is that they are complementary. Advocates argue that these agreements maintain the strong momentum and habits of cooperation during a slow period in which the WTO inches forward the Trade in Services Agreement.</p>
<p>The worst-case scenario is that the WTO authority is diminished. We may see delays in large trade issues that are best tackled in multilateral forums, such as trade facilitation, financial liberalisation, telecommunication liberalisation, and farming subsidies. The public could turn against the trade agenda and withdraw their support for an area of foreign policy that was broadly approved. </p>
<p>Harvard University political scientist, Robert Putnam reminds us that diplomacy is always a two-level game: the domestic coordination and public support can be as hard as or harder than the global negotiations, as President Barack Obama is finding over the TPP. Australia should pay more attention to civil society concerns about our participation in trade deals.</p>
<p>My own conclusion is that, acknowledging the limited options Australia has at its disposal, we lose more than we gain in moving away from the multilateral trade system. What is clear is that the public debate on this issue is less rich and less urgent that it needs to be. </p>
<p>Our ultimate success in trade comes not from trade agreements, but from a domestic economy that puts a premium on productivity and competitiveness, while reducing inequality. Trade liberalisation that encourages development and interdependence is still a noble diplomatic pursuit, but must also promote the rule of law in our region. </p>
<p><em>This piece is based on the essay, <a href="http://www.ceda.com.au/research-and-policy/research/2015/11/09/1/global-networks">Rules-based trade as a pivotal power</a>, in the CEDA policy perspective, Global networks: transforming how Australia does business, released on November 9.</em></p><img src="https://counter.theconversation.com/content/50361/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Susan Harris Rimmer receives funding from the Australian Research Council. She produced this contribution for CEDA. . </span></em></p>The multilateral system is under challenge from a surge of bilateral and regional trade deals.Susan Harris Rimmer, Australian Research Council Future Fellow, Griffith Law School, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/495352015-10-21T12:54:36Z2015-10-21T12:54:36ZTurnbull tests the water on same-sex marriage<p>It was another good day at the office for the Turnbull government. Finally, Labor came on board with the China-Australia free trade agreement. And a package of changes for savings from family tax benefits, replacing the disastrous one in the 2014 budget, has a prospect of getting through the Senate.</p>
<p>Labor, as much as the government, was thankful to clear the way for the awkwardly dubbed ChAFTA. There was no way the opposition could have permanently obstructed it – that would have been politically disastrous and, anyway, it was never the plan.</p>
<p>The government gave Labor some cover by being willing to agree to additional labour market protection.</p>
<p>Bill Shorten, caught between union militants and the electorate, needed a settlement. There was a lot of last-minute toing and froing between Labor and the unions. There might be some union discontent about the outcome (though the CFMEU got most of what it wanted) but with voters, there is no harm in Shorten appearing to show a touch of independence from his industrial base.</p>
<p>The government, anxious to bank the achievement and needing to do so quickly in order to reap this year’s benefits from ChAFTA, lost no skin by the concession.</p>
<p>While ChAFTA is now certain of parliamentary passage, the family tax benefit changes still have hurdles ahead, maybe requiring extra tweaking. But they have a much better chance of success than the original version. The recalibrated measures are less blunt and better targeted.</p>
<p>On this issue too, the government is very anxious to get a resolution. It has linked much of the savings to funding its proposed A$3.5 billion childcare package that will be one of the carrots it offers at the 2016 election. The new package saves about $2.4 billion, as against the original $3.8 billion, but the government is throwing in other savings to get the number close to the original one.</p>
<p>The all-round optimistic government mood was evident in the upbeat demeanour of Treasurer Scott Morrison and Social Services Minister Christian Porter as they spruiked the package.</p>
<p>Amid the glow, there were discordant notes.</p>
<p>Former treasurer Joe Hockey, departing parliament after nearly two decades, didn’t hold back in his valedictory speech. The revolving door of leadership change must be “jammed shut”, he said. Such instability was “the enemy of good public policy”. He stood strongly behind the Abbott government’s record – including his 2014 budget – conceding only political not policy mistakes.</p>
<p>His views will be discounted because he failed as treasurer and is now out of the picture. Nevertheless, he has laid down some tough markers for economic reform, including on tax, industrial relations and welfare, ahead of the Turnbull government having to decide just how brave it wants to be in what it puts to the people next year.</p>
<p>Less publicised but worth noticing were remarks by assistant minister Concetta Fierravanti-Wells in an address to the National Press Club.</p>
<p>“As the senior conservative from NSW, I have spent a lot of time talking to our base,” she said. “In NSW, it is well known the left control the [Liberal Party] division, but the base is mostly conservative.</p>
<p>"Many are devastated by the change, some have left and many have threatened to down tools. … The change of leadership will have an impact on our party … We rely on a volunteer base, mostly of older members, some who have simply had enough.”</p>
<p>One core issues for Liberal conservatives is same-sex marriage. Fierravanti-Wells said “a Coalition policy that directly supports same-sex marriage could place under threat some of our most marginal seats which have disproportionately high religious and migrant communities”.</p>
<p>For the conservatives in the parliamentary party, the post-election popular vote on same-sex marriage that Abbott announced – and Turnbull had to embrace when he was seeking the leadership – was a victory.</p>
<p>But now Turnbull is considering arrangements around that plebiscite that might become a red rag to them.</p>
<p>After Turnbull said in parliament on Wednesday that “the consequence of a ‘yes’ vote in the plebiscite will be that same-sex marriage will be legal in Australia”, cabinet secretary Arthur Sinodinos explained that an option would be to frame legislation for same-sex marriage that was subject to the popular vote being carried.</p>
<p>As to whether Liberals would be given a free vote on such legislation, Sinodinos told Sky that it would have to go to the partyroom for endorsement – if approved, it would be party policy.</p>
<p>When something is party policy there is not (in normal circumstances) a free vote.</p>
<p>If Turnbull takes that option – which would be a very logical one – the debate among the troops might get quite willing.</p>
<iframe id="audio_iframe" src="https://www.podbean.com/media/player/s28be-59a236?from=yiiadmin" data-link="http://www.podbean.com/media/player/s28be-59a236?from=yiiadmin" height="100" width="100%" frameborder="0" scrolling="no" data-name="pb-iframe-player"></iframe><img src="https://counter.theconversation.com/content/49535/count.gif" alt="The Conversation" width="1" height="1" />
It was another good day at the office for the Turnbull government. Finally, Labor came on board with the China-Australia free trade agreement. And a package of changes for savings from family tax benefits…Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/490602015-10-14T19:30:15Z2015-10-14T19:30:15ZLabor’s worker safeguards will break the ChAFTA deadlock but could have gone further<p>Labor’s proposals designed to “safeguard” Australian workers under the China-Australia Free Trade Agreement (ChAFTA) are a step in the right direction and are likely to break the impasse that has prevented the trade agreement passing through the Senate. </p>
<p>In essence, Labor has recommended the Migration Act 1958 be amended to address three areas of concern arising from the ChAFTA. </p>
<p>First, Labor proposes that labour market testing be required under legislation for investment facilitation arrangements. This is a positive reform as it will ensure the source of this requirement that employers advertise locally before recruiting Chinese workers is in legislation rather than policy. </p>
<p>Labor has also proposed useful accountability measures around investment facilitation arrangements (IFAs) such as requiring IFAs to be listed on a public register and ensuring employers adopt support plans for overseas workers. </p>
<p>Labor’s second proposal is around increasing the Temporary Skilled Migration Income Threshold (TSMIT) to $57,000 and ensuring it is indexed to inflation. In essence, the TSMIT is the base salary for all 457 visa workers. Labor is correct that the TSMIT helps protect temporary migrant workers from exploitation by ensuring they have the economic means to support themselves while in Australia and ensuring that the 457 visa program is only used for skilled jobs which tend to receive a higher pay than the TSMIT.</p>
<p>Labor’s third proposal seeks to require 457 visa holders in trade occupations to obtain the relevant trade and occupational licenses. This proposal goes some way to redressing the erosion of skills and safety contained in the removal of mandatory skills assessments by the ChAFTA’s side letter. Given their removal, it is vital that electrical workers from China and other countries are required to obtain a licence from their state regulatory body and that this requirement is enforced. </p>
<p>Another benefit of Labor’s proposal is the reversal of the onus of proof upon visa holders to present a licence to the Department of Immigration within 60 days, rather than the Department undertaking spot-checks and monitoring compliance.</p>
<h2>Labor’s proposals: a verdict</h2>
<p>The primary strength of Labor’s safeguard proposals is that they do not single out China or require renegotiation of the agreement. They offer some improvements on the status quo in terms of protecting local workers’ wages, conditions and job opportunities, and greater accountability and transparency around IFAs. Labor’s proposals are also pragmatic and moderate, making it highly likely the Government will accept them.</p>
<p>Nonetheless, in my opinion, even with Labor’s proposals, there are insufficient safeguards to protect Australian wages, conditions and job opportunities. In my <a href="https://www.scribd.com/doc/283790291/The-impact-of-the-China-Australia-Fair-Trade-Agreement">report</a>, I outline some key entry pathways where the ChAFTA allows Chinese workers to enter Australia without labour market testing. </p>
<p>Importantly, for two categories of workers, “contractual service suppliers” and “installers and servicers”, a genuine domestic skill shortage will not be required before an employer can access Chinese workers for these categories. </p>
<p>This means, in many jobs - such as electricians, plumbers, welders, engineers and nurses - Chinese workers can replace Australians in our labour market. Labor has not addressed this in its proposals and even though trade minister Andrew Robb repeatedly refers to the ChAFTA as “rolled gold”, this is one key weakness of the agreement for Australian workers that even the best rhetoric can’t hide.</p>
<h2>Why is labour market testing important?</h2>
<p>Although politically explosive here, the role and importance of labour market testing is not controversial internationally. The migration policies of the UK, Canada, Germany, Ireland and Austria each require some form of labour market testing which ensure that local workers have preferential access to jobs. </p>
<p>But Australia’s current model of employer-conducted labour market testing is only weakly enforced (if at all) by the Department of Immigration. </p>
<p>Under the current policy, businesses only need to post a single job vacancy on a business’s website, any other website or on a social media platform. Additionally, there is no minimum duration for the advertisement or a requirement of advertising. It seems a rather hollow victory for Labor to secure labour market testing for IFAs under the ChAFTA because the current approach inadequately protects local jobs.</p>
<p>There are other valid options. One would be for the Department to more stringently enforce the employer-conducted labour market testing requirement. A better option is for Australia to introduce a model of rigorous independent labour market testing similar to the UK, where an independent body assesses the skills and labour needs of the economy and devises a responsive occupational shortage list. </p>
<p>The OECD, a recent Senate inquiry and the Coalition Government’s independent review into the 457 visa all advocated Australia introduce independent labour market testing. All three reports recognised the importance of having an independent means of assessing whether an employer’s request to access temporary migrant labour is genuinely motivated by a skill or labour shortage.</p>
<p>Although Labor has not secured a proper victory on labour market testing in this term of parliament, it should be part of its policy platform for the next election. This should apply to Chinese ‘contractual service suppliers’ and ‘installers and servicers’ as well as other temporary migrant workers seeking to enter Australia in trade occupations. </p>
<h2>What else should Labor have done?</h2>
<p>Labor should also have pushed harder in terms of the accountability measures around IFAs. Labor’s proposal requires the public register for these IFAs to identify the employer’s name and the date the agreement was signed and comes into affect. But given the potential of IFAs to erode local wages, conditions and opportunities it is vital they be made publicly available. </p>
<p>Enterprise bargaining agreements are on the Fair Work Commission website. If Australian employers have to comply with this principle of full disclosure, surely Chinese employers seeking to operate within Australia using IFAs can do the same.</p>
<p>Because of the extreme politicisation of the debate around the ChAFTA, Labor was stuck between a rock and a hard place in seeking to develop proposals to improve the ChAFTA’s impact on Australian workers. While Labor’s proposals go some way to improving the situation, there is still more to do to ensure the ChAFTA does not erode Australian wages, jobs and opportunities.</p><img src="https://counter.theconversation.com/content/49060/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Joanna Howe was commissioned by the Electrical Trade Unions to write the report, 'The Impact of the China-Australia Free Trade Agreement on Australian Job Opportunities, Wages and Conditions, published by the University of Adelaide'. It was a condition of the commission that the ETU had no editorial control over the content of the report.</span></em></p>Labor’s proposals designed to “safeguard” Australian workers under the China-Australia Free Trade Agreement (ChAFTA) are a step in the right direction but may be insufficient.Joanna Howe, Senior Lecturer in Law, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/489632015-10-12T20:11:30Z2015-10-12T20:11:30ZPatching the flaws around ChAFTA’s labour provisions<p>Provisions in the China-Australia Free Trade Agreement (ChAFTA) allowing temporary labour from China to be employed in Australia have become a political lightning rod. While business supports the provisions, unions claim Australian workers will be locked out of jobs in infrastructure projects, and have been pushing for Labor and the independent senators to vote down the legislation in the Senate. </p>
<p>The temporary labour provisions contain commitments that Australia should not have made as they give rise to a potential loss of jobs for Australian workers and allow a loophole which could be used to relax the job skills required of the Chinese workers.</p>
<p>The Senate has a straightforward choice: approve the legislation as it is, or not. But the Australian government also has powers it could use to address the problem.</p>
<h2>Where the problems lie</h2>
<p>The provisions affecting the inflow of Chinese workers into Australian labour markets are in two main locations of ChAFTA.</p>
<p>Chapter 10 lays down the general rules and Annex 10-A contains the Australian “specific commitments” relating to four categories of Chinese labour - business visitors, intra-corporate transferees, independent executives of China and contractual service suppliers. </p>
<p>These categories have become standard in the FTAs signed by Australia and other countries in recent years. (Annex III contains the specific commitments made by China to allow the import of temporary Australian labour into China. The Contractual Service Supplier category covers many more specific sectors - most of the professions in fact - than the Australian commitment.)</p>
<p>Most contentious is the Memorandum of Understanding on an Investment Facilitation Arrangement, which was negotiated in parallel to the ChAFTA.</p>
<p>This MOU relates to the movement of “skilled labour” and defines the skill levels of occupations as well as the eligibility of Chinese companies to import labour for infrastructure projects worth A$150 million or more. </p>
<p>It covers English language proficiency and qualifications and experience of the Chinese workers, and the minimum income the company will be required to pay them. </p>
<p>In this MOU, the project company may request “concessions”, such as those granted to Chinese workers under the existing 457 visa category. </p>
<p>But there is no general requirement for labour market testing for a company project, as there is for other 457 visa applicants. Labour market testing may be required in individual projects, though the extent of this possibility is not stated. There is no limit on the number of Chinese workers who may be employed. </p>
<p>Had a limit been imposed on the number or proportion of Chinese workers on a project, most of the possibilities of Australian job losses would have been contained. (I note that an aggregate limit of 1800 workers is imposed on contractual service suppliers from China in Chapter 10 and a limit of 5,000 on Chinese Work and Holidaymakers under a second parallel MOU.) </p>
<p>The possibility of further “concessions” is a loophole that could be used to relax the job skills required of Chinese workers and to expand the list of occupations, which already cover a large part of the total skilled workforce on many infrastructure projects, especially in the mining sector. There are no transparency requirements for an Infrastructure Facilitation Agreement.</p>
<p>All of these provisions covering temporary labour discriminate in favour of the Chinese as they are not available to non-Chinese infrastructure investors under other trade agreements which Australia has signed.</p>
<h2>The Senate should approve the legislation without amendment</h2>
<p>The Chinese Government will not agree to the renegotiation of the provisions. This leaves the Senate with a straightforward choice – to approve the legislation as it is, or not.</p>
<p>The Senate should certainly approve the Agreement. First, failure to enact the Agreement would lead to the loss of the gains from improved market access for Australian exporters which are also a part of the Free Trade Agreement. </p>
<p>The Coalition government rightly claims that these gains are substantial. They apply to a variety of producers in the agricultural, mining and service industries. Second, failure to ratify the Agreement would severely damage the Australian Government reputation and its ability to negotiate treaties in the future.</p>
<h2>The government has powers it can use</h2>
<p>There are still measures which the Australian government could adopt to limit the problems concerning unions and Labor.</p>
<p>For instance, labour market tests should be conducted where this is possible. The “concessions” are at the discretion of the Australian Government. They should be granted, if at all, only under very stringent conditions that make sure that skilled Australian labour has every opportunity to fill the jobs on infrastructure projects. </p>
<p>The Department of Immigration and Border Protection should be given the resources necessary to monitor and enforce the commitments of all the Chinese companies involved in the infrastructure projects - any legislative requirement is only as good as its enforcement. </p>
<p>Key features of each infrastructure arrangement should be made available promptly to the Australian public; these include the aggregate number of Chinese workers in each occupation, their skills and remuneration and the labour market tests that were conducted.</p>
<p>Only if these measures are taken can the Australian public be sure that the provisions which allow the importing of skilled Chinese workers operate in the interest of our nation.</p><img src="https://counter.theconversation.com/content/48963/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Lloyd does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Australian government has powers it could use to patch the problems around temporary labour provisions in the China-Australia trade agreement.Peter Lloyd, Professor of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/471962015-09-08T02:52:25Z2015-09-08T02:52:25ZAustralia can get the balance right on free trade and worker’s rights<p>When the politics of the Chinese Australia Free Trade Agreement (ChAFTA) hit fever pitch last week I was in China, teaching MBA students and talking with companies, both Australian and Chinese, about the stock market, the exchange rate and ChAFTA.</p>
<p>The jitters in the Shanghai stock market were notable, but it’s mostly small traders with no institutional investors and is not expected to greatly affect China’s real economy. </p>
<p>At Bao Steel they bemoaned the price of iron ore, and the wish to capture global supply chains controlled by Brazil and Australia. The hot steel kept rolling through the factory. The steelmakers and other Chinese industrialists did welcome the recent devaluation of the Yuan as helping Chinese industry, but they still aim to transition away from being a “nation of shippers” reliant on exporting to a “nation of shoppers” by boosting consumption.</p>
<p>Out west in Xian, Intel Director Fu Hua said the strong growth in the second and third tier cities would counter balance any drop off in Shanghai and Shenzhen. That’s why Intel has R&D facilities in Xian (as does Johnson and Johnson) and manufacturing in Chengdu. In fact, second and third tier cities have created a boom for Australian construction businesses and architects like Hassell (which employs 600 staff in China). </p>
<p>As Beijing directs economic activity westward, demand for infrastructure grows. Australian services providers in building and construction, architects and designers are helping to build “the great mall of China”, and the roads, airports and civic buildings.</p>
<h2>Exporters support ChAFTA</h2>
<p>Overall, on the Australian side, most Australian exporters support ChAFTA. According to the <a href="http://www.dhl.com.au/en/press/press_events/dhl_export_barometer_2015.html">DHL Export Barometer</a> around 58% of exporters think the China FTA will have a positive effect, 41% support the Japan agreement and 38% think the FTA with South Korea will have a positive impact.</p>
<p>And this figure in experience generally improves over time if we look at experience with the USA and ASEAN trade pacts. While business representatives I spoke to at AustCham Shanghai see the need for an agreement, there was a view that Trade Minister Andrew Robb had “rushed in a bit” and made some concessions to the Chinese government “that he didn’t need to make”.</p>
<p>In fact, the main concerns with ChAFTA concern the labour market.</p>
<p>Overall, having an open economy is good for workers. My <a href="https://www.business.unsw.edu.au/research-site/centreforappliedeconomicresearch-site/Documents/T.%20Harcourt%20-%20Why%20Australia%20Needs%20Exports.pdf">research</a> at UNSW shows that exporters, on average, pay 60% higher wages than non-exporters, have better occupational health and safety and equal employment opportunity standards, spend more on education and training, and are more productive and profitable as a result. Under an open economy Australia has created more jobs than have been lost, exporters create higher quality jobs and most jobs with exporting companies are unionised. Overall we need this dynamism in the labour market that an open economy brings.</p>
<h2>Devil in the detail</h2>
<p>As a former ACTU research officer, I obviously cannot be accused of being anti-union or anti-worker. But there are some issues that need to be looked at in detail regarding ownership of land, investor provisions and labour market testing. On some of these issues we need to proceed with caution as state owned enterprises do possess monopoly power and can distort markets in other countries.</p>
<p>In case of labour market testing we don’t need it to undermine labour standards. For example, in some limited cases, China may need to use executive and managers like they do on mining and infrastructure projects in Mongolia, Africa and Latin America.</p>
<p>But we don’t want trade agreements to adversely affect labour standards and the provision of public goods and labour market testing could be tackled without affecting ChAFTA.</p>
<p>And a former Chief Economist of the Australian Trade Commission (Austrade), I obviously cannot be accused of being anti-trade.</p>
<p>All in all, ChAFTA will bring important benefits to Australian exporters in China. Having a 48% tariff like an albatross around the neck of some Australian exporters – particularly in the agribusiness sector – is too much of a burden especially when they are competing with the likes of Chile and New Zealand who already have a FTA with China. Remember Australia is not negotiating with China in a vacuum; more than 125 countries have China as their number one trading partner, just as we do.</p>
<p>Australia has been one of the world’s most successful open economies – and reliable trading partners of China – in the past 25 years. Opening up to trade has been a positive step for business, workers and consumers, but we need to support our and social institutions – particularly in the labour market. This is after all what has enabled Australia to be such a successful open economy.</p>
<p><em>Tim Harcourt visited China last week as part of the AGSM’s International Business Experience course in the MBA programme that covers Asia and South America.</em></p><img src="https://counter.theconversation.com/content/47196/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Harcourt does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most Australian exporters support the China-Australia Free Trade Agreement, but it shouldn’t adversely affect labour standards.Tim Harcourt, J.W. Nevile Fellow in Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/471502015-09-07T20:08:08Z2015-09-07T20:08:08ZWhat’s really at stake if the China FTA falls through<p>Earlier this month Australian Prime Minister Tony Abbott sounded a warning on the impact to Australia’s economy if the recently signed <a href="https://theconversation.com/china-australia-trade-agreement-a-compromised-victory-43396">China-Australia Free Trade Agreement</a> were to fail.</p>
<p>In a <a href="http://www.pm.gov.au/media/2015-09-01/more-labor-leaders-support-china-australia-free-trade-agreement">statement</a>, Abbott said:</p>
<blockquote>
<p>“If Bill Shorten and the Labor Party try to reject the China-Australia Free Trade Agreement they will be sabotaging our economic future and they will be turning their back on one of the greatest opportunities our country has ever been offered.”</p>
</blockquote>
<p>Economic modelling for the Department of Foreign Affairs and Trade by the Centre for International Economics (CIE) demonstrates the gains of the agreement will be modest. The <a href="http://dfat.gov.au/about-us/publications/Documents/economic-modelling-of-australias-north-asia-ftas.pdf">CIE estimates</a> the gain in economic welfare from the three North Asian FTAs (the recently activated agreements with Japan and Korea and the agreement with China awaiting parliamentary ratification) will be 0.4%.</p>
<p>We could call this an annual boost in welfare of A$3 billion or A$300 per household or A$130 per person. If we want an impressive number we could work out the present value of a A$3 billion annuity, and call the gain A$50 billion. All of these numbers are being quoted by proponents of the agreements. But whatever way we dress it up the gain is still 0.4%.</p>
<p>The FTAs will give Australia a welfare gain because they will enable Australian firms to receive higher prices for their products in the three North Asian countries. The main reason is that these countries already have agreements with some of Australia’s competitors, including New Zealand. </p>
<p>If the Chinese tariff on beef is 15% for non-FTA partners, then, in the absence of the China-Australia FTA, for Australia to compete with New Zealand in the Chinese beef market the Australian pre-tariff price (the price received by Australian producers) must be 15% less than the New Zealand price. When Australia becomes an FTA partner with China, it can edge up its pre-tariff price towards that of New Zealand.</p>
<p>The FTA tariff reductions by the North Asian countries that will significantly benefit Australia are confined to a few agricultural products. For example, in the China-Australia agreement, Chinese tariffs on imports of Australian dairy, beef, lamb and wine all fall by more than 10 percentage points. </p>
<p>In total, the CIE estimates that the FTAs will give Australia an increase in the prices it receives for its exports of about 1.2%. With exports being only a fraction of GDP, this translates into a welfare gain of 0.4%.</p>
<p>Proponents of the FTAs claim they will create jobs. Trade Minister Andrew Robb has said Australian jobs would grow by 9,000 per year to be 178,000 higher in 2035.</p>
<p>This is incorrect. The CIE study says the agreements will cause jobs to be 5,434 higher in 2035. It seems that Robb erroneously derived his figure by adding the employment effects in each of the 20 years and assigning the grand total (178,000) to 2035.</p>
<h2>More than jobs</h2>
<p>Despite assertions to the contrary by our political leaders, FTAs are not primarily about jobs. Aggregate employment depends on macroeconomic conditions, particularly the balance between real wages and productivity. The path of employment over any period longer than a couple of years will be determined independently of whether or not Australia completes the trifecta of North Asian FTAs by ratifying the agreement with China.</p>
<p>As with other favourable microeconomic policies, the FTAs with the North Asian countries are about improving wage rates by increasing the value of what Australian workers can produce. The CIE projects a long-run real wage increase in Australia from the agreements of 0.3%.</p>
<p>As well as goods and services trade, the three FTAs deal with foreign direct investment (FDI). CIE’s view is that there will be no discernible effect on inbound FDI for Australia. The China-Australia FTA may encourage Australian outbound FDI in the Chinese service sector, but it is doubtful this will have a noticeable effect on the welfare of Australian households.</p>
<h2>Why are FTAs such hot political issues?</h2>
<p>Lack of community understanding often creates controversy over trade policies. These policies are often blamed for structural adjustment problems that arise from other factors such as appreciation associated with the success of our mineral industries.</p>
<p>But even when they are understood, trade policies are contentious because they are approximately zero-sum games. There are domestic winners and losers, and although the national welfare gain is not zero, it is usually small. Unlike a good <a href="https://theconversation.com/balancing-the-health-budget-chronic-disease-investment-pays-big-dividends-46598">health</a> or social policy, which can make everyone a winner, a trade policy tends to pit the interests of one part of the community against those of another.</p>
<p>Australian winners from the North Asian FTAs are industries producing agricultural and related downstream products subject to substantial reductions in Japanese, Korean and Chinese tariffs. This is illustrated in the right-hand panel of the chart below.</p>
<p><strong>Percentage impact on Australian output of FTAs with North Asian countries</strong></p>
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<img alt="" src="https://images.theconversation.com/files/93994/original/image-20150907-14642-1w0v8mq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/93994/original/image-20150907-14642-1w0v8mq.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=357&fit=crop&dpr=1 600w, https://images.theconversation.com/files/93994/original/image-20150907-14642-1w0v8mq.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=357&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/93994/original/image-20150907-14642-1w0v8mq.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=357&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/93994/original/image-20150907-14642-1w0v8mq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=448&fit=crop&dpr=1 754w, https://images.theconversation.com/files/93994/original/image-20150907-14642-1w0v8mq.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=448&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/93994/original/image-20150907-14642-1w0v8mq.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=448&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Agriculture and downstream product sectors stand to gain disproportionately.</span>
<span class="attribution"><a class="source" href="http://dfat.gov.au/about-us/publications/Documents/economic-modelling-of-australias-north-asia-ftas.pdf">Centre for International Economics</a></span>
</figcaption>
</figure>
<p>The losers are mainly in manufacturing (left-hand panel). For them, the main negative impact is via the exchange rate, which appreciates in response to increases in agricultural exports and the terms of trade. Appreciation hurts import-competing manufacturing industries by lowering the $A price of imports. Appreciation also explains why the CIE projects negative effects for some Australian mining industries.</p>
<h2>Spinning the benefits</h2>
<p>In the debate about the China-Australia FTA, the Abbott government is exaggerating the potential benefits. By not engaging in an evidence-based truthful discussion, the government runs the risk of creating unrealistic expectations and eventual disillusionment. This has the potential to inhibit Australia’s participation in future FTAs, which will be necessary to safeguard our competitive position as FTAs between other countries proliferate.</p>
<p>The opposition, led by Bill Shorten, has focused attention on the labour-market aspects of the China-Australia FTA. The proposed agreement largely eliminates the requirement for businesses operating in Australia to look for Australian residents to fill vacancies before bringing in workers from China under the 457 visa program. There are many other requirements under this program that Chinese workers would still need to meet. </p>
<p>Expert <a href="http://www.theaustralian.com.au/opinion/bill-shortens-authority-at-stake-over-china-fta/story-e6frg6zo-1227511536000">opinion</a> suggests the liberalisation of entry requirements under the China-Australia FTA will have a negligible effect on job opportunities for Australian workers. Whether this opinion is right or wrong is not the main point here. Eliciting and testing information and analysis relevant to policies proposed by the government is a vital role of the opposition. </p>
<p>Rather than branding Shorten as an economic saboteur, Tony Abbott would serve the community better by laying out the evidence on how the China-Australia FTA will affect the Australian economy, including the labour market.</p><img src="https://counter.theconversation.com/content/47150/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Dixon receives funding from ARC,</span></em></p><p class="fine-print"><em><span>Maureen Rimmer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Trade agreements are often misunderstood by the community, making it easier for gross exaggerations about their benefits.Peter Dixon, Professor, Centre of Policy Studies, Victoria UniversityMaureen Rimmer, Professor, Centre of Policy Studies, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/468562015-08-30T01:50:31Z2015-08-30T01:50:31ZTrade with China and the national interest<figure><img src="https://images.theconversation.com/files/93378/original/image-20150830-19943-1qjy3of.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><span class="source">AAP/Lukas Coch</span></span></figcaption></figure><p>Trade policy is usually the eye-glazing preserve of policy wonks and public officials. Suddenly, however, it’s the epicentre of a debate that tells us much about the difficulties facing political parties as they try to reconcile potentially competing domestic and international interests. Neither of the main political parties in Australia is likely to emerge from this process unscathed.</p>
<p>The most obvious political damage is being done to the Australian Labor Party. It’s not a good look to be picking a fight with your major trade partner at the best of times. But when the country in question is Asian and especially sensitive about its international standing, then the potential for blowback and misunderstanding is intensified. </p>
<p>The union movement’s less-than-glorious historical record in supporting protectionist policies with a racial component makes this a doubly difficult issue for the ALP.</p>
<p>But the ALP and its union affiliates do have a point. It is entirely possible that the provisions of the yet-to-be-legislated free trade agreement with China could be used to change to conditions that apply to certain Chinese projects and the workers they employ. </p>
<p>The question is whether it is worth getting into a lather about relatively minor changes that are unlikely to have much impact on the workforce as whole. On the contrary, trade boosters argue that the overall benefits to the country are too big and long term to jeopardise.</p>
<p>One of the people making this argument is Bob Hawke, not only a former prime minister, but also one-time Australian Council of Trade Unions president. One might think his views would carry some weight. One might be wrong: like many other former political leaders, Hawke has made a fortune working as a lobbyist representing Chinese companies from his office in Shanghai. Interests don’t get much more vested or opinions more compromised.</p>
<p>Hawke’s activities also illustrate why the relationship with China is far from straightforward for the Coalition either. Barnaby Joyce is simply the loudest voice in a conservative chorus that frets about China buying up the farm. In this context, Joyce publicly criticised Hawke’s lobbying activities on behalf of the Chinese company Zhongfu and its efforts to invest in the Ord River area.</p>
<p>One of Hawke’s great attractions as far as his Chinese clients are concerned is his network of connections that transcends political divides. One of the people Hawke lobbied over the Ord River investments, for example, was West Australian Premier Colin Barnett, a man who famously suggested that Beijing was becoming more important to WA than Canberra. He may be right, but it’s another reminder of just how illusory the idea of an unambiguously national interest actually is in such matters.</p>
<p>If there is a national perspective in Australian economic policy, perhaps it’s to be found in the view from China. The good news here is that Australia’s reputation as a generally reliable and predictable partner is widely established.</p>
<p>True, Australia is frequently seen as a compliant appendage of the US when it comes to security issues, but it’s one with which China can do business, at least. Trying to unpick a free trade agreement that has been years in the making would not send a positive message in this regard.</p>
<p>It’s also important to recognise that just as there is no uniformity of opinion in Australia about trade relations, neither is there in China either. This was made painfully clear to me this week when I interviewed an official from the Ministry of Commerce who is also a prominent “left-wing” blogger with a large domestic following. </p>
<p>I was told in no uncertain terms that Australia should know its place in relation to China. Indeed, it was rather impertinent that ignoramuses like myself should have the temerity to question, much less imply any criticism of China’s economic policies. </p>
<p>Such opinions may not be mainstream, but they are not irrelevant either. Sending ambivalent messages from Australia will be grist for the mill of Chinese nationalist sentiment.</p>
<p>While there may not be much that Australian policymakers can – or should – do about the pluralistic and occasionally combustible nature of the policy debate in this country, it is important to recognise that it does not occur in a vacuum. Australian policy debates are closely followed in China, albeit by a rather limited number of specialists. </p>
<p>There will never be the same interest in – even obsession with – Australian politics as there is with the American variety, but this doesn’t mean that China’s policymakers aren’t taking note of the current furore.</p>
<p>The FTA with China may be far from perfect, but sabotaging it at this stage would send a very unfortunate message. For Bill Shorten in particular, deciding just what the “national interest” is in this case poses an acutely difficult political question. The answer will tell us much about how the ALP weighs short-term domestic political advantage against long-term economic integration with the region.</p><img src="https://counter.theconversation.com/content/46856/count.gif" alt="The Conversation" width="1" height="1" />
Trade policy is usually the eye-glazing preserve of policy wonks and public officials. Suddenly, however, it’s the epicentre of a debate that tells us much about the difficulties facing political parties…Mark Beeson, Professor of International Politics, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/464662015-08-21T02:19:07Z2015-08-21T02:19:07ZVIDEO: Michelle Grattan on the government’s leaks<p>University of Canberra Vice-Chancellor Stephen Parker and Professorial Fellow Michelle Grattan discuss the week in politics including the Coalition’s talking points being leaked for a second day running, Labor and the China free trade agreement, the government’s campaign mode and what the upcoming Canning byelection will mean for Tony Abbott.</p>
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<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>University of Canberra Vice-Chancellor Stephen Parker and Professorial Fellow Michelle Grattan discuss the week in politics.Stephen Parker, Vice-Chancellor, University of CanberraMichelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/464112015-08-20T20:27:12Z2015-08-20T20:27:12ZGrattan on Friday: People on tenterhooks in a government that’s waiting … for something<p>It’s never helpful for a government to become the object of ridicule, so when the Coalition’s speaking notes were leaked for a <a href="http://www.smh.com.au/federal-politics/political-news/our-cabinet-is-still-functioning-exceptionally-well-abbott-government-talking-points-leaked-again-20150820-gj3hqa.html">second day running</a> it was embarrassing.</p>
<p>Thursday’s notes, sent to ministers, backbenchers and staff, were much the same as Wednesday’s. Perhaps the second leak was a sort of “up yours” gesture. Just the thing to drive to distraction the control brigade in Prime Minister’s Office.</p>
<p>Beset with problems including leaks and the sourness left by the entitlements scandal, the government this week desperately tried to break through the fog with a simple message – that its priorities were jobs, growth and keeping the community safe. The backbenchers were thankful to see a more assertive approach in parliament. But they remain as fearful as ever about their futures, their worries reinforced by the <a href="http://www.smh.com.au/federal-politics/political-opinion/tony-abbott-sinks-lower-than-bill-shorten-in-fairfax-ipsos-poll-20150816-gj0ber.html">Fairfax-Ipsos poll</a> showing the Coalition trailing Labor 46-54%.</p>
<p>Politically, jobs and growth are what the Coalition needs to be talking about. But with 6.3% unemployment and the Reserve Bank recently downgrading its growth forecast, the arguments are not simple. The government uses comparisons between job creation under it and Labor (the figures sounding as though they need a fact check), and Australia’s growth compared with that of other countries.</p>
<p>The government went on the attack against Labor and union claims that the free trade agreement (FTA) with China threatens Australian workers. Tony Abbott took a morning to travel to a cattle yard at Yass to sell the FTA’s benefits; he accused Labor of xenophobia and reverting to a White Australia policy. Labor’s attack, backing up the big union campaign, is opportunistic, a classic scare tactic. But it can take the gloss off the achievement of the agreement.</p>
<p>The government is perennially driven by its desire to wedge Labor. This was very clear when it rushed in its proposal to limit those able to take court action against mining projects. “They threw it in as a bit of red meat on the barbie,” as one Liberal source put it.</p>
<p>The move follows what’s happened with the planned Adani Carmichael coal mine in Queensland, which has been challenged by conservationists. A judgement has been held up because the Environment Department did not provide all the needed information to minister Greg Hunt before he gave approval. The glitch is expected to be dealt with in a few weeks.</p>
<p>The government argues more generally that environmental groups are exploiting the system by using legal action. It is posing the issue as a choice for Labor between supporting jobs and being allied with the green lobby.</p>
<p>The controversial change has the support of former Labor resources minister Martin Ferguson. In remarks that will put him further offside with one-time colleagues, Ferguson told The Conversation: “The resources sector accepts it has got to meet the highest environmental standards. But it’s concerned about the gaming of the system from the legal perspective, which is not about environmental standards but killing jobs and investment in Australia.”</p>
<p>Ferguson says he supports the Townsville Labor mayor who wants the mine. “It is about time the Labor Party stood up for jobs and investment, especially in regional Australia.” He says it is very clear to him from his contacts with international companies that have historically invested here “that they believe some sections of the community in Australia are no longer interested in jobs and investment”.</p>
<p>But Labor has declared its opposition to the change and so far only two of a needed six Senate crossbenchers have indicated they would support it, putting its fate very much up in the air. In the community, some voters are likely to be uneasy about limiting the opportunity for those with genuine concerns about projects, albeit no direct interest, to take action.</p>
<p>Amid trying to counter Labor and throw up distractions, the government remains bogged down in its efforts to advance a reform program. Treasurer Joe Hockey continues to talk about tax reform but there is little faith that the Coalition will be in any position to put a comprehensive blueprint to the voters. At the treasurers’ meeting on Friday there is likely to be agreement on one tidy-up – to scrap the GST exemption for imported goods worth less than A$1000. This is long overdue – but hardly popular with online shoppers.</p>
<p>On Friday the spotlight turns onto the royal commission investigating union corruption, when Dyson Heydon hears applications for him to recuse himself. The commission indicated on Thursday that Heydon may give an immediate ruling or hold it over until next week, possibly Tuesday.</p>
<p>The government this week pushed back against Labor’s calls for Heydon to quit over his acceptance (later withdrawn) of an invitation to deliver an address sponsored by the Liberal Party. The government can’t win out of this situation. If Heydon goes, it would have to ditch the inquiry or appoint a new commissioner who would probably need to retread some of the ground already covered. If he remains, his findings will have discounted credibility, in particular anything adverse he might say about Bill Shorten.</p>
<p>Despite the late revving up of its parliamentary energy, at the end of this fortnight sitting there was a noticeably bad vibe around the government. A staffer remarked that the general situation made governing difficult; a visitor observed that people were scratchy; an official wondered whether something was going on. A Liberal MP said backbenchers had concerns about “where we’re going and who leads us but nobody has a definitive answer”.</p>
<p>In the short term, Abbott is going to the Torres Strait and Cape York for his Indigenous week, a worthy keeping of a promise. His troops are going back to constituents who are unlikely to give them any cheer. Beyond that, everyone is waiting for the Canning byelection.</p>
<p><strong><a href="https://theconversation.com/politics-podcast-clare-oneil-and-the-future-of-progressive-politics-in-australia-46208">Listen to the latest Politics with Michelle Grattan podcast with guest, Clare O'Neil, talking about her new book Two Futures.</a></strong></p>
<iframe id="audio_iframe" src="https://www.podbean.com/media/player/3gsrk-580f97?from=wp" data-link="http://www.podbean.com/media/player/3gsrk-580f97?from=wp" height="100" width="100%" frameborder="0" scrolling="no" data-name="pb-iframe-player"></iframe><img src="https://counter.theconversation.com/content/46411/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s never helpful for a government to become the object of ridicule, so when the Coalition’s speaking notes were leaked for a second day running it was embarrassing.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/446592015-07-28T20:06:30Z2015-07-28T20:06:30ZGetting free trade right can be good for workers and exporters<p>Agreement on the controversial Trans-Pacific Partnership could come as <a href="http://www.businessinsider.com.au/agreement-on-the-trans-pacific-partnership-could-be-reached-by-the-end-of-the-week-2015-7">early as this week</a>, with negotiations now focused on “the last few issues,” according to Trade Minister Andrew Robb.</p>
<p>Movement towards finalising the TPP comes as unions step up a campaign <a href="http://www.businessspectator.com.au/news/2015/7/22/china/shorten-backs-unions-china-fta">supported by Opposition Leader Bill Shorten</a> against what is seen as anti-labour provisions in the China-Australia Free Trade Agreement, taking political debate over free trade to a new level.</p>
<p>“Dry” economists on the right don’t like “trade distorting” bilateral agreements (they don’t even like calling them “free trade” agreements), while many on the left are concerned about trade agreements going too far, beyond reducing tariffs and quotas, and getting involved in social policy, labour standards and the provision of public goods.</p>
<p>But even beyond the political debate, there is the question of what Australian businesses want from public policy as they engage themselves in global markets.</p>
<p>The DHL Export Barometer gives us a pretty good handle on what exporters think. It surveys 600 Australian exporters annually, and has done since 2003.</p>
<p>For the most part, trade agreements have traditionally played a small part in impediments to exporting. Most businesses worry about the exchange rate – when it is too high their goods and services become expensive, when it’s too low their input costs soar (as 80% of exporters also import). They also worry about border regulations and business culture differences. For the most part they didn’t think about FTAs and certainly not the GATT or the WTO.</p>
<p>But in the DHL Export Barometer for 2014, there was good news about free trade agreements, which will be music to the ears of Andrew Robb. </p>
<p>In surveying existing and new agreements there is evidence that exporters like Australia’s FTAs and that they actually work in a practical business sense despite the recent controversy. </p>
<p>According to the DHL Export Barometer, the USA FTA (AUSFTA) is at last helpful after a decade of implementation. Other agreements deemed helpful include those with New Zealand, Singapore and ASEAN. The survey finds AUSFTA is benefiting exporters, with increased sales and a larger proportion of exporters claiming the agreement has had a positive impact on their business (55%). </p>
<p>This occurred despite the USA hitting the sub-prime crisis just three years after the deal was forged in 2005. The US unemployment rate has now returned to pre-GFC levels, notwithstanding the commentators who predicted that the AUSFTA would “kill a country” (I assume they meant Australia). </p>
<p>The support for AUSFTA was followed by that for New Zealand (47%), AANZFTA – the agreement between Australia, New Zealand and ASEAN on 41% and Singapore on 38%.</p>
<p>The new “trifecta” of FTAs – Japan, South Korea and China – has got the endorsement of the Australian exporter community. In fact, Japan is more beneficial than expected and all FTAs to North East Asia are enticing new exporters.
Some 61% of exporters think the China FTA will have a positive effect, 36% think South Korea will and 35% think Japan will deliver. </p>
<p>In terms of the Japan FTA, 59% thought the trade pact would increase exports to that destination, and 38% thought they would start exporting to Japan as a result of the FTA. Many also thought the FTA would help enhance an online presence and help develop new products and services for that destination. </p>
<p>In terms of future FTA destinations, exporters think that India, Indonesia, the Gulf Co-operation Council and Latin America should now be on Andrew Robb’s dance card. But of all the future pacts, India drew the most negative ratings, consistent with the view about increased competition from India.</p>
<h2>Perceptions matter</h2>
<p>But what about the controversial TPP? It received a positive response among exporters, with 69% saying they’d increase exports to TPP countries and 25% saying they’d start exporting to TPP countries as a result of the TPP. </p>
<p>But the TPP has some complications not always apparent in up and down trade deals, including the <a href="https://theconversation.com/when-trade-agreements-threaten-sovereignty-australia-beware-18419">investor provisions that have been controversial</a> in other jurisdictions. As Princeton economist Dani Rodrik pointed out in his book <a href="http://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=1471&context=njilb">“Has Globalisation Gone too Far?”</a>, when trade agreements stray onto the turf of the provision of public goods, or legislation like plain packaging for tobacco, they are likely to lose public support.</p>
<p>Even in the China FTA the labour market provisions have overshadowed the benefits the overall agreement would bring. And it is important to remember Rodrik’s finding that economies that are open to trade have well developed labour market institutions and social insurance. </p>
<p>This is reflected in <a href="https://www.business.unsw.edu.au/research-site/centreforappliedeconomicresearch-site/Documents/T.%20Harcourt%20-%20Why%20Australia%20Needs%20Exports.pdf">my own research</a> that showed that exporters, on average, paid 60% higher wages than non-exporters, provided better levels of occupational health and safety, more education and training, equal opportunity provisions and were more likely to be unionised. </p>
<p>The research has shown free trade can grow side by side with union support. An open economy is bolstered by improvements in productivity, efficiency and fairness in the labour market. These are important lessons to heed as we strive to benefit from the next round of FTAs.</p>
<p><em>The DHL Export Barometer for 2015 will be released on Wednesday August 5th, 2015.</em></p><img src="https://counter.theconversation.com/content/44659/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Harcourt is the JW Nevile Fellow at the UNSW Buisness School. He was previously Chief Economist of the Australian Trade Commission (Austrade) and a Research Officer/Advocate with the ACTU advising the trade union movement on international trade issues</span></em></p>Exporters like Australia’s trade agreements, but the public will take more convincing on the benefits.Tim Harcourt, J.W. Nevile Fellow in Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/433962015-06-18T05:08:52Z2015-06-18T05:08:52ZChina-Australia trade agreement a compromised victory<p>After ten years of marathon negotiations, the China-Australia Free Trade Agreement (ChAFTA) was <a href="http://www.abc.net.au/news/2015-06-17/australia-and-china-sign-free-trade-agreement/6552940">signed in Canberra this week</a>. Australia now has an FTA with its number one trade partner, becoming one of the few developed economies (Singapore, Korea and New Zealand) to have <a href="http://fta.mofcom.gov.cn/english/index.shtml">signed agreements with China</a>.</p>
<p>Negotiating ChAFTA has proven exceptionally fraught. Launched amid much fanfare in 2005, reaching mutually agreeable terms proved harder than expected. Twenty-two rounds of negotiation were required, talks “<a href="https://theconversation.com/why-an-australian-fta-with-china-has-never-stacked-up-19299">stalled</a>” on several occasions and at one point the then trade minister, Craig Emerson, described the FTA as “<a href="http://www.abc.net.au/news/2012-04-03/craig-emerson-says-china-tree-trade-deal-overrated/3930266">overrated</a>”. Many in the Australian business and policy communities will be relieved the agreement is finally concluded.</p>
<p>The Abbott government has described ChAFTA as “<a href="http://www.abc.net.au/news/2015-06-17/australia-and-china-sign-free-trade-agreement/6552940">history making</a>” and put considerable effort into <a href="https://dfat.gov.au/trade/agreements/chafta/fact-sheets/Pages/infographic-china-australia-fta-the-benefits-for-australia.aspx">spruiking the many gains</a> it will offer for Australian exporters. </p>
<p>But the deal is what’s known as a “positive list” trade agreement, which puts certain limits on the benefits it offers Australian industry.</p>
<h2>The type of agreement matters</h2>
<p><a href="http://www.project-disco.org/information-flow/when-a-negative-is-positive-updating-international-trade-agreements-for-the-21st-century/">The “positive list” and “negative list” approaches</a> are, broadly speaking, the two methods for negotiating trade agreements. While debates over trade negotiation strategies may seem arcane to all but the most seasoned trade lawyer, they are critically important in shaping the ultimate form of an FTA.</p>
<p>Under the negative-list approach, governments begin by agreeing to liberalise all forms of trade protection (typically, tariffs and quotas) between their two economies. Recognising some sectors as “too sensitive” for full liberalisation, they then negotiate a list of products for exclusion. The negative-list approach presumes everything is on the table, with talks focused on identifying <em>what will be left out</em> of a trade agreement.</p>
<p>Conversely, positive-list negotiations instead focus on <em>what will be included</em>. Governments start by presenting a list of “requests” and then offer and counter-offer until an agreeable balance is struck (e.g. “If I agree to your demand X, will you agree to my request Y?”). This presumes nothing is on the table initially, and gradually adds content as governments decide which sectors are most important to them.</p>
<p>These approaches tend to produce different outcomes. Negative list lends itself to broader and deeper trade liberalisation, because it places the onus on governments to justify why a sensitive sector should be excluded. Positive list often leads to shallower and narrower agreements, and is often frowned upon by “free trade” purists. However, it is a useful strategy in cases where trade liberalisation is politically contentious or difficult and governments simply wouldn’t be comfortable with deep reform.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/85487/original/image-20150618-23259-jnsj7g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/85487/original/image-20150618-23259-jnsj7g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/85487/original/image-20150618-23259-jnsj7g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/85487/original/image-20150618-23259-jnsj7g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/85487/original/image-20150618-23259-jnsj7g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/85487/original/image-20150618-23259-jnsj7g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/85487/original/image-20150618-23259-jnsj7g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Prime Minister Tony Abbott watches as the president of China Xi Jinping shakes hands with Fortescue Metals CEO Andrew Forrest after signing a MOU as part of the free trade agreement.</span>
<span class="attribution"><span class="source">Alan Porritt/AAP</span></span>
</figcaption>
</figure>
<h2>Who are the positive-list winners in ChAFTA?</h2>
<p>While the ultimate agreement was as much about what Australia requested as what China was willing to concede, three sectors have emerged as the big winners:</p>
<ul>
<li><a href="https://dfat.gov.au/trade/agreements/chafta/fact-sheets/Pages/quick-guide-agriculture-and-processed-foods-outcomes.aspx">Agriculture</a>, where tariffs on Australian beef, dairy, wine, fruit, pork, sheep meat, seafood and some grains will be phased out over a period of years.</li>
<li><a href="https://dfat.gov.au/trade/agreements/chafta/fact-sheets/Pages/quick-guide-key-services-outcomes.aspx">Services</a>, where increased market access will be offered to the legal, education, telecommunication, financial, tourism and health care sectors.</li>
<li><a href="https://dfat.gov.au/trade/agreements/chafta/fact-sheets/Pages/quick-guide-key-resources-energy-and-manufacturing-outcomes.aspx">Mining</a>, where tariffs on coal, alumina and some base metals will be eliminated.</li>
</ul>
<p>These commitments will be transformative for the Australian industries that have been lucky enough to get on the positive list. But they fall well short of what could genuinely be described as “free trade” between Australia and China.</p>
<p>If a sector is not on the list, Australian exporters must contend with China’s normal trade policy regime. For these industries – including sugar, wheat, many manufactures and most professional services – life after ChAFTA will be business as usual.</p>
<p>Even for the industries included, positive list means ChAFTA commitments often fall short of full liberalisation: </p>
<ul>
<li>Certain commitments in the transport, construction, telecommunication and legal sectors will apply only in the “Shanghai Free Trade Zone”, not the entirety of China.</li>
<li>Wool exporters get duty-free access for only a fixed volume of exports (initially 30000 tonnes, rising to 45000 by 2024).</li>
<li>Australian-owned hospitals can be established in only four Chinese provinces and three cities. </li>
<li>In education, the only firm Chinese commitment is to list some 77 Australian providers on a government website.</li>
<li>Farmers will have to wait some time - nine years in the case of beef and cheese - for tariff cuts to fully take effect.</li>
</ul>
<p>These caveats and carve-outs illustrate the inherent trade-off in the positive-list approach: a tricky trade agreement is made easier, but only by sacrificing across-the-board liberalisation.</p>
<h2>Picking winners also means picking losers</h2>
<p>The political reality is that the Chinese government is unlikely to have ever agreed to the stronger negative-list approach in ChAFTA. However, this has meant the Australian government has been forced to make difficult choices over what to prioritise and what to leave out.</p>
<p>First, the government has had to “pick winners” when setting its priorities. The beef, dairy and tourism sectors have been the main beneficiaries. But picking winners also means picking losers, so many industries have been left out. The long-suffering sugar and rice industries were both victims, reportedly <a href="http://www.theaustralian.com.au/business/economics/how-andrew-robb-used-sugar-to-sweeten-china-fta-deal/story-e6frg926-1227131234285">cut from negotiations</a> in exchange for China shelving requests around state-owned enterprise investment.</p>
<p>In this context, it’s worth asking how and why these decisions were made. Was “beef in/sugar out” a conscious decision to maximise national economic interests? Or does it reflect the relative lobbying strength of these sectors?</p>
<p>Second, the government has had to favour current exporters over future economic opportunities. ChAFTA will ensure <a href="https://dfat.gov.au/trade/agreements/chafta/fact-sheets/Pages/key-outcomes.aspx">95%</a> of Australia’s current (2013) exports to China will enter duty-free. However, by the time the agreement takes full effect in 2024, the Australia-China trade profile will surely have changed. As Chinese urbanisation and growth progresses, service exports are likely to become more prominent while primary commodities less so. Unfortunately, the positive-list ChAFTA agreement targets the export sectors of today, rather than those of tomorrow.</p>
<p>This raises questions about what will happen to emerging service sectors not presently on the list. While telecommunication firms now have access to the Shanghai Free Trade Zone, will this be the most important Chinese market in 2024 or 2034? And what of service sectors Australia has yet to develop?</p>
<p>ChAFTA is an imperfect agreement, born out of political difficulties and the compromises these have entailed. Some sectors are in, but others are out, and carve-outs and caveats impose limits on many of the concessions. The unpleasant – but unavoidable – reality is that positive-list FTAs are not about “free trade”, but picking winners and commiserating with losers.</p><img src="https://counter.theconversation.com/content/43396/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeffrey Wilson receives funding from the Australian Research Council (ARC) for research into the Australia-China economic relationship. (Discovery Projects Grant No. DP150100217).</span></em></p>Political issues have left ChAFTA an imperfect agreement in which the government has been forced to pick winners and losers.Jeffrey Wilson, Fellow of the Asia Research Centre, Murdoch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/344222014-11-27T19:27:22Z2014-11-27T19:27:22ZThe noodle-bowl effect: Australian trade is increasingly complex<figure><img src="https://images.theconversation.com/files/65638/original/image-20141126-4225-fep6oc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The China-Australia FTA is more important to Canberra than Beijing, placing China at a distinct advantage.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Fact: over 585 regional trade agreements have been signed. <a href="http://www.wto.org/english/tratop_e/region_e/region_e.htm">Almost 400</a> are already operating. Australia is a <a href="http://www.dfat.gov.au/fta/">signatory to at least 12</a> of them.</p>
<p>An intricate web of cross-cutting free trade agreements (FTAs) forms the basis of Australia’s trade and investment partnerships throughout the Asia-Pacific region. </p>
<p>There will be more. At the Brisbane G20 an Australia-India FTA within 12 months was mooted. A prospective EU-Australia FTA was also on the agenda.</p>
<p>Over the last 40 years, Canberra has made a decisive shift in its foreign economic policy orientation from Europe to Asia. Australia has entered into a large number of regional, bilateral and plurilateral agreements since 1989. </p>
<h2>The tilt to Asia</h2>
<p>These profound changes were driven by necessity: the collapse of Australia’s terms of trade in the 1970s and 1980s; the disappearance of its traditional markets; a structural lack of competitiveness; and Asia’s rise as the driver of global economic growth.</p>
<p>In 1973, Britain entered the European Union and Australia’s exports to Britain evaporated overnight. Meanwhile, Japan emerged as the world’s second-largest economy and Australia’s biggest trading partner. However, between 1973 and 1983, Australia’s share of global exports halved, from around 1.9% to 0.9%.</p>
<p>For then treasurer Paul Keating, the options were stark: Australia had to develop a radically different approach to its international trade policy – or become a banana republic.</p>
<p>By 1984, the prime minister, Bob Hawke, and Keating had only the Australia-New Zealand Closer Economic Relations agreement to show for their efforts. A free-trade area between two medium-sized, sparsely populated economies was never going to sustain high living standards. The conventional economic wisdom was that Australia needed free-trade access to markets of at least 200 million consumers.</p>
<p>The late 1980s was an era of “reactive regionalism” and defensive “blocism”. The European Union sparked global fears of a “fortress Europe” with its 1987 Single Market program. In 1988, Washington reacted by hastily signing the CUSTA (later NAFTA) free trade agreement with Canada.</p>
<p>In 1989, the Hawke government commissioned Ross Garnaut to report on Australia’s economic future. Garnaut argued Australia should undertake a radical, unilateral trade liberalisation strategy and microeconomic reform. </p>
<p>The aim was to make Australian exports competitive in the East Asian tiger economies of Japan, China, South Korea, Hong Kong and Taiwan. These countries would become key consumers of Australian raw materials and value-added services such as education, tourism and financial services.</p>
<p>In response, the Australian and Japanese governments co-founded the Asia-Pacific Economic Cooperation (APEC) forum, which sought to liberalise trade throughout the region. APEC was only a qualified success in the 1990s, but it provided the impetus for wide-ranging bilateral, plurilateral and regional agreements throughout the Asia-Pacific.</p>
<p>By the early 2000s, Australia was riding the wave of the China boom with an unprecedented surge in the terms of trade. Japan was unable to shake off the Hansei recession of the 1990s, while Indonesia, Hong Kong, South Korea and Thailand struggled spectacularly in the aftermath of the 1997 Asian financial crisis.</p>
<h2>The noodle bowl of trade agreements</h2>
<p>The leading proponent of a liberal multilateral trade system, Jagdish Bhagwati, has long dismissed governments’ predilections for side-agreements and trade-distorting outcomes.</p>
<p>Bhagwati argues that multilateral trade agreements, administered by the World Trade Organisation (WTO), provide the greatest degree of market liberalisation and equity of access for all 160 WTO members. </p>
<p>Conversely, Bhagwati argues, piecemeal bilateral, plurilateral and regional trade agreements produce a “noodle bowl” effect. These cross-cutting agreements have different rules, tariffs and investment regulations. They also impose extra costs due to their complex administration.</p>
<p>Preferential trade agreements result in <a href="http://internationalecon.com/Trade/Tch110/T110-2A.php">trade and investment diversion</a>. They also result in negotiations between unequal partners: in Australia’s case, a China-Australia FTA is much more important to Canberra than to Beijing, placing China at a distinct advantage.</p>
<h2>The death of multilateralism</h2>
<p>The Millennium Round of WTO negotiations collapsed acrimoniously at the <a href="http://www.washingtonpost.com/wp-dyn/articles/A19432-2004Jul27.html">2003 Cancún summit</a>. Washington, Brussels and Tokyo discovered a new-found assertiveness in the BRICS capitals of Beijing, New Delhi, Brasilia and Johannesburg.</p>
<p>In the wake of this collapse, the world’s major economies scrambled to sign second-best agreements with their largest trading partners. </p>
<p>Australia signed a FTA with Singapore in 2003. Canberra, which had rejected the very concept of a US-Australia FTA in 1997, suddenly reconsidered; the government signed the AUSFTA in 2004. The next year, the Howard government started negotiations with China and signed a FTA with Thailand in 2007. In 2010, Australia and New Zealand acceded to the ASEAN-Australia-NZ FTA.</p>
<p>Although the Labor government abandoned the Australia-China FTA negotiations in March 2013, the Abbott government resumed talks in November that year. Despite dumping the Labor government’s Asian Century White Paper, this year the government has been on a virtual free-trade spending spree in Asia. Agreements have been signed with South Korea, then Japan. This month, the government announced the conclusion of free trade talks with China (ChAFTA) and an ambitious schedule to conclude an <a href="http://www.abc.net.au/news/2014-11-26/caution-over-speed-of-trade-under-indian-fta/5917942">Australia-India FTA</a> within 12 months.</p>
<h2>Reality check: agreements alone don’t boost growth</h2>
<p>FTAs usually deliver a “supply-side shock”. Products that were previously less competitive suddenly achieve consumer price points.</p>
<p>Australian exporters and firms will achieve greater access to China’s 1.3 billion-strong consumer market. However, they also need to be entrepreneurial. For example, the Australian dairy industry faces steep competition from New Zealand, while the US, Argentina and Uruguay are also positioning themselves aggressively within the sector. </p>
<p>Similarly, it is one thing to speak of pie-in-the-sky figures like 1 million head of cattle going to the Chinese market; it is entirely another matter to execute such an export strategy. Australian companies across all industries will need to be innovative and entrepreneurial to achieve critical mass and succeed in the Chinese market.</p>
<h2>Agreements do not remove all barriers</h2>
<p>“Behind the border” problems can blunt even the most entrepreneurial of enterprises. These include legal systems that are stacked against foreign firms, inadequate distribution networks and language problems. Google has made significant concessions to Beijing and is still only the number three search engine in China. </p>
<p>Under the Australia-Thailand FTA, Australia imports myriad car models assembled in Thailand. However, Ford Australia exports to Thailand, such as the Territory SUV, proved an unmitigated failure. This was due to punitive excise and value-added taxes rendering the SUV uncompetitive. </p>
<p>Australia’s Asia-Pacific FTAs are characterised by piecemeal liberalisation. The Japan deal cuts tariffs on beef now, but the big 50% tariff cut will take 18 years. The Singapore-Australia FTA does not include agriculture.</p>
<p>ChAFTA will remove tariffs on products like beef, seafood, wine, wool, dairy and pharmaceuticals. Yet Australian rice and wheat producers don’t benefit directly from the agreement. However, ChAFTA will eliminate all tariffs on Australian energy and resources exports. </p>
<p>Clearly national interests prevail. China benefits by removing barriers to the commodities it needs most: energy, resources and raw materials.</p>
<h2>Investment in Australia</h2>
<p>The AUSFTA controversially lifted the threshold of US foreign investment in “non-sensitive sectors” to $800 million. ChAFTA gives Beijing the right to invest up to US$1 billion without facing a Foreign Investment Review Board (FIRB) veto. </p>
<p>In reality, the FIRB rejects a very small number of foreign investments. However, the relaxation of investment rules has resulted in criticism from domestic groups concerned about foreign ownership in sectors such as real estate and agriculture.</p>
<p><a href="https://www.dfat.gov.au/trade/investment/investment-by-country.html">Chinese and Indian investment</a> has grown rapidly in recent years, but India’s investment in Australia lags, ranking only 19th in 2013. China has risen to 8th position, but still lags behind Switzerland and the Netherlands (Hong Kong is categorised separately).</p>
<p>Although the US is a highly liberalised investment market, both China and India are relatively closed by comparison. Australian investment in China under the FTA is likely to expand in sectors such as tourism, where 100% foreign ownership is a rare exception permitted by Beijing.</p>
<h2>The Trans-Pacific Partnership</h2>
<p>The Trans-Pacific Partnership (TPP) is probably the most controversial agreement that Australians have never heard of. Negotiations, under tight secrecy, are taking place between 12 unlikely allies including Australia, the US, Japan, Brunei, Peru and Vietnam. One round of negotiations took place in Sydney in October 2014.</p>
<p>The TPP envisages an agreement that will include “comprehensive market access” to eliminate both tariff and non-tariff barriers to trade and investment and remove restrictions on services. </p>
<p>Trade is one thing, but Washington is particularly interested in intellectual property protection. Internet piracy has cost Hollywood, software developers and the US music industry countless billions. Make no mistake: if TPP goes ahead, Australians will no longer be casually downloading Mad Men and Game of Thrones from the Pirate Bay. </p>
<p>Medicine costs and the Australian Pharmaceutical Benefits Scheme were controversial elements of the AUSFTA. Evidence since 2005 suggests pharmaceutical prices have risen, with costs accruing to both the Commonwealth budget and end users. </p>
<p>Leaked drafts of the TPP show the federal government is vacillating in its support for pharmaceutical patent protection. Watch this space. And take a Valium.</p>
<p>But nothing trumps the TPP’s most controversial aspect: Investor-State Dispute Settlement (ISDS). This gives corporations the right to seek legal remedies and restitution in independent fora if national laws and regulations are deemed to have unduly affected or discriminated against a corporation. </p>
<p>This has led to <a href="http://www.ag.gov.au/tobaccoplainpackaging">Philip Morris tobacco suing the Commonwealth</a> government (from Hong Kong) in relation to plain-paper cigarette packaging. The claim is on the grounds of “an expropriation of its Australian investments”. There is a related WTO case under way that challenges the Australian legislation.</p>
<p>Firms make ambit claims like this and fail frequently. However, some critics argue that ISDS procedures make governments afraid to legislate in controversial policy areas for fear of lengthy and unpredictable litigation. </p>
<h2>Next stop: Europe</h2>
<p>Under the Rudd government, Australia and the EU signed the <a href="http://www.dfat.gov.au/geo/european_union/eu_brief.html">Partnership Framework Agreement</a>. At the Brisbane G20, the EU Council President commented that the EU-Australia full Framework Agreement was a first priority.</p>
<p>One initiative at the G20 summit was German Chancellor Angela Merkel and Prime Minister Tony Abbott’s establishment of a Australian-German joint working group. The aim of this group is to strengthen the bilateral relationship, as well as explore the feasibility of further developing EU-Australia economic relations.</p>
<p>The federal government recognises the missing link in its network of FTAs is the European Union, the world’s largest single market and Australia’s biggest investment partner. However, the government will not turn its attention to an EU-Australia FTA until the major Asian FTAs are settled.</p><img src="https://counter.theconversation.com/content/34422/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Remy Davison's Chair is funded by the EU Commission.</span></em></p>Fact: over 585 regional trade agreements have been signed. Almost 400 are already operating. Australia is a signatory to at least 12 of them. An intricate web of cross-cutting free trade agreements (FTAs…Remy Davison, Jean Monnet Chair in Politics and Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/345662014-11-25T19:23:50Z2014-11-25T19:23:50ZBeware overselling the case for free trade<p>Following a fortnight of intense Australian international engagement in APEC and the G20, last week saw the culmination of nearly a decade’s worth of negotiations with China over a much-anticipated free trade agreement. Whispers now abound of one with India close on the horizon. </p>
<p>The agreements, (along with recently-concluded ones with Japan and South Korea) were a testament to tireless bilateral negotiation by successive Australian governments, and will do much to open certain sectors for freer trade. </p>
<p>But for all the excited expectation of future gains, it is critical we appreciate what the case for free trade actually promises. </p>
<p>Even granting its many well-acknowledged assumptions, we must take care not to oversell the case for free trade – in no small part because to do so will leave us ill-prepared to consider the kind of economy we want, and whether simply “more market” is the right way to get it.</p>
<h2>Free trade all the way</h2>
<p>Free trade has been the mainstay of Australian economic policy - even after the 2008 financial crisis. (“<a href="http://www.smh.com.au/federal-politics/political-news/ken-henry-slams-australian-economic-mercantilism-20140916-10hv2o.html">Australian mercantilism</a>” was how former Australian Treasury Secretary Ken Henry controversially described it.) </p>
<p>Whereas the murky world of finance plunged the world into economic disarray, free trade is seen as the way out of the mess; the market’s invisible hand trusted to guide economic activity towards greater efficiency and welfare. </p>
<p>Free trade has such prestige because the economic case for it is incredibly powerful. Since 1817, an almost unassailable argument for free trade has been built around a central tenet of <a href="http://www.econlib.org/library/Enc/bios/Ricardo.html">David Ricardo’s</a> principle of comparative advantage. </p>
<p>Ricardo’s insight: under free trade countries will specialise in goods they can produce relatively less inefficiently than others, and trade to acquire goods they are relatively more inefficient at producing – basically “outsourcing” the production of less efficiently produced goods.</p>
<h2>What the case for free trade doesn’t promise</h2>
<p>But let’s be clear about the gains that the case promises – and those it doesn’t. Comparative advantage envisages that free trade will deliver immediate consumption benefits – people get more goods – due to production being more efficiently located globally. </p>
<p>These gains are nothing to be sneezed at, though there are <a href="http://www.theguardian.com/business/grogonomics/2014/nov/20/why-isnt-the-government-being-held-to-account-on-the-china-free-trade-deal">live questions</a> concerning how real some of the numbers being thrown around actually are. But the list of things that the standard case does not focus on is somewhat longer – and not insignificant. </p>
<p>First, the case for free trade says nothing about dynamic gains over time – that is, economic growth and development. Economists since the late 1700s have understood that exposing newly-developing industries to international trade may well realise short-term gains, but might also lead to longer-term inefficiency if these industries are initially too fragile to survive the storms of global competition.</p>
<p>We must be careful and clear about the trade-offs we are willing to make about present and future economic gain.</p>
<p>Second, although advocates of unbridled free trade often hint that “everyone” wins through free trade, that isn’t necessarily what the case for it says.</p>
<p>In the post-trade wash up we might find that gains are concentrated in some hands rather than others. Medical service providers might do well, but auto factory workers might be out of jobs. </p>
<p>There will always be winners and losers. While trade gains might be shared across all, this is often unlikely unless separate action is taken – probably by government – to make sure the initial losers are compensated through gains that have been garnered by others.</p>
<p>Finally, even if free trade leads to immediate and well distributed gains, free trade might have other strategic effects beyond consumption. For example, certain patterns of trade can make a country more dependent on foreign imports relevant to security or the broader national importance - such as foreign energy, food or armaments. </p>
<p>Again, political decision-making is critical to ensuring that the desired balance is struck between short-term economic efficiency and broader geopolitical positioning.</p>
<h2>The inevitability - and necessity - of political choice</h2>
<p>Cheery advocacy for free trade often brushes over the unavoidable fact that in trade policy – as in so much else – little is costless; in order to create some opportunities, something must be foregone. Specialisation in one industry implies that others must languish. Pursuing some goals means others must be sacrificed. One person’s advantage is often to another’s detriment.</p>
<p>Overselling the case for free trade can mask these trade-offs – the case is powerful, but it does not purport to answer these questions. Overselling blithely throws to the market settlement of political decisions that it is ill-suited to making. </p>
<p>Free trade can sometimes be imagined as something of both a start and an end to the question of economic policy-setting in today’s global economy. But in truth it should be neither – it must be preceded by consideration of what kind of economy we want and which gains we seek through international trade, and followed by careful attention to how these gains are to be distributed across a population. </p>
<p>These are issues too important merely to be left to the vagaries of the market.</p><img src="https://counter.theconversation.com/content/34566/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vishaal Kishore does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Following a fortnight of intense Australian international engagement in APEC and the G20, last week saw the culmination of nearly a decade’s worth of negotiations with China over a much-anticipated free…Vishaal Kishore, Principal Fellow / Honorary Associate Professor, Melbourne School of Government, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/343632014-11-20T19:26:48Z2014-11-20T19:26:48ZChina’s ‘white gold’ infant formula rush comes at a public health cost<p>Alongside this week’s announcement of a free trade deal between China and Australia came reports of Gina Rinehart’s investment in a Queensland dairy operation to supply infant formula to China. Australia’s richest woman built her fortune on iron ore, but Rinehart’s <a href="http://www.bloomberg.com/news/2014-11-13/china-s-hungry-infants-sought-in-rinehart-formula-switch.html">A$500 million investment</a> makes her a major player in Australian milk formula exports.</p>
<p>Infant formula sales in China have increased more than ten-fold over the last decade and will double again in the next three years, according to Euromonitor. As foreign-produced infant formula can sell for close to A$100 a tin, investors have been scrambling to get a share of the predicted “white gold rush”.</p>
<p>But why the boom? Commentators point to relaxation of China’s one-child policy, the melamine poisoning scandal in 2008 and the rising affluence of a growing middle class. But the often hidden truth is that escalating formula sales are driven by a lack of access to maternity leave and the unethical – even corrupt – marketing of infant formula through the maternity care system.</p>
<p>Although maternity leave is available on paper in China, in practice many new mothers cannot get it. Separation of mother and baby, because of unaccommodating workplaces or employment arrangements, can necessitate formula feeding.</p>
<p>Aggressive marketing of infant formula is also a key factor. Recent <a href="http://www.ncbi.nlm.nih.gov/pubmed/25026262">research</a> identified that 40% of new mothers in China were contacted directly by infant formula sales staff after the birth of their babies and given samples of formula. Sales representatives walk the halls of hospitals to find mothers and recruit doctors and midwives as salespeople. </p>
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<img alt="" src="https://images.theconversation.com/files/65067/original/image-20141120-29238-1oohmql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/65067/original/image-20141120-29238-1oohmql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=803&fit=crop&dpr=1 600w, https://images.theconversation.com/files/65067/original/image-20141120-29238-1oohmql.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=803&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/65067/original/image-20141120-29238-1oohmql.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=803&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/65067/original/image-20141120-29238-1oohmql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1009&fit=crop&dpr=1 754w, https://images.theconversation.com/files/65067/original/image-20141120-29238-1oohmql.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1009&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/65067/original/image-20141120-29238-1oohmql.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1009&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Formula is heavily marketed in China and comes with a hefty price tag.</span>
<span class="attribution"><span class="source">Author</span>, <span class="license">Author provided</span></span>
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<p>Advertising exploits the desire of families to promote the prospects of their child. With many babies now an only child of only children, four grandparents plus two parents may believe the future of their family depends on the success of this one precious baby. So marketing that promotes infant formula products (falsely) as enhancing brain development and ensuring academic success has real traction.</p>
<p>Regulatory capacity and social protection policies are lagging behind the emerging needs of the population, especially women, due to extraordinarily rapid economic development. Comparing China with India, a country also experiencing rapid development and urbanisation, an industry report by Euromonitor observed that “the huge disparity in the retail value of milk formula sales between China and India is mainly due to the significant differences between their official regulatory regimes”.</p>
<p>The consequences of “white gold mining” are threefold: for public health, the economy, and women’s rights.</p>
<p>Most important are the effects of a precipitous <a href="http://english.cntv.cn/2014/06/05/VIDE1401973215846423.shtml">decline in exclusive breastfeeding</a> from over 60% to less than 30% over the past decade. </p>
<p>Formula feeding increases infection risk. Some assume this is a result of dirty water, but in fact the formula itself helps to <a href="http://www.ncbi.nlm.nih.gov/pubmed/22053500">facilitate and maintain infection</a>. Even in highly developed countries, babies that are fully formula fed are three to five times <a href="http://pediatrics.aappublications.org/content/118/1/e92">more likely to be hospitalised</a> with infections than their fully breastfed counterparts. </p>
<p>Higher rates of formula feeding mean that overburdened Chinese hospitals face higher costs to treat more seriously ill babies and young children. And infant lives are at stake: diarrhoea and respiratory tract infections are <a href="http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(10)60060-8/abstract">responsible</a> for more than half of all infant deaths in China. Formula feeding is also <a href="http://archive.ahrq.gov/downloads/pub/evidence/pdf/brfout/brfout.pdf">implicated</a> in other high-cost health problems, such as obesity.</p>
<p>The economy suffers from declining breastfeeding. Breast milk has economic value. In Australia, the <a href="http://www.ncbi.nlm.nih.gov/pubmed/23855027">value</a> of current human milk production levels exceeds A$3 billion a year. In China, Chinese mothers produced about 2.3 billion litres of breast milk in 2012; if all Chinese mothers breastfed in line with WHO recommendations, the country’s annual production value would be US$778 billion, nearly US$530 billion a year <a href="https://www.researchgate.net/publication/266382827_Baby_food_sales_in_India_and_China_A_comparison_with_the_economic_value_of_breast_milk">higher</a>.</p>
<p>However, the economic value of human milk is presently uncounted in economic statistics. Like other unpaid work that women do, it is invisible and therefore taken for granted by policymakers. Its value is rarely acknowledged, or protected. </p>
<p>Indeed, when formula feeding increases, and breastfeeding declines, measured GDP is seen to go up. Nonetheless, through the provision of high-quality food and preventative health care to infants, breast milk contributes to economic production.</p>
<p>So, the third consequence is that by expanding sales of formula, governments can <a href="http://search.informit.com.au/documentSummary;dn=637052470952465;res=IELBUS">avoid addressing the needs</a> and human rights of women and children in China. This includes mothers who need to combine paid employment and a career with their role as mothers, such as by breastfeeding. Underfunded and poor-quality maternity care can continue unaddressed.</p>
<p>There is much rhetoric about the benefits to Australia of the latest trade agreement, but this particular dairy milk boom is far from costless.</p>
<p>It raises questions such as who is profiting from this “white gold boom” and who pays its costs? Does Australia not have a duty of care for selling formula to China’s mothers and babies? And will the Australian government take responsibility for ensuring that Australian companies do not unethically exploit the regulatory weaknesses of our neighbours in Asia?</p><img src="https://counter.theconversation.com/content/34363/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julie Smith has received funding from the Australian Research Council and the National Health and Medical Research Council. </span></em></p><p class="fine-print"><em><span>Karleen Gribble does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Alongside this week’s announcement of a free trade deal between China and Australia came reports of Gina Rinehart’s investment in a Queensland dairy operation to supply infant formula to China. Australia’s…Karleen Gribble, Adjunct Research Fellow, School of Nursing , Western Sydney UniversityJulie P. Smith, Research Fellow, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/343502014-11-18T19:23:52Z2014-11-18T19:23:52ZThe China FTA and the rise of the redback<figure><img src="https://images.theconversation.com/files/64792/original/mzxp7z53-1416280507.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">All eyes are on the renminbi.</span> <span class="attribution"><span class="source">David Dennis/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>Australia’s free trade deal with China will invariably boost bilateral trade and investment. But how trade and investment are settled also matters. Given the rise of the renminbi (RMB) in recent years, the China FTA will further add momentum to the RMB going global, and Australia is well positioned to ride the wave.</p>
<p>Since 2009, Beijing has been deploying its resources strategically on a campaign to lift the RMB’s global clout in both trade and financial terms. According to <a href="http://www.swift.com/about_swift/shownews?param_dcr=news.data/en/swift_com/2014/PR_RMB_Jan.xml">data from SWIFT</a>, the RMB strengthened its position as the seventh-ranked global payments currency and the second-most-used currency for trade financing by October 2014. In September 2014, the value of RMB global payments increased by 13.2%, well above the average 8.1% growth for all currencies.</p>
<p>But there is still huge potential for the RMB in global transactions given China’s share in world trade. Today the RMB accounts for less than 2% of global payments.</p>
<h2>Huge potential for Australia</h2>
<p>The Australian government has rightly identified the strategic importance of the Chinese currency. The Reserve Bank of Australia (RBA) signed a bilateral currency swap agreement with its Chinese counterpart, the People’s Bank of China (PBoC), in March 2012.</p>
<p>The agreement allows exchange of local currencies of up to A$30 billion (RMB 200 billion). The deal is the largest that China has signed other than those with Hong Kong and South Korea. It is also one of the first with a Western economy. </p>
<p>In April 2013 Australia and China began direct conversion between the yuan and Australian dollar (instead of using the US dollar as medium). That makes Australia the third country after the United States and Japan to have its currency directly converted to the RMB. </p>
<p>Some 5% of Australia’s foreign currency reserves is already parked in RMB-denominated Chinese government bonds. This means the RBA is joining a small but growing band of central banks that have looked to China to diversify their foreign reserves. Australia is also among the top five countries in the world using RMB for trade finance.</p>
<p>Nevertheless, the use of RMB in settlement is still relatively limited in Australia’s bilateral trade with China. In February 2014, for example, 14.2% of payments between Australia and China/Hong Kong were in RMB, but as the SWIFT data indicates, 98% of these payments in value were institutional, as opposed to payments sent by banks on behalf of their customers. </p>
<p>This suggests RMB has been mainly used for investments and foreign exchange activities, rather than trade settlement. In fact, currently only 4% of settlements in China are in RMB (and only 1% of those involving an Australian counterpart). The Chinese government plans to increase this proportion to 15% by 2015.</p>
<h2>The FTA</h2>
<p>This is where the free trade agreement kicks in. An enlarged scale of bilateral trade will most likely increase the propensity of Australian organisations to invoice, settle and finance trade with China in RMB. At the same time, China has rolled out a series of complementary measures to facilitate the use of the RMB in trade and investment.</p>
<p>First, the RBA and the PBoC have agreed to establish an official RMB trading hub in Sydney. The latter will announce the designated clearing bank shortly. This clearing arrangement, in addition to the settlement services provided by the ASX and the Bank of China, will provide an operational platform for Australian importers and exporters to carry out more direct trading with their Chinese counterparts in RMB.</p>
<p>It means more efficient and rapid settlement of RMB payments, savings on invoicing costs, reduction of exchange-rate risk and reach to more Chinese customers and investors who prefer to trade in their currency. Sydney could be joining Hong Kong, Singapore and London as a global offshore RMB centre.</p>
<p>At the same time, China has sought to increase the attractiveness of the RMB through financial opening and diversifying investment channels for offshore RMB deposits, so that foreign entities can get decent returns on their RMB holdings. </p>
<h2>New liberalisation</h2>
<p>What is notable on this front is that, on the same day as the FTA announcement, a cross-border investment channel was established that could mark the beginning of the end of China’s decades-long capital control. </p>
<p>The <a href="http://www.reuters.com/article/2014/11/16/us-hongkong-shanghai-stock-connect-idUSKCN0J00ZC20141116">Shanghai-Hong Kong Stock Connect</a> is a pilot program that for the first time links foreign investors with China’s vast domestic stock market without individual approval. Previously, foreign investors could only participate indirectly in China’s securities markets through certain investment fund products.</p>
<p>With the launch of Stock Connect, investors will be able to trade eligible Shanghai-listed A-shares directly. This could well be a milestone of financial liberalisation in China.</p>
<p>All trades under the program will be done in RMB. The expected outflow of RMB from mainland China and inflow from overseas (through Hong Kong) will establish a healthy ecosystem for the Chinese currency. It will also expand and diversify investment channels for overseas RMB holdings, helping to further facilitate its internationalisation.</p><img src="https://counter.theconversation.com/content/34350/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hui Feng does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia’s free trade deal with China will invariably boost bilateral trade and investment. But how trade and investment are settled also matters. Given the rise of the renminbi (RMB) in recent years…Hui Feng, Research Fellow Griffith Asia Institute, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.