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What You Need To Know About The Australia China Free Trade Agreement

The free trade agreement is front-page news in Australia and business page news in China. That being said, what do you need to know about it?
Image by Ben Thomson

​After the G20 summit in Brisbane wrapped up, Chinese Premier Xi Jinping stuck around to address the Australian Parliament yesterday afternoon, and was here for the signing of a free trade agreement that's been five years in the making.

China is huge and Australia is less huge (if we all moved to China we'd make up less than two-precent of their population) and the agreement ensures that our economic future is very much intertwined with the fluctuations of their economy. This isn't exactly a two way street. On the list of China's largest trading partners Australia is seventh, we imp​ort 1.7 percent of their total exports and our products account for 5.1 percent of their total imports. On the ​flipside they are both our top import origin (accounting for 18 percent of our total imports) and our top export destination (29 percent of total exports).


Put another way, the free trade agreement is front-page news here and business page news there. That being said, what do you need to know about it?

Firstly, it's important to remember that while Parliamentary Secretary Josh Frydenburg's prediction on ABC radio yesterday morning – that the deal will "supercharge our trade with China" – may turn out to be true, this supercharging is occurring alongside the end of a​n historic resources boom. Indeed, in the short term this decline is expected to be more pronounced than the economic uptick provided by the provisions of the trade agreement. Good news is that in the long term, if the optimists are proven right, the free trade agreement could offset the loss of the resources boom.

The rule of thumb with free trade agreements is that you take the benefits and detriments of the existing trade situation and you magnify them. Chinese manufacturing already outcompetes and puts a strain on many local manufacturers and the fear is that certain provisions of the agreement will inflict a tighter squeeze on this sector, flooding our market with even cheaper Chinese-made goods.

On the other hand we're an advanced economy with a proportionally large service sector. According to Josh Fr​ydenburg "Services make up 70 per cent of Australia's economy, but only 17 per cent of Australia's exports". This trade agreement will give our services industries the chance to better compete in the Chinese market.


Education, hotel, health, and aged care companies will now​ be allowed to invest directly in Chinese operations. As the Australian reports our, "$6.9 billion in services exports to China are expected to expand" and "tourism and hotel operators [are now] granted the ability to control, renovate and operate wholly owned Australian hotels and restaurants in China."

Legal firms and transport operators, so long as they establish operations in the Shanghai free-trade zone, will gain much better access to the Chinese market. There will also be benefits for architecture and engineering firms as well as banks and fund managers.

When it comes to exporting products Australia's winemakers, most of its farmers (particularly dairy farmers, who have been jealous ​of New Zealand), seafood exporters, and miners will be happy. 95 percent of all tariffs, including the coking coal tariff, will be phased out (at different rates out over the next decade). Sugar and rice exporters will be less happy, as deals with these products will be worked out in the second step of the agreement, if at all.

That's right, it's a two-step free trade ag​reement. With both nations wanting the less controversial measures of the agreement to start sooner rather than later (the trade agreement was a Coalition election promise) they agreed to kick the can down the road on the more intractable issues. This is not uncommon; China has had similar staged agreements with Ch​ile and New Ze​aland. The concerns for Australia revolve around the thornier aspects of doing business with China.


China wants the right to send its citizens over here to work on projects it funds, and for deals under $1.08 billion it wants State Owned Enterprises (SOEs) to be free from approval by the Foreign Investment Review Board, which is the same threshold given for private enterprises in the deal (there are extra protections for telecommunications, media, defence, farmland, and agribusiness). This would mean that companies owned by the Chinese state would be allowed to buy whatever they wanted in Australia so long as the transaction was less than a billion dollars.

Australia is willing to make some concessions for the SOEs (generally nobody wants a foreign state owning many businesses in their country but several models for looser restrictions are being considered) but the labour could prove tricky. So far we've only agreed to allow for China to request temporary access for workers on programs worth more than $150 million, on a enterprise by enterprise basis, and only if they have skills that aren't available in Australia. Australia has also said it will provide an annual 5000 working holiday visas to China.

The Australian Council of Trade Unions (ACTU) president Ged Kearney has already sounded the alarm bells, telling 3AW yest​erday morning that, "The biggest concern is that thousands of Australians will not get a job." She went so far as to claim, "One thing a free trade agreement should benefit Australia is in the area of jobs and this is going in the exact opposite way. If you're one of those people who have just come off a big construction job, and you're looking for work, it's not going to benefit you."

Australian Manufacturing Workers Union national secretary Paul Bastian raised simi​lar worries about the fate of manufacturers and Tony Abbott has even faced criticism from his right, with conservative radio host Alan Jones saying the deal doesn't pass the "pub t​est". In an interview yesterday morning he claimed that the deal is lopsided and there was a double standard because while China has bought farms and mines in Australia, "Can Tony Abbott go and buy a farm in China? No, the answer is no Prime Minister, the answer is no he can't, nor can he buy a coal mine, nor can he buy a steel mill."

The government and its spokespeople have dismissed many of these criticisms. And while, alongside several commentators, the man who finalised the agreement, Australian Trade and Investment Minister Andrew Robb has o​pined that this is the best trade agreement China has offered any country, it is because of such fears that Australia has opted for a two step free trade agreement. Negotiations on the deadlock issues of labour and SOEs have been postponed for three years.

Not even the first step will go into effect right away. Negotiations are done but the deal will have to go through a parliamentary treaties committee and new pieces of legislation will have to be passed before its terms come into effect. As further details come out and are scrutinised we can expect further national debate.

Follow Girard on Twitter: ​@GirardDorney