Aussies eye relief from proposed FTA with China
Print Edition
A proposed free trade agreement between China and Australia may provide some economic relief for Australia as its long reliance on metals and minerals exports suffers from slowing global demand and sharp declines in commodity prices.
The two nations reached an agreement in principle in November and are expected to sign a final deal in the second half of this year, after a parliamentary review of the accord.
For Australia, the agreement offers “phenomenal access” to China for Australia’s services industries, which comprise about three quarters of its economy but account for only an eighth of exports, said Andrew Whitford, head for China at Westpac Banking Corp.
He called the accord a “game changer,” noting that it would increase market access for a number of service industries. An accompanying “preferred nation” clause relating to investment will mean that any better terms and conditions negotiated in subsequent deals will be passed on to Australia, he added.
“It will turn the relationship Australia has with China away from being so resource dominant,” Whitford said in an interview. “It shows the strength and depth of the Australia-China relationship and the willingness to want to support Australian exports, particularly in the services sector.”
Australia has had to contend with dwindling Chinese demand for its two key export commodities, iron ore and coal. Its policy-makers are under increasing pressure to rebalance the economy away from over-reliance on the resources sector.
Whitford, who set up the Australian lender’s Chinese office in early 2008, said a number of firms in architecture, engineering, education and consulting have already entered the Chinese market. The free trade agreement should broaden that scope to attract larger firms that have been reluctant to take the plunge, he added.
For China’s part, the deal will lift the threshold for Chinese foreign direct investment in Australia on par with that of US investors. Whitford said that will benefit China’s interest in the agricultural sector.
“It’s about securing food supply,” Whitford said. “Both Australia and New Zealand are seen by China as being high-quality producers. The Chinese are prepared to pay a premium for those products.”
Chinese exporters will also benefit from reduced Australian tariffs.
Leon Chung, a Sydney-based partner at law firm Herbert Smith Freehills, said the “preferred nation” clause should encourage more Chinese investment in Australia by ensuring investors get the same protections negotiated in other agreements.
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