China and Australia signed a “history-making” $160 billion free trade deal on Wednesday, but while the government was lauding it both unions and employers warned it would cost jobs.
China’s Commerce Minister Gao Hucheng had a different view. For him it meant a Cape Grim steak and a glass of Grange, or put simply, beef and wine, as he enthusiastically said at the signing ceremony.
Australian consumers will get slightly cheaper Chinese products like clothes, electronics and other imports, but the real impact will be in the way we work.
Australian businesses will have greater access to China, and as our economy is largely services-based, that means millions of Australian workers can offer healthcare, legal counsel, accounting services, and education. In the case of hotels and restaurants, Australian businesses can operate across China, with a potential market of 1.3 billion people.
But as Airport Economist Tim Harcourt told The New Daily, the FTA will see a shift in Australian food exports.
“We’ll move from the mining boom to the dining boom as a result of this agreement and the one with Japan and Korea,” the former Austrade chief economist said.
The deal – labelled ChAFTA – is expected to eliminate Chinese tariffs on $107.5 billion worth of exports to China, Australia’s top export destination. The ChAFTA will need to be ratified in the Australian and Chinese parliaments.
Why do we need a free trade agreement?
Here’s a little exercise to consider what a tariff does.
Imagine being at the supermarket and there were two identical jars of peanut butter – one was $1.70 and another was $2.38. Which one seems a better buy?
That’s a crude example of the effect of import tariffs worth 40 per cent.
Governments set up hidden taxes on certain products, say imported peanut butter, to make the home-grown offering more attractive at the point of sale.
It happens on cars, on labour, and on goods like peanut butter.
The China-Australia Free Trade Agreement aims to slash tariffs that apply to 95 per cent of Australian goods heading into China, which means our wine, beef, minerals and other goods will be more attractive to Chinese buyers. In short, it’s like the stuff we sell is now at the duty free shop.
Mr Harcourt said the tariff reductions are good given 12,000 or so Australian businesses export to China, including 3000 which are based there.
Small to medium enterprises have an easier time working in China than either Europe or the United States, he said.
But he said “the FTA is not a panacea but it’s a helpful thing to have”, and support from Austrade, DFAT and developing cultural understanding is perhaps more important.
The Department of Foreign Affairs and Trade gives this run-down of the details of the ChAFTA. For the sake of readability we’ve consolidated the list to some of Australia’s top exports.
Chinese exports to Australia
Australia puts a five per cent import tariff on Chinese manufactured goods, electronics and white-goods. That tariff will be eliminated so Australians could pay five per cent less. China delivers about $5 billion a year in computers, about the same in telecommunications and clothing.
Australian exports to China
The main advances in the free trade regime are for dairy, beef and wine producers, whose products are all burdened with up to 25 per cent tariffs in China. Those tariffs disappear over 11 years. Seafood, some grains and pork also get tariffs reduced to zero. Australian pharmaceuticals, vitamins and health products will have a 10 per cent tariff removed too.
In the services sector, 77 education providers will be able to begin taking Chinese students, Australian hotels and restaurants get access to 1.3 billion potential Chinese customers, legal and telecommunications services can operate in the Shanghai Free Trade Zone, health and aged care services can establish profit-making aged care institutions throughout China.
What they said about ChAFTA
Prime Minister Tony Abbott:
“All of us in this country can be proud of the role that Australia has played in the Chinese economic miracle, which quite simply is the greatest advance in human prosperity in history.”
Trade Minister Andrew Robb:
“I particularly welcome the comprehensive nature of the agreement and the tariff-free access gained by the red meat sector which is a huge win for producers and exporters.”
Opposition trade spokeswoman Penny Wong:
“We want to look at the agreement, make sure it grows the economy, grows jobs.”
Business Council of Australia president Catherine Livingstone:
“By 2020, China will have the world’s largest middle class market. It will want high-quality, safe and premium agricultural food products for which Australia is globally renowned. It will demand the same value-added services in professional, finance, health, education and aged care that underpins around 80 per cent of our economy.”
Australian Council of Trade Unions president Ged Kearney:
“Free trade agreements must support local jobs and industry and all indications are that the deal with China does not.”
“There must be strong rules around labour market testing and labour mobility clauses in the China free trade deal to ensure local jobs are protected.”