Choosing its Partners - China locks in food security

CHINA has stolen a march on other potential customers by locking in a Free Trade Agreement with Australia, with food security uppermost in
Chinese leaders’ minds, says leading Australian academic, Kerry Brown . . .

AFTER A DECADE of stop-start negotiations, Canberra and Beijing have inked a long-awaited and much-hailed Free Trade Agreement between the two countries.
Predictably, there is overwhelming support from business, with the odd dissenting voice coming from the trade union movement.
The Government says the agreement will give Australian exporters in agricultural products an advantage over major competitors, including the United States, Canada and the European Union. It also counters the advantage Chile and New Zealand currently enjoy through their FTAs with China.
According to the National Farmers’ Federation, the dairy industry and meat exporters have come out well, as have horticulture and wine. However, the Federation says the Government has managed to achieve only “minor improvements” in cotton, wool (which earned AUD1.7 billion in exports last financial year), grain (exports of AUD2.1 billion), pork and poultry. As for sugar and rice, there is no change in tariff status. Provision has been made for three-yearly market access reviews.
Stressing the importance of gaining market access on agriculture and processed food, the Australian Government says China is a growing market and that it offers greater and more profitable trade in the future.
The Australian Bureau of Agricultural and Resources Economics and Sciences predicts China will account for 43 per cent of all growth worldwide in agricultural demand to 2050.
On full implementation, the Government says 99.9 per cent of Australia’s current resources, energy and manufacturing exports will enjoy duty-free entry into China. The agreement will provide greater certainty for Australian exporters by locking-in zero tariffs on major exports — such as iron ore, gold, crude petroleum, oil and liquefied natural gas.
The agreement will improve the transparency of non-tariff measures and ensure that such measures do not create unnecessary obstacles to bilateral trade.
A specific mechanism to review and address non-tariff mechanisms (NTMs) on a case-by-case basis is to be established.  The agreement will also preserve full access for Australian producers to trade remedies available under the World Trade Organisation, including anti-dumping and countervailing measures.
Kerry Brown, a leading Australian academic, provides perhaps the most realistic take on the FTA — minus the obligatory congratulatory tone of so many others. He has assessed the real advantages accorded to Australia.
In a comment piece for the Australian Institute of International Affairs, Brown writes that, for Australian farmers, getting better competitive access to the potentially vast pool of domestic consumers in the People’s Republic is good news, and opens up a whole new alternative high-growth market.
“But this is also an area where China is willing to grant access, because it is clearly in China’s interests to do so. China’s food needs and its own food security are often uppermost in Chinese leaders’ minds,” writes Brown.
“Having the best possible access to sources of supply from one of the largest agricultural players in Asia makes sense. In many ways, China has simply staked out a preferential partnership with Australia with the FTA to steal a march on other potential customers.”
Although services represent 72 per cent of Australia’s economic activity, exports of services to China totalled just AUD7 billion in 2013, compared with resources at AUD85 billion and agriculture at AUD9 billion.
“It is in the services sector that the impact should be greatest,” Brown writes. “Australia needs to retool its trading relationship with its biggest partner so that it moves away from the addiction of resource provision and becomes far more based on services.”
Apart from financial, legal and education services, the FTA guarantees existing market access for Australian services suppliers in a wide range of other priority sectors, such as architectural services and healthcare. The agreement includes a framework to advance mutual recognition of services qualifications, and to support mutual recognition initiatives by professional bodies in Australia and China.
Providers for architectural, tourism and healthcare services will find it easier under the agreement to operate in China. Tourism companies can open wholly-Australian-owned hotels and companies, and healthcare providers can operate private hospitals or care providers.
Brown, Director of the China Studies Centre and Professor of Chinese Politics at the University of Sydney, says the Chinese healthcare sector is highly uneven, ranging from excellent to primitive, and the rising issues of obesity and other chronic illnesses mean that China is open to co-operation as it sees that a universal healthcare system funded by the State would be a massive challenge.
In his view, Australia now has a big advantage, as it will be able to get access in China in the health sector before anyone else.
China has committed to deliver new or improved market access to Australian banks, insurance companies, funds management companies and others. It has also agreed to a future work programme to deliver on-going market access in the financial services sector.
Australian banks are the first to be allowed to reduce their waiting time to undertake local currency trading — from three years down to one. Approvals for opening bank branches, currently highly complex, are reduced, and the funds management sector — one where Australia has real strengths — has been liberalised so that local companies can offer advice to Chinese “Qualified Institutional Investors”, those who are granted rights within China to invest abroad.
As well, an MoU facilitating the establishment of an official renminbi clearing bank in Sydney will provide more direct means of facilitating cross-border RMB transactions between Australian and Chinese entities than were previously available.
On Chinese investment in Australia, while the Government says it retains the ability to screen investments at lower thresholds for sensitive sectors, Chinese investors will enjoy better access. The investment threshold by private Chinese enterprises needing to be considered by the Foreign Investment Review Board will be lifted from AUD248 million to AUD1,078 million.
The FTA also provides for both countries to issue working holiday visas, with Australia agreeing to issue up to 5,000 visas annually.
Brown says all of this looks very promising. But Australians seeking to engage with the new framework for business relations being offered need to dampen their gratitude by
acknowledging that, in almost all of the areas set out above, China has a great need for international partnerships if it is to raise its own game. “China cannot establish a good quality services and finance sector without foreign know-how and co-operation,” he writes.
He rightly points out that China needs advice on outward investment, and the management of funds. Despite the generosity of the deal, therefore, there is a solid core of Chinese self-interest being looked after here.