TRADE: by Peter WestmoreNews Weekly
Government pushes China free trade agreement
, May 2, 2009
Kevin Rudd is continuing to push for a free trade agreement with China, despite evidence that earlier such agreements have damaged Australia's economy by worsening the country's trade deficit. Peter Westmore reports.The Prime Minister Kevin Rudd is continuing to push for a free trade agreement with China, despite evidence that earlier such agreements have damaged Australia's economy by worsening the country's trade deficit.
A succession of Australian Government ministers have travelled to Beijing recently to try to get China to conclude the free trade agreement, which was a project commenced by the Howard Government in 2005.
Trade Minister Simon Crean, who was in China in March, said that the hurdles to an agreement were access to China for Australian agricultural exports, access to the Chinese economy for the Australian services sector, including financial institutions, and China's demand for preferential access to Australia by state-owned Chinese businesses, such as Chinalco which has invested in the large mining company, Rio Tinto.
Agriculture Minister Tony Burke also went to China in March "to accelerate negotiations to forge a comprehensive free trade agreement that delivers real benefits for Australia's farming, fishing and forestry industries", as he told the media recently.Negative impact
However, a recent study by the federal Parliamentary Library, released in December 2008, found that, overall, free trade agreements (FTAs) have had a negative impact on Australian trade flows.
It concluded, "Of the four FTAs currently in force, a common feature has been their impact on trade flows. The FTAs were followed by higher Australian trade deficits and a much slower rate of reciprocal export growth, as well as trade diversion as products were sourced from countries with which Australia has zero tariffs."
However, each of the agreements had benefits for some industries, which made it look as if they were generally beneficial.
In relation to the Australia-US Free Trade Agreement (AUSFTA), the report said that Australia's manufacturing sector was expected to be "the biggest winner, particularly motor vehicle producers and component manufacturers".
It continued: "Large export gains were forecast with the removal of the 25 per cent tariff on commercial vehicles. Other manufacturers that were expected to gain from the AUSFTA were metal, seafood and chemical producers. Manufactures represent almost half of all exports to the US."
However, the reality was different. "In the year following the AUSFTA and in 2007, exports to the US fell while US imports increased. Manufactured exports fell across most categories in line with the decline in exports. Australian exports of motor vehicles fell by more than 200 per cent from their peak in 2004. Exports of vehicle parts also fell sharply from their peak of $286 million in 2003 to $131 million in 2007."
The report found that, despite claims by the Department of Foreign Affairs and Trade prior to the signing of the agreement, Australia's trade deficit with the US in 2007 was the highest Australia had ever recorded with any trading partner, $13.6 billion.
It added, "Along with the widening trade deficit, two-way trade with the US has fallen to a record low, now accounting for only 9.5 per cent of total trade. Just five years ago the US share of Australia's trade was 14 per cent."
The Parliamentary Library report also looked at the Australia-Singapore FTA, signed six years ago.
It said, "In 2007, bilateral trade between Australian and Singapore was worth $14.5 billion compared to $9.4 billion in 2004. However, Australia's trade deficit has more than doubled in the same period, rising from $3 billion in 2004 to $6.4 billion in 2007."
The report also examined the Thailand-Australia FTA, signed in 2005. In theory, a trade agreement with Thailand should have benefited Australia, because Thailand is both a fast-growing economy and one of the most protectionist countries in ASEAN, the Association of South East Asian Nations.
The introduction of the TAFTA eliminated more than half of Thailand's 5,000 tariffs. Remaining tariffs will be reduced or eliminated over the next five-to-15 years and will result in free trade for close to 95 per cent of all trade between Australia and Thailand.Illusory benefits
However, the anticipated benefits were illusory.
"In 2007, trade between Australia and Thailand totalled $12.3 billion compared with $6.8 billion in 2004. Since the agreement came into effect, bilateral trade has nearly doubled and Australia's trade deficit [with Thailand] has risen from $711 million to $3.5 billion.
"As a result of the agreement, Thailand has established itself as an alternative source for electronics (mainly computers, electrical machinery and appliances), motor vehicles and household goods.
"Imports of these goods have risen sharply by 105 per cent, 317 per cent and 93 per cent respectively since 2004. ...
"By comparison, Australia's exports to Thailand have risen by 44 per cent. In 2007, Australia's main exports to Thailand were crude oil ($861 million), aluminium ($762 million), gold ($551 million) and copper ($332 million)."
These facts seem to have had no impact on Australia's trade negotiators and Mr Rudd, who are committed to policies which will further damage Australia's economy.- Peter Westmore.
Michael Priestley, Background Note: Australia's Free Trade Agreements
(Canberra, ACT: Parliamentary Library, Parliament of Australia), December 2, 2008.