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A Free Lunch? Examining the China Australia Free Trade Agreement

A monument to a decade of diplomacy, ChAFTA is currently one of the most divisive economic issues in Australia’s political landscape.

Australia is currently a signatory to nine FTAs. The tenth and most recent is the China Australia Free Trade Agreement (ChAFTA). Signed in June this year, ChAFTA promotes investment, removes a number of tariffs and opens new markets for Australian products, commodities and services.

China is Australia’s largest trading partner, buying almost a third of all Australian exports in 2014. Sources claim that Australia will secure 178 000 more jobs and an extra $17 billion worth of exports by 2035 through ChAFTA. However, economic modelling for the Department of Foreign Affairs and Trade by the Centre for International Economics predicts that the gains in economic welfare will be modest, around 0.4 per cent.

ChAFTA also introduces a number of key provisions that affect a number of key sectors in Australia. Broadly, ChAFTA is heralded as a win for agriculture. With a rapidly growing middle class, China presents a lucrative market for Australian beef and dairy. Sugar and rice, however, lose out, as China is unwilling to shift tariffs on these commodities. Wool exporters will only receive a fixed volume of exports duty free. However, mining will see the elimination of tariffs on coal, alumina and some base metals.

Theoretically, service providers also score a win through the recognition of qualifications and increased market access. However, certain ChAFTA commitments in the sectors of transport, telecommunication, construction, and legal sectors will only apply in the Shanghai Free Trade Zone.

The biggest point of contention is the effect that ChAFTA will have on jobs in Australia. Pertinent is the capacity for Chinese companies to source their own workforce for projects over $150 million, removing labour market testing. In addition, ChAFTA abolishes the requirement for mandatory skills assessment. This has raised concerns in trade unions around Australia who fear an influx of cheap labour.

Bringing their own workforce is not an automatic right for China under ChAFTA – Chinese companies are required to negotiate deals with the Department of Immigration and Border Protection. The government retains a right of discretion on any such deal and there are questions about the transparency of such a process. The text of the ChAFTA cannot be changed. However, a proposed amendment to migration legislation may be a necessary compromise.

Troublesome is also the inclusion of investor-state dispute settlement clauses, which allow foreign investors to sue the government if they have been adversely affected by a national policy. Currently, the Asian arm of international conglomerate Philip Morris is challenging Australian tobacco plain packing legislation in the first ever investor-state dispute that has been brought against Australia.

A parliamentary committee examining ChAFTA is set to report their finding to parliament by mid-October. Enabling legalisation is planned to follow soon after. The government is currently seeking to move beyond the current impasse with Labor to ensure bi-partisan support.

ChAFTA is an imperfect agreement, born out of negotiation and compromise. Trade policies will always cause controversy because, more often than not, they are zero sum games. Some sectors of the economy will benefit more than others. It is important that a realistic and honest approach is taken to ensure public support.

Valeriia Minigoulova is the International Trade and Economy Fellow at Young Australians in International Affairs.

This article can be republished with attribution under a Creative Commons Licence. Please email with any questions or for more information.

Image Credit: Wikimedia

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