AFR: Building on Labor's Foundation

Trade minister Andrew Robb has completed decade-long negotiations on a trade deal with China. Coming on top of agreements with Korea and Japan, that is a worthy achievement. When Robb became trade minister, negotiations with Japan and Korea were well advanced but much work remained to complete the China deal. Still, it is the agreement’s content that will determine its success.  

Before the completion of negotiations the media reported that the Australia-China trade deal will provide an $18 billion boost to our economy. Like the spurious economic modelling of previous trade deals, this has been a case of GIGO – garbage in, garbage out. Stick a bunch of favourable assumptions into a computable general equilibrium model that nobody understands and out come the results you purchased.

The demand for a dollar estimate of the benefit of a trade deal is typically media driven. But a quick headline is not substitute for rigorous analysis.

An alternative approach is to credit the Australian people with an ability to determine whether or not this is a good deal. Sure, they will be informed, or misinformed, by the political debate, but attempts to bamboozle with economic models underestimate the public’s intelligence.

As a new trade minister in 2011, I concluded that the negotiations that began in 2005 were going nowhere. Every conceivable issue was on the table: agriculture, foreign investment, manufacturing, banking licences, tourism, education, visas for temporary workers, you name it. It was an unsolvable puzzle. So I suggested to the Chinese that we lay a foundation and build on it over time.

China mulled over the idea of a foundation agreement and several months later concurred. The foundation would be an agreement on agriculture that gave Australian farmers parity with the deal struck with New Zealand in 2008. Australia would treat Chinese investment on the same terms the Howard government gave the US in our trade deal of 2005. China would want to be able to supply an agreed number of its nationals on a temporary basis for such occupations as tour guides, translators and chefs.

When prime minister Gillard visited China in April 2013 the new Chinese leaders, Xi Jinping and Li Keqiang, enthused about completing the deal quickly, giving the negotiations much-needed momentum.

China’s agreement to phase out tariffs on imports of most Australian foods is a big win, but it needs to be as good as the deal given to our Kiwi rivals and within the same timeframes.

Australia’s agreement to eliminate the remaining 5 per cent tariffs on Chinese cars and other manufactured imports should be counted not as a cost to the country but as a benefit to Australian consumers.

Improved access to the Chinese market for Australian services was not on the foundation agreement agenda. Progress here will be especially valuable.

Raising the threshold amounts of Chinese private investment into Australia, below which no screening is done by the Foreign Investment Review Board places China where it should be – on the same footing as the US, New Zealand, Korea and Japan.

Unlike Korea, China has sufficient confidence in Australia’s legal system not to insist on being able to sue the Australian government for policy decisions that any level of government might make that affect the profit streams of its corporations. By not insisting on these investor-state dispute settlement procedures, China has adopted the same approach as Japan did in its trade deal with Australia.

Especially at a time of rising unemployment, the Australian people will want to know whether or not the agreement with China requires a proper assessment of the availability of Australian workers to fill vacancies for major projects. Labour market testing is neither onerous nor unreasonable and the Chinese side has reportedly accepted it.

The Australia-China trade deal can be properly evaluated only when its details are fully known. It should be subjected to parliamentary scrutiny. A good deal for both countries would cement Australia’s place in the Asian Century.

Craig Emerson, a trade minister in the previous Labor government, is managing director of Craig Emerson Economics.