It would seem President Obama’s ‘pivot’ to Asia is floundering. Neither Mrs Clinton nor Mr Trump has shown much love for the Trans-Pacific Partnership (the biggest trade pact in 20 years was announced last week). Congress may well approve the TPP before the presidential election, or even in the ‘lame-duck’ post-election period. But as it now seems that the passage of the TPP looks unlikely, it’s perhaps timely for Australia to reflect on the power of the free trade agreements that we have with many of our most significant trading partners and the advantages that these alliances bring.
As Ambassador Hockey recently commented, these trade agreements play a critical role in connectivity. Five of our top ten export markets are TPP partners. The TPP and agreements like it lower barriers and facilitate greater two-way flows of trade and investment. Trade deals increase the competitiveness of Australian exporters and service providers and importantly, they improve the attractiveness of countries like Australia as investment destinations.
Make no mistake, we are at a crossroad and our region is more likely to be shaped by its trade policy than any other region (assuming that the temporary madness of the demolition of NAFTA and Brexit passes into the night). As the Lowy Institute Interpreter recently pointed out, trade regimes will sculpt Asia's future. But which future remains uncertain, how will the competing agendas of the Trans-Pacific Partnership and One Belt, One Road be reconciled?
Through our work as part of the ARC Linkage Project on Chinese Overseas Direct Investment (ODI), Corrs has been involved in trying to understand differing Chinese economic reform scenarios and what these mean for Australia. As China grapples with its transition, the stakes are high. Policy missteps or a deep slowdown could see China fall into the “middle-income trap”. Different reform outcomes will affect Australia as an exporter of goods and services and as an importer of capital. It matters to our economy whether there is an improvement, continuation or decline in Chinese productivity. If Chinese growth slowed to an improbable three per cent, it seems that our bilateral trade will still grow and our services export will lead that growth.
Through our China Business Group, we have seen firsthand how Commonwealth Treasury representatives in the Beijing Embassy used ChAFTA and a range of other initiatives to open up China’s health and financial sectors for Australian firms. China and Australia are both grapping with demographic shift (though the scale is vastly different). As a world leader in aged and healthcare services, Australian companies are uniquely placed to partner with their Chinese counterparts and resolve these issues together.
Cheap labour, vast factories and an infrastructure building programme without parallel powered China’s economic miracle. But times are changing. Right now, output from China’s service sector accounts for less than 51 per cent of national GDP - up from 44 per cent in 2011 - but is significantly lower than the 70 per cent usually seen in developed countries. Premier Li Keqiang, however, has declared that services already add more value to the economy than industry and that the sector employs more people than agriculture.
China’s commitments under ChAFTA cover a wide range of service sectors including legal, financial, telecommunications, education, medical services and construction and engineering services. Thus far, Australian business has been unable to use all of the opportunities available to invest in China via the ChAFTA. In part, this is due to the complex behind-the-border regulatory processes in China that make it hard for Australians breaking in new markets for services.
Although merchandise trade will remain a foundation, the bilateral economic relationship will increasingly be defined by each country’s transition towards an economy driven not only by services but by innovation as well. The proliferation of smartphones among China’s expanding middle class has brought the world’s products to the consumer’s fingertips. High tariff barriers and complex regulations are encouraging consumers to purchase their products directly from the source. Though there are mailing costs, these remain competitive.
This is having a dramatic impact on Australia’s dairy, cosmetics, high-value food and vitamins industries. We would encourage Chinese authorities to maintain open and competitive settings to provide Chinese consumers the opportunity to meet their needs. Lowering barriers to trade would be a more effective means of levelling the playing field between e-commerce platforms and traditional cross-border trade.
Trade matters and free trade even more so. With the Doha Round of multilateral trade negotiations at an impasse, Australia’s web of free trade agreements (and hopefully the TPP) represents an important part of Australia’s new future, a future that sees us less reliant on the export of mineral resources. ChAFTA sits high in the pantheon of our FTA’s and allows Australia a great opportunity to help shape trade rules that will ensure our economy successfully transforms itself into one with expanded ties with our trading partners - using trade to promote our economic growth and development.