The six main benefits from a free trade agreement with China

So, after 10 years of negotiations, just what does Australia stand to gain from inking a free trade agreement with its biggest trading partner? The China FTA, which Prime Minister Tony Abbott and President Xi Jinping are likely to sign early next week, will bring new opportunities in the Chinese market place, particularly for Australian farmers and professionals. The greatest benefits will take up to a decade to be phased in, however, and some of the biggest gains will be in areas you might least expect.  

The China FTA will struggle to live up to hyperbolic expectations. But that’s only partly because the benefits have been oversold, particularly by people close to Nationals leader Barnaby Joyce, who appear to have confused quarantine standards with trade concessions in the live cattle trade.

These are all good reasons to applaud Trade Minister Andrew Robb’s dogged pursuit of a deal with Australia’s dominant trading partner, after sealing agreements with the No.2 (Japan) and No.3 (Korea) earlier this year.

Thankfully, there are unlikely to be any of the dubious “free trade” traps that were embedded in the US FTA, such as higher prices for copyright material and pharmaceutical products, although it will pay to scrutinise any parallel changes to the controversial 457 work visa category.

The last time Australia negotiated a free trade agreement that generated this much excitement it didn’t work out so well. A decade after the Howard government touted more than $4 billion in annual benefits from the US FTA, America’s share of Australia’s exports has plummeted, by half, and the only thing that has grown by $4 billion is the bilateral trade deficit.

The sting in the tail of this agreement is unlikely to have anything to do with the fine print.

A few years from now all these gains will offset but not overcome the other economic trend coming from China: the end of a once-in-a-century resources boom.

“The short-term benefits will be quite small, certainly smaller than the loss of benefits we’ll see from declining terms of trade,” says Saul Eslake. “If it’s a good agreement, the longer term benefits will go a long way to ameliorating the decline in terms of trade.”

No matter what Mr Robb achieves in Beijing, with the price of iron ore barely more than half what it was one year ago, the net benefits of a China FTA are likely to be swamped by the consequence of plummeting prices that Chinese mills will be paying for Australian ion ore, coal and gas.

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This story Administrator ready to work first appeared on Nanjing Night Net.