What’s the point of FTAs (including RCEP, with China?

Nov 17, 2020

With virtual fanfare the much heralded Regional Comprehensive Economic Partnership (RCEP) Regional_Comprehensive_Economic_Partnership was signed this weekend with the ten nation ASEAN group in addition to Australia, China, South Korea, Japan and New Zealand. As with the former 12 nation Trans Pacific Partnership, the United States has withheld its participation. What are these mega trade agreements worth?

Credit – Unsplash

The range and scope of these mega agreements might on their surface appear mind boggling but in the light of multilateral trade experience in recent decades what are they worth? Unlike the World Trade Organisation they are essentially no more than platforms for discourse and further negotiation and lack effective structures for enforcement and dispute settlement. If the parties have differences over claims they can resort only to diplomatic process. This can be a hollow experience because what is in reality a breach of the agreement may consist of actions that deliberately avoid a formal breach but yet result in serious disruption and frustration to a party’s trade.

Pathetically it is being claimed that RCEP will open a fresh channel to break the diplomatic logjam over trade between Australia and China. Time will tell but at this stage nothing may be further from the truth as China has turned these evasive practices into an art form. They belie its obligations both within the World Trade Organisation or under individual trade agreements, and now doubtless in due course RCEP. Whatever might be said about such tactics they certainly lack comity. Products currently affected by these bans or barriers include barley, wine, coal, seafoods (notably rock lobsters), and possibly sugar and copper. No one can say for sure as China has not formalised a policy. Recently added to the list was Victorian and Queensland timber, on the ground that some insects were allegedly present in the timber because bushfires hampered fumigation in some areas – an especially egregious imposition. The WTO Trade Facilitation Agreement was specifically designed to overcome unsubstantiated complaints of this nature without recourse to the exporter.

To remind. Under the Australia-China Free Agreement (FTA) China reduced its tariffs to Zero on most of the products now targeted and others. The zero tariff was settled by negotiation in good faith by balancing interests and embodied in the agreement. Barely and and wine retained tariffs but these have been have been raised unilaterally by China to around 80%. Any product may now find itself subjected to such unilateral moves even while en route or in preparation for shipping.

China may have a point in regard to certain anti-dumping claims by Australia now before the WTO – some 60 altogether, mostly concerning subsidised steel products. They in turn have alleged subsidies on Australian red wine and barley. These claims have however been made by way of due process. On the other hand, leaving a $million dollar consignment of Australian rock lobsters to rot on the tarmac at Shanghai airport is not due process. Nor is the case of a consignment of 160,000 tonnes of Australian coking coal on an Indian owned and flagged ship stranded for some 5 months off a northeast Chinese port (Bihai Sea), with a confined and distressed Asian crew aboard, not allowed to depart even though a Japanese company has offered to take the coal and relieve the ship. The Chinese, in refusing to accept the Japanese offer and release the ship , have alluded to the recent Indian/Chinese clash in the Himalayan mountains as being relevant. So much for the Australian coal. This is only one of several ships stranded in similar circumstances.

These are clearly actions where law and due process have been abandoned in circumstances when war has not been declared (which might otherwise justify them) – but where pretence is made that all is normal and above board. The Australian government seems unwilling to treat them for what they are, being in thrall of further retaliations from a country on which the bulk of our exports depend, pathetically asserting that Australian exporters should be diversifying their markets. The fact is that there is and has been a natural complementarity between what we produce and what the Chinese to date have required. The relationship has evolved over time with confidence that formalised agreements exist for what they stand for. The growing trade imbalance has placed us at a disadvantage well beyond the time when that imbalance remains tolerable.

The Australian economy in relation to export earnings may need to be reshaped radically to overcome this vulnerability. With RCEP or whatever, if we cannot have a direct and frank exchange with the Chinese government to reestablish trust and goodwill, and reestablish respect for the spirit of international agreements, particularly the WTO, we will know that the Rubicon in this regard has been crossed.

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