Towards an Australia-China Free Trade Agreement

I'm very pleased to have the chance to talk to you about Australia's economic relationship with China.

The relationship has a long history, in Australian terms, and increasingly contributes to our prosperity.

The first Chinese immigrant to Western Australia, Moon Chow, arrived only months after the colony was proclaimed in 1829. He prospered, worked as a carpenter, and raised a family.

He was the only Chinese in Western Australia until the government started recruiting Chinese workers in the 1840s to deal with the colony's desperate labour shortage.

I admire the Chinese culture. I admire the early Chinese immigrants and their contribution to the development of Australia and Australian culture.

The colonists from England went through great hardships, but they knew they were building an Empire.

The Chinese immigrants did not just have to undertake a long journey by sea. They arrived in an alien land, and had to take an equally long journey through a culture they knew nothing about. They worked hard and built a future for themselves.

Their story is one of determination and spirit, and contrasts with the stagnation of their country in the 19 th century and the central planning of the years after the 1949 revolution.

But since the 1980s, we have witnessed China's emergence as a significant global economic power.

A particularly important step was taken in 1992 when the Communist Party formally embraced Deng Xiaoping's view that the market system was not incompatible with the ideals of socialism and called for the establishment of a socialist market economy.

Enormous social and economic developments are now having a tremendous impact on the lives of the Chinese people.

After World War Two, the average life expectancy in China was just 35 years. Today, it is over seventy.

At the same time, the quality of life has improved. Since China started down the reform path, it has lifted more than 300 million people out of poverty.

That is roughly equivalent to the population of the United States or five per cent of the entire world population.

China is now the world's fastest-growing economy, accounting for a quarter of the world's total economic growth over the last two years.

And China is forecast to increase its share of world trade from six per cent last year to a massive sixteen per cent by 2015.

Increasingly, it underpins the health of the broader Asian regional economy.

For a large number of products from other Asian countries, the final processing and assembly occurs in China before it is sent on to Western countries.

Every aspect of China's growth is extraordinary. For example:

In 1996 China had 7 million mobile phones; in 2003 China had 269 million. According to the Financial Review, there are now 358 million mobile phone users in China.

In 2004, China was the world's largest grain consumer – around 380 million tonnes – and recently overtook the United States as the world's largest beer market.

There were 36 million home personal computers in use in China in 2003, a figure that is estimated to double every 28 months.

Australia's unique relationship with China and the complementary nature of our two economies will ensure our nation as a whole will benefit from China's phenomenal growth, not just our resources sector.

In 2004, China became our second largest source of merchandise imports, ahead of Japan, and our second largest merchandise export market, ahead of the United States.

Our exports to China grew 30.6 per cent in 2004-05 led by a 100 per cent increase in iron ore exports, to more than $3.8 billion;

China is also our sixth-largest services export market, worth $2.3 billion, dominated by education and tourism.

A Free Trade Agreement holds the potential to deliver enormous additional benefits. Our discussions are at an early stage but we are progressing well.

The Chinese and Australian governments have been engaged in a process of information exchange over the last six months.

We have gained a better understanding of how each other's trade and investment regimes work.

For our part, it has taken us some time to understand fully how the Chinese system works in the areas that most interest us. The Chinese regulatory environment is complex and opaque.

We are now, however, in a position to talk in more detail about the shape of a possible final agreement. We will then be able to move on to detailed market access negotiations. Negotiators will continue to meet roughly every three months.

It is not an agreement that can be concluded quickly. The length of the negotiations will be determined by the difficulties we encounter, and we will take as long as we need to achieve real outcomes for Australian business.

We will not substitute a good deal for expediency's sake.

On agriculture, we are seeking lower tariff barriers, improved tariff rate quotas and the better administration of those systems.

While China's average tariff level is just under ten per cent, its average tariff for agricultural products is over fifteen per cent.

Tariffs are as high as 65 per cent on key products of interest to Australia, such as wheat and rice.

Although manufacturing is an obvious area of Chinese strength, Australia would benefit from lower tariffs and improved customs procedures.

We are also looking at ways that we can improve our ability to export a broad range of services to China.

It can be hard, for example, for Australian firms to repatriate profits.

There are restrictions on where in China commercial activities can be undertaken, and restrictions on the employment of Chinese nationals and foreign nationals.

Other areas that we're interested in can be summed up as ‘behind the border' issues, such as investment conditions, the protection of intellectual property rights and transparency.

These are likely to be among the hardest areas of our discussions with China.

It will not be easy to reach an agreement that will produce substantial gains for both countries. We can be sure, however, that trade and investment will continue to grow even without an FTA, because our two economies complement each other so well.

China will be increasingly integral to Australia's economic future as it continues its rapid transformation and growth. The Government believes that a Free Trade Agreement will benefit both our countries. We have a long way to go. As we have shown over the past three decades of the relationship, we will patiently and diligently work with our Chinese colleagues to develop an agreement that will benefit future generations of Australians and Chinese alike.