April 19 -- China's desire to shield its farmers from increased competition and Australian garment makers' concern about cheaper imports are the biggest obstacles to a planned free- trade agreement, Australian Foreign Minister Alexander Downer said.
``China has some concern Australian agriculture will be extremely competitive,'' Downer, 53, said in an interview from Canberra. ``On our side, we have some tariffs on textiles, clothing and footwear and passenger vehicle imports.''
Chinese President Hu Jintao and Australian Prime Minister John Howard yesterday agreed to start free-trade talks that may give an advantage to companies such as cattle rancher Australian Agricultural Co. over U.S. rivals in the world's fastest-growing major economy. Trade between the countries has tripled in the past six years to A$31.1 billion ($24 billion) on Chinese demand for iron ore and coal.
``It will be a boon for Australian business and we would be the envy of our trading competitors,'' said Peter Hendy, chief executive of the Canberra-based Australian Chamber of Commerce and Industry, which has 350,000 members. ``Still, it's far from being a done deal and no-one should underestimate how tough these negotiations will be.''
A free trade agreement would be worth $18 billion to Australia's $600 billion economy between 2006 and 2015, a government report said.
China imposes tariffs of as much as 15 percent on beef, lamb and dairy goods. Beef exports to China rose 12.4 percent last year to A$13.4 million and lamb and mutton sales rose 42.1 percent to A$17.6 million, according to the Australian trade department.
``If we have those barriers removed, it means farmers are more competitive,'' said Peter Corish, president of the Canberra-based National Farmers Federation. ``This pact will be positive for Australian agriculture if the agreement is comprehensive.''
Chinese Demand
All up, Australian exports to China surged 21 percent to A$11 billion in 2004, making it the country's third-biggest export market behind Japan and the U.S. Exports of nickel increased 88 percent, coal shipments climbed 72 percent and iron ore sales rose 41 percent, Department of Trade figures show.
Howard said he wouldn't ``hazard a guess'' on the time it would take for the negotiations.
``It will be a very complex negotiation, but approached by the Australian side in a positive frame of mind, and we expect to see the same from the Chinese side,'' Howard, 65, told reporters in Beijing today. ``We are desirous of having as much Chinese equity and direct investment into Australia as possible.''
It will be faster for Australia to get trade concessions through a bilateral agreement than through the World Trade Organization, said Pierre Van der Eng, a trade policy adviser at the Australian National University in Canberra. China joined the WTO in December 2001.
It took two years for Australia and the U.S. to conclude a free- trade agreement that came into force Jan. 1. Australia in the past year has ratified free trade agreements with Singapore and Thailand and started to negotiate trade pacts with Indonesia and Malaysia.
Uranium Sales
Howard may also forge an agreement to allow London-based Rio Tinto Group, which gets 44 percent of its sales from Australia, and Melbourne-based WMC Resources Ltd. to export uranium to Asia's biggest consumer of energy. BHP has agreed to buy WMC, whose Olympic Dam contains the world's biggest uranium deposit, for A$9.2 billion.
China would have to show it won't use the uranium for military purposes, Downer said today. Australia has the world's largest uranium reserves, accounting for 28 percent of the world's total, according to the Uranium Information Centre's Web site.
``I have said to the Chinese we would be happy to export to China provided China signed up to a nuclear safeguards agreement,'' Downer said. ``If we don't encounter too many difficulties and they go along with the agreement we have with a number of other countries, this could be done pretty quickly.''
Commodities accounted for three-fifths of Australia's exports to China in 2004. From next year, Australia will also export between A$700 million to A$1 billion of natural gas to China's Guangdong LNG import terminal from the North West Shelf venture.
Japanese Leg
Howard, 65, travels to Japan tonight, where he will meet Prime Minister Junichiro Koizumi, where opposition from farmers is likely to scuttle any progress toward a free-trade agreement.
``Japanese agriculture is the obstacle,'' Downer said. Japan is ``missing out on bilateral trade agreements because of a constant stream of objections from its agriculture sector.''
Japan is Australia's largest export market, buying A$26 billion of coal, iron ore, meat and other goods last year. Two-way trade with Japan was worth A$44.3 billion in 2004.
``Australian farmers are unlikely to get better access to Japan's market because agriculture there is sacrosanct,'' said Clive Hamilton, executive director of the Australia Institute, a research group based in Canberra.
Australia in February agreed to send 450 troops to Iraq to protect Japanese forces, adding to the 880 soldiers serving in and around Iraq. Howard will return to China on April 23 to deliver the keynote address at the Boao Forum for Asia.
To contact the reporter on this story:
Gemma Daley in Canberra at [email protected]Bloomberg
