Abbott's in danger of a Chinese checkmate

Tony Abbott's plan to seal a Chinese trade deal inside a year is a bad one. It puts Australia in a position of weakness at the negotiating table.

Tony Abbott has taken a considerable risk in setting a one-year deadline for completing the China free trade agreement. A completion date of December 2014 must amuse the Chinese because they see history repeating itself.

In December 2008 the then Australian Prime Minister Kevin Rudd had talks with the Chinese leadership that made him confident about a free trade deal with China. So, like Abbott five years later, Rudd boldly announced that a China-Australia free trade deal would be completed within a year.

The Chinese leadership in 2008 smiled and nodded as the young mandarin-speaking Australian Prime Minister made the declaration. But the encouraging messages conveyed to Prime Minister Rudd were not matched by the hard line presented by the Chinese in the negotiation. In particular, the Chinese wanted their state-owned enterprises to be able to invest $1 billion in Australia without Foreign Investment Review Board approval.

Five years later the 2013 Chinese leadership faces a new Australian Prime Minister who, like Rudd, wants a free trade agreement. As in 2008 the Australian prime minister has received encouragement from the Chinese leadership and once again a new prime minister has put a deadline on the talks. Once again the Chinese leadership smiled and nodded.

In any trade negotiation it is very dangerous to give talks a completion deadline. You risk seeing the other side wait until close to the deadline and then the pressure is on Australia to make commitments to meet it that it would not otherwise agree to. And no one is better than the Chinese in sensing and exploiting that negotiating weakness.

All Tony Abbott had to do was express excitement and the willingness to talk. A deadline was not required.

But in fairness to Abbott, when in December 2008 the Chinese appeared to be encouraging Rudd over free trade, they were still boiling with anger towards Australia over his address to Beijing University in the previous April. Speaking in mandarin, Rudd criticised Chinese human rights and a few days later was given a private ’dressing down’ by the Chinese leadership. The Chinese leadership may have set Rudd a 'payback' trap.

This week Abbott was very careful to say he was not going to raise human rights and lecture the Chinese. He was effectively apologising for Kevin Rudd’s April 2008 speech.

There is still much negotiating in a China deal. Australia is much more advanced in its free trade negotiations with Korea and Japan than it is with China. Most of the detail in the Korea/Japan agreements is completed and all that it is required are the 'hard-nosed' issues that often revolve around investment.

When Australia negotiated its free trade deal with the US we had the deadline of the end of the George Bush presidency. We negotiated with haste. We should have made sure our cars had greater access to the US. Failure to negotiate in that detail now makes it hard for Holden to export to the US.

If Australia signs trade agreements with Japan, Korea and China the big beneficiaries will be the Australian rural sector, particularly beef. Other areas will get some benefit but it may be not be substantial. Overseas groups understand that if Australian agriculture gains better access to the three big markets it will give the sector a huge boost. That’s why the Americans want GrainCorp and the Canadians are after Warrnambool Cheese and Butter.

The Chinese will go even further and want to be able to make a $1 billion investment without FIRB approval. As the ALP’s Richard Marles points out the Coalition went to the election with a platform to lower the FIRB approval hurdle from $248 million. Something will have to give.

That’s why deadlines are unwise.

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