An exquisite FTA dilemma for Abbott

Australia's opportunities to supply Asia with food are immense. But efforts to forge an FTA with China will be a minefield for Tony Abbott.

It looks like Prime Minister Tony Abbott will be putting a hard question in 2014 to Australia’s farmers and the populist Right that swept him to power: the opportunity to export food to China in the decades ahead will be immense, but only if China is allowed to buy more Australian farmland.

This will be a key part of the Free Trade Agreement with China on which the PM has now put a 12-month deadline.

More broadly, Trade Minister Andrew Robb has said he wants free trade agreements concluded with China, Korea and Japan within the first term of the Abbott Government. Talks with Korea and Japan are bogged down but would be rejuvenated by success with China.

It’s clear that Chinese import restrictions on agricultural products will only be lifted as part of an FTA if Australia also lifts restrictions on investment in land.

This will be a difficult internal debate for the Coalition next year and could also replace climate change as the hot topic for the foam-flecked shock jocks.

It will also be a crucial test for the new Opposition leader, Bill Shorten. The Coalition failed a similar test on climate change by switching from Malcolm Turnbull to Tony Abbott in late 2009 and reversing its stance on emissions trading. Labor must resist the temptation to do the same thing on Chinese investment in Australia to gain short-term political advantage (Rudd nearly Rooty'd rural AustraliaAugust 29).

Before the election Abbott made a pitch for the rural vote by promising to lower the threshold for Foreign Investment Review Board scrutiny of overseas purchases of agricultural land from $248 million to $15 million. Since the election the government has, ahem, clarified that this would only apply to countries with which Australia does not have a free-trade agreement.

By putting a 12-month deadline on an FTA with China, Tony Abbott has completed the two-step shuffle and put the National Party on notice that the debate over Chinese investment in Australian agriculture can no longer be put off.

With the Doha Round of multilateral trade negotiations at an impasse, despite attempts to breathe life into it at last week’s Asia Pacific Economic Cooperation meeting in Bali, and the World Trade Organisation effectively moribund as a result, bilateral and smaller multilateral negotiations are taking its place.

The Doha talks were stymied by agriculture and the political power of farmers. If the FTA with China fails to meet the 12-month deadline it will be for the same reason.

It’s an exquisite dilemma. With an FTA, Australia’s farmers can look forward to decades of strong growth in both the volume and prices of food exports to China, as hundreds of millions of people enter the middle classes and eat higher value foods, especially protein. But it seems to take full advantage of it, they need to accept the Chinese as neighbours.

The latest trade data from China shows that its imports of minerals are still going strong. Overall Chinese imports grew 7.4 per cent year-on-year, with the rate of growth of copper imports doubling from 8 per cent to 16 per cent and iron ore imports at an all-time high.

The mining boom is not over yet, and iron ore and coal exports to China will continue to be important earners for Australia, but there is limited potential for big upside from here. Chinese fixed asset investment, which is driving the growth in minerals imports, is just about maxed out because of high levels of debt in China.

Part of the replacement for mineral exports in supporting Australia’s national income should be food exports to China and Asia more generally.

But while Asian countries are perfectly happy to buy our minerals, food imports are restricted.

Without the WTO and Doha, the key to breaking down these restrictions will be bilateral FTA agreements with China, Japan and Korea, as well as the Trans Pacific Partnership multilateral negotiations being driven by the United States, but not including China.

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