The team within the Department of Foreign Affairs and Trade that has responsibility for negotiating Australia’s Free Trade Agreements must have looked at headlines unfolding over the past week and wonder why someone wants to make their job more difficult. The AUKUS Alliance may have strengthened ties with the US and the UK, but has resulted in France recalling their ambassador and an expected worsening of relations with China.
For the past few years Australia has been attempting the difficult task of trying to negotiate favourable trade terms with China while at the same time being opening hostile on many other policy fronts. To date there have only been isolated trade impacts, but the AUKUS Alliance will present the greatest test. This test will not only be with China, but also the EU with whom Australia is currently negotiating a Free Trade Agreement.
EU Australia Free Trade Agreement
In respect of the EU, the AUKUS Alliance has prompted France to call on Australia to be frozen out of the negotiations. Brussels has responded more diplomatically, focusing on the longer term relationship. However, it is important to understand that the EU Australia FTA is already facing challenges that tie in with broader policy decisions.
At the start of 2021 the EU released its new trade policy that states that “combatting climate change and environmental degradation is the EU’s top priority”. While the EU may not walk away from Australian FTA negotiations, France will certainty be able to use climate change as a reason to make negotiations difficult for Australia.
Traditionally, sustainability and climate change commitments have not prevented Australia concluding any FTA negotiations. Australia has not had to make commitments that exceeded its own domestic policy. The EU may previously have been prepared to accept lighter Australian environmental commitments or agree to Australia setting aspirational targets. However, if the AUKUS Alliance results in a change in tone, the EU will be able to objectively use sustainability to effectively stall negotiations.
Ultimately, Australia will be asking the EU to trust it to carry out its environmental commitments. France, for one, may need significant convincing before it is ready to accept any promises from Australia.
Trade with China
China has now officially requested to become a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Membership of the CPTPP would be a massive political achievement for China given that the original Trans-Pacific Partnership was largely designed as a vehicle for the US to set the trade rules for Asia Pacific trade.
It would represent a complete role reversal if the US (after the Trump withdrawal) was not a party to the CPTPP and China was.
However, to become a member of the CPTPP China would require the consent of all current CPTPP members, including Australia. It is hard to see how China could meet the CPTPP’s requirements regarding labour rights and restrictions on subsidies to state-owned enterprises. Australia could legitimately refer to these requirements as reasons to deny China CPTPP membership.
However, initially Australia’s response to China’s CPTPP request was to cite the current trade feud between the two countries. Australia is taking China to the WTO over tariffs on barley and wine. China has retaliating with lodging complaints regarding Australian dumping duties on three different Chinese categories of products. Despite the rhetoric, both countries have legitimate cases.
What is most unusual, and may undermine the public statement by Australian politicians, is that while it talks tough on China joining the CPTPP, a bill was introduced by the Government in September to implement the Regional Comprehensive Economic Partnership (RCEP). RCEP is a massive FTA that represents China’s response to the US/capitalist style CPTPP. Australia willingly signed up RCEP at a time when trade tensions with China were at its peak. It is now introducing legislation to ratify the agreement. At the very least Australia is sending mixed messages.
It will be interesting to see how long Australia can continue its attempt to increase trade via trade agreements while at the same time taking difficult political stances that may be adverse to its trade partners. Australian importers should consider all available trade concessions and not proceed on the assumption that it is only a matter of time before an FTA with the EU is implemented or trade with China is expanded.