Mixed signals on free trade

Beijing officials and business-people from China and Australia could be forgiven for feeling more than a little confused at this moment over the proposed free-trade deal between the two nations. That's because two key ministers in Canberra disagree over just how comprehensive the agreement should be.

Listening to Trade Minister Mark Vaile on August 8, they would have been reassured about Canberra's commitment to open its markets as widely as possible to the Chinese.

But only 12 days later, Industry Minister Ian MacFarlane said he would not abolish import tariffs on two of Australia's most politically sensitive and major industries - automotive and clothing - as part of the trade agreement.

Mr Vaile's remarks, delivered in the course of a major speech in Canberra, gave no hint of the protectionist stance that Mr MacFarlane is championing. If anything, Mr Vaile's comments were positively bullish on the abolition of trade barriers. He said the Australia-China "[free-trade] negotiations offer the potential to secure substantial tariff reductions on Australian exports to China".

Not only is Mr Vaile committed to removing protectionist subsidies on imported clothing and cars, but he sees the trade deal as promoting "deep integration by addressing regulatory and other border measures, as well as security of supply".

But Mr MacFarlane has, perhaps unwittingly, undermined Mr Vaile's stance with his uncompromising promise last weekend. He said the Australian Government had no intention of unwinding the long-term industry structure under which the automotive and clothing industries operate.

That structure, which includes tariffs and billions of dollars in industry assistance, are simply "not negotiable" in the context of the Australia-China trade deal, Mr MacFarlane said in a media interview.

Taking the Australian clothing and automotive sectors off the negotiating table would do some serious damage to Chinese exporters. The official study into the proposed agreement, released last year, said it would increase China's textile imports into Australia by US$223 million within a decade, and automotive imports by US$56 million.

Mr MacFarlane is clearly worried about the domestic political fallout from the deal. The clothing and automotive industries are big employers in Australia, and they are relatively heavily unionised.

In short, they can, and do, exercise considerable political leverage over the government.

The problem with Mr MacFarlane's concession to the automotive and clothing industry - for Mr Vaile and Prime Minister John Howard, both of whom are strongly committed to as comprehensive a free-trade deal as possible - is that it establishes a worrying precedent.

What is now to stop other major Australian industries with political clout, such as agriculture, from arguing that they should be similarly protected in the agreement?

The two ministers' contradictory remarks reflect the twin realities of the proposed pact: the highly desirable access to China's rapidly growing economy over the long term, and nervous domestic workers who fear being flooded by all things Chinese.

There needs to be a renewed focus, on both sides of the negotiating table, on the fact that a trade deal between Australia and China is only worthwhile if it has as few exemptions as possible.