Bilateral treaties a 'dead end'

20 October 2003, The Australian, By Catherine Armitage

Australia is "marching into a dead end" by seeking free-trade deals with the US, China and Japan, and should use this week's visits by the presidents of the US and China to reverse course, Australia's pre-eminent trade economist has warned.

The presidential visits were a unique opportunity to encourage "a major rethink" by both the US and China away from preferential trade deals and towards restoring the momentum of the multilateral trading system, said Ross Garnaut of Australian National University. The current free trade preoccupations of Australia and other countries in the region - with agreements planned or under negotiation between Australia and the US, Australia and Japan, China and the Association of South-East Asian Nations and Australia and China – pose great danger of Australia being "cut out of the opportunities that would otherwise be available to it", Professor Garnaut said in an interview.

A preferential deal between ASEAN and China, the foundations for which were laid at the ASEAN summit in Bali two weeks ago, "could be much more damaging to us than Britain's entry to the European Union was a generation ago", especially to agriculture, he said.

"Things have not gone so far that a major rethink by the US and China could not turn around the momentum, and we have a unique opportunity with the (visits of) heads of government of the US and China to get them to turn around." Professor Garnaut said.

China and ASEAN have just signed an "early harvest" agreement that gives some ASEAN countries beneficial treatment in access to the Chinese market for agricultural products. Australia has been shut out of ASEAN because some of its members, most vocally Malaysian Prime Minister Mahathir Mohamad, doubt that Australia sees its long-term economic interests primarily in Asia.

China is not a member of the 10-nation ASEAN but has joined with Japan and South Korea in an "ASEAN plus three" grouping. Bilateral trade between China and ASEAN dwarfs China-Australia trade of $18 billion a year.

At the ASEAN meeting Chinese Premier Wen Jiabao said China's trade with ASEAN could within two years exceed ASEAN-US trade ($174 billion a year). Chinese investment in Southeast Asian countries was growing annually by 20 per cent, said Mr Wen, who announced his Government would encourage still greater investment by Chinese companies in the region.

A similar announcement by Chinese President Hu Jintao in relation to Australia is possible this week. Chinese companies are known to be seeking further investments in Australian resource projects such as iron ore and nickel. Australia remains the largest recipient of direct foreign investment from China, which is its third-largest trading partner after the US and Japan.

This is thanks mainly to investments dating back to the 1980s in the Channar iron ore project in Western Australia, the Portland aluminium smelter in Victoria and more recently, a $543 million, 5 per cent stake in the North West Shelf oil and gas project.