Australia’s Busy Asian FTA Diplomacy

Australian Prime Minister Tony Abbott’s free trade drive has seen successive deals signed with the nation’s major Asian trading partners. The future: more of the same, including India, Indonesia, and potentially even the European Union, even while global trade talks drag on.

Barely a month after being elected leader, Abbott announced in October 2013 his goal of concluding within a year free trade agreement (FTA) talks with China, Japan and South Korea, the nation’s first, second and fourth-largest trading partners, respectively.

“If you don’t set some kind of target, you don’t have the incentive to get things done,” he said. “In the case of the China agreement, that has been meandering along since 2005, so it is very important that we…bring it to a conclusion.

“The Japan and Korea free trade agreements (FTAs) have been similarly in train but unresolved…let’s give ourselves 12 months to bring these agreements to a satisfactory conclusion.”

Opposition Labor party trade spokesman Richard Marles described the target as “pure fantasy” as the Chinese negotiations then entered their ninth year, the Japanese their seventh and those with South Korea their fifth.

Yet despite skepticism, first South Korea, then the Japan and China deals were concluded by November 2014, only slightly outside Abbott’s target. On December 12, Trade Minister Andrew Robb announced that the Korea-Australia FTA (KAFTA) had officially commenced, with the other agreements set for implementation in 2015.

The three countries combined account for nearly 60 percent of the nation’s merchandise exports, although the A$150 billion ($123.7 billion) annual two-way trade with China dwarfs the nation’s A$70 billion with Japan and A$32 billion with South Korea.

Australia’s push for bilateral FTAs comes amid slow progress on the World Trade Organization’s Doha Round of talks, which are yet to conclude despite being launched in 2001. WTO Director-General Roberto Azevedo recently told the organization’s General Council of his July 2015 target for concluding outstanding Doha Round issues, urging his colleagues to “maintain a sense of urgency.”

However, while pledging its commitment to a successful Doha Round, Australia has been quick to pursue bilateral deals amid a similar push by trade rivals. After the Singapore FTA broke a 20-year drought in 2003, agreements quickly followed with Thailand and the United States (both implemented in 2005), Chile (2009) and the broader ASEAN-Australia-New Zealand FTA (AANZFTA, implemented in 2010), followed by the recent East Asian deals. Highlighting the recent rush is the fact that Australia’s first FTA with neighboring New Zealand commenced in 1983.

Yet the work of the nation’s economic diplomats is far from finished, with potential deals in the pipeline with the Gulf Cooperation Council and Pacific Islands Forum, as well as the multilateral Regional Comprehensive Economic Partnership, Trade in Services Agreement and U.S.-led Trans-Pacific Partnership (TPP). Further afield, an FTA with the European Union was also flagged at the November Group of 20 summit meeting in Brisbane.

India, Indonesia Next?

In November 2014, Abbott set another ambitious one-year deadline on trade talks, this time with India. The announcement came during Indian Prime Minister Narendra Modi’s visit to Australia, with the two nations also signing a Framework for Security Cooperation as part of stronger economic and defense ties.

In his landmark address to Australia’s Parliament, Modi said India saw Australia as “a vital partner in India’s quest for progress and prosperity.”

“India’s development, demography and demand provide a unique long term opportunity for Australia – and all in the familiar framework of democracy. There is no other example of this nature in the world,” he said.

Abbott responded by saying: “By the end of next year we will have a free trade deal with what is potentially the world’s largest market, and I want to make this declaration here in this Parliament, there are two ‘can-do PMs’ in this chamber today and we will make it happen.”

Although the value of Australia’s two-way trade with India has dropped from its peak of A$22 billion in 2010 to A$15 billion last year, analysts said an FTA deal could help reverse the downward trend.

Negotiations on the proposed Australia-India Comprehensive Economic Cooperation Agreement commenced in May 2011, yet talks have been stalled since the fifth round of negotiations held in May 2013.

A joint study released in 2010 predicted potential economic gains from an FTA deal of up to $34 billion for India and $32 billion for Australia over a 20-year period.

“It will take a lot of negotiation. There’s a number of issues that both countries are holding on to in regards to specific areas of agriculture,” Dipen Rughani, chairman of the Australia India Business Council, told ABC News.

“I’m not privy to the full details, but I think that that can be overcome pretty easily by sitting around the table and starting the negotiation rounds again.”

Closer to Australia, the prospects of a trade deal with Indonesia have improved with the election of reformist President Joko Widodo, who has personal experience in the furniture export trade.

Two-way trade with Indonesia reached nearly India’s level of almost A$15 billion in 2013, continuing an upward trend despite hiccups including Australia’s brief suspension of live cattle exports in 2011.

While Indonesia is expected to eventually eliminate most of its import tariffs under the AANZFTA pact, a fully liberalized bilateral deal with Australia is forecast to deliver an extra A$33 billion gain to Indonesia and A$3.2 billion to Australia by 2030, based on a 2007 joint study.

Negotiations on the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) commenced in September 2012, with the pact expected to build upon the benefits of the AANZFTA deal.

ASEAN is also seen as potentially a new Asian giant with the 2015 target for the launch of the ASEAN Economic Community (AEC), with a combined $2.4 trillion economy and 600 million population. Although a PwC survey found that Australian companies invested more in New Zealand last year than ASEAN, the region is seen as “possibly a more prospective destination for Australian business than the two giants,” according to the Australian Financial Review’s Greg Earl.

Critics of FTAs have pointed to their “noodle bowl” complexity of conflicting rules and regulations, with more than 500 signed worldwide, including Australia’s 12 such pacts. In a 2010 study, Australia’s Productivity Commission found the effect of bilateral deals was limited, with more potential gains from broader multilateral trade agreements.

Yet with the Doha Round and TPP far from reaching a conclusion, Australia’s government has embraced the FTA race to prevent its exporters losing competitive advantage.

“There’s pretty good reasons to believe and be very pessimistic about the prospects of completing a full, multilateral trade liberalization round, in which case, if we can’t get first best, then our second-best option of bilateral trade agreements becomes first best,” economist Andrew Stoekel told ABC News.

In the meantime, Australia is focusing on signing up its Asian trading partners, with Europe to eventually follow, according to Monash University’s Remy Davison.

“The [Australian] federal government recognizes the missing link in its network of FTAs is the European Union, the world’s largest single market and Australia’s biggest investment partner. However, the government will not turn its attention to an EU-Australia FTA until the major Asian FTAs are settled,” he argued in The Conversation.

Noodle bowl or otherwise, for Australia and Asia the great FTA scramble is showing no signs of slowing.