THE Abbott government will only conclude a free trade agreement (FTA) with China if Australia gives up on improved access for sugar and wool exports and easier investments in Chinese banks, according to a former ambassador to Beijing, Geoff Raby.
The government should shelve the idea of a "comprehensive agreement" and negotiate for improved access to China for beef, lamb, dairy, wine and horticultural producers, he said.
Australia was the first country to launch free trade negotiations with China. After eight years, talks have stalled, allowing New Zealand and Chile to grab market share by signing agreements with China.
The Coalition government has nominated an FTA with China as one of its top priorities and wants to conclude it within a year. The new trade minister, who is likely to be Liberal MP Andrew Robb, is expected to be sworn on Wednesday and visit Beijing after. He will outline the government's revised negotiating position in an effort to jump-start talks.
"This is now a defensive agreement to protect our market share in this key export destination," said Mr Raby, who concluded his term as ambassador in 2011 and still lives in Beijing.
"The Chinese will welcome a fresh start to negotiations and my feeling is that they want to do a deal."
Former trade minister Craig Emerson wrote last week that China would never do a deal with Australia while the Coalition planned to drop the investment threshold for scrutiny of Chinese investment in farmland by the Foreign Investment Review Board (FIRB) from $248 million to $15 million. The Coalition isn't very receptive to investments by Chinese state-owned companies.
When negotiations began in 2005 the Coalition Howard government hoped to gain greater access to China's closed financial services sector. It pushed Beijing to allow Australian banks to own more than 20 per cent of Chinese banks.
NZ's price advantage
"The Chinese have repeatedly said they are not going to change legislation for the FTA," said Mr Raby, who was also Australia's ambassador to the World Trade Organisation between 1998 and 2001. He said Beijing may grant Australian banks concessions that other foreign institutions have been given over the sale and trading of financial services products.
He said Australia needs to give up on achieving lower tariffs for sugar and even wool because these were difficult areas for the Chinese. He pointed out that China already buys 60 per cent of Australia's annual wool production.
"While it is politically difficult for the government in those areas that will be excluded it is important to remember that they won't be worse off," he said.
The trade-off for Australia will be lower tariffs for the lamb, beef, dairy and horticulture.
Nick Hunt, the founder of Kirribilli Pastoral Company, which trades meat, wine and other products from Shanghai, said New Zealand producers had a 10 per cent to 15 per cent price advantage over Australian producers.
"Every year this advantage is getting larger as tariffs on New Zealand products are progressively lowered," he said.
Mr Hunt said while Australian beef, lamb and wine had been experiencing strong growth to China in recent years, margins would have been much higher under a free-trade agreement.
He said the Coalition's stance on investment by Chinese state-owned enterprises in Australian agriculture could make an agreement impossible.
"If they follow through on the lowering of the review threshold for state-owned enterprises then they can kiss the FTA goodbye," he said.
Mr Raby said the Coalition government could classify state-owned enterprises differently to get around its tough policy. He said if a Hong Kong-listed subsidiary of a state-owned enterprise wanted to buy an asset, it could face a different level of scrutiny to the parent company in Beijing.
"If the new government is not going to change anything on SOEs then it may as well forget the FTA," said Mr Raby.