Free Trade Agreement between Australia and China - Essay Example

of the of the How does an Australian company benefit from China’ entry into the WTO and the Free Trade Agreement between Australia and China – a legal point of view? The latest most recent entrant into global trade and the World trade organization is none other than the People’s Republic of China (PRC). Beginning from its arduous efforts to enter the world of global economy the PRC was characterized as the most unique potential member. This was due to the mere fact that China is one of the most massive economic powers among the various groups of developing countries. Even though China argued for the special right entitled to the developing countries, China stands in a class of its own, as it has made its own cozy niche within the economic world. According to recent research data, China is found to the 7th largest merchandise exporter in the world, as its exports aggregate amount to $249 billion in 2000. Furthermore China received a direct investment of $46.8 billion, making it one of the largest recipients of foreign investment second only to the United States of America. A point of interest to be taken up here is the fact that China is the only member of the WTO that still happens to be Communist. Even though it is on the path to successful modernization the apparatus of communism is constantly competing for dominance. However it seems that China’s reformation is inevitable and has largely improved and evolved its economy. The transition of China’s reformation process, in the past 15 years reflects its exhaustive efforts for joining the WTO. The accession of China to the WTO perhaps has had the most massive impact on the legal, economical and political framework of the global market. Earlier on members of the WTO expressed concerns on the complete compliance on China’s part with that of the WTO, however on closer examination it appears that incomplete conformity is not due to the fact that China does not wish to obey the obligations of the WTO, this is due to the fact that disaffected groups within the country will intentionally tend to destabilize the framework. On the 17th of September, a long series of talks concluded with the establishment of the terms China was obliged to abide by during it tenure as member of the WTO. International relation experts believe that the enrollment of China as a WTO member is a direct result of the increasing level of cooperation amongst members of the international community. The WTO provides a system of trade that is much more multilateral in nature than previously adopted systems of trade. It is no wonder that the addition of China in to the WTO was welcomed by all the members of the WTO. China is already one of the most influential economies of the world and is rapidly and aggressively competing to become the largest. The addition of China into the WTO is hailed as the opening of the gateway towards new opportunities for not only all the members of the WTO but also for China as well. Further on, light shall be shed upon all the efforts on the part of China to qualify as a WTO member, the obligations that the WTO membership places upon China and its legal and trading system, and the endeavors on the part of China to ensure compliance to the WTO obligations. Making it to the WTO China began its reformation program at least a quarter of a century ago, and these reformations are apparent in various forms its economical growth has donned. Since 1980, its rate of poverty has dropped from 600 million to a vast difference of 200 million. Furthermore its population now possesses a GDP of US$ 970 per capita and it has the 6th largest economy of the world. In years to come the Peoples Republic of China (PRC) is expected to outrun France and even the UK. PRC has reduced its average tariff from 40% to 12% (Chang, 2007). The ideal average tariff is 10%. All these fact apparently bring into prominence the fact that China has progressed greatly in a short duration of time. From all its efforts it is visible that China has strived very hard to be in the position it currently occupies, and yet it is struggling to work even harder. But in spite of all its efforts the changes within the Chinese environment is gradual, this due to the fact that the size of the PRC, its complexity may present hurdles in the way. Furthermore there are many regulations still under implementation. The situation appears to be very promising, yet on an administrative and social level, not to mention traditionally and conventionally the process of reformation will be slow one (Chow, 2009). But the appearance of a densely populated third world country to appear in the World trade organization and lay claim to its entity shows that countries however large or small, however laid back, hold the potential to prosper and succeed. Working through the Free Trade Agreement - China’s Commitments of transparency The People’s Republic of China’s commitments related to the reformation of laws and regulations in order to enter into the WTO were made on the acceptance of certain laws and regulation in return. Publication and Accessibility of Information China agreed in its protocol agreed that only the laws, regulations and Reformations, to be enforced will be the ones that are easily accessible to all members of the WTO. For this China will create drafts of all such documents to be published. Further the PRC designated a special journal for such assorted documentation like the WTO laws and regulations, and other measures related to the WTO policies inclusive. All these were to be enclosed within a journal before the implementation of these policies. Uniform Administration In its’ protocol China agreed to apply and exert the implementation of all WTO approved obligations in a uniform and impartial manner. However Chinese law experts contradicted this statement. According to these qualified experts, China would be unable to meet its commitments as there was still room for improvement within the PRC legal framework especially in the in discretionary department of the Chinese Bureaucrats and other impartiality and predictability of those applying and enforcing Chinese law and regulations. These experts claim that in order to fully comply with the rules and regulations of the World Trade Organization uniform administration is of the utmost importance, as even a slight imbalance could cause an ultimate dispute of warring dominance. The CCP and other Bureaucrat parties intend on exerting their own power and this can only be settled if all obey the same rules and regulations in order to conform. In spite of all the proof of the improvements in the legal framework of China, these parties refrain from seeing that their conforming will result in the upgrade of China as a whole not only that part of China that fails to obey the traditions of communism. Review of administrative decisions Within the limitation of its protocol China agreed that compliance called for the establishment to maintain an impartial assembly, for quick review of all judicial decision making and other issues calling for quick political answers. In the year 1978 China itself had no meaning legal bodies. However as mentioned earlier that the PRC notwithstanding has improved remarkably in comparison to the past. Now China possesses legislation, judicial institutions that allow minimal power to be exercised by the powerful bureaucrats and are further reviewed by a formal judiciary. But contrary to all these impressive reformations the courts are not allowed to enjoy independence by the Chinese Communist party that are still fight for their share of dominance even in the face of hard core global modernization. Joining the WTO By joining the WTO, China has modified a number of its economic policies in order to agree to the terms set by the WTO if it was to become a member of the international organization. China agreed to ensure that no discrimination was exercised when dealing with its fellow WTO members and that all foreign business bodies will be given the same regard as are given to all local Chinese business bodies. Also, China agreed to completely dissolve any pricing strategies that involved multiple pricing of the same commodity. Needless to say, in order to agree and abide by these and several other rules and obligations, China chose to modify several of its laws and domestic policies in order to make them compatible with WTO requirements. Of course, Chinas desire to become a member of the WTO had already been observed when China began to redevelop and alter its import and export policies earlier in order make sure that the transition from the current state to WTO standards would be as smooth as it could be possibly made. One part of the agreement is of particular benefit to Australia as shall be discussed further on. As further part of the Agriculture Agreement, China has agreed to never let subsidiary on agricultural goods over 8.5% of the farm yield worth. Also once the transition phase has concluded, China cannot at any time relate or retain any subsidiary prices on agricultural products. China has promised to methodically eliminate trade barriers to allow the accession of WTO member countries into the Chinese market. Tariff is being reduced by 15% for agricultural products and efforts are being undertaken to bring them down even further. The goal is to reduce and if possible, completely remove tariffs from agricultural, industrial, consumables, and automotive related goods by 2010. It is important to note that accession to the WTO means agreeing to and abiding by a number of legal understandings that span a wide variety of products and services. For instance, by accession into the WTO, China has agreed to the Agreement on Textiles and Clothing. Also, China has agreed to allow foreign country based service providers to form coalitions and partnerships with local enterprises and supply services in China. As per the transition mechanism, service provision will initiate with foreign investment limited to no more than 25%, with steady expansion slowly being brought to complete geographical coverage within five years of accession. Furthermore, banking and other related financial services will be given permission to establish and provide services in China (Peck, 2006). However, foreign currency financial institutions will be given permission to establish operations after five years in contrast to local currency businesses who will be given permission within two years to establish operations and provide services to Chinese firms (Zhao, 2004). A staggering 51% ownership is also agreed to be given to foreign investors in the insurance industry. After around two years, foreign investors in the insurance industry can establish 100% owned operations in the country. Future Political Reform for the People’s Republic of China In reference to the above China has reached a crossroad. The obstacle in its path to successful social and political liberation lies in the freedom from the communistic party strongholds. At this point it is difficult to predict or prophecy China’s future fate, but one thing is for certain the day communistic parties rethink their fight for dominance China will be on the way to ultimate success as one of the top exporters and the leading member in the world export market. Depending on one’s viewpoint, some would say China has improved immensely and will go on doing so. However some will say that China has to control the undemocratic powers pulling it down. Even though the Government feels the need for the emergence of political institutions yet at the same time, the Chinese leadership tends to use repression as a means to hold political and social strife. But due to the extreme modernization that China is going through this has had a weakening effect on the existence of the CCP it is holding onto remnants of its past leadership, but with its newfound road to globalization the CRP is fast overcoming the strings of the CCP that are pulling it away from the economical growth and global export power. Apprehensions regarding the accession The accession of China in to the WTO has been speculated to be a positive occurrence on an international scale by many speculators. However some apprehensions still remain regarding the recent accession and some countries feel threatened by the share of market they might lose through this recent development. Some analysts are of the opinion that it is necessary not to get carried away with the accession and to take things one step at a time as China steadily increases its sphere of activity in the international market. There have been doubts and speculation about the role that China will play regarding global manufacturing. But these fears have been well placed by reports stating that China performs intra-Asia export and an increase in Chinese exports will only mean a gross increase in the exports of all Asian countries. Another apprehension is that the wider operating span that the WTO will provide China with can cause damaging affects upon economies based upon high tech manufacturing industries in other countries (Bhagwati, 2007). However, an advantage can be seen in the fact that China still continues to operate in high tech manufacturing by importing capital elements for its industry. One apprehension that has been haunting speculators for quite some time now is the Chinese labor costs. Chinese labor has always been relatively cheap in the market. However, the practicality of Chinese labor absolute costs and relative costs promises that Chinese exports and imports will grow steadily without causing any misbalance. Dealing with apprehensions The trepidation commonly observed is that if China progresses, it will be at the cost of the loss in profit margins of the economies of other countries (Harcourt, 2002). This idea is misplaced in the sense that trade is never a unilateral arrangement. International trade in particular always brings in more countries in to the span of operations with issues such as logistics cropping up to allow third parties to benefit from a trade agreement. Even though these apprehensions are shared amongst certain groups of speculators, they have been given due importance in the WTO agreement to accept China as a member. Even though rights to exclusive trading in products such as tobacco, fuel and minerals have been granted to China, a special Transitional Safeguard Mechanism has been deployed to make sure that for the next 12 years, no Chinese imports pose a threat to the international market or to the Chinese market itself. Issues such as intellectual property rights are being covered by sub-agreements of the WTO agreements such as the Trade Related aspects of Intellectual Property Rights Agreement. All mechanisms that were formerly being used in China that are not compliant with WTO standards are expected to be eradicated steadily as dictated by the terms of the Protocol Accession of the WTO. Chinas accession in the WTO and channeling towards the Free Trade Agreement The reason why the WTO has become a globally accepted and encouraged phenomenon is because of the grounds for trade that can be established if one abides by the regulations of the WTO. The WTO allows for trade in a peaceful environment where any emerging disagreements are dealt with in a positive conduct. The rules of the WTO have been designed to allow businesses to take advantages of opportunities in foreign countries as effectively and efficiently as possible and this causes a direct impact upon reducing the cost of living since a vast number of commodities gain entrance into the market and oligopolistic behavior is discouraged whenever it is observed to be causing adverse effects on the economy. When these elements are brought into the perspective of the enrollment of China into the WTO, it is clear to see that this is a development that has ensured that a business environment has been created through which the people of China and Australia will be benefiting through mutual trade for a many years to come. Impacts of Chinas accession in the WTO upon Australia The impact of Chinas accession in to the WTO for Australia will be gradual but nonetheless one that cannot be underestimated. This can be observed in the fact that before China joined the WTO, Australian businesses fueled the rapidly growing economy of China for decades. In turn, China was one of the largest energy customers to the Australian economy. China frequently buys not only energy but also minerals and other commodities as well from Australia and the LNG deal was considered to be a sign of confidence between the two countries. However, with the development of China becoming a member of the WTO, trade opportunities between China and Australia have expanded far beyond what they previously were. One of the major areas worth highlighting here is the mutual understanding that China and Australia have established regarding reducing trade barriers in the Agricultural Sector. Australia excels in this regard and in recent years, China has been observed to be giving much concentration to the agricultural sector (Vaile, 2002). This has been done in the light of the objective of China to increase trade opportunities in agriculture related businesses with Australia (China.org, 2002). Further proof of the desire to establish a productive trade in the field can be observed in the fact that China has not only encouraged labor intensive farming but also established reforms to allow for the efficient exporting of commodities that Australian companies excel in producing. It is important to highlight at this point that this will not be the first time that China and Australia will be forming trade coalitions in the Agricultural Sector. Australian agricultural technology and environmental solutions have already been shared and the recent accession of China into the WTO only paves the way to increase channels of trade between the two countries. The core of the fact is that Chinese and Australian trade segments complement each other most compatibly. An example can be seen in the fact that an integral manufacturing ingredient in most Chinese commodities is iron ore. Australia is a thriving iron ore producer and iron ore production continues to steadily grow in the country. China has been buying minerals and energy solutions from Australian firms for quite some time now and the WTO accession is considered to prove to be the most feasible in the same dimensions of industry. (Vaile, 2002) Trade and Business development between Australia and China- the FTA It is however important to realize that an increase in Trade will occur more rapidly than an increase in the generation of foreign investment. The silver lining in this cloud is that in terms of infrastructure, this will allow Australia to strengthen its trade and production setup. Not to be ignored is the fact that initial trade deals will be somewhat limited to the macro level and it will take some time to bring the benefit of this development down to the smaller business level. For instance, the LNG resource deal was being eagerly awaited by Australia and China, whereas some time might be required to generate the same enthusiasm in smaller firms of the two countries. However once the confidence has been generated, the process will proceed more rapidly, steadily incorporating medium businesses as well as smaller businesses into the equation. Amongst factors that China will be giving a relatively direct approach to will be import and export tariffs. Import tariffs in particular have been reduced and a further decrease in the same is expected to follow. Licensing systems that were previously somewhat of an uncomfortable nature for exporters are being brought in to compliance with WTO requirements. If these opportunities are harnessed and the advantage is taken, trade between Australia and China is expected to increase steadily until it increases exponentially once small and medium sized businesses join the flow (Perkins, 2002). Besides large scale commodities such as energy solutions and mineral ore providers, product and service manufacturing firms from China as well as from Australia are expected to benefit greatly from Chinas accession into the WTO as well. Reasons for this can be found in the fact that the growing Chinese economy is causing an expansion in the demand for elements that are used to build and strengthen infrastructure. Chinas agreement to WTO policies and regulations will allow for the efficient importing of minerals, encouraging the demand for the same, but former mineral trade will allow for the easy accession of Australia in to the improved Chinese trading environment. Australia has already been trading with China in fields involving financial services, tourism, and education. The improved trading ground in China thanks to the WTO will allow for more profitable trade and access to further industries for Australia. Analysts argue that foreign investment in China may be on a somewhat small scale but it has shown clear trends of growth into higher scale operations. An example can be seen in the fact that China is in the process of revising domestic mining laws and policies, which will allow Australian firms to benefit further from the scenario (Agence France-Presse, 2008). Even more so, since trade is and always has been a multilateral exercise, Australian investment into China is met by Chinese outward investment into Australia. Australian policies have always been favorable to Chinese investment since it allows for Job creation and encourages Australian Exports. Already, China and Australia have begun formalizing road maps to ensure that trade increase between the two countries can be made possible in the favor of the economies of both the countries as it has been over the past few years. China and Australia have agreed to execute a joint feasibility analysis into the prospects of the generation of a Free Trade Agreement. It has been decided to assess the cost and benefit balance that a Free Trade Agreement can bring to the two countries. The study was undertaken a few years China became a member of the WTO and measures are underway to encourage the Free Trade Agreement. Significant trade and industry reimbursement is being expected to be attained from Free Trade Agreements and all research that has been carried out to date has shown signs of productive outcomes from Free Trade Agreements between the two countries. The Governments of China and Australia both have decided to promote cooperation in all sectors where there is a potential for business and trade development that can be targeted. Mining and agriculture have been given top priority amongst many others in this regard besides education and intellectual property rights as mentioned earlier. Only in 2002, exports to China amounted to an astounding $8.4 billion and imports to $12.8 billion. Australia at that time was Chinas eleventh largest bilateral trading associate. It is important to highlight the strength of the Australian industry since two thirds of Chinese imports from Australia have been recorded to be wool, cotton, sugar, barley, wheat and mineral ores. Over the years, china has also begun importing manufactured goods such as appliances and telecom equipment. As mentioned earlier, China has always greeted Australian investments favorably and has returned the gesture by doing business with Australia as well. Examples include great steps taken in the computer and electronic gaming industry. In the beginning of this decade, China was recorded to be having an investment inflow of $1.6 billion of China alone, whereas Chinese investment in Australia was recorded to come to around $3.4 billion. This financial relationship between the two countries has only grown stronger with time and has observed a monumental acceleration with Chinas accession into the WTO. Both countries have shown determination to strengthen cooperative measures in order to improve trade and investment environments in both the countries. To do so, measures such as trade fairs and exhibitions in both countries to increase business contacts have been encouraged (China World Trade Corporation, 2006). Also, in order to take the current trade channels between the two countries to the next level, it has been decided to encourage pre-processing of wool and to tap into trades of cosmetics, fashion and marketing. China, once an isolated economy, has made changes in its legal framework that encourage the formation of joint ventures, and the already present trust of Chinese consumers in Australian goods is all the ground that Australian brands need to introduce and establish more products and services in China. Investment partnerships have also seen a favorable turn as the latest modification in the Chinese legal framework allows for more lucrative investment opportunities to be taken advantage of and Australia has already established grounds with China for the exchanging of logistical support and information for the marketing and distribution of goods and services. The services division in particular has undergone a massive opening of opportunities as cooperation in education and trading continues to expand because of the WTO regulations now allowing the formerly somewhat suffocated doorway into Chinese markets to widen. Support is now also possible from China to Australia to launch engineering projects in China as well as allow the inclusion of a third country when required (Riddle, 2002). Not only has this, but bilateral investment between China and Australia been brought to a higher level with China exploring investment opportunities in Australia in the mining and development sectors. The WTO agreement also allows for a coalition to be established regarding improvement in customs and clearance operations on both sides of the trade agreement. By complying to WTO guide lines, China has allowed for a more convenient and more fair customs operation at its ports and being the trading partners they have always been, Australia and China have now allowed for even more mutual cooperation in customs facilitations. In order to do so, both countries have decided to incorporate automated and paperless trade documentation technologies to ensure that a swift exchanging of information also facilitates in the better exercising of law enforcement agencies to eradicate harmful elements. Clauses such as the anti-dumping issues are also being given their due importance in this regard. The infrastructure of China is designed to provide a sensitive balance of quality and quantity without compromising on the rapid economic growth that the economy of the country has now become infamous for. The accession of China into the WTO serves to loosen up trade restrictions applied on foreign countries and allow for the accession of foreign investment directly into the infrastructure of the country. This comes as more than a favorable opportunity for a country such as Australia and is greeted by Australian investors. Australia and China have already established an understanding in the food sector (Chunlai, 2008). Both countries have agreed to the need for a conclusion of a Memorandum of Understanding on Scientific & Technological Cooperation in Food Safety. Of course, even though all these opportunities exist, there still remain technical barriers to overcome in order to allow for the successful use of these opportunities. It is necessary therefore that regulatory bodies and standardizations be kept to no higher than a level where their efficiency outruns their cost of time and resources. Certification and accreditation have been designed for this purpose and cooperation between the two countries has allowed for the mutual recognition of the established certification, in sensitive areas like wool and mineral ores in particular. In order to make sure that the new found trade relationship between the two countries can bring benefit to the everyday consumer as well, both the governments have decided to minimize processing times for visas and other relevant documents to facilitate business men as well as the day to day travelling activities of delegations that can bring about long term returns to the countries. Conclusion The accession of China into the WTO has come around as the result of over two decades of reforms (Anderson & Goldstein, 2008). China has brought about modifications in its legal framework to ensure that trade and investment barriers are being brought to their minimums. This has been done to make sure that WTO guide lines are being followed. Needless to say, WTO guide lines have been designed to ensure that the trading environment in the country allows for a direct increase in foreign investment. This has served to not only encourage an increase in the inflow of Australian investment into China, but has also attracted a host of countries towards investment in China into sectors that were considered to be of secondary importance previously. This should allow for not only the strengthening of the Chinese economy but the already thriving economy will also allow for the investing party to reap benefits that will encourage more investment into the economy. As has been demonstrated through the past, Australia has welcomed Chinese investment and allowed for the creation of jobs and mutual research and development projects. Recent relaxation and standardization of Chinese legalities in accordance with the WTO have paved the way for China to no longer remain isolated because of rigid trading procedures. An example can be seen in the Free Trade Agreement. The WTO has been designed to allow fair trade and membership of the WTO allows for closer interaction with more countries in sectors that had not been previously tapped. Hence, it can be inferred that the Free Trade Agreement and all measures and agreements of the same nature taken in the future will serve to only increase the growth of the Chinese economy and the Australian economy in particular. References Agence France-Presse. (2008, August 8). Australia, China to try reviving world trade talks. Retrieved January 20, 2009, from Inquirer.net: http://business.inquirer.net/money/breakingnews/view/20080808-153459/Australia-China-to-try-reviving-world-trade-talks Anderson, J., & Goldstein, B. (2008). The China Business Review, 2002. Retrieved January 20, 2009, from Foreign Contributions to Chinas WTO Building: http://www.chinabusinessreview.com/public/0201/goldstein.html Bhagwati, J. (2007, March 27). US Trade Policy: The China Question . 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Retrieved January 20, 2009, from Australian Government - Australian Center for International Agricultural Research: http://www.aciar.gov.au/project/ADP/1998/128 Harcourt, T. (2002, September 30). When The Great Wall Comes Down: China, the WTO and Australia’s Trading Future. Retrieved January 20, 2009, from Austrade: http://www.austrade.gov.au/When-The-Great-Wall-Comes-Down-China-the-WTO-and-Australia-s-Trading-Future/default.aspx Peck, A. (2006, October 11). The muted impact of China WTO reforms . Retrieved January 20, 2009, from Finance Asia.com: http://www.financeasia.com/article.aspx?CIaNID=38054&eid=14&edate=20061010&eaddr= Perkins, D. F. (2002, November 26). China Embraces the World Market. Retrieved January 20, 2009, from Australian Government - Department of Foreign Affairs & Trade: http://www.dfat.gov.au/publications/catalogue/china/eau_china_speech.html Riddle, D. (2002). Make money in Thailand while you train for Chinas WTO boom. Retrieved January 20, 2009, from Logistics Bureau: http://www.logisticsbureau.com/archive/Thailand_Logistics_China_WTO_Article.htm Vaile, M. (2002, November 26). China in the World Trade Organization: What it Means for Australia. Retrieved January 20, 2009, from Australian Minister for Trade: http://www.trademinister.gov.au/speeches/2002/021126_mvt_chinawto.html Zhao, F. (2004, July 23). China trade laws seen as step in right direction. Retrieved 2009 20, 2009, from Asia Times Online: http://www.atimes.com/atimes/China/FG23Ad03.html Read More