Small step towards a free trade deal with China

THE first round of free trade agreement negotiations with China since Prime Minister Kevin Rudd declared them "unfrozen", following his talks with Premier Wen Jiabao during his visit to Beijing in April, concluded on Friday.

The Australian team of 30, representing 10 government agencies, viewed it as the most fruitful session since the negotiations began more than three years ago. Now it is likely to be followed up with two further rounds before the end of this year.

Last week's meeting in Beijing was the first negotiation since last October, when talks were shelved at the request of the Chinese side, to suit both parties. This was because political changes were likely with a new five-year government term starting in Beijing and with Canberra due to hold an election.

Following the talks between Mr Rudd and Mr Wen, the countries' new trade ministers, Simon Crean and Chen Deming, also held a meeting in Beijing, when they discussed framing a roadmap for the free trade talks.

The chief negotiators on each side, Ric Wells and Zhang Xiangchen, followed up with correspondence and phone calls to flesh out this roadmap.

Progress was made last week on many nuts-and-bolts issues that would contribute to the text of any future agreement.

One of the goals that Mr Crean and Mr Chen discussed was to push for some early outcomes from the FTA talks that might be announced before the overall agreement, to create confidence in ultimate success, to encourage business on both sides and to help build a negotiating dynamic.

The announcement last week, during the visit to Beijing of Treasurer Wayne Swan, that Australia was to become the sixth approved destination for Chinese funds via its Qualified Domestic Institutional Investor scheme, was not claimed as an "early fruit" deal related to the FTA, because it had been under discussion since before Mr Rudd's visit to China.

But Australian negotiators did raise it during earlier FTA rounds.

The Australian goal remains in place for a truly comprehensive FTA. But in seeking early outcomes to pursue first, each side is focusing on two sectors -- Australia on financial services and education, China on investment and quarantine.

Both sides are looking for commercially useful results in each of these sectors.

The New Zealand FTA -- China's first with a developed country, completed on the eve of Mr Rudd's visit to China in April -- is viewed as helpful by the Australian negotiating team, though not across the board.

New Zealand achieved the elimination of tariffs on virtually all the goods of commercial interest, and in some of them Australia also has an interest, including dairy, wine and meat.

This has established a useful benchmark -- which the Australian negotiators raised with their Chinese counterparts, and which the latter understood. Australia is also seeking gains in different areas of agriculture, including products viewed as politically sensitive in China, such as cotton, sugar, wheat and to an extent rice, which are all protected by tariffs and quotas.

The New Zealand deal is less useful as a precedent for services, in which Australia has a considerably broader range of interests, including some that comprise especially difficult areas on which to make progress.

Temporary entry to Australia for Chinese workers was raised by the Chinese negotiators at this round of FTA talks.

Although the Australian side was not in a position to negotiate last week, this is China's biggest services interest in Australia and is expected to remain an important issue for future talks.

China also gave Australia a sweeping series of requests on investment. This prompted a long talk in which the Australian side emphasised that the country was open to investment, including Chinese investment, on a non-discriminatory basis. It also explained how the Foreign Investment Review Board process worked while saying that Australia reserved the right to define its national interest in receiving applications for investment.

The fresh injection of political will on both sides was viewed as important, especially helpful in clearing obstacles within the vast Chinese bureaucracy, which had 60 people at last week's talks from 16 government agencies.

This was made easier because the talks between Mr Rudd and Mr Wen went beyond a desire to conclude an FTA, to the type of deal the sides want to see, giving the teams a sense of the shape of the ultimate FTA. However, differences remain between the regulatory systems and the trade settings of both countries