Australia to decide on China's status

Associated Press, Canberra

Australia plans to decide whether China is a free market economy before the two countries begin negotiating a free trade agreement, Australia's senior trade official said on Monday as a study on such a pact nears completion.

Australian Trade Minister Mark Vaile will meet with China's Commerce Minister Bo Xilai and other Chinese trade officials in Beijing from on Tuesday to on Friday to ensure that a joint study on the feasibility of an FTA is finalized before Prime Minister John Howard visits China next month.

The World Trade Organization (WTO) will not sanction any possible deal unless Australia recognizes China as a free market economy that does not interfere with market forces.

Few countries have given China such recognition, and the United States urges against it, arguing that Beijing dumps cheap products on world markets with the aim of increasing its market share and that it has not progressed far enough from a centrally- controlled economy.

Vaile said Australia would decide on China's free market status at the outset of negotiations, quashing speculation that Canberra could use such recognition as a bargaining chip to secure better terms for its exporters.

"The two countries will only enter into a negotiation as equal trading partners under the WTO," Vaile told reporters in Canberra before flying to Beijing.

Vaile said China must also agree to include all sectors, including agriculture, in negotiations.

"We need to be able to get better access for not just agriculture, not just manufactured goods, but also services and investment," Vaile said.

China is a major market for Australian raw materials such as iron ore, coal and natural gas.

Vaile said that while he remained enthusiastic about striking a free trade deal with Beijing, no decision had been made yet on whether to proceed.

He also predicted negotiations would be complex and difficult, particularly on issues of transparency and market corruption within China.

"This will be a different negotiation from others that preceded it so far as there are many so-called behind the border issues - issues of transparency, issues of governance that impede trade flows more so than other countries and will be just as important as actual market barrier issues like tariffs and quotas," Vaile said.

Vaile hoped to set a timetable for negotiations while in Beijing this week.

China is Australia's third-largest and fastest-growing trading partner and fourth-largest export market. Trade between the two countries has quadrupled in the last decade. Last year trade between the two countries was worth A$28.9 billion (US$23 billion).

The major attraction for China in Australia granting it free market status is the example it would provide other countries, Australian National University International Relations Prof. Stuart Harris said.

Although China's is a controlled economy, Beijing can defend itself against dumping charges -- and the damaging import duties that they draw -- by demonstrating that its products are being sold domestically at the same price as exports.

Harris said that the Chinese economy is at least as free as that of Japan, which is widely regarded as a free market economy.