It has been a very bad week to be a tariff: Australia signed free trade pacts with Japan and with South Korea, and China, the world’s second largest economy, also signed trade pacts with South Korea and with the U.S.But perhaps the most important of the lot was the deal inked by Australian Prime Minister Tony Abbott and Chinese President Xi Jinping yesterday. The agreement was 10 years in the making, and it is the broadest such pact China has yet signed with any Westernized nation. Reuters reports on the red tape reductions at the border:
The free-trade deal gives private Chinese companies the same $1 billion threshold as rival Japanese, American and South Korean firms have before potential investments come under scrutiny from Australia’s foreign-investment watchdog, which Chinese firms have in the past regarded as a major hurdle to business. […]Once the agreement is fully implemented, 95 percent of all its exports will enjoy duty free entry into China, Australia said.
The Wall Street Journal adds:
The agreement creates an opportunity for Australia’s flagging economy to diversify away from its decadelong reliance on mining—something record-low interest rates for more than a year have so far failed to accomplish. In one of China’s broadest trade pacts yet with a developed nation, the agreement will grant Australia most-favored-nation trading status. […]A key part of the deal is a mutual opening up of financial markets that would help further internationalize China’s currency. It envisages the creation of an official renminbi, or RMB, clearing bank in Sydney, which would lessen the transaction costs for Chinese and Australian investors, while aiming to give better access for investors in Australia to Chinese financial markets, including bonds and equities.
This is a nice victory for Abbott, and it should be great for Australia’s economy overall. As we noted the other day, it’s steps like these that are laying the foundations for Australia assuming a much larger role on the world stage than it held in the 20th century. Australia is a rising power to watch.