Free-trade deal with China is Australia’s gain, Canada’s pain

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Monday was "a very good day for Australia," Prime Minister Tony Abbott declared after reaching agreement on a free-trade deal with Beijing that, he said, "opens the doors to China" for his country's corporate sector.

Australia's gain may be Canada's pain, as Mr. Abbott's triumph tilts the field against Canadian companies already struggling to gain a foothold in the world's second-largest economy.

The Australian deal is now prompting calls in Canada for the Harper government to kick-start its own free-trade talks with China, which stands to find cheaper alternatives to its south than from across the Pacific once the agreement is finalized.

Among the key Australian industries that stand to benefit are metallurgical coal, education, financial services and insurance, important areas for Canada as well.

Australia will also gain an instant edge in other sectors, such as beef, dairy, lobster, wine, processed foods, pharmaceuticals, diamonds and aluminum. Each of those products expects to see the complete removal of Chinese tariffs in coming years.

The Australian department of foreign affairs and trade specifically names Canada as one of the competitors over which it will gain an advantage with the deal, which is expected to be in place in a year.

Its full implementation will bring to zero the tariffs on 95 per cent of Australia's exports to China.

"Across the board, we're probably seeing a 10-per-cent increase in competitiveness for Australian products on a like-for-like basis," said Bryan Clark, director of international affairs and trade at the Australian Chamber of Commerce and Industry, the country's biggest business group.

Australia stands to gain a long head start, given that it took Beijing and Canberra nine years of negotiations to reach the agreement – and Ottawa has yet to start.

"It will give us a very strong competitive advantage over a period of time," said Tracy Colgan, the Beijing-based president of Kamsky Associates Inc., a cross-border mergers and acquisitions consultant.

"We anticipate it's going to kick off a surge in Australia's China trade."

For Canada, one of the single most important changes will be the deletion for Australia of a recently imposed 3-per-cent tariff on metallurgical coal, a major Canadian export to China.

Companies such as Teck Resources Ltd. will continue to face that pricing obstacle, while rival BHP Billiton Ltd. will not. Teck, which last year saw nearly $2.5-billion in revenue from China, declined comment.

(One of the beneficiaries of the Australian deal, ironically, is Montreal-based Saputo Inc., which last year bought Warrnambool Cheese & Butter Factory Co., an Australian company that will now have better access to the Chinese market.)

To date, the Canadian business community has not called loudly for free-trade talks with China, a matter that has proved politically difficult for a Conservative government whose Cabinet is deeply divided on closer ties with Beijing.

But with the Australian agreement now made, some say it's time Canada seek the same. China has for years held out an invitation to free-trade talks, and a precursor Sino-Canadian economic complementarities study was completed in 2012. It found "there is room for much growth" in trade and highlighted a number of sectors – agriculture, natural resources, manufacturing and services – included in the Australian deal.

"We need to be moving forward on economic agreements," said Sarah Kutulakos, executive director of the Canada China Business Council. The Australia deal can both serve as a template and an incentive, since "there's a bunch of sectors in there that strike right at Canada."

She added: "We're always losing ground in China, and this is why it's so important that we keep moving forward, and try to keep the pace up – because the rest of the world is really aggressively pursuing China."

The Canadian share of Chinese trade has remained largely unmoved for years; Canada, with a population 50 per cent larger than Australia, does half its trade with China.

Even if Canada does open free-trade talks with Beijing, Ottawa may want to consider other side deals first, given the time it takes to conclude comprehensive agreements.

Sectoral agreements on aerospace and transportation, clean technology, agri-food, mining and natural resources "are the ones everyone agrees would be logical to start with," Ms. Kutulakos said.

"Every advantage we can give ourselves, we should," she said.