Australia's manufacturing exports have grown faster to China than to the rest of the world, and strong Chinese economic growth will continue to underpin demand.

Australia is well placed to benefit from China's rapid industrial expansion, and to compete for business in China.  Australian exporters are among the most enterprising and innovative in the world.  Our manufacturers have excelled in establishing niche markets for their products.  Growth, diversification and export-orientation of Australia's manufacturing have occurred as our own tariffs have come down.

Trade in manufactured products accounts for a large proportion of the Australia-China bilateral trade relationship.  From small beginnings, Australian exports of manufactures to China have grown rapidly - their value increasing by 160 per cent between 1999 and 2004, compared with only 13 per cent to the rest of the world.

 
Source: DFAT STARS database

Australian manufacturing companies across the board have been actively involved as traders and investors in industries in China.

 
Source: DFAT STARS database

Australia and China are not direct competitors in all segments of the manufacturing market.  While China has an advantage in labour-intensive manufacturing industries, Australia's industries are mostly capital intensive.  Some industries such as textiles, clothing and footwear (TCF), automotives, and plastics and chemicals face stiff competition through downward cost pressures, in domestic and third markets.  However, even within these industries China presents new opportunities including in niche areas.

China's importance in global manufacturing offers many important opportunities for Australia's manufacturing industry such as:

1.   the provision and sourcing of inputs of processed materials or substantially processed goods
2.   the supply of specialised niche products and innovative technology to the Chinese market
3.   bilateral investment in each country's manufacturing industry

"One of Australian industry's best strategies in getting into the China market is to attach solutions to China's manufacturing activities and for Australian industry to move up the value chain."  Heather Ridout, Chief Executive, AiGroup 17 November 2004.

An FTA could help to ensure Australian companies maintain their competitive position as cost-efficient suppliers of inputs to the Chinese market through:

1.   elimination of tariffs facing Australian manufactured goods in the Chinese market, some of which are as high as 45 per cent
2.   addressing non-tariff measures that Australian companies face in the Chinese market
3.   greater opportunities for Australian investment in the Chinese manufacturing sector.

China's tariffs on selected Australian exports of simply-transformed manufactures (STMs) and elaborately-transformed manufactures (ETMs) cost our manufacturers somewhere between A$50 million and A$195 million a year. Even after China fully implements its WTO tariff commitments, tariffs will continue to limit commercial opportunities in a significant way. Removal of these tariffs would give Australian exporters significant commercial opportunities in a growing market.

Higher tariffs on value-added goods (tariff escalation) provide greater barriers as Australian industry moves up the value chain. For example, current tariffs on paper pulp are zero, rising to 9 per cent for paper products and 11 per cent for paper.

An FTA would also provide a means to expand trade through cooperation to reduce impediments associated with non-tariff measures, such as customs and clearance regulations, standards and technical regulations, and protection of intellectual property rights.

The Australian Government will take into account the interests of all industry sectors in FTA negotiations, and will liaise closely, in particular with the industries most affected such as TCF, automotive, and plastics and chemicals. Australian businesses have already shown through their responses to Australia's economic reforms, including lower tariffs, their ability to respond to the challenges and grasp the opportunities presented by continuing domestic and global developments.

"There is increasing interest in the Chinese market from both an exporting and investment point of view. Australian companies are looking for new ways to enhance their global competitiveness and China is seen as a viable strategy." Ms Christine Gibbs Stewart, General Manager International Trade, Australian Business Limited, 18 February 2005.