Abbott coaches on two percenters. Obama’s time running out on Iran’s nuclear deal. By Hamish McDonald.

China FTA cushions emissions pledge blow

Chinese president Xi Jinping and Australia’s prime minister Tony Abbott watch free trade deals being signed in Canberra on Monday.
Chinese president Xi Jinping and Australia’s prime minister Tony Abbott watch free trade deals being signed in Canberra on Monday.

Tony Abbott must be thanking his best frenemy for pulling him out of a gauche performance at last weekend’s G20 summit in Brisbane, with China’s Xi Jinping obliging with a signed Free Trade Agreement that allowed the government to wave a claimed $18 billion in extra export earnings in front of the local punters.

Abbott had spent part of the previous week lining up actual friends in the tacit quadripartite alliance with the United States, Japan and India to counterbalance Chinese power. In Myanmar’s capital Nay Pyi Taw, he had a three-way confab with Barack Obama and Shinzō Abe in which it was agreed Japan and the US would help Australia with its new submarines, that is, by fitting US combat systems to Japan’s Sōryū-class submarines. This week he went on to firm up defence and security co-operation with India’s Narendra Modi.

But Obama’s surprise emissions-reduction plan agreed with Xi had blindsided Abbott’s climate-change sceptic government. Obama rubbed it in even further with his Brisbane speech that raised the spectre of a vanishing Great Barrier Reef. Ouch! Not much comfort from other visiting leaders such as Germany’s Angela Merkel and France’s François Hollande, who also take the issue very seriously.

Fortunately Australia awoke on Monday morning from a weekend of cringing to the news of the China FTA, allowing Abbott and Trade Minister Andrew Robb to trumpet a trifecta of trade deals in North-East Asia, following the FTAs signed with Japan and Korea earlier this year. As with the other FTAs there are major carve-outs for high-volume commodities such as sugar, wheat, rice and cotton, but greatly increased access over the next four to nine years for beef, wine and dairy products. On the face of it, there is an opening up to Australian financial and other services but coverage is selective, and China has numerous “behind-the-border” mechanisms to make life difficult for foreign entrants. The promised $18 billion in added economic activity is based on an estimate made when negotiations started nine years ago, but whatever: it has allowed Abbott to recover somewhat.

1 . Xi’s money talks

Xi Jinping and his chanteuse wife Peng Liyuan displayed charm and intelligence in their Australian visit, choosing not to embarrass Abbott on the climate-change front and, while conceding nothing on the maritime boundary disputes around China’s fringes, insisting that China was open to talks about preventing untoward incidents at sea.

Xi’s calculation is that liberal splashes of Chinese money will help the region swallow that. In Nay Pyi Taw, Xi and his premier Li Keqiang offered the Association of South-East Asian Nations member countries $US20 billion in new soft loans for infrastructure. Myanmar’s hosts got a special $US7.8 billion package of deals in energy, telecommunications, agriculture, transport and finance. A few days earlier Beijing had fresh development loans of $US500 million to $US700 million a year to Cambodia, which acts as China’s spoiler in ASEAN against efforts to form a common front on South China Sea disputes. As Xi continued his merry way to Australia, New Zealand and Fiji (to meet the eight Pacific island leaders whose governments recognise Beijing), it was clear that money talks.

The message was: you all need China and we hope you come to like it. Philippa Jones at the Beijing consultancy China Policy distils the Chinese analytical take on the FTA this way: it alleviates pressure from US-Japan-Australia military agreements, dilutes the appeal of the Trans-Pacific Partnership focused on the US and Japan, may help promote a wider Asia-Pacific free trade pact pushed by China, mitigates the perceived threats in China’s rise, helps internationalisation of the Chinese currency, meets Chinese domestic demand for safe foods, especially infant milk, expands investment opportunities and makes it easier for Chinese companies in Australia to bring in Chinese staff.

2 . Abbott coaches on two percenters

It was only the trusted scribes of News Corp who made much of the thematic pledge that Abbott and Treasurer Joe Hockey managed to obtain from the leaders assembled in Brisbane: to undertake the domestic reforms and trade barrier reductions that would add 2 per cent to global growth over the next five years.

The Europeans didn’t look at all convincing to European Central Bank chief Mario Draghi, who was still pleading this week for “concrete” structural reforms to tackle looming deflation across the euro zone. He also indicated the ECB was ready to start “unconventional measures” to jolt Europe back into economic growth, such as buying government bonds and other assets.

Japan has already gone a long way down that “unconventional” track of “quantitative easing” along with a fiscal stimulus from government projects, and it doesn’t work without matching reforms to boost wages and employment − the so-called “third arrow” of Abenomics.

Shinzō Abe went home from Brisbane to find Japan officially back in recession, after a second quarter of negative growth thanks to an unexpectedly severe reaction to April’s rise in the consumption tax. Abe has now deferred a second rise in the tax by 18 months and called a snap election. He’s hoping that a scheduled cut in company tax next April will restore growth. But revenue will be correspondingly limited for third-arrow reforms such as better childcare to get more of Japan’s women into paid work.

One leader who has jumped into bold reform is Indonesia’s new president, Joko Widodo. Whether the G20 pledge had anything to do with it, back in Jakarta on Monday he announced a 30 per cent hike in the administered price of motor fuel with effect from midnight. The subsidy cut has so far been taken remarkably calmly by the public. Now Jokowi has to placate a parliament controlled by defeated rival Prabowo Subianto’s coalition.

3 . Nuke deal heats up

As negotiations between the US and five other big powers with Iran got down to the wire ahead of Monday’s deadline for agreement on the Iranian nuclear program, Barack Obama must have been looking ahead to his own hostile legislature.

A temporary agreement to ease economic sanctions against Iran expires on Monday unless a deal is clinched that prevents Tehran from getting nuclear weapons in a hurry in return for a full end of embargoes. The realistic agreement in prospect is that Tehran will agree to restricting its uranium enrichment capability, not reprocess nuclear waste to obtain plutonium, and open up its facilities to international inspection. This would extend Tehran’s “breakout” time to make a dash to build a weapon, giving outside powers such as the US and Israel time to intervene if it did.

However, a majority of US congressmen seemed more in tune with Israeli prime minister Benjamin Netanyahu’s view that any Iranian enrichment capacity at all is too much of a risk. This would have been the case even without the Republicans’ majority in the senate and enhanced majority in the house of representatives gained in the November 4 midterms.

Now there’s an even stronger chance of legislation to spoil a deal by re-applying sanctions. Obama can veto such a bill, but the congressional hostility to Iran is so strong across party lines that a two-thirds vote to override a veto is possible. In which case, we can expect an Iranian dash for nukes, nuclear stirrings in Saudi Arabia and other Sunni-dominated states, and attempted pre-emptive strikes by Israel or the US.

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This article was first published in the print edition of The Saturday Paper on Nov 22, 2014 as "China FTA cushions emissions pledge blow".

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Hamish McDonald is a Walkley Award-winning foreign correspondent.

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