China, Japan FTA the worth to Australian wine?

A great deal has been said about Australian free trade agreements (FTA) with Japan and China, not only by state and federal governments but also the wine industry. China has been especially good for the industry, as this quote from the latest Wine Australia export report, to end of March, shows:

“The China-Australia Free Trade Agreement (ChAFTA) was in force for fewer than 4 months of the reported period so its full impact is yet to be realised but Australian exports to mainland China grew by 64 per cent to $397 million over the 12 months. The inclusion of $129 million of exports to Hong Kong makes China the largest market for Australian wine exports.”     

On Japan, Wine Australia says:

“Australian wine exports to Japan increased by 10 per cent in value to $45 million and 12 per cent in volume to 12 million litres. Exports are continuing to experience growth after the Japan-Australia Economic Partnership Agreement (JAEPA), which came into effect in January 2015.”

It is also worth remembering Australia is part of the Asia-Pacific Economic Cooperation (APEC), which includes Japan, China and the US.

No matter our strong historical association with Europe and military chumminess with the US, Australia has closer neighbours, and in many ways, aside from trade, we do not treat them well. To quote Sydney lawyer Tim Dick, writing in The Australian on May 1:

“If there were a neighbourhood watch group in this part of the world, Australia would be the neighbour the group had to watch. It is rich and large, rude and loud, and doesn’t seem to care that its behaviour brings the region down.”

Admittedly, Dick was writing about refugees, not wine or trade, but his view seems to concur with mine: Australia does not appreciate the region it is in or accept that it’s not queen bee in the region.

Will China retaliate against Treasurer Scott Morrison’s “preliminary decision” that a Chinese-Australian (80-20) partnership does not have the Government’s blessing to buy the Kidman pastoral empire?

The issue could be resolved if the Chinese share of the partnership were reduced, or the amount of land for sale were cut. The sale may or may not be in the national interest, but the decision will not please the Chinese.

Nor will the Japanese be pleased by the decision to award the contract for building the next fleet of Australia’s submarines to French company DCNS. Former prime minister Tony Abbott is said to have given Japanese Prime Minister Shinzo Abe an informal agreement that Japan would get the contract.

There are plenty of wine-producing countries around the world. Who could blame the Chinese or Japanese for bringing in some new legal nonsense that slows Australian wine imports?

China is not only a near neighbour; its value to Australia comes in many formats. In 2015 international visitors to Australia spent $36.6 billion. Chinese visitors were up 21 per cent, accounting for $8.3 billion, or 23 per cent, of the total spend, up from 7 per cent in 2006. The total Asian contribution was 51 per cent. The UK spend was $3.8 billion, and Americans contributed $3.4 billion.

Figures from the Australian Bureau of Statistics show Australia’s net international investment liability position as at December 31, 2014, was $866.1 billion, an increase of $28.3 billion (3 per cent) on the previous year.

Why Australians are becoming paranoid about Chinese investment is hard to fathom.

The leading investor countries for the year ending December 31, 2014, were:

  • US: $758.2 billion (27 per cent)
  • UK: $484.2 billion (17 per cent)
  • Belgium: $226.1 billion (8 per cent)
  • Japan: $174.7 billion (6 per cent)
  • Singapore: $80.2 billion (3 per cent)
  • Hong Kong (SAR of China): $77.3 billion (3 per cent)

Would the fuss over the Kidman properties exist if the buyer were an American or UK company?

The Seafarms Group, which runs prawn farming and processing operations in the Northern Territory and Western Australia, is looking to raise $150 million of capital for expansion. A note put out by Deloitte Australia says lack of domestic interest means that the project is “much less likely to proceed without foreign investment”, according to the company’s executive director.

Any company, whether wine or seafood, when up for sale or seeking investment, is open to Australians. If Australians don’t wish to play it’s no good sulking about overseas investment. For sure, profits may go overseas, but jobs are kept and local economies benefit.

Check out your friends this coming week. They may not be who you think they are.

Tony

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