'There is a trade-off': Asia-Pacific trade deal highlights Australia's perilous balancing act

Martin Farrer
Photograph: Narong Sangnak/EPA

Scott Morrison was keen to talk up the advantages of the sprawling trade pact he has agreed to enter into with 15 other Asia-Pacific nations.

The deal, known as the regional comprehensive economic partnership (RCEP), includes China and Japan and covers almost one-third of the world’s economy. It will open up new opportunities for trade in telecommunications and financial services, the prime minister said, while adjustments to customs procedures and technical standards would make business run more smoothly across the region.

But as the trade minister, Simon Birmingham, arrived in China on Tuesday with a delegation of 200 Australian companies, the pact only serves to highlight the government’s increasingly perilous balancing act between its commercial and strategic interests.

Related: Australia to join major Asia-Pacific trade deal RCEP but India holds out

Birmingham will be hoping to repair some of the damage done to Australia’s relations with China after Canberra’s decision to block the Chinese technology company Huawei and accusations of a cyber-attack on Parliament House.

Part of his itinerary includes a huge import fair taking place in Shanghai this week.

In pointed remarks clearly aimed at countries like the US and Australia that have excluded Chinese technology companies, the Chinese president, Xi Jinping, urged a more open attitude to technology cooperation “so that the source of innovation can fully flow”.

“We should jointly strengthen the protection of intellectual property rights, rather than engage in knowledge blockades, create and even expand the technological divide,” Xi said.

Australia and the US have both excluded China’s Huawei from its 5G networks and senior government officials from both countries have accused China of intellectual property theft.

Despite the rhetoric, there is concern that the RCEP agreement will tighten China’s hold on the Asia-Pacific economy, especially because India decided to opt out in order to protect local industries from more competition.

Christopher Balding, an associate professor at the Fulbright University Vietnam and an expert on the Chinese economy, said Australia should be sceptical of the benefits of the deal, details of which have so far been kept secret.

“I would be profoundly sceptical that China wants to loosen any trade barriers, despite what Xi says,” he said.

“Exports from China to the rest of the world are flat and imports are down 5%. China won’t be reducing trade barriers – it is slowing trade. It is reducing coal and iron ore imports from Australia, for example, in favour of local industries.”

He also questioned whether Australia should be prepared to pay the price of doing more business with Beijing.

“When countries do a trade deal with the US, they are free to criticise Trump or America’s human rights record. But when you do a deal with China you don’t have that freedom. So it’s fair to say there is a trade-off when we do a trade deal. What will Australia be expected to give? Will it be forced to stay silent on South China Sea matters, or Xinjiang, or Hong Kong?”

Then there is the problem of India’s non-involvement in the pact. Another expert said the decision to join the sprawling trade deal, which will not include the US or India, showed a “disconnect” with Canberra’s strategic goals.

India, which is often cited as a ready-made alternative market for Australian goods in the event of Chinese relations going sour, balked at joining because it would expose its peasant dairy farmers to competition from ruthlessly efficient milk producers in Australia and New Zealand. Australia already has a free trade deal with the other RCEP countries, but not with India.

Related: ‘Wrong place at the wrong time’: how the US-China trade war is putting the squeeze on Australia

Policymakers in Canberra might dream of using closer ties with India and the US to counterbalance the might of China in Asia, but the economic reality is proving more of a diplomatic nightmare.

Prof James Laurenceson, the acting director of the Australia-China Relations Institute (ACRI) at the University of Technology Sydney, said that the RCEP agreement was “at odds” with strategic movements across the region.

“We’re meant to be engaging more with India and the US but on the economic side, we’ve seen Trump pull out of the [Trans-Pacific Partnership] and now India have refused to sign up for the RCEP. There’s a big disconnect there with what is happening in the strategic area.

“We often see the region as we would wish to see it and not as it actually is. We are supposed to share the same values and are committed to open markets. But, really, India and the US don’t share the same values, as the TPP decision showed.”

Melissa Conley Tyler, the director of diplomacy at the Asialink study centre at the University of Melbourne, said the RCEP deal would not have a great impact on Australian companies. However, it had taken 28 rounds of meetings to conclude, she said, and was part of a more nuanced strategy.

“For Australia the agreement is symbolically important as a statement promoting global trade at a time of protectionism,” she said.