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article imageOp-Ed: Furor in Australia, as government bans Chinese contracts

By Paul Wallis     Jun 14, 2009 in World
Protectionism has hit a new level in Australia. The New South Wales government has decided to ban Chinese products on government contracts, and give preference to Australian made products. Opinions vary from “imbecility” to “Good on yer, mate”.
The NSW state Labor government policy move is in direct conflict with Federal Labor government’s objectives in the Australian relationship with China, which are aimed in a diametrically opposite direction.
To put this move in perspective: China is one of Australia’s biggest export markets, and a major supplier of imports. New South Wales is Australia’s largest state market. It’s also a major exporter to China. To say that this move has come as a surprise, particularly during a very flat export market, is much more than an understatement. It’s not likely to be a particularly popular move, either, in terms of Australian domestic markets, where importers have been taking a severe battering as the Great Recession hits.
Nor does the basic concept of “Australian made” necessarily cut much mustard, in several ways. Australian manufacturing can support these contracts, but the risk is that this level of protection will just encourage uncompetitive supply. It's happened before, when a massive tariff barrier allowed manufacturing to become hopelessly uncompetitive, back in the 60s. It trashed the whole sector, and is now considered the epitome of bad management of trade in this area.
The Australian manufacturing sector isn’t a natural source of replacement for many Chinese imports. It’s simply not geared to do that. Australia imports a vast range of different products from China that Australian manufacturers simply do not make. It’s like asking IBM or BHP to make Barbie dolls, or Target to make commuter trains.
Singling out China, and not Japan, Korea, etc, is also a rather strange position to take. Australia hasn’t had anything vaguely like the number of issues with Chinese products and trade that the US has had, for example. It looks selective, and worse, unjustified and hypocritical.
The actual information made available about this policy leaves rather a lot to be desired, too, in terms of clarity. The reasoning appears to be exactly what it looks like, purely political, but that's about it. The result is something that looks very like a political publicity stunt, not an economic policy.
The Daily Telegraph:
The Daily Telegraph can reveal that all NSW Government departments and agencies will be forced to protect Australian jobs by giving preference to locally made products.
This would include stationery, uniforms, cars and even trains and building contracts. And to make local bids more competitive, a 20 per cent discount will be applied to Australian products when comparing the cost with overseas bidders.
… The policy will be the centrepiece of a jobs package being pinned on a $62 billion capital works program over four years which the Government claimed will support 160,000 jobs.
This applies to future tenders for government contracts, too. It’s a comprehensive package, but comprehension is likely to be exactly what’s likely to be lacking, in terms of Australia’s trade with China. China is one of the good guys in the Australian economy, and the Chinese market has been a major plus to the nation for decades. Australia started trading with China before the US, and the exports of just about all Australia’s products were driving strong economic growth, pre recession.
There are likely to be some big problems. It’s not clear if the NSW government’s policies actually breach any trade treaties, but they can be construed as doing so by intent. The state governments do have the power to decide who they do business with, and how they operate their contracts, but this could be very tricky ground, whether the policies are permissible under trade agreements or not.
There are some very gruesome potential situations arising here. The Chinese have in the past shown that they resent any discrimination against their products, (often with very understandable reasons) and potential ramifications could be serious.
The Chinese could:
(a) Take up a case with the World Trade Organization if there are grounds
(b) Take retaliatory trade action against New South Wales
(c) Take retaliatory trade action against Australia
Readers note: There's an edit here, this paragraph originally read (c), not (b).
Of these options, (b) is possibly inevitable. The New South Wales economy is in a reasonably dire state, and it doesn’t need further hits on its bottom line. There will be consequences.
Diplomatically, at the national level, even Prime Minister Kevin Rudd, who speaks Mandarin, and has served in China as a diplomat, will have a hard time putting Humpty back together. Rudd has been working since his election for an improved relationship with China, and this will be a blow, even if this action by one state has no direct link to any Federal initiatives or policies.
Protectionism is a very bad word in trade, and actual instances of it are never overlooked by exporters. It’s used as leverage, and it often works.
The NSW government has been politically and economically on the back foot for some time. It’s also in the midst of a slash and burn of public sector jobs, and the state budget bottom line is looking like one of the Titanic’s non-survivors, in the opinion of some analysts. So all this patriotic protectionism is likely to be meeting some skepticism, sooner rather than later, from the political side.
Maybe it’s Kill Or Cure time, but the cure isn’t obvious, and the kill is. The next furor could be over who picks up the pieces.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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