When Australia signed a free trade agreement with China in June, hiccups were expected. The Labor party, which retains links to unions, was seen as a stumbling block. But it proved nothing more than a pushover in the end. Labor has caved in. It’s now thrown its weight behind the so-called ChAFTA.
There was a time when our two biggest political parties had distinctive policies. That’s a bygone era. The lines have blurred to the point where you don’t know which party stands for what. They both promote the same policies. And, invariably, both favour big business. Anything that’s good for corporate Australia is good for the rest of us.
Why would Labor, a leftist party, support an FTA otherwise? One that threatens the very unions they claim to support? The very unions who staged an expensive campaign against the deal? They wouldn’t, of course.
Supposedly, many Labor MPs didn’t back the deal. But enough were in favour of it to gain approval.
What swayed them in the end was a simple clause.
Wage parity — the ChAFTA clincher
The nail in the coffin was what I’ve termed here as the Flexible Foreign Wage (FFW). Here’s how it works.
Say for instance a Chinese worker was gunning for a mining job. Naturally, our Chinese candidate wouldn’t be the only applicant. He’d have local competition too. But unlike our locals, he comes along demanding lower wages. Much lower than what the Australian applicants are demanding. We’ll also assume there’s no difference in skill or ability among our respective job seekers.
For the employer, it’s a simple equation. Whoever you choose, you get the same output. The only question is: do you overpay for it? Or do you opt for the lower cost option? It’s not a difficult choice, I’m sure you’ll agree.
Under any typical FTA, low wage demands always win out. And it’s why they often face so much backlash.
The fear is that low wage Chinese workers will flood Australia. And, in a mass of hysteria, every local would lose their job… That’s an extreme position to take. And it often doesn’t reflect reality. But it’s also not completely off base either. Anytime you introduce low cost alternatives, someone pays the consequence.
What’s different about the ChAFTA? Labour’s gone about avoiding that situation. It’s gotten the government to agree on a few concessions. Which is where the FFW’s come in.
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Under the agreement, Chinese workers would have their wages benchmarked. They’d be paid in accordance with local workers. And they’d need to meet strict industry standards.
These benchmarks would vary between states and industries. Wage indices would apply to specific jobs. That same job in the mining sector would be indexed differently to a service job in downtown Melbourne. Simply put, it means skill will take on greater importance than wages.
The days of blaming foreign workers for low wages will be a thing of the past. Tomorrow’s cynics will cry foul over a backwards education system…
All joking aside, these concessions were enough for Labor to grant approval. And, while it’s better than nothing, it still goes against the party’s traditional leanings.
For China, what matters is that ChAFTA now has bi-partisan support.
China isn’t likely to mind that its workers will be subject to wage indices. That’s not why it’s getting into bed with Australia. Chinese officials have designs on Aussie resources. Or rather, securing cheaper access to them. China, as you’ll know, is a major importer of Australian iron ore. ChAFTA works in China’s favour by lowering import tariffs.
At the same time, it gives the Chinese better access to our market. Which works the other way around too. Aussie companies can tap into the world’s second largest consumer market. There are clear economic benefits for both. Tourism, education and healthcare sectors all stand to gain.
Healthcare in particular stands out for its potential. That’s because China is one of the fastest ageing nations in the world. That’s largely the result of the one child policy. By 2050, China’s median age will be close to 50. Australia’s median age will be similar. But in China that equates to 500 million elderly citizens. That’s 25 times larger than Australia’s entire current population. Most of them will need social care.
China will need help in providing for this growing class of elderly. For mature Australian healthcare services, that amounts to 500 million new potential customers.
In areas like this, the ChAFTA could be beneficial to both nations. But the hope is that this two way exchange proves just that — two way. What you don’t want to see is one party benefitting at the expense of the other.
Ultimately, you’re either for or against this free trade agreement. I’m neither. But the ease at which Labor has sold unions down the drain is worrying. Even if it has compensated them somewhat by indexing wages.
Either way, it’s another sign of the merging political landscape. We have one party, with one policy, masquerading as two. That should concern every Australian.
Contributor, The Daily Reckoning
PS: The ChAFTA is one of the ways the government plans to spur economic activity. In doing so, it hopes to stave off any potential recession. Yet The Daily Reckoning’s Greg Canavan reckons nothing will prevent a recession this year. Greg is one of Australia’s leading investment analysts. He says Australia stands on the cusp of its first recession in 23 years.
In a free report, ‘Australian Recession 2015: Unavoidable’, Greg reveals how we’ve found ourselves in this position.
The profits recession is just a symptom of the wider economy. From falling GDP growth, to declining terms of trade, all signs point to a crash. Trade imbalances have been growing for the better part of a year. Government revenues are down, and household debt is up. It adds up to a recession that’s coming sooner than you think.
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