Cargo and service trade negotiations between China and Australia will be launched officially by the end of the year.

Chinese Assistant Minister of Commerce Wang Chao told the Second Biannual Australia-China Business Forum that this will see talks on a free-trade agreement (FTA) between the two countries enter a substantive stage.

"This year, high-level government officials from the two nations have met twice for FTA negotiations, and the seventh round of negotiation will start this December. China has a positive attitude towards this," Wang said.

But the two sides have yet to agree on issues related to the services and manufacturing sectors, which Ric Wells, head of Australia's China FTA Task Force, said would be the major challenge at the next round of talks.

The genesis of a Sino-Australian FTA was Chinese President Hu Jintao's trip down under in October 2003 during which the two nations signed the China-Australia Trade and Economy Framework.

This led to an FTA feasibility study.

"The economy and trade of the two nations naturally fit each other. A Sino-Australian FTA could bring benefits to bilateral trade and maintain economic stability in the Asia-Pacific region," Wang pointed out.

China and Australia already cooperate in many sectors including energy, manufacturing, agriculture, services and education.

Total trade volume between the two countries grew at an annual rate of about 40 percent between 2003 and 2005.

Bilateral trade was valued at US$27.3 billion last year, up 34 percent year-on-year. 2006 figures were already US$23.5 billion by the end of September, up 19 percent year-on-year.

The previous six rounds of talks have focused on procedures, areas of cooperation, and trade criteria and laws. Further, and most important, the two sides signed an FTA memorandum and an agreement recognizing China's market economy status in April 2005.

"The major achievement we have got is obtaining a much better understanding of each other and a better knowledge about challenges," Wells said.

Regarding these challenges, Wells said that many Australian manufacturing firms regard a potential FTA as "a threat," because they believe it would result in huge quantities of low-cost and high-quality Chinese goods being unloaded in the country.

"We feel pressure from them, and we need significant concessions from China," Wells stressed.

On the other hand, China has concerns in relation to the agricultural and service sectors, he added.

In terms of agriculture, the Chinese are worried about the negative impact that Australian dairy and wool products might have on the domestic market.

Wells added: "I can understand China's sensitivity. In Australia at least, the service sector would be the biggest beneficiary."

"Although we have the technology and know-how that China needs, we don't mean to pose any threat to China; we can pursue a partnership with China."

(China Daily October 24, 2006)