1. China is Australia’s 2nd largest trading partner; 2nd largest source of imports and 2nd largest export destination. Australia is China’s 11th largest trading partner, 14th largest source of imports and 9th largest export destination.

2. Australia is in a more favourable trading position vis-à-vis China .Australia is also better positioned to benefit from increased bilateral investment flows in a post-FTA environment.

3. The Australia-China FTA process emerged form a series of high-level visits in Beijing and Canberra in 2002 and 2003. In October 2003, Prime Minister John Howard and President Hu Jintao signed the Trade and Economic Framework between Australia and the PRC. In 2005, both sides jointly published a Joint Feasibility Study which laid out the principles and processes for the FTA negotiations.

4. Priority sectors in an Australia-China FTA are: Australia’s manufactured merchandise market (TCF sector, auto sector); China’s agricultural produce market; China’s services market; China’s investment policy framework.

5. Australian negotiators have targeted China’s services sector and investment framework as a key source of benefits under an FTA. Access is hampered by a number of regulatory restrictions on business scope and geographical limitations, a wide range of NTBs, and a restrictive investment policy framework for foreigninvestors. Chinese officials have said they would not be comfortable opening these areas for negotiation under an FTA.

6. DFAT commissioned an independent study to model the potential costs and benefits of a China-Australia FTA conducted jointly by Chinese and Australian academics. The results show that an FTA, fully implemented in 2006, will result in the following increase in GDP for each country in 2015: Australia: US$18 billion and China: US$64 billion.

7. Opposition from the Australian Labour Party, themanufacturing sector, labour unions and some civil society groups in Australia present significant obstacles to garnering sufficient domestic support to sign an FTA with China. Opposition from the Ministry of Agriculture and some provincial/municipal level stakeholders in the Chinese Government presents an obstacle on the Chinese side.