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," said Wang.

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

"We will have a long way to go," said Wells.

A Sino-Australian FTA first came onto the agenda during President Hu Jintao's trip down under in October 2003, when the two nations signed the China-Australia Trade and Economy Framework.

Since then, China and Australia have conducted a feasibility study on the establishment of an FTA between the two nations.

"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," said Wang.

China and Australia already co-operate in sectors including energy, manufacturing, agriculture, services and education.

The total trade volume between the two countries grew at an annual rate of about 40 per cent between 2003 and 2005.

Bilateral trade reached 27.3 billion U.S. dollars last year, up 34 percent year-on-year. The figure for this year had already reached 23.5 billion dollars by the end of September, up 19 percent year-on-year.

Six rounds of talks have already taken place between the two countries, with the latest ending last month. These discussions have dealt with procedures, areas, criteria and laws, and more importantly, signed an FTA memorandum and an agreement on accepting 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," said Wells.

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

"We feel pressure from them, and we need significant concessions from China," stressed Wells.
On the other hand, China is sensitive in terms of the agricultural and service sectors, he added.

In agriculture, Chinese industry insiders have been worried about the negative impact that Australian dairy and wool products would have on the domestic market.

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

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