Common(wealth) Knowledge #24: Trade deals with China

Anthony Albanese this week met with Xi Jinping.

The G20 summit in Bali marks the first time that the leaders of Australia and China have formally met since 2016. In a one-on-one meeting, Prime Minister Anthony Albanese and President Xi Jinping made progress towards improving relations between the two nations. Chief among the issues on the agenda is the ongoing trade war, which has caused an upfront combined loss of $20 billion, with further financial implications for the two nations. However, normalising relations with China has a long way to go, and is unlikely to happen without a free trade agreement (FTA).

There are two constitutional provisions that enable the Commonwealth government to improve trade relations with China. These are Sections 51(i) and (xxix) of the Australian Constitution, the ‘trade and commerce power’ and ‘external affairs power,’ respectively. Both provisions have a corresponding Minister. As seen in Common(wealth) Government #2, the external affairs power is generally seen as having the broadest scope of any Commonwealth power. For example, any trade relations between Australia and China would naturally also fall under the external affairs power, because they involve a foreign country. It is therefore unsurprising that the Department of Foreign Affairs and Trade governs both areas, with the Minister for Foreign Affairs outranking the Minister for Trade and Tourism.

That being said, the trade and commerce power is also very broad. It grants the Commonwealth government the ability to both regulate and participate in trade and commerce. ‘Trade and commerce’ goes beyond merely transporting goods between countries; in W & A McArthur Ltd v Queensland (1920), Knox CJ, Isaacs and Starke JJ said, at page 547, that it includes “[a]ll the commercial arrangements of which transportation is the direct and necessary result,” which includes the negotiations and the contracts involved.

Making an FTA with China would require the participation of the executive and legislative branches of the Commonwealth government. In R v Burgess (1936), Latham CJ, who had previously been the Minister for External Affairs for the United Australia Party before becoming Chief Justice of the High Court of Australia, explained the role of the executive. At page 644, he said that the Prime Minister and Cabinet, operating through the Governor-General, possess powers relating to the “execution and maintenance of the Constitution,” and this includes relationships with foreign countries in times of peace, through “the negotiation and making of treaties.”

Later in that case, Evatt and McTiernan JJ, at page 687, said the Parliament, through the external affairs power, would then “execute, within the Commonwealth, treaties and conventions entered into with foreign powers.” Evatt J would eventually be the only judge to resign from the High Court and join Parliament, becoming Minister for External Affairs. What this means is that Parliament turns FTAs into legislation and amends existing Australian legislation to be consistent with the new treaty. For example, Divisions 4A-4L of Part IV of the Customs Act 1901 (Cth) make specific changes to how goods are exported to certain countries, in order to be consistent with FTAs with those countries. Without these amendments, the treaties wouldn’t have any real legal effect. The broad scope of the external affairs power means that the trade and commerce power isn’t required for these amendments, but it can nonetheless also be used.

It is unclear, at this time, just how Australia will seek to improve relations with China. In 2020, Parliament passed Australia’s Foreign Relations (State and Territory Arrangements) Act 2020 (Cth). Based on the external affairs power, and supplemented by the trade and commerce power and the ‘foreign corporations power’ of Section 51(xx) of the Constitution, this law allows the Commonwealth government to review and cancel any State, Territory, local government, or university agreement with a ‘foreign entity,’ if the agreement is ‘inconsistent with’ or ‘adverse’ to ‘Australian foreign policy.’ In 2021, the Commonwealth government, under Scott Morrison, used this law to veto Victoria’s participation in China’s Belt and Road Project. It remains to be seen whether the current government will continue to use this law in that way.

Although Australia’s relationship with China is nowhere near what it used to be, it seems that the new government’s approach to China is going to be much more successful than that of other recent governments, but it is only early days. And, if it is going to improve, a free trade agreement that lowers tariffs and facilitates the exchange of goods is going to be essential.

Stuart Jeffery is the host of Between Parkes Place and Capital Hill on 6 News. His views on personal social media pages are his & his only, and do not reflect the views of 6 News or our journalists. He abides by 6 News' editorial standards relating to fairness & accuracy.

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Sources:

Australia’s Foreign Relations (State and Territory Arrangements) Act 2020 (Cth).

Commonwealth of Australia Constitution Act 1900 (Imp) 63 & 64 Vict, c 12.

Customs Act 1901 (Cth).

R v Burgess; Ex Parte Henry (1936) 55 CLR 608; [1936] HCA 52.

W & A McArthur Ltd v Queensland (1920) 28 CLR 530; [1920] HCA 77.