Australians talk free trade with China

China's Premier Wen Jiabao (right) and Australia's Prime Minister John Howard applaud after signing a memorandum of understanding between the two countries in Beijing. Picture / Reuters

BEIJING - Australia and China will begin the difficult task of nutting out the terms of a free trade agreement (FTA), opening the door to a potential economic windfall worth $20 billion to Australia over 10 years.

The two countries on Monday signed off on the start of negotiations, which could take up to five years to complete.

Prime Minister John Howard made the official announcement after meeting Chinese Premier Wen Jiabao and President Hu Jintao in China's Great Hall of the People in Beijing, on the first day of a 12 day visit through Asia and Europe.

In a special ceremony, Australia's ambassador to China, Alan Thomas, and China's Minister of Commerce, Bo Xilai signed a memorandum of understanding recognising China's full market economy status and the start of the FTA negotiations.

Mr Howard said that achieving an FTA would help bolster the already strong economic relationship between China and Australia.

His positive view on striking a deal was in contrast to a less optimistic stand earlier in the day, when he talked down the chances of reaching agreement.

"It will be a challenging task, it will be complicated, but we approach it with a great deal of optimism and enthusiasm and I believe China will do likewise," he said last night.

"If that attitude continues there is no reason why after a difficult negotiation success cannot be achieved.

"We already have a remarkably good economic relationship, and a free trade agreement, particularly as it is agreed everything will be on the table, can add even further to that very strong relationship."

A report that both countries have been working on into the deal is expected to show Australia will benefit by more than A$20 billion over a 10 year period from the two countries opening their markets.

The formal start of negotiations is a big advantage for China, with Australia becoming the first developed nation, according to Mr Howard, to grant it market economy status.

China would not proceed unless granted this concession, which makes it harder for companies to take action if it decides to flood Australia with cheap goods.

Asked whether this could mean Australia would be flooded by cheap imports, Mr Howard said Australia would not agree to anything that was not in its interests.

"In any trade agreement you can't expect all the give to be on the other side," he said.

"If we are to get something from China -- improved access, greater participation and so forth -- we must be willing to give something to China in return."

Foreign Minister Alexander Downer said Australia would not go into negotiations desperate for a deal.

"We want to go into the negotiations certain that we will strike an agreement with China that we are sure is in Australia's interest," he said.

Opposition trade spokesman Simon Crean said the government had to learn from the mistakes exposed by the United States FTA.

He said Australia had to ensure most favoured nation status -- which would allow Australia to piggyback on any other trade agreements signed by China -- was included on agriculture.

In his meetings with the Chinese leaders, Mr Howard discussed the issue of China's relationship with the United States.

China's recent controversial decision to pass anti-secession laws to prevent Taiwan seeking independence fuelled concerns that it could lead to tensions between China and the US.

"(The relationship between the US and China) is so important to the stability of the entire region," Mr Howard said.

Australia and China also both agreed on the need for North Korea to go back to six-party talks aimed at defusing nuclear tensions on the Korean peninsula.

"Every effort should be made to persuade North Korea to return to negotiations and discussions," he said.

Mr Howard has further meetings in Beijing on Tuesday before heading to Tokyo in the afternoon.

- AAP