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Breakthrough in FTA talks expected soon

China Daily

Breakthrough in FTA talks expected soon

By Wang Li (China Business Weekly)

20 June 2005

The third round of negotiations between China and New Zealand to establish a free trade area (FTA) did not result in a major breakthrough. But a breakthrough may be achieved in the not-too-distant future.

That prediction is based on the fact China and New Zealand have complimentary economic structures, and on the fact the first two rounds of negotiations were successful.

In addition, New Zealand was the first developed country to grant market economy status (MES) to China. That indicates there are relatively fewer obstacles, compared with other nations, to a FTA.

The third round of negotiations was held last month in Wellington, capital of New Zealand. Negotiators discussed details of goods and services to be included in an FTA. Negotiators also discussed a timetable for reducing tariffs, on which goods tariffs should be lowered, and which sensitive sectors should be protected.

Last year, the bilateral trade volume between China and New Zealand, a nation in the Pacific Ocean, rose 36.4 per cent, to US$2.49 billion. Of that, China imported US$1.41 billion worth of goods from New Zealand, and exported US$1.08 billion worth of goods to the island country.

New Zealand’s trade with China has grown faster than that island country’s trade with any other country.

China has imported raw materials including wood, pulp, wool, fish and meat products from New Zealand. China has exported electrical home appliances, garments and furniture to the island nation.

By the end of last September, China had approved about 930 investment projects, worth a combined US$943 million, involving New Zealand-based firms. Meanwhile, Chinese firms had invested nearly US$50.02 million in New Zealand.

From the above figures, we can conclude the two nations’ exports are highly complementary, and there is little competitiveness between their products. Although New Zealand, given its substantially smaller population and territory, has not been one of China’s major trade partners, the Chinese market has become increasingly important to New Zealand’s exporters, farmers and manufacturers.

This is the basic precondition for a FTA deal between the countries.

On April 14, 2004, New Zealand and China announced they had reached an agreement on the framework treaty for the Sino-NZ FTA. The treaty stipulated New Zealand granted MES to China, and that it would not use the anti-dumping clauses China promised to the World Trade Organization (WTO) against Chinese goods.

To gain entry to WTO, China agreed in 1999 to certain conditions including waiting 15 years from the date of membership before other nations would recognize its MES.

That makes it hard for Chinese manufacturers to defend themselves against foreign lawsuits in which they are being accused of dumping their products, because China’s production costs are not considered a reliable standard upon which to determine whether Chinese producers dump, or sell, their goods for less than cost.

Foreign alternatives, which are commonly nations with higher production costs, are used as examples in such lawsuits. For example, Singapore even though Singapore’s labour costs were 20 times higher than China’s was the alternative country when WTO tried to determine whether Chinese TV makers had dumped their television sets in Europe in 1998.

Formal FTA negotiations between China and New Zealand were launched last October, after Chinese President Hu Jintao visited New Zealand. That was a month after a feasibility report on a possible Sino-New Zealand FTA had been completed by New Zealand. The feasibility study concluded, with an FTA, New Zealand’s exports to China would grow between US$260 million and US$400 million annually.

Since then, the nations have speeded up FTA negotiations.

Last December 8, China and New Zealand launched the first round of negotiations. The talks were held in Beijing. The sides reached a consensus on the categories of free trade commodities, and the model for reducing tariffs.

The second round of negotiations was held in Beijing between February 28 and March 2.

During the talks, both sides have clarified their positions on key issues, particularly tariff reductions involving goods and services, and the facilitation of investments. The nations have also studied the influence of other FTA talks including those between New Zealand and Thailand, those involving other Pacific island countries, and the talks between China and the Association of Southeast Asian Nations (ASEAN) on the Sino_New Zealand FTA discussions.

While a major breakthrough eluded negotiators during the third round of talks, insiders note the sides narrowed the gaps on some key issues.

The major breakthrough depends on the degree to which each side will move on sensitive issues which include dairy products, wool and labour-intensive manufacturing. It is very likely New Zealand will make a concession to China’s low-cost manufactured goods. This may mean some New Zealanders lose their jobs, but New Zealand’s government has repeatedly stressed it will upgrade its industrial structure to expand employment opportunities.

Another factor is New Zealand does not want to lag behind FTA deals China is negotiating with Chile and some other countries.

An FTA, however, cannot be reached in three or four rounds of negotiations. China and ASEAN held 17 rounds of talks before they reached an FTA deal last November.

But given the positive attitudes of China and New Zealand, it is likely a Sino-NZ FTA will come sooner rather than later.