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China-NZ: Trade deal rivalry heats up

New Zealand Herald, Auckland

28 June 2004

Fran O’Sullivan: Trade deal rivalry heats up

New Zealand’s "first-mover" advantage with China will be put to the test in coming months as other countries try to jump the queue and open free-trade negotiations with the world’s most populous nation.

Just a month ago Prime Minister Helen Clark and Trade Negotiations Minister Jim Sutton expressed their hopes that New Zealand would be the "first Western nation" to cement a free-trade agreement (FTA) with China.

But as worldwide competition for FTAs with China increases there has been a subtle shift in the NZ spin.

Instead of being the "first Western nation to negotiate" a China FTA, officials now talk about New Zealand being the "first OECD country to enter" free-trade talks.

To some extent this is simply hedging bets. If next year’s negotiations do not proceed to a swift conclusion, or others jump the queue, New Zealand can still point to another "first" in its dealings with China.

It is a political argument at best, but one that would still meet the objectives of the Clark Government in an election year.

There is also an element of the negotiating ploy - not appearing so eager to achieve the primary goal that New Zealand ends up with a soft agreement.

There are lessons for this country in Australia’s dealings with the United States on its own bilateral agreement - which has been dubbed "Aussie Lite" along the Washington beltway, where negotiators had to finalise the deal under time pressure.

In many respects the term "free-trade deal" is a misnomer.

The Australia-US FTA is in reality a preferential trade deal with broad strategic benefits for both parties.

But it also includes several key exclusions - such as proposals to open access to the US market to the Queensland sugar industry - which could not get over the line in a congressional election year.

It is instructive to look at what has changed since the Clark Government’s historic move in April to recognise China as a "market economy".

New Zealand’s decision to grant such status provided China with a platform to achieve similar recognition from other countries.

Singapore and Malaysia have followed suit. Talks are now under way between China and the Asean group.

But the two major trading blocs - the United States and European Union - are flexing their muscles.

Last week US Secretary of Commerce Don Evans stressed Washington would not be so quick to give away its rights to block increased access for under-priced Chinese goods to America’s wealthy consumer market.

"We are going to look American workers in the eye all across this country and tell them we are going to be tough when it comes to enforcing our trade laws and maintaining a level playing field with the rest of the world," said Evans on the eve of a Beijing visit.

Washington argues China signed an agreement when it joined the World Trade Organisation three years ago that other members could treat it as a non-market economy until 2015.

Evans maintains China has a long way to go before it can be treated as a genuine market economy and wants to preserve US rights to bring anti-dumping actions where it fears under-pricing has occurred.

This leaves China on the back foot as the US can simply use a "surrogate" country to determine whether prices are below production costs.

The European Union is expected to give its decision this week.

There are risks to New Zealand that if EU Trade Commissioner Pascal Lamy rewards China with market recognition the EU will push to open its own free-trade negotiations with China.

Just what benefits China sees in an FTA with New Zealand is difficult to quantify since we have a mere four million people. But the EU provides a vast market.

The key benefit for China from New Zealand is strategic market recognition.

But China has already pocketed that benefit.

Officials say negotiations will be tough. There are concerns that China will not hesitate to employ technical barriers to trade - as with the recent decision to fail New Zealand meat exporting companies on sanitary grounds - if it perceives a risk to its own producers. These need to be overcome.

Early concerns by the Chinese Ministry of Agriculture that peasant meat producers would be harmed by increased access for New Zealand producers appear to have been ameliorated.

But a risk still remains that as other nations open their own negotiations with China - including Australia - New Zealand’s first-mover advantage will disappear under the weight of claims that other parties should enjoy any benefits this country might achieve through a quick deal.

In fact New Zealand officials are talking with their Australian and Asean counterparts to try to ensure that no one signs up to a "bum deal" that might put back the overall cause of trade liberalisation.

Difficulties - such as exposing this country’s clothing and textile workers to further competition - will likely be addressed by phasing in further tariff reductions.

What is important now is for New Zealand to stress it still has a $1.5 billion trading deficit with China which needs to be addressed.

The other major risk - which can also be seen as an opportunity - is President Hu Jintao’s desire to chalk up a few free-trade deals to demonstrate an intention to play a fully fledged role in the global economy.

As long as New Zealand is nifty we have a strong chance of retaining our place.

China has in fact set the pace, through all the jockeying with New Zealand, on free-trade talks.

It was China that dangled the free-trade deal in the first place, gained recognition of its market status and now wants the feasibility study on the free-trade deal done in time for the November Apec meeting.

Next year Clark will be facing her own timing imperative - her second election as sitting Prime Minister. If she’s lucky, she might well have a deal in the bag by the election.

If not, she will face the risk that National Party leader Don Brash will promote his party (as he has already done in private with Chinese diplomats) as ready and willing to get a deal done faster than the current Government.