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Dance with the dragon

Dance with the dragon

31 May 2005


Negotiating a free-trade deal with China will secure our interests and smooth the way for further exports.

It is a likely but not a foregone conclusion that the negotiations for a free-trade agreement (FTA) between New Zealand and China will be brought to a successful conclusion. There could be many a slip between china cup and lip.

But after New Zealand was offered the opportunity for a free-trade deal, the beginning of negotiations was inevitable and necessary.

It is not often that a country is offered the first bite, as a developed country, at a free-trade deal with the country with the biggest population in the world, which also has the fastest-growing and most dynamic economy.

Apart from the special circumstances of the Closer Economic Relations agreement with Australia, it can be argued that New Zealand gains more out of multilateral trade negotiations than it does in bilateral trade deals.

This is because of the special skills of New Zealand’s negotiators and because the size of the New Zealand market does not give the country much leverage. Moreover, the plethora of bilateral and regional FTAs is likely to undermine the agreements under the World Trade Organisation (WTO).

The thought of unravelling all the reciprocal deals countries have made with one another and trying to incorporate them into a world agreement befuddles the mind. The principle of a bilateral FTA is to favour another nation. The principle of a multilateral trade negotiation is not to favour another nation with trade advantages not given to others. Yet a Doha-round outcome under the WTO cannot be guaranteed and New Zealand has to pursue trade opportunities where it can find them.

One reason why the beginning of negotiations between New Zealand and China was necessary is that it is a prime duty of governments to preserve existing markets and to smooth the way for its exporters into other markets. Exporters do the selling, but government-to-government dealings are often necessary to overcome trade barriers.

If the opportunity were not seized when it presented itself, one can imagine a government minister or official fronting up to a group of exporters and explaining why it turned down the chance to be the first through the door into a country which some believe will within a decade or two have the world’s largest economy.

You what!

A second reason is that if New Zealand does not take the chance, others will, which could lead to a loss of existing market share for exporters already dealing with China. Third, China is already New Zealand’s fourth-largest market, so any big moves by China to conclude bilateral FTAs have to be studied carefully to discern its intentions and to preserve New Zealand’s interests.

Fourth, the effects of China’s booming economy and exports are already prominent. New Zealand consumers want Chinese goods and New Zealand traders want a slice of the Chinese market. An FTA will put a formality into some of the arrangements and should help to ensure that New Zealand traders have legal protection for themselves and their produce or services. (Intellectual property protection will be one of the important points when the negotiations get beyond the principles they are now discussing and down to specifics.)

Last, there is much more than trade at stake. It is difficult now to pick up a serious magazine without some attention being given to the rise of China or, for those who prefer to put it another way, the re-emergence of a dominant China. There is no doubt that its influence is now powerful, its military is growing and its effect on world markets is the biggest trade challenge in the world today. The issue of influence, particularly in the Asia- Pacific region, might not be the main reason the negotiations have started, but no country can afford to ignore it.

A joint study by China and New Zealand has concluded that both countries would benefit from having an FTA. The trade negotiations are in their third round, but have not yet got down to particular types of exports.

Of course, it is only prudent for the smaller country to ask why it has been singled out in this way. It appears that New Zealand’s support of China’s entry to the WTO and its recognition of China as having a market economy helped matters along the way. China has not spelt out its motives, but a reasonable assumption would be that concluding an FTA with New Zealand would be a way of China dipping its toes in the water of free-trade agreements.

New Zealand has never been a pushover in trade negotiations. Thus far our Government is moving with caution, as indeed, it should.

Stuart McMillan is an adjunct senior fellow in the School of Political Science and Communication at the University of Canterbury.