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Trade clause a coup for NZ

New Zealand Herald, Auckland

Fran O’Sullivan: Trade clause a coup for NZ

19 March 2008

By Fran O’Sullivan

New Zealand has succeeded in gaining "most favoured nation" status from China in the negotiations for the upcoming bilateral free trade deal.

The "most favoured nation" clause is a major success for New Zealand’s trade negotiators - in particular the Ministry of Foreign Affairs and Trade’s chief negotiator David Walker.

What this means is that the trade advantages New Zealand achieves through the free trade agreement (FTA) cannot be superseded by other competitors in bilateral deals that China subsequently inks with bigger countries.

At a time when the world faces some serious economic challenges this is a very good opportunity for New Zealand. If we play it right - and sufficiently aggressively - we have the potential to significantly increase our exports to China, plus take advantage of a stronger relationship to position the activities of our globally focused companies closer to China’s growing middle-class.

This most-favoured nation breakthrough - coupled with the fact that the FTA is also expected to result in total goods liberalisation (over time) - is a huge fillip for this country’s economic future ... although there may well be a degree of carve-out as far as wool and forestry trade is concerned.

The deal will basically introduce a dynamic effect into the bilateral economic relationship between New Zealand and the Asian economic powerhouse, effectively multiplying the forecast $200 million to $400 million annual gains that New Zealand would otherwise expect to achieve on a static economic analysis.

It is also expected to achieve further gains for the 10 or so key service sectors outlined in the original FTA scoping exercise, and, provide a platform for bilateral investment.

There will be no hordes of low-paid Chinese workers descending on our shores to undercut Kiwi workers - as some unions have mischievously suggested. But as with the Thai FTA, there will be a clause allowing more skilled Chinese workers in specific sectors to find work here.

Inevitably there will be some controversy: A proposed mutual recognition agreement covering electrical goods trade might pose problems if China’s safety inspections are later found to be wanting.

But the important factor to note is that China has taken on board the risks posed to its own export success from the toy recalls controversy and has tightened safety regulations.

Chinese sources that I have canvassed have been surprised at the level of domestic opposition within New Zealand to the FTA.

The Chinese Ministry of Agriculture has walked a delicate path on the agriculture liberalisation front. While the tariff liberalisation - particularly on dairy - will have a long phase-out period, the move will still put the onus on China’s growing dairy industry to lift its game.

There is also concern on the China side that the economic agreement will be mutually appreciated for the potential gains it can bring over time, and, surprise that more New Zealand businesses have not openly recognised the potential upside for their companies from the FTA.

But New Zealand Inc is determined to leverage the signing ceremony for the China free trade deal to lift the profile of Kiwi business in Beijing and elsewhere.

The business delegation, which will fly en masse to Beijing on April 5, may well be the biggest ever to leave New Zealand’s shores.

It will include senior representatives of major Kiwi companies doing business with China - such as dairy giant Fonterra, Air New Zealand and Solid Energy - as well as the heads of business organisations, SME bosses, senior Government department heads, politicians and media.

It will also include senior executives from some major Australian companies with subsidiaries in New Zealand, and a smattering of other businesses looking to leverage potential investment opportunities.

The delegation will inevitably demonstrate New Zealand’s good will on the commercial side. But there will be some nail-biting moments over the next couple of weeks as New Zealand businesses - like the Government - assess the situation in Tibet.

Indications are that pragmatism _ from both the political and business perspective _ will triumph.

Legislation underpinning the FTA will have to be passed by Parliament. Inevitably the Greens - and possibly United Future - will criticise the Chinese on human rights grounds.

But there is already a majority in Parliament for the agreement. Labour has kept National in the loop seeking written assurances that it will support the more controversial aspects of the deal. This move enabled New Zealand’s negotiators to conclude the agreement without fear that it would fall apart under political pressure.

Winston Peters has also demonstrated realism on the Tibetan crisis. When Peters was first appointed Minister of Foreign Affairs outside-the-Cabinet, there were concerns he would oppose the FTA in line with his party’s long-time concerns on Chinese trade. But in Parliament yesterday he stressed that unilaterally abandoning trade with China over Tibet would not advance New Zealand’s interests.

New Zealand would simply lose its standing in that important market at a time when there growing concerns about the world economy.

Peters’ comments came after Prime Minister Helen Clark introduced a motion calling on Chinese authorities to react "carefully and proportionately" to protests over Tibet. Clark revealed the Government’s views had already been conveyed to the Chinese authorities by New Zealand’s ambassador in Beijing and to his Chinese counterpart in Wellington. There had been formal confirmation that "note" had been taken of those views.

Clark’s comments were much more robust than her initial responses. She has indicated a preparedness to directly tackle the Chinese leadership when in Beijing for the signing ceremony.

This is how it should be - a good omen for the future.