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True picture emerges of China free-trade deal

National Business Review, New Zealand

3 September 2004

True picture emerges of China free-trade deal

Mark Peart

A pragmatic approach to the potential downsides of a New Zealand-China free-trade agreement is emerging to balance hype about the likely benefits.

Officials from both governments are taking seriously concerns expressed by New Zealand manufacturers and Chinese farmers about the increased competition likely to result from such a deal.

With China already New Zealand’s fourth-largest export market, the New Zealand government taskforce on the proposed FTA has been assessing the depth of the support for it among New Zealand business people.

The advantages include increased trade and investment with one of the world’s fastest-growing economies, and overcoming quotas and tariffs on key exports such as milk powder, fish, meat, and kiwifruit.

The New Zealand-China negotiations, set to start early next year, after the completion in November of a joint feasibility study, will attract scrutiny from larger economies who see it as a test case.

Taskforce officials have so far interviewed representatives from more than 200 companies about what they want from a deal, director Charles Finny told a Gateway to China summit attended by 400 businesspeople in Auckland on Wednesday.

"We expect a positive impact but we want to be sure," Mr Finny said.

Trade Negotiations Minister Jim Sutton said even though China was New Zealand’s most complex market, its potential was largely untapped.

New Zealand has come from nowhere two years ago to be a leading contender for a trade deal with China because of its recognition of it as a market economy.

Professor Jean-Christophe Iseux, director of China studies at Oxford University, and a special adviser to the Chinese government said New Zealand should be commended for its "boldness."

Mr Sutton conceded some New Zealand manufacturers were concerned about the implications of a China-NZ FTA.

However, he said the Ministry of Foreign Affairs and Trade-led taskforce was giving the mitigation of adverse effects its "full attention."

Chinese farmers concerned they could suffer from increased competition from New Zealand, should also be reassured they were not under threat, Mr Sutton said.

Mr Finny said the FTA should be about more than tariffs, with regulatory and border control issues also crucial points to be negotiated.

Former World Trade Organisation director-general Mike Moore said strategic considerations were a motivator for a successful deal.

A proposal for an Asian economic community floated three years ago was a dangerous prospect at the time but had evaporated, Mr Moore said.

Businesspeople should not underestimate the worth of the deal.

HSBC’s New Zealand manager, Simon Walker, crystallised the potential benefits to New Zealand with a discussion of the wealth prospects for China’s middle classes. China would have 50 million middle class households by 2010, created from a platform of private wealth being boosted by high growth and privatisation, while household income was growing faster than GDP.

Charles Goddard, Asia bureau chief with the Economist intelligence unit in Hong Kong, said China had become more integrated into the global business fabric, both as part of the global supply chain and as a part of the global market.

Fonterra general manager-China Patrick Kwok stressed the importance of New Zealand companies developing locally-based management teams in China.

"Successful businesses can’t be run at a distance," he said.

The greatest prospects for New Zealand business in China lay within its food and beverage sector, the Dunedin-based director of the University of Otago’s North Asia Institute, Malcolm Cone said.

The institute is working on a scoping study of the Chinese food and beverage sector, which is half-finished.