New Zealand Herald | Saturday Oct 24, 2009

NZ close to free trade compact

By David Rowe

HONG KONG — New Zealand is closing in on an historic free-trade agreement with Hong Kong which could be precedent-setting, says the Ministry of Foreign Affairs and Trade.

It would be the first free-trade deal for Hong Kong outside China in what is seen as a test case for the special administrative region.

Negotiations on a deal started in 2001, but stalled the following year. New Zealand’s 2008 free-trade agreement with China paved the way for talks to resume in May this year.

Julian Ludbrook, the ministry’s lead negotiator for the Hong Kong talks, said "substantial progress" had been made after four rounds of negotiations. Large parts of the deal had been broadly agreed, Ludbrook said.

"We are hopeful that we are in the closing stages of the negotiation."

David Whitwam, chairman of the New Zealand Chamber of Commerce in Hong Kong, said that New Zealand already enjoyed tariff-free trade with Hong Kong but an agreement would formalise this relationship and give Kiwi firms confidence that trading conditions would continue.

"It puts into treaty format the benefits and free-trade facilities that we are accustomed to. So it actually gives confidence to that which is currently expected," Whitwam told the Business Herald in Hong Kong.

He said Hong Kong would arguably gain more from the deal as New Zealand still had some tariffs in place that would be reduced or eliminated.

But Hong Kong was taking a major step in negotiating a formal arrangement, said Whitwam.

"By signing a free-trade agreement, they are actually signing into the future. Which is something they have never done."

It would give New Zealand companies "a very sure footing for doing business in this part of the world".

New Zealand was seen as a good test case as it was not a threat to Hong Kong and it would be a relatively straightforward agreement.

With a free-trade deal imminent, New Zealand firms should be thinking about what they can gain from doing business in the region, said Whitwam, who is also executive director of Mace Consulting, which helps private companies raise money in Hong Kong.

"A New Zealand company has to look at an early stage where its market is going to be and where it will base itself. It’s still going to have head office in New Zealand, and that’s where its profits will end up, but it might have its marketing arm in Hong Kong and it might have its sales team in China.

"In terms of where it’s going to come to raise its capital, it’s got to come to somewhere like Hong Kong to do that."

He said the fact that Kathmandu’s anticipated initial public offering (IPO) would be the first in New Zealand since December 2007 highlighted the gulf between the two markets.

"We’re doing about four a week here," said Whitwam,

"There have been IPOs in the Hong Kong market that have been hundreds of times oversubscribed."

He said a New Zealand company looking to list in Hong Kong would need to begin operating there at least two years beforehand. "It’s got to build up a track record in Hong Kong."

* David Rowe travelled to Hong Kong courtesy of Cathay Pacific Airways.