China-NZ: Exporters hope while unions worry

New Zealand Herald, Auckland

Exporters hope while unions worry

31 August 2004

By BRIAN FALLOW economics editor

While exporters hope a free-trade agreement with China will reduce non-tariff barriers to trade, the union movement worries about jobs.

Since it began to open up to the rest of the world 25 years ago China’s exports and imports have grown 15 per cent a year, on average, more than twice as fast as world trade as a whole.

Its share of world trade has grown from 1 per cent to about 6 per cent. Its exports have become more diversified and sophisticated.

A growing share of its trade in both directions consists of components or materials requiring further processing into finished products, testifying to increased integration with the world economy.

Its trade surpluses with the United States and Europe have increased significantly, but have been offset by a growing trade deficit with the rest of Asia. Overall it ran a trade surplus of $US25 billion ($38.4 billion) in 2003.

China is New Zealand’s fourth largest trading partner.

In the year ended June it took $1.62 billion worth of our exports, up 11 per cent on the year before. More than 80 per cent came from the primary sector - agriculture, forestry and fishing.

It supplied $3.07 billion of New Zealand’s imports, up 1 per cent on the previous year. About a third was textiles, clothing and footwear.

Undertakings made when it joined the World Trade Organisation will see it reduce its average tariff to 10 per cent by 2005. Tariffs on agricultural goods will be lowered to an average of 15 per cent and import quotas replaced by tariff-rate quotas.

But tariff escalation remains an issue for New Zealand forest products exporters. Much higher tariffs apply to value-added products such as plywood, rather than to raw logs.

"We hope they will be dealt with as part of the bilateral free-trade agreement," said Carter Holt Harvey government affairs manager Bruce Chapman.

"But more significant are the technical, or on-tariff, barriers to trade around the Chinese building code. There it seems to be three steps forward, two steps back."

Radiata pine won recognition in the Chinese timber design code published earlier this year, for the first time allowing the use of light timber frame construction techniques, potentially opening up a significant market.

But it remains a work in progress. Forest industry representatives are collaborating with Chinese authorities on a working guide for the building industry.

Generally relationships are good, Chapman says.

"In the past when we have had problems with Russian pulp imports through the northern border with a VAT [value-added tax] exemption that gave them a significant advantage over us, we have been able through MFAT [the Ministry of Foreign Affairs and Trade] to get them to cease.

"Twice MFAT has stepped in in Beijing and got them to stop something at the provincial level. So the relationships are good and we are hopeful of making faster progress in China than in other Asian markets."

While China is importing large and growing quantities of timber, including New Zealand pine, the value added is more likely to take place there than here.

Carter Holt has abandoned the traditional strategy of seeking to process wood close to the forest in order to keep freight costs down.

"The jobs are most likely to be there. The environment for new investment in New Zealand is not that healthy," Chapman says, citing future energy costs, labour market issues and the Resource Management Act as reasons for planned large new sawmills not making it over the investment hurdle.

That is the kind of thinking that worries the Council of Trade Unions.

CTU economist Peter Conway acknowledges the benefits that would flow from an FTA but sees a downside as well.

"What a bilateral agreement will mean is a lot of government and business resources going into integrating investment, finance, trade and labour markets between New Zealand and China, with all the good and bad outcomes that suggests," he said.

"It will not just be about marketing finished products. A lot more resources will be put into how New Zealand manufacturers can base more of their activities in China."

Labour standards were one area of concern, he said, intellectual property another.

"There is no genuine right [for workers] to organise, or freedom of association, or right to collective bargaining - all those fundamental things. And there is clear evidence of prison labour being involved in major commercial activities."

China supplied about 60 per cent of New Zealand’s imports of textiles, clothing and footwear (TCF), a trade worth around $1 billion a year.

Tariffs on the TCF sector are to phase down from 17 per cent to 10 per cent by 2009, and on whiteware - the only other sector with significant protection - to 5 per cent.

The flipside is Government support for transition to an up-market, design-intensive, niche manufacturing future for the TCF sector.

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