Devil in the detail of FTA

New Zealand Herald | Sunday February 03, 2008

Devil in the detail of FTA

By Fran O’Sullivan

Prime Minister Helen Clark and Trade Minister Phil Goff are expected to fly to Beijing in April for a formal signing ceremony to commemorate the forthcoming bilateral free-trade deal with China.

Barring any unforeseen hiccups the deal will go ahead and New Zealand will be the first Western developed nation to secure an FTA with the burgeoning Asian giant, which the promoters believe will result in annual gains of between US$180 million-$280 million a year to New Zealand over a 20-year period.

The deal’s gains are expressed in US dollars, as China’s currency is pegged to the greenback. They are also expressed on a static basis.

Exactly when the deal will be signed is in China’s hands; it is also unclear whether it will be President Hu Jintao or Premier Wen Jiabao who puts his signature to an agreement. But there is no doubting who has the upper hand when it comes to setting this particular date.

There is also no doubting that agriculture, particularly dairy, will be the major winner for New Zealand.

But once the brouhaha dies down and cabinet ministers pass through the self-congratulatory phase, the hard questions will start over just how good a deal the Government has got on behalf of New Zealand businesses and farmers.

Trade Negotiations Minister Phil Goff is not giving too much away at this stage. He is sticking to the Government’s mantra: the deal will be comprehensive, high quality and cover all goods, an all-embracing description that will be trotted out when the FTA is unveiled by Clark after it has gone through the Cabinet.

But just how much financial benefit will accrue to New Zealand businesses will depend on how well Kiwi firms go on to leverage the deal to open doors within China and break through the morass of confusing bureaucratic regulations that can make exporters’ jobs difficult.

Trade figures indicate that New Zealand businesses have not been overly successful on that score. Many of the larger gains have come from the agricultural/commodity export side, not from merchandise exporters.

As always, the beauty or the devil - depending on whether businesses stand to gain or lose from this deal - is in the detail: the hundreds of pages of legal text that underpin the final Free Trade Agreement.

From what Goff is prepared to say it would appear:

The biggest gains for New Zealand will come from eliminating the tariffs on agricultural exports (the tariffs will not be removed immediately; there will be lengthy phase-in periods). Trade in all goods will be included, not just agricultural products.

Behind-the-border restrictions - known as non-tariff barriers - will be removed or reduced (this applies to the enforcement of phytosanitary measures, customs procedures, standards, pre-shipment inspections and import licensing).

There will not be a major expansion on the services liberalisation front (education and tourism are already covered by existing protocols) and other sectoral gains are expected to be minor.

Investment liberalisation gains are unlikely.

Intellectual property concerns will not be addressed head-on.

Labour and environment issues will be covered in a separate protocol.

The removal of tariffs on New Zealand exports to China will, nevertheless, produce significant benefits. China’s average tariff rate is around 9.5 per cent. New Zealand pays average duties of more than 15 per cent on its agricultural exports (10 per cent for milk powder; 15 per cent on sheep meat; 20 per cent on kiwifruit).

In the short-term, the major gains for our producers are likely to be from higher commodity prices on world markets caused in part by growing demand from China’s burgeoning middle class for Western foods and products.

From a New Zealand Government perspective, senior ministers will have to deal with criticism from the Greens (on the labour and environmental fronts) and possibly New Zealand First and the Maori Party.

The issues that could cause sparks are these:

The Chinese Government has been keen to get agreement for its unskilled workers to fill employment gaps here on construction projects or in agriculture labour.

Major Chinese firms are also interested in investing in New Zealand ironsands, oil and gas projects and coal mines. Sinotrans, which has invested in the Wenita Forest development, is probably the largest single Chinese investment.

Investment is a key area of the economic relationship. China and New Zealand concluded a bilateral Investment Promotion and Protection Agreement in 1988. Treaty of Waitangi issues would come into play here. These factors underpin the Government’s reluctance to play up investment issues at this stage in the bilateral relationship.

The Government will need to pass enabling legislation for the China free-trade deal to proceed. The bottom line is that Labour will be able to count on National’s vote. Goff has already briefed National’s Trade spokesman, Tim Groser, on the broad ambit of the deal.

But, if the Government does not get the atmospherics right, there could still be some sticky moments at the select committee phase, particularly as the negotiations have been conducted in an unduly secretive fashion.

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source: NZ Herald