New Zealand Herald, Auckland
China free to take as tough a line as it likes
1 April 2008
By Colin James
In apartheid days, support for rugby tours used to be called "building bridges".
Opponents, among them today’s Prime Minister, thought sports boycotts more likely to effect change. The argument spilled into the streets in 1981.
But trade with South Africa was small. Trade with China is big and about to get bigger with a free trade agreement (FTA).
Though firm criticism by our ministers of China’s thuggery in Tibet would not likely have killed the FTA - that would likely have compounded Chinese leaders’ already large loss of face in the eyes of a world they want to impress with the Olympics - ministers were understandably reluctant to risk their big prize.
As National’s Tim Groser says, New Zealand has so little to offer potential free trade partners that it is either "first cab off the rank or last". China made New Zealand first cab off the rank among developed countries.
The detail is under heavy wraps. But it is, those in the know say, a good deal. One highly knowledgeable trade negotiator describes it as very good.
There is to be a fast phase-down of Chinese tariffs, which will benefit our exporters, while local producers will notice little difference since Chinese producers have near-free entry now.
Moreover, those in the know say, the agreement passes the test of a true free trade agreement - it addresses what happens beyond the border and in investment rules and regulation of commerce. Getting the goods over the border is often only a start. Much can happen in regulators’ offices and in business practices which can amount to non-tariff barriers.
The Closer Economic Relationship with Australia, 25 years old last week, quickly bumped into the importance of behind-the-border policy settings and practices. Consequently, when the Singapore Closer Economic Partnership was negotiated early this decade it had to pass a behind-the-border test.
But these are complex and sensitive issues - even among close cousins. Nearly 20 years ago, ministers dealing with CER began to talk of building a "single economic market" in which doing business in the other country would be like doing business at home.
Much progress has been made but it has been uneven and slow, even after a boost this decade from Michael Cullen and Peter Costello. John Key stalled it last year by blocking the joint therapeutics agency negotiated by the governments.
Now the new Australian Cabinet has yet to focus on a single economic market. The transtasman relationship mattered so little to Kevin Rudd that he timed his "summit" of opinion leaders for the very weekend this month that had long been set for the annual Australia-New Zealand Leadership Forum. It wasn’t malicious. He and his advisers just didn’t notice.
Rudd also agreed with state governments last week to attempt a massive regulatory reform, which has major implications for this country and the single market idea. Our officials will have to scramble to ensure New Zealand’s interests are part of that reform process.
If Key is Prime Minister later this year there will be another stall while he and his new ministers settle in. The single economic market looks to be another five to 10 years away at least. If CER with Australia is so complicated - and so often fraught - imagine the challenge of negotiating a high-quality FTA with Han Chinese across a cultural chasm and a huge size asymmetry.
If the agreement is as good as people say it is, it opens a big opportunity for the 150 companies accompanying Helen Clark next week - much bigger than from an FTA with the United States, now in the first stages of negotiation by way of an investment and financial services pact with the P4 free-trade group (Brunei, Chile, New Zealand and Singapore).
But it will not be easy to manage. Chinese capitalism is an unruly and unevenly regulated beast, as the stories of double-crossing of foreign firms and shonky and even dangerous goods indicate. Beijing’s writ has limited reach. China is huge and ambitious and, while now channelling its ambitions through "soft power", is building military capability.
China intends its citizens to be rich and will use its large and growing financial and investment muscle to ensure access to raw materials and resources. China’s leaders (like Britain’s when faced with bolshy Maori here in the 1860s) are not squeamish about licking dissidents into line.
And when China needs people as its workforce demographics start to reflect the impact of past one-child policy, that may well squeeze our labour supply, as richer Australia is doing now.
So managing the FTA will be fiendishly difficult. Think of the problem getting our apples into cousin Australia and multiply that many-fold. But managing without an FTA would be tougher in a tough world. Clark will make the best of it next week. She has no realistic alternative.