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New Zealand - China: A Comprehensive Relationship

New Zealand - China: A Comprehensive Relationship

Address to Shanghai Academy of Social Sciences, Shanghai, China.

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Introduction
It is with great pleasure that I address the Shanghai Academy of Social Sciences today. I want to use this opportunity to provide an update from the New Zealand perspective on the FTA negotiations between China and New Zealand, and the potential opportunities that an FTA presents to both our countries.

But before I get into the detail of that, I would like to talk a little bit about the strength of the current relationship between China and New Zealand.

Bilateral Relationship
The relationship between us is of course not new. It is founded on a long history of trade and people-to-people links - links which can be traced as far back as the early eighteenth century, when Chinese migrants first settled in New Zealand and trade began between the South Island of New Zealand and Guangzhou.

In recent times the bilateral relationship has thrived at all levels.

Our leaders have been at the forefront of this relationship. The intensity and regularity of visits at the top level of our respective governments has been a feature in recent years. Within the last three years, New Zealand has been honoured to welcome all three of China's top leaders; President Hu Jintao in 2003, Chairman Wu Bangguo in 2005 and Premier Wen Jiabao in 2006. New Zealand's Prime Minister Helen Clark has visited China several times. Most recently, during Premier Wen Jiabao's visit to New Zealand in April this year, he joined with Helen Clark in expressing a joint commitment to maintaining a "comprehensive relationship" - which among other features includes agreement to hold meetings at the top levels of government on an annual basis.

This was just one of many outcomes; our leaders also agreed to pursue closer cooperation on science and technology, education and police and customs issues.

As well as Prime Minister Helen Clark, I and many of my parliamentary colleagues have enjoyed the opportunity to visit China in recent years. New Zealand Ministers responsible for health, education, finance, defence and research, science and technology have all made recent official visits to China. As well as leading the largest ever trade delegation to leave New Zealand on this visit to Shanghai, next week in Beijing I am looking forward to again meeting my colleague Commerce Minister Bo Xilai, and Defence Minister General Cao Gangchuan.

And now to talk about trade.

Over the last decade, merchandise trade between China and New Zealand has grown four-fold. Since 2000, China's exports to New Zealand have more than doubled. Traders from all sectors - agriculture, fishing, forestry and manufacturing - have formed new partnerships. Services trade has also grown to be a key component of our commercial relationship. China is New Zealand's largest source of overseas students. In 2005 over 20,000 Chinese students were studying in New Zealand. Tourist numbers in both directions have grown five-fold since 1999, with over 50,000 New Zealanders visiting China last year and 100,000 Chinese tourists visiting New Zealand. Air New Zealand's direct flights from Shanghai to Auckland, which began this week, will ensure this upward trend continues.

Such figures are just some of the many examples of the unprecedented growth in contact between our countries' peoples. Such people-to-people links are essential for increasing our mutual understanding. Increasingly, our scientists are working together on common problems, our arts and culture are shown in each other's countries, and our sister city and other civil society links are bringing our peoples and communities closer together. An example of this is the four mayors from New Zealand (Rotorua, Wellington, New Plymouth and Shanghai's sister city Dunedin) visiting Shanghai this week.


As we enjoy more frequent and more wide-ranging contacts in business, government, culture, study and leisure, we grow to understand each other better and build stronger relationships for the future.

From my standpoint one of the key indicators of the strength of our relationship is the frequency with which people raise the series of 'firsts' which New Zealand and China have achieved together. People often say to me that they know that New Zealand - in 1997 - was the first country to agree to China's accession to the WTO by concluding the bilateral negotiations component of that process.

New Zealand was also the first developed country to recognise China as a 'market economy' - to say that we would not discriminate against China in our trade dealings within the WTO.

More recently we have added another significant 'first' in our relationship - which directly relates to what I am here to speak about today. In November 2004, President Hu Jintao and Prime Minister Helen Clark launched FTA negotiations between China and New Zealand. The third 'first' is that New Zealand is the first developed country to commence FTA negotiations with China.

Neither country entered into this decision lightly. The decision to launch negotiations followed an in-depth analysis of the benefits, opportunities and impacts of an FTA. Officials and academics from both countries worked together on a Joint Feasibility Study. The study concluded that a high quality agreement would deliver significant benefits to the people and economies of both China and New Zealand.

As the history of our two countries embarking on innovative and cutting-edge journeys together continues, the success of this current journey towards a Free Trade Agreement depends on the quality of the deal. While the numbers in the joint study reflect a 'full liberalisation' scenario, the benefits decline sharply if we settle for less than that. This is why our negotiators are taking time to work through the issues; taking time to understand each other's approach; and taking time to formulate innovative high quality outcomes which are acceptable to both sides.


Visit of Premier Wen
The need for an ambitious approach has been recognised from the outset. When President Hu and Prime Minister Clark launched negotiations, they both agreed that we should negotiate a far-reaching agreement that should cover each country's key exports.

The importance of a quality outcome was further addressed by the leaders at their April meeting. Premier Wen and Helen Clark spoke at length about the trading relationship and the importance of the successful conclusion to FTA negotiations. In those discussions, which I attended, both leaders concluded that an FTA between China and New Zealand should be "comprehensive, of high quality, balanced and mutually acceptable to both sides".

These instructions are important. They set a challenging path for our negotiators. But they mean that China and New Zealand are both aiming to secure a high quality deal - not only in the area of goods but across the range of FTA areas including services and investment. We are both looking to maximise the benefits and opportunities that free trade will deliver.

Progress in Negotiations
Since the launch of negotiations, nine rounds have been completed, the latest taking place last month in Wellington. These negotiations are intensive. Negotiators are taking time to work through all the issues, particularly as we begin to negotiate the detail and cover the 'crunch issues' in more detail.

Solid progress is also being made on the architecture of the agreement. Chapter texts are beginning to take shape in most areas. Negotiators are continuing to make progress in agreeing text and clarifying the areas of outstanding difference.

We are beginning to traverse the detail of market access for goods and services and commitments in the area of investment - and look forward to making more progress in upcoming negotiating rounds.

In the area of tariff liberalisation, in the joint study both sides identified some sensitivities in bilateral trade.


No doubt some sectors in both countries may face some adjustment impacts. But the study concluded that these should be manageable and recommended negotiators from both sides take these into account during negotiations.

New Zealand's approach in previous agreements with a range of partners has been to look at managing sensitivities through agreeing phasing for the elimination of tariffs over time. This allows businesses in sensitive sectors a period of time to gradually adjust to the new environment. For example, our latest agreement with Chile, Singapore and Brunei (Trans-Pacific Strategic Economic Partnership (P4) Agreement), the vast majority of tariffs are scheduled to be phased out by 2015.

While continued progress is being made by negotiators, there is still much to be done in order to deliver to the instructions of leaders. We look forward to working through the areas of outstanding differences - and delivering an agreement that fulfils the Leaders' mandate within the timeframe set in April this year - a landing zone for conclusion of an agreement between April 2007 and April 2008.

I want to take a moment to address a couple of specific issues which have been talked about publicly in the context of our negotiation with China.

One point should be clear at the outset. New Zealand, with an economy smaller than Shanghai, cannot be a threat to China's strong economic performance in any sector. Even in areas where New Zealand has a strong international competitive reputation such as dairy products, we cannot hope to satisfy the enormous and expanding demand in a country of 1.3 billion people. We can, however, have a role in the future of the market, including by partnering with local Chinese firms to share our expertise in production, management, research and development, and marketing.

Dairy
I have heard it said that for China the dairy sector is the most sensitive sector in FTA negotiations with New Zealand. It is important to put this in perspective.


The story of China's dairy sector in recent years is impressive. Since 1996, as dairy tariffs have reduced from levels as high as 65 percent, the domestic price of milk has increased 23 percent and domestic production has nearly tripled. As a result, today China's share of world milk production is 3.7 percent compared to New Zealand's share of 2.5 percent. Couple this with the fact that China has roughly 20 percent of the world's population with a growing appetite for dairy products and the next 10 years promises to be equally as exciting for the Chinese dairy sector as the past decade.

Last year the then New Zealand Minister for Trade Negotiations and Agriculture, Jim Sutton, led a delegation of more than 25 of New Zealand's most important dairy industry representatives to Inner Mongolia, Heilongjiang and Beijing. They saw first hand the potential for cooperation with China's dairy sector. The delegation's key realisation was that New Zealand can play a pivotal role when it comes to providing total dairy solutions. Our industry has the expertise to evaluate the needs of a market and to adapt technologies to suit local conditions. It can develop solutions and packages that will work best and deliver results in that environment. And we also have the consultancy services to offer ongoing support and advice going forward.

New Zealand's confidence in the future of China's dairy industry is reflected in the exploration of business partnerships by New Zealand businesses. In December 2005 the Shijiazhuang San Lu Group and Fonterra Co-operative Group announced a new joint venture partnership. Fonterra's contribution to the venture topped US$100 million. The partnership combines San Lu's brand strength and robust sales and marketing system with Fonterra's world class strengths in dairy production, management and advanced market expertise, and research and development. Fonterra's strategy includes using more local milk from Chinese dairy farmers to supply local manufacturing plants and produce dairy products for China's consumers.

This industry confidence is backed up by the official statistics. China's most recent five-year outlook for the dairy sector projects that dairy production will increase by 7.95 percent per year with consumption expected to reach 42 million tonnes in 2010.


Couple this with the fact that New Zealand's current dairy exports to China account for less than 1% of this figure (122,000 tonnes to June 2006) and it seems to me there is plenty of scope for both industries to grow the market to their mutual benefit and to the benefit of Chinese consumers.

Manufacturing
Just as some in China have talked about concerns over the impact of dairy liberalisation, some in New Zealand have questioned what impact the removal of tariffs as high as 19% at the New Zealand border will have on our relatively small-scale manufacturers. They have pointed to China's vast export capability and expertise across a range of manufacturing sectors - such as clothing, footwear and furniture - and spoken about their concerns about the potential impact of tariff elimination.

As I noted before, we recognised some of these issues in the joint study. But we agreed that negotiators should look to take these into account in negotiations. New Zealand's approach to managing sensitivities on both sides is to negotiate the phase-out of tariffs. This provides those limited areas where sensitivity exists time to adjust to the new environment.

An FTA will also facilitate those business ventures already in place between New Zealand and Chinese manufacturers - those who are already pursuing growth through internationally competitive partnerships.

Opportunities
So the opportunities from a high quality FTA between New Zealand and China are exciting.

I have already spoken of some of the macro-economic effects. The joint study showed that the removal of a range of barriers in both countries would lead to an expansion in the trade of goods and services, and increased investment flows. Both countries will see real GDP grow. Chinese and New Zealand exporters will experience growth across all sectors - agriculture, energy, mining, manufacturing and services sectors.

Chinese importers and manufacturers will also benefit from enhanced facilitation for high quality New Zealand products used in a range of manufacturing operations in China:

·wool for China's carpet and apparel manufacturers
·wood for use in construction and furniture production
·dairy products which help meet expanding consumer demand and are an important ingredient in China's food processing industry
·and as I noted earlier, over 20,000 Chinese students are currently studying in New Zealand.
In a range of sectors we both have expertise to offer, which can help build internationally competitive partnerships.

I have spoken of some examples of investment partnerships New Zealand enterprises have explored with Chinese business since the launch of FTA negotiations. The successful conclusion of FTA negotiations will no doubt encourage - and indeed facilitate - the creation of more dynamic ventures between our business communities.

The opportunities for trade expansion - both in goods and services - can only be strengthened by New Zealand's national carrier - Air New Zealand's - decision to commence direct flights between Auckland and Shanghai from this week. This strategic move will facilitate even r trading and people-to-people links.

Implementation and TECF
An FTA will not by itself ensure that the bilateral trading relationship is taken to a new level. Ultimately an FTA will only provide a framework for businesses to operate within. It is up to exporters, importers and investors to take advantage of the process and forge closer links.

Leveraging off and implementing the agreement will be a long-term exercise. In this context, we also have to continue to work at developing our long-term relationships right across the commercial, financial and government spectrum.

In many areas this process is already underway. In 2004 our two countries signed a Trade and Economic Cooperation Framework. The Framework has opened the way for significant expansion of links between New Zealand and China. Today we can see the fruits of this cooperation.

AQSIQ and New Zealand's Ministry of Economic Development, for example, have been working hard in developing an active consultation and work programme on electrical products. In the area of research, science and technology, a Commission has been established to plan and monitor collaboration in a number of areas of scientific research, including agritech, biotechnology, environmental sciences, energy, health and nanoscience. Closer cooperation is evident across a range of other areas including agriculture, forestry, education, occupational health and safety, and sustainable development.

A high quality FTA will provide further opportunities to take our joint cooperation efforts forward, including across a range of new areas.

Conclusion
In sum New Zealand sees the FTA as opening up a range of exciting new opportunities; a chance to explore new bounds in our bilateral relationship. A high quality FTA will deliver significant economic gains to both countries. It will advance new and innovative trading opportunities for our traders. It will promote further commercial partnerships between Chinese and New Zealand business. More broadly it will help advance our current cooperation activities.

But neither China nor New Zealand can secure any of these gains or opportunities until negotiations have been brought to a successful conclusion.

New Zealand is committed and determined to deliver to the instructions set by Leaders. Negotiators look forward to delivering an outcome within the 1-2 year timeframe set back in April this year. Our intent is to progress negotiations to a successful conclusion as quickly as possible. But any agreement must be consistent with our Leaders' instructions - that is an FTA which is comprehensive and of high quality.

Thank you again for this opportunity to address you all here today. As you can see China's negotiations with New Zealand provides opportunities and benefits to both countries. I am willing to discuss any further questions you may have.

Thank you.


ENDS

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