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Cablegate: New Zealand and China to Sign Historic and Controversial

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R 040301Z APR 08
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UNCLAS SECTION 01 OF 03 WELLINGTON 000121

SIPDIS

SENSITIVE
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STATE FOR EAP/ANP, EEB, INR, STATE PASS TO USTR AND COMMERCE, PACOM
FOR JO1E/J2/J233/J5/SJFHQSTATE

E.O. 12958: N/A
TAGS: ECON ETRD EFIN PGOV PREL NZ
SUBJECT: NEW ZEALAND AND CHINA TO SIGN HISTORIC AND CONTROVERSIAL
FREE TRADE AGREEMENT

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1. (U) Summary: New Zealand's Prime Minister Helen Clark and
Chinese Premier Wen Jiabao will sign an historic bilateral Free
Trade Agreement (FTA) in Beijing on April 7, China's first free
trade pact with an OECD country. Details of the agreement, the
result of three years of negotiations, will not be released until
after the signing ceremony. PM Clark will be leading a delegation
of 150 New Zealand businesses, government officials and press in
Beijing for the signing ceremony. But the timing is less than
optimal as it has been juxtaposed against the negative publicity
over China's recent crackdown in Tibet. Although the agreement is
expected to eventually secure approval by the New Zealand
Parliament, some MPs have begun to publicly distance themselves and
express their disapproval, most notably Foreign Minister Winston
Peters and Labour's left wing base. End Summary.

NEW ZEALAND POISED TO SIGN HISTORIC
TRADE DEAL WITH CHINA
-----------------------------------

2. (U) One of the biggest trade delegations to leave New Zealand in
years has been assembled for the formal signing of the NZ-China FTA
in Beijing; 150 representatives of some of New Zealand's biggest
businesses, including dairy giant Fonterra, will be present. But
the size of the contingent could swell close to 200 once ministers,
officials, local government and media representatives are included.
New Zealand Trade Minister Phil Goff and Education Minister Chris
Carter will also be part of the delegation, but notably absent is
Foreign Minister Winston Peters.

3. (U) "New Zealand's free trade agreement with China is about more
than reducing tariffs - it is also a strategic move that
acknowledges that the emerging superpower will become the world's
biggest economy," said Prime Minister Helen Clark on the eve of her
departure for an overseas trip that will conclude with the signing
ceremony in Beijing. The accord is being touted as the first free
trade agreement signed by China with an OECD nation, and will mark
New Zealand's biggest trade deal since its 1983 agreement with
Australia (the "Closer Economic Relations" CER). China is now the
second-biggest source of imports into New Zealand and the
fourth-largest buyer of its exports, including dairy products, logs
and wood pulp. Imports from China are valued at NZ$5.2 billion and
represent an 18.7 percent increase in 2007, the fastest pace among
trading partners in the past 13 years. Australia remains New
Zealand's largest bilateral trading partner (in term of total trade
- exports and imports); followed by the U.S., Japan then China.

4. (U) Preliminary studies estimate the value of the FTA to NZ
exporters ranges between NZ$180 million and NZ$280 million a year.
New Zealand goods now face average tariffs of about 9.5 percent on
entering China - but in the case of agriculture imports, the average
tariff is more than 15 per cent. Tariffs on Chinese goods entering
New Zealand are low by comparison. Ninety-five percent enter free
of any duties, while the remaining tariffs on clothing, footwear and
carpets are due to fall to 10 per cent by 2009. They could be
eliminated altogether under the deal, raising fears of more job
losses in NZ industries already in decline. The deal is likely to
phase out tariffs in other key areas, and the Government is
understood to have resisted Chinese efforts for freer rules
surrounding the movement of labor. New Zealand trade unions have
been silent thus far on the impending deal, which has led one of two
informed observers to speculate that the Labour Government has asked
its union supporters to hold their fire. The deal will, however,
open the door to more Chinese specialists in niche occupations, such
as acupuncture.

TIBET CASTS A DARK SHADOW
-------------------------

5. (U) The timing of the event, juxtaposed against the negative
publicity brought on by China's recent crackdown in Tibet, has
engendered public controversy. Some commentators posit that the
Government could be courting a public backlash after refusing to
release details of the trade deal until Prime Minister Helen Clark

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arrives in Beijing next week. Clark last week defended the trade
agreement amid public calls to end three years of negotiations to
officially protest recent violence in Tibet. Revenue Minister Peter
Dunne refused to travel to Beijing for the signing, citing China's
"bloody crackdown" on its Tibetan citizens but he has said he will
vote for the deal.

6. (U) The March 31 New Zealand Herald-DigiPoll showed 44.7 per cent
of those questioned still supported the FTA while 32.4 per cent did
not. The other 22.9 per cent did not hold a strong opinion either
way. After it has been signed, the FTA will be studied by the
Foreign Affairs and Trade Select Committee and will then be put to a
vote in Parliament. The Government remains confident that it has
sufficient support to pass because it is backed by the opposition
National Party. The National Party's trade spokesman Tim Groser, a
former senior trade negotiator in the last government, is among
those few MPs who have been briefed confidentially on the agreement.
He stated publicly that "without going into specifics I can confirm
it meets the tests of being a comprehensive and high-quality
agreement and in our view is strategically vital." Mr. Groser
further said that "some of the talk about New Zealand wages being
under-cut by a flood of Chinese workers would be revealed as
groundless scaremongering when the details of the agreement were
revealed." But support from some of Parliament's other parties is
not so assured. Trade Minister Phil Goff has been arranging
briefings on the deal's contents for other political parties, and
among those spoken to have been United Future and New Zealand
First.

HOW NEW ZEALAND'S POLITICAL PARTIES VIEW THE DEAL
--------------------------------------------- ----

7. (SBU) All eyes are turning now to New Zealand First leader
Winston Peters - who as Foreign Minister is in a unique situation -
and said he had received only one briefing on the deal but had
requested another. Mr. Peters said he expected to receive that
briefing in a matter of days. (Note: Winston Peters did not seek a
briefing until recently despite the fact that MFAT staff have
carried out nearly all the negotiations and drafting of the
agreement. End note). He said his party's position had always been
that it did not see the wisdom of doing free trade agreements with
low-wage economies. In the past Peters has specifically cited China
as an example of a low-wage economy. "However, we are waiting for
the details on this one," he said. "I've had one briefing, I've
asked for a more comprehensive one. I think the devil is in the
detail in these things." (Note: Winston Peters and his New Zealand
First Party have long relied on an anti-Asian and anti-immigrant
platform to win votes from xenophobic conservative New Zealanders.
With the national election about six months away, they have returned
to tired rhetoric. End Note.)

8. (U) The Greens have said they will oppose the deal and have
publicly denounced Chinese actions in Tibet. The Maori Party caucus
has also confirmed that they will oppose the free trade agreement
with China. "There are many reasons why we oppose it," said foreign
affairs spokesperson Hone Harawira, "but I guess you could sum it up
by saying we support fair trade, rather than free trade." "Although
we're told there may be benefits for Maori, the downsides in terms
of compromises to our sovereignty, threats to the status of the
Treaty (i.e., Waitangi), the impact on work standards and wage
rates, and China's lack of respect for human rights, indigenous
rights, and the environment, mean the downsides of any free trade
agreement with China are simply unacceptable at this time," said Mr.
Harawira.

COMMENT
-------

9. (SBU) While the China FTA is expected to damage a few of the
small manufacturing sectors still protected by domestic tariffs, the
vast majority of NZ-China trade is already working under a de facto
free trade regime, note MFAT negotiators. That is, some are quick
to note, much more true of Chinese exports to New Zealand than trade

WELLINGTON 00000121 003.2 OF 003


in the other direction. Secrecy surrounding the agreement is in
stark contrast to an earlier FTA with Thailand, whose details were
known well in advance. Given the expected opposition to the
agreement from the Greens and NZ First, Clark likely wanted to
ensure that the agreement was not leaked prematurely and debated
endlessly by the media during an election year. With the March
crackdown in Tibet, the anticipated diplomatic coup for Helen Clark
may not provide the much-hoped for political boost that Labour was
counting on. The agreement may do most to weaken Labour's support
with its left-wing base, labor unions and the Greens. The
coincidence of the signing with continued protests over Tibet will
only compound the damage. End Comment.

MCCORMICK

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