The Letter Monday 19 April 2004

POLICY FOLLOWS TRADE

The signing of a Free Trade Agreement with China may prove to be the Clark Government's most significant achievement. Policy follows trade. When the UK was NZ's biggest trading partner, NZ was the most loyal dominion. Now Australia is our biggest market. Australia is an important foreign policy influence. As China becomes a bigger market, China will influence our foreign policy and how we view the world.

CARTOON Talented cartoonist Daryl Crimp is our latest addition to The Letter.

A GOOD DEAL

An FTA with China will be a good deal for NZ. NZ and China have complimentary economies and we have few trade issues with China – which is why NZ is the first developed country to negotiate an FTA with China. NZ does not have the intellectual property for China to copy – our textile and footwear industries are tiny, and are scheduled to lose their tariff protection.

NZ was the first World Trade Organisation member to sign an assession agreement with China, to enable it to join the WTO. A new member needs the approval of every member to join. The rest of the world played hardball, wanting significant concessions from China before agreeing to its admission. Our trade officials realised that NZ would earn China's gratitude by being the first to sign a trade deal for admission, and that every trade concession China granted to other WTO members must also be offered to NZ.

HOW IT WAS DONE

China has real issues with WTO members, especially the US. America claims China is not following WTO rules, has not stopped copyright violations and is keeping its currency artificially low. In March, NZ was the first country willing to say that China is following its WTO commitments, and recognise it as a market economy. This is important to China, and it was this that made China willing to sign with NZ – rather than Australia.

THE EFFECTS

The only significant tariffs on Chinese imports are on textiles and footwear. The design industry will welcome the deal – clothes can be designed here and manufactured in China. This means cheaper and better clothes and footwear, and an improvement in our standard of living. There are few restrictions on NZ exports to China – the tariffs on dairy and meat are 10-15%. The biggest beneficiary may be the timber industry. There must now be a real possibility of getting China's enormous building industry to use NZ timber – if so, the 'wall of wood' will vanish.

THE POTENTIAL

China is not just NZ's fastest-growing market but, due to Chinese demand for commodities, NZ is one of the few countries with a reasonable trade balance with China. The real potential is, if industry uses the agreement, to enter the Chinese service market. Firms like Mainfreight are already in China and helping China export, not just to NZ and Australia but also, to the US.

THE NEXT SUPER POWER

China's statistics are amazing: a quarter of the world's population, and 10 percent growth for the first quarter of this year. Project China's growth and, in 20 years, China will have an economy equal to that of the US. Chinese living standards will be a quarter of America's, but it represents a huge market. China's demand for commodities has produced a commodity price boom, especially steel for China's construction boom.

CHINA'S CHALLENGES

The Letter is sceptical about predictions based on straight-line projections. China faces huge challenges. The old SOEs are bankrupt, and China's banking system is a mess. Each year, millions of Chinese migrate from the countryside to the cities. China is a dictatorship. Corruption is endemic and the legal system is inadequate. China's economy and society will face severe shocks, the outcome of which are unpredictable. To be too close to the dragon risks being burnt. But, as a small trading nation, NZ can't afford not to take the Chinese option. Helen Clark's anti-Americanism has cut us out of the US alternative. The Doha round is stalled and may take years, if ever, to conclude. The EC will be preoccupied with the challenge of absorbing the ex-Communist nations of central Europe. ACT's eight MPs will vote for the China/NZ FTA, so Helen Clark knows Labour has a majority.

HOW TO SUCCEED

If the China FTA is to succeed, NZ needs to make use of the huge asset that new Chinese NZers represent. Recruiting Chinese-speaking NZers into the management of NZ companies is the way to understand China.

THE POLL

The result of last week's question shows that The Letter's readers believe that Helen Clark should fire Tariana Turia as Minister, and this result has been sent to the Prime Minister. This week’s question – "Should the NZ Government sign a Free Trade Agreement with China?" Visit http://www.act.org.nz/poll to give your view. We will send the result to all party leaders. This message has been brought to you from the ACT New Zealand Parliamentary Office

ENDS

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