Hon Jim Sutton
Minister of Agriculture
Speech To Chinese Chamber of Commerce, Auckland

Ladies and Gentlemen: thank you for the opportunity to speak with you today.

I was pleased to accept your invitation to speak at this meeting. It has been a while since I have met with you to talk about our trade with China. If I'm right, the last time I gave a formal speech to this group was in August 2000. A lot has happened since then.

I have been fortunate to visit China five more times, for example. As you will have seen from the flyer for this meeting my most recent visit was last month when I led a forestry trade mission to Beijing and Shanghai as part of a wider trip also including India and Korea.

What I would like to do today is trace some of the developments which have occurred in the New Zealand China trade relationship over the last few years, share with you impressions that I have gained from my visits to China, and looking to the future, talk to you about what's happening on the Trade and Economic Cooperation Framework.

Two major events in the past three years will continue to have a significant bearing on our relationship with China.

First, China's accession to the WTO in December 2001 was a watershed event, not only for us but the world economy. The second major event, was the visit of President Hu Jintao in October last year and the work he and the Prime Minster committed to on enhancing the New Zealand/China trade and economic relationship.

China's WTO membership guarantees us access to its valuable market under predictable, transparent and enforceable rules. Its commitment to tariff reductions will make China a relatively open economy by world standards. It is committed to reduce tariffs on all products from 15.3 percent in 2001 to about 10 percent by 2010, with the majority of tariff reductions coming into effect by 2005. Average industrial tariffs are due to fall to 9 percent and agricultural tariffs to 15.7 percent. China also committed to bind all its import tariffs at current or reduced levels, so limiting future tariff rate rises.

China also committed to reduce a range of non-tariff barriers on imports, including on trade in services. It is to replace import licensing and quotas for agricultural products with a system of tariff-rate quotas. Our longstanding wool trade, for example, is governed by a tariff quota.

Licences and quotas on industrialised goods are to be removed progressively, with a few exceptions. Some tariff rate quotas are being replaced with tariffs only.

Importantly for New Zealand, China agreed to eliminate all export subsidies and to limit the level of domestic agricultural support to 8.5 percent of the value of agricultural production. If only others would do the same!

On the foreign direct investment front, China committed itself to reduce barriers to FDI continuing a process begun in the early 1980s - in some cases reducing ownership ceilings, for example in the banking and insurance sectors, and in others opening up previously closed sectors such as telecoms.

To comply with WTO rules, China has already amended more than 2,300 laws and regulations and abolished 830 others. It has cut import tariff rates on 70 percent of commodities, lowering average tariffs to 12 percent from 15.3 percent and has upgraded its legal and regulatory systems, including those governing intellectual property rights. Thousands of officials and business people have been trained in WTO requirements.

Our trade with China has been growing significantly in recent years. China is now our 4th largest trading partner; 4th largest export market and 4th largest source of imports.

As many of you will know, wool was our principal export to China over a long period. Since 2002, its number one position has been overtaken by dairy products ? mainly milk powders. This is not a reflection of any access problems the wool industry has faced in China but more to do with higher wool prices and the high New Zealand dollar.

Indeed the wool industry has been very pleased with the arrangements for administering the wool quota that we pressed for China to put in place leading up to and since it joined the WTO. The allocation of quota is done now on the much more market-oriented first-come first-served system. The dynamics of the trade are now determined by buyers and sellers. The Chinese have recognised that they need to provide an increased allocation for new users, who can provide the catalyst for growth in the market.

China will also be removing "designated trading" from the equation this year in line with its WTO commitment. This will provide further opportunities for our wool exporters to broaden their clientele base in the Chinese market.

Meat and timber products have shown strong export growth into China in the last few years. In the case of meat ? exports valued at $137 million last year - officials from the NZ Food Safety Authority and the Ministry of Foreign Affairs and Trade have been working with their Chinese counterparts to ensure that meat exporters can have more certain access. This has involved complying with China's requirement to have all meat export premises registered for export to China.

The meat protocols for sheep/goat meat and beef that I signed with my colleague Minister Li in the presence of the Prime Minister and President Hu last October have established agreed access conditions for our trade in these products and meat inspectors from China undertook an audit visit meat plants throughout the North and South Islands last December. When I met Minister Li in Beijing last month he said that the outcome of the visit would be known soon ? and I understand that we will have news by the end of the month.

China is a very important market for our timber exports. It is our fifth largest market for forestry and forestry products ? worth over $302 million in 2003. Logs are the main export.

The mission I led to China last month which I referred to earlier was aimed at promoting New Zealand pine as a large sustainable resource and a versatile timber which can be put to a number of uses. Well attended seminars were organised by NZ Trade and Enterprise to showcase the timber resource we have available, the uses our timber is put to both in New Zealand and overseas and the industry we have here specialising in handling and treating pine as well as training institutions which have expertise in educating users on how to work with Pinus radiata.

A powerful - and I hope convincing - presentation was made by Chinese manufacturer Markor which has developed a very successful furniture manufacturing business based on pine and is selling increasing quantities of furniture both on the Chinese market and to the US.

The mission followed close on the heels of the release of China's revised building code, allowing for timber to be used for construction purposes. The code recognises Pinus radiata as being a suitable timber for this purpose and should in due course give a significant boost to our selling added value timber products into China.

Some issues need to be worked through on how pine is referred to in the code ? and I took those up in calls I made on my Ministerial counterparts in Beijing - but with a burgeoning construction industry in China, it seems to me that opportunities for increasing our timber exports in the future will increase.

Although, as my examples above suggest, there continues to be a strong primary base to our export trade with China, there is evidence of increasing diversity, including, for example niche high tech exports in electronics, communications and telecoms fields.

The services sector ? often forgotten it seems to me when people are thinking about our trade balance with China - has been developing particularly rapidly. China remains by far New Zealand's most significant source of foreign students.

More than 30,000 Chinese students studied in New Zealand last year. Estimates are that they generated over $800 million for New Zealand in fees, accommodation and living expenses.

The numbers of Chinese tourists to New Zealand have also been increasing rapidly since New Zealand was accorded Approved Destination Status in 1998. Almost 66,000 Chinese visitors came to New Zealand last year. That figure was slightly down on the previous year as a result of SARS.

I like visiting China. Since my first visit as a tourist in 1986 and as a minister in 1990s I have seen astounding changes. It's a fascinating country and there's so much going on.

On my first visit to Shanghai, I remember looking across from the Bund to Pudong. All I could see were paddy fields and agriculturual land. I was there a month ago with the forestry mission. The transformation is incredible. It reflects the vibrancy of China. Pudong is a development which stands amongst the most exciting commercial developments in the world - both in terms of functionality and design.

I saw the beginnings of a new city development south of Shanghai of over 1 million people, which will include new towns and universities to take the strain off Shanghai centre, which is now highly congested and difficult to get around.

Over the past four years I have taken five trade missions to China. Each one has visited a different part. We've visited the north (provinces of Heilongjiang, Liaoning and Shandong in March 2002), south (Guizhou, Guangxi Zhuang Autonomous Region and Yunnan in December 2002) east (Guangdong in June 2001 and Beijing and Shanghai several times) and west (provinces of Shaanxi, Chongqing, and Sichuan in June 2001) .

Some of the missions have been highly specialised like the recent one which focused on forestry.

The mission to the south at the end of 2002 focused on agritech opportunities. The different cities we visited each had populations of over 3 million. We probably visited close to twenty cities in all of this size. There are at least another 30 cities in China with populations of 3 million or more. Each would represent a significant market for New Zealand exporters.

The missions have all been very successful in helping to support the exporting efforts of New Zealand companies and to build their market positions. Companies have, by and large, joined the missions to build on relationships through the support of a Minister, or to open up new opportunities.

I'm pleased to say that a minister-led mission to China continues to carry some clout. The presence of a minister, in the eyes of both the Chinese Government and the business community in China, is seen as a seal of approval and is helpful in opening doors.

One thing I have learned from these missions is that New Zealand companies which have Chinese staff who have been trained or have worked in New Zealand or New Zealanders who work for them with good language skills have been able to advance their business in China at a much faster pace.

The large proportion of companies who have joined me on these missions have been successful in developing new business. This has ranged from telecommunications equipment, to carpet manufacturing, machinery for a dairy factory, supplying pine logs for manufacturing pianos for the global market and in the services area, growing pears, working together on the development of new strains of kiwifruit, eradication of hydatids, improving the quality of dairy herds.

It is clear to me from my visits that there is a tremendous amount of goodwill towards New Zealand at all levels.

The New Zealand-China trade and economic relationship is in very good shape.

The Chinese economy is very buoyant ? recording over 9 percent growth last year despite SARS. In this situation - and with an economy which continues to open up ?opportunities will abound for New Zealand exporters of goods and services and investors to be part of the action.

The usual caveats apply ? exporters/investors need to do their homework. They need to recognise that China is not an easy market and it is not one but many. They need to recognise that development in China remains very uneven ? with the East Coast region continuing to shoot ahead.

I often make the point on my visits to China and in meetings with Chinese Ministers that our economies are complementary.

That is clearly the case with the timber industry where we have a vastly increased resource coming on stream and China has put in place ? laudable - conservation policies which mean that they need to import more timber.

But across the board, we are ideal partners. We are an excellent supplier of raw materials and temperate zone foodstuffs and China is emerging as the pre-eminent producer of industrial products for which New Zealand will never be able to achieve the necessary economies of scale. We have a natural trading relationship in many ways.

So let me turn now to the discussion that has appeared in the media recently about the progress we are making in negotiating our Trade and Economic Cooperation Framework with China.

Last October the Chinese President, Hu Jintao, came to New Zealand. He had been President only a matter of a few months. He had been to Russia for celebrations of the 300th anniversary of St Petersburg. But that apart this was his first State visit anywhere as President of the world's largest nation. Why did he come to New Zealand? Obviously that's a question for the Chinese to answer, not me, but there were two things that flowed from it

· Hu's decision to come here reflected just how close the relationship between China and New Zealand had become; New Zealand featured in the thinking and in the priorities of the new Chinese leadership. And we in New Zealand are determined that that is exactly where we should stay.

· It provided a foundation for us to build the next stage of our economic and political links with the world's most dynamic economy.

President Hu's discussions with the Prime Minister gave us that foundation. They agreed that we should start negotiations on a Trade and Economic Co-operation Framework; a document that would set out the areas where New Zealand and China could both benefit through increased cooperation.

This was to cover areas of government administration, ways to facilitate the easier flow of goods across our borders through better cooperation between our regulatory authorities. We were to look for areas of possible joint research; areas such as environmental protection where the specialist knowledge of one country might be used to contribute to the development of the other.

That was the first part - the practical and immediate steps we could take. But we also wanted to look beyond the immediate into the mid and long term. The vision the President and the Prime Minister shared was one of how we might secure the longer-term prosperity of both our countries.

They flagged the possibility that progress towards a Free Trade Agreement might be one of the outcomes from our Trade and Economic Cooperation Framework.

Last week there were media reports that we had agreed, in the first round of our TECF negotiations, to negotiate an FTA, and that in doing so New Zealand would become the first western developed country in China's queue.

The Prime Minister cautioned against any talk of our being part of a race to be first. That isn't our aim. But we do want to explore the costs and the benefits of a trade agreement with China.

Ladies and Gentlemen: Negotiating trade agreements is not ? generally ? a swift process. It will take time. Discussions with China are progressing well, and that's about as much as I can say at this time.

There will be opportunities for you to get involved, during the public consultations that will occur if ? and I emphasise the word IF ? negotiations for a trade agreement with China do commence. I am sure we will continue to keep in touch on this issue.

Thank you.

ENDS

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