Questions and answers for media

1 Why does New Zealand want an FTA with China?

Securing preferential access to China's economy has the potential to deliver significant gains to our exporters. It is the fastest growing major economy, currently growing at around 9.1% per annum. China is our fourth largest trading partner taking $1.38 billion of goods and over $1 billion of services. Our agriculture sector in particular will benefit from an FTA with China. China's middle class is now estimated to be more than 100 million people and growing - which will fuel the demand for New Zealand dairy and agricultural products. There should also be gains to manufacturing sectors and the services sector.

2 What are the potential gains to New Zealand?

Initial and very simple modelling work done by the Ministry of Foreign Affairs and Trade suggests than an FTA between China and New Zealand would have a positive impact on the New Zealand economy. Further gains are likely also for services exports, investment and potential improvements in trade facilitation. These elements have not yet been modelled. A more sophisticated and rigorous modelling analysis will be carried out during a joint study.

3 What sort of trade barriers does New Zealand face in China at present?

The greatest gains for New Zealand merchandise exports are likely in agriculture, specifically the dairy, fruit and vegetable and processed food sectors. Examples where we currently face significant tariffs are:

- Milk powder. Even when China has fully implemented its WTO commitments, the tariff could be up to 10 percent.

- Wool. Out-of-quota exports face duties of 38 percent.

- Meat. Tariffs may reach 15 percent.

. Forestry.ƒnWhile China has low tariffs on 'rough' wood, with the bound rate resting at 1 per cent, intermediate wood products (for example veneer, fibreboard and plywood) incur higher tariff charges.

- Kiwifruit exports may incur tariffs of up to 20 percent.

Removal of these and other tariffs makes up a large proportion of the potential gains to New Zealand in the agriculture sector. Regulatory and other non-tariff measures also exist in many sectors and by addressing these through an FTA, it is likely that the transaction costs of doing business in China would be reduced. This would make New Zealand goods and services more competitive.

4 What will an FTA mean for New Zealand manufacturers?

In terms of manufactured goods, the picture is less clear. However, there may be some gains to be made by manufacturers operating in niche sectors.

- New Zealand dishwasher products face tariffs ranging from 10 to 14 percent.

- Fridge-freezer units incur tariffs duties between 9 and 30 percent.

- Air-conditioner units attract tariff rates of up to 20 percent.

- Carpets incur tariffs of up to 14 percent.

With a reduction of tariffs through an FTA negotiation and consequent improved price competitiveness, there is the potential for a modest expansion of opportunities for New Zealand exporters.

There have been adjustments in the domestic textile, clothing and footwear sectors for several years, and will continue to be following implementation of New Zealand's tariff regime post 2005. The way in which an FTA with China relates to that process will be looked at in the feasibility study and views of industry will be sought in the associated consultation process. Some transitional measures may be needed to smooth any adjustment process.

5 What will it mean for other issues in New Zealand's relationship with China?

This negotiation will not affect the dialogue we already have on other issues, including sensitive ones.

6 Why did New Zealand decide to agree that China has a market economy system?

This question has a very particular meaning because of the way in which China has been treated in the WTO by some countries. When China joined the WTO some countries retained the right to discriminate against China on the grounds that it was a "non-market economy". This was the justification for having special and discriminatory anti-dumping and safeguard rules against China.

China has never been happy about being singled out in this way It has said that it will only negotiate an FTA with partners that are prepared to acknowledge that it has established a "market economy system" and to agree not to use the discriminatory provisions. This is why China attaches such importance to securing acknowledgement of its market economy system before FTA negotiations can begin.

Unlike other countries, New Zealand does not have a problem in meeting China's request. Our Dumping, Countervailing and Safeguard Investigations legislation is applied to all WTO members on an equal basis. It does not discriminate against China based on the concept that it is a "non-market economy." In short, acknowledgement that China has established a "market economy system" involves no change to our present policy and no reduction in protections for the New Zealand domestic economy.

7 Is China in fact a "market economy'?

New Zealand's assessment is that China now has enough of the key characteristics of a "market economy" to be regarded as one. As emphasized in Q6, this concept has a very particular meaning in international trade terms - it relates to the way in which some countries treat China in a discriminatory way. More generally, there is no universally accepted definition of a "market economy." In recent years China has adopted open-market trading of goods and services. Alongside this trend has been a steady decline in state control of the economy, and ongoing development of institutions that underpin the market economy.

8 Why is China so keen to sign an agreement with us when there are much bigger players waiting in line?

We have a very good relationship with China. China frequently recalls that New Zealand was the first developed country to sign off on terms for China's accession to the WTO. China also appreciates New Zealand's non-discriminatory approach to applying trade remedies that treats "market" and "non-market" economies alike (see Q6).

New Zealand's small size offers China an opportunity to take its first steps on an FTA with an OECD economy that would involve a less complex negotiation than it would face with larger developed economy trading partners. So far China has only concluded one CEP with Hong Kong, though it is engaged in negotiations with ASEAN.

9 What does the agreement mean for our trade remedies legislation and practice?

It will have no effect on New Zealand's trade remedies legislation and practice. We are not reducing the level of protection that New Zealand firms have recourse to at present.

10 What WTO provisions are we agreeing not to use and why?

China has asked New Zealand and other trading partners not to apply Sections 15 and 16 of its Accession Protocol and paragraph 242 of the Working Party Report on China's Accession. These provisions provide WTO members with the option to apply additional provisions to China in relation to trade remedies and safeguards investigations.

New Zealand's anti-dumping and safeguard legislative framework is based on the general GATT/WTO framework. It does not use any of the China-specific provisions referred to above. New Zealand applies the same anti-dumping, countervailing and safeguard procedures to China that it applies to other WTO members.

11 What is the Trade and Economic Cooperation Framework scheduled to be signed in June?

Last October the Prime Minister and President Hu Jintao agreed that New Zealand and China should develop a framework to facilitate and promote bilateral trade and investment. The framework was finalised at officials' level on 6 April and will be signed in June. It covers the commencement of the FTA study, consequent FTA negotiations and the associated market economy pre-conditions required by China. It also outlines the practical steps that New Zealand and China will be taking to strengthen cooperation across a range of economic sectors, and to promote dialogue at the ministerial, business and academic levels. The TECF will lay the foundations for future economic and trade cooperation between the two states.

12 What consultation and research will be carried out in the feasibility study?

A more detailed analysis of the likely impact on trade and the wider New Zealand economy of an FTA with China is planned and will contribute to the joint study with China.

A comprehensive stakeholder consultation process will be an important part of the study process. All who wish to provide comments will be given the opportunity to do so.

13 Australia is also seeking an FTA with China. What about a CER approach to FTA negotiations with China?

Australia is on a similar path with China. They signed their Trade and Economic Framework with China last October. In light of our close trade relationship under CER, we hope it will be possible to closely coordinate with Australia on our respective processes with China.

14 Is there a proposed date for completion of an FTA?

It is too early to say when negotiations might be completed. They have not even started. The TECF anticipates a start in early 2005. But there is a sequence of events that must be followed before that start-date: first we have to complete the TECF, then we have to undertake the study. The FTA negotiations will follow on from that. We are still at stage one of this process. Once we have completed the study we will have a better idea about a target date for the completion of the talks.

15 What will the China FTA negotiation mean for any other current or proposed New Zealand FTA negotiations, for instance with Hong Kong and the USA?

CEP negotiations with Hong Kong have not progressed since August 2002, mainly because of Hong Kong's insistence on retaining its outward processing arrangement (OPA) as a central element of the rules of origin (ROO) in any agreement with New Zealand. The OPA regime allows products to undergo "final processing" in China and still claim Hong Kong origin. This OPA is not acceptable to New Zealand as it would make it very difficult for us to determine the true origin of goods claiming Hong Kong origin. A comprehensive FTA between New Zealand and China would offer the prospect of resolving this problem.

NZ has made it clear to the US, most recently during Mr Sutton's recent visit to Washington, that we remain very interested in a bilateral free trade agreement,. Other countries including Australia, Japan, Thailand and Singapore are also pursuing agreements with both China and the US.

16 What does the agreement with China mean in terms of New Zealand's support for the WTO and the multilateral trading system generally?

The WTO remains New Zealand's number one trade policy priority and we are determined to work with others to reinvigorate the World Trade Organisation negotiations. New Zealand also recognises however, that free trade agreements with key trading partners can open up important new opportunities for New Zealand exporters, and in a shorter timeframe than through the WTO. In the face of the ever-expanding web of such agreements, particularly in the Asia Pacific region, New Zealand needs to be an active player to safeguard its trading interests. Comprehensive and high quality agreements covering both goods and services can usefully contribute to moving the WTO process forward by highlighting the benefits of liberalisation.

ENDS

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