Best deal ever

October 4th, 2013 at 1:00 pm by David Farrar

The Herald reports:

New Zealand’s exports to have more than trebled since the free trade pact between the two countries came into force.

New Zealand exports to China were worth $7.9 billion in the year to August (the most recent trade statistics available). That’s up from $2.2 billion five years earlier, an increase of 260 per cent. China is now our largest export market.

The China FTA is our best deal ever and Phil Goff’s greatest legacy.

People should remember though that both Greens and NZ First voted against it. They voted against a deal that has seen an extra $5.7 billion a year of exports. Imagine the state of the NZ economy if their views had prevailed.

“It has exceeded all expectations, I think,” says Charles Finny.

Now with consultancy Saunders Unsworth, Finny was the Ministry of Foreign Affairs and Trade official who in 2004 was tasked with building the case with the Chinese for beginning negotiations, the first with a developed country, and then launched the negotiations in 2005.

They were to take three years.

And five years after the agreement took effect, the transition to free trade still has some way to go. Tariffs on beef, sheepmeat and kiwifruit will not go until the start of 2016, and not until the start of 2019 on whole and skim milk powder and wool. But by then 96 per cent of New Zealand’s exports to China will be duty-free.

This is key information. The full benefits of the FTA are yet to be realised.

New Zealand now has a network of free trade agreements which covers all of Asean and all three Chinas – Taiwan and Hong Kong as well as the People’s Republic – and that provides options to diversify, he says.

“If you look at markets like Taiwan, Singapore and Hong King where you have a proxy for a Chinese population at certain income levels, you see a disproportionately large spend on food and on things like high quality fruit. Look at Hong Kong and wine; it is just absolute upside.”

Rabobank, in a report last week, is bullish about the prospects for lifting beef exports to China as rising incomes drive demand for what is considered one of the foods of affluence.

Yet some parties remain hostile to international trade.

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23 Responses to “Best deal ever”

  1. RRM (9,924 comments) says:

    Hopefully all this trade will help fuel an eventual capitalist-led overthrow of the hideous communist powers there.

    I’m not holding my breath though…

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  2. gazzmaniac (2,307 comments) says:

    You might find that overthrow will be more of a mellowing.

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  3. kowtow (8,487 comments) says:

    Actually,being over reliant on any single market is plain stupid. Diversify now before the inevitable crash. The bigger the boom the bigger the crash,just a matter of time.

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  4. Jinky (185 comments) says:

    How much have imports risen? Did I hear on news the other day that our balance of trade deficit is at record levels?

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  5. Redbaiter (8,913 comments) says:

    We should not be trading with communist dictators thieves criminals and murderers. I do not care what the short term benefit might be, the long term effects will be overall negative.

    I just cannot see how John Key and the National Party can be so unaware of the Chicoms’ plans for global expansion and increasing their influence in the Pacific in particular.

    Surely they are not prepared to sell out NZ’s long term cultural political, strategic and economic partnerships in the West just for some short term political gain.

    Every piece of territory won by the Chicoms is a step backwards for freedom. In every instance where Chinese influence squeezes out the influences of the democratic western nations, liberty is decreased.

    It does not matter what is the short term economic cost, we should not be dealing with China. EOS.

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  6. Paulus (2,627 comments) says:

    As the recent opinion polls seriously suggest an incoming Labour/Green Government will they then cancel this agreement ?

    As well as Phil Goff, commendation should be given to Helen Clark, who worked hard for this.

    Probably the best (and only) good she did for New Zealand.

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  7. mikenmild (11,247 comments) says:

    Is this the Charles Finny who was outed by wikileaks as a key American source on NZ affairs?

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  8. Alan (1,087 comments) says:

    “Chicoms”, seriously ?

    I wonder if Redbaiter noticed that the Chinese civil war ended in 1950? The Kuomintang aren’t about to storm over the straights and reclaim the mainland. Move on bro.

    Anyone that has spent much time in the middle kingdom lately will tell you it’s the least communist nation on earth.

    btw, a balanced article would also show the growth in our imports from china.

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  9. Elaycee (4,392 comments) says:

    We cannot ignore the fact that New Zealand is a tiny nation tucked away at the bottom of the South Pacific and totally dependent on trading for survival. Fortunately, we can manufacture or produce commodities that are desired in many other parts of the world…. including China.

    Like others, I don’t have a lot of kind thoughts for the previous Labour regime, but credit where it’s due: Clark and Goff did a good job negotiating the first FTA China entered into and not too many years later, we are now bearing the fruit.

    But the China FTA is a lonely entry on the ‘plus’ side of Labour’s ledger, compared to the ‘minus’ column….

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  10. Cato (1,095 comments) says:

    Despite the fact that it has adopted some aspects of capitalism – though mostly of the state capitalism variety – it remains a communist dictatorship governed by some of the most brutal rulers on the globe. Lenin wasn’t made a capitalist by virtue of the New Economic Policy.

    I’m sceptical of the ability to democratise China by trading with it. Nevertheless, I think we should trade with China – it’s not as if its government is going away any time soon. However, as someone said, let’s not put all our eggs in one basket.

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  11. tvb (4,422 comments) says:

    There have been some major hiccups not least Fonterra. I am sure our competitors are jealous of the relationship and will twist the knife where they can. It is dog eat dog out there. I hope NZinc is well prepared or at least better prepared. I don’t rule out sabotage given Fonterra’s known vulnerabilities.

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  12. HC (154 comments) says:

    That FTA is being looked at only in view of the “gains” made in export sales to Mainland China, but one will need to look at the greater picture over years to come. There will be a price to pay, and already now, Chinese migrants represent an increasing percentage of all permanent residents settling in New Zealand, so that the demographics of New Zealand will change irreversibly over the next two to three decades.

    Maori and Pasifica will be outnumbered, and the day will come, that we may see half of the population here be of Mainland Chinese origin. Indeed, all this talk about New Zealand being part of “Australasia” will come true like a self-fulfilling prophecy, and this country will more look like a part of Asia than of what it used to look like. Cultural and social changes are already happening on a large scale in Greater Auckland.

    With a disproportionately high number of family category migrants from Mainland China settling here, state retirement expenditure will need to cover them. So just as well those extra billions are earned, perhaps, as the money will be needed to go there. See the following media and also statistical reports re all this:

    “Ageing China migrants a ‘major concern'”

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10879156

    “Nearly 40 per cent of immigrants from China gaining New Zealand permanent residence last year were aged 50 or over.

    The number of elderly Chinese migrants arriving in the country is nearly four times the 10.7 per cent average of permanent residents in the age group from all other countries.”

    and also read:

    “China and United Kingdom are the largest sources of family-sponsored migrants” –

    http://www.dol.govt.nz/publications/research/migration-trends-1112/index.asp

    “The Capped and Uncapped Family Streams enable New Zealand citizens and permanent residents to sponsor close family members for residence. In 2011/12, 17,215 people were approved for residence through these two streams (43 percent of all residence approvals). China (47 percent) was the largest source country of migrants approved through the Parent Category, and the United Kingdom (15 percent) was the largest source country of migrants approved through the Partnership Category.”

    Besides of this, China is now a major strategic power also in the Southern Pacific, and this will bear on the strategic importance, or lack thereof, of New Zealand and Australia. New Zealand like Australia are for China also primarily a commodity supplier, and that will set limits to economic development here. There is only so much baby formula, milk powder, logs and raw fish we can sell them (to make value added goods from over there), and this means other economic activity here will struggle to get traction, facing stiff, also low cost competition in manufacturing and much else from China.

    I will not even bother about starting debate on freedom of speech, democracy and the rights of ethnic minorities in Tibet and elsewhere there, as it could cover pages.

    Do not toast and celebrate too soon, please!

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  13. Sir Cullen's Sidekick (890 comments) says:

    I am sure the incoming Labour/Green government will not overthrow this deal, but will not sign any more free trade agreements.

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  14. CryHavoc (46 comments) says:

    Interesting article and interesting comments from Finny. He definitely knows his stuff on China but he is pretty quick to assign himself credit for the negotiation: he led the team for the first round and then moved on elsewhere… from memory I think there were about fifteen rounds! David Walker, currently leading the TPP negotiation from NZ – and when people say we have world-class negotiators, they’re thinking of him – got the thing over the line.

    Anyway a couple of substantive points: 1) those who say that the increase in imports should be discussed are probably right, in the interest of balance. But it’s also worth noting that NZ has very low tariffs anyway so they would have increased regardless of the FTA. 2) Similarly, exports to China would have increased in the absence of an FTA. For example under the FTA only our first 120,000 tonnes of milk powder are tariff free this year (this volume gradually increases every year until 2024 when it goes unlimited)… and I understand we used that up in January! So the vast majority is entering at the general tariff rate.

    None of which is to say the FTA is bad. And Goff definitely deserves a lot of credit, as does Clark. I recall National being highly supportive when the FTA was signed and I really hope Labour will do the same when (hopefully soon) the TPP gets finalised. The bipartisan consensus on trade has been incredibly valuable to NZ over many years.

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  15. CryHavoc (46 comments) says:

    HC – the number of Chinese permanent migrants may well be an important discussion to have. But it has nothing to do with the FTA, which contains no provisions on permanent migration (and it’s highly unlikely – I would say impossible – that any FTA would).

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  16. HC (154 comments) says:

    CryHavoc – Of course permanent migration cannot be directly linked to the FTA, but we have already heard comments from the Chinese embassy, that were made re the “issues” with baby formula, sounding like: “You better shape up, or else.” Naturally the challenge was to New Zealand and Fonterra, to get the problems sorted out, or Mainland China would react in a way that may have been disadvantageous to trade between New Zealand and China.

    While the FTA as a separate agreement has its terms and conditions, and is only meant to cover trade matters, for the one party Mainland Chinese government trade is in practice NEVER just a standalone matter. And if they get dissatisfied with such an FTA, they will exploit the loopholes to not abide by it.

    Any bilateral relationships between Mainland China and any country it deals with, has additional expectations attached, that may not be expressed in writing or even words, but that exist. We learned this already, when officials here in New Zealand did all, to keep protestors out of sight, when high ranking Mainland Chinese dignitaries or diplomats visited here. No “Free Tibet” protests in view of them, that is the motto. This means New Zealand is compromising its own population’s democratic rights.

    Mainland China will look after their citizens that migrate elsewhere, as long as they are not opposed to the Mainland Chinese government. And there were many Chinese – New Zealand residents waving the red Chinese flags, when their Prime Minister or president last visited New Zealand. I also have met a fair few Mainland Chinese, and most remain loyal to their home country, and ultimately that is where their loyalties will lie, no matter whether they are also NZ residents or even citizens.

    Restrictions or limitations on migration from China by New Zealand governments may reflect negatively on the Chinese government, and they would take note. We are dealing with a non democratic country and government, where dissent and real criticism is not condoned, and where human rights have a totally different meaning to what we read out of it.

    But China being a large power, now New Zealand’s largest trading partner, that has influences on New Zealand, that are not all good. It pays to bear this in mind, and to diversify trade more, rather than rely so much on exports to and imports from one large trading partner.

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  17. Jack5 (5,137 comments) says:

    What is the significance of the Free Trade Agreement with Hong Kong?

    Hong Kong has been a free port for more than a century. It has had virtual no import duties or restrictions long before this agreement. Given this, what meaning can an NZ-Hong Kong FTA have?

    Now Shanghai, with its bigger population, is setting up a similar free-trade zone to Hong Kong’s.

    Excluding the agreement with ASEAN, China has seven FTAs including NZ, three more (including Australia’s) are being negotiated, and FTAs are being explored with Japan, India, and South Korea.

    The diplomats and politicians see the answer to NZ’s continuing balance of payments deficits as kicking down trade doors.

    Perhaps we need to become a more export focused economy, making more things that the world wants, rather than naively thinking that by just increasing our population and internal demand we will solve our trade imbalances.

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  18. Bob (497 comments) says:

    Though a National supporter I thoroughly commended Helen Clark for the China FTA. I can’t help wondering how a Labour/Green government would work out. I can’t see much Labour would concede to the Greens if they were at loggerheads. Would the Greens keep their heads down and just follow Labour?

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  19. Paulus (2,627 comments) says:

    Bob

    The Greens may have to swallow what Labour agrees to – they want power at all costs and will get it from within by subverting Labour Policy, which what Helen Kelly wants – a real left wing party which Greenpeace will give them..

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  20. Bingo99 (88 comments) says:

    Farrar is amazingly one eyed on this subject. Odd given his repeated and correct insistence that the media give the full picture on their stories, not just selected data.

    So riddle me this… What is the counter factual? Would exports have increased this much without the FTA? If what Cryhavoc says is true, then very possibly. And how are our terms of trade? Has anyone bothered checking on that? Not a pretty picture. And the impact on our manufacturing sector has been pretty dire… All so we can hoik lesser value baby products.

    This is nowhere near as simple as DPF makes out.

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  21. wreck1080 (3,917 comments) says:

    I guess the greens were objecting on a human rights basis.

    While correct that china abuses human rights does that mean we should not profit from them?

    We can quietly advocate in the background for China to lift their game with respect to human rights and trade simultaneously.

    China is where the action is happening and we need to be in there.

    I think the greens are perfectly entitled to express their opinion in this way on the issue.

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  22. V (720 comments) says:

    If in the 1980’s you said we will have a free trade agreement with China 10 years before the USA, people would have laughed.

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  23. wat dabney (3,769 comments) says:

    And how are our terms of trade? Has anyone bothered checking on that?

    No, because it’s irrelevant.

    And the impact on our manufacturing sector has been pretty dire

    Looks pretty flat to me:

    http://www.stats.govt.nz/browse_for_stats/industry_sectors/manufacturing_and_production/EconomicSurveyofManufacturing_HOTPJun13qtr.aspx

    Why do you say it’s “dire”?

    The US is experiencing an incredible manufacturing renaissance, thanks in no small part to cheap energy prices. A Labour/Green government will jack up power prices still further with their white elephant renewables, whilst crying their crocodile tears about the manufacturing sector (and plunging yet more people into fuel poverty.)

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