Will Kiwis be First in Inking a China Trade Deal?

♠ Posted by Emmanuel in , at 4/05/2008 12:41:00 AM
The article below from TIME has the perfect metaphor for countries in both the developed and developing worlds courting trade favour with the "it" girl (or country) of the moment: China. In trade terms, China is the country with the most cold hard cash as evidenced by its unimaginably huge stash of $1.65 trillion in forex reserves. We are living in a material world, indeed. What we have here is the case of New Zealand being at the front of the cue to sign bilateral deals with China. You may say that New Zealand has been the most persistent suitor of the PRC. As such, New Zealand would be the first OECD country to ink a bilateral deal with China. Experience has made China rich and now they're after her. Some boys kiss me, some boys hug me, etc. The deed may be done as early as 7 April:

New Zealand natural's ice creams go down a treat in China. The popularity of flavors like Chocolate Ecstasy and Green Tea has helped the company build 43 outlets in the People's Republic in two and a half years. But a 19% tariff on imported ice cream takes a giant lick out of the profits. "It's an awful margin that just goes to the Chinese government rather than allowing us to make a better return," says CEO Shane Lamont. When 150 New Zealand trade officials and businessmen take off for Beijing this weekend, Lamont's hopes of seeing an end to that tariff will fly with them.

After almost four years and 15 rounds of what Wellington's ambassador to China Tony Browne calls "a very detailed, very complicated, very elaborate negotiation," New Zealand is on track to become, on April 7, the first developed nation to sign a free-trade pact with the market the whole world is courting. "It's a bit like getting the first date with the best-looking girl on the block," says Stuart Ferguson, chairman of the New Zealand-China Trade Association: in this case, ahead of suitors Australia, Norway and India. Details are a closely held secret, but the deal is expected to give Kiwis gradual relief not only from tariffs but from the red tape that bedevils their efforts to get products into Chinese stores. "Everybody is holding their breath in the fervent hope that there are no glaring holes in it," says Ferguson. "But from what I understand there should be no disappointment."

For tiny, remote New Zealand (pop. 4.3 million), finding ways to sell more goods overseas is a constant concern. "Exports have basically flatlined for the past 25 years as a share of the economy," says David Skilling, head of think tank The New Zealand Institute. China and New Zealand are both members of the World Trade Organization, but bilateral trade deals are seen as a way to further open export markets. New Zealand would like to follow Australia's lead and sign one with the U.S., but a deal with China is just as pressing. Lopsided tariff barriers — China's go as high as 38%, while New Zealand has almost none — and agrarian Kiwis' growing dependence on Chinese machinery, electronics, clothing and furniture are tilting the scales ever more steeply in Beijing's favor. New Zealand's trade deficit with China is its biggest with any nation: $2.7 billion, up fourfold since 2001.

The deal will be "beneficial for all of us," Prime Minister Helen Clark told New Zealanders last week, though her careful phrasing suggested the benefits might fall short of early hopes: "I am confident that we got the very best deal we could." Dairy and timber exporters are expected to profit most, but manufacturers like white-goods maker Fisher & Paykel and fashion house Icebreaker also stand to gain from easier access to China's low-cost factories as well as to its fast-growing middle class. The projected $300 million annual income boost from the free-trade agreement "is obviously worth having," says Skilling. But "given that our total exports are about $NZ40 billion [$32 billion] a year, it's pretty small." The real action, he says, will lie in the "dynamic effect" of a bigger Kiwi presence in China and "the signal that, Hey, China is an increasingly important market for us."

Since the People's Republic already enjoys near-free trade with New Zealand, its financial gains will likely be small. Wellington negotiators have said the Chinese were keen on access to agricultural technology and easier entry for niche workers like chefs and acupuncturists. But for Beijing, the deal's key value is as a trial run. Free-trade agreements are part of China's global push for the status and influence of a big power. The negotiation with New Zealand, says the Trade Association's Ferguson, will serve as "a template for bigger, more complex deals" — a pilot project where errors won't cost too much in money or "face."

Six of New Zealand's eight political parties support the deal, but polls show that fewer than half of voters do. Critics fear a flood of cheap goods and farm produce, and point to China's poor record on the environment and human rights. United Future party leader Peter Dunne is boycotting the Beijing signing ceremony in protest at China's crackdown in Tibet, but says abandoning the pact would be "a classic case of cutting off your nose to spite your face."

Whatever the deal delivers, NZ Natural is determined to keep a high profile in the People's Republic. "We're very committed," says Lamont. "We do see a long-term future there." The same goes for his country. For better or worse, Chocolate Ecstasy — and Kiwi exporters — are in China to stay.