Not the time to be a bull in a China shop

As Winston Peters heads to the Peoples’ Republic, his diplomacy will be put to the test to secure FTA upgrade

expansion of the industry here during what became know as the “white gold rush”.

When it came to the FTA upgrade, the Key Government focused much of its attention on the removal of “safeguards” for the dairy commodity trade; in essence, the higher tariff that kicks in when a certain volume threshold is passed for NZ’s dairy exports to China. This came down to the relative lobbying power of NZ’s prime export sector and the belief by officials that small movements — even at the margins — would result in more financial payback.

Other upgrade priorities included a better deal for the forestry and wood processing exporters, new rules to enhance online and digital trade and better measures to deal with non-tariff barriers

But with dairy tariffs due to go to zero on the industry’s exports to China in 2022-24, it makes little sense to use up too much of New Zealand’s valuable negotiating coin this way. Rather New Zealand should take a longer view to what its interests will be over time.

There have, so far, been three negotiating rounds. Chinese officials suggest there is angst about abolishing the dairy safeguard — particularly, among powerful Beijing agriculture officials who had opposed the full liberalisation of the market in the first place. Conversely there has been angst in New Zealand over Beijing’s wish to have freer movement of people ( more Chinese temporary workers in New Zealand) and further opening of the doors to investment from China.

As former National Trade Minister Todd McClay recently pointed out, the revised TPP has doubled the OIO investment threshold from $100 million to $200m for China under a most favoured nation clause, but this has already been banked.

With Labour’s Trade Minister David Parker wanting to welcome foreign investment “where it can be proven to bring productive economic growth to our country” any moves to tighten the screening regime will be scrutinised. Tourism and export education are the other sectors to have thrived since the FTA was signed. New fields of co-operation have also emerged in agritech, science and technology, TV and movies, wine-making and the services sector.

As Parker notes, China has broadened its free trade policy to embrace new issues like e-commerce and competition regulation, and has increased its focus on areas such as the environment. The fact that China’s commitments in some of its recent FTAs have resulted in better access for services exporters means NZ has some catching up to do. There is also the perennial issue of tackling non-tariff barriers.

The Prime Minister has signalled a focus on how millennials internationally are driving sustainable practices, saying NZ’s reputation in this regard is a central pillar of the economic relationship with China.

These are important shifts. So how will Peters’ visit be received? In opposition he has been critical of Chinese commercial practices in New Zealand — particularly in the meat industry and the dairy infant formula sector. But in Government he has urged patience over China’s human rights record.

His counterpart China’s State Councillor and Foreign Minister Wang Yi is a practised player.

Peters’ own press release was relatively anodyne. “China is a very significant relationship for New Zealand. This is an important time for the Asia-Pacific region. State Councillor Wang Yi and I will have in-depth discussions on important regional trade and security issues, including North Korea [ . . . ] as well as being an important trade and economic partner, China and New Zealand have extensive people-topeople links, including through tourism, education, cultural exchanges and New Zealand’s racing export industry.”

Peters’ comments on China’s Belt and Road Initiative at the Lowy Institute earlier this year raised a question as to whether the Government would support the BRI. Ardern steered clear of that minefield 10 days ago by saying the BRI is a priority for China — and confirming New Zealand is considering areas where it wants to engage in the initiative, and other areas where it will be interested observers.

The upshot, according to the foreign ministry spokesman Lu Kang, was, “China stands ready to work with New Zealand to deepen political mutual trust, expand dialogue, exchanges, and co-operation in various areas, and advance the comprehensive strategic partnership to yield more outcomes, based on the principle of mutual respect, equal footings, and mutual benefits”. Moving beyond diplomatic speak and cementing gains will be the challenge.