China plans FTA with New Zealand, Australia
(China Business Weekly)
Updated: 2004-05-30 09:45

Negotiations have intensified between China and New Zealand and China and Australia to create separate free trade areas (FTA), which, if established, will virtually guarantee the world's most populous nation a greater economic and political role in the region.

But the Sino-New Zealand and Sino-Australian FTAs are far from done deals, suggest analysts.

China and New Zealand on April 14 reached a trade and economic co-operation framework agreement to begin a feasibility study on a free trade agreement and begin initial negotiations.

On April 28, after talking with Chinese Minister of Commerce Bo Xilai in Beijing a day before, Australian Trade Minister Mark Vaile announced, in Canberra, that Australia and China agreed to speed up efforts to negotiate a free trade agreement.

"I expect Sino-Australian FTA talks will be formally launched early next year, ahead of the originally scheduled October 2005,?said Liu Fande, a senior researcher with the Institute of Asia-Pacific Studies under the Chinese Academy of Social Sciences.

"And the Sino-New Zealand FTA negotiations should start early next year.?

Moves by China and the two Oceanic countries to reach free trade pacts are mainly the result of increasing trade and economic ties between the nations.

New Zealand's exports to China have doubled over the past six years. China, in fact, has become New Zealand's fourth-biggest export market, after Australia, the United States and Japan.

New Zealand last year exported US$1.02 billion worth of goods to China, and imported US$802.6 million worth of goods from China, indicate China Customs statistics.

Meanwhile, the trade volume between China and Australia rose 30 per cent, to US$13.6 billion. China is Australia's third-largest trading partner.

Since the late 1990s, the number of foreign students from China in these two countries has exceeded those from other countries.

Another important reason China is negotiating FTAs with the two Oceanic nations is that New Zealand has recognized China's market economy status (MES) while Australia plans to recognize China's MES.

According to the Sino-New Zealand trade framework agreement, New Zealand has officially recognized that China has established a market economy system.

New Zealand is the first developed country to do so.

Vaile has said a key concession by Australia to promote Sino-Australian free trade was its commitment to study Beijing's status as a market economy.

To gain entry to the World Trade Organization (WTO), China in 1999 agreed to several conditions, including the stipulation that members would not have to recognize its MES for 15 years from the date of China's membership.

However, that situation makes it hard for Chinese manufacturers to defend themselves against dumping allegations and lawsuits leveled by producers in other nations.

Compared with the European Union (EU) and the United States, which are most likely to use China's non-MES to defend their domestic markets against surging imports of Chinese goods, Australia and New Zealand are relatively small, Liu told China Business Weekly.

For that reason, New Zealand and Australia are much less likely to be severely affected by China's exports, Liu added.

More important, the two countries rely heavily on foreign trade, particularly on the exports of their raw materials ?including grain, ore, milk and forestry products.

China, given its rising strength as a manufacturing centre, has become a major buyer of goods from New Zealand and Australia.

For those reasons, New Zealand and Australia are willing to recognize China's MES, and to work towards free trade pacts with China, especially since global trade liberalization talks, under WTO, have apparently been stranded, said Ding Dou, an associate professor with Peking University's School of International Relations.

Even after China fully implements its WTO commitments, which it must do by 2006, the country will continue to impose relatively high tariffs on agricultural products that New Zealand and Australia export.

For example, there will be a 10-per-cent tariff rate on milk powder in 2007, compared with 18 per cent at present.

Free trade pacts will eliminate such tariffs as much as possible, said Wang Li, a researcher with the Chinese Academy of International Trade and Economic Co-operation.

For China, free trade with New Zealand and Australia will be economically and politically beneficial.

By negotiating free trade pacts with the two nations, China will gain some international recognition for its MES, which is a starting point, Liu said.

In addition, China will be in a better bargaining position when dealing with the United States, and when negotiating a free trade deal with ASEAN (Association of Southeast Asian Nations), Ding told China Business Weekly.

China and ASEAN's 10 members reached an agreement in November 2002 that outlined the framework for negotiating and establishing an FTA by 2010.

However, negotiations have slowed in recent months, and some ASEAN countries have launched separate FTA talks with various countries ?including Japan, Australia, the United States and India.

Last week, Singapore's Straits Times reported Singapore ?despite its membership in ASEAN ?plans to negotiate a separate free trade pact with China.

Free trade negotiations between China and Australia and China and New Zealand will be difficult, and might take 10 years to complete, Liu said.

Strong opposition ?from labour unions and environmental groups in New Zealand and Australia ?is common. Trade unions worry inexpensive Chinese goods will result in job losses.

In addition, a national election is expected to be held in Australia this year, and it is possible a conservative party could win.

"And the two countries (Australia and New Zealand) will always face US pressure not to become too integrated into China,?Liu said.

But as a trend, free trade between China and New Zealand and China and Australia cannot be prevented, because policy-makers in those countries do not want to be left out of the Chinese market, Liu added.

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