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OCT 13

China FTA five years on

For the full version including graphs, click here.

The New Zealand economy has significant trade exposure; at 58% of GDP (trade is the sum of imports and exports) we are higher than Australia at 43%, the USA at 32% and many other countries. New Zealand has an even greater dependence on exports, with exports 30% GDP, compared to Australia at 21% and the U.S at 14%.

To support this position New Zealand has been active in the domain of trade agreements at multilateral and bilateral level. The ground breaking China Free Trade Agreement (FTA) came into force in 2008, five years on there is little doubt that at a gross level this agreement has been a success.

That said, we should look more deeply at the results of the Agreement, examining the trade flows between New Zealand and China. Have all industries benefited equally? Is there anything we can learn for future agreements? What could be done better?

Since 2008, both exports to China and imports from China have increased; giving a higher rate of export growth, and the trade imbalance between New Zealand and China has been narrowing at the aggregate level. Most of export growth came from primary industries, such as live animals/animal products and wood/wood articles which grew 323.69% and 257.5% respectively since 2008. Given that the Chinese consumption of agricultural and food imports only increased around 80 percent during the same period, the signing of FTA has helped New Zealand obtain a larger market share in the primary sector and better balanced the bilateral trade between here and China.

It is true that New Zealand has a comparative advantage in terms of primary production, however the size of our primary industry is limited by natural environmental constraints. A resilient economy cannot and should not rely on a single sector.

Interestingly, most import growth came from machinery/mechanical appliances; plus plastics and articles. A diverse export profile is necessary to support greater economic growth, and the export growth from our elaborately transformed sector is critical to the future wellbeing of the New Zealand economy as it can monetise creativity and innovation while providing highly paid, highly skilled jobs.

For commodity exporters’ access, the removal of quota and tariff barriers is the key issue in trade negotiations. The products are fairly uniform so market access and the absence of tariffs are the main concern. For elaborately transformed products conformance frameworks, standards and assessments can form technical barriers to trade that can prevent trade just as effectively as quota and tariffs.

For example, the China FTA contains an agreement on the mutual recognition of conformity assessment for electrical and electric equipment (EEEMRA). This agreement was intended to reduce technical barriers by giving suppliers in both countries a local mechanism to demonstrate compliance with electrical safety and electromagnetic compatibility regulatory requirements. The agreement only concerns electrical and electronic products that are subject to the China Compulsory Certification (CCC) system, and to the requirements of New Zealand supplier declarations of conformity for such products. According to the Energy Safety Services in New Zealand, only products that are considered to offer a medium or high safety risk are covered by a Supplier Declaration of Compliance (SDoC) prior to sale. This means manufacturers exporting non-declared products would not be able to benefit from local approvals under the EEEMRA, reducing the potential benefit of the FTA to New Zealand manufacturers.

There is a further fundamental imbalance in the Chinese FTA the framework. New Zealand has implemented a post-market auditing process that applies to all except the declared articles. This means that end-consumers are responsible for reporting sub-standard or unsafe electrical and electronic products; otherwise compliance is automatically assumed. Consequently, Chinese products approved in China continue to have unfettered access to the New Zealand market. In contrast the pre-market (compliance testing prior to sale) audit system in China continues to act as an effective barrier for New Zealand exports of non-declared products. This fundamental contrast of pre and post market approval regimes could be minimised by mutual recognition of approved test laboratories, standards harmonisation and recognition of in country audit and surveillance authorities.

Because of the post market approach in New Zealand the conformance infrastructure did not exist at the time the FTA was negotiated and nearly five years on that infrastructure has not yet been put in place.

Overall we can see the benefits of the China FTA, but there are sectors, such as elaborately transformed manufacturers have not seen the same growth as the primary sector. We cannot rely on our primary production industries alone to foster growth; a strong manufacturing base which promotes high value elaborately transformed products is needed.

In future, more consideration must be taken for our elaborate sectors in the process of signing FTAs, the standards to be used, the approach to conformity assessment for products and production facilities to allow all sectors to take full advantage and bring economic benefit to New Zealand. We often think tariff reduction is the main objective of an FTA, and this may be the case for commodities in the primary sector, but for our manufacturing sector dealing with technical barriers is critical.

tags: china, exports, elaborate, imports, manufacturing, fta, free trade agreement
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