The New Zealand-China Free Trade Agreement: implications ...€¦ · 12/06/2013 · • NZ-China Free Trade Agreement (October 2008) • Agreement establishing the Association of
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
The New Zealand-China Free Trade
Agreement: implications for South
Africa
by Ron Sandrey
tralac Working Paper
No. S13WP07/2013
May 2013
���� Please consider the environment before printing this publication
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes,
provided the source is acknowledged. All views and opinions expressed remain solely those of the authors
and do not purport to reflect the views of tralac.
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
1
The New Zealand-China Free Trade Agreement:
implications for South Africa
by Ron Sandrey
Summary
Two-way merchandise trade between New Zealand and China has increased since the Free Trade
Agreement (FTA) was implemented, but this is a weak test of the FTA per se as virtually all countries
have been increasing their trade with China. However, examining Chinese merchandise trade through
to the end of 2012 applies a stronger test and confirms that New Zealand’s imports into China were
increasing at a rate significantly above the average. This is especially true for agriculture where dairy
in particular is booming. These agricultural imports certainly seem to be aided by tariff preferences,
and in some instances these gains are likely to be accentuated as the tariffs fade to zero for New
Zealand. Only a very few import lines are not subject to tariff reductions, and these focus upon the
special case of wool where other access concessions apply, upon some agricultural lines where New
Zealand is not active anyway, and upon some forestry products. Virtually all Chinese imports into
New Zealand were duty free or rapidly heading that way, but there is little evidence that this has led to
a surge in imports that some predicted.
Examining South Africa’s bilateral trade with China we find that (a) a large percentage of the imports
into China are already duty-free mineral-related and natural resource-products, and (b) that while there
appears to be some potential gains from agricultural concessions into China these gains may be
restricted through the limited abilities of South Africa to supply the Chinese; this is so because no
concessions were granted to New Zealand in the two most important agricultural sectors (sugar and
maize) and therefore South Africa may have trouble in negotiating in these lines. The great concern
for South Africa is that preferential access for Chinese imports of textiles and clothing would
decimate South Africa’s domestic sectors that are currently hiding behind a 45% tariff wall.
New Zealand lists its reasons for seeking an FTA with China as including increased access for goods
and services and a vehicle for resolving trade and investment issues, a framework for discussing and
cooperating on labour and environmental issues, support for its desire to engage more closely with
Asia, and raising the profile for New Zealand companies in China. It sees the benefits as enhanced
access into China for goods and services, easier mobility of its business persons in China, enhanced
cooperation on non-tariff measures and related issues, better investment opportunities and protection,
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
2
and opportunities for advancing working standards and environmental issues. The disadvantages
concentrate upon access to goods not being as much as was desired and a remaining uncertainty on
possible safeguards by China, some adjustment pressures for New Zealand’s domestic manufacturing
sector, and the inability to conclude a services agreement with a positive listing (along with limited
concessions from China in services).
On almost all aspects of the FTA New Zealand made concessions that were more than those required
by the World Trade Organisation (WTO), but there seems to be no evidence that it has extended these
concessions beyond what is consistent with New Zealand’s legal regimes and regulatory systems. The
opportunity to become the first developed country to hitch its wagon to the global star of China was a
major breakthrough for New Zealand as there appear to be few if any obvious downsides.
Conversely, for South Africa it is likely that its own fragile domestic manufacturing sector (and
clothing in particular) would face extreme pressure from an FTA negotiated with China along the
lines of the fully comprehensive FTA implemented by New Zealand.
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
3
Background and introduction1
In 2004, China and New Zealand embarked on negotiations for a comprehensive FTA covering goods,
services and investment which would deliver benefits to both economies. Negotiations concluded in
2007 and the China-New Zealand FTA entered into force on 1 October 2008. A review of the FTA
was mandated at the two-year point to examine the implementation, operation and impact of the FTA.
It considered the extent to which FTA implementation and mechanisms were serving the objectives of
the FTA and the extent to which the FTA had facilitated the expansion of trade and investment. The
review found that the operation and implementation of the FTA to that date had promoted the
objectives of the FTA and that substantial progress had been made on the delivery of FTA
commitments. This related in particular to tariff elimination, services liberalisation, treatment of
investments, the establishment of temporary employment entry schemes for specified professions, and
the creation of institutional frameworks and mechanisms for management of the FTA. Key areas
identified for the future included further customs cooperation, consultations to enhance services trade,
consultations to facilitate the movement of natural persons, and engagement with business to deepen
understanding of FTA provisions and requirements.
The review found that the FTA was a significant factor in the 20% growth in bilateral two-way
merchandise trade in the first year following its entry into force, and in the doubling of bilateral trade
in the past five years. Benefits arising from the FTA included, inter alia, improved market access,
improved customs procedures and trade facilitation, increased efficiency, and enhanced transfer of
technology and skills. The commercial sector had benefited indirectly from the FTA through the
higher profile of each country in respective market places, from a greater willingness to explore
possible new trade and investment opportunities, from improved access to key decision-makers,
increased communication and cooperation between government agencies of the parties, and greater
confidence in the trade and investment regime.
Against this background of this positive preliminary review of the FTA the objective of this paper is
to extend the analysis through to the end of 2012. We will emphasise merchandise trade between the
two partners, and in particular assess possible implications for South Africa from the New Zealand
experience with the FTA to date.
1 This section and indeed much of the paper draws heavily from the Ministry of Foreign Affairs and Trade (MFAT) personal communications and reports available at www.mfat.govt.nz.
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
4
New Zealand’s FTA framework
Along with Chile, New Zealand sets the global standards for comprehensive FTAs. Both are small
agricultural and resource-based exporting southern hemisphere countries, and while both are strong
supporters of the multilateral liberalisation as pursued by the WTO they have in similar fashion
actively pursued bilateral agreements to augment the gains from the WTO. Currently New Zealand
Caseins, etc. 31,513 98,049 136,750 0.56% 1.43% 1.92%
Fruit & nuts 24,342 65,023 118,644 1.97% 2.14% 3.12%
Source: Global Trade Atlas
More details at the HS 6 level on New Zealand’s imports into China are shown in Table 3, along with
their percentage share of the respective trade lines and the tariff advantage given by FTA preferences.
Agricultural products dominate the top 20 list with 13 entries, followed by forestry products with four,
coal and iron ore with two, and one line of fishery products. Most, but not all lines, are increasing
their market share, and notably this includes only one line where there is no tariff preference.2 In the
12 lines where there is a tariff preference New Zealand increased its market share in eight but fell in
four (with the rock lobster undetermined). This suggest that while tariff preferences may be a
contributing factor they are not overwhelmingly so. All of these tariffs are heading for zero by 2019 at
the latest. Wool imports remain under a special regime whereby there is a country-specific tariff quota
for New Zealand wool which will provide initial duty-free entry for approximately 75% of average
annual exports in the 2004-2006 period, with this quota being increased by 5% annually over the eight
years through to 2017.
2 We are unsure of the Most Favoured Nation (MFN) rates for rock lobsters, as the Chinese Tariff Schedule is at the detailed level and imports are provided at a more disaggregated level; and similarly we make no judgement on wool imports although there does seem to be a small tariff preference – but this is still subject to quotas. We also note that tariffs were (quickly) assessed on the trade at the HS 6 digit level while the actual schedule is at the HS 8 digit level and the rates vary between these HS 8 levels. We therefore stress that the tariffs may be indicative only in some cases.
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
10
Table 3: New Zealand’s imports at the HS 6 line level, $ million, % share & tariff preferences
$ thousand % share of imports
2008 2011 2012 2008 2011 2012 Tariff 2012
All commodities 1,891,251 4,990,516 5,806,136 0.17% 0.29% 0.32% MFN NZ
Source: Global Trade Atlas data for trade and Chinese Tariff Schedule for tariffs
a Reports suggest that the MFN tariff in infant foods will be reduced to 5% from 1 May 2013.
New Zealand’s Lead Negotiator Dr David Walker (undated) reports on the broad tariff adjustment
outcomes for both parties. For non-sensitive products on entry into force in late 2008 some 35% of NZ
exports currently facing tariffs of zero to 5% will be duty free. Duties in the range of 6-20% on a
further 31% of NZ exports were scheduled to be phased out over five years through to 2012, while
tariffs greater than 20% were reduced to 20% on entry into force and then scheduled to be phased out
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
11
over six years to 2013. The sensitive products are wool, meat, some dairy, kiwi fruit and forestry
products. New Zealand exports of wool to China are covered by a country-specific quota that initially
covers 75% of NZ wool exports and grows at 5% per year over eight years to 2017. The Joint Review
noted after two years that New Zealand’s wool exports in the tariff lines were more than double the
special quota and were growing at a faster rate than the provisions in the quota expansion. Meat (beef,
sheep meat) and kiwifruit will see tariffs phased out over nine years to 2016, while dairy products
other than milk powders will see tariffs phased out over the ten years to 2017, and milk powders will
see tariffs phased out over 12 years to 2019. The current applied bound zero on logs, sawn timber and
wood pulp apply to 80% of wood exports from New Zealand to China. There will be tariff elimination
over five years from 2012 on some other wood and fibreboard products, but there will be no tariff
preference on paper and certain processed wood products that are currently around 4% of total
exports. China faced a problem with these latter wood products in that under its WTO accession
conditions any FTA concession made had to become MFN concessions; thus, any concessions made
to New Zealand must apply to all imports.3
Chinese exports to New Zealand that at the time of implementation faced tariffs of 5% or less (39% of
the trade) would see these tariffs immediately go to zero. Tariffs on most clothing and footwear
products and some textile products will phase out over nine years to 2016, while tariffs on other
clothing, footwear products and textile products will be phased out over seven years. Tariffs on all
other products will be phased out over five or six years (scheduled to be in 2012 or 2013) with the
majority of such tariffs (12.5% or below) being eliminated by 2012. All New Zealand tariffs on
originating products from China will be phased out by 2016. As an aside, given the combination of the
structure of the New Zealand tariff and the high percentage of imports that were under tariff protection
the full implementation of the FTA would effectively neuter the entire tariff protection regime in New
Zealand. A parallel tariff collection decline of this nature in South Africa would be untenable under
current revenue-sharing arrangements within Southern African Customs Union (SACU).
Table 4 duplicates Table 3 but this time for the top 20 imports from South Africa into China as ranked
on 2012 values. This analysis is complicated by the classification category of ‘country-specific
special’ which we can only presume to mean a change of tariff heading to reflect South Africa’s
confidentiality on the exports of gold. As expected, these imports are almost totally dominated by ores
and mineral products, with only one agricultural product (wool), one forestry product (wood pulp) and
3 Conversely, of course, the same applies to any other FTA China negotiates; so, should China grant preferential access to another supplier, New Zealand will also be granted those concessions. At least New Zealand will never be disadvantaged.
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
12
Table 4: South African merchandise imports into China, 2102 $ thousands, market shares and
Source: Global Trade Atlas data (trade) and Chinese Tariff Schedule (tariffs)
two manufacturing products near the bottom of the list (polypropylene and vehicles). Again, as
expected, many of these lines enter China at zero or very low tariff rates. Only in vehicles sector
would New Zealand have a tariff advantage, but, of course, New Zealand does not have an auto-
production industry. Whether or not South Africa could negotiate tariff preferences into China in this
sector is a moot point. However, as Australia is a major exporter of vehicles and parts a potential
Chinese-Australian FTA may give South African trade negotiators some indications as to how much
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
13
China is prepared to offer in this sector. Despite the lack of tariff preferences South Africa is
increasing its market share in most of the trade lines shown.4
Clearly, New Zealand’s merchandise goods interest in China is focused on natural-resource products
and on agriculture in particular. Of interest for assessing the FTA from a South African perspective is
the extent to which South Africa is a competitor of New Zealand’s agricultural exports in the Chinese
market and the extent to which New Zealand is advantaged through tariff preferences. This can be
gleaned from Table 5, which shows the top 20 agricultural imports from South Africa into China
during 2012. Also shown are the market shares from both New Zealand and the EU, as well as the
tariffs for both the MFNs facing South Africa and the New Zealand tariff preference rates. The market
shares for New Zealand highlight those lines where New Zealand and South Africa are in competition,
and wine, wool and hides and skins seem to be the main areas of this competition. In many of these
import lines South Africa is disadvantaged, and in most of these by double-digit tariffs. Note also that
these New Zealand preferences are heading to zero by 2019 at the latest and earlier than that for most,
although the wool regime remains unresolved. This provides a pointer that there would be advantages
to South African agriculture for an FTA with New Zealand’s preference rates, although agriculture is
a very minor part of its export portfolio to China with a market share of 0.62% of the total agricultural
imports into China – well below New Zealand’s 5.19% share.
Not shown is that New Zealand’s agricultural imports in 2012 were 3.57 times their 2008 values,
significantly above the average Chinese agricultural imports that were 1.19 times their 2008 values
and well ahead of both South Africa and the EU with 2.63 and 2.38 times respectively. During 2012
the Chinese agriculture imports were only some 74% of their 2011 level, while South Africa, New
Zealand and the EU were in almost perfect lock-step with increases of 21%, 20% and 19%
respectively.
4 We note that the low or zero imports in some lines may be a result of trade classification changes into China over the period. We have tried to adjust for this in New Zealand’s case.
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
14
Table 5: South African agricultural imports into China, 2102 $ thousands, market shares and
Not shown in the table are the tariff preferences for China for these imports. We have merely
‘eyeballed’ the New Zealand Tariff Schedule to assess Chinese preferences, and report the following:
For both HS lines 84 and 85 (machinery and electrical machinery), many of the tariffs were at zero or,
more commonly, around 7%, and by 2012 all of these had reached zero for China. MFN tariffs for
apparel were higher, often at 19%, while the Chinese preference rates were mostly at 8.4% for 2012
and to reach zero at 2014. For the final two lines (furniture and related items) the MFN rates were
often at 7% while the Chinese preferences had reached zero by 2012; similarly for plastics, the MFN
rates were often at 5% to 7%, and similarly the Chinese preferences reached zero at 2012.
What does this mean for South Africa? Examining the imports into South Africa from China during
2012 we find that the top six HS chapters used for New Zealand, imports from China in Table 6 above
contribute 52.27% of the merchandise import total from China. The New Zealand top two chapters
(machinery and electrical machinery) contributed 36.90% of the New Zealand imports, while the same
two chapters contributed a greater 42.67% of the South African merchandise imports from China in
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
17
2012. Only HS 61 (apparel) appears in the next four imports into South Africa from the New Zealand
top six list, although New Zealand’s other three chapters (HS 62: apparel, furniture and plastics) were
listed seven, eight and nine respectively for South Africa.
The main divergence between New Zealand and South Africa is in the clothing, apparel and footwear
imports, where South Africa has tariff protection of 40% or 45% on almost all clothing lines. There is
little doubt that opening the market further for apparel imports from China would have dramatic
consequences for the domestic clothing sector in South Africa, a sector that the government is
desperate to protect. Behind this difference are the differences in a developed versus a mixed economy
that means New Zealand’s clothing sector is not as vital to the workplace opportunities for lower paid
labour as it is in South Africa. South African (SACU) tariffs on the HS 84 and 85 lines are much
lower, with many lines free (although there are more free lines in HS 84 than HS 85); however, some
of these lines are in the 5%, 10%, 15% and 20% categories. Similarly, most of HS 39 (plastics) are
free although some are in the 10% category, while, similarly, furniture in HS 94 are free in many of
the lines but with some in the 20% category. One last note on the South African imports is that HS 87
(vehicles) is listed at number four for South African imports from China, and a comment could be
made here that the South African Government does not appear to show the same concern for the auto
sector as it does for the clothing sector.
The services trade
MFAT reports that the services commitments under the FTA were not made on the basis of a
‘negative list’ as New Zealand would have preferred and furthermore that China’s upfront
commitments in addition to its existing WTO commitments are limited. However, New Zealand
considered that it would benefit from China’s expanding its commitments in services, including
education and environmental services, and would also benefit from provisions to facilitate the
movement of business people in China.
The most visible services trade is tourism, and Table 7 shows the numbers for December year annual
short-term arrivals into New Zealand from China from 2001 through to and including 2012. These
exports from New Zealand (visitors to New Zealand) are shown for the categories of business,
holiday, visiting friends and relatives (VFR) and the totals. Also shown is the annual change to the
totals. This latter change column highlights annual variability but, importantly, demonstrates the large
increase during 2012 over 2011. We have not been able to compare the 2012 data against comparable
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
18
destinations, but during 2011 outbound tourists from China increased by 22.4%.5 Thus, although
doing well, New Zealand as a destination was slightly below the overall average increase for Chinese
tourists in 2011. Note from Table 7 that business arrivals have actually declined in number in each of
the four years prior to the FTA.
Table 7: Short-term visitor arrivals into New Zealand from China
Short term Chinese arrivals
Business Holiday VFR TOTAL Total change
2001 12,488 22,487 7,336 53,174 Year on Year
2002 17,917 29,488 10,078 76,534 43.9%
2003 15,460 26,907 10,267 65,989 -13.8%
2004 20,253 40,760 11,889 84,368 27.9%
2005 19,508 44,915 11,691 87,850 4.1%
2006 22,882 57,615 12,565 105,716 20.3%
2007 18,929 75,396 14,710 120,804 14.3%
2008 11,612 74,671 14,550 112,398 -7.0%
2009 10,124 65,287 16,374 102,259 -9.0%
2010 10,808 82,151 18,841 122,712 20.0%
2011 12,474 97,923 21,216 145,524 18.6%
2012 15,728 140,416 23,952 197,024 35.4%
Source: Statistics New Zealand
While it is not valid to make direct comparisons, we note that South African tourist arrivals from
China similarly achieved substantial growth in the first nine months of 2012. Numbers increased by
63.5% to 96,747 from January to September 2012, compared with 59,187 tourists over the same
period in 2011.6 In the education export sector there are many non-South African students studying in
South African universities, but most of these students are from Africa (and SADC in particular where
the fees are set at local levels). Student numbers studying in South Africa from Asia in general and
China in particular do not seem to be readily available, but they do not appear to be significant.
Extending the short-term arrivals Table 8 shows the long-term arrivals from China into New Zealand,
with ‘long-term’ defined as 12 months or longer. Data was available from 2004, and the total numbers
actually declined from that year before picking up to be above the initial numbers during 2011 and
5 See http://www.travelchinaguide.com/tourism/2006statistics/outbound/ 6 See http://www.southafrica.net/trade/en/news/entry/news-china-now-sas-4th-largest-overseas-tourist-market
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
19
2012. Numbers for employment doubled most years following the FTA, while resident numbers have
remained constant.
Of special concern to New Zealand universities was the decline in student numbers during the early
years of this century, but numbers seem to have recovered for the longer-term students. In addition,
many of the short-term arrivals reported above are students, and in 2006 there were some 31,905
Chinese fee-paying students enrolled in a course of study in New Zealand; however, the Joint Report
notes that in 2008 there were 20,579 Chinese students in New Zealand (23% of the total). We are not
certain if these two data reports are directly comparable or not. China made commitments to include
all New Zealand universities and the Institutes of Technologies and Polytechnics as well as some
other providers on their ‘Study Abroad’ websites. We are not able to make a judgement on the impact
of the FTA on these student numbers, but note that China now seems to be the largest supplier of
students for the overseas market globally. Importantly, China has also agreed to explore distance
learning and mutual acceptance of vocational qualifications.
Table 8: Long-term arrivals into New Zealand from China
Residence Student Visitor Work
Not
applicable Other TOTAL
2004 2,164 3,066 210 312 293 98 6,143
2005 1,506 1,756 149 276 347 68 4,102
2006 1,692 1,700 131 316 393 39 4,271
2007 1,330 1,807 132 429 463 46 4,207
2008 1,442 2,280 193 491 500 87 4,993
2009 1,549 2,606 179 1,058 526 64 5,982
2010 1,739 2,766 237 785 603 47 6,177
2011 2,092 3,311 340 958 619 60 7,380
2012 2,111 3,212 458 1,267 622 53 7,723
Source: Statistics New Zealand
New Zealand has allowed for temporary employment of skilled workers from China subject to skill-
level requirements and a bona fide job offer, for employment of up to three years for some
occupations. These are up to 800 in occupations with Chinese characteristics (for example, traditional
Chinese medicine practitioners, Chinese chefs, Mandarin teaching aides, Chinese Wushu martial arts
coaches or Chinese tour guides) and up to 1,000 in 20 specified occupations included on New
Zealand’s long-term skills shortage list. In addition, a maximum of 1,000 young skilled Chinese per
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
20
year were allowed to enter New Zealand for tourism purposes and to engage in incidental employment
under the Working Holiday Scheme. The initial uptake of these opportunities appeared to be limited.
The FTA covers the categories of ‘temporary entry’ and ‘temporary employment entry’ under
movements of natural persons. The former allows extended entry for suppliers of both goods and
services as well as investors to the labour market of the host country in order to pursue their business
interests. ‘Temporary employment entry’ is more directly related to extended entry for the broader
labour market. New Zealand reports that while these concessions go beyond its General Agreement on
Trade in Services (GATS) commitment, they are consistent with and within the offer New Zealand
made to the stalled WTO Doha Round of services negotiations.
Other services
In general, MFAT (2011) reports that the FTA seeks to facilitate expansion of trade in services
between New Zealand and China by establishing provisions for transparency and progressive
liberalisation. But the FTA recognises the right of the parties to regulate services and the role of
governments in providing and funding public services. The agreement excludes services supplied in
the exercise of government authority, government procurement, subsidies and some air transportation
services. It establishes the general obligation of national treatment and market access in sectors listed,
subject to specified restrictions. Commitments made in New Zealand’s services schedule entitle
Chinese service suppliers wishing to operate in New Zealand to access the market without quota
(market access) and on the same basis as domestic suppliers (national treatment). An annex effectively
binds New Zealand’s existing GATS commitments in the FTA, but New Zealand has made GATS-
plus commitments in some of the following areas: education services, environmental services,
computer services, photographic services, duplicating services and construction services. None of
these commitments go beyond New Zealand’s current regulatory environment or policy settings, and
there are also provisions to ensure that domestic regulation is administered in a reasonable, objective
and impartial manner, and that regulations do not become unnecessary barriers to trade in services.
There are also provisions to encourage recognition of professional qualifications and registration. New
Zealand has made reciprocal MFN commitments requiring that any better treatment relating to
services that New Zealand extends to third countries must also be extended to China. These MFN
commitments relate to construction, environmental services, services incidental to agriculture and
forestry, engineering and integrated engineering services, computer and related services, and tourism
services. These commitments mean that any more favourable treatment granted by New Zealand to
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
21
other countries in these sectors in the future would automatically be extended to China (although
existing FTAs are excluded).
Conversely, China has made GATS-plus commitments in computer and related services, management
consulting, education, environmental services, sporting and other recreational services, air transport
services in the form of repair and maintenance facilities and computer reservation, and road transport
services.
Investment
Under National Treatment established Chinese investments in New Zealand will be treated no less
favourably than domestic investors in like circumstances (subject to existing non-conforming
measures). Under MFN conditions any benefits of commitments made in future FTAs will
automatically be extended except in respect of agreements on fisheries and maritime matters.
Additional protections for investments include compensation for losses arising from war, armed
conflict and similar situations; protection against expropriation and guarantee of fair and equitable
treatment; and subject to specific limitations, free transfer of all payments relating to an investment.
Access to binding third-party arbitration procedures with safeguards to preserve governments ‘right to
regulate’ is also allowed for. It is this clause that many of the opponents of the FTA have become
concerned about, but none of the commitments offered seem to be inconsistent with New Zealand’s
existing regulatory regime or setting.
MFAT reports that in the area of investment in China, New Zealand will benefit from enhanced
national treatment and investment protection provisions, as well as an MFN non-discrimination
provision to ensure that New Zealand investors remain no worse off than investors of any other
countries. The FTA also provides New Zealand investors with access to binding third-party arbitration
procedures if the Chinese Government breaches the investment provisions, and there are provisions to
facilitate dialogue between the two countries on investment matters.
The parties noted in their two-year review that investments in both directions had grown from a low
point in 2007; two years after the FTA became operational China was New Zealand’s 13th largest
source of overseas investment funds. Chinese investment had traditionally been in property and
natural resources but recently this investment has seen a focus on the dairy sector. Conversely, while
New Zealand’s investment in China had grown, its small share of China’s total had declined in
relative terms. Traditionally, this investment had been in manufacturing, leasing and business services
but recent growth has been in agriculture and the manufacturing sector. Increasingly, New Zealand
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
22
manufacturers are making parts in New Zealand for assembly in China or producing fully in China for
both the Chinese market and export to third countries (including exporting back to New Zealand).
Intellectual property
Intellectual property has traditionally been a contentious issue when China is mentioned. The FTA
requires both parties to establish and maintain transparent intellectual property rights regimes and
systems that provide certainty in this area. The provisions of the WTO Agreement on Trade-Related
Intellectual Property Rights (TRIPs) become relevant in the bilateral context, meaning that rights and
obligations under TRIPs are actionable under the FTA. Consultation is mandated in the event of a
dispute.
Issues associated with merchandise7
Rules of Origin (RoO) and customs clearance
The FTA mostly uses a change of tariff classification (CTC) approach whereby a good will qualify if
all third-party inputs used in its production have undergone a specified change of tariff classification.
For some products, however, there are additional regional value content (RVC) rules where the
product must meet the CTC plus an additional RVC requirement (mostly around 40%). Other products
require either a standalone RVC or an RVC, or either a standalone process rule or an alternative
process rule. Some agricultural products must be wholly obtained from a party in order to qualify for
tariff preference into the other party with no input materials from third countries allowed. In addition,
there are strict rules on transhipping that only allow simple logistical processes or an operation to keep
them in good condition. Normally, the presentation of a Certificate of Origin is required, but in some
cases where for instance the value of the consignment does not exceed US$1,000 or an ‘advance
ruling’ on origin has been obtained, a Declaration of Origin may be used instead.
The FTA contains provisions to ensure predictability, consistency and transparency in the application
of customs laws and administrative procedures to ensure efficient and economical administration and
the expeditious clearance of goods; normally, customs administrations are required to release
originating products within 48 hours of arrival. Traders can apply for advance rulings on origin and
tariff classification, and this may be done at least three months before the date of importation. New
Zealand exporters will be able to request advance rulings on origin direct from China Customs, but
7 This section draws heavily and almost exclusively from MFAT. We do not consider that analysing these issues from a Chinese perspective is helpful to examining the implications of the FTA for South Africa.
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
23
applications for an advance ruling on tariff classification will only be accepted from persons registered
with China Customs and these persons must have a physical presence in China.
Technical Barriers to Trade (TBT)
New Zealand’s existing rights and obligations under the WTO Agreement on TBT are maintained,
including the right to adopt or maintain technical regulations necessary to ensure national security, the
prevention of deceptive practices and the protection of human health or safety, animal or plant life or
health, or the environment. The parties will promote trade facilitation through joint work on standards,
technical regulations and ‘conformity assessment’ procedures, and they are encouraged to work
towards equivalence of technical regulations and standards and towards acceptance of each other’s
conformity assessment procedures. Where either party does not accept equivalence or the results of a
conformity assessment procedure, it must explain the reasons for its decision. The parties must use
international standards as a basis for their technical regulations. There is agreement to establish a Joint
TBT Committee which is to meet at least once a year for functions that include developing and
adopting new annexes on TBT issues. New Zealand’s existing rights and obligations under the WTO
Agreement on TBT are maintained under the FTA, including the right to adopt or maintain technical
regulations necessary to ensure national security, the prevention of deceptive practices and the
protection of human health or safety, animal or plant life or health, or the environment.
China is negotiating accession to the WTO Government Procurement Agreement (GPA) of which
New Zealand is not a member. A joint understanding concluded in association with the FTA provides
for bilateral government procurement negotiations with New Zealand as soon as possible following
the completion of China’s accession to the GPA.
Trade remedies
The New Zealand-China FTA does not affect New Zealand’s rights to apply anti-dumping,
countervailing and global safeguard measures for trade with China, consistent with WTO rights and
obligations. Neither party is permitted to introduce or maintain any form of export subsidy on goods
destined for the other party and both parties are required to advise each other of (a) the initiation of
any safeguard investigation and the reasons for it and (b) the initiation of any anti-dumping
investigation in respect of goods from the other party. Either party taking a global safeguard action
may exclude imports of originating goods from the FTA partner if such imports are non-injurious.
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
24
The FTA also provides for application of bilateral transitional safeguards to imports during the period
that tariffs are phasing out for any particular good and for two years beyond that. These allow either
party to address situations of serious injury to a domestic industry caused by increased imports due to
tariff reductions under the FTA by reverting to higher tariffs for a certain period. To apply such a
safeguard measure New Zealand would have to follow the requirements to undertake an investigation
into the matter, publish the findings, and only apply an increase in tariff to the minimum extent
necessary to remedy the injury being caused.
Compensation, in the form of substantially equivalent concessions, would have to be provided to the
other partner except in the first year of a safeguard that has been taken as a result of an absolute
increase in imports.
Sanitary and phytosanitary measures
The FTA maintains New Zealand’s existing rights and obligations under the WTO Agreement on the
Application of Sanitary and Phytosanitary Measures (SPS Agreement). It also provides for the
development of mechanisms to allow parties to enhance implementation of the SPS Agreement,
including the development of arrangements to determine and recognise the equivalence of each
other’s SPS measures and each other’s areas of pest freedom or low pest prevalence. Recognition of
equivalence and regionalisation will be done through the implementing arrangements established. The
FTA emphasises communication between the competent authorities of each party, including the
establishment of a Joint Management Committee on SPS matters. There are specific procedures
outlined in the chapter concerning notification, verification and import checks.
Decisions affecting biosecurity and food safety will continue to be made and enforced in accordance
with New Zealand’s existing regulatory regime and the right of each country to determine its
appropriate level of sanitary and phytosanitary protection is preserved with exceptions made for
policy objectives consistent with the WTO provisions such as protection of animal or plant life or
health, conservation of natural resources, security, balance of payments, prudential measures and
taxation.
Electrical equipment
There is agreement on the mutual recognition of conformity assessment for electrical and electronic
equipment whereby New Zealand exporters can meet China’s testing, inspection and certification
requirements through undertaking conformity assessment in New Zealand; and for Chinese exports
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey
25
New Zealand regulators can manage risks relating to electrical safety and electromagnetic
compatibility through use of Chinese requirements (adjusted as necessary for New Zealand
conditions). Cooperation is encouraged and reporting on any changes to domestic regulations is
mandated.
Labour and environment outcomes
Legally binding agreements on labour and environment were concluded in association with the FTA.
These agreements will enhance communication and cooperation on these issues and help towards the
objectives of raising working standards and improving environmental protection in both countries. A
Labour Cooperation Memorandum of Understanding (MoU) seeks to improve understanding of labour
matters, encourage dialogue and cooperation, and promote sound labour policies and practices. An
Environment Cooperation Agreement similarly seeks to encourage sound environmental practices and
improve the capacity of each country to address environmental matters through cooperation and
dialogue. Both agreements identify specific areas for cooperation and establish bilateral mechanisms
to oversee implementation and address any issues that might arise. Neither of these agreements would
appear to have any reason for alarm bells in South Africa to ring.
The New Zealand-China Free Trade Agreement: implications for South Africa
tralac Working Paper | S13WP07/2013 | Author: Ron Sandrey