Saturday, April 08, 2006

Editorial: Hitching our wagon to the Dragon

The Chinese Premier has used his visit here to offer New Zealand the near certainty of concluding China's first free trade agreement with a developed country. China will have its own reasons for taking that step, just as we have self-interested reasons for matching it.

China is vast. Its economy has been growing fast for nearly three decades and it still has a long way to go before it would call itself a developed country.

If its expansion continues at recent rates, it could displace the world's largest economy, the United States, by the middle of this century.

Already its manufacturing capacity is feared in the US, which questions its adherence to rules of patent and intellectual property.

New Zealand in its enthusiasm for a free trade agreement must uphold the need for China to observe all international rules and conventions of investment, property rights, market access and cross-border competition.

New Zealand was the first Western nation to endorse China's application to join the World Trade Organisation. In fact it was the first, 34 years ago, to establish diplomatic relations with Communist China at the time the US under President Nixon was contemplating a thaw in the Cold War.

Premier Wen Jiabao recalled these "firsts" in an interview with the Herald this week, noting also that New Zealand was the first developed nation to start negotiating a free trade agreement with his Government.

Six negotiating sessions have been held so far. Premier Wen says he and Helen Clark have agreed to step up the effort and aim to reach an agreement in the next year or two. It will be done, he insists.

The evident excitement in Wellington is not premature. When a figure of Premier Wen's status in China gives this sort of undertaking, almost certainly it will be done.

But we must see that the diplomatic kudos does not overwhelm New Zealand's trading interests. Unhindered, tariff-free access for farm and forest products is an essential element of any agreement this country should enter. The interests of our engineering and other development services should not rank far behind.

There is little protection left here to give away in return. Helen Clark's task at home is to raise the sights of New Zealanders who see the likes of Fisher and Paykel moving manufacturing to China to take advantage of its cheaper labour and proximity to bigger markets.

A fearful proportion of the world's goods is now produced in the Pearl River Delta and one or two other coastal regions of China.

As wealth accrues and wages rise in those places, manufacturing will move inland. China is destined to be the world's factory for as far ahead as anyone can see, and the best that other countries can do is to take advantage of China's low costs and look to more distinctive products, higher skills and services for national welfare.

Hitching our wagon to China, we cannot afford to forget that we do more of our trade with the US, Australia and Japan, and it would be idle to deny the sensitivity of two of those countries to the rising economic power of China.

The first free trade agreement with a Western developed economy, even a tiny one, will be regarded by China as a foot in the door for bilateral dealing with others.

New Zealand must not make concessions that others would resist.

It must always be remembered that bilateral agreements are a poor substitute for multilateral trade liberalisation and should try to live up to WTO principles. If a tiny economy can keep those principles in mind as it negotiates with a mammoth, the first deal could be exemplary.

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