Wednesday, April 05, 2006

Fran O'Sullivan: Free-trade deal slows to a crawl

Everything's different but nothing has changed.

That paradox best sums up the state of negotiations on New Zealand's proposed China free-trade deal today compared with the starting point some 18 months ago.

The China FTA will be the centre piece of discussions between one of the world's most powerful men, visiting Chinese Premier Wen Jiabao, and Prime Minister Helen Clark when they meet at the Beehive tomorrow morning.

Negotiations are taking far longer to conclude than most officials anticipated when they were kicked off by Chinese President Hu Jintao and Clark at the Santiago Apec meeting in November 2004.

Initial expectations were that the deal would have been clinched by now, ready for implementation next year, enabling New Zealand to increase its exports to China by between $260 million and $400 million a year, and China to New Zealand by $55 million to $100 million a year over a 20-year period.

It hasn't been clinched in that time frame and it won't be. There is not even a deadline for concluding the deal anywhere near the negotiating table.

But expect that to change tomorrow if Clark and Wen emerge from their talks with an agreement to get some major breakthroughs in place by an unnamed date so that the deal can be finalised.

This would be following the format established in Canberra this week where agreement was reached that the China-Australian FTA would be a comprehensive agreement reached as a single undertaking concluded within two years.

Wen and Clark will be expected to restate their ambitions for a "win-win" agreement pretty much mirroring the template established between Wen and Australian Prime Minister John Howard. This recourse to "leadership diplomacy" to once again raise ambitions for the FTA is urgently necessary.

Helen Clark sometimes faces criticism from her political opponents and less frequently her own MPs for the amount of time she spends on New Zealand's international agenda. But with bilateral talks still hampered by longstanding fishhooks, officials are waiting on Wen and Clark to "give a lead" by setting their official imprimatur on future expectations.

There are "sensitivities" on each side: China's concerns over its agriculture sector; New Zealand's concerns over its manufacturing base. But those sensitivities were recognised in the FTA joint scoping study released in Santiago.

Right from day one, there has been recognition that sensitivities should be addressed by phasing in the tariff reductions for dairy and meat products (China) and textiles, clothing and footwear (New Zealand). No changes there, so what's the problem?

The problem is that in the nearly 18 months which have elapsed since talks began there has been a fundamental shift of emphasis by Beijing's leadership to its rural economy.

Just last month, Wen presided over the National People's Congress - China's version of our Parliament - as it debated its 11th five-year plan. The upshot of some rather depressing debate over some rather depressing statistics - which show average urban incomes outstrip average rural incomes by three to one - is the Beijing leadership's intention to create a "new socialist countryside".

China's rural areas still house about 700 million of the country's 1.3 billion people. Infrastructure is failing; water is polluted, environments are becoming degraded. Unofficial figures suggest there were about 87,000 mass incidents or uprisings last year by rebellious peasants.

On top of this, China failed to reach its target for land under cultivation set out in its previous five-year plan and the World Bank estimates that a big swag of China's rural households took a pounding because of the tariff reduction commitments China made in order to join the World Trade Organisation.

China has scrapped its centuries-old agriculture taxes and bumped up rural funding by 14 per cent to US$41.9 billion this year through subsidies.

Wen has pledged to narrow the widening income gap between China's urban and rural populations.

This fundamental shift is being heralded as a major historical mission and shift of "epoch-making proportions".

But it does not necessarily make the best bed-rock for a free-trade deal with an efficient agriculture-exporting nation like ours.

The negotiating ground has also shifted subtly here where the high (until recently) New Zealand dollar has put huge competitive pressure on this country's manufacturing base which has long decried the effects of increased competition from the world's factory.

Just last week, British Prime Minister Tony Blair in a Herald interview warned against the resurgence of economic patriotism as the WTO's Doha development agenda talks remain stalled.

China's low cost imports combined with its demand for our products have basically underpinned our economic growth.

While New Zealand is pushing an "agriculture heavy" result, our service providers sectors such as tourism, aviation, films and so forth can also expect to profit from a successful deal.

We can't afford to lose sight of that despite any transitory difficulties created by China's move to create a "new socialist countryside" or the present downturn in local manufacturing fortunes.

Wen and Clark - who will be flanked by their top ministers - will lead discussions.

China is fielding Commerce Minister Bo Xilai, Foreign Minister Li Zhaoxing and Ma Kai, China's development planning chief. The New Zealand side is: Finance Minister Michael Cullen, Trade Minister Phil Goff, Agriculture Minister Jim Anderton, Education Minister Steve Maharey, Economic Development Minister Trevor Mallard and Foreign Affairs Minister Winston Peters.

It is important that Clark - and her ministers - continue to press the point that China has nothing to fear from New Zealand's agriculture. We are still a small country compared with China and have much to offer through transferring know-how to assist it lift its peasantry out of poverty.

What hasn't and mustn't change is China's fundamentally strong political relationship with New Zealand. Like Australia, we are moving to become China's hotel and farm, catering for its tourists and providing food for its people. But unlike Australia, we are not also China's quarry.

Clark will not unveil a major deal like Australia's agreement to supply China with uranium to fuel nuclear energy plants.

Instead, there will be four memorandums of understanding dealing with issues ranging from cultural, consular, legal facilitation and deer-product exports.

These are small beer but form building stones in the bilateral relationship. However, Green MPs and possibly even some from Labour's side will want to be assured that China does not misuse the legal facilitation agreement to hunt offshore dissenters.

There will inevitably be the usual game of Chinese chequers as China's skilful Wellington-based diplomats try to keep their Beijing leaders shielded from protesters. Falun Gong, in particular, has said it will try and file proceedings against Bo for alleged human-rights abuses against the banned group dating back to his period as a provincial governor.

But this whirlwind visit will be considered a success if Wen and Clark can reset ambitions for a strong FTA and chart a path which enables New Zealand to beat Australia to the finishing post.

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