All eyes on China FTA Upgrade

What is going on with the China FTA upgrade? The upgrade was announced when President Xi Jinping visited New Zealand in November 2014 just after signing the Australia-China FTA. Export interests have been expecting the commencement of negotiations on this upgrade since the last quarter of last year and there was much expectation that this was going to be the main the deliverable flowing from Prime Minister Key’s visit to China last week. At the heart of the upgrade is the issue of the dairy safeguard negotiated in the 2008 FTA. This is said to be costing the New Zealand industry $100 million a year.

It seems that once more little progress has been made on this issue. The matter has been delegated to Trade Ministers to discuss when they meet in a few weeks in the margins of the APEC Trade Ministers’ Meeting.

China clearly has little or no interest in giving ground on the dairy safeguard. It has 2 million dairy farmers concerned at the size of the increase in imports from New Zealand. The safeguard is designed specifically to meet these concerns. Moreover it is due to disappear reasonably soon. For some items it goes in 2022, all go by 2024. In trade policy terms that is not a huge period of time.

While New Zealand is making demands worth $100 million a year on the dairy safeguards it seems that China¹s request for a negotiation on services, investment and agricultural cooperation looks much more modest in terms of impact.

On the New Zealand side, should dairy safeguards not be a starter, what are the issues that need to be progressed? This is unclear. It seems that MFAT and MPI have been of the view that dairy safeguard is the only issue worth pursuing.

China’s ban on chilled beef imports was one possibility, but it seems that China’s leaders have agreed to progress that issue and a positive outcome is expected in a few months.

GCC Hope on horizon?

Minister McCully seems to have achieved some progress on unblocking the GCC FTA. On his recent visit he achieved a reasonably positive joint message from the Saudi Arabian Government. It seems that Saudi Arabia is keen to see the GCC launch negotiations with China and some others but failure to achieve an outcome with New Zealand is seen by those other parties as a negative sign. McCully is due back in the region around 20 May.

Iran

With sanctions removed Iran looks a promising market for many New Zealand exporters. It was once our fifth biggest goods export market. Meat, wool and education would appear to be the biggest potential winners in the short term. There are still issues around payment for goods and services sold to Iran that need to be resolved. NZTE are putting resource onto the ground in Iran for the first time in many years. The Iranian Foreign Minister visited New Zealand in mid-March and Minister McCully will be reciprocating this visit in May.

EU Trade growing strongly

Latest trade statistics show New Zealand with the biggest year on year goods trade deficit in 7 years. Big declines in the value of dairy products and oil seem to be the major cause of this. The impact on Asia and Australia is particularly noticeable. Interestingly, the EU, which is less strong as a dairy market is showing good overall growth in goods imports from New Zealand. This highlights the importance of the possible negotiation of a FTA with the EU.

TPP

TPP remains a big issue in the US primary campaign with no current contenders having much positive to say about it. While this is discouraging there are still many commentators suggesting that ratification of the agreement in the US is still possible in the period following the Presidential election and before the new President and Congress take up the reins of power (the lame duck period). This would allow President Obama to achieve a legacy outcome while saving the new President the need for what some will interpret as a significant back down.