The New Zealand-China Free Trade Agreement: implications ...€¦ · 12/06/2013 · • NZ-China...

The New Zealand-China Free Trade

Agreement: implications for South

Africa

by Ron Sandrey

tralac Working Paper

No. S13WP07/2013

May 2013

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This publication should be cited as: Sandrey, R. 2013.

The New Zealand-China Free Trade Agreement: implications for South Africa.

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does not necessarily share the views expressed in this material. Responsibility for its contents rests

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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,



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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.



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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.



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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

has eight trade agreements in force:

• Australia-New Zealand Closer Economic Relations (CER) (1983)

• NZ-Singapore Closer Economic Partnership (2001)

• NZ-Thailand Closer Economic Partnership (July 2005)

• P4 – Brunei, Chile, Singapore, New Zealand (2006)

• NZ-China Free Trade Agreement (October 2008)

• Agreement establishing the Association of South-East Asian Nations (ASEAN), Australia,

NZ Free Trade Area (January 2010)

• NZ-Malaysia Free Trade Agreement (August 2010)

• NZ-Hong Kong, China Closer Economic Partnership (January 2011).

In addition, New Zealand is currently negotiating trade agreements as follows:

• Gulf Cooperation Council

• Republic of Korea

• Russia, Kazakhstan and Belarus Customs Union

• Regional Closer Economic Partnership Agreement of the Trans-Pacific Partnership, and

• with Taiwan, Penghu, Kinmen and Matsu.

General benefits

In a personal communication the New Zealand Ministry of Foreign Affairs and Trade (MFAT)

provided background for the following section. The representatives considered that while trade and

investment between countries is affected by a number of factors including, for example, the rise of

demand for commodities (China) and the global financial crisis, their research indicates nonetheless

that the conclusion of an FTA between trading partners is a significant factor in promoting trade and



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investment between New Zealand and its FTA partners. Benefits can be measured both directly in

terms of improved market access and tariff preferences, improved customs procedures and trade

facilitation, increased profitability and business efficiencies, and increased sharing or transfer of

technology, and indirectly in terms of greater business confidence in trade and investment regimes,

higher market profile for New Zealand companies, improved frameworks for addressing trade policy

issues, and greater willingness by business on both sides to explore new trade opportunities.

In particular, the benefits of an FTA are being reflected in trade statistics as follows:

• In the year (to October) 2012, 47.6% of total merchandise trade by value was with the 14

countries with which New Zealand has FTAs.

• The value of total merchandise trade with these 14 countries rose by 8.4% over the past four

years (from October 2008) compared to just 0.6% for non-FTA countries.

• The value of exports to FTA countries rose by 22% over the same four years while the value

of exports to non-FTA countries dropped by 0.1%.

• New Zealand has FTAs with five of its top ten trading partners including the top two, namely

Australia and China. ASEAN as a bloc has now overtaken the European Union (EU) as a

trading partner and in the year to December 2012, it was New Zealand’s largest source of

imports ahead of even Australia and China.

MFAT compared the rate of growth of imports from New Zealand to a particular market against the

growth in that country’s imports from all sources to obtain a better understanding of how the growth

rates stack up against the competition. Using the year (to October) 2012 imports from New Zealand

grew significantly faster than the corresponding rate of growth of imports from all sources for China

(30% more), Malaysia (nearly five times more), Philippines (30 times more), and Chile (2.5 times

more, albeit from a low base).

While an FTA sometimes highlights only merchandise goods, MFAT reports that the whole bilateral

relationship must be examined as this can lead to greater outcomes across a range of issues including

trade and labour, trade and environment, education, and people-to-people links. In particular,

improved bilateral and political relationships and contact following an FTA accentuates the

development of the trade and investment relationship. Looking specifically at the China-NZ FTA,

MFAT report the following:



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• Total merchandise trade with China now stands at NZ$14.2 billion (year to December 2012),

up two-thirds since October 2008 when the FTA entered into force.

• China is now New Zealand’s second largest trading partner and largest source of imports.

• New Zealand exported more to China in the last four years (since the FTA entered into

force) than in the previous 20 years combined.

• Trade is growing faster with China than with any other major trading partners, and at current

rates, China will overtake Australia as New Zealand’s largest trading partner in 2014.

• Dairy is the biggest export to China (NZD2.42 billion) and New Zealand is China’s largest

source of dairy imports.

• China has now overtaken the United States of America (US) and the United Kingdom (UK)

to become the second largest source of tourists. In the year to March 2011, 186,000 tourists

from China visited New Zealand (up 38% year over year) contributing an estimated NZD362

million to the economy.

• China is New Zealand’s largest source of international students with 23,071 enrolled in 2011

estimated to be worth in the order of NZD559 million.

• Foreign Direct Investment (FDI) investment from China has risen by 132% since the FTA

entered into force and stood at NZD13.3 billion in 2011.

The bilateral trade analysis

This section will concentrate upon New Zealand’s exports to China rather than the converse, namely

Chinese imports to New Zealand. While the MFAT emphasises the value of the FTA in promoting

New Zealand’s exports to China, it must be pointed out that increasing exports to that dynamic Asian

country is really a weak test of success. Many other countries have similarly increased their trade with

China. A valid test is to examine New Zealand’s relative performance in the Chinese market and

assess the relative changes there against preferences granted in the FTA.

The MFAT reported in the Two-Year Joint Review that three rounds of tariff cuts had taken place by

November 2010. The first was upon entry into force of the Agreement on 1 October 2008; the second

took place on 1 January 2009, and the third on 1 January 2010. More than half of two-way trade was

duty free in 2010 under the FTA. By 2016, all imports from China to New Zealand will be duty free,

and by 2019, over 96% of imports from New Zealand to China will be duty free under the FTA

(where the 4% still subject to tariffs relate to wood products).



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The removal of New Zealand’s tariffs on Chinese imports could create adjustment problems for

import competing sectors, and the FTA attempts to mitigate these effects with various protections

including safeguards. Similarly, on the Chinese side there is a bilateral safeguard mechanism whereby

duties can be increased if New Zealand products are causing serious injury to the Chinese industry.

Realistically though, given the small size of New Zealand exports relative to Chinese production and

examining the safeguard conditions, its effect is likely to be limited.

Merchandise imports from New Zealand into China (New Zealand’s exports)

To undertake this analysis we used the Global Trade Atlas data from China, updated to the December

2012 year. All data is expressed in US dollars (either millions or thousands). Table 1 starts by

showing Chinese imports ranked by their 2012 values along with the values for 2008 and 2011 (2008

is taken as the base year before the FTA tariff preferences really would have taken effect) and the

percentage changes for (1) 2012 over 2011 and (2) 2012 over the 2008 base. The table shows the

totals for Chinese global imports and the Chinese imports from Africa, followed by the top 20

individual sources (with the EU always expressed as a single source in this analysis) and then South

Africa and New Zealand in 25th and 38th places respectively. Note in particular that New Zealand had

one of the highest increases for 2012 imports over 2011 and the highest shown for the 2012 over the

FTA base of 2008. This confirms New Zealand as a star performer in the Chinese market. South

Africa’s overall performance in recent years has been just better than the average.



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Table 1: All merchandise imports, $ million and % changes

% Changes

Partner Country 2008 2011 2012 12 over 11 12 over 08

World 1,131,469 1,741,430 1,817,344 4.4% 60.6%

Africa 54,305 74,043 80,637 8.9% 48.5%

EU 132,854 211,187 212,480 0.6% 59.9%

Japan 150,634 194,410 177,727 -8.6% 18.0%

Korea, South 112,154 161,673 166,590 3.0% 48.5%

China 92,316 122,382 142,819 16.7% 54.7%

Taiwan 103,325 124,895 132,194 5.8% 27.9%

United States 81,486 118,121 127,755 8.2% 56.8%

Australia 36,284 80,930 78,593 -2.9% 116.6%

Unidentified country 52 45,413 62,311 37.2% na

Malaysia 32,112 62,017 58,247 -6.1% 81.4%

Saudi Arabia 31,072 49,545 54,945 10.9% 76.8%

Brazil 29,632 52,649 52,060 -1.1% 75.7%

Russia 23,784 39,043 43,952 12.6% 84.8%

Thailand 25,627 39,040 38,456 -1.5% 50.1%

Angola 22,370 24,889 33,458 34.4% 49.6%

Indonesia 14,377 31,323 32,033 2.3% 122.8%

Singapore 20,062 27,760 28,429 2.4% 41.7%

Iran 19,581 30,265 24,929 -17.6% 27.3%

Canada 12,777 21,564 22,759 5.5% 78.1%

Chile 11,362 20,576 20,611 0.2% 81.4%

Philippines 19,502 17,993 19,678 9.4% 0.9%

South Africa 9,206 16,139 15,674 -2.9% 70.3%

New Zealand 1,891 4,991 5,806 16.3% 207.0%

Source: Global Trade Atlas data

The top ten imports from New Zealand over the same period are shown in Table 2. Notable is the

market share, the best indicator of relative performance in a market that is growing strongly. Here

New Zealand is outperforming the average in both the overall total and seven of the ten commodities

shown. Dairy is, of course, the star performer, with a dramatic increase in growth as shown by

increased relative market share.



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Table 2: New Zealand’s top ten imports at aggregated HS 4 chapter level

Imports $ thousand Market shares

Description 2008 2011 2012 2008 2011 2012

All commodities 1,891,251 4,990,516 5,806,136 0.17% 0.29% 0.32%

Dairy products 321,189 1,647,246 2,036,578 36.75% 61.97% 62.58%

Wood 333,350 1,311,986 1,283,412 0.03% 0.08% 0.07%

Meat & offal 69,964 177,253 297,667 3.02% 5.20% 7.25%

Wool & fabric 146,951 310,066 295,856 16.81% 11.66% 9.09%

Fish 72,776 175,463 255,461 1.99% 3.14% 4.65%

Food preparations 124,018 167,141 211,516 17.30% 10.25% 10.85%

Hides & skins 95,453 134,220 172,931 2.61% 2.40% 3.15%

Wood pulp 131,358 190,085 158,826 3.59% 3.40% 2.89%

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.



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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

Milk powder 128,625 1,099,357 1,306,671 73.7% 93.3% 96.4% 10 5.8

Logs 240,344 1,167,591 1,103,544 10.0% 24.0% 29.5% 0 0.0

Milk powder 81,216 251,491 356,089 37.8% 55.2% 64.2% 10 5.8

Sheep meat 65,227 158,789 242,214 63.8% 59.2% 61.5% 15 6.7

Infants fooda 96,684 160,530 190,269 24.4% 18.5% 18.1% 15 0.0

Wool 91,982 180,236 156,693 6.0% 6.9% 6.5% Special

Timber 61,041 116,822 136,200 8.5% 3.8% 4.8% 0 0.0

Wool 43,201 118,287 131,318 34.8% 57.5% 64.1% Special

Rock lobster 82 61,653 129,716 0.6% 32.7% 49.2% 0/15 0.0

Coal 51,073 80,688 116,101 2.8% 0.6% 0.6% 6 0.0

Kiwi fruit 18,857 63,700 112,877 84.6% 75.3% 81.4% 20 0.0

Iron ore 37,166 66,490 98,878 0.1% 0.1% 0.1% 0 0.0

Milk fats 22,946 92,021 89,798 90.4% 96.0% 95.8% 20 8.9

Tallow 104,488 88,608 86,305 29.0% 27.8% 49.1% 8 0.0

Butter 23,466 67,679 80,029 70.3% 77.1% 78.6% 10 0.0

Wood pulp 61,680 111,348 74,369 2.4% 2.3% 1.7% 0 0.0

Sheep skins 26,482 51,021 67,530 8.0% 7.2% 11.7% 7 0.0

Sheep skins 35,789 40,547 64,957 93.5% 92.6% 98.5% 9 0.0

Wood pulp 56,264 57,115 64,636 8.6% 7.8% 8.5% 0 0.0

Caseinates 3,654 45,559 63,374 12.2% 54.1% 64.5% 10 0.0

Subtotal $m 1,250,267 4,079,532 4,671,568 1.9% 2.9% 3.7%

Subtotal % total 66.1% 81.7% 80.5%

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



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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.



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Table 4: South African merchandise imports into China, 2102 $ thousands, market shares and

tariff rates

$ thousand % share of imports

Description 2008 2011 2012 2008 2011 2012 Tariff 2012

All commodities 9,205,947 32,065,330 44,615,457 0.8% 1.8% 2.5% MFN NZ

Country special 0 15,926,445 28,940,908 32.2% 42.1% Special

Iron ores 1,890,762 6,399,847 5,527,231 3.4% 6.1% 6.1% 0.0 0.0

Coal 6 1,061,779 1,404,026 0.0% 8.1% 7.7% 6.0 0.0

Platinum 708,310 1,223,158 1,375,133 51.1% 41.3% 52.1% 0.0 0.0

Diamonds 307,613 805,065 1,050,723 21.1% 18.8% 24.8% 8.0 0.0

Chromium ores 921,865 1,251,753 880,100 33.9% 47.0% 43.3% 0.0 0.0

Ferrochromium 654,749 1,277,177 855,410 44.9% 59.1% 48.4% 2.0 0.0

Platinum 142,089 580,512 699,487 32.3% 40.4% 58.2% 0.0 0.0

Manganese ore 969,300 688,275 565,900 27.9% 25.8% 25.9% 0.0 0.0

Crude oil 92,268 0 364,709 0.1% 0.0% 0.2% 0.0 0.0

Diamonds 435,332 442,111 298,373 27.8% 23.9% 20.7% 3.0 0.0

Zirconium ores 69,631 171,652 243,774 17.1% 14.7% 19.5% 0.0 0.0

Copper waste 20,283 117,983 196,628 0.3% 0.7% 1.3% 1.5 0.0

Wool 65,875 119,096 170,780 4.3% 4.5% 7.1% Special

Coal 0 100,402 160,853 0.0% 2.3% 4.1% 5.0 0.0

Lead ores 28,163 155,277 142,534 1.7% 5.2% 4.5% 0.0 0.0

Wood pulp 28,626 142,452 133,903 4.9% 6.9% 7.2% 0.0 0.0

Polypropylene 62,053 89,847 87,444 1.5% 1.5% 1.5% 7.6 0.0

Copper 3,316 51,547 85,318 0.0% 0.2% 0.3% 2.0 0.0

Vehicles 0 90 82,976 0.0% 0.0% 0.3% 2.5 4.0

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



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.



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Table 5: South African agricultural imports into China, 2102 $ thousands, market shares and

tariff rates

South Africa NZ EU

$ thousands % share % share % share Tariffs 2012

Definitions/total 402,371 0.62% 5.19% 12.40% MFN NZ

Wool 170,780 7.12% 6.54% 4.05% Special

Hides & skins 60,693 2.73% 0.70% 15.93% 8.4 0

Flour meal 22,480 1.33% 1.11% 0.35% 2 0

Wine 21,766 1.58% 1.71% 67.40% 14 0

Hides & skins 20,292 23.22% 9.33% 37.03% 5 0

Fish oils 2,883 3.68% 0.05% 1.93% 12 0

Animals 1,558 15.33% 0.00% 10.58% 0 0

Vegetable seeds 1,398 1.22% 0.40% 17.25% 0 0

Live plants 1,147 2.37% 0.01% 22.07% 0 0

Hide bits 1,032 4.62% 0.18% 74.75% 8.4 0

Wool 764 3.83% 1.37% 0.00% Special

Sheep skins 578 0.88% 98.47% 0.33% 14 6.2

Mandarins 451 3.46% 0.01% 0.00% 12 5.3

Wine 434 0.30% 0.00% 41.81% 20 0

Beverages 379 0.44% 0.13% 4.01% 35 4

Wool 352 0.17% 64.15% 9.44% Special

Wine 277 0.46% 0.30% 91.55% 14 0

Fruit preparations 222 0.51% 0.00% 3.36% 20 0

Juices 221 1.34% 1.17% 55.08% 20 0

Sauces, etc. 213 0.29% 0.01% 8.46% 21 4

We considered earlier that MFAT’s statement of increased exports to China was a weak test of the

FTA, as most countries are increasing their exports to China. We undertook an analysis of the Chinese

import data to apply a stronger test of how well New Zealand competed against competitors in that

market. We conclude that New Zealand had indeed passed this stronger test of market performance,

and especially so in the crucial agricultural market. While dairy products are driving much of this

success, other contributions are being made as well. Tariff preferences appear to be a factor in this

success. In assessing the South African imports into China there does not appear to be the same upside



15

potential for South Africa from an FTA with China; this is so because a high percentage of South

African mineral and resource-related imports are already allowed duty-free into that market.

Merchandise imports from China into New Zealand

The percentage of New Zealand’s merchandise imports sourced in China is shown in Figure 1. From

2000 through to 2012 imports appear to be on a straight line except for levelling in 2008. This

increase has not been maintained over the last two years, providing some (albeit weak) evidence that

the FTA has certainly not flooded New Zealand with cheap imports from China as critics of an FTA in

South Africa fear would happen there!

Figure 1: Percentage of New Zealand’s merchandise imports sourced from China

Table 6 provides more detail on the Chinese imports into New Zealand at the HS 4 Chapter level.

Shown are the six most important chapters of general machinery (HS 84), electrical machinery

(HS85), apparels (HS 61 and 62), furniture, etc. (HS 94), and plastics (HS 39). Combined these six

chapters comprise between 54% to the most recent 2012 figure of 60.5% of imports into New Zealand

from China. The penultimate line shows whether or not this import increased its overall market share

in 2012 over the 2008 base, with Y denoting yes and N denoting no. The main import, general

machinery, has increased its percentage share by 3.22 percentage points (not percentage), while the

next three declined modestly.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012



16

Table 6: Imports into New Zealand from China, HS 4 Chapters and % share of the total

imports

Machinery Electrical Apparel Apparel Furniture Plastics Subtotal

Year $ million 84 85 61 62 94 39

2000 1,924 6.9% 13.6% 14.6% 12.8% 3.4% 3.0% 54.3%

2001 2,207 8.5% 13.4% 14.1% 12.6% 3.2% 3.2% 55.0%

2002 2,591 11.8% 14.4% 12.0% 11.5% 3.6% 3.0% 56.3%

2003 2,848 12.3% 15.3% 10.9% 10.6% 4.1% 2.7% 55.8%

2004 3,376 14.3% 15.9% 10.1% 9.5% 5.3% 2.9% 58.0%

2005 4,033 17.3% 16.5% 9.1% 8.4% 5.3% 2.9% 59.5%

2006 4,964 17.9% 16.4% 9.0% 7.8% 5.3% 3.1% 59.4%

2007 5,587 17.8% 18.2% 8.3% 7.3% 5.4% 3.1% 60.1%

2008 6,444 16.4% 18.1% 7.8% 6.8% 4.9% 3.4% 57.3%

2009 6,066 16.9% 20.0% 8.5% 7.2% 4.5% 3.5% 60.5%

2010 6,762 19.1% 17.1% 8.1% 6.8% 4.8% 3.6% 59.3%

2011 7,439 18.9% 18.0% 7.5% 6.4% 4.7% 3.5% 59.0%

2012 7,711 19.6% 17.3% 7.0% 6.5% 5.3% 3.9% 59.6%

Increase? Y N N N Y Y Y

% points? 3.22% -0.80% -0.81% -0.31% 0.38% 0.57% 2.25%

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



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



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



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



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



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



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.



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.



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



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.



26

References

MFAT. 2011. China-New Zealand Free Trade Agreement 2-year Review Joint Report. Ministry of

Foreign Affairs and Trade. http://www.chinafta.govt.nz/4-Events-and-press/2-Press-releases/joint-

report-feb2011.pdf

MFAT. undated. New Zealand-China Free Trade Agreement National Interest Analysis. Ministry of

Foreign Affairs and Trade. http://www.chinafta.govt.nz/1-The-agreement/3-Publications/National-

interest-analysis.pdf

MFAT. undated. Free Trade Agreement between the Government of the People’s Republic of China

and the Government of New Zealand. Ministry of Foreign Affairs and Trade.

http://www.chinafta.govt.nz/1-The-agreement/2-Text-of-the-agreement/index.php

Walker, D. undated. NZ-China FTA: summary of outcomes. http://www.nzte.govt.nz/explore-export-

markets/North-Asia/Doing-business-in-China/prepare-China/Documents/NZ-China-FTA-summary-

of-outcomes.pdf



27

Annex

This annex reproduces the (a very slightly altered) summary from Sandrey and Jensen (2008), as we

believe it provides some assurance that a computer modelling exercise can be useful.

For partners, it represents a comprehensive agreement, with complete duty-free access offered to

China for merchandise goods into New Zealand and some minor exceptions on sensitive agricultural

products and some forestry products into China. In addition, there are significant concessions on

services and investment for both parties, but we have not modelled these gains.

This paper uses the pre-release Version 7 of the Global Trade Analysis Project (GTAP) model to

assess the welfare and trade gains from the FTA as determined by merchandise goods access only.

The results show that the considerable welfare gains to New Zealand of $478 million or 0.30% of the

Gross Domestic Product (GDP) demonstrate that a small economy can stand to gain from an FTA

with a larger one, as the welfare gains to China are a lower $323 or an almost imperceptible 0.01% of

GDP. These gains to New Zealand reconcile with or even exceed comparable modelling research

undertaken with either different models or an earlier version of GTAP. Overall, the FTA represents a

solid ‘pass mark’ for New Zealand’s negotiators.

Scrutinising the output reveals that New Zealand’s gains mainly derive from the agricultural sector

where almost complete duty-free access into China is traded off against the New Zealand

manufacturing sector (and the clothing sector in particular). Enhanced agricultural exports to China of

$761 million are concentrated in vegetables and fruit and other agricultural products in primary

agriculture, and beef/sheep meat, dairy products and ‘other foods’ in processed agriculture. These

increased exports are about evenly split between ‘new’ exports or trade creation and ‘current’ exports

or trade diversion away from other destinations.

Increased New Zealand imports from China are worth some $946 million, with again an almost even

split between new trade creation and trade diversion away from other sources. Nearly 40% of these

enhanced imports from China are in the textile, clothing and leather (footwear) sectors (TCF), with

around 70% of the $196 million in clothing imports being ‘new’ trade. Output in the clothing sector

reduces by 13.2% as a result of preferential access. Other increases in manufacturing imports from

China are spread across all sectors, with machinery the largest single increase and trade diversion

away from other suppliers more evident outside the TCF sectors. Interestingly, the abolition of the

TCF tariffs signals New Zealand as an almost duty-free destination for global traders in the very near

future as just over half of the current total tariff take at the New Zealand border is from tariffs applied

to TCF imports from China.

Reference

Sandrey, R. and Jensen, H.G. 2008. China and New Zealand: an assessment of the recent FTA

agreement. tralac Working Paper 4, July. Stellenbosch: tralac. www.tralac.org

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