Identifier
Created
Classification
Origin
06WELLINGTON366
2006-05-11 05:06:00
CONFIDENTIAL//NOFORN
Embassy Wellington
Cable title:  

NEW ZEALAND FACES LONG MARCH TO CHINA FTA

Tags:  ETRD ECON PGOV PREL NZ 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHWL #0366/01 1310506
ZNY CCCCC ZZH
R 110506Z MAY 06
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC 2773
INFO RUEHBJ/AMEMBASSY BEIJING 0308
RUEHBY/AMEMBASSY CANBERRA 4397
RUCPDOC/USDOC WASHDC 0047
C O N F I D E N T I A L WELLINGTON 000366 

SIPDIS

NOFORN
SIPDIS

STATE PASS USTR-BWEISEL
STATE FOR EAP/ANP-DRICCI, EAP/CM AND EB/TPP/MTA-MBGOODMAN

E.O. 12958: DECL: 05/10/2016
TAGS: ETRD ECON PGOV PREL NZ
SUBJECT: NEW ZEALAND FACES LONG MARCH TO CHINA FTA

REF: A. CANBERRA 531

B. 2004 WELLINGTON 217

(U) Classified by Ambassador William McCormick. Reasons: 1.4
(b) and (d).

C O N F I D E N T I A L WELLINGTON 000366

SIPDIS

NOFORN
SIPDIS

STATE PASS USTR-BWEISEL
STATE FOR EAP/ANP-DRICCI, EAP/CM AND EB/TPP/MTA-MBGOODMAN

E.O. 12958: DECL: 05/10/2016
TAGS: ETRD ECON PGOV PREL NZ
SUBJECT: NEW ZEALAND FACES LONG MARCH TO CHINA FTA

REF: A. CANBERRA 531

B. 2004 WELLINGTON 217

(U) Classified by Ambassador William McCormick. Reasons: 1.4
(b) and (d).


1. (C) Summary: Negotiations on a China-New Zealand
free-trade agreement have been slow going since their start
16 months ago, and the road ahead looks long and difficult,
with China firmly in the driver's seat. Beijing has pitted
New Zealand against Australia, trying to hold New Zealand
hostage to whatever advantage China extracts from Australia
in separate free-trade negotiations. Also, Beijing has
warned New Zealand that if it does not accept China's terms
for an agreement, bigger and more important countries could
jump the queue, leaving New Zealand behind. Beijing has
taken a tough line in the talks, which it sees both as
"practice" and precedent for future dealings with larger OECD
members. New Zealand, the first OECD country to start talks
on a free-trade deal with China, is left with little room to
maneuver and unable to turn back now that it is so publicly
committed to the negotiations. End summary.

The premier's visit
--------------

2. (SBU) New Zealand's eagerness for a free-trade agreement
(FTA) with China has never been in doubt, a fact that
initially sped its entry into the negotiations but that now
might pose a problem. New Zealand was the first developed
country to sign an agreement on China's admission to the
World Trade Organization (WTO),the first to recognize China
as a market economy and the first to start negotiations on a
free-trade deal (ref B). Chinese Premier Wen Jiabao said
during a visit to New Zealand that he hoped for a fourth
"first": that New Zealand would be the first Western
developed country to sign an FTA with China.


3. (C/NF) Discussions on the FTA were the centerpiece of
Wen's stopover in Wellington from April 5 to 7. He and New
Zealand Prime Minister Clark announced that they would seek
to conclude a deal within one to two years and, to accelerate

the process, they agreed to ramp up responsibility for the
talks to the level of their vice ministers. In words chosen
by Wen, according to New Zealand's lead negotiator David
Walker, the two leaders said the result would be a
"comprehensive, high quality and balanced agreement." Walker
told post on May 2 that his government previously had
resisted Chinese pressure to speed up the talks, believing
that could compromise New Zealand's ability to obtain a
quality agreement. But, mollified by Wen's public commitment
to a "comprehensive" deal, New Zealand dropped its refusal to
set a time frame for the negotiations.


4. (SBU) New Zealand views an FTA as part of an effort to
form a comprehensive relationship with China. An agreement
also is intended as insurance against failure of the Doha
Round and a means of getting Washington's attention in the
absence of free-trade talks with the United States, according
to a former New Zealand diplomat and industry representative.
The Kiwis posit that for China, an agreement would be an
image-builder, a chance to demonstrate to the WTO that it can
forge an economic partnership with an OECD country.

The negotiations
--------------

5. (C/NF) The 16 months of talks have gone little beyond
exchanging views and identifying topics for discussion. In
the first five negotiating rounds, starting in December 2004,
the two sides discussed process and procedure and exchanged
information, according to a New Zealand trade official. Only
in the fourth session did both sides discuss a framework of
rules for an agreement, such as rules of origin, quarantine
regulations and technical barriers to trade. In the sixth
round, in March in Beijing, New Zealand outlined the issues
that it wants to include in a "comprehensive" deal. Walker
said detailed discussions have been held only on trade in
goods, with New Zealand wanting all tariffs on goods to go to
zero, although it is willing to reach that goal over time.
Both sides have identified their "sensitive" sectors: for
China, dairy and meat products and services, and for New
Zealand, textiles, clothing and footwear. A New Zealand
Treasury official said his government has accepted the idea
that negotiations on some sensitive issues will have to be
deferred.


6. (C/NF) Walker said detailed discussions have yet to start
on other issues that New Zealand wants addressed, including
services, intellectual property, investment, government
procurement and dispute settlement. He noted that New
Zealand knows it would not get everything it wants from China
on investment, and it accepts that an agreement with China
would exclude labor or environmental issues, which will be
dealt with in "parallel" discussions outside the FTA talks.
China has said it wants to include "Mode 4" liberalization --
the temporary movement of Chinese people to New Zealand --
and New Zealand is awaiting specifics of that request, Walker
said. The seventh round is scheduled for the week of May 15
in New Zealand.


7. (C/NF) A fundamental difference between the two sides has
been over the deal's scope. Wen's reference to a
"comprehensive" agreement notwithstanding, his government's
expectations are much more limited than New Zealand's, the
trade official said. For instance, China's FTA with Chile,
signed November 18, covers only goods. Walker said he has
reminded the Chinese that negotiating with an OECD country is
different: "We have told them that FTAs are WTO-plus."
However, before departing Wellington in late 2005, then
Chinese Ambassador Chen Mingming told a closed meeting of
diplomats and academics: "Many people (in the Chinese
government) do not see the need to make more concessions than
were made when we acceded to the WTO." Chen also warned that
China's position on agriculture and services was
"formidable," implying these sectors might be excluded from a
deal.


8. (U) China is New Zealand's fourth-largest export market,
although it imposes significant tariffs on New Zealand's top
exports, including dairy products, meat, kiwifruit and wool.
China is seen as having particular interest in gaining
greater access in New Zealand for its textiles and clothing,
the last large product category on which New Zealand imposes
tariffs. A joint study on the feasibility of an FTA predicts
that a trade deal could boost New Zealand's exports to China
by 20 to 39 percent over 20 years, or US $180 million to US
$280 million a year. China's exports to New Zealand would
rise by 5 to 11 percent, or US $40 million to US $70 million
a year.

The difficulties for New Zealand
--------------

9. (C/NF) Walker acknowledged that, in negotiating with a far
larger country, New Zealand will have to be nimble and play
its cards carefully. Its basic problem is that it holds few
cards, having already given China what it most wanted --
recognition by an OECD country that it is a market economy,
the Treasury official said. New Zealand thereby agreed not
to use anti-dumping and safeguard rules against China, as
allowed under Beijing's WTO accession agreement.


10. (C) Although negotiating a free-trade deal would seem
relatively easy since New Zealand poses little threat to
China's immense economy, the Chinese have taken a hard line.
They know that whatever they agree to with New Zealand will
be considered precedent in future FTA negotiations, according
to the trade official. In addition, China aims to concede no
more than New Zealand's other FTA partners already have.
"The Chinese have in their back pockets copies of the New
Zealand-Thailand FTA ... which limits our flexibility and
negotiating leverage," the trade official said. That
agreement contains no commitments to liberalize trade in
services, despite the fact that services compose more than
two-thirds of New Zealand's GDP and 28 percent of its
exports.


11. (C) New Zealand's leverage also is lessened by its stated
desire to be among the first of OECD countries to sign an FTA
with China. New Zealand fears that at some point China will
move on to other, larger and more important economies. The
Chinese already have implied that threat by essentially
saying that if New Zealand wants to be first, then it must
accede to China's terms, the Treasury official said.


12. (C) The nightmare for New Zealand is that, having watched
enviously as Australia signed an FTA with the United States
in 2004, its neighbor beats it again with China. New Zealand
officials had proposed to Canberra that they negotiate an
agreement jointly with China, but were rebuffed, according to
an Australian government official. Now, New Zealand finds
its negotiations affected by the ongoing China-Australia
talks -- and Australia appears to be in no rush for a deal
(ref A). Former Chinese Ambassador Chen said: "It is easy to
reach a deal with New Zealand because its capacity is not so
great. But our problem is Australia. What we give to New
Zealand, Australia will want." With China and Australia in
the figurative front seat, New Zealand may feel increasingly
as if it is just along for the ride.


13. (C) Among the more general difficulties that New Zealand
officials have experienced dealing with their Chinese
counterparts is contending with China's centralized
decision-making process, the trade official said. New
Zealand often has had to ask for higher-level participants,
even sending Prime Minister Clark to Beijing in May 2005
largely to get the Chinese leadership to again publicly
commit to the negotiations, according to the trade official.
New Zealand also has had to negotiate separately with two
Chinese ministries because of a philosophical split. The
Chinese Commerce Ministry wants to push ahead with
liberalization, while the Agriculture Ministry is anxious to
protect the country's small dairy farmers.

Comment
--------------

14. (C) For the Chinese, an FTA with New Zealand is less
about substance and more about symbolism -- a sign that
China, in the words of PM Clark, "can deal with open market
economies." But the New Zealand government is keenly aware
that it needs a deal with substance if it is to avoid being
criticized at home and abroad for giving in to Chinese
demands. Still unclear, amid the upbeat comments of the
countries' leaders last month, is which side is better
endowed with patience. Predictions of a deal in "one to two
years" appear very optimistic.

McCormick