Trade Minister Damien O’Connor trumpeted this week that the New Zealand and Chinese governments had signed an upgrade to the free trade agreement between the two countries.
We suspect he will be more coy about his contribution to the New Zealand–Australia relationship because his trumpeting – loud enough to cross the Tasman – included advice to Canberra to “show respect” and act more diplomatically towards China.
The Aussies have been riled by those remarks, according to the Sydney Morning Herald:
Senior Australian government officials are infuriated at Mr O’Connor’s comments, which they see as a continuing pattern of New Zealand not joining other allies in standing up to China’s growing assertiveness in recent months.
China’s relations with Canberra remain frozen as a consequence of the Morrison government’s call for a Covid-19 inquiry and a series of punitive trade actions has been taken against Australian export sectors.
The upgraded deal with New Zealand includes a Chinese promise to achieve faster customs clearance of perishable goods such as seafood and to provide increased access for New Zealand wood – two areas in which Australian exporters have suffered disruptions since tensions erupted last year.
The trans-Tasman relationship was upset by O’Connor’s response to a television question about NZ’s offer to mediate between Canberra and Beijing.
According to The Guardian’s report of what transpired:
After signing an upgraded free trade agreement with China, O’Connor said NZ had a “mature” relationship with Beijing and had “always been able to raise issues of concern”.
“I can’t speak for Australia and the way it runs its diplomatic relationships but clearly if they were to follow us and show respect, I guess a little more diplomacy from time to time, and be cautious with wording then they, too, hopefully could be in a similar situation,” O’Connor told CNBC on Wednesday.
Oh dear. Show respect and be cautious with wording.
Isn’t that telling the Aussies they should be obsequious and fawning?
The Guardian goes on to say O’Connor attempted to tidy up the comments with a call to the new Australian trade minister, Dan Tehan, on Thursday.
“The Australia-China relationship will always be a matter for China and Australia,” O’Connor said in a statement provided to NZ news site Stuff.
“I’ve spoken with my Australian counterpart earlier today to reiterate, as I said in the interview, that we do not speak for Australia on this or any other matter.”
This trans-Tasman tiff coincides with Chinese state media calling on Australia to follow New Zealand’s lead in how it deals with Beijing rather than being “filled with hostility toward China’s rise” and making “wrong judgments”.
RNZ (quoting the ABC) reported that one Australian government source said O’Connor’s comments had “not gone down well” in Canberra, but added it would not do any long-lasting damage to two countries’ relationship.
“What [New Zealand] has to realise is that China is intent on splitting alliances in the region, and jumping in like this plays into their hands,” they said.
But let’s not be distracted from the upgrading of the FTA with China and O’Connor’s declaring this will ensure it remains fit for purpose for another decade.
“This upgraded agreement comes at a time of considerable global economic disruption due to COVID-19. The upgraded free trade agreement is part of the government’s Trade Recovery Strategy, in response to the economic shock of COVID-19.”
Signing the agreement builds on the significant benefits both countries have enjoyed as a result of the existing FTA, he added.
Key outcomes of the upgrade include new rules that will make exporting to China easier and reduce compliance costs for NZ exports, a better deal for services exporters through expanded market access and most-favoured nation commitments, and the introduction of environmental considerations – the most ambitious trade and environment chapter and the highest level of commitment that China has agreed in any FTA.
The upgrade will also mean that 99% of New Zealand’s nearly $3 billion wood and paper trade to China will have tariff-free access to China.
These outcomes will bring tangible benefits to a range of NZ businesses, including exporters of perishable goods such as seafood, the forestry sector, and other primary sector industries. Service sectors that will benefit from new or enhanced market access commitments include advertising, education and aviation-related services.
“NZ’s existing free trade agreement with China has been very successful, but China’s free trade agreements and our business practices have evolved since it was signed over a decade ago,” Damien O’Connor said.
“This is why we entered into upgrade negotiations: to ensure our agreement is modern and deepens our relationship further, and that New Zealand’s exporters have the best possible access to the China market.”
In dairy, existing conditions have been maintained, with all safeguard tariffs to be eliminated within one year for most products, and three years for milk powder.
This means that by 1 January 2024, all NZ dairy exports to China will be tariff free.
China is New Zealand’s largest trading partner, with two-way goods and services trade now exceeding $32 billion a year.
The NZ Herald rates the upgraded FTA “ a win for NZ”. It argues that China’s middle class expands at a rapid rate and its consumers are going more up-market in their choices.
That dynamic is not going to change any time soon, so an improved free trade agreement with the world’s second biggest economy is a win for NZ’s exporters, and the country as a whole, it said.
Point of Order doesn’t disagree with that assessment, yet the country’s dairy industry will be unhappy that it will take three years for NZ’s milk powder exports to become tariff free. Lifting that tariff would have given an immediate boost to the returns of NZ’s dairy exporters.
Critically, it may have encouraged Fonterra to increase its payout this season beyond its forecast range with the current top limit at $7.30 kg/MS .
That in turn would have provided a stimulus for its farmer-suppliers to plan ahead of the new season how they could expand production in the 2021-22 season. And given there is little prospect of international tourism reviving its role as NZ’s leading export-earner in that time frame, the best opportunity for NZ to fill the gap from a bigger volume of exports from the country’ s primary industries.
Fonterra itself is beavering away on its own account in refining its product range, and increasing its export earnings, with the recent launch of its first mental wellbeing support product for adults—–a milk phospholipid ingredient for global food and beverages manufacturers, with another similar one designed for the lifestyle health supplement market close to production.
These are the products of its Palmerston North laboratories and the focus on adding value to win the bigger bucks at the top end of the market. It underlines how under the Hurrell regime, Fonterra as the world’s fifth largest dairy company has the ambition to move higher up the ladder.
It also underlines how Fonterra, and the dairy industry, are such vital components of the NZ economy.