O’Connor phones to mollify the Aussies after trumpeting the pay-off from mollifying Beijing

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.