China-Kiwi conundrum

Architect of China-NZ Free Trade Agreement says Australia and New Zealand have almost identical ties with China but “can’t easily explain” why Australia and China don’t get on

28 May 2020 | Marcus Reubenstein (Image: APAC News/Vector Stock) 

It’s a perplexing situation which some New Zealanders, particularly those in business, don’t understand.

“The issues that exist between China and Australia are the same as those here,” says former diplomat Charles Finny, “but I would say the [New Zealand] relationship with China is still basically sound.

“There will be the occasional disagreement, but the New Zealand government seems to be wanting to have a good close relationship with China and the Chinese seem to appreciate that.”

As the lead negotiator, who commenced free trade discussions between China and New Zealand in 2004, Finny is well versed in international trade. His expertise extends beyond simply knowing how to establish free trade agreements, he understands what needs to be done to maintain them.

Make the boat go faster

This week Australia’s Prime Minister Scott Morrison gave a national address to announce one of the key planks of his post-COVID-19 economic recovery plan.

He told Australians now is the time for collective national determination, illustrating that point with an anecdote about New Zealand’s challenge to win the 2000 America’s Cup.

Morrison was working for NZ Tourism at the time and had a meeting with the America’s Cup team in their Auckland office. He was alarmed by the sparse office space and worn out furniture; a kiwi yachting official told him you only ask one question in that office: “What makes the boat go faster?” 

Team New Zealand left peripheral issues on the periphery.

Morrison ended that anecdote with, “they [New Zealand] won and so can we.” For the record, Australia also had a yacht in that series – it finished second last.

Today in the trade race, compared to the kiwis, Australia seems to be running the slow boat to China.

Missing the FTA start

Four years after New Zealand had won the America’s Cup, Charles Finny was tasked with the challenge of getting an agricultural reliant nation unfettered access to the world’s biggest market.

A career diplomat, he’d lived in New York, Washington DC, San Francisco and London; and had senior postings across Asia, including First Secretary of the NZ High Commission in Singapore and as Deputy Head of Mission in Beijing.

Lead negotiator for China-NZ FTA, Charles Finny (Image Supplied)

One of the first stops for the Mandarin speaking Finny was a major Australian bank, which had vastly greater financial ties to China than any New Zealand financial institution.

While they were receptive to the approach, the bank’s executives informed him they’d already been tapped on the shoulder by the Australian government. Their response, he says, “Australia is about to start China free trade negotiations as well and we suspect Australia will conclude its negotiations well ahead of New Zealand, so we’ll stick with the Australian team.”

Despite their respective negotiations starting just five months apart, New Zealand had its free trade agreement more than six years before Australia.

And as if to rub Australia’s nose in it, just three days after negotiations for its free trade agreement (ChAFTA) were finalised, it was announced New Zealand and China were about to upgrade their FTA.

Australia hardly a cleanskin in trade

China has been roundly criticised in the Australian media, and in political quarters, for its imposition of an 80% tariff on Australian barley and the suspension of the licenses of four Australian beef exporters over technical issues. 

New Zealand’s first free trade agreement, the Closer Economic Relations Agreement (CER), was signed with Australia in 1983, according to Finny, Australia did not have a good record in trade facilitation. 

“When we negotiated the second round of the CER Agreement,” he says. “Australia was one of the world’s biggest users of anti-dumping actions and most of its actions were against New Zealand.”

Anti-dumping measures are basically a trade mechanism similar to China’s imposition of tariffs used to restrict Australian barley exports. However, since the start of the COVID-19 crisis, Australia has been very liberal in its application of such actions employing them 53 times.

According to Department of Industry figures, Australia presently has 69 anti-dumping measures in place targeting more than 20 nations.

China is most affected having 17 trade barriers put up, while Japan, Korea, Singapore, United States, Brazil, Russia, France and Spain are among major economies also on the Australian government’s hit list.   

New Zealand has just four anti-dumping measures in place, three on canned peaches the fourth on galvanised wire.

Very reliant on China trade

China is the biggest single goods and services export market for both New Zealand, 23% of total exports, and Australia, 32.6% of total exports. A third of New Zealand dairy exports, 60 percent of its forestry products and 40 percent of its meat go to China. By contrast Australia’s agricultural sector is far less reliant with only 25 percent of its produce destined for China.

New Zealand PM Helen Clark and China’s Premier Wen Jiabao at FTA singing in Beijing, 7 April 2008 (Image: Xinhua)

According to Finny, “For both Australia and New Zealand there is an issue of how dominant the China market is in terms of exports.”

The immediate challenge, he says, is the COVID-19 disruption to global trade. “China is one of the first economies to recover and get back up so we’re probably going to be even more dependent on China; and it’s only sensible for companies to take advantage of those opportunities [in the China market].”

That might not sit comfortably with some policy makers, as he points out:

“The problem for a lot of companies is that the China market is not just a good market to sell volume but the price China pays is very good.”

Charles Finny, former NZ Trade Negotiator

“There are other markets who’ll buy our product but they may not be prepared to pay as much, so it’s a very bold decision not to take advantage of that opportunity.”

Still there are risks, beyond the normal commercial consideration, for exporters who’ve become too reliant on China. As he points out, “There are occasions when politics spills over into trade and economics and China has demonstrated that it can use trade as a lever in politics.”

Different perceptions of China

One of the cornerstones of New Zealand’s relations with China is seemingly a wide held belief that the relationship delivers more positives than negatives. Also, suggests Finny, New Zealand’s engagement with China is premised on economic and not strategic issues.

He says, “We are not deeply suspicious of China as perhaps some other nations are. Maybe you [Australia] do have a bigger defence and intelligence influence over policymaking than we do.”

Australia’s media pours scorn on China with constantly provocative front pages, the Murdoch tabloids have been caught out numerous times with anti-China headlines based on very thin facts.

Finny says, “We don’t have the media factor in play, I think the coverage is balanced. There is certainly no anti-China campaign going on in New Zealand.

“I think that’s pretty much the consensus in New Zealand that this is a very important partnership for us and having that good relationship with China is sensible.”

NZ has not sold out

Much of the anti-China rhetoric in Australia revolves around talk that relations with China will ultimately compromise national sovereignty.

Says Finny, that’s not the experience in New Zealand, “Recently New Zealand was also encouraging the World Health Assembly to accept Taiwan as an observer, we signed on to this resolution around an [WHO] investigation into the origins of CVOID-19.”

“We make statements on the South China Sea, we are part of the Five Eyes security alliance; I really don’t think the differences [in foreign policy] between New Zealand and Australia are enormous.”

Three weeks ago NZ Foreign Minister Winston Peters had a public argument with, Chinese Ambassador to New Zealand, Wu Xi over the issue of Taiwan and the World Health Organisation. At the time says Finny, “Some major New Zealand businesses wrote in concerned about the negative impact on our wider relationship with China because that is such an important market for them.”

The matter was effectively dealt with through stakeholder dialogue and behind closed doors. Neither Prime Minister Jacinda Ardern nor any government member bought into that public argument and the issue had died down within a week.

In Australia, it seems, a vocal minority of government backbenchers, foreign policy hawks and media commentators would have furiously fanned the flames in hopes of fuelling a diplomatic firestorm.