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China: Beijing Agrees First Free-Trade Deal With Developed Country

  • Breffni O'Rourke

New Zealand Prime Minister Helen Clark delivers a speech at the celebration party for the free-trade agreement between New Zealand and China in Beijing (AFP) It's a case of the whale making friends with the minnow. Or some people would say a shark with a minnow.

China is a powerhouse economy, with a population of 1.3 billion, while New Zealand is a small, quiet country with 4 million inhabitants, the last landfall before Antarctica. Yet these two very different entities have signed a free-trade agreement that is being hailed as the first of its kind.

"New Zealand is a small country but it has proven itself very adept at negotiating with the huge market and the huge country which is China," New Zealand businessman Ken Stevens told RFE/RL on April 7. "There is amazing goodwill which goes back over 35 years, when New Zealand first recognized China [diplomatically] and [later] helped China accede to the World Trade Organization."

The signing took place in Beijing on April 7, in the presence of Chinese President Hu Jintao and New Zealand Prime Minister Helen Clark.

The agreement commits both sides to an almost total elimination of import tariffs over the next 11 years, and is the first time China has opened its market fully to the goods and services of a developed country.

Greater openness of the Chinese economy is something the United States has been trying to achieve for years, with only limited success.

But looked at more closely, China is taking little risk. New Zealand's exports consist mainly of foodstuffs, everything from meat and fruit to dairy products. A secondary line of exports is financial services such as insurance, banking, investment advice, business consultancies, and the like.

China can take all the food and more that New Zealand can produce for its huge population. And the scale of the financial services New Zealand's companies would bring to the Chinese market would be too small to create foreign influence in China's domestic financial system.

New Zealand risks more. With Chinese manufactured goods swamping the market, the prospects for that country ever being able to develop a large industrial sector of its own must be dim. The annual two-way trade between China and New Zealand, at some $6 billion, is already heavily in China's favor.

But Stevens is not pessimistic. He points out that his own company, which supplies airport baggage-handling and security systems, is doing well. "We make 200 of this, 14 of that, and 20 of this, so we are very niche-oriented, and very low volume, and in that we can compete with anybody in the world, and there are many New Zealand companies of like mind; we simply don't take on the Chinese companies on things that they are very, very good at," he says.

Political Concerns Remain

The deputy business editor of the "New Zealand Herald," Grant Bradley, says that even so, the free-trade deal is not universally popular within the country's political establishment. The Green Party, for instance, worries about the fate of indigenous industry, and about the human rights situation in China.

"There's still that lingering disquiet about China's escapades in Tibet; [in addition, there's also] the New Zealand First party, which is a staunchly nationalistic party which sees political mileage to putting its head above the parapet and objecting to this," Bradley says.

Beijing is negotiating a similar free-trade deal with Australia, a much larger economy than New Zealand's. But the same lopsidedness applies. Australia's chief exports are foodstuffs and also its vast supply of minerals -- which China needs desperately.

In return, Australia gets a flood of Chinese manufactured goods so low-priced that they drive local products off the market.

China's unwillingness so far to open up in a similar way to the major advanced economies like the United States and the European Union reflects its concern that they would offer genuine competition on its domestic market. There is also the determination of the Chinese authorities to ensure they do not lose control of the economy, to the extent implied by a real market economy.
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