Apr 13, 2008

Rod Oram On Winston's Criticism

New Zealand First leader Winston Peters says the cuts should be deeper and faster. But he is wrong on two accounts. First, this is a good deal because China is actually offering reductions on agricultural tariffs. Many of our main trading partners, particularly the US and the EU, or the World Trade Organisation's multi-lateral talks are not.

Second, a residual level of tariffs on dairy commodities is a very good thing, as Fonterra has found in the US. It has forced the company to invest in manufacturing in the country and to export more sophisticated products free from tariffs and quotas. Those are growing by some 25% a year whereas tariff-constrained commodities are flat.

Moreover, much of the fast growth in Chinese demand for dairy products is coming from those higher-value products such as liquid milk and chilled desserts. They can't be supplied from here so Fonterra is investing in-market to meet demand. A sharp reduction in tariffs on basic dairy commodities would give Fonterra a brief but short boost, but distract it from its real strategic challenge.

Exporters will also benefit from a series of "behind-the-border" elements of the deal. They will get faster, preferential clearance from Chinese customers; release of goods within 48 hours of arrival; a joint technical-barriers-to-trade committee; mutual recognition on the likes of standards, intellectual property and government procurement; greater commitments on trade in services than are available through WTO protocols; and access to dispute resolution remedies that should be faster than through the WTO.

The aim, the agreement says, is for a "predictable, consistent, transparent" system that facilitates trade. But there's one big caveat. Beijing government decrees are often ignored around the country. Exporters will inevitably still run into infuriating local bureaucracy. Nonetheless, Kiwis should overcome their usual reticence about complaining. They should push hard to make the new mechanisms work. China knows the world will be watching how well it makes its first FTA with a developed country work.