Charles Finny: Services must be a priority in FTA upgrade

Services must achieve market openings in FTA upgrade, Charles Finny writes.

Two of New Zealand's top four exports are services - tourism and education. And in both, China is an incredibly important market (number one for education and number two for tourism).

While these two sectors dominate our services exports, overall the sector comprises just under 30 per cent of our overall exports. If we were talking goods, would it be acceptable for us to negotiate a free trade agreement that did very little, if anything, to improve access conditions for 30 per cent of our exports?

Explaining the intricacies of an international services negotiation is far from straightforward. The FTA services rules tend to be stolen from the World Trade Organisation (WTO).

So, for a range of reasons the negotiations tend to focus on issues of coverage and the accuracy of the description of laws and regulations rather than liberalisation. Success is often judged in terms of how many extra commitments were negotiated than those agreed in the WTO. The China-NZ FTA is no exception.

This is very different from a goods negotiation. Goods negotiations are not just about setting rules or listing barriers. They are very much focused on liberalisation. They seek to negotiate (down) tariffs, remove quotas, agree which meat plants can be certified for exports, etc.

The sector I know best is education. The current FTA delivers the sector very little beyond a commitment to list certain New Zealand institutions on the Chinese Ministry of Education's "Study Abroad" website, and jointly to initiate work "on evaluation of the quality assurance criteria for qualifications which include a distance delivery component". These requirements are on top of China's WTO commitments and were sold as a big win at the time the FTA was first negotiated. Frankly they are pretty underwhelming.

My request for the FTA upgrade is for the Government to give priority to achieving market openings or liberalisation for our services exporters.

In education this might look like a removal of the requirement that education providers establishing in China need to have a Chinese joint-venture partner. The prohibition on distance learning could also be abolished.

On legal services, a good outcome could see China remove the restrictions on how many representative offices a New Zealand law firm can open in China and the restriction on where they can operate.

Likewise, we should negotiate away the requirement that legal representatives need to be resident in China for no less than six months a year. And why shouldn't such an office be allowed to employ Chinese national registered lawyers?

Why not remove the restrictions on the scope of the legal services that are able to be offered in China?

The fact is very few professional services are free to operate in China without some restriction. Some have restrictions (as in law) on the services that can be offered. Others require a joint venture partner.

Some in Australia claim their FTA with China is better than New Zealand's. I don't agree when it comes to goods, but in the services arena there is much more Australia-specific content than New Zealand's.

Maybe a good starting point in the FTA upgrade would be to match the commitments achieved by Australia. But this should only be a starting point. I hope we can do better.

For example, the Australian outcome relies heavily on selling services inside the Shanghai Free Trade Zone. Well that zone has not yet really taken off. I would suggest that we focus on all of China.

I was delighted to read the emphasis given to services in the Government's new trade strategy released on March 24. Trade Minister Todd McClay understands the importance of services exports. The China FTA upgrade is a useful first test for this new strategy.

Charles Finny is a partner in Saunders Unsworth, Chair of Education NZ and a member of the NZ Trade and Enterprise Board.