China keen for wide trade deal

China's decision to accelerate free trade talks with New Zealand will deliver Prime Minister Helen Clark a huge electoral "plum" if a deal is cemented before September.

Clark is still playing a cautious hand, warning that despite renewed Chinese enthusiasm the free trade negotiations - which have yet to get down to the nitty gritty - would be complex.

She has refused to indicate a negotiating deadline, or whether the talks would be concluded in time for the expected implementation date - January 1, 2007.

Clark said it was Chinese Premier Wen Jiabao's "desire to see a high quality agreement, an ambitious agreement" which is trade-code for a comprehensive deal, instead of a sub-optimal agreement which leaves out sensitive sectors for later negotiation.

Clark said Wen's words gave the New Zealand side optimism, but if the agreement was to be "truly high-quality we have to work very, very hard".

The Asian behemoth stands to make little from closer ties with New Zealand. Figures from a joint feasibility study suggest export gains of $260 million to $400 million each year between 2007 and 2027 for New Zealand. The Chinese gain is estimated at $55 million to $100 million.

But a comprehensive free trade agreement (FTA) with New Zealand would provide China with a valuable "first" - its first FTA with a developed nation.

If that FTA results in zero tariffs over time it will enable China to use the deal as a precedent in its negotiations with other developed nations.

It will also enable China to position itself as a free trader and boast that it is prepared to go where other "protectionist" players - particularly the US and European Union - still fear to tread.

The fact that New Zealand wants a comprehensive "no tariffs" result was no surprise to Beijing.

Clark had previously telegraphed, during the New Zealand visit by China's second-ranked leader Wu Bangguo, that the Government wanted the talks to result in a comprehensive result that would deliver a zero tariff trading environment after phase-in periods for sensitive industries on both sides.

While both countries' negotiating capacity is stretched by a multiplicity of trade talks, Wen had indicated China was prepared to put more resources behind the bilateral negotiations.

The New Zealand contingent had approached the high-level discussions with China's top leadership with a degree of trepidation after some wrinkles emerged during the last negotiating round.

While both sides previously played down differences, the reality is that the third round of talks, in Wellington recently, failed to make expected progress on detail.

The talks come at a time of extreme sensitivity in Beijing on international trade issues. A textile dispute among China and the US and Europe has, so far, stopped just short of all-out trade war.

The joint feasibility study found the greatest gains for New Zealand merchandise exports from the proposed FTA are likely in agriculture, specifically the dairy, fruit and vegetable and processed food sectors.

New Zealand faces significant tariffs for meat (up to 20 per cent), kiwifruit (20 per cent ) and wool (out-of-quota exports face duties of 38 per cent).

But the most sensitive issue from a Chinese perspective is the proposed removal of dairy tariffs.

Clark confirmed that dairy had been a sticking point. But she believed Wen listened in "great detail" to what she had to say about the phase-in periods for dairy liberalisation in New Zealand's FTA with Thailand.

China has yet to state publicly its concerns that the removal of agricultural tariffs could harm its incipient dairy industry.

But it will no doubt want to avoid angering the rural sector. Although China has removed taxes on farmers, there is considerable political sensitivity about the emergence of a dual economy, where urban incomes far outstrip rural paypackets.

Trade Negotiations Minister Jim Sutton will address dairy issues at a seminar in Beijing next week. The sensitivities will also be canvassed when he co-chairs the first joint trade and economic commission.

Not all the focus has been on agriculture although a breakthrough in this sector is key to getting a deal.

Clark was also primed by officials to ensure Chinese sights are lifted beyond New Zealand's agricultural image.

NZ Trade and Enterprise is using the theme "New Zealand New thinking" to promote opportunities in areas such as aircraft engine maintenance, information and communications technologies, film production, biotechnology and medical research.