Free trade deal with China an insurance policy, Cullen says

8.20am

A free trade agreement with China is an insurance policy against the collapse of World Trade Organisation talks, Finance Minister Michael Cullen said today.

The Government last week announced it would open negotiations on a FTA with China worth potentially "hundreds of millions" to the economy.

Dr Cullen told a business breakfast in Hamilton today that there were compelling reasons to believe the deal would be clinched "relatively quickly".

New Zealand's small size and its relatively few areas where tariffs operated offered a chance for China to have an FTA with an OECD economy.

It would involve less complex negotiation than China would face with larger developed economy trading partners, he said.

"The agreement is also strategically important to New Zealand, in that it would provide us with some insurance against the possibility of a serious collapse in the WTO process," he said.

"If the current WTO round fails to deliver, one scenario would be the creation of free trade blocks in the Americas, Europe and Asia.

"An established FTA with China would ensure we are not locked out, if this eventuates."

WTO trade talks stalled acrimoniously at Cancun, Mexico, in September last year. Prime Minister Helen Clark has said a successful WTO round remains the No 1 trade priority.

Trade Negotiations Minister Jim Sutton last week said an FTA with China could be completed as early as next year.

New Zealand was the first nation to back China joining the World Trade Organisation (WTO).

It was now the first developed country China had agreed to negotiate an FTA with, stealing a march on Australia.

Any free trade deal with the world's sixth-biggest economy -- and fastest growing major economy -- would most benefit exporters of wool, dairy goods, wood and wood products, plus hides and skins.

China last year replaced Britain as our fourth-largest export market, after Australia, the United States and Japan.

Its milk powder tariffs can be up to 10 per cent, with wool facing duties of up to 38 per cent, meat 15 per cent, and kiwifruit up to 20 per cent.

China also imposes significant tariffs on dishwashers, fridge-freezers, air conditioners and carpet.

New Zealand exports to China have doubled in the past six years to $1.38 billion in 2001, not counting over $1 billion of services.

Producers reacted positively to the news, but clothing and show manufacturers predicted it would drive them out of business.

- NZPA