Hong Kong deal in balance

By SIMON COLLINS

The Government says its cherished free trade deal with Hong Kong is off unless Hong Kong accepts an ultimatum from New Zealand.

Trade Minister Jim Sutton, who met Hong Kong Commerce and Industry Secretary Chau Tak Hay in Hong Kong on Friday, says New Zealand's "bottom line" is that goods must be finished in Hong Kong or New Zealand to qualify for duty-free entry under any pact.

He said it had always been the Government's policy that it would only sign trade agreements that benefited New Zealand citizens.

If there was no benefit, there was no point in having an agreement.

New Zealand has dropped its initial position that goods being "made in Hong Kong" should be defined as goods with at least a minimum percentage of Hong Kong content - 40 per cent, as in the recent trade deal with Singapore, or 50 per cent, as with Australia.

Instead, both the Government and the local industry now agree that a product can be accepted as made in Hong Kong if its tariff category changes in the territory, as in a change from "fabric" to "shirt".

But Sutton said that at a late stage in negotiations Hong Kong asked that goods should still be accepted as made in Hong Kong even if they were sent to China "to get the buttons and labels on and the washing and ironing and packaging". New Zealand would not accept this.

"Once the product loses its identity by just being part of the feedstock to a mainland Chinese factory, then the feedstock may come from any one of half a dozen countries."

Sutton was "still optimistic" that Hong Kong would accept New Zealand's position to get an agreement which it could use to negotiate similar free trade deals with larger countries.

He was confident that enough progress had been made on other issues, such as education and postal services, to agree on "a sufficient number of services that are freed up on a reciprocal basis to make the deal worthwhile".

But on the key issue of finishing goods in China, he said: "You couldn't call me really confident. The clothing manufacturing industry in Hong Kong is politically powerful."

He expects a reply from Hong Kong within two to three weeks.

Meanwhile, Commerce Minister Paul Swain has written to textile industry leaders to explain the Government's call for submissions on general import duties beyond 2005.

Duties are frozen at their present levels until July 2005. But last month the Economic Development Ministry asked for submissions by April 30 on duties after that date.

At the same time, a joint industry-union group is about to appoint a consultant to develop a strategy for the sector.

Both the industry's Kerry Harding and the unions' Robert Reid have asked for the tariff review to be postponed until the sector strategy is completed in September.

Swain has reassured all key parties that the April 30 submission date would be "flexible" but was required so that officials could start researching the issues in time for industry to get at least two years' notice before any change in tariffs in 2005.

"The call for submissions by April 30 will in fact be the beginning of the consultation process, not the end. It will be an initial canvassing of the issues that will then need further examination," he said.

"I can give you my personal assurance that no work towards drawing up proposals for post-2005 tariff options will be undertaken until the sector strategy work is completed."

He has asked officials to commission "international research on the political, social and economic impacts of tariff reform", including the impact of past New Zealand reforms.

They will also assess "the employment aspects of different tariff options".

Harding said he was pleased that the Government had "stuck to its guns" on the Hong Kong issue and seemed to be co-ordinating its various agencies at last.

"I'm really quite impressed by the Government's ability to put the various pieces together and integrate it."