Dialogue: Let's knock on China's door

Why are we talking up a free trade deal with Hong Kong but not China? GILBERT ULLRICH* wants answers to big trade policy questions.

We seem fated, no matter what government is in power, to look inward at political wrangling rather than encouraging New Zealanders to trade and improve our standard of living.

But right now the Government is talking up a free trade agreement with Hong Kong. Surely it would seem a bit churlish if our manufacturers and exporters disagreed. Any move to increase trade must be good, right?

Even before Hong Kong was taken over by the Chinese, it had become mainly a repackaging and export centre for mainland China's industrial output. China, in fact, re-exports 86 per cent of what it imports.

So why are we talking to the monkey when we could be getting more sense out of the organ-grinder?

The Prime Minister of Canada, Jean Chretien, passed through Hong Kong last week. He was leading a delegation of 300 exporting manufacturers and provincial premiers on their way back from a selling pitch to mainland China. The trip to Hong Kong was just a petrol stop for their two Boeing 747s on the way home.

Is our Government gearing itself for a huge export mission to China? It certainly has not mentioned it so far.

Could, in fact, the Government undertake a selling mission to China? We have a limiting factor in that our major sales products involve foodstuffs, which we do not present particularly well for export to Asia. Be that as it may, we represent to the Chinese a small, relatively neutral, harmless country with which they would like to develop a closer relationship.

Are we doing anything about this at Government level, especially in trade negotiations? Possibly, but we are not saying anything about it so far.

Much of the rest of the world regards Canada and the Canadians as boring. I have never figured this out. Certainly, when it comes to export and trade promotion, their Government gets totally involved.

That of New Zealand appears not to. It does, however, get involved in things that have curiosity value. Never mind, we'll plod along. We always do. You could even speculate that our historic export ineptitude might actually be part of our charm for the Chinese.

During the 1980s, I was the honorary consul for Kiribati in this country. At some point, the Russians, who were after some sort of fishing deal, made friendly noises in Kiribati. Our leaders of the time huffed and puffed and promptly built a high commission and staffed it.

To this day some chap from our foreign office keeps all that is unique and distinctly Kiwi firmly represented in this backwater corner of the globe.

But how does that help our trade? There has to be some advantage to it apart from the remote chance some New Zealander has lost the odd passport.

We have a few of those sorts of posts around the world. So have they any responsibility for overseas trade? You might assume they would have some sort of quota system to help the country overcome its $100 billion and rising overseas debt. Unfortunately, that's not required.

But why would a free trade agreement with Hong Kong be a good thing? If everybody went by the rules, it could be great. But consider these things.

If any area could be considered to be exploiting its manufacturing workers (who now live in mainland China), Hong Kong qualifies.

In addition, China has a corporate tax rate of about 17 per cent, and a wide range of export incentives for its producers which are very much "below the line."

In short, by the international standards totally ignored by our previous Government, and seemly by the incumbents, they aren't playing the game.

They could destroy a number of New Zealand's few remaining producers without really trying because they don't have the environmental expenses, the holidays, the taxes. And they definitely get export assistance. And there remains the question of what we could export to Hong Kong that they are not already receiving and cannot get elsewhere.

Mainland China is a different opportunity again.

The world's largest country is just starting to become a trade giant. It has a very wealthy entrepreneurial class which is looking to travel and has the money to do so. Why not here? They want the foodstuffs that we produce and, again, have the money to afford it.

We don't necessarily have to be involved with the usual free trade entry tactics. Those require us to be transparently honest with our end of the deal while our trade partners continue to cloak their industry assistance and export incentives in other terms, and we say nothing about it.

Are our leaders talking to mainland China? Given the fact that we no longer have defence alliances with our traditional friends, and given the fact that we are apparently complaining to the Australians - our so-called free trade partners - that they are using their closer relationship with the United States to ease us out of trade agreements, we should be. We have an advantage. Why not exploit it?

We have the world's second-largest natural resource base per head of population. But unless we add higher value to our main commodities - whether they be primary food products, forestry, aluminium or steel - we won't be able to pay for the high-value imports of mainly consumer products that our leadership has encouraged in past decades.

If free trade agreements with either Hong Kong or China don't work, we still need to consider our overseas posts becoming revenue-earning centres rather than expense drains.

New Zealand is a trading nation. Boosting trade through the use of such posts would seem self-evident. Why not consider them accountable for encouraging trade in their locality and reporting a dollar figure thereon?

* Gilbert Ullrich is the founder and managing director of Ullrich Aluminium.