NZ cannot be a follower in free trade agreements

The two major free trade agreements signed in the past week show New Zealand must remain a path-breaker than a deal follower.

The Australia-China Free Trade Agreement will be detrimental to New Zealand only to the extent that Australian exports of agricultural products, particularly dairy and meat, will become more price-competitive in the Chinese market as the tariffs are phased out over the next few years.

The upside is that lower prices will help to boost demand in China. New Zealand should be able to capture some of the resulting increase in volume, even if market share drops relative to Australia.

Some comfort can be taken from President Xi Jinping’s assurances on Thursday in Wellington:

"China has 1.3 billion people and our market is huge. Fine quality products from New Zealand ranging from dairy produce, wool, beef and seafood are highly popular among Chinese consumers.

"So worries that New Zealand does not have a market for its products in China are totally unnecessary. On the contrary. Possibly New Zealand might have to worry about the fact there is more Chinese demand than you can possibly supply."

Conversely, New Zealand’s FTA with South Korea comes begrudgingly after one signed with Australia and confers no advantages for food exporters against their rivals.

The concessions from Korea are minimal and only three sectors – dairy, red meat and wine – are early winners with a $65 million drop in tariffs in the first year alone (out of a total of $229 million a year).

Seafood (see below) and deer velvet exporters are little or no better off.

Dairy: The trade with Korea is worth $US200.5 million and tariffs range between 8% and 176%. Korea is the fourth largest market for cheese exports, worth $78.3 million.

Beef: Exports are worth $120.6 million and face a 40% tariff. This will be reduced over a 15-year period. The tariff on US beef is now 32% and is also being phased out over 15 years, so the gap will close when the agreement is implemented.   

The tariff in 2013 on New Zealand beef amounted to $43.5 million or about $1.34 a kilogram. In the first year of the agreement, this will come down to about $1.25 per kilogram of carcass weight.

Wine: The 15% tariff on wine will be reduced to the same level as the US, European Union, Chile and Australia under their FTAs.

Horticulture: “Significant outcomes” will accrue to exporters of kiwifruit, buttercup squash, apple juice and cherries but onions, pip fruit, persimmons and capsicums are excluded. Kiwifruit has 45% tariff that costs $20 million a year or an average of $7820 a grower. As a result, the trade has slipped from the $100 million mark in 2012. The 40 buttercup squash growers pay tariff costs of $2.9 million a year or an average of $73,000 per grower, while the tariffs for prepared potatoes are at 18%. These will either be reduced to zero or placed on a 5-10 year phase-out period.

Seafood: Frozen squid, which accounts for 28% of seafood exports to Korea, will continue to pay a 22% tariff. (Seafood New Zealand says the hard line on squid is due to the ending of the arrangement whereby Korean-flagged chartered vessels’ catch in New Zealand waters is classed as a domestic product in that market. From 2016, all fishing in the EEZ must be New Zealand flagged.)   

The 20% tariff on the main traded line – frozen half shell greenlipped mussels – will be lifted up to 1600 tonnes, which is about the present trade. This will increase by 6% annually for 16 years, capped at 3999 tonnes.

Fish products, including livers and roe, skate wings and frozen whole fish and fillets, will have the 10% tariff phased out over 10 years. Salmon’s 20% tariff will be removed in year three and live eels’ 27% tariff in year 10. Live paua, like squid, remains protected.

Investment: “The FTA will reinforce the attractiveness of New Zealand as a stable investment destination and offer improved market access commitments and protections for New Zealand investors into the Korean market” (Mfat).