China-New Zealand relations: upgrade to free-trade agreement eliminates nearly all trade tariffs

Orange Wang
·5-min read

China and New Zealand have completed a review and expansion of their free-trade agreement a month after Beijing and Canberra abandoned an opportunity to do the same.

China’s commerce minister, Wang Wentao, and New Zealand’s minister for trade and export growth, Damien O’Connor, signed an “upgrade” to the China-New Zealand Free Trade Agreement (FTA) at a virtual ceremony on Tuesday.

The pact widens the existing trade deal between the countries that commenced in 2008 and was last upgraded in November 2019 after three years of negotiations.

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“Signing the upgrade [shows that] China is taking concrete action towards practising multilateralism and building an open world economy, and it is an important step in our strategy to lift free-trade zones,” Wang said in a statement published on the website of China’s Ministry of Commerce.

The signing’s timing was also symbolic, occurring a day after Chinese President Xi Jinping spoke at the virtual World Economic Forum, asking for global economies to increase multilateralism and openness while setting aside ideological confrontations that could “push the world into division, even confrontation”.

The enhanced deal further shows that China wants to do business with members of the Five Eyes alliance – the United States, Canada, Britain, Australia and New Zealand – under the right conditions.

“China will continue to promote trade and investment liberalisation and facilitation,” Xi said on Monday, adding that the country also “will promote institutional opening that covers rules and regulations, management and standards”.

China and New Zealand also committed to work together to address the challenges of the coronavirus pandemic.

“This upgraded agreement comes at a time of considerable global economic disruption due to Covid-19,” O’Connor said in a statement. “The upgraded free-trade agreement is part of the Government’s Trade Recovery Strategy, in response to the economic shock of Covid-19.

“New Zealand’s existing free-trade agreement with China has been very successful, but China’s free-trade agreements and our business practices have evolved since it was signed over a decade ago. This is why we entered into upgraded negotiations: to ensure our agreement is modern and deepens our relationship further, and that New Zealand’s exporters have the best possible access to the China market.”

China looks to New Zealand to strengthen foothold in the Pacific

The signing, however, may have struck a sour note with New Zealand’s neighbour across the Tasman Sea. The failure by Australia and China to conduct a five-year review of their own free-trade agreement last month starkly reflects the differing relationships that Australia and New Zealand have with the second-largest economy in the world.

Instead of deepening trade with a review of their free-trade agreement as intended, China and Australia instead engaged in a war of words and accused each other of not honouring the “letter and spirit” of free trade amid a bitter political and commercial conflict that escalated in April.

They had also failed to conduct a three-year review in 2018 when their relationship started to fray because Australia barred Huawei Technologies from taking part in the nation’s 5G infrastructure.

But their two-way trade, on the whole, has remained strong, with zero tariffs on many traded items.

Nonetheless, a revision of the trade deal between China and New Zealand shows how beneficial such upgrades can be, with the two countries now enjoying zero tariffs for nearly all trade.

New Zealand’s nearly NZ$3 billion (US$2.16 billion) wood-and-paper trade with China is one of the industries boosted by the upgrade, with 99 per cent of all its products now free of tariffs. China eliminated tariffs on 12 additional lines of wood and paper products worth about NZ$36 million.

All New Zealand dairy exports to China will also be tariff-free by 2024.

The trade upgrade will also lift New Zealand’s service exports to China in new sectors such as environmental services, airport operation services, specialty air services, ground-handling services and audiovisual services.

Additionally, the new agreement promises expanded market access for both countries in real estate services, translation and interpretation, and education services. It also reduces red tape for exporters.

Beijing, in turn, agreed to open up to more New Zealand investors in areas such as aviation, education, finance, elderly care, and passenger transport – moves that also align with the world’s largest free-trade pact, the Regional Comprehensive Economic Partnership, which both countries signed in November.

RCEP: What is it so special about the world's largest free-trade pact?

The two nations also committed to further environmental protection.

And Wellington confirmed it would relax the review threshold for Chinese investments, treating them the same as those from other members of the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP).

It will lift the screening threshold for non-government Chinese investments to NZ$200 million from NZ$100 million. Government investments will continue to be screened at NZ$100 million. In contrast, Australia changed its laws last month to reduce all screening thresholds for foreign investments to zero, with many analysts seeing the changes as being driven by security concerns over China.

O’Connor stressed that New Zealand’s protections regarding foreign investments continue to remain in place.

China is New Zealand’s largest trading partner, with two-way trade now valued at around NZ$32 billion a year.

Additional reporting by Su-Lin Tan

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